Author Archives: PTLB

Google Tax Liability In India Is Going To Increase In Future

Avoidance Of Tax By Certain Transactions In SecuritiesTaxation issues require good amount to tax management to reduce the incidence of taxation. While tax management is permissible yet tax evasion is a punishable offense in most jurisdictions of the world. An Oxfam report has revealed that as many as top 50 US companies, including the likes of Apple, Walmart, General Electric, Microsoft, Google and Coca-Cola have a whopping $1.4 trillion stashed in offshore tax havens. Indian government is aware of these developments and it has decided to deepen alliance with US to combat tax evasion in both countries.

Tax liability of Google in not new to India. In the past as well, questions about tax liability of Google has been raised by many quarters. Even the European Union wants Google and Bing to be more transparent about advertising in web search results.

According to the recent Indian Budget announcement, any person or entity that makes a payment exceeding Rs 1 lakh in a financial year to a non-resident technology company will now need to withhold 6% tax on the gross amount being paid as an equalisation levy. For instance, if a person spends a sum of Rs. 2 lakh on online advertisement from Google in a single financial year, he has to withhold 6% tax on the gross amount being paid as an equalisation levy.

The said rule is applicable when the payment is made to companies that don’t have a permanent establishment in India. This tax, however, is only applicable when the payment has been made to avail certain B2B services from these technology companies. Specified services include online and digital advertising or any other services for using the digital advertising space. This list, however, may be expanded soon.

Online advertising industry in India is going to flourish at a great speed in the coming years. Firstly, individuals or companies using online advertising platforms of India do not need to withhold 6% tax on the gross amount being paid as an equalisation levy for availing these services in India. Secondly, Google has recently scrapped the page rank criteria and this would provide a level playing field to all websites and blogs that provide qualitative contents but are not very good at page rank. Now online advertisers would rely more upon good placement in search engines and Alexa rank than upon platforms that were manipulated through inflated page rank through negative search engine optimisation (SEO).

Google’s online advertisement revenue is going to be affected by these developments. Further, the tax liability of Google is also going to increase in India if it wishes to generate revenue from India or Indian transactions. Google would also be required to comply with e-commerce laws of India that are still in a development stage. There are also writings on the wall that foreign companies and e-commerce portals would be required to be registered in India. Google needs to adjust its policies for India for optimum results while maintaining its dominance in the cyberspace.

Discussion Paper On “Revisiting The Capital Raising Process” By SEBI India

Discussion Paper On “Revisiting The Capital Raising Process” By SEBI IndiaPerry4Law Organisation (P4LO) has been recommending that maintenance and inspection of document in digital form must be explored for corporate related matters in India. This is more so when electronic delivery of services in India may be a reality very soon due to projects like Digital India and Internet of Things (IoT) (PDF).

In a good move, Securities and Exchange Board of India (SEBI) has issued a Discussion Paper on “Revisiting the Capital Raising Process” By SEBI India (PDF). SEBI has also invited public comments upon the same either through e-mail or post on or before January 30, 2015. A format has also been prescribed for better results and responses in that particular format would be better for the consultation process. SEBI is undertaking this review to facilitate expeditious capital raising by industry while ensuring adequate investor protection.

SEBI has noted that existing listed issuers have preferred private placement including Qualified Institutional Placement (QIP) route vis-à-vis a subsequent offerings by way of Further Public Offer (FPO) / Rights Issue. Further, participants in various forums have indicated that issuers have inclination towards private placement, because of shorter time frame and lower costs associated with such route. Keeping this in mind, SEBI has been exploring ways and means to further curtail the timeline from the present 12 days duration.

In view of the above, SEBI has released the abovementioned discussion paper that contains proposal on the following two areas and seek public comments on the same:

I. Proposal on use of Secondary Market infrastructure for making Public Issue (“e-IPO”)

II. Proposal on Fast Track Issuances (FPO and Rights Issue)

I. Proposal on use of Secondary Market infrastructure for making Public Issue (“e-IPO”)

SEBI has already issued a circular on October 04, 2012 and thereby provided an additional mechanism for investors to submit application forms in public issues using the stock broker network of stock exchanges, who may not be syndicate members in an issue. The additional mechanism was to run parallel to the existing mechanisms / processes to submit applications in public issues.

According to the proposed norms, Investors can also fill the application form online and submit it on the web portal of trading member, DP/ RTA or SCSB (in case of ASBA), if provided by the intermediary. Under this case, the investor will not be required to physically sign any paper as even the Companies Act, 2013 recognizes the electronic form of a document. This will help eliminate printing application form and thereby reduce the overall cost of public issuance.

On receipt of application, the Stock Broker / DP / RTA/ SCSB will have to lodge the application on the bidding platform. Once the bid has been entered in the bidding platform by a stock broker, clearing corporation will block 100% funds from the cash collateral of the stock broker. For bids made through Depository Participant and RTA, subsequent to bidding, the application will be forwarded to Self Certified Syndicate Bank (“SCSB”) for blocking of funds. For direct ASBA applications, existing process of bidding and blocking of funds by the SCSB shall continue.

Investors will not be able to withdraw bids upon closure of the issue. Upon closure of the issue, the bid book shall be made available to the Registrar by Stock Exchanges and Depositories. Details of payment confirmation for the bids will be made available by banks, and clearing corporation to the Registrars. Based on the bid file and payment confirmations, Registrars will finalise the basis of allotment. On approval of basis of allotment by Stock Exchanges, Registrars will give instructions to clearing corporations and banks to credit funds in the public issue account maintained by the clearing corporation. Excess money received will be refunded to the investors by the stock broker / bank, as the case may be. Upon confirmation of receipt of public issue amount by the clearing corporation to the Registrar, instruction will be issued to Depositories to credit securities directly to the investor’s account. On confirmation of the same, Stock Exchanges will issue the listing and trading notice. Based on trading notice, funds will be transferred from public issue account of the clearing corporation to issuer’s account.

Investors would get SMS/e-mail alert for allotment under the IPO, similar to alerts being sent to investors for secondary market transactions. On account of the above, the post issue timelines will reduce from T+12 days to T+6 days. Once the process gets stabilised, timelines can be further curtailed to T+3/2 days. Further, on account of reduction in printing of application forms, the overall cost of public issues will also come down.

The suggested changes shall be applicable for applications in the retail and employee reservation categories. Primary Market Advisory Committee (PMAC) of SEBI while deliberating on the matter proposed that ASBA should be made non-mandatory for non-retail clients as well since the secondary market infrastructure is proposed to be used and thereby the (unutilized / excess) funds of the clients (both retail and non-retail) available with the Brokers can be used for applying in the IPOs/FPOs/RI, instead of bringing additional funds. Another view in this respect was that parity among the investors shall be maintained by mandating 100% ASBA for retail investors also as ASBA has been working well and has scope for reducing timelines by eliminating cheques from the process.

The said proposal may be used for debt issues as well. However, in order to make this mechanism applicable to debt issues, suitable amendments may be required under SEBI (Issue and Listing of Debt Securities) Regulations, 2008.  It is proposed to discontinue the three day monitoring report considering the reduction of overall timelines to T+6. A framework for redressal of investor grievances has been laid out. A framework for use of mobile applications for making bids in public issues has been suggested for implementation in future.

Public Comments On The Proposal

In view of the above, public comments are solicited on the above proposal specifically on the following points:

(a) Should the requirement of having an abridged prospectus along with application form be made non- mandatory?

(b) Should ASBA be mandated for all investors?

(c) If ASBA is continued as a voluntary mechanism for retail investors, should it be made voluntary for non-retail investors as well?

(d) Should NACH mechanism by NPCI be mandated for collecting payment from investors?

(e) Any suggestions/modifications on the mechanism proposed above in order to achieve reduction in time and cost of capital raising?

II. Proposal on Fast Track Issuances (FPO and Rights Issue)

For a fast track issuance under SEBI (ICDR) Regulations, 2009 (“ICDR Regulations”), no draft offer document is required to be filed with SEBI. In such cases, SEBI does not issue any clarifications/observations. Issuer can open the issue immediately after filing the Red Herring Prospectus (“RHP”).

Under the existing regulatory framework, fast track route is available to all listed issuers proposing to undertake a rights issue or a follow on public offering (FPO) subject to fulfillment of the prescribed eligibility criteria. During various interactions with market participants, SEBI has received suggestions on re-considering the criterion related to market capitalisation of public shareholding as only a few companies are eligible based on the said criterion.

In view of the above, an analysis on the matter was placed before the Primary Market Advisory Committee (PMAC) of SEBI for deliberation. After deliberations, PMAC made various recommendations. PMAC has analysed that even if the public float criterion is relaxed to Rs. 1000 crore, only 359 companies would be eligible. Hence, this may not serve the intended purpose of making large number of issuers eligible for rights issue through fast track route.

SEBI in the past has observed certain concerns in offer documents filed by existing listed companies seeking to raise money from public. Often existing listed companies are being investigated by SEBI for which show cause notice is yet to be issued by SEBI. Such issuers may not be aware of such proceedings.  Based on the details of such investigation, SEBI often asks for additional disclosures in the offer document in case of subsequent issues of the said issuer. If the requirement of public float is diluted further without any additional requirements to ensure investor protection, such issuers may access the capital market without any SEBI intervention and/or adequate disclosure.

Based on deliberations, it is proposed that the fast track route may be extended to companies having an average market capitalisation of public shareholding between Rs. 250 crores to Rs. 3,000 crores, subject to fulfillment of certain additional conditions, along with the existing conditions stated in Regulation 10 of ICDR Regulations. The additional conditions proposed are as under:

(i) Promoters should mandatorily subscribe to their rights entitlement and should not renounce their rights, except to the extent of renunciations within the promoter group, or for the purposes of complying with minimum public shareholding norms.

(ii) Shares of the company should not have been suspended (except for corporate actions) from trading in past 3 years.

(iii) Annualised delivery based trading turnover requirement of 10% of the total paid up capital.

(iv) No direct or indirect conflict of interest should be there between the lead manager, its group or associate company with the issuer or its group or associate company.

(v) Issuer, promoter group and directors of the issuer should not have settled any alleged violation of securities laws through the consent mechanism with the Board in last 3 years.

In addition to above, for facilitating divestment of Central Public Sector Enterprises (CPSEs), it is recommended that the fast track issue route shall be available to them without the requirement of a minimum average market capitalisation of public shareholding subject to CPSEs complying with all the other existing conditions for Fast Track route. Also, in case where CPSE is not able to comply with any of these conditions, SEBI may, based on the merits of the case, consider granting exemption.

Public Comments On The Proposal

In view of the above, public comments are solicited on the above proposal at para 4 specifically on the following points:

(a) Should the existing criteria of minimum market capitalisation of public float be lowered?

(b) If yes, what should be the level of market capitalisation of public float that should be considered for issues under fast track route?

(c) If the requirement of minimum market capitalisation of public float is lowered what additional conditions should be introduced so as to ensure only credible issuers access the market through fast track route without vetting by SEBI?

(d) Are the additional conditions proposed above are sufficient or further additional conditions may be specified?

(e) Any other suggestions to facilitate fast tracking of issues by existing listed issuers and at the same time ensuring adequate protection of investors?

Considering the implications of the said matter on the market participants including listed companies, market intermediaries and investors, public comments on the policy framework proposed above are solicited by SEBI, preferably in prescribed manner.

The General Agreement On Trade In Services (GATS): Objectives, Coverage And Disciplines

The General Agreement On Trade In Services (GATS) Objectives, Coverage And DisciplinesThe General Agreement on Trade in Services (GATS) is a significant service related international agreement that is trying to harmonise the framework regarding international and transborder trade in services. GATS is a product of the Uruguay Round negotiations that finally resulted into binding legal obligations among the Member Nations.  Perry4Law Organisation, Perry4Law Law Firm and Perry4Law’s Techno Legal Base (PTLB) are sharing this work in this regard for the larger benefit of all stakeholders.

GATS has some related instruments as well and full coverage of GATS and related issues can be found at WTO legal texts. Some related documents and agreements include General Agreement on Trade in Services (GATS) By WTO (PDF), Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement by WTO (PDF), Understanding on Rules and Procedures Governing the Settlement of Disputes at WTO (PDF), etc.

According to Wikipedia, GATS is a treaty of the World Trade Organization (WTO) that came into force in January 1995. The treaty was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade.

As far as membership is concerned, all members of the WTO are signatories to the GATS. The basic WTO principle of most favoured nation (MFN) applies to GATS as well, subject to creation of temporary exemptions by Members upon accession to GATS.

WTO has specified the following scope and objectives of GATS:

(1) Purpose: The creation of the GATS was one of the landmark achievements of the Uruguay Round, whose results entered into force in January 1995. The GATS was inspired by essentially the same objectives as its counterpart in merchandise trade, the General Agreement on Tariffs and Trade (GATT): creating a credible and reliable system of international trade rules; ensuring fair and equitable treatment of all participants (principle of non-discrimination); stimulating economic activity through guaranteed policy bindings; and promoting trade and development through progressive liberalization.

While services currently account for over 60 percent of global production and employment, they represent no more than 20 per cent of total trade (BOP basis). This — seemingly modest — share should not be underestimated, however. Many services, which have long been considered genuine domestic activities, have increasingly become internationally mobile.

This trend is likely to continue, owing to the introduction of new transmission technologies (e.g. electronic banking, tele-health or tele-education services), the opening up in many countries of long-entrenched monopolies (e.g. voice telephony and postal services), and regulatory reforms in hitherto tightly regulated sectors such as transport. Combined with changing consumer preferences, such technical and regulatory innovations have enhanced the “tradability” of services and, thus, created a need for multilateral disciplines.

(2) Participant Countries: All WTO Members, some 140 economies at present, are at the same time Members of the GATS and, to varying degrees, have assumed commitments in individual service sectors.

(3) Covered Services: The GATS applies in principle to all service sectors, with two exceptions.  Article I (3) of the GATS excludes “services supplied in the exercise of governmental authority”. These are services that are supplied neither on a commercial basis nor in competition with other suppliers. Cases in point are social security schemes and any other public service, such as health or education that is provided at non-market conditions. Further, the Annex on Air Transport Services exempts from coverage measures affecting air traffic rights and services directly related to the exercise of such rights.

(4) Modes Of Supplying Services: The GATS distinguishes between four modes of supplying services: cross-border trade, consumption abroad, commercial presence, and presence of natural persons.

(a) Cross-border supply is defined to cover services flows from the territory of one Member into the territory of another Member (e.g. banking or architectural services transmitted via telecommunications or mail);

(b) Consumption abroad refers to situations where a service consumer (e.g. tourist or patient) moves into another Member’s territory to obtain a service;

(c) Commercial presence implies that a service supplier of one Member establishes a territorial presence, including through ownership or lease of premises, in another Member’s territory to provide a service (e.g. domestic subsidiaries of foreign insurance companies or hotel chains); and

(d) Presence of natural persons consists of persons of one Member entering the territory of another Member to supply a service (e.g. accountants, doctors or teachers). The Annex on Movement of Natural Persons specifies, however, that Members remain free to operate measures regarding citizenship, residence or access to the employment market on a permanent basis.

(5) Rationale For The Modes: The supply of many services is possible only through the simultaneous physical presence of both producer and consumer. There are thus many instances in which, in order to be commercially meaningful, trade commitments must extend to cross-border movements of the consumer, the establishment of a commercial presence within a market, or the temporary movement of the service provider himself.

(6) National Policies And Priorities: The GATS expressly recognizes the right of Members to regulate the supply of services in pursuit of their own policy objectives, and does not seek to influence these objectives. Rather, the Agreement establishes a framework of rules to ensure that services regulations are administered in a reasonable, objective and impartial manner and do not constitute unnecessary barriers to trade.

(7) Obligations Under GATS: Obligations contained in the GATS may be categorized into two broad groups: General obligations, which apply directly and automatically to all Members and services sectors, as well as commitments concerning market access and national treatment in specifically designated sectors. Such commitments are laid down in individual country schedules whose scope may vary widely between Members. The relevant terms and concepts are similar, but not necessarily identical to those used in the GATT; for example, national treatment is a general obligation in goods trade and not negotiable as under the GATS.

(a) General Obligations

(i) MFN Treatment: Under Article II of the GATS, Members are held to extend immediately and unconditionally to services or services suppliers of all other Members “treatment no less favourable than that accorded to like services and services suppliers of any other country”. This amounts to a prohibition, in principle, of preferential arrangements among groups of Members in individual sectors or of reciprocity provisions which confine access benefits to trading partners granting similar treatment.

Derogations are possible in the form of so-called Article II-Exemptions. Members were allowed to seek such exemptions before the Agreement entered into force. New exemptions can only be granted to new Members at the time of accession or, in the case of current Members, by way of a waiver under Article IX: 3 of the WTO Agreement. All exemptions are subject to review; they should in principle not last longer than 10 years. Further, the GATS allows groups of Members to enter into economic integration agreements or to mutually recognize regulatory standards, certificates and the like if certain conditions are met.

(ii) Transparency: GATS Members are required, inter alia, to publish all measures of general application and establish national enquiry points mandated to respond to other Member’s information requests.

(c) Miscellaneous: Other generally applicable obligations include the establishment of administrative review and appeals procedures and disciplines on the operation of monopolies and exclusive suppliers.

(b) Specific Commitments

(i) Market Access: Market access is a negotiated commitment in specified sectors. It may be made subject to various types of limitations that are enumerated in Article XVI (2). For example, limitations may be imposed on the number of services suppliers, service operations or employees in the sector; the value of transactions; the legal form of the service supplier; or the participation of foreign capital.

(ii) National Treatment: A commitment to national treatment implies that the Member concerned does not operate discriminatory measures benefiting domestic services or service suppliers. The key requirement is not to modify, in law or in fact, the conditions of competition in favour of the Member’s own service industry. Again, the extension of national treatment in any particular sector may be made subject to conditions and qualifications.

Members are free to tailor the sector coverage and substantive content of such commitments as they see fit. The commitments thus tend to reflect national policy objectives and constraints, overall and in individual sectors. While some Members have scheduled less than a handful of services, others have assumed market access and national treatment disciplines in over 120 out of a total of 160-odd services.

(c) Miscellaneous: The existence of specific commitments triggers further obligations concerning, inter alia, the notification of new measures that have a significant impact on trade and the avoidance of restrictions on international payments and transfers.

(8) Schedules: Each WTO Member is required to have a Schedule of Specific Commitments which identifies the services for which the Member guarantees market access and national treatment and any limitations that may be attached. The Schedule may also be used to assume additional commitments regarding, for example, the implementation of specified standards or regulatory principles. Commitments are undertaken with respect to each of the four different modes of service supply.

Most schedules consist of both sectoral and horizontal sections. The “Horizontal Section” contains entries that apply across all sectors subsequently listed in the schedule. Horizontal limitations often refer to a particular mode of supply, notably commercial presence and the presence of natural persons. The “Sector-Specific Sections” contain entries that apply only to the particular service.

(9) Commitments Deadlines: The majority of current commitments entered into force on 1 January 1995, i.e. the date of entry into force of the WTO. New commitments have since been scheduled by participants in extended negotiations (see below) and by new Members that have joined the WTO.

(10) GATS Plus Commitments: Commitments be introduced or improved outside the context of multilateral negotiations. Any Member is free to expand or upgrade its existing commitments at any time.

(11) Commitments Withdrawal Or Modifications: Pursuant to Article XXI, specific commitments may be modified subject to certain procedures. Countries which may be affected by such modifications can request the modifying Member to negotiate compensatory adjustments; these are to be granted on an MFN basis.

(12) Exceptions Favouring National Policies: The GATS permits Members in specified circumstances to introduce or maintain measures in contravention of their obligations under the Agreement, including the MFN requirement or specific commitments.

The relevant Article provides cover, inter alia, for measures necessary to:

(a) Protect public morals or maintain public order;

(b) Protect human, animal or plant life or health; or

(c) Secure compliance with laws or regulations not inconsistent with the -Agreement including, among others, measures necessary to prevent deceptive or fraudulent practices.

(d) The Annex on Financial Services entitles Members, regardless of other provisions of the GATS, to take measures for prudential reasons, including for the protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a financial service supplier, or to ensure the integrity and stability of the financial system.

(e) In the event of serious balance-of-payments difficulties Members are allowed to temporarily restrict trade, on a non-discriminatory basis, despite the existence of specific commitments.

(13) Developing Countries Interests Protection: Developing country interests have inspired both the general structure of the Agreement as well as individual Articles. In particular, the objective of facilitating the increasing participation of developing countries in services trade has been enshrined in the Preamble to the Agreement and underlies the provisions of Article IV. This Article requires Members, inter alia, to negotiate specific commitments relating to the strengthening of developing countries’ domestic services capacity; the improvement of developing countries’ access to distribution channels and information networks; and the liberalization of market access in areas of export interest to these countries.

While the notion of progressive liberalization is one of the basic tenets of the GATS, Article XIX provides that liberalization takes place with due respect for national policy objectives and Members’ development levels, both overall and in individual sectors. Developing countries are thus given flexibility for opening fewer sectors, liberalizing fewer types of transactions, and progressively extending market access in line with their development situation. Other provisions ensure that developing countries have more flexibility in pursuing economic integration policies, maintaining restrictions on balance of payments grounds, and determining access to and use of their telecommunications transport networks and services. In addition, developing countries are entitled to receive technical assistance from the WTO Secretariat.

(14) Built-In Agenda: The GATS, including its Annexes and Related Instruments, sets out a work programme which is normally referred to as the “built-in” agenda. The programme reflects both the fact that not all services-related negotiations could be concluded within the time frame of the Uruguay Round, and that Members have already committed themselves, in Article XIX, to successive rounds aimed at achieving a progressively higher level of liberalization (see below). In addition, various GATS Articles provide for issue-specific negotiations intended to define rules and disciplines for domestic regulation (Article VI), emergency safeguards (Article X), government procurement (Article XIII), and subsidies (Article XV). These negotiations are currently under way.

At the sectoral level, negotiations on basic telecommunications were successfully concluded in February 1997 and negotiations in the area of financial services in mid-December 1997. In these negotiations, Members achieved significantly improved commitments with a broader level of participation.

(15) Extended Sectoral Negotiations Nature: The results of the extended sectoral negotiations in telecommunications and financial services are not legally different from other sector-specific commitments. The results of sectoral negotiations are new specific commitments and/or MFN exemptions related to the sector concerned. Thus, they are neither legally independent from other sector-specific commitments nor constitute agreements different from the GATS. The new commitments and MFN exemptions have been incorporated into the existing Schedules and Exemption Lists by way of separate Protocols to the GATS.

(16) Non Exhaustive Agreement: In services, the Uruguay Round was only a first step in a longer-term process of multilateral rule-making and trade liberalization. Observers tend to agree that, while the negotiations succeeded in setting up the principle structure of the Agreement, the liberalizing effects have been relatively modest. Barring exceptions in financial and telecommunication services, most schedules have remained confined to confirming status quo market conditions in a relatively limited number of sectors. This may be explained in part by the novelty of the Agreement and the perceived need of Members to gather experience before considering wider and deeper commitments. Moreover, many administrations needed time to develop the necessary regulation — including quality standards, licensing and qualification requirements — that ensures that external liberalization is compatible with, and conducive to, core policy objectives (quality, equity, etc.) in socially or infrastructurally important services.

More than ten years have passed since the Agreement’s inception, and the economic importance of services — in terms of production, income, employment and trade — has continued to rise. There thus appears ample scope for new and/or improved commitments in new negotiations.

 (17) Achievements: Under Article XIX, Members are (self-)committed to launch successive rounds of services negotiations with a view to achieving a progressively higher level of liberalization. The first such round was to begin no later than five years from the date of entry into force of the Agreement and, accordingly, started in January 2000. The initial focus was mainly on the built-in agenda with a view to creating a sound basis for the negotiations of new specific commitments. During a stock-taking session in March 2001, Members agreed on the Negotiating Guidelines and Procedures for the new round (document S/L/93) and discussed a first series of sector proposals which had been submitted by individual countries; the Guidelines and all proposals are available on the WTO Web Site.

Facebook Plans To Explore Healthcare Industry But India Would Be A Tough Target

Facebook Plans To Explore Healthcare Industry But India Would Be A Tough TargetHealthcare industry is growing at a tremendous rate world over. A good boost to the healthcare industry has been given by the use of information and communication technology (ICT) for meeting the healthcare needs. For instance the market for e-health, m-health, telemedicine, online pharmacies, etc is very lucrative in India and other developing countries. However, regulatory issues have to be sorted out before exploring Indian market in this regard.

Indian government is already working in this direction. For instance, electronic health record (EHR) standards in India would be implemented in India in the coming days. Similarly, electronic trading of medical drugs in India and digital communication channels for drugs and healthcare products in India would also be regulated very soon. The National Pharmaceutical Pricing Authority (NPPA) of India has also issued order for all pharmaceutical manufacturers and firms to register under the integrated pharmaceutical database management system (IPDSM) of India. However, India is still lagging far behind in privacy protection and data protection requirements (PDF).

Meanwhile, foreign companies have started showing interest in Indian healthcare industry. For instance, Chinese e-commerce firms Alibaba and Jingdong are targeting pharmaceutical e-commerce market world over.  At the same time regulatory authorities around the world are targeting illegal online pharmacies ad their websites. Even Google has joined this fight against illegal online pharmacies and is removing the links of such offending websites from its search engine. Illegal online pharmacies and healthcare websites in India are also needed to be curbed. E-discovery and compliance issues would also pose challenge before the healthcare services providers exploring digital means and online services.

Now it has been reported that Facebook is planning to explore the healthcare industry and has already started creation of “online support communities” that would connect Facebook users suffering from various ailments. A small team is also considering new “preventative care applications” that would help people improve their lifestyles.

However, Facebook is still at the initial stage of implementation of this initiative. Facebook is also not very good at privacy protection and this may be a cause of concern for those sharing their health related information online. Facebook is also not very supportive regarding law enforcement requests arising out of India. At this stage the policies and strategies of Facebook are not in conformity with Indian laws especially compliance with cyber law due diligence (PDF) requirements.  It would be interesting to observe the strategy of Facebook for India in this regard.

Maintenance And Inspection Of Document In Digital Form Under Corporate Laws of India Needed

Maintenance And Inspection Of Document In Digital Form Under Corporate Laws of India NeededThe Indian Companies Act 2013 (PDF) has introduced many significant changes in the old company law of India. One such change is the shift towards maintenance and inspection of company’s documents in electronic or digital formats. This has given rise to many techno legal issues that most of the Indian companies are not capable of managing effectively. Contraventions of various laws of India are inevitable as corporate compliance requirements in India have drastically changed.

The Companies Act 2013 has imposed stringent liability upon the directors and officers in default. These include liabilities for failure to observe cyber law due diligence (PDF), cyber security compliances, cyber law compliances, e-discovery related compliances, cyber forensics issues, etc.

For instance, Ebay plans to boost its cyber security as global legal actions and litigations may be initiated against it for failure to comply with cyber security disclosure requirements. Similarly, foreign companies and e-commerce portals would be required to register in India and comply with Indian laws. An officer in default can be held liable for tons of techno legal compliances that have emerged in the recent times.

Perry4Law has received many legal consultancy requests regarding maintenance and inspection of records in digital or electronic form. We believe that it would be a good long term corporate strategy to start converting paper documents into electronic formats. This is not an easy task and it would take considerable time, efforts and monetary resources to do it gradually. In particular, the mandates of Public Records Act 1993 and IT Act 2000 are not easy to manage.

Perry4Law believes that this is the core and primary responsibility of the Board of Directors and they must introduce suitable policies and strategies in this regard as soon as possible. This may protect the interests of the company, shareholders and the directors in the long run.

Company Secretary And Compliance Officer Of NDTV Resigns

Company Secretary And Compliance Officer Of NDTV ResignsNDTV has been facing non disclosure violation of Rs 450 crore tax demand notice to the BSE and National Stock Exchange (NSE). Of course, NDTV has been denying any such compliance requirement on its part as it presumed such demand notice to be without any legal basis and hence untenable in law. NDTV has also contended that the matter was “sub-judice” and that it has received a stay. While the legality of this stand is yet to be analysed yet in a possible related development the company secretary and compliance officer of NDTV has resigned.

In a regulatory filing, NDTV said, “Anoop Singh Juneja has resigned from the services of the Company. The Company has accepted his resignation and relieved him of his responsibilities w.e.f. 31 May 2014”.

As per the listing agreement, companies are required to submit documents like annual reports, shareholding pattern data, quarterly and full-year financial results, as also corporate governance compliance reports within stipulated time periods.

Recently the Indian Companies Act 2013 was brought into force to a great extent. This has significantly increased the regulatory compliance requirements in India. Especially, the liabilities of directors have been significantly increased under the new company law.

India has been struggling hard to deal with transfer pricing and taxation issues. Even Vodafone, Nokia and Shell received notices from income tax authorities of India regarding transfer pricing and other taxation issues. Indian government has also proposed establishment of Income Tax Overseas Units (ITOUs) of India in foreign countries.

India may also scrap the compulsory transfer pricing audit based on monetary threshold limits. In fact, Indian Tax Department has already received 232 applications from MNCs in 2013-14 for advance pricing agreement. The CBDT India has also directed chief commissioners to raise tax evasion issues with MCA for mergers and acquisition deals. The best part is the constitution of a Special Investigation Team (SIT) to probe black money deposited in foreign jurisdictions. The SIT has already started working towards this goal.

In these circumstances, companies cannot take the laws of India lightly as that may land them in trouble. Reporting and compliance requirements must be especially kept in mind by various companies.

BSE And NSE Allege That NDTV Failed To Disclose Rs 450 Crore Tax Notice To Exchanges

BSE And NSE Allege That NDTV Failed To Disclose Rs 450 Crore Tax Notice To ExchangesPrannoy Roy-led New Delhi Television Ltd (NDTV) has been facing the regulatory heat these days. According to the media reports, NDTV was required to disclose the fact that it has received a Rs. 450 crore tax demand notice from the income tax department. However, NDTV failed to disclose the same to BSE or National Stock Exchange (NSE) about this notice and this may be a breach of the listing norms.

When BSE and NSE asked NDTV about this, NDTV argued that the demand notice was “without any basis or justification and contrary to provisions of Income Tax Act, 1961 and had resulted only due to erroneous and incorrect view taken by the tax department”. Hence NDTV saw it fit not to disclose anything about it. NDTV has also argued that the matter was “sub-judice” and that it has received a stay. Other listed companies, including Infosys, however, time and again have disclosed such information to the bourses

In short, the contention of NDTV was that the claim made by the tax department cannot be deemed as an enforceable tax demand against NDTV due and payable by it. The demand has resulted only due to erroneous and incorrect view taken by the tax department.

Earlier in February 2014, in a major crackdown against listed companies not complying with regulatory disclosure norms, NSE and BSE imposed fines or suspended trading in over 1,100 cases of non-compliance, involving nearly 600 companies. After finding hundreds of companies of not adhering to various provisions of listing agreement, market regulator Securities and Exchange Board of India (SEBI) had asked the stock exchanges to put a stronger mechanism in place to ensure compliance.

This non-disclosure of information prompted NSE and BSE to seek clarification from the company. While BSE has mentioned the notices it sent to NDTV, there are no details available at NSE. NSE just says that it sought clarification from NDTV based on a complaint.

When NDTV failed to provide specific response to its query, BSE again sent an email on 27th May to the company asking it to give point-wise reply. In its reply, NDTV said, “we have clarified our position with respect to the queries of exchange on various disclosures under listing agreement vide Company’s letters dated 16 May 2014 and 22 May 2014, wherein the company categorically explained the position as to how the company has not violated the provisions of clause 36 of the listing agreement”.

Lupin Recalling 9,210 Bottles Of Suprax Drugs For Failure To Pass Purity Test

Lupin Recalling 9,210 Bottles Of Suprax Drugs For Failure To Pass Purity TestPharmaceutical companies are not taking Indian and foreign laws very seriously. As a result both domestic and international pharmaceutical authorities are taking punitive actions against these companies. For instance, the illegal online pharmacies of India are on hit list of Google and United States federal authorities. Similarly, the Maharashtra Food and Drugs Administration (FDA) has also raided many online pharmacies operating in Mumbai, Thane and Pune and has seized drugs worth Rs. 2 Crore.

Meanwhile the U.S. Food and Drug Administration (U.S. FDA) has issued the Import Alert 66-40- Detention Without Physical Examination Of Drugs From Firms Which Have Not Met Drug GMPs (PDF). It has banned import of pharmaceutical products from many Indian pharmaceutical companies. The notification would allow the detention without physical examination of drugs from firms which have not met drug good manufacturing practices (GMPs).

There are many Indian pharmaceutical companies on this list. Obviously, they cannot afford to get their products detained and forfeited and the only choice seems to be to recall the products that fail to meet the prescribed standards and criteria. It has been reported that Lupin Ltd is recalling 9,210 bottles of infection-preventing drug Suprax which failed a purity test in the United States.

The Suprax recall is the second for India’s fourth-largest drugmaker by sales, after pulling nearly 65,000 bottles from the U.S. in January last year because of discoloration. Other companies like Ranbaxy Laboratories Ltd, Sun Pharmaceutical Industries Ltd and Dr. Reddy’s Laboratories Ltd have also recalled their products in the past.

The latest recalled bottles of Suprax, used to prevent or treat bacteria-related infection, “did not meet specification in total impurities”, the FDA said on its website on Monday. The FDA classified the incident as a Class III recall, meaning use of or exposure to the drug is unlikely to cause any adverse health consequences.

US FDA Issues Import Alert 66-40 Banning Import Of Pharmaceutical Products From Many Indian Companies

US FDA Issues Import Alert 66-40 Banning Import Of Pharmaceutical Products From Many Indian CompaniesThe United States Food and Drug Administration (U.S. FDA) has recently issued the Import Alert 66-40- Detention Without Physical Examination Of Drugs From Firms Which Have Not Met Drug GMPs (PDF). Many Indian pharmaceutical companies have been listed on this negative list and their pharmaceutical products would not be allowed to be imported in U.S. till they are in compliance with the requirements prescribed by U.S. FDA.

For instance, the FDA sent a warning letter to Canton Laboratories in Gujarat, India, in February for a list of serious infractions, including falsifying data. The agency has taken the next step, issuing an import alert that bans products from the facility. The alert, posted last week on the FDA website, bans all of the Indian company’s drugs and drug products, from antimicrobials to root canal cleansers, as well as some food and animal products. It all came down to not meeting good manufacturing practices.

The warning letter noted that employees were not getting equipment clean enough between batches to prevent cross contamination. The company’s certificates of analysis had been showing that its APIs were within limits for microbial and metal content, but there was a problem with those tests. The FDA said: “Multiple personnel confirmed that your firm did not perform the microbial tests reported on the CoAs”.

The FDA has seen repeated instances of Indian drugmakers falsifying analytics. The agency leveled similar complaints against drugmaker USV in Mumbai recently, and the same kinds of problems factored into the long-running problems at India’s Ranbaxy Laboratories and at Wockhardt, two Indian companies that have had plants banned from shipping to the U.S. in the last year. It was also noted in a warning letter issued last year to an Indian facility owned by Germany’s Fresenius Kabi.

The nonstop problems at Ranbaxy led to a deal announced last week in which Sun Pharmaceutical will trade $3.2 billion in stock to take over India’s largest generic drugmaker. Sun Pharma, which had one of its own Indian plants banned by the FDA in March, says it will make a priority of getting Ranbaxy’s processes upgraded and its compliance problems resolved.

India’s issues with manufacturing have become a flashpoint for the two countries. FDA Commissioner Margaret Hamburg made her first trip to India in February, where she stressed quality and urged industry and government leaders to step up efforts.

Detention Without Physical Examination Of Drugs From Firms Which Have Not Met Drug GMPs: Import Alert 66-40 Of US FDA

Detention Without Physical Examination Of Drugs From Firms Which Have Not Met Drug GMPs Import Alert 66-40 Of US FDAThe United States Food and Drug Administration (U.S. FDA) has issued the import alert No. 66-40 that deals with Detention Without Physical Examination of Drugs From Firms Which Have Not Met Drug Good Manufacturing Practices (GMPs). This import alert represents the Agency’s current guidance to FDA field personnel regarding the manufacturer(s) and/or products(s) at issue. It does not create or confer any rights for or on any person, and does not operate to bind FDA or the public.

For the alert, please see Import Alert 66-40- Detention Without Physical Examination Of Drugs From Firms Which Have Not Met Drug GMPs (PDF).

As per U.S. FDA detention without physical examination (DWPE) may be appropriate when an FDA inspection has revealed that a firm is not operating in conformity with current GMPs. DWPE may also be appropriate when FDA receives information concerning inspections conducted by foreign or other government authorities under a Memorandum of Understanding or other agreement that FDA concludes reveals conditions or practices warranting detention of either particular products or all products manufactured by a firm.

DWPE of such firms remains in effect until such time as FDA is satisfied that the appearance of a violation has been removed, either by reinspection or submission of appropriate documentation to the responsible FDA Center.

Districts may detain, without physical sampling and analysis, the indicated drug products from the foreign processors noted in the Red List of this import alert.

Foreign processors listed on the Red List of this import alert who would like to request removal from that list should provide information to FDA to adequately demonstrate that the manufacturer has resolved the conditions that gave rise to the appearance of the violation, so that the agency will have confidence that future entries will be in compliance. This may include a letter detailing its corrective actions, accompanied by documentation.

Some of the Indian firms/companies listed under this alert are Amsal Chem Pvt. Ltd. A-1/401-402-403, GIDC , Ankleshwar, Gujarat, Apotex Pharmachem India Pvt Ltd. Plot No.: 1A, Bommasandra , Industrial Area, 4th Phase , Bangalore, Aurobindo Pharma Limited, Unit VI, Unit 6, Survey No. 329/39 & 329/47 , Chitkul Village, Patancheru Mandal , Hyderabad, Andhra Pradesh, Canton Laboratories Pvt. Ltd.110 A & B GIDC Industrial Estate , Makarpura , Baroda, Gujarat, Fleming Laboratories Limited, Plot No. 48, Temple Rock Enclave , Tarbund X Road , Secunderabad, Fleming Laboratories Ltd. Survey 270, Navabpet Village , Shivampet Mandal, Medak District, Andhra Pradesh, Global Calcium Private Limited,  No. 19 & 19B, Sipcot Industrial Complex , Krishnagiri District , Hosur, Tamil Nadu, Global Calcium Pvt, Box 3411 , Bangalore, Global Calcium Pvt Ltd, 711 Karomangala 111 Block, Global Calcium Pvt Ltd, No 1 2 Nd Floor 17th Main , Bangalore,Global Calcium Pvt. Limited, 125/126 Sipcot Industrial Complex , Hosur, Tamil Nadu, Kamud Drugs Pvt. Ltd. N-608, MIDC, Kupwad , Sangli, M.S., Konduskar Laboratories Pvt Ltd. T-47 Kagel Hatkanangale Five Star, MIDC , Talandage (Village), Tal: Kagal, , Maharashtra State, Marck Biosciences Ltd. Plot No. 876, N.H. – 8 , Vill: Hariyala, Tal: Matar , Kheda, Gujarat, Micro Labs Limited.  Plot No. 113-116 4th Phase KIADB , Bommasandra Industrial Area,Anekal Taluk , Bangalore, Nivedita Chemicals Pvt. Ltd. A14 MIDC Andheri East , Mumbai, Nivedita Chemicals Pvt. Ltd. A-14 M.I.D.C. Andheri (East) , Maharashtra, RPG Life Sciences Limited. 3102/A G.I.D.C. Estate , 393002 , Ankleshwar, Gujarat, RPG Life Sciences Limited. 25, M.I.D.C. Land, Thane-Belapur Road, Thane, Maharashtra, Ranbaxy Laboratories Limited. Phase III Industrial Area SAS Nagar , Mohali, Punjab, Ranbaxy Laboratories Ltd.- Sirmour Village & Post Office Ganguwala , Tehsil, Paonta Sahib , Simour District, Himachal Pradesh, Ranbaxy Laboratories, Ltd. SEZ Unit 1, Plot No. A-41, Industrial Area Phase VIII, SAS Nagar, Chandigarh, Ranbaxy Laboratories, Ltd. Industrial Area No. 3, Madhya Pradesh , Dewas, MP, Sentiss Pharma (frmly: Promed Exports), Village Khera Nihla, Tehsil Nalargarh , District Solan, , Himachal Pradesh, Smruthi Organics Limited. Plot No. A-27, MIDC, Chincholi , Solapur District, Maharashtra, Stericon Pharma Pvt. Ltd. No. 9, Sub Layout Of Plot 9 , 1st Phase Bommasandra Ind. Area , Bangalore, Karnataka, Sun Pharmaceutical Industries Limited – Karkhadi. Plot No. 817/A, Village – Karkhadi , Taluka – Padra District , Vadodara, Gujarat, Unique Chemicals. Plot P-10, Shiv Mahape Gansoli , Thane Belapur Road, Maharashtra State , Navi Mumbai, Vignesh Life Science Pvt Ltd. 202 Sarada Residency , H – 26 , Madhura Nagar Ameerpet , Hyderabad, Tamil Nadu, Vignesh Life Sciences Pvt., Ltd. 93 & 94 P Mundargi Industrial Estate , Bellary Karnataka, Wintac Limited. 54/1, Boodhihal Village, Nelamangala , Taluk , Bangalore Rural, Karnataka, Wintac Limited. 163 Reservior Str , Bangalore, Wockhardt Limited. L-1, MIDC Area, Jalgaon Road 43 , Chikalthana , Aurangabad, Maharashtra, Wockhardt Limited. Biotech Park, Plot H-14/2 , M.I.D.C. Area Waluj , Aurangabad, Maharashtra and Yag Mag Labs Private Limited. Survey No. 10, Gaddapotharam Village, , Jinnatam Mandel , Medak District, AP.

CBDT India Directs Chief Commissioners To Raise Tax Evasion Issues With MCA For Mergers And Acquisition Deals

CBDT India Directs Chief Commissioners To Raise Tax Evasion Issues With MCA For Mergers And Acquisition DealsMergers and acquisitions (M&A), transfer pricing and ownership control exercises are not new in India. However, they have become bone of contention between the income tax department of India and many companies. As a result neither the tax authorities nor the companies are happy with this environment. On top of it, the corporate compliance requirements have significantly increased after the enactment of Companies Act, 2013.

India has already proposed establishment of Income Tax Overseas Units (ITOUs) of India in foreign countries so that tax evasion become difficult. Now the Finance Ministry has decided to scrutinise mergers and acquisitions dealings in India. As per media report, the Finance Ministry has asked its officials to ensure that mergers and acquisitions deals do not result in loss to the exchequer.

In fact, the Central Board of Direct Taxes (CBDT) has issued a communication to Chief Commissioners that the concerned revenue officials should raise concerns on tax issues while submitting their comments on mergers and acquisition deals to the Ministry of Corporate Affairs (MCA) so that they could be incorporated in reports to the High Court. As per the communication, the officials should “object to the scheme of amalgamation if the same is found prejudicial to interest of revenue”.

Under the current rules, Regional Directors of MCA are required to obtain specific comments from the Income Tax Department within 15 days of the receipt of notice before filing response to the Court on mergers and acquisitions. The MCA is also required to incorporate comments and inputs from the Income Tax Department so as to ensure that the proposed scheme of reconstruction or amalgamation has not been designed in such a way to defraud the revenue and consequently prejudicial to public interest. M&As are required to be vetted by the concerned High Court to be effective.

The CBDT has issued the instructions after a High Court rejected its intervention application in a case of amalgamation saying the tax department has no locus standi in the matter as the Regional Director, MCA enjoys that power.

Indian Tax Department Received 232 Applications From MNCs In 2013-14 For Advance Pricing Agreement

Indian Tax Department Received 232 Applications From MNCs In 2013-14 For Advance Pricing AgreementTransfer pricing issues have become a bone of contention for multi national corporations (MNCs) operating in India. In fact, Vodafone, Nokia and Shell have already received notices from income tax authorities of India regarding transfer pricing and other taxation issues. Indian government has also proposed establishment of Income Tax Overseas Units (ITOUs) of India in foreign countries to deal with evasion of taxes. The compulsory transfer pricing audit based on monetary threshold may also be scrapped in India.

Meanwhile, the Indian tax department has received 232 applications from MNCs in 2013-14, up 60 per cent year-on- year, to obtain advance ruling over pricing arrangement for transactions within group firms and the ensuing tax liability. In 2012-13, 146 companies had applied for Advance Pricing Agreement, a mechanism that aims at curtailing disputes that may arise from transfer pricing issues between MNCs and the revenue department.

Of the 232, 206 companies are seeking “unilateral APA” (pact between tax payer and CBDT). The rest applied for “bilateral APA” (pact between taxpayers, tax authorities of the host country and the foreign tax administration), sources said. Transfer pricing of complex international transactions is generally negotiated under an APA. India introduced APA through Finance Act 2012 to provide transfer pricing certainty to the taxpayers.

On March 31, the authorities here signed 5 “unilateral APAs” making it one of the fastest turnarounds in transfer pricing history across the world. These agreements cover different industrial sectors like pharmaceutical, telecom and financial services. Generally, an APA is valid for up to 5 years and the Act provides for renewal, revision or cancellation of an APA under certain circumstances. During the 5-year period, the taxpayer is required to file an annual report to confirm compliance with the terms of the APA. The authorities then conduct limited audit of the taxpayer to ensure compliance with the terms of the APA.

As per the APA rules notified by the Finance Ministry in 2012, fee for entering into APA with the CBDT would be Rs 10 lakh for international transaction of up to Rs 100 crore; Rs 15 lakh for up to Rs 200 crore and Rs 20 lakh for transactions above Rs 200 crore.

India May Scrap The Compulsory Transfer Pricing Audit Based On Monetary Threshold Limits

India May Scrap The Compulsory Transfer Pricing Audit Based On Monetary Threshold LimitsIndia has been struggling hard to deal with transfer pricing and taxation issues. Even Vodafone, Nokia and Shell received notices from income tax authorities of India regarding transfer pricing and other taxation issues. Indian government has also proposed establishment of Income Tax Overseas Units (ITOUs) of India in foreign countries. A notification for issues relating to export of computer software and corresponding direct tax benefits has also been issued by Indian government.

We at Perry4Law believe that transfer pricing laws and regulations in India need clarification. Similarly, issues like avoidance of tax by certain transactions in securities, avoidance of income-tax by transactions resulting in transfer of income to non residents, international transaction and arm’s length price, etc also required to be taken care of. All this requires a pragmatic and holistic approach on the part of Indian government.

Working in this direction, the Indian government is planning to scrap the Rs. 15 crore threshold limit for referring every international transaction between an multi national corporation’s (MNC) arms for compulsory transfer pricing audit, and about to embrace a more focused approach to zero in on cross-border transactions with potential for tax evasion.

The proposed risk-based selection of transactions between MNC arms for transfer pricing audit will spare many companies the unnecessary hassle and help reduce tax litigation. Experts say the “risk-based” approach is much more efficient than the monetary threshold-based scrutiny and audit. The proposal, which is under the tax department’s consideration, would be taken up by the next government as part of tax administration reforms, sources said.

At present, assessment officers refer every cross-border transaction above the threshold between associated enterprises to a transfer pricing officer, who checks whether it is on the arm’s length basis. If it is found to be a dictated price with little relation to cost or value-addition, the assessing officer recomputes the income and makes extra tax claim. Choosing cases based on the monetary threshold leads to overburdening of field officers. Sources said that every TPO in India has to do about 50 audits a year on an average compared to 5-6 that his UK counterpart does. This seriously affects the scope and depth of the audit. Selecting only those cases for audit that indicate a high risk of revenue loss would enable the tax department to devote more time and go deeper into minute details.

The idea of selecting transactions for audit based on their risk of revenue leakage stems from India’s discussions with the OECD, which is working on new transfer-pricing documentation rules and a format for country-by-country reporting of income, taxes and economic activity of MNCs.

Cyber Law And Cyber Security Obligations Of The Directors Of Companies Operating In India

Cyber Law And Cyber Security Obligations Of The Directors Of Companies Operating In IndiaMost of the provisions of the Indian Companies Act, 2013 (PDF) have been recently notified by the Ministry of Corporate Affairs (MCA). These include the relevant Rules under various chapters of the Companies Act 2013 as well. For the first time the Companies Act 2013 and the Rules are talking about cyber law and cyber security obligations on the part of Indian and foreign companies operating in India and their directors and key personnel.

Thus, the regulatory compliances under Indian Companies Act 2013 have been given a new meaning. The increased cyber obligations under the 2013 Act now require the companies to comply with techno legal requirements in India. These include cyber law due diligence (PDF), cyber security due diligence, e-discovery compliances, cyber forensics, etc. Even the cyber security obligations of law firms in India has significantly increased and various stakeholders, including companies and law firms, must keep in mind the international  legal issues of cyber security.

The cyber security trends and development in India 2013 (PDF), provided by Perry4Law’s Techno Legal Base (PTLB), have also indicated that various corporate stakeholders would be required to comply with cyber law and cyber security related obligations in the near future. As on date, companies and directors are not complying with the cyber law and cyber security obligations as prescribed by Indian laws and regulations.

Although we have no dedicated cyber security law in India as on date yet the same may be formulated in the near future as India has announced that cyber security breach disclosure norm would be formulated very soon. There is no doubt that cyber security breaches notification in India must be made mandatory as these cyber security breaches would raise serious cyber security issues.

Section 1(4) of the Indian Companies Act, 2013 provides that the provisions of this Act shall apply to—

(a) companies incorporated under this Act or under any previous company law;

(b) insurance companies, except in so far as the said provisions are inconsistent with the provisions of the Insurance Act, 1938 or the Insurance Regulatory and Development Authority Act, 1999;

(c) banking companies, except in so far as the said provisions are inconsistent with the provisions of the Banking Regulation Act, 1949;

(d) companies engaged in the generation or supply of electricity, except in so far as the said provisions are inconsistent with the provisions of the Electricity Act, 2003;

(e) any other company governed by any special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act; and

(f) such body corporate, incorporated by any Act for the time being in force, as the Central Government may, by notification, specify in this behalf, subject to such exceptions, modifications or adaptation, as may be specified in the notification.

Section 2 of the Indian Companies Act, 2013 provides that in this Act, unless the context otherwise requires,—

(20) “company” means a company incorporated under this Act or under any previous company law;

(34) “director” means a director appointed to the Board of a company;

(42) “foreign company” means any company or body corporate incorporated outside India which—

(a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and

(b) conducts any business activity in India in any other manner.

(51) “key managerial personnel”, in relation to a company, means—

(i) the Chief Executive Officer or the managing director or the manager;

(ii) the company secretary;

(iii) the whole-time director;

(iv) the Chief Financial Officer; and

(v) such other officer as may be prescribed;

(59) “officer” includes any director, manager or key managerial personnel or any person in accordance with whose directions or instructions the Board of Directors or any one or more of the directors is or are accustomed to act;

(60) “officer who is in default”, for the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise, means any of the following officers of a company, namely:—

(i) whole-time director;

(ii) key managerial personnel;

(iii) where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified;

(iv) any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default;

(v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity;

(vi) every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance;

(vii) in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer;

(94) “whole-time director” includes a director in the whole-time employment of the company;

These definitions and other provisions under the Companies Act 2013 have imposed many obligations upon the directors of a company to safeguard company’s interests. These include safeguarding the assets of the company and for preventing and detecting fraud and other irregularities during the conduct of company’s business.

The board of directors would also be required to attach to statements laid before a company in general meeting a report about various compliances under the Companies Act 2013. These include cyber law, cyber security, e-discovery, cyber forensics and many more such techno legal compliance obligations on the part of directors.

The directors must also prove that they had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. Now this would require techno legal expertise as cyber law and cyber security issues are not easy to manage.

The board of directors must also issue a statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company.

The directors, in the case of a listed company, must also formulate internal financial controls to be followed by the company and such internal financial controls must be adequate and must operate effectively. The term “internal financial controls” means the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information.

If a company contravenes these provisions, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.

Directors Liability Under The Indian Companies Act 2013

Directors Liability Under The Indian Companies Act 2013A major portion of the Indian Companies Act, 2013 (PDF) has been notified recently by the Ministry of Corporate Affairs (MCA). With the notification of various provisions of the Act and the Rules thereunder, the regulatory compliances under Indian Companies Act 2013 have been given a new meaning. The increased cyber obligations under the 2013 Act now require the companies to comply with techno legal requirements in India. These include cyber law due diligence (PDF), cyber security due diligence, e-discovery compliances, etc.

Companies function through board of directors and the board plays an important role in complying with the requirements of the company law. The 2013 Act has enhanced the liabilities and obligations of the directors. The new company law regime prescribes management and inspection of documents in electronic form, electronic voting, electronic notices, etc that require a techno legal compliance on the part of Indian companies. The directors are under an obligation to comply with techno legal requirements of not only the 2013 Act but also the Information Technology Act, 2000 and other related laws.

The Companies (Appointment and Qualification of Directors) Rules, 2014 (PDF) have imposed many obligations upon the directors of a company. Rule 14 (1) of the same prescribes that every director shall inform to the company concerned about his disqualification under sub-section (2) of section 164, if any, in Form DIR-8 before he is appointed or re-appointed.

Rule 14(2) states that whenever a company fails to file the financial statements or annual returns, or fails to repay any deposit, interest, dividend, or fails to redeem its debentures, as specified in sub-section (2) of section 164, the company shall immediately file Form DIR-9, to the Registrar furnishing therein the names and addresses of all the directors of the company during the relevant financial years.

Rule 14(3) states that when a company fails to file the Form DIR-9 within a period of thirty days of the failure that would attract the disqualification under sub-section (2) of section 164, officers of the company specified in clause (60) of section 2 of the Act shall be the officers in default.

Section 2(60) of the Indian Companies Act, 2013 provides that an “officer who is in default”, for the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise, means any of the following officers of a company, namely:—

(i) whole-time director;

(ii) key managerial personnel;

(iii) where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified;

(iv) any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default;

(v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity;

(vi) every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance;

(vii) in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer;

Rule 15 states that the company shall within thirty days from the date of receipt of notice of resignation from a director, intimate the Registrar in Form DIR-12 and post the information on its website, if any.

Rule 16 states that where a director resigns from his office, he shall within a period of thirty days from the date of resignation, forward to the Registrar a copy of his resignation along with reasons for the resignation in Form DIR-11 along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014.

The Companies (Management and Administration) Rules, 2014 (PDF) also prescribe many techno legal and cyber security obligations upon the directors of a company. The directors must be well versed with the techno legal regulatory provisions under the Companies Act 2013 and other technology laws of India.

Maintenance And Inspection Of Document In Electronic Form Under Indian Companies Act 2013 And Its Rules

Maintenance And Inspection Of Document In Electronic Form Under Indian Companies Act 2013 And Its RulesThe Indian Companies Act, 2013 (PDF) has prescribed additional and stringent obligations upon companies to not only maintain various document sin electronic form but to also ensure their cyber security. In short, techno legal compliances have been prescribed by the Companies Act, 2013 with penalty for non compliance.

Section 120 of the Companies Act, 2013 provides that without prejudice to any other provisions of this Act, any document, record, register, minutes, etc.,—

(a) required to be kept by a company; or

(b) allowed to be inspected or copies to be given to any person by a company under this Act, may be kept or inspected or copies given, as the case may be, in electronic form in such form and manner as may be prescribed.

Section 397 of the Act prescribes that notwithstanding anything contained in any other law for the time being in force, any document reproducing or derived from returns and documents filed by a company with the Registrar on paper or in electronic form or stored on any electronic data storage device or computer readable media by the Registrar, and authenticated by the Registrar or any other officer empowered by the Central Government in such manner as may be prescribed, shall be deemed to be a document for the purposes of this Act and the rules made thereunder and shall be admissible in any proceedings thereunder without further proof or production of the original as evidence of any contents of the original or of any fact stated therein of which direct evidence is admissible.

Section 398(1) of the Act prescribes that notwithstanding anything to the contrary contained in this Act, and without prejudice to the provisions contained in section 6 of the Information Technology Act, 2000, the Central Government may make rules so as to require from such date as may be prescribed in the rules that—

(a) such applications, balance sheet, prospectus, return, declaration, memorandum, articles, particulars of charges, or any other particulars or document as may be required to be filed or delivered under this Act or the rules made thereunder, shall be filed in the electronic form and authenticated in such manner as may be prescribed;

(b) such document, notice, any communication or intimation, as may be required to be served or delivered under this Act, in the electronic form and authenticated in such manner as may be prescribed;

(c) such applications, balance sheet, prospectus, return, register, memorandum, articles, particulars of charges, or any other particulars or document and return filed under this Act or rules made thereunder shall be maintained by the Registrar in the electronic form and registered or authenticated, as the case may be, in such manner as may be prescribed;

(d) such inspection of the memorandum, articles, register, index, balance sheet, return or any other particulars or document maintained in the electronic form, as is otherwise available for inspection under this Act or the rules made thereunder, may be made by any person through the electronic form in such manner as may be prescribed;

(e) such fees, charges or other sums payable under this Act or the rules made thereunder shall be paid through the electronic form and in such manner as may be prescribed; and

(f) the Registrar shall register change of registered office, alteration of memorandum or articles, prospectus, issue certificate of incorporation, register such document, issue such certificate, record the notice, receive such communication as may be required to be registered or issued or recorded or received, as the case may be, under this Act or the rules made thereunder or perform duties or discharge functions or exercise powers under this Act or the rules made thereunder or do any act which is by this Act directed to be performed or discharged or exercised or done by the Registrar in the electronic form in such manner as may be prescribed.

Explanation.— For the removal of doubts, it is hereby clarified that the rules made under this section shall not relate to imposition of fines or other pecuniary penalties or demand or payment of fees or contravention of any of the provisions of this Act or punishment therefor.

(2) The Central Government may, by notification, frame a scheme to carry out the provisions of sub-section (1) through the electronic form.

Section 400 of the Act provides that the Central Government may also provide in the rules made under section 398 and section 399 that the electronic form for the purposes specified in these sections shall be exclusive, or in the alternative or in addition to the physical form, therefor.

Section 401 of the Act provides that the Central Government may provide such value added services through the electronic form and levy such fee thereon as may be prescribed.

Section 402 of the Act provides that all the provisions of the Information Technology Act, 2000 relating to the electronic records, including the manner and format in which the electronic records shall be filed, in so far as they are not inconsistent with this Act, shall apply in relation to the records in electronic form specified under section 398.

The Companies (Management and Administration) Rules, 2014 (PDF) also deal with management and inspection of documents in electronic form. Rule 27 (1) provides that every listed company or a company having not less than one thousand shareholders, debenture holders and other security holders, shall maintain its records, as required to be maintained under the Act or rules made there under, in electronic form.

The Explanation to Rule 27 (1) provides that for the purposes of this sub-rule, it is hereby clarified that in case of existing companies, data shall be converted from physical mode to electronic mode within six months from the date of notification of provisions of section 120 of the Act.

Rule 27 (2) provides that the records in electronic form shall be maintained in such manner as the Board of directors of the company may think fit,

The proviso to Rule 27 (2) provides that -

(a) the records are maintained in the same formats and in accordance with all other requirements as provided in the Act or the rules made there under;

(b) the information as required under the provisions of the Act or the rules made there under should be adequately recorded for future reference;

(c) the records must be capable of being readable, retrievable and reproducible in printed form;

(d) the records are capable of being dated and signed digitally wherever it is required under the provisions of the Act or the rules made there under;

(e) the records, once dated and signed digitally, shall not be capable of being edited or altered;

(f) the records shall be capable of being updated, according to the provisions of the Act or the rules made there under, and the date of updating shall be capable of being recorded on every updating.

The Explanation to Rule 27 (2) provides that for the purpose of this rule, the term “records” means any register, index, agreement, memorandum, minutes or any other document required by the Act or the rules made there under to be kept by a company.

Rule 28 deals with security of records maintained in electronic form. Rule 28(1) provides that the Managing Director, Company Secretary or any other director or officer of the company as the Board may decide shall be responsible for the maintenance and security of electronic records.

Rule 28(2) provides that the person who is responsible for the maintenance and security of electronic records shall-

(a) provide adequate protection against unauthorized access, alteration or tampering of records;

(b) ensure against loss of the records as a result of damage to, or failure of the media on which the records are maintained;

(c) ensure that the signatory of electronic records does not repudiate the signed record as not genuine;

(d) ensure that computer systems, software and hardware are adequately secured and validated to ensure their accuracy, reliability and consistent intended performance;

(e) ensure that the computer systems can discern invalid and altered records;

(f) ensure that records are accurate, accessible, and capable of being reproduced for reference later;

(g) ensure that the records are at all times capable of being retrieved to a readable and printable form;

(h) ensure that records are kept in a non-rewriteable and non-erasable format like pdf. version or some other version which cannot be altered or tampered;

(i) ensure that at least one backup, taken at a periodicity of not exceeding one day, are kept of the updated records kept in electronic form, every backup is authenticated and dated and such backups shall be securely kept at such places as may be decided by the Board;

(j) limit the access to the records to the managing director, company secretary or any other director or officer or persons performing work of the company as may be authorized by the Board in this behalf;

(k) ensure that any reproduction of non-electronic original records in electronic form is complete, authentic, true and legible when retrieved;

(l) arrange and index the records in a way that permits easy location, access and retrieval of any particular record; and

(m) take necessary steps to ensure security, integrity and confidentiality of records.

Rule 29 deals with inspection and making of copies of records maintained in electronic form. It provides that  where a company maintains its records in electronic form, any duty imposed by the Act or rules made there under to make those records available for inspection or to provide copies of the whole or a part of those records, shall be construed as a duty to make the records available for inspection in electronic form or to provide copies of those records containing a clear reproduction of the whole or part thereof, as the case may be on payment of not exceeding ten rupees per page.

Rule 30 provides that if any default is made in compliance with any of the provisions of this rule, the company and every officers or such other person who is in default shall be punishable with fine which may extend to five thousand rupees and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first during which such contravention continues.

Calling Of Extraordinary General Meeting By Requistionists Under Companies Act 2013 Rules

Calling Of Extraordinary General Meeting By Requistionists Under Companies Act 2013 RulesSection 100(4) of the Indian Companies Act, 2013 (PDF) provides that if the Board does not, within twenty-one days from the date of receipt of a valid requisition in regard to any matter, proceed to call a meeting for the consideration of that matter on a day not later than forty-five days from the date of receipt of such requisition, the meeting may be called and held by the requisitonists themselves within a period of three months from the date of the requisition. The notices of meeting can be sent through electronic mode under the new company law of India and even voting can be done electronically.

Rule 20 of the Companies (Management and Administration) Rules, 2014 (PDF) deals with the issue at hand. Rule 20(1) provides that members may requisition convening of an extraordinary general meeting in accordance with sub-section (4) of section 100, by providing such requisition in writing or through electronic mode at least clear twenty-one days prior to the proposed date of such extraordinary general meeting.

Rule 20(2) provides that the notice shall specify the place, date, day and hour of the meeting and shall contain the business to be transacted at the meeting.

Explanation.- For the purposes of this sub-rule, it is here by clarified that requisitonists should convene meeting at Registered office or in the same city or town where Registered office is  situated and such meeting should be convened on working day.

Rule 20(3) provides that if the resolution is to be proposed as a special resolution, the notice shall be given as required by sub-section (2) of section114.

Rule 20(4) provides that the notice shall be signed by all the requisitonists or by a requisitionist’s duly authorised in writing by all other requisitionists on their behalf or by sending an electronic request attaching therewith a scanned copy of such duly signed requisition.

Rule 20(5) provides that no explanatory statement as required under section 102 need be annexed to the notice of an extraordinary general meeting convened by the requisitionists and the requisitionists may disclose the reasons for the resolution(s) which they propose to move at the meeting.

Rule 20(6) provides that the notice of the meeting shall be given to those members whose names appear in the Register of members of the company within three days on which the

Requisitionists deposit with the Company a valid requisition for calling an extraordinary general meeting.

Rule 20(7) provides that where the meeting is not convened, the requisitionists shall have a right to receive list of members together with their registered address and number of shares held and the company concerned is bound to give a list of members together with their registered address made as on twenty first day from the date of receipt of valid requisition together with such changes, if any, before the expiry of the forty-five days from the date of receipt of a valid requisition.

Rule 20(8) provides that the notice of the meeting shall be given by speed post or registered post or through electronic mode. Any accidental omission to give notice to, or the non-receipt of such notice by, any member shall not invalidate the proceedings of the meeting.

Electronic Voting Under The Indian Companies Act 2013

Electronic Voting Under The Indian Companies Act 2013Electronic voting is a revolutionary concept whose time has come. E-voting is already being explored at the elections in India. Now e-voting has been approved by the Indian Companies Act, 2013 (PDF) as well. However, security issues of e-voting in India are still big concern for Indian government and corporate stakeholders. Nevertheless with the notification of the Companies Act 2013 and the Companies (Management and Administration) Rules, 2014 (PDF), companies in India would be required to provide the option of electronic voting in certain cases. Even notices of meeting can be sent through electronic mode under the new company law of India.

According to Rule 20(1) every listed company or a company having not less than one thousand shareholders, shall provide to its members facility to exercise their right to vote at general meetings by electronic means.

Rule 20(2) provides that a member may exercise his right to vote at any general meeting by electronic means and company may pass any resolution by electronic voting system in accordance with the provisions of this rule.

The Explanation to Rule 20(2) provides that for the purposes of this rule.-

(i) the expressions “voting by electronic means” or “electronic voting system” means a “secured system” based process of display of electronic ballots, recording of votes of the members and the number of votes polled in favour or against, such that the entire voting exercised by way of electronic means gets registered and counted in an electronic registry in a centralized server with adequate ‘cyber security’;

(ii) the expression “secured system” means computer hardware, software, and procedure that –

(a) are reasonably secure from unauthorized access and misuse;

(b) provide a reasonable level of reliability and correct operation;

(c) are reasonably suited to performing the intended functions; and

(d) adhere to generally accepted security procedures.

(iii). the expression “Cyber security” means protecting information, equipment, devices, computer, computer resource, communication device and information stored therein from unauthorised access, use, disclosures, disruption, modification or destruction.

Rule 20(3) provides that a company which opts to provide the facility to its members to exercise their votes at any general meeting by electronic voting system shall follow the following procedure, namely;

(i) the notices of the meeting shall be sent to all the members, auditors of the company, or directors either -

(a) by registered post or speed post ; or

(b) through electronic means like registered e-mail id;

(c) through courier service;

(ii) the notice shall also be placed on the website of the company, if any and of the agency forthwith after it is sent to the members;

(iii) the notice of the meeting shall clearly mention that the business may be transacted through electronic voting system and the company is providing facility for voting by electronic means;

(iv) the notice shall clearly indicate the process and manner for voting by electronic means and the time schedule including the time period during which the votes may be cast and shall also provide the login ID and create a facility for generating password and for keeping security and casting of vote in a secure manner;

(v) the company shall cause an advertisement to be published, not less than five days before the date of beginning of the voting period, at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situated, and having a wide circulation in that district, and at least once in English language in an English newspaper having a wide circulation in that district, about having sent the notice of the meeting and specifying therein, inter alia, the following matters, namely:-

(a) statement that the business may be transacted by electronic voting;

(b) the date of completion of sending of notices;

(c) the date and time of commencement of voting through electronic means;

(d) the date and time of end of voting through electronic means;

(e) the statement that voting shall not be allowed beyond the said date and time;

(f) website address of the company and agency, if any, where notice of the meeting is displayed; and

(g) contact details of the person responsible to address the grievances connected with the electronic voting;

(vi) the e-voting shall remain open for not less than one day and not more than three days

provided that in all such cases, such voting period shall be completed three days prior to the date of the general meeting;

(vii) during the e-voting period, shareholders of the company, holding shares either in physical form or in dematerialized form, as on the record date, may cast their vote electronically provided that once the vote on a resolution is cast by the shareholder, he shall not be allowed to change it subsequently.

(viii) at the end of the voting period, the portal where votes are cast shall forthwith be blocked.

(ix) the Board of directors shall appoint one scrutinizer, who may be chartered Accountant in practice, Cost Accountant in practice, or Company Secretary in practice or an advocate, but not in employment of the company and is a person of repute who, in the opinion of the Board can scrutinize the e-voting process in a fair and transparent manner. The scrutinizer so appointed may take assistance of a person who is not in employment of the company and who is well-versed with the e-voting system;

(x) the scrutinizer shall be willing to be appointed and be available for the purpose of ascertaining the requisite majority;

(xi) the scrutinizer shall, within a period of not exceeding three working days from the date of conclusion of e-voting period, unblock the votes in the presence of at least two witnesses not in the employment of the company and make a scrutinizer’s report of the votes cast in favour or against, if any, forthwith to the Chairman;

(xii) the scrutinizer shall maintain a register either manually or electronically to record the assent or dissent, received, mentioning the particulars of name, address, folio number or client ID of the shareholders, number of shares held by them, nominal value of such shares and whether the shares have differential voting rights;

(xiii) the register and all other papers relating to electronic voting shall remain in the safe custody of the scrutinizer until the chairman considers, approves and signs the minutes and thereafter, the scrutinizer shall return the register and other related papers to the company.

(xiv) the results declared along with the scrutinizer’s report shall be placed on the website of the company and on the website of the agency within two days of passing of the resolution at the relevant general meeting of members;

(xv) subject to receipt of sufficient votes, the resolution shall be deemed to be passed on the date of the relevant general meeting of members.

Notice Of The Meeting Under The Rules Of The Indian Companies Act 2013

Notice Of The Meeting Under The Rules Of The Indian Companies Act 2013Sending of notices regarding company’s affairs by company, board or directors or any other interested stakeholder is of utmost importance. The Indian Companies Act, 2013 (PDF) and the Companies (Management and Administration) Rules, 2014 (PDF) deal with this issue. As the corresponding provisions of the Companies Act 2013 and the Rules have been notified by Indian government, companies in India are required to comply with these provisions.

Rule 18(1) provides that a company may give notice through electronic mode. The Explanation to Rule 18(1) provides that for the purpose of this rule, the expression “electronic mode” shall mean any communication sent by a company through its authorized and secured computer programme which is capable of producing confirmation and keeping record of such communication addressed to the person entitled to receive such communication at the last electronic mail address provided by the member.

Rule 18(2) provides that a notice may be sent through e-mail as a text or as an attachment to e-mail or as a notification providing electronic link or Uniform Resource Locator for accessing such notice.

Rule 18(3) (i) provides that the e-mail shall be addressed to the person entitled to receive such e-mail as per the records of the company or as provided by the depository. The proviso to Rule 18(3) (i) provides that the company shall provide an advance opportunity atleast once in a financial year, to the member to register his e-mail address and changes therein and such request may be made by only those members who have not got their email id recorded or to update a fresh email id and not from the members whose e-mail ids are already registered.

Rule 18(3) (ii) provides that the subject line in e-mail shall state the name of the company, notice of the type of meeting, place and the date on which the meeting is scheduled.

Rule 18(3) (iii) provides that if notice is sent in the form of a non-editable attachment to e-mail, such attachment shall be in the Portable Document Format or in a non-editable format together with a “link or instructions” for recipient for downloading relevant version of the software.

Rule 18(3) (iv) provides that when notice or notifications of availability of notice are sent by e-mail, the company should ensure that it uses a system which produces confirmation of the total number of recipients e-mailed and a record of each recipient to whom the notice has been sent and copy of such record and any notices of any failed transmissions and subsequent re-sending shall be retained by or on behalf of the company as “proof of sending”.

Rule 18(3) (v) provides that the company’s obligation shall be satisfied when it transmits the e-mail and the company shall not be held responsible for a failure in transmission beyond its control.

Rule 18(3) (vi) provides that if a member entitled to receive notice fails to provide or update relevant e-mail address to the company, or to the depository participant as the case may be, the company shall not be in default for not delivering notice via e-mail.

Rule 18(3) (vii) provides that the company may send e-mail through in-house facility or its registrar and transfer agent or authorise any third party agency providing bulk e-mail facility.

Rule 18(3) (viii) provides that the notice made available on the electronic link or Uniform Resource Locator has to be readable, and the recipient should be able to obtain and retain copies and the company shall give the complete Uniform Resource Locator or address of the website and full details of how to access the document or information.

Rule 18(3) (ix) provides that the notice of the general meeting of the company shall be simultaneously placed on the website of the company if any and on the website as may be notified by the Central Government. The Explanation to Rule 18(3) (ix) provides that for the purpose of this rule, it is hereby declared that the extra ordinary general meeting shall be held at a place within India.

Regulatory Compliances Under Indian Companies Act 2013: A Techno Legal Perspective

Regulatory Compliances Under Indian Companies Act 2013 A Techno Legal PerspectiveFor too long the Indian Companies Act, 1956 governed the corporate culture and regulatory regime for companies operating in India. The need to enact a contemporary law was long felt but for many decades this need was not transformed into a modern corporate law of India. Finally, the Indian Companies Act, 2013 (PDF) was enacted and its enforcement was planned to be made in a phased manner.

The Ministry of Corporate Affairs (MCA) has already notified some sections and rules of the Indian Companies Act, 2013. Interested stakeholders may see the consolidated notifications of Indian Companies Act, 2013 and the corresponding rules for a better and detailed insight. The companies and individuals associated with them are required to comply with the new compliance and regulatory requirements with effect from 01-04-2014.

We at Perry4Law believe that this is a big challenge for the companies and these individuals as most of these compliance requirements are new and require non traditional approach. It is not easy to migrate from the 1956 Act to the 2013 Act so easily. The times have changed especially due to the techno legal compliances requirements that Indian companies cannot ignored anymore. These include cyber law due diligence (PDF) and cyber security due diligence.

Corporate frauds investigation in India would also increase as the Serious Frauds Investigation office (SFIO) has been given wide powers under the 2013 Act. MCA has also issued some Rules under Chapter XIV of Indian Companies Act, 2013 pertaining to Inspection, Inquiry and Investigation by Indian Authorities and SFIO. Perry4Law has also provided its suggestions (PDF) on these rules.

Corporate espionage cases would require the companies to manage complicated e-discovery and cyber forensics compliances issues in the future. For instance, Target Corporation is facing numerous litigations in different jurisdictions due to cyber breach that it failed to address properly. International legal issues of cyber attacks would also be required to be kept in mind by Indian companies under the new corporate environment. Clearly the cyber and technology law compliances in India would be a big challenge for Indian companies to manage as that cannot be ignored by Indian companies anymore.

With the present techno legal framework and its non compliance by Indian and foreign companies, the cyber litigations against foreign websites would increase in India in the near future. Even the foreign investors in e-commerce and technology ventures of India are required to follow cyber law due diligence requirements. Very soon mandatory cyber security breach notifications would be enforced in India as well. Further, cyber security breaches in India would also raise complicated cyber security issues for the companies as most of them are not complying with techno legal requirements of Indian laws and regulations.

Ministry Of Corporate Affairs (MCA) Notified Rules For 11 Chapters Of Indian Companies Act 2013

Ministry Of Corporate Affairs (MCA) Notified Rules For 11 Chapters Of Indian Companies Act 2013The enactment of Indian Companies Act, 2013 (PDF) was a significant step to improve the corporate culture in India. However, its implementation and enforcement was due. Ministry of corporate affairs (MCA) initially notified nearly 98 sections of Indian Companies Act, 2013 in the first phase.

Subsequently, MCA notified 183 sections to streamline Indian corporate environment. Companies in India would now be required to comply with these notified provisions of Indian Companies Act, 2013 from April 1st 2014 as MCA has issued a notification (PDF) in this regard that has brought into force many provisions.

MCA has also notified Rules for 11 chapters of the Companies Act, 2013. These include Rules for specifications and definitions, incorporation of companies, prospectus and allotment of securities, shares and debentures, registration of charges, management and administration, declaration and payment of dividend, accounts, appointment and qualification of directors, board meetings and powers, and corporate social responsibility.

As these Sections and Rules would become operational from 1st April 2014 there would be lots of regulatory compliance issues that would be involved. Similarly, it is not easy to migrate from the 1956 Act to the 2013 Act so easily. The times have changed especially due to the techno legal requirements that Indian companies cannot ignored anymore. These include cyber law due diligence (PDF) and cyber security due diligence.

Indian Companies Act 2013 And Indian Companies Act Rules 2014 And Their Notifications

Indian Companies Act 2013 And Indian Companies Act Rules 2014 And Their NotificationsFor the larger interest of all stakeholders, Perry4Law is providing the documents (PDFs) and weblinks of the relevant provisions of Indian Companies Act, 2013 that have been notified by Ministry of corporate Affairs (MCA). These include notification of Rules under the Indian Companies Act, 2013 and other notifications made by Indian Government/MCA from time to time. These also include our own Suggestions to Indian Government/MCA and other Government Departments as well as those suggestions that Indian and Foreign Companies may find useful.

Indian Companies Act, 2013 (PDF)

MCA Notification Dated 26-03-2014 (PDF) Regarding 183 Sections of Indian Companies Act 2013

Table Containing Provisions Of Companies Act, 2013 As Notified Up To Date And Corresponding Provisions Thereof Under Companies Act, 1956 (PDF)

Roll Out Plan Of Various Forms Under The Companies Act, 2013 And Continuance Of Forms Under The Provisions Of Companies Act, 1956 (PDF)

Companies 2nd (Removal of Difficulties) Order, 2014 (PDF)

Companies (Appointment and Qualification of Directors) Rules, 2014 (PDF)

Companies (Corporate Social Responsibility Policy) Rules, 2014 (PDF)

Companies (Incorporation) Rules 2014 (PDF)

Companies (Share Capital and Debentures) Rules, 2014 (PDF)

Companies (Accounts) Rules, 2014 (PDF)

Companies (Declaration and Payment of Dividend) Rules, 2014 (PDF)

Companies (Management and Administration) Rules, 2014 (PDF)

Companies (Meetings of Board and its Powers) Rules, 2014 (PDF)

Companies (Prospectus and Allotment of Securities) Rules, 2014 (PDF)

Companies (Registration of Charges) Rules, 2014 (PDF)

Companies (Specification Of Definitions Details) Rules, 2014 (PDF)

Companies (Adjudication of Penalties) Rules, 2014 (PDF)

Companies (Miscellaneous) Rules, 2014 (PDF)

Nidhi Rules, 2014 (PDF)

Companies (Acceptance of Deposits) Rules, 2014 (PDF)

Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 (PDF)

Companies (Audit and Auditors) Rules, 2014 (PDF)

Companies (Authorised to Registered) Rules, 2014 (PDF)

Companies (Registration of Foreign Companies) Rules, 2014 (PDF)

Companies (Registration Offices and Fees) Rules, 2014 (PDF)

Companies (Inspection, Investigation and Inquiry) Rules, 2014 (PDF) (Finally Notified)

Rules under Chapter XIV of Indian Companies Act, 2013 pertaining to Inspection, Inquiry and Investigation (PDF) (As Proposed)

Suggestions Regarding Rules Pertaining to Inspection, Inquiry and Investigation (SFIO) by Perry4Law (PDF)

Cyber Law Due Diligence Requirements For Indian And Foreign Companies (PDF)

We hope the stakeholders would find these links useful. We would also update this list from time to time. Please bookmark this page so that you can have updated information about Indian Companies Act, 2013 and Rules/Notifications made thereunder.

Serious Fraud Investigating Office (SFIO) Would Prosecute Vaishnavi Group For Various Legal Violations

Serious Fraud Investigating Office (SFIO) Would Prosecute Vaishnavi Group For Various Legal ViolationsCorporate governance in India is all set to be streamlined. The starting point was the enactment of Indian Companies Act, 2013 (PDF) to improve the corporate culture in India. Corporate frauds investigation in India was also strengthened by the Companies Act, 2013.The powers of Serious Fraud Investigation Office (SFIO) were also enhanced so that they can effectively deal with corporate frauds and crimes in India.

To further refine the corporate environment of India, Ministry of Corporate Affairs (MCA) has also notified 183 sections of Indian Companies Act, 2013 that would change the way companies have to regulate their business in India and abroad. The corporate world of India would now be required to comply with the notified provisions (PDF) of Indian Companies Act, 2013 from April 1st 2014.

MCA has already issued some Rules under Chapter XIV of Indian Companies Act, 2013 pertaining to Inspection, Inquiry and Investigation by Indian Authorities and Serious Frauds Investigation Office (SFIO). The Suggestions Regarding Rules Pertaining to Inspection, Inquiry and Investigation (SFIO) by Perry4Law (PDF) has already been provided by us in this regard. Now even the Central Government permission is not required by Central Bureau of Investigation (CBI) to prosecute senior bureaucrats for corruption cases monitored by Supreme Court of India.

SFIO has on Wednesday informed Supreme Court of India that it would prosecute various Vaishnavi group companies owned by controversial former corporate lobbyist Niira Radia for alleged violation of the Companies Act. In an affidavit filed before the court, SFIO said that MCA has granted sanction and filing of prosecution against the companies, that once catered to high-profile clients like Tatas, Unitech and Reliance Industries, is under process. The agency also stated that on the direction of MCA it has also sent its reports to CBI and Income Tax department for taking action on their part.

The apex court was also informed that the SFIO was in the process of lodging a former complaint with ICAI (Institute of Chartered Accountants of India) and ICSI (Institute of Company Secretaries of India) for initiating disciplinary action against the concerned auditors and company secretaries respectively, as per MCA’s direction.

Ministry Of Corporate Affairs Notifies 183 Sections Of Indian Companies Act 2013

Ministry Of Corporate Affairs Notifies 183 Sections Of Indian Companies Act 2013The corporate environment in India is fast changing and companies have to adjust their way of functioning according o the changing regulatory landscape. Companies operating in India are now required to comply with many unique techno legal compliances that were not conceivable few years back. These include cyber law and cyber security compliances as well and the companies in India cannot ignore the cyber due diligence anymore.

The Securities and Exchange Board of India (SEBI) has announced that it would release corporate governance rules for the listed entities in India. Further, the Parliament of India passed the Indian Companies Act, 2013 (PDF) to improve the corporate culture in India. Powers of Serious Fraud Investigation Office (SFIO) were also enhanced so that they can effectively deal with corporate frauds and crimes in India. Now the Indian Government has notified 183 sections of Indian Companies Act, 2013 that would change the way companies have to regulate their business in India and abroad.

The Ministry of Corporate Affairs (MCA) has already issued some Rules under Chapter XIV of Indian Companies Act, 2013 pertaining to Inspection, Inquiry and Investigation by Indian Authorities and Serious Frauds Investigation Office (SFIO). The Suggestions Regarding Rules Pertaining to Inspection, Inquiry and Investigation (SFIO) by Perry4Law (PDF) has already been provided by us in this regard. Now even the Central Government permission is not required by Central Bureau of Investigation (CBI) to prosecute senior bureaucrats for corruption cases monitored by Supreme Court of India.

There is no escape from the reality that white collar crimes and financial frauds are increasing in India. Further, IT and cyber frauds in Indian companies are increasing. By their very nature these high profile crimes affect corporate sector. Indian companies are also facing increased corporate frauds, financial frauds, white color crimes and technological frauds.

With the present techno legal framework and its non compliance by Indian and foreign companies, the cyber litigations against foreign websites would increase in India in the near future. Even the foreign investors in e-commerce and technology ventures of India are required to follow cyber law due diligence requirements (PDF). The legal mood is very clear and cyber due diligence cannot be ignored by Indian companies anymore. Very soon mandatory cyber security breach notifications would be enforced in India as well. Further, cyber security breaches in India would also raise complicated cyber security issues for the companies as most of them are not complying with techno legal requirements of Indian laws and regulations.

Corruption among corporate world has also necessitated use of e-discovery and cyber law due diligence by and against Indian companies. For instance, Indian and foreign corruption and technology related due diligences in India has gained importance. Similarly, corporate frauds investigations in India are increasingly using e-discovery and cyber forensics methodologies to solve corporate frauds and crimes. Although e-discovery legal issues are still ignored in India yet the companies doing business in India would be required to comply with e-discovery requirements. Now the corporate world of India would be required to comply with the notified provisions of Indian Companies Act, 2013 as well from April 1st 2014 as MCA has issued a notification (PDF) in this regard that has brought into force many provisions.

These include auditor rotation, one-person company and mandatory secretarial audit. This is in addition to the nearly 98 sections that were notified in the first phase. With the latest move, the company law will be substantially operalitionalised from 1st April 2014. The rules for the provisions are also expected in the next few days. The areas which are yet to be notified are compromise and arrangement, oppression and mismanagement, winding up, sick companies, special courts, national company law tribunal, national financial reporting authority and investor education and protection fund.

Food, Health, Cosmetics, Drugs, Medicines And Nutraceutical Laws, Rules And Regulations In India

Food, Health, Cosmetics, Drugs, Medicines And Nutraceutical Laws, Rules And Regulations In IndiaThis is the alphabetic arrangement of various Indian laws pertaining to food, health, cosmetics, drugs, medicines, nutraceuticals, etc. Perry4Law hopes that our readers would find them useful.

(1) Clinic Establishment:

Clinical Establishments (Central Government) Rules 2012 (PDF)

Clinical Establishments (Registration And Regulation) Act 2010 (PDF)

Notification Of The Clinics Establishments Act 2010 (PDF)

Application for Provisional Registration of Clinical Establishment (PDF)

(2) Drugs And Cosmetics:

Drugs And Cosmetics Act 1940 (PDF)

Drugs And Cosmetics Rules 1945 Of India (PDF)

Drugs And Cosmetics (Amendment) Act 2013 (PDF)

Drugs And Cosmetics (5th Amendment) Rules 2013 (PDF)

(3) Food Safety:

Food Safety and Standards Act 2006 (PDF)

Food Safety And Standards (Contaminants, Toxins And Residues) Regulations 2011 (PDF)

Food Safety And Standards (Food Products Standards And Food Additives) Regulations 2011 (PDF)

Food Safety And Standards (Food Product Standards And Food Additives) Regulation 2011 (Part II) (PDF)

Food Safety And Standards (Laboratory And Sample Analysis) Regulations 2011 (PDF)

Food Safety And Standards (Licensing And Registration Of Food Businesses) Regulations 2011 (PDF)

Food Safety And Standards (Packaging And Labelling) (Amendment) Regulations 2011 (PDF)

Food Safety And Standards (Packaging And Labelling) Regulations 2011 (PDF)

Food Safety And Standards (Prohibition And Restrictions On Sales) Regulations 2011 (PDF)

(4) Medical Council And Pharmacy:

Indian Medicine Central Council Act 1970 (PDF)

The Indian Pharmacy Act 1948 (PDF)

(5) Narcotic Drugs And Psychotropic Substances:

Narcotic Drugs And Psychotropic Substances Act 1985 (PDF)

Narcotic Drugs And Psychotropic Substances (Regulation Of Controlled Substances) Order 1993 (PDF)

Prevention Of Illicit Traffic In Narcotic Drugs And Psychotropic Substances Act 1988 (PDF)

(6) Food Adulteration:

Prevention of Food Adulteration Act 1954 And The Prevention Of Food Adulteration Rules 1955 (PDF)

(7) Electronic Medical Records:

Recommendations On Electronic Medical Records Standards In India (PDF)

(8) HIPAA:

Health Insurance Portability And Accountability Act Of 1996 (PDF) (United States).

Commerce And Industry Ministry Of India Favours 100 Per Cent FDI In B2C E-Commerce Sector

Commerce And Industry Ministry Of India Favours 100 Per Cent FDI In B2C E-Commerce SectorThe business structuring of e-commerce in India is not an easy task. The stakeholders have to comply with techno legal requirements in order to successfully run e-commerce businesses in India. Further, there are many techno legal e-commerce compliances in India that are presently not complied with a majority of e-commerce players of India.

Even the foreign investors are not taking these irregularities and non compliances seriously and they are investing in the hope that in the later years they would regularise these irregularities. However, not all irregularities are capable of being rectified as many of them are civilly and criminally punishable under Indian laws. As on date e-commerce due diligence in India is neglected by investors and financial institutions.

As per the Consolidated FDI Policy of India 2013 by Department of Industrial Policy and Promotion (DIPP) (PDF), the foreign direct investment (FDI) in e-commerce activities in India is allowed upto 100% through automatic route. E-commerce activities refer to the activity of buying and selling by a company through the e-commerce platform. Such companies would engage only in Business to Business (B2B) e-commerce and not in retail trading, inter-alia implying that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well.

As per the present FDI policy, FDI in Single Brand product retail trading is allowed upto 100% through government approval route and is allowed upto 51% in multi brand retail trading through government approval. This is subject to compliance with additional requirements as prescribed by the policy.

Recently a Discussion Paper on E-Commerce in India by Department of Industrial Policy and Promotion (DIPP) 2014 (PDF) was released. The objective was to seek inputs and suggestions of FDI and e-commerce stakeholders. Now the commerce and industry ministry is in favour of allowing 100 per cent FDI in the e-commerce sector and a decision on liberalising the sector may be announced after the approval of the Election Commission, which has declared general elections beginning April 7.

After the Election Commission announced the schedule for the Lok Sabha election, model code of conduct has come into place, which bars the caretaker government to refrain from taking any policy decision which may disturb the level-playing field. The Election Commission has also issued guidelines for media coverage under Section 126 of RP Act, 1951.

Tesco has already entered into Indian market in this field. UK-based Tesco is the only company to have entered the sector with an investment of $110 million, more than one year after the government allowed 51 per cent FDI in the sector in September 2012. Two foreign retailers, Carrefour and Aeon, have also expressed interest in setting shops in the country with Indian partners. French-multinational retailer Carrefour is understood to be in talks with Bharti enterprises, which broke up with US-based Walmart last year, to enter the Indian multi-brand retail space. Carrefour has been present in India since 2010 in wholesale cash and carry segment and has five stores across the country.

Telecom Merger And Acquisitions (M&A) Guidelines 2014 Of India

Telecom Merger And Acquisitions (M&A) Guidelines 2014 Of IndiaTelecom stakeholders are all excited due to the recent developments that have taken place in the telecom sector of India. The fact is that telecom environment of India is fast changing and this has given rise to many unique opportunities for the stakeholders around the world.

Pro active polices and guidelines like electronic system design and manufacturing, merger and acquisition (M&A) guidelines, FDI policy for telecom sector of India 2014 (PDF), approval to establish two semiconductor wafer fabrication manufacturing facilities in India (PDF), etc have already been announced by Indian government.

The guidelines for merger and acquisitions of telecom companies in India 2014 (PDF) have also been issued and many international telecom companies have shown their interest in this regard. The M&A policy for the telecom sector were scheduled to be presented before the cabinet for approval on 27 February 2014.

Nevertheless, the background developments and exercises have already started in the telecom field. National and international telecom companies have started exploring partnership, join venture, acquisitions and M&A possibilities.

At the same time regulatory compliances have also significantly increased in India in the telecom related fields. For instance telecom due diligence compliances is required to be ensured by foreign investors and those interested in M&A with Indian companies. Further, telecom stakeholders exploring the M&A route must also comply with the Internet intermediaries requirements and cyber law due diligence requirements (PDF) as prescribed by the Information Technology Act, 2000 (IT Act 2000).

Taxation issues have been at the core of dispute between big telecom companies and Indian Government. For instance, companies having commercial presence in India were accused of violating the transfer pricing laws of India. Transfer pricing orders have already been issued against Vodafone and Shell India and Nokia has been accused of violating the income tax and transfer pricing laws of India.

There are provisions under the Income Tax Act for avoidance of tax by certain transactions in securities and avoidance of income-tax by transactions resulting in transfer of income to non residents. To further curb income tax avoidance and to check black money accumulation in foreign jurisdictions, Income Tax Overseas Units (ITOUs) of India in foreign countries would also be established.

The Telecom Merger and Acquisitions (M&A) Guidelines 2014 of India must be read subject to all these techno legal requirements. Companies looking forward to M&A would also take the rights and obligations of the merged entity. A wrong telecom due diligence compliance may saddle them with unnecessary legal and financial liabilities.

Indian Corporates Are Lobbying For Regulated Digital Currency In India

Indian Corporates Are Lobbying For Regulated Digital Currency In IndiaBitcoins are witnessing ups and downs in the Indian markets. As on date the Bitcoin websites have started taking legal precautions. While some have shut down their shops temporarily yet others have postponed the launch of their website altogether to avoid legal risks. The crux of this scenario is that Bitcoin websites in India must comply with Indian laws to remain legal.

The most vulnerable segment in this regard is the Bitcoins exchanges operating in India that have failed to comply with the Internet intermediaries requirements and cyber law due diligence requirements (PDF) as prescribed by the Information Technology Act, 2000 (IT Act 2000). The way Indian banking regulatory environment is changing, regulation of Bitcoins in India is the only viable option left before the regulatory authorities, including the Reserve Bank of India (RBI).

The Securities and Exchange Board of India (SEBI) has announced that it would release corporate governance rules for the listed entities in India. Further, the Parliament of India passed the Indian Companies Act, 2013 (PDF) to improve the corporate culture in India. Powers of Serious Fraud Investigation Office (SFIO) were also enhanced so that they can effectively deal with corporate frauds and crimes in India.

Recently the Reserve Bank of India (RBI) cautioned users of virtual currencies against various risks, including legal risks. The Enforcement Directorate (ED) also searched few Bitcoin websites in India as it believes that Bitcoins money can be used for hawala transactions and funding terror operations. In these circumstances the role of Indian corporates for lobbying for regulated digital currencies in India must be analysed.

According to Zee News as more Bitcoin operators shut shop in India on fears of regulatory and enforcement actions, some large corporates are believed to have begun lobbying hard with regulators and government departments in favour of “digital currency”. While none of these groups are as yet into Bitcoin business, some of them may be interested in setting up their own “virtual currency” platforms, a senior official said.

The point being advocated by such companies before the regulators and policymakers is that the world of banking and financial transactions may eventually move beyond the current brick-and-mortal model to the digital world, the official said, but refused to divulge any names.

Their representatives are believed to be putting across their views through meetings with top officials at the concerned regulatory authorities and government departments, while also suggesting a proper legal and regulatory framework for operations relating to digital currencies. The regulatory glare has intensified on Bitcoins in recent weeks due to possible money laundering, cyber security and other risks (PDF), while many operators have suspended their operations after RBI’s warning against use of such currencies.

Some of these operators have also approached RBI for clarifications and have requested it to put in place a proper regulatory framework for “genuine” virtual currencies. While Bitcoin operators are expecting clear regulatory clarifications that virtual currencies are not illegal per se, experts say such hopes are futile given that these currencies are saddled with number of significant risks at the moment. There have been regular reports of cyber criminals hacking and stealing virtual currencies across the world.

More and more legal violations are being reported these days. In the past there have been many media reports of the usage of Bitcoins for illicit and illegal activities in several jurisdictions. Now it has been reported that some Indian tea traders violated Indian laws by engaging in illegal Bitcoin transactions. It is high time for Indian regulatory authorities to regulate use and dealings in digital currency in India.

Securities And Exchange Board Of India (SEBI) Would Release Corporate Governance Rules For The Listed Entities In India

Securities And Exchange Board Of India (SEBI) Would Release Corporate Governance Rules For The Listed Entities In IndiaCorporate environment is one of the guiding forces for increased foreign direct investments (FDI) in any country. After serious corporate governance lapses and increased corporate frauds in India during the year 2013, Indian government decided to rejuvenate the same.

Taxation issues were at the core of dispute between big companies and Indian government. For instance, companies having commercial presence in India were accused of violating the transfer pricing laws of India. Transfer pricing orders have already been issued against Vodafone and Shell India and Nokia has been accused of violating the income tax and transfer pricing laws of India.

It is not the case that there are no laws in this regard. There are provisions under the Income Tax Act for avoidance of tax by certain transactions in securities and avoidance of income-tax by transactions resulting in transfer of income to non residents. To further curb income tax avoidance and to check black money accumulation in foreign jurisdictions, Income Tax Overseas Units (ITOUs) of India in foreign countries would also be established.

However, a need to overhaul the corporate regulatory environment of India was also felt. The first thing that Indian government did to improve the corporate environment of India was the formulation of a new legal framework for Indian companies. The Parliament of India passed the Indian Companies Act, 2013 (PDF) to give effect to this requirement. Powers of Serious Fraud Investigation Office (SFIO) were also increased so that they can effectively deal with corporate frauds and crimes in India.

Now media reports have claimed that the Securities and Exchange Board of India (SEBI) will soon come out with new corporate governance rules for the listed entities in the country.  SEBI chairman U.K. Sinha said on Saturday that the board will take up the proposals in its next board meeting and will announce them after board approval.

This is a good step taken by the SEBI and it would bring transparency and accountability in the corporate affairs. We hope that SEBI, Reserve Bank of India (RBI), Income Tax Department of India, etc would also consider providing some regulations for Bitcoin exchanges of India that are operating without complying with Indian laws as on date.

Code Of Bank’s Commitment To Customers By Banking Codes And Standards Board Of India (BCSBI)

Code Of Bank's Commitment To Customers By Banking Codes And Standards Board Of India (BCSBI)Banking industry of India is facing a variety of financial and banking frauds in India. For instance, Internet banking frauds, ATM frauds, RTGS frauds, etc are on rise in India. Even IT and cyber frauds in Indian companies are increasing. The cyber law and cyber security trends of 2013 provided by Perry4Law have also highlighted this fact.

The Reserve Bank of India (RBI) has also taken note of this situation. RBI Working Group on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds has been constituted and it submitted its report. Further, the Security and Risk Mitigation Measures for Card Present Transactions in India has also been brought into force by RBI.

However, Indian banks are not complying with directions of RBI in this regard especially the cyber law due diligence requirements. Even cyber security due diligence is not followed by Indian banks. Economic Times has reported that a Code Of Bank’s Commitment to Customers by Banking Codes and Standards Board of India (BCSBI) (PDF) has been issued by BCSBI.

Banks will be forced to make a drastic change in rules in the new year that will be much more supportive of customers who are victims of electronic fraud. Customers will have to be compensated for such theft unless the bank can prove the fraud occurred due to negligence on part of the client.

The code has also prescribed a simplified process for opening basic accounts and talks about offering doorstep service for disabled customers and senior citizens, while frowning upon the misselling of third-party products such as insurance. The BCSBI frames a code of commitment for banks aimed at protecting customers’ rights and entitlements. It also obliges every branch to display on notice boards the documents required for opening small accounts and pledge itself to opening more such accounts.

The revised code on electronic transactions puts the onus on the bank to prove the customer compromised the user ID and password, leading to the fraud. This seeks to overturn the current system that’s loaded in favour of the banks, with customers who have been defrauded getting scant comfort. Banks are known to resist attempts by aggrieved customers to get their money back, with some receiving justice years after the fraud has been perpetrated.

Customers have also been known to be falsely accused of orchestrating such frauds themselves. Banks have thus far been getting away with it because the agreement that governs such issues states that they are not responsible for any unauthorised transactions.

“The revised code has ensured that the customer’s interests are fully protected and he is not put to any harm or financial loss,” said AC Mahajan, chairman of BCSBI. “The revised code says that if the customer incurs any direct loss due to a security breach of the Internet banking system that is not contributed or caused by the customer, the bank will bear the loss, unless it is able to establish that the customer is guilty.” KC Chakrabarty, deputy governor of the RBI, had pointed out the one-sided nature of the agreement a few years ago. “The banking agreement is so worded as to afford no right to the customer and is extremely lopsided.

Banks are not responsible for any unauthorised transactions even if carried out by their employees. In fact, given an institution’s resources, the onus should be on banks to prove that the individual customer has compromised his user ID or password,” he said at an annual conference of principal code compliance officers. “Making networks safe and sound is the responsibility of banks. There must be in place a code of conduct for addressing issues in the non-face to-face transactions domain.”

The revised code, which is expected to come into force in January, assumes significance as electronic transactions and related frauds are likely to rise. The number of electronic transactions rose 11% to Rs 854 crore in 2012-13 over the previous year.

Income Tax Overseas Units (ITOUs) Of India In Foreign Countries In Pipeline

Income Tax Overseas Units (ITOUs) Of India In Foreign Countries In PipelineDealing with black money has become a very big challenge for the Indian government. Despite the best efforts of Indian government the problem of black money has been increasing day by day.

To streamline the corporate culture of India, Indian government formulated the Indian Companies Act 2013 (PDF). The 2013 Act has brought many far reaching and reformative steps in the corporate environment of India.

The 2013 Act has also widened the powers of Serious Frauds Investigation Office (SFIO) of India. Now even the Central Government permission is not required by Central Bureau of Investigation (CBI) to prosecute senior bureaucrats for corruption cases monitored by Supreme Court of India.

The Ministry of Corporate Affairs (MCA) has also issued some Rules under Chapter XIV of Indian Companies Act, 2013 pertaining to Inspection, Inquiry and Investigation by Indian Authorities and Serious Frauds Investigation Office (SFIO). The Suggestions Regarding Rules Pertaining to Inspection, Inquiry and Investigation (SFIO) by Perry4Law (PDF) has already been provided by us in this regard.

However, corporate frauds, financial frauds and cyber crimes are still on rise in India. Companies in India are not at all following cyber law due diligence requirements and this has resulted in increased cyber crimes and online frauds in India. These irregularities and crimes can be easily detected if an e-discovery exercise is undertaken by law enforcement agencies of India.

The transfer pricing laws in India also need to be strengthened as many telecom companies have been avoiding payment of taxes due to inadequate transfer pricing laws of India.

Corruption among corporate world has also necessitated use of e-discovery and cyber law due diligence by and against Indian companies. For instance, Indian and foreign corruption and technology related due diligences in India has gained importance. Corruption and the regulatory measures to prohibit corrupt practices have assumed new meaning with the passing of the Jan Lokpal and Lokayuktas Act, 2013 by the Parliament of India.

Now Economic Times has reported that as part of its strategy to combat black money, India will soon operationalise its first-ever Income Tax office in Cyprus to tackle funds flowing from the island nation even as it mulls rolling back suspension of tax benefits on investments made from that country.

Sources said final approvals from the Prime Minister’s Office (PMO) have been obtained to post an Indian Revenue Service officer as First Secretary in the country, one of the main sources of foreign direct investment into India, and also at seven other foreign locations which include France, Germany, Netherlands, Japan, UAE, UK and USA.

“The offices have already been set up in these countries and with the posting of these officers they will begin operations in the next one month,” sources privy to the development said.

The government had decided to set up the Income Tax Overseas Units (ITOUs) in these eight countries as part of its multi-pronged strategy to combat black money and streamline flow of investments from these nations into India. Two such ITOUs are already operational in Mauritius and Singapore.

India and Cyprus had entered into a Double Taxation Avoidance Agreement (DTAA) in 1994. But in November this year, India classified the island nation as a notified jurisdictional area and suspended the tax benefits.

Following the notification by the Finance Ministry, all payments made to Cyprus attracted a 30 per cent withholding tax and Indian entities receiving money from there were required to disclose the source of funds. India took the decision to withdraw tax benefits on grounds that Cyprus was not providing information requested by tax authorities under the taxation treaty.

After this decision Cyprus had said the Indian government has agreed to withdraw a notification that suspended tax benefits for investments from the island nation but this is subject to the foreign nation adopting the global convention on exchange of tax information.

In a recent statement on renegotiation of the existing DTAA (Double Taxation Avoidance Agreement), Cyprus also said a new tax treaty is expected to be finalised soon. Cyprus also said it would adopt provisions of Article 26 of the OECD Model Tax Convention relating to exchange of information in a new DTAA between the two countries.

The government’s intention to increase the numbers of ITOUs is drawn from the idea that these units could obtain hassle-free information on tax and financial data of investments made by individuals and institutions in these countries and facilitate exchange of data on legal investment or routing of money in India and vice-versa.

This is a good step in the right direction but much is still to be done in this regard.

Finance Ministry And RBI Investigating Money Laundering Accusations Against ICICI, HDFC And Axis Bank

Finance Ministry And RBI Investigating Money Laundering Accusations Against ICICI, HDFC And Axis BankBanking frauds in India have crossed all the limits and there is an urgent need on the part of Reserve Bank of India and Finance Ministry of India to take strict penal action against the offending banks.

RBI has in the past imposed penalties upon many banks for failure to comply with various laws and regulations. RBI is also investigating the cyber fraud happened at YES Bank.

Now it has been reported by media that ICICI, HDFC and Axis Banks have been accused of indulging in money laundering and benami transactions.

Reacting to this gross and poor state of banking industry of India, the Reserve Bank of India (RBI) and Finance Ministry of India have decided to investigate the money laundering allegations against ICICI, HDFC and Axis banks.

We would share the result of the investigation the moment it would be made public by Finance Ministry and RBI.

Banking Frauds In India Have Increased And RBI Is Sleeping

Banking Frauds In India Have Increased And RBI Is SleepingBanking frauds in India have increased tremendously. This is partly due to lack of stringent banking fraud laws in India and partly because the Reserve Bank of India (RBI) has failed to do the needful in this regard.

ATM frauds, Internet banking frauds, online banking frauds, RTGS frauds, money laundering offences, etc are on rise and all this is happening right under the nose of RBI.

In the absence of any deterrent punishment, Indian banks and their official are openly flouting the rules and regulations applicable to them. They are also flouting the bank’s code of conduct and ethical standards.

Banks of India are also not following cyber law due diligence in India.

Banks of India have also failed to appoint chief information officers (CIOs) and adopt cyber security requirements as prescribed by the Reserve Bank of India (RBI).

The latest to add to this list is the allegations of money laundering activities by private banks like ICICI Bank, HDFC Bank and Axis Bank.

At Perry4Law and Perry4Law’s Techno Legal Base (PTLB) we strongly believe that the regulatory environment for banks in India needs a rejuvenation that must bring transparency, accountability and responsibility among banks of India.

ICICI, HDFC And Axis Banks Alleged To Be Indulging In Money Laundering And Benami Transactions

ICICI, HDFC And Axis Banks Alleged To Be Indulging In Money Laundering And Benami TransactionsBanking frauds in India have reached a level where if immediate action is not taken then public would loose faith in the banking industry of India.

As per media reports, it has been alleged that senior executive of private banks like ICICI, HDFC and Axis Banks have agreed to receive unverified sums of cash and put them in their investment schemes and benami accounts in violation of anti-money laundering laws of India.

These allegations are serious in nature and a thorough investigation must be conducted by enforcement officials, serious fraud investigation office (SFIO) and Reserve Bank of India (RBI).

If found guilt, strict legal and administrative actions must be taken against the guilty banks and their officials.

The banking license of banks repeatedly violating rules and regulations applicable in India must also be cancelled by the RBI.

Further, it is also high time to formulate phishing laws and regulations for banks and financial institutions of India as well as complaint against more and more banks are filed these days.

At Perry4Law and Perry4Law’s Techno Legal Base (PTLB) we strongly believe that the regulatory environment for banks in India needs a rejuvenation that must bring transparency, accountability and responsibility among banks of India.

The sooner this is done the better it would be for the larger interest of all stakeholders.

Transfer Pricing Laws And Regulations In India Need Clarification

Transfer Pricing Laws And Regulations In India Need ClarificationForeign direct investment (FDI), foreign exchange management and transfer pricing laws in India are in limelight these days. For instance, transfer pricing order has been issued against Vodafone India. Similarly, Nokia has been accused of violating income tax and transfer pricing laws of India. Shell India also received a transfer pricing order from Indian tax authorities.

Further, Income Tax Act, 1961 of India also incorporates provisions pertaining to avoidance of income-tax by transactions resulting in transfer of income to non residents and avoidance of tax by certain transactions in securities. Despite all these provisions, the transfer pricing regulatory framework of India needs further clarification form Indian government.

The finance ministry is now in the process of devising clear guidelines for contentious transfer pricing cases, especially for handling the grey areas. We at Perry4Law and Perry4Law’s Techno Legal Base (PTLB) believe that this clarification of the transfer pricing laws and regulations of India would be beneficial for both foreign companies and FDI entities and Indian government.

We also welcome the move of Indian government and Central Board of Direct Taxes (CBDT) for analysing the modalities for handling transfer pricing cases in India. An I-T department’s committee has been assigned with the task of drafting rules for foreign tax credit and it is also looking at transfer pricing issues. The committee will work out the modalities for handling such cases and submit its report to the finance ministry.

Avoidance Of Tax By Certain Transactions In Securities

Avoidance Of Tax By Certain Transactions In SecuritiesPerry4Law and Perry4Law’s Techno Legal Base (PTLB) have already discussed the legal issues pertaining to transfer pricing laws in India. We have also discussed avoidance of income-tax by transactions resulting in transfer of income to non residents.

In this article we would discuss a related concept that results in tax evasion by mode of certain transactions in securities.

Section 94 (1) of the Act provides that where the owner of any securities (in this sub-section and in subsection (2) referred to as “the owner”) sells or transfers those securities, and buys back or reacquires the securities, then, if the result of the transaction is that any interest becoming payable in respect of the securities is receivable otherwise than by the owner, the interest payable as aforesaid shall, whether it would or would not have been chargeable to income-tax apart from the provisions of this sub-section, be deemed, for all the purposes of this Act, to be the income of the owner and not to be the income of any other person.

Explanation.-The references in this sub-section to buying back or reacquiring the securities shall be deemed to include references to buying or acquiring similar securities, so, however, that where similar securities are bought or acquired, the owner shall be under no greater liability to income-tax than he would have been under if the original securities had been bought back or reacquired.

Section 94 (2) of the Act provides that where any person has had at any time during any previous year any beneficial interest in any securities, and the result of any transaction relating to such securities or the income thereof is that, in respect of such securities within such year, either no income is received by him or the income received by him is less than the sum to which the income would have amounted if the income from such securities had accrued from day to day and been apportioned accordingly, then the income from such securities for such year shall be deemed to be the income of such person.

Section 94 (3) of the Act provides that the provisions of sub-section (1) or sub-section (2) shall not apply if the owner, or the person who has had a beneficial interest in the securities, as the case may be, proves to the satisfaction of the Assessing Officer-

(a) That there has been no avoidance of income-tax, or

(b) That the avoidance of income-tax was exceptional and not systematic and that there was not in his case in any of the three preceding years any avoidance of income-tax by a transaction of the nature referred to in sub-section (1) or sub-section (2).

Section 94 (4) of the Act provides that where any person carrying on a business which consists wholly or partly in dealing in securities, buys or acquires any securities and sells back or retransfers the securities, then, if the result of the transaction is that interest becoming payable in respect of the securities is receivable by him but is not deemed to be his income by reason of the provisions contained in sub-section (1), no account shall be taken of the transaction in computing for any of the purposes of this Act the profits arising from or loss sustained in the business.

Section 94 (5) of the Act provides that sub-section (4) shall have effect, subject to any necessary modifications, as if references to selling back or retransferring the securities included references to selling or transferring similar securities.

Section 94 (6) of the Act provides that the Assessing Officer may, by notice in writing, require any person to furnish him within such time as he may direct (not being less than twenty-eight days), in respect of all securities of which such person was the owner or in which he had a beneficial interest at any time during the period specified in the notice, such particulars as he considers necessary for the purposes of this section and for the purpose of discovering whether income-tax has been borne in respect of the interest on all those securities.

Section 94 (7) of the Act provides that where-

(a) Any person buys or acquires any securities or unit within a period of three months prior to the record date;<

(b) Such person sells or transfers-

(i) Such securities within a period of three months after such date; or

(ii) Such unit within a period of nine months after such date;

(c) The dividend or income on such securities or unit received or receivable by such person is exempt, then, the loss, if any, arising to him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or unit, shall be ignored for the purposes of computing his income chargeable to tax.

Section 94 (8) of the Act provides that where-

(a) Any person buys or acquires any units within a period of three months prior to the record date;

(b) Such person is allotted additional units without any payment on the basis of holding of such units on such date

(c) Such person sells or transfers all or any of the units referred to in clause (a) within a period of nine months after such date, while continuing to hold all or any of the additional units referred to in clause (b), then, the loss, if any, arising to him on account of such purchase and sale of all or any of such units shall be ignored for the purposes of computing his income chargeable to tax and notwithstanding anything contained in any other provision of this Act, the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such additional units referred to in clause (b) as are held by him on the date of such sale or transfer.

Explanation.-For the purposes of this section,

(a) “Interest” includes a dividend;

(aa) “Record date” means such date as may be fixed by-

(i) A company for the purposes of entitlement of the holder of the securities to receive dividend; or

(ii) A Mutual Fund or the Administrator of the specified undertaking or the specified company as referred to in the Explanation to clause (35) of section 10, for the purposes of entitlement of the holder of the units to receive income, or additional unit without any consideration, as the case may be;

(b) “Securities” includes stocks and shares;

(c) Securities shall be deemed to be similar if they entitle their holders to the same rights against the same persons as to capital and interest and the same remedies for the enforcement of those rights, notwithstanding any difference in the total nominal amounts of the respective securities or in the form in which they are held or in the manner in which they can be transferred;

(d) “Unit” shall have the meaning assigned to it in clause (b) of the Explanation to section 115AB.

Avoidance Of Income-Tax By Transactions Resulting In Transfer Of Income To Non Residents

Avoidance Of Income-Tax By Transactions Resulting In Transfer Of Income To Non ResidentsSo far Perry4Law and Perry4Law’s Techno Legal Base (PTLB) have discussed the legal issues pertaining to transfer pricing laws in India. In this post we would discuss a related concept that results in tax evasion by transferring income to non residents.

Section 93 of the Income Tax Act, 1961 deals with the provision pertaining to avoidance of income-tax by transactions resulting by transfer of income to non residents. This way income tax liability is reduced that is otherwise payable.

Section 93 (1) of the Act provides that where there is a transfer of assets by virtue or in consequence whereof, either alone or in conjunction with associated operations, any income becomes payable to a non-resident, the following provisions shall apply-

(a) Where any person has, by means of any such transfer, either alone or in conjunction with associated operations, acquired any rights by virtue of which he has, within the meaning of this section, power to enjoy, whether forthwith or in the future, any income of a nonresident person which, if it were income of the first-mentioned person, would be chargeable to income-tax, that income shall, whether it would or would not have been chargeable to income-tax apart from the provisions of this section, be deemed to be income of the first mentioned person for all the purposes of this Act;

(b) Where, whether before or after any such transfer, any such first mentioned person receives or is entitled to receive any capital sum the payment whereof is in any way connected with the transfer or any associated operations, then any income which, by virtue or in consequence of the transfer, either alone or in conjunction with associated operations, has become the income of a non-resident shall, whether it would or would not have been chargeable to income-tax apart from the provisions of this section, be deemed to be the income of the first mentioned person for all the purposes of this Act.

Explanation.-The provisions of this sub-section shall apply also in relation to transfers of assets and associated operations carried out before the commencement of this Act.

Section 93 (2) of the Act provides that where any person has been charged to income-tax on any income deemed to be his under the provisions of this section and that income is subsequently received by him, whether as income or in any other form, it shall not again be deemed to form part of his income for the purposes of this Act.

Section 93 (3) of the Act provides that the provisions of this section shall not apply if the first-mentioned person in sub-section (1) shows to the satisfaction of the [Assessing] Officer that-

(a) Neither the transfer nor any associated operation had for its purpose or for one of its purposes the avoidance of liability to taxation; or

(b) The transfer and all associated operations were bona fide commercial transactions and were not designed for the purpose of avoiding liability to taxation.

Explanation.-For the purposes of this section,

(a) References to assets representing any assets, income or accumulations of income include references to shares in or obligation of any company to which, or obligation of any other person to whom, those assets, that income or those accumulations are or have been transferred;

(b) Any body corporate incorporated outside India shall be treated as if it were a non-resident;

(c) A person shall be deemed to have power to enjoy the income of a nonresident if-<

(i) The income is in fact so dealt with by any person as to be calculated at some point of time and, whether in the form of income or not, to enure for the benefit of the first-mentioned person in sub-section (1), or

(ii) The receipt or accrual of the income operates to increase the value to such first-mentioned person of any assets held by him or for his benefit, or

(iii) Such first-mentioned person receives or is entitled to receive at any time any benefit provided or to be provided out of that income or out of moneys which are or will be available for the purpose by reason of the effect or successive effects of the associated operations on that income and assets which represent that income, or

(iv) Such first-mentioned person has power by means of the exercise of any power of appointment or power of revocation or otherwise to obtain for himself, whether with or without the consent of any other person, the beneficial enjoyment of the income, or

(v) Such first-mentioned person is able, in any manner whatsoever and whether directly or indirectly, to control the application of the income;

(d) In determining whether a person has power to enjoy income, regard shall be had to the substantial result and effect of the transfer and any associated operations, and all benefits which may at any time accrue to such person as a result of the transfer and any associated operations shall be taken into account irrespective of the nature or form of the benefits.

Section 93 (4) of the Act provides that-

(a) “Assets” includes property or rights of any kind and “transfer” in relation to rights includes the creation of those rights;

(b) “Associated operation”, in relation to any transfer, means an operation of any kind effected by any person in relation to-

(i) Any of the assets transferred, or<

(ii) Any assets representing, whether directly or indirectly, any of the assets transferred, or

(iii) The income arising from any such assets, or

(iv) Any assets representing, whether directly or indirectly, the accumulations of income arising from any such assets

(c) “Benefit” includes a payment of any kind;

(d) “Capital sum” means—

(i) Any sum paid or payable by way of a loan or repayment of a loan; and

(ii) Any other sum paid or payable otherwise than as income, being a sum which is not paid or payable for full consideration in money or money’s worth.

Transfer Pricing Order Issued Against Vodafone India

Transfer Pricing Order Issued Against Vodafone IndiaTax related regulatory affairs are in limelight in India these days. The chief among these issues is the transfer pricing laws of India that are claimed to be violated by many multi national telecom companies in India.

For instance, Shell India has received a transfer pricing order from Indian tax authorities. Similarly, Nokia has been accused of violating income tax and transfer pricing laws of India. So much so that forensics analysis of Nokia’s computer used to download software in India has been undertaken by tax officials.

Similarly, the vexing tax troubles of Vodafone are not coming to an end. Vodafone is still struggling with the retrospective tax demands by Indian tax authorities. It has been claimed that Vodafone may invoke arbitration for fresh tax demands by India. Now the tax authorities of India have issued a transfer pricing order against Vodafone.

Vodafone will challenge this order that arose due to the sale of shares of its Indian unit to a Mauritius-based group company. Vodafone maintains that share subscriptions are not covered by transfer pricing rules either in India or internationally and it has no basis in law.

Vodafone has also filed a writ petition challenging the jurisdictional issues on the basis of precedent established in the recent Vodafone International Holdings BV – Hutchison Supreme Court judgement.

Meanwhile Indian legislature has also undertaken few legislative steps to strengthen taxation laws of India and to prevent tax evasion in India. The next session of the Parliament may witness some regulatory issues in this regard.

Nokia Accused Of Violating Income Tax And Transfer Pricing Laws Of India

Nokia Accused Of Violating Income Tax And Transfer Pricing Laws Of IndiaTransfer pricing laws of India and income tax provisions are in limelight these days in India. Related issue like foreign direct investment (FDI) is also raised from time to time. Indian government would ascertain beneficiary in Walmart probe to ascertain possible violation of Indian laws.

In a significant and related regulatory development, the Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011 have also been formulated by the Competition Commission of India in 2011 to regulate anti competition combinations. The same may be pressed more frequently in the year 2013.

Vodafone is already managing a tax dispute with Indian government. In fact, Vodafone may invoke arbitration for fresh tax demands by India. Similarly, recently Shell India received a transfer pricing order from Indian tax authorities. Now Nokia has been accused of income tax and transfer pricing laws of India.

The income tax department believes that besides income tax violations, Nokia India may have flouted transfer pricing norms as well. The total tax implication for the Nokia could be over Rs 10,000 crore. It is also alleged that the Indian subsidiary of Nokia transferred profits to its headquarters and the same will now be reversed and considered as income, which would be around Rs 30,000 crore. On this amount, there will be a 30 per cent tax, which works out to Rs 9,000 crore.

Further, Nokia India also downloaded software from its parent company in Finland to manufacture mobile devices worth Rs 30,000 crore at its Indian plant. Royalty is paid for the software downloaded. This, in turn, attracts a 10 per cent tax deduction at source (TDS) amounting to Rs 3,000 crore.

According to income tax officials, Nokia had failed to do this and pay to the Government. Officials in Delhi will now issue an order on the amount, including penalty if any, payable by Nokia. Meanwhile, Nokia is claiming that it has complied with all the applicable laws of India and is fully cooperating with the authorities.

For our readers, we at Perry4Lawand Perry4Law’s Techno Legal Base (PTLB) have provided a research report titled Global Taxation and Anti Competition Regulatory Issues In 2012 And Projections Report for 2013 by Perry4Law that is discussing these issues. The report highlights global taxation issues including the recent allegations of tax avoidance labeled against Amazon, Google and Starbucks regarding UK Tax Laws.

Shell India Received Transfer Pricing Order From Indian Tax Authorities

Shell India Received Transfer Pricing Order From Indian Tax AuthoritiesTransfer pricing laws of India are frequently invoked by Indian income tax department these days. The main reason for the same is to enrich government exchequers with additional revenues.

One such transfer pricing order has been received by Shell India that alleges that Shell under priced its shares to the extent of Rs 15,000 crore while issuing shares to it’s sole parent Shell Gas BV in March, 2009.

Shell India has alleged that the order was based on incorrect interpretation of Indian transfer pricing laws. In fact, Shell believes that taxing the money received by Shell India is, in effect, a tax on foreign direct investment. Shell believes that this is not only in violation of Indian law but also giving a bad signal to the international FDI community.

Considering the tax evasion reports as baseless, Shell India is now planning to challenge the order of income tax authorities strongly and is evaluating all options for redress. The company is confident of its stand as the valuation of the shares was undertaken by a certified independent valuer who assessed the value to be below Rs 10 per share and the issue was made at Rs 10 per share. Shell claims that such valuation is in accordance with the foreign investment and exchange control laws. The valuation certificates were also filed with the regulatory authorities.

At Perry4Lawand Perry4Law’s Techno Legal Base (PTLB) we believe that the transfer pricing laws and valuation of the unlisted company needs further clarification from our legislature. Otherwise, litigations would keep on surfacing unnecessary.

In a listed company, the valuation is based on Securities and Exchange Board of India (SEBI) formula, which is the average of six-month or two-week share price, whichever is higher. But in unlisted companies, the valuation can be based on fair market price, or book value, or returns on share based on a certification by an independent valuer.

Transfer Pricing Laws In India, International Transaction And Arm’s Length Price

Transfer Pricing Laws In India, International Transaction And Arm’s Length PriceThe Income Tax 1961 of India deals with taxation of international transactions and transfer pricing laws, regulations and issues in India. The objective of these provisions is to curb tax evasion on the part of taxable entities and individuals.

However, the provisions of the Income Tax Act, 1961 in the past proved to be inadequate and ineffective to curb tax evasions, especially long term capital gains, arising out of foreign transactions having Indian ramifications.

One such incidence involves the company Vodafone where there is a present tax dispute between the company and Indian government. In fact, Vodafone may invoke arbitration for fresh tax demands by India. Vodafone taxation, parliament, international treaty and taxation issues of India need a fresh outlook on the part of our Parliament and Indian government.

We at Perry4Lawand Perry4Law’s Techno Legal Base (PTLB) have provided a research report titled Global Taxation and Anti Competition Regulatory Issues In 2012 And Projections Report for 2013 by Perry4Law that is discussing these issues. The report highlights global taxation issues including the recent allegations of tax avoidance labeled against Amazon, Google and Starbucks regarding UK Tax Laws.

Even the foreign direct investment (FDI) are strict actions have been initiated by Indian government. After canceling the telecom licenses of many telecom companies, now Indian government would ascertain beneficiary in Walmart probe to ascertain possible violation of Indian laws. The Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011 have also been formulated by the Competition Commission of India in 2011 to regulate anti competition combinations. The same may be pressed more frequently in the year 2013.

It is obvious that transfer pricing laws in India and laws pertaining to international transactions and arm’s length dealing in India need a total rejuvenation. The present provisions incorporated in the Income Tax Act, 1961 are inadequate in this regard.

Computation Of Income From International Transaction Having Regard To Arm’s Length Price

Section 92(1) of the Act prescribes that any income arising from an international transaction shall be computed having regard to the arm’s length price. The explanation to Section 92(1) provides that the allowance for any expense or interest arising from an international transaction shall also be determined having regard to the arm’s length price.

Section 92(2) of the Act prescribes that where in an international transaction, two or more associated enterprises enter into a mutual agreement or arrangement for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises, the cost or expense allocated or apportioned to, or, as the case may be, contributed by, any such enterprise shall be determined having regard to the arm’s length price of such benefit, service or facility, as the case may be.

Section 92(3) of the Act prescribes that the provisions of this section shall not apply in a case where the computation of income under sub-section (1) or the determination of the allowance for any expense or interest under that sub-section, or the determination of any cost or expense allocated or apportioned, or, as the case may be, contributed under subsection (2), has the effect of reducing the income chargeable to tax or increasing the loss, as the case may be, computed on the basis of entries made in the books of account in respect of the previous year in which the international transaction was entered into.

Associated Enterprise Under Indian Tax Laws

Section 92A (1) of the Act provides that for the purposes of this section and sections 92, 92B, 92C, 92D, 92E and 92F, “associated enterprise”, in relation to another enterprise, means an enterprise—

(a) Which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or

(b) In respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise.

Section 92A (2) of the Act provides that for the purposes of sub-section (1), two enterprises shall be deemed to be associated enterprises if, at any time during the previous year:

(a) One enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise; or

(b) Any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises; or

(c) A loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one per cent of the book value of the total assets of the other enterprise; or

(d) One enterprise guarantees not less than ten per cent of the total borrowings of the other enterprise; or

(e) More than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of one enterprise, are appointed by the other enterprise; or

(f) More than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board, of each of the two enterprises are appointed by the same person or persons; or

(g) The manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on the use of know how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights; or

(h) Ninety per cent or more of the raw materials and consumables required for the manufacture or processing of goods or articles carried out by one enterprise, are supplied by the other enterprise, or by persons specified by the other enterprise, and the prices and other conditions relating to the supply are influenced by such other enterprise; or

(i) The goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise; or

(j) Where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual; or

(k) Where one enterprise is controlled by a Hindu undivided family, the other enterprise is controlled by a member of such Hindu undivided family or by a relative of a member of such Hindu undivided family or jointly by such member and his relative; or

(l) Where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds not less than ten per cent interest in such firm, association of persons or body of individuals; or

(m) There exists between the two enterprises, any relationship of mutual interest, as may be prescribed.

Meaning Of International Transaction Under Indian Tax Laws

Section 92B (1) of the Act provides that for the purposes of this section and sections 92, 92C, 92D and 92E, “international transaction” means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises.

Section 92B (2) of the Act provides that a transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise.

Computation Of Arm’s Length Price Under Indian Tax Laws

Section 92C (1) of the Act prescribes the procedure to calculate the arm’s length price for an international transaction. As per Section 92C (1) the arm’s length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe, namely:

(a) Comparable uncontrolled price method;

(b) Resale price method;

(c) Cost plus method;

(d) Profit split method;

(e) Transactional net margin method;

(f) Such other method as may be prescribed by the Board.

Section 92C (2) of the Act provides that the most appropriate method referred to in sub-section (1) shall be applied, for determination of arm’s length price, in the manner as may be prescribed.

The proviso to Section 92C (2) provides that where more than one price is determined by the most appropriate method, the arm’s length price shall be taken to be the arithmetical mean of such prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five per cent of such arithmetical mean.

Section 92C (3) of the Act provides that where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that-

(a) The price charged or paid in an international transaction has not been determined in accordance with sub-sections (1) and (2); or

(b) Any information and document relating to an international transaction have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or

(c) The information or data used in computation of the arm’s length price is not reliable or correct; or

(d) The assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D,

the Assessing Officer may proceed to determine the arm’s length price in relation to the said international transaction in accordance with sub-sections (1) and (2), on the basis of such material or information or document available with him:

Provided that an opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the arm’s length price should not be so determined on the basis of material or information or document in the possession of the Assessing Officer.

Section 92C (4) of the Act provides that where an arm’s length price is determined by the Assessing Officer under subsection (3), the Assessing Officer may compute the total income of the assessee having regard to the arm’s length price so determined:

Provided that no deduction under section 10A [or section 10AA] or section 10B or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section:

Provided further that where the total income of an associated enterprise is computed under this sub-section on determination of the arm’s length price paid to another associated enterprise from which tax has been deducted [or was deductible] under the provisions of Chapter XVIIB, the income of the other associated enterprise shall not be recomputed by reason of such determination of arm’s length price in the case of the first mentioned enterprise.

Reference To Transfer Pricing Officer

Section 92CA (1) of the Act provides that where any person, being the assessee, has entered into an international transaction in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approval of the Commissioner, refer the computation of the arm’s length price in relation to the said international transaction under section 92C to the Transfer Pricing Officer.

Section 92CA (2) of the Act provides that where a reference is made under sub-section (1), the Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the arm’s length price in relation to the international transaction referred to in sub-section (1).

Section 92CA (3) of the Act provides that on the date specified in the notice under sub-section (2), or as soon thereafter as may be, after hearing such evidence as the assessee may produce, including any information or documents referred to in sub-section (3) of section 92D and after considering such evidence as the Transfer Pricing Officer may require on any specified points and after taking into account all relevant materials which he has gathered, the Transfer Pricing Officer shall, by order in writing, determine the arm’s length price in relation to the international transaction in accordance with sub-section (3) of section 92C and send a copy of his order to the Assessing Officer and to the assessee.

Section 92CA (3A) of the Act provides that where a reference was made under sub-section (1) before the 1st day of June, 2007 but the order under sub-section (3) has not been made by the Transfer Pricing Officer before the said date, or a reference under sub-section (1) is made on or after the 1st day of June, 2007, an order under sub-section (3) may be made at any time before sixty days prior to the date on which the period of limitation referred to in section 153, or as the case may be, in section 153B for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be, expires.

Section 92CA (4) of the Act provides that On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the arm’s length price as so determined by the Transfer Pricing Officer.

Section 92CA (5) of the Act provides that with a view to rectifying any mistake apparent from the record, the Transfer Pricing Officer may amend any order passed by him under sub-section (3), and the provisions of section 154 shall, so far as may be, apply accordingly.

Section 92CA (6) of the Act provides that where any amendment is made by the Transfer Pricing Officer under subsection (5), he shall send a copy of his order to the Assessing Officer who shall thereafter proceed to amend the order of assessment in conformity with such order of the Transfer Pricing Officer.

Section 92CA (7) of the Act provides that the Transfer Pricing Officer may, for the purposes of determining the arm’s length price under this section, exercise all or any of the powers specified in clauses (a) to (d) of sub-section (1) of section 131 or sub-section (6) of section 133.

The Explanation to Section 92CA provides that for the purposes of this section, “Transfer Pricing Officer” means a Joint Commissioner or Deputy Commissioner or Assistant Commissioner authorised by the Board to perform all or any of the functions of an Assessing Officer specified in sections 92C and 92D in respect of any person or class of persons.

Maintenance And Keeping Of Information And Document By Persons Entering Into An International Transaction

Section 92D (1) of the Act provides that every person who has entered into an international transaction shall keep and maintain such information and document in respect thereof, as may be prescribed.

Section 92D (2) of the Act provides that without prejudice to the provisions contained in sub-section (1), the Board may prescribe the period for which the information and document shall be kept and maintained under that sub-section.

Section 92D (3) of the Act provides that the Assessing Officer or the Commissioner (Appeals) may, in the course of any proceeding under this Act, require any person who has entered into an international transaction to furnish any information or document in respect thereof, as may be prescribed under sub-section (1), within a period of thirty days from the date of receipt of a notice issued in this regard:

Provided that the Assessing Officer or the Commissioner (Appeals) may, on an application made by such person, extend the period of thirty days by a further period not exceeding thirty days.

Report From An Accountant To Be Furnished By Persons Entering Into International Transaction

Section 92E of the Act provides that every person who has entered into an international transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed.

Definitions Of Certain Terms Relevant To Computation Of Arm’s Length Price, Etc

Section 92F of the Act provides that in sections 92, 92A, 92B, 92C, 92D and 92E, unless the context otherwise requires-

(i) “Accountant” shall have the same meaning as in the Explanation below sub-section (2) of section 288;

(ii) “Arm’s length price” means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions;

(iii) “Enterprise” means a person (including a permanent establishment of such person) who is, or has been, or is proposed to be, engaged in any activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights, or the provision of services of any kind, [or in carrying out any work in pursuance of a contract,] or in investment, or providing loan or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, whether such activity or business is carried on, directly or through one or more of its units or divisions or subsidiaries, or whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place or places;

(iiia) “Permanent establishment”, referred to in clause (iii), includes a fixed place of business through which the business of the enterprise is wholly or partly carried on;

(iv) “Specified date” shall have the same meaning as assigned to “due date” in Explanation 2 below sub-section (1) of section 139;]

(v) “Transaction” includes an arrangement, understanding or action in concert,

(a) Whether or not such arrangement, understanding or action is formal or in writing; or

(b) Whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding.

Perry4Law and PTLB hope this research work would prove useful to all concerned.

Cloud Computing: Legal And Regulatory Issues In India

In this research work, Perry4Lawand Perry4Law’s Techno Legal Base (PTLB) are discussing about the techno legal regulatory requirements that must be complied with by the cloud computing service providers of India and foreign  jurisdictions operating in India.
Cloud computing is a buzz word in the business circles of India. Many cloud computing service providers are over enthusiastic and are ready to grab a pie share of promising cloud computing business of India. Even from the governmental circles positive reports regarding possible use of cloud computing for governmental functions has come. However, not everything is as easy, positive and comfortable as is portrayed by governmental officers or cloud computing service providers.
The bigger question now is whether cloud computing would be successful in Asia in general and India in particular? Techno legal experts have opined against such use of cloud computing in India due to inherent weaknesses of Indian cyber laws, privacy and data protection laws and defective e-governance and ICT policies in India.
Besides technological and security issues, there are also a variety of other regulatory, compliance and legal issues to consider when moving to the cloud infrastructure in India. Cloud computing stakeholders must realise and accept that regardless of which computing model they use, whether cloud based or otherwise, they need to consider the legal issues, specifically those around any data they might collect, store and process.
For instance, Health Insurance Portability and Accountability Act of 1996 (HIPAA) is one of the most important health related legislations of United States (US). HIPPA ensures health care coverage, privacy protection, electronic information security, and fraud prevention regarding health care related issues. If you are storing health related information on a cloud infrastructure, you are required to comply with concerned laws in this regard.
At present we have no dedicated e-health laws and regulations in India but these laws would be formulated in the near future. Even essential attributes of these laws like privacy protection, data protection, data security, cyber security, confidentiality maintenance, etc would be governed by dedicated laws in future.
Similarly, online sales of prescribed medicines in India is still unregulated and illegal and unregulated online sales of prescribed medicines in India is happening right under the nose of Indian government. Electronic trading of medical drugs in India and HIPAA compliances in India would raise further cloud computing regulation issues in India. 
The Information Technology (Intermediaries Guidelines) Rules 2011 of India has prescribed cyber law due diligence requirements in India. The cyber laws due diligence requirements for companies in India are strenuous in nature and Internet intermediaries in India need to take care of the same to avoid legal troubles. In particular, online payment platforms, online travel agencies, Internet service providers ISPs), banks, foreign websites, cloud service providers, etc are vulnerable to legal actions if they fail to observe cyber due diligence in India.
Even appropriate legal actions against foreign websites can be taken in India. Further, cyber litigations against such foreign websites would increase in Indiain the near future. It is of utmost importance for these foreign cloud computing companies and websites to follow Indian laws in true letter and spirit.

In many cases the concerned CFO and CEO may be jointly or/and severably prosecuted for violation of Indian laws. Indian laws require designation of a specific person to manage and comply with Indian laws and a failure to do so may result in prosecution of concerned CFO and CEO.

Perry4Law and PTLB hope this research work would prove useful to all cloud computing solution providers of India and abroad and they would comply with the requirements of various laws as mentioned in this research work.

Direct Tax Benefits Issues Relating To Export Of Computer Software

The Government of India, through its Ministry of Finance/ Department of Revenue/ Central Board of Direct Taxes, has issued a clarificatory Circular No. 01/2013, F. No. 178/84/2012-ITA.I, dated 17th January 2013 pertaining to issues relating to export of computer software and corresponding direct tax benefits.
Perry4Lawand Perry4Law’s Techno Legal Base (PTLB) are hereby discussing the Direct Tax Benefits Issues Relating to Export of Computer Software for our readers. We hope all the stakeholders would find this discussion useful.

The Indian Software Industry has been the beneficiary of direct tax incentives under the provisions like Sections 10A, 10AA & 10B of the Income -tax Act, 1961 in respect of their profits derived from the export of computer software. These provisions prescribe incentives to “units” or “undertakings”, established under different schemes, which are/were deriving profits from export of computer software subject to fulfilling the prescribed conditions.

It has been represented by the software companies that several issues arising from the above mentioned provisions are giving rise to disputes between them and the Income-tax authorities leading to denial of tax benefits and consequent litigation and, therefore, require clarification. Various issues highlighted by the Software Industry have been examined by the Board and the following clarifications are hereby issued -

(i) (a) Whether “on-site” development of computer software qualifies as an export activity for tax benefits under sections 10A, 10AA and 10B of the income tax act, 1961; and
(b) Whether receipts from deputation of technical manpower for such “on-site” software development abroad at the client’s place are eligible for deduction under sections 10A, 10AA and 10B.

(a) CBDT had earlier issued a Circular (Circular No. 694 dated 23.11.1994) which provided that a unit should not be denied tax-holiday under sections 10A or 10B on the ground that the computer software was prepared ‘on-site’, as long as it was a product of the unit, i.e., it is produced by the unit. However, certain doubts appear to have arisen following the insertion of Explanation 3 to sections 10A and 10B (vide Finance Act, 2001) and Explanation 2 to section 10AA (vide Special Economic Zones Act, 2005) providing that “the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India”, and a clarification has been sought on the impact of the Explanation on the tax-benefits as compared to the situation that existed prior to the amendments.
The matter has been examined. In view of the position of law as it stands now, it is clarified that the software developed abroad at a client’s place would be eligible for benefits under the respective provisions, because these would amount to ‘deemed export’ and tax benefits would not be denied merely on this ground. However, since the benefits under these provisions can be availed of only by the units or undertakings set up under specified schemes in India, it is necessary that there must exist a direct and intimate nexus or connection of development of software done abroad with the eligible units set up in India and such development of software should be pursuant to a contract between the client and the eligible unit. To this extent, Circular No. 694 dated 23.11.1994 stands further clarified.
(b) It has also been brought to notice that it is a common practice in the software industry to depute Technical Manpower abroad (at the client’s place) for software development activities (like upgradation, testing, maintenance, modification, trouble-shooting etc.), which often require frequent interaction with the clients located outside India. Due to the peculiar nature of software development work, it has been suggested that such deputation of Technical Manpower abroad should not be considered detrimental to the benefits of the exemption under sections 10A, 10AA and 10B merely because such activities are rendered outside the eligible units /undertakings.
The matter has been examined. Explanation 3 to sections 10A and 10B and Explanation 2 to section 10AA clearly declare that profits and gains derived from ‘services for development of software’ outside India would also be deemed as profits derived from export. It is therefore clarified that profits earned as a result of deployment of Technical Manpower at the client’s place abroad specifically for software development work pursuant to a contract between the client and the eligible unit should not be denied benefits under sections 10A, 10AA and 10B provided such deputation of manpower is for the development of such software and all the prescribed conditions are fulfilled.
(ii) Whether it is necessary to have separate master service agreement (MSA) for each work contract and to what extent it is relevant.
As per the practice prevalent in the software development industry, generally two types of agreement are entered into between the Indian software developer and the foreign client. Master Services Agreement (MSA) is an initial general agreement between a foreign client and the Indian software developer setting out the broad and general terms and conditions of business under the umbrella of which specific and individual Statement of Works (SOW) are formed. These SOWs, in fact, enumerate the specific scope and nature of the particular task or project that has to be rendered by a particular unit under the overall ambit of the MSA. Clarification has been sought whether more than one SOW can be executed under the ambit of a particular MSA and whether SOW should be given precedence over MSA.
The matter has been examined. It is clarified that the tax benefits under sections 10A, 10AA and 10B would not be denied merely on the ground that a separate and specific MSA does not exist for each SOW. The SOW would normally prevail over the MSA in determining the eligibility for tax benefits unless the Assessing Officer is able to establish that there has been splitting up or reconstruction of an existing business or non-fulfilment of any other prescribed condition.
(iii) Whether research and development (R&D) activities pertaining to software development would be covered under the definition of “computer software” stipulated under explanation 2 to sections 10A and 10B.
The definition of “computer software” stipulated under Explanation 2 to sections 10A and 10B includes “any customized electronic data or any product or service of similar nature, as may be notified by the Board….”. The CBDT had already issued Notification No. 890(E) dated 26.09.2000 specifying such items. The notification includes Engineering and Design but does not specifically include Research and Development activities related to software development in respect of which clarification has been sought.
After examining the matter, it is clarified that the services covered by the aforesaid Notification, in particular, the ‘Engineering and Design’ do have the inbuilt elements of Research and Development. However, for the sake of clarity, it is reiterated that any Research and Development activity embedded in the ‘Engineering and Design’, would also be covered under the said Notification for the purpose of Explanation 2 to the above provisions.
(iv) Whether tax benefits under sections 10A, 10AA and 10B would continue to remain available in case of a slump-sale of a unit/undertaking.
The vital factor in determining the above issue would be facts such as how a slump-sale is made and what is its nature. It will also be important to ensure that the slump sale would not result into any splitting or reconstruction of existing business. These are factual issues requiring verification of facts. It is, however, clarified that on the sole ground of change in ownership of an undertaking, the claim of exemption cannot be denied to an otherwise eligible undertaking and the tax holiday can be availed of for the unexpired period at the rates as applicable for the remaining years, subject to fulfilment of prescribed conditions.
(v) Whether it is necessary to maintain separate books of account for an assessee in respect of its eligible units claiming tax benefits under sections 10A and 10B.
Since there is no requirement in law to maintain separate books of account, the same cannot be insisted upon. However, since the deductions under these sections are available only to the eligible units, the Assessing Officer may call for such details or information pertaining to different units to verify the claim and quantum of exemption, if so required.
(vi) Whether tax benefits under section 10AA can be enjoyed by an eligible SEZ unit consequent to its transfer to another SEZ.
This issue relates to cases where an eligible SEZ unit is shifted from one SEZ to another SEZ on account of commercial exigencies. This shifting is permissible under Instruction No.59 (F.No.C-4/2/2010-SEZ) issued by Department of Commerce (SEZ Division), provided approval from the Board of Approvals (BOA) has been obtained. Doubts have been raised whether such shifting of an eligible unit would deprive the unit/undertaking of tax benefits, provided there is no splitting or reconstruction of an existing business. The matter has been examined and it is clarified that the tax holiday should not be denied merely on the ground of physical relocation of an eligible SEZ unit from one SEZ to another in accordance with Instruction No. 59 of Department of Commerce (referred to above) and if all the prescribed conditions are satisfied under the Income-tax Act, 1961. It is further clarified that the unit so relocated will be eligible to avail of the tax benefit for the unexpired period at the rates applicable to such years.
(vii) Whether new units/undertakings set up in the same location where there is an existing eligible unit/undertaking would amount to expansion of the existing unit/undertaking.
Whether setting up of new unit/undertaking in a location (covered by sections 10A, 10AA or 10B), where an eligible unit is already existing, would amount to expansion of such already existing unit is a matter of fact requiring examination and verification. However, it is clarified that setting up of such a fresh unit in itself would not make the unit ineligible for tax benefits, as long as the unit is setup after obtaining necessary approvals from the competent authorities; has not been formed by splitting or reconstruction of an existing business; and fulfils all other conditions prescribed in the relevant provisions of law.

Renewal Of An Expired Trademark In India And United States

Trademark law of India is passing through an interesting and developmental phase. Recently Samsung has raised the issue of international exhaustion of a trademark under Indian trademark law. Similarly, trademarks registrations in India have also increased as India is becoming a favourite destination for commercial activities world over.
Trademark registration in India is regulated by the Trademarks Act 1999 of India. A registered trademark is valid for a period of 10 years that can be renewed for another 10 years at a time. Further, international registration of trademarks under Madrid Agreement and Madrid Protocolcan also be explored by applicants. However, the Madrid Agreement and Madrid Protocol and its applicability and implementation in India are still in a flux.
There may be cases where a trademark holder fails to renew his/her/its trademark in time. Renewal of an expired trademark is the only option left in such cases. In India even if the mark has been expired, one can apply for its re-registration. If someone else applies for registration of expired trademark as per the prescribed procedure, owner of expired trademark can file objections at the registry, tribunal or appropriate forum.
In United States (US), to keep the registration alive or valid for all trademarks registrations, except for non Madrid Protocol based registrations, the registration owner must file specific documents and pay fees at regular intervals.  Failure to file these documents will result in the cancellation of his/her/its registration.

For Madrid Protocol Based Registration, after the protection is granted to the international registration and a U.S. registration issues, to keep protection in the U.S., the U.S. registration owner must file specific documents and pay fees at regular intervals. Failure to file these documents will result in the cancellation of his/her/its U.S. registration and the invalidation of protection of the international registration by the United States Patent and Trademark Office (USPTO).
Under Section 8 of the Trademark Act, 15 U.S.C. §1058, a §8 Declaration of Continued Use is required to be given by the trademark owner. The Declaration is a sworn statement, filed by the owner of a registration that the mark is in use in commerce. If the owner is claiming excusable nonuse of the mark, a §8 Declaration of Excusable Nonuse may be filed. The purpose of the §8 Declaration is to remove marks no longer in use from the register.
The USPTO will cancel any registration on either the Principal Register or the Supplemental Register if a timely §8 Declaration is not filed by the current owner of the registration during the prescribed time periods.  The USPTO has no authority to waive or extend the deadline for filing a proper §8 Declaration. Registrations finally cancelled after the expiry of permissible period due to the failure to file a §8 Declaration cannot be reinstated or revived.  A new application to pursue registration of the mark again must be filed.
Holders (owners) of registered extensions of protection to the U.S. (also called §66(a) registrations, registrations resulting from 79’ series applications, international registrations extended to the U.S.) who wish to maintain the protection granted their mark in the U.S. pursuant to the Madrid Protocol must file an affidavit or declaration of use in commerce or excusable nonuse to avoid cancellation of protection in U.S. Such affidavits are required pursuant to Section 71, 15 U.S.C. §1141k, of the Trademark Act.  The USPTO has no authority to waive or extend the deadline for filing a proper §71 Declaration.  Registrations finally cancelled after the expiry of permissible period due to the failure to file a §71 Declaration cannot be reinstated or revived.  A new application to pursue registration of the mark again must be filed.  
The holder of a registered extension of protection of an international registration to the U.S. must file an application for renewal of the international registration with the International Bureau (IB). Renewal of international registrations is governed by Article 7 of the Madrid Protocol and Rules 29 – 31 of the Common Regulations under the Madrid Agreement and Protocol.
A renewal can be filed during the six months before expiry of the period of protection or in the six months following the expiry of the current period of protection with the payment of a surcharge.
The term of an international registration is ten years, and it may be renewed for ten years upon payment of the renewal fee.
Perry4Lawhope this information would be useful to all concerned stakeholders.

Source: IPR Services In India.

Online Gambling Laws And Regulations In India

Online gambling in India has aroused great interest among many e-commerce entrepreneurs of India. This is because online gambling is a very remunerative and profit oriented business. However, online gambling is also a complicated business filed as many laws and technical issues have to be resolved at the same time.
We have a central law on gambling called the Public Gambling Act of 1867. Similarly, we have many state laws on gambling that are mostly based upon the central law. Further, almost all the state laws are regulating real world or offline gambling in India. The exception in this regard can be found in the laws applicable in places like Goa and Sikkim.
Recently Goa has made its casino laws very stringent keep in mind the money laundering, black money and tax evasion issues in mind. Similarly, Sikkim is also in the process of harmonising its laws with the central laws.
As far as judiciary is concerned, the Supreme Court of India has made a distinction between skills based and chance based gaming activities. Of course, each case depends upon its own facts and circumstances and the respective state law and we cannot apply one decision uniformly in all cases of gambling and online gambling. 
The e-commerce laws and regulations in India are still at the infancy stage. As a matter of fact, a majority of e-commerce portals and players in India are not following the laws of the land in true letter and spirit. Surprisingly, there is a general misconception among the e-commerce players of India that for running an e-commerce website in India they need not to follow much law. On the contrary, there are well recognised legal requirements to start an e-commerce website in India and the legal formalities required for starting e-commerce business in India.
The chief among these e-commerce players are online pharmacies, online gambling and gaming portals, electronics e-commerce websites, etc. They fail to understand that use of technology has brought additional legal issues that are primarily techno legal in nature. Their continued ignorance may bring civil, criminal and financial penalties. The recent spate of FDI crackdowns by India government proves this point.
At Perry4Lawand Perry4Law’s Techno Legal Base (PTLB) we believe that cyber law due diligence, Internet intermediary liability and cyber due diligence for Indian companies must be kept in mind by various e-commerce websites and players. The skill and chance and state subject legal arguments are not sufficient to comply with complicated techno legal requirements of India as on date. So before launching an e-commerce portal, the concerned person or company must make it sure that techno legal requirements are duly complied with.

Source: E-Commerce Laws And Regulations In India.

Optical Character Recognition (OCR) Legal Issues India

Optical character recognition (OCR) is one of the most important stages of e-discoveryor cyber forensics process. OCR is the process where images of handwritten, typewritten or printed text are converted into machine-encoded text using the mechanical or electronic conversion.
The main purpose of OCR is to digitise printed texts so that they can be electronically searched, stored more compactly, displayed on-line through virtual data rooms, and used in machine processes such as machine translation, text-to-speech and text mining. OCR is also very important for presenting and defending claims and obligations in civil and criminal proceedings.
OCR, e-discovery and cyber forensics are sometimes combined while investigating financial frauds and crimes, serious frauds, forensics audit, white collor crimes, corporate frauds, fraud risk analysis, IT and cyber frauds, etc.
However, there are certain techno legal issues that must be taken care of while engaging in the OCR activities. If these techno legal issues are not followed properly, the end OCR product may not be admissible in a court of law or other investigation.
Further, only relevant material must be converted into legally admissible electronic records, including OCR. A proper chain of custody must be maintained at all stages of converting printed and other text documents into digital documents and OCR.
There is no sense in converting the entire paper based document s in to electronic format as not all electronic versions would be relevant to the case or investigation. Even lesser electronic records and OCR would be held admissible in a court of law.
According to Perry4Lawand Perry4Law’s Techno Legal Base (PTLB) the most important attribute while engaging in the OCR exercise meant for litigation purposes is to first ascertain the relevant documents and then convert them into digital format keeping in mind the admissibility criteria while following proper chain of custody. 
If you are interested in our techno legal services, you may contact us in this regard. See our techno legal services, cyber forensics services, US, UK and EU laws compliances, etc in this regard.

Inter-Ministerial Group Will Study TRAI Recommendations On Broadcasting

Telecom Regulatory Authority of India (TRAI) has recently given some very far reaching and significant recommendations to the Indian government. TRAI’s recommended liberal shareholding rules for telecom service providersis one such recommendation. TRAI has also provided its recommendations regarding the feasibility of entering into broadcasting business by the Central and State Government(s).
Now an inter ministerial group has been set up to examine recommendations made by TRAI regarding the broadcasting business by Centre and States. The group has been set up by the Information and Broadcasting Ministry (I&B Ministry) and it would be headed by the Additional Secretary J S Mathur.
The I&B Ministry would reach a conclusion only after the group studies the TRAI’s recommendations. I&B Ministry had earlier sought clarifications from TRAI on whether Central or State Government(s) or entities on which they have control could be allowed to enter broadcasting or distribution of channels.
TRAI had given an opinion that Central Government Ministries, Departments, Companies, Joint Ventures or Entities which belong to or are funded by Centre or State Government(s) should not be allowed to enter in to the business of broadcasting and or distribution of TV channels.
Many States have approached the I&B regarding the issue at hand and the group’s finding may help the Ministry at reaching a conclusive decision.  

TRAI Recommended Liberal Shareholding Rules For Telecom Service Providers

Telecom Regulatory Authority of India (TRAI) has recommended liberal and relaxed shareholding rules for service providers provided the stakes do not lead to control of spectrum. This means that no spectrum trading would not be permitted. TRAI has provided its suggestions to the Department of Telecommunications (DoT).
Further, as per the recommendations, new service providers will be able to own more than 10% equity in more than one operator in a service area. However, it will be permitted only if the operator owns spectrum in just one company. This means that the substantial equity/cross-holding requirement should only be linked to spectrum holding.
For instance, a mobile service provider can own a company that is operating fixed line services in the same service area. This was not permitted under existing guidelines. At present, an operator is allowed to own more than 10% equity in only one company in a service area.
The regulator has also recommended that sharing of the spectrum should be permitted for the new operators. Old operators will have to pay the new price of spectrum determined through the auction.

If accepted, this would be a major relief to the new operators. Service providers are demanding that spectrum sharing should be permitted as it would reduce the cost of providing services and would increase efficiency.

MTS Plans To Continue Its Operations In India In 2013

Telecom operations in India were in doldrums in the year 2012. The licences of many telecom service providers involved in 2G spectrum allocation were cancelled after the directions of Supreme Court of India.
Even taxation issues were in limelight when Vodafone dragged the disputed tax to the level of Supreme Court and won the case. Now Indian government has once again served a tax due notice upon Vodafone. Vodafone has reacted to the same by denying any pending tax payments and has made Vodafone’s intention of invoking international arbitration for tax disputes with India very clear.

One of the telecom operators whose licence was cancelled by the Supreme Court is MTS. The Russian industrial group Sistema owns 57% of shareholding and stakes in the MTS and the remaining is with its Indian partner. MTS has also made it clear that it will continue its operations after its licences expire on 18 January 2013. The company is optimistic for a favourable decision in its favour to an appeal filed by it against a decision in 2012 to cancel its licences.
Telecom Regulatory Authority of India (TRAI) has already told all telecom operators affected to tell their customers of the expiry of the licences after 18 January. MTS has responded by saying it “wishes to inform millions of its customers that being fully committed to its customers and the investments it has made in India, it intends to continue its operations beyond 18 January 2013 and in this context has taken and is taking all the possible steps, to ensure the continuity of its services beyond 18 January 2013”.

MTS has already filed a curative petition against the judgment seeking to annul the cancellation of its licenses. MTS believes that it has a very good case in the curative petition both in facts and law and is hopeful of a favourable order of restoration of its licences.

Vodafone May Invoke Arbitration For Fresh Tax Demands By India

The Vodafone taxation controversy in India has again resurfaced. Vodafone has been served with tax due notice by Indian tax authorities. Vodafone reacted in the much anticipated manner and denied any tax due on its part. Vodafone is also feeling confident due to the ruling of Supreme Court of India in its favour.

Meanwhile, the Parliament of India amended the tax law of India with retrospective effect. At Perry4Law, we believe that legally there are few options still available to both Indian government and Vodafone. It is not the situation that either party to the dispute has absolute case.
While the Indian government has the backing of a retrospective law yet Vodafone can invoke arbitration proceedings before international tribunals under the concerned Bilateral Investment Protection Agreement.
In fact, Vodafone has already served an arbitration notice to the Indian government regarding the proposed tax. However, Indian government declared such notice to be premature and ignored it. Now that Indian government has raised fresh tax liability claims, Vodafone may serve a fresh notice to initiate the international arbitration proceedings.
Vodafone has already acknowledged the receipt of fresh demand notice by Indian tax authorities. However, Vodafone told Indian government that it is not liable to any tax on the deal in question. The reminder does not include a deadline for payment and it pertains to the alleged capital gains tax arising from the sale of assets by Hutchison Whampoa to Vodafone in 2007.
Now that a fresh tax demand has been raised, it is for the Vodafone to challenge the same either in Indian courts or at an international arbitration forum. It seems Vodafone would prefer the arbitration mode as against the litigation in India but only time would tell what would be Vodafone’s choice.

Vodafone Again Served With Tax Due Notice By Indian Tax Authorities

Vodafone taxation controversy in India is not willing to die. Vodafone has claimed that on Saturday it has received a reminder notice from Indian tax authorities on disputed tax dues. The dues pertain to the acquisitions made by Vodafone in the year 2007 of Indian mobile assets. However, no deadline has been prescribed for the payment by the tax authorities of India.

Vodafone has given a standard reply by stating that according to Vodafone’s beliefs no tax is due to be paid by it. Vodafone is of the firm opinion that no tax is payable on the above transaction made in the year 2007. Vodafone’s major relief point is the judgement given by the Supreme Court of India in its favour.

The only option left for India was to formulate and enact a validation law that can cure the defects pointed by the Supreme Court while adjudicating the Vodafone’s case. The government exactly did the same thing by amending 50-year-old tax laws enabling it to make retroactive tax claims on long-concluded corporate deals.

The constitutionality of such retrospective validation law is still to be analysed. However, this retrospective amendment has once again brought to life the dead Vodafone taxation controversy.  

Supreme Court Asked Indian Government To Monitor And Regulate All Clinical Trials Of Experimental Drugs In India

Pharmaceuticals are both boon and bane depending upon its use and misuse. For instance, clinical trials of experimental drugs in India is going more on the side of a bane that is emerging as a potential threat and havoc to human lives in India.
So much so that the Supreme Court of India has directed Health Ministry of India to monitor and regulate all clinical trials of experimental drugs in the country until further notice. The Court has also showed its unhappiness with the growing use of clinical trials of experimental drugs in India without much monitoring and said that this scenario has caused “havoc”.
Supreme Court did not stop here and it revoked the power of the Central Drugs Standard Control Organisation (CDSCO) under the Drugs Controller General of India (DCGI) in this regard as well. CDSCO has been the apex agency for monitoring clinical trials in India so far.
The Court has also directed the health secretary to file an admissible affidavit within four weeks after it refused to accept one filed by deputy drugs controller. The Court refused to admit such affidavit because in October the Court made its intentions clear that it may bar clinical trials in India unless the Health Ministry provides information within a month regarding deaths during such programmes. The Court also sought explanation regarding compensation and general practices when new drugs are tested on Indians.
Surprisingly, no laws were in place between 2005 and 2012 for new chemical entities and yet the government was approving trials very casually. If this is not enough, illegal and unregulated online sales of prescribed medicines in Indiaare happening right under the nose of Indian Government. Online pharmacies in India are violating Indian laws and Indian Government is least interested in curbing this practice.
We have weak health related laws in India, including those pertaining to online sales of prescribed medicines in India. We have no dedicated data protection laws in India and privacy laws in India. Even data exclusivity laws in India need to be formulated. A regulatory framework for data exclusivity In India can be really helpful in this regard.

Google Settles Patents Licensing And Antitrust Claims With FTC

In a much anticipated move, Google settled the patent abuse and antitrust complaints with the federal Trade Commission (FTS) of United States (US). However, the antitrust probe initiated by the European Union (EU) is still pending a resolution.

Various projections have revealed that Google, Facebook, Samsung etc may face more scrutiny from EU and US Regulators. As per Global Taxation And Anti Competition Regulatory Issues In 2012 And Projections Report For 2013 By Perry4Law,  the year 2013 would see an enhanced regulatory scrutiny by various regulatory bodies and authorities throughout the world. Countries are also entering into bilateral treaties to make the respective companies liable for their acts or omissions.
The report further states that as on date many multinational companies and technology giants are avoiding tax liabilities and are avoiding compliance with various regulatory requirements. This would not be an easy task in the year 2013.
These predictions and projections seem very accurate as many cases were settled in the year 2012. These include cases and settlements pertaining to Walmart probe, UK tax avoidance case, unauthorised sale of e-book in China, e-book price escalation lawsuit, EU-publishers e-books price fixing settlement,  regulatory scrutiny by EU and US, etc.

In the present case, FTC investigators were of the opinion that they didn’t find enough evidence to support complaints that Google unfairly favors its own services in search results. Google has also agreed to license certain patents to mobile phone rivals and stop a practice of including snippets from other websites in its search results.
To give effect to this settlement, Google will sign an agreement requiring the company to charge reasonable prices to license hundreds of patents deemed to be essential for rival mobile devices such as Apple Inc’s iPhone, BlackBerry and smartphones running on a Microsoft Corp’s Windows software.
Under the FTC resolution, Google’s rivals will now be able to request that their excerpts are left out of Google’s search results without having to fear that links to their sites will be penalised in Google’s search rankings. Google has further agreed to adjust the online advertising system that generates most of its revenue so marketing campaigns can be more easily managed on rival networks.

Google, Facebook, Samsung Etc May Face More Scrutiny From EU And US Regulators

Multinational companies have been trying new policies and strategies to maximise their profits. Sometimes these policies are legally sustainable whereas at other times they violate laws and regulations of one or more nations.

These developments took place in the year 2012. The year 2013 may see more regulatory actions against big multinational companies and technology companies. The Ireland route of tax management may also be closely monitored. In fact, on 21 December 2012, an Agreement to Improve International Tax Compliance and to implement the Foreign Account Tax Compliance Act (FATCA) was entered into between Ireland and United States.
Not only taxation issues but even anti trust issues may see more focus. For instance, Google is already facing an antitrust investigation relating to its search services in the hand of European Union (EU) and Federal Trade Commission (FTC). Google has already settled $22.5 million settlement with FTC over charges that it bypassed Safari browser privacy settings that blocked cookies. Samsung Electronics will be facing charges from the European Commission for breaking antitrust rules in its refusal to provide competitors like Apple access to its technology. The European Commission believes that Samsung abused its dominant position in the market by filing patent lawsuits against its rival Apple
 Meanwhile, the FTC is investigating Google over possible antitrust violations and will subject Facebook to audits of its privacy policy for the next 20 years. FTC would ascertain whether Google’s search engine results favour Google products over its rivals’. Although FTC was ready to settle that case before the holidays, without harsh remedies, late last month it shelved the inquiry and put stronger penalties back in play. A resolution is expected in January.
Regarding Facebook, FTC negotiated a consent order with Facebook to settle charges that it had engaged in “unfair and deceptive practices” when changes in its settings revealed personal information that Facebook users had regarded to be private. As part of the settlement, Facebook agreed to audits of its privacy policies for 20 years.
Facebook was also in controversy recently when its subsidiary, Instagram, proposed to deploy users’ pictures to serve targeted advertisements. Facebook had to change that plan due to public protests. This is a good sign for privacy protections of the users/consumers of these companies.
Unfortunately, public awareness about privacy protection and data protection is still very poor in India. Even we have no dedicated privacy protection laws in India and data protection laws in India. However, this does not mean that multinational companies and technology companies can take Indian users and consumers lightly.

Source: Legal Enablement Of ICT Systems In India.

Google’s Antitrust Suit For Search Abuses Before FTC May Be Settled Very Soon

Antitrust or anti competition issues are very frequently agitated these days. Not only rival are very particular in bringing their competitors to books who are indulging in antitrust activities but even the regulatory bodies have become very vigilant in launching investigations against defaulting companies.
Perry4Lawhas already discussed about the Global Taxation and Antitrust Regulatory Issues In 2012 And Projections Report for 2013.  The same has covered most prominent international taxation and antitrust investigations, cases and settlements of the year 2012. The research report of Perry4Law has further projected the trends for the year 2013.
The latest to add to this list is the allegations by Microsoft against its chief rival Google. Microsoft has alleged that Google executives have blocked a full-featured YouTube app for Windows Phone. These allegations have been labeled by none other than the chief lawyer of Microsoft through his blog post.

Google is already facing antitrust investigation regarding its search services and this allegation of Microsoft may put additional pressure upon Google. The antitrust investigation against Google may result in a settlement most probably within this week.

As far as our own experience with Google’s search is concerned, Perry4Law’s Techno Legal Base (PTLB) has observed that Google censored and demoted many of our blogs simply to serve its own commercial interests. For instance, the following blogs have been demoted and subjected to manual action penalty by Google without any reason and justification:

(1) Cyber Forensics In India

(2) Cyber Security In India

(3) E-Discovery Services In India

(4) E-Commerce Laws And Regulations In India

(5) Perry4Law Techno Legal Base (PTLB)

(6) Corporate Laws In India

(7) Techno Legal Online Dispute Resolution Services.

(8) International ICT Policies And Strategies, etc.

Clearly, there is substance in the allegation of misuse of s almost monopolistic position of Google’s search capabilities. Platforms that do not or are not supporting Google’s own commercial interests are frequently demoted and censored.

With the continuous censorship and SERPs manipulations by Google, we have started dedicated initiatives like websites, blogs and news censorship by Google and India blog and a LinkedIn discussion group titled websites, blogs and news censorship by Google and India.
Google is also deliberately engaging in anti DMCA activities. Google has once again removed the original and copyrighted article instead of removing the copyright infringing material. Our article titled “Cyber Security Capabilities of India Must be Strengthened” has been shifted to draft folder by ignorant employees of Google. Even after republication, the original link is not inactive.
We hope both Federal Trade Commission (FTC) and European Union (EU) would consider all the aspects before reaching any settlement regarding Google’s SERPs manipulations. Interested parties may contact us from their official e-mails ids for more information in this regard.

Global Taxation And Anti Competition Regulatory Issues In 2012 And Projections Report For 2013 By Perry4Law

This article is part of the research work of Perry4Law, India’s exclusive techno legal corporate, IP and ICT law firm.
Taxation and antitrust laws are in limelight these days throughout Europe, United States (US), United Kingdom (UK), China, India and other places of the world. Consider the examples of various technology companies that are in the limelight for the wrong reasons.
For example, recently an e-book price escalation lawsuit has been settled by Penguin Group. Similarly, the European Commission and publishers’ settlement for e-book price fixingis another incidence where regulatory bodies have taken acts of technology companies seriously. Media reports are also projecting that Google, Facebook, Samsung etc may face more scrutiny from EU and US regulators in the year 2013.
In the United Kingdom as well regulatory authorities are not happy with the taxation affairs of various multinational and technology companies. Public outcry erupted when allegations of tax avoidance were labeled against Amazon, Google and Starbucks regarding UK Tax Laws.
Even in China companies are facing punishments for violating local laws. For example, Apple has been fined by Beijing Court for unauthorised sale of e-book.Indian government is also not far behind. After canceling the telecom licenses of many telecom companies, now Indian government would ascertain beneficiary in Walmart probe to ascertain possible violation of Indian laws.
The Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011 have also been formulated by the Competition Commission of India in 2011 to regulate anti competition combinations. The same may be pressed more frequently in the year 2013.

The year 2013 would see an enhanced regulatory scrutiny by various regulatory bodies and authorities throughout the world. Countries are also entering into bilateral treaties to make the respective companies liable for their acts or omissions. Presently many multinational companies and technology giants are avoiding tax liabilities and are avoiding compliance with various regulatory requirements. This would not be an easy task in the year 2013.

About Perry4Law
Perry4Law is the Exclusive Techno Legal Corporate, IPAnd ICT Law Firm of India that is providing domain specific serviceson Corporate, IP and ICT matters such as Banking and Finance, Business Setup, Corporate and Commercial Advisory, etc. See Perry4Law’s Services for more details.

Cyber Security Challenges Of India

The glaring cyber security problems and challenges of India are no more hidden and ignored. Serious cyber security attacks are affecting the critical infrastructure of India. Banks, power infrastructures, satellites, etc are vulnerable to cyber attacks from around the globe.
The national imperatives of securing operational technologies like smart grids, oil and gas, public utilities, etc are too essential to be ignored by Indian government. Today protecting key economic assets like securing financial backbone and stock exchange, payment infrastructures and financial switches is need of the hour. This includes architecting security for new age banking to make them cyber secure. Cyber security of banks in India is still deficient.
The business community must also keep in mind the cyber law due diligence requirements in India. Cyber due diligence for Indian companies is now a statutory obligation and failure to observe cyber due diligence can bring serious legal ramifications. Ensuring business models, technology transformations and channel revolutions in the midst of organised, focused, advanced and persistent cyber threats is not an easy task.

With the growth of enterprise mobility, mobile applications and cloud enablement data driven businesses, techno legal issues have become more prominent. Social networking platforms have further complicated the scenario.
The Internet is truly global in nature and regional and national regulations and efforts cannot bring the desired results. Cyber law and cyber security issues are global in nature. Indian response to international cyber law treaty is not pro active. International cyber law treaty is required to be formulated as soon as possible.
Similarly, cyber security framework must ensure both national responsibility and global accountability. Any cyber diplomacy must congregate both national and international interests to be effective and enforceable. Thus, an international cyber security treaty is required to be formulated as well.
With a growing focus upon electronic delivery (e-delivery) of services in India additional responsibilities of securing technology transformation of governance must be ensured. The e-governance projects of India would bring cyber security challenges for which we need readymade solutions.

           

Similarly, cyber security enablement of growing electronic and mobile commerce would also be required. With the projected increase in volume and growth of commerce and e-commerce in India, cyber security as enabler must be ensured.

The management of consumer rights and business responsibilities in the information age is not an easy task. For instance, the present telemarketing policy of India is anti consumer. Similarly, the telecom dispute resolution process in India is also anti consumer.
The future of cyber security in India is tough to manage. The sooner we start working in this direction on ground level and actual basis the better it would be for the larger interest of India.

Techno Legal Initiatives Of Perry4Law And PTLB

Techno legal issues pose special challenges before all nations. This is so because these issues are complex combination of both technical and legal issues. At Perry4Lawand Perry4Law Techno Legal Base (PTLB) we have been spearheading many world renowned techno legal initiatives.

Similarly, on the education, trainings and skills development front as well Perry4Law and PTLB have been managing many initiatives. For instance, the exclusive techno legal e-learning in India is managed by PTLB whereas highly specialised and domain specific trainings and education is managed by Perry4Law techno Legal ICT Training Centre (PTLITC).  
We are also discussing important issues pertaining to international ICT policies and strategies. Similarly, techno legal issues are specifically discussed at PTLB blog. We hope these initiatives would prove useful to all stakeholders.

Source: ICTPS Blog

Cyber Security Firms And Companies In India

Cyber security issues in India have attracted the attention of Indian government at last. Indian government has announced taking of many steps that can ensure basic level cyber security in India.
However, highly sophisticated and particularly targeted cyber attacks against India cannot be defended for another five years if the present speed and initiatives are maintained. Further, if the declared cyber security initiatives are not immediately acted upon, cyber security in India cannot be established for another decade or more.

Naturally, cyber security firms, companies and consultants in India must be proactivein their approach. Indian government must also assist them so that they can provide the best cyber security services in India.
The main problem with Indian cyber security initiatives is that they are based on the approach of maximum procurement with minimum application. Mere procurement of hardware and software can never make India a cyber secure nation. We need a skilled cyber security workforce in India as well to successfully use hardware and software.   
So we must stress upon techno legal skills development in India that includes skills development in the fields like cyber law, cyber security, cyber forensics, etc. Virtual cyber security campuses in India can greatly help in achieving this task. Further, online cyber security courses in India can also help a lot in this regard.
Another significant aspect is that cyber security firms and companies of India must be techno legal in nature. This means that these cyber security firms and companies of India must not only be capable of managing the technical aspects but also legal aspects as well.
These days we can witness a growth in the numbers of cyber security law firms in India and abroad. Further e-discovery services in India are also increasing although only authorised professionals like Indian advocates can practice the same in India. 
In short, cyber security firms and companies must have multiple qualifications and diverse expertise to manage the contemporary cyberspace challenges. A single discipline approach is not going to be beneficial in the long run.

Import Of Mobiles Or Cell Phones In India With Fake IMEI Proposed To Be Banned

We have no dedicated cell phone laws in India or mobile phone laws in India though they are very much required. Similarly, we have no mobile cyber security in India and mobile connections and handsets are vulnerable to cyber attacks and malware infections.

We also do not have any electronic authentication policy of India and many e-surveillanceoriented projects like Aadhar project of India are managed in India without any parliamentary oversight and legislative framework. This is definitely violation of privacy rights of Indians. We must also have a national policy for mobile governance and e-authentication in India.

However, Indian government is least bothered to mange these crucial fields. Indian government becomes active in these fields only when its own interests are at stake. For instance, India is getting stricter regarding false IMEI numbers and norms. This is because India is finding it difficult to indulge in e-surveillance with false IMEI capable mobile sets.

Now media reports have suggested that the telecom regulator TRAI is planning to approach the Commerce and Industry Ministry to ban imports of mobile phones carrying unauthentic unique IMEI identification number, which helps authorities track users.
In order to archive this task, TRAI would soon write to the Commerce Ministry to ban such phones. It has been suggested that import of only those cell phones should be allowed which are certified by GSMA and TIA authorised bodies for GSM and CDMA handsets respectively.
Further, the Department of Telecom (Govt of India) (vide reference NO-20-40/2006/BS-III(PT)(VOL.I)/201 dated 3rd September 2009), has directed all cellular mobile service providers not to allow calls to be made from Mobile handsets with invalid IMEI number after 30th Nov 2009. However, during a recent test conducted in a telecom service area, government officials were surprised to see over 18,000 mobile handsets using same IMEI number.

Besides IMEI numbers, Indian government is also serious of regulating pre paid SIM cards so that they may not be misused by criminals and terrorists. However, Indian government must a take a holistic action in this regard and mere piecemeal actions, that also those serving its own interest, would not be in the larger interest of India.

Patents Registration In India

Patents registration in India is a complicated process that requires thorough knowledge of Indian Patent Act and other legal formalities. Once registered, patents confer tremendous tangible and intangible benefits. It is always required to get your inventions patented as soon as possible without public disclosure of the same.
The starting point for the same is to file a patent application at the concerned patent office of your jurisdiction. After filing of the patent application, a request for examination is required to be made by the applicant or by third party and thereafter it is taken up for examination by the patent office.
Usually, the first examination report is issued and the applicant is given an opportunity to correct the deficiencies in order to meet the objections raised in the said report. The applicant must comply with the requirements within the prescribed time otherwise his application would be treated as deemed to have been abandoned. 
When all the requirements are met, the patent is granted and notified in the patent office journal. However before the grant of patent and after the publication of application, any person can make a representation for pre-grant opposition.

Once a patent is granted, a patentee enjoys exclusive right to prevent a third party from an unauthorised act of making, using, offering for sale, selling or importing the patented product or process within the country during the term of the patent. A patented invention becomes free for public use after expiry of the term of the patent or when the patent ceases to have effect on account of non-payment of renewal fee.

New FDI Norms And Regulations For Pharmaceutical Sector Of India 2012

The consolidated FDI policy of India 2012 by DIPP is proactive on many counts and it covers vast areas of public importance. One such area pertains to FDI in pharmaceuticals sector of India.
Recently, India has been taking special interest in FDI in pharmaceutical companies producing life saving drugs in India. This is also somewhat controversial and complicated in nature. Many FDI proposals in this category are still pending to be cleared by Indian government and its agencies.
In order to expedite the pending FDI proposals for pharmaceutical industry of India, the Indian government is planning to announce fresh norms and rules in this regard next week.
The Foreign Investment Promotion Board (FIPB) in its meeting on July 20 is planning to consider FDI proposals for the pharmaceutical sector. It is also expected that the Department of Industrial Policy and Promotion (DIPP) would notify the new rules soon as the inter-ministerial group (IMG) has finalised its recommendations.
IMG has addressed concerns of the health ministry and recommended stiff riders defining the quantity of generic drugs that foreign companies manufacture in India. Further, it has prescribed norms for higher investment in research and development activities by such companies. It has also suggested doing away with the mandatory clause of technology transfer by the foreign company in brownfield investment.
In a significant and parallel development, Unites States has accused India of WTO rules violations. The accusation arose out of the activities of Hyderabad-based Natco Pharma that is making generic version of cancer drug Nexavar.
India government has invoked the compulsory licensing provision that allowed Natco to sell Nexavar at a price not exceeding Rs 8,880 for a pack of 120 tablets required for a month’s treatment as compared to a whopping Rs 2.80 lakh per month charged by Bayer for its patented Nexavar drug. India has also defended its stand and claims that its decision does not violate any WTO norms.

Google Facing Conflict Of Laws Problems With US And India

Conflicts of laws, Indian cyberspace and Google have become synonymous these days. Further, the position of US companies, India, conflict of laws and criminal liabilitieshas also become clear these days. This is so as of late many civil and criminal cases have been filed against foreign companies and social media websites.
However, this is just the beginning as cyber litigations and disputes that are going to increase in India. With this cases of overlapping jurisdictions would also arise. Take the example of recent case where the Gmail id of an Indian was involved. While the US court allowed access to the same yet Indian court granted an inunctions against disclosure of its password and information stored in the account.

The Plaintiff in this case argued that as an India citizen he had a right to privacy under the Indian Constitution and that the defendants could not violate his right. The order was passed ex-parte against an American law firm and Google’s e-mail id that sent the communication pertaining to US court’s order.
Interestingly, the litigation before the US/California court pertains to a dispute between two other parties and it appears that Plaintiff’s Gmail id may hold evidence relevant to resolve dispute between these parties. The normal practice to seek evidence in these cases is to issue “letters rogatory”, under the Hague Convention on Taking of Evidence Abroad in Civil or Commercial Matters requesting the India to assist in the collection of evidence. Such letters rogatory can be enforced, in India, only by High Courts, as per the Code of Civil Procedure, 1908.
It seems the US court did not consider it necessary to adopt that procedure. This may be so because Google is a US based company over which US courts have primary jurisdiction. In fact, the terms of service of Google clearly stipulates that all Gmail users consent to be governed by the laws of the U.S. Google’s operation is global in nature and it is required to comply with the laws of various jurisdictions, including India.
To confer jurisdiction upon Indian courts, the Plaintiff argued that the cause of action in the present suit arose in India when the Plaintiff created his Gmail id account in Vishakhapatnam and also when he received the legal notice in Vishakhapatnam. Let us see how the case would proceed in this regard.

Rationale Of Mobile Banking (Quality of Service) Regulations, 2012

In this post, we are discussing the rationale of Mobile Banking (Quality of Service) Regulations, 2012 issued by the Telecom Regulatory Authority of India (TRAI). The same is as follows:

(1) Penetration of banking services in rural areas has been a major area of concern to the Government. The Government has been considering leveraging the growth of mobile service in rural areas to provide basic financial services to unbanked citizens of the country by riding on mobile infrastructure. An Inter Ministerial Group (IMG) was constituted on 19.11.2009 by the Cabinet Secretariat to workout relevant norms and modalities for introduction of a mobile based delivery model for delivery of basic financial services and to enable finalization of a framework to allow financial transactions using mobile phones. The report and recommendations of the IMG were examined by a Committee of Secretaries and accepted by the Government. The proposed system envisages sharing of the following elements:

(a) A simplified common template for the KYC requirements for the Mobile linked No-Frills Accounts which is acceptable to all service providers.

(b) Cash-in / cash-out operations at the front end involving deposits and withdrawals into Mobile linked No-Frills Accounts.

(c) An Account Mapper that provides linkages between Unique Identification Number, mobile number and the mobile linked nofrills account details. Real-Time Micro Transactions (REMIT) connects to the Account Mapper to obtain details pertaining to a specific customer after he has been authenticated.

(d) An interoperable central payments switch, called REMIT Switch, that will facilitate real time transaction routing across Banking Correspondents (BCs), Banks (or associated Financial Institutions and outsourcing partners of Banks), Unique Identification Authority of India, Account Mapper and mobile service providers. INFAST (Interoperable Infrastructure for Accounting Small Transactions) can be created as an additional infrastructure for creating and managing mobile linked no-frills accounts.

(e) The IMG framework based on mobile phones and biometric-based authentication will form the core micro-payment platform for transfer of benefits under various government schemes, micropayment services and financial inclusion for the target groups of social sector programmes.

(2) The IMG has, inter-alia recommended that TRAI may also draw up guidelines to ensure high availability of associated communication services. Mobile banking consists of banking transactions and the use of mobile networks for communicating through mobile phones by the customer for such transactions. The entire transaction depends on the capability of the mobile network to deliver a fast, reliable and cost effective method of communication with inbuilt audit trails and desired levels of security for transmission. These aspects were addressed through a consultation process by TRAI by issuing a Consultation Paper on 28th October 2010 seeking the views of stakeholders by 15th December 2010 to identify QoS parameters to meet such requirements. An Open House Discussion was held at Mumbai on 23rd March, 2011 and based on the stakeholders comments and study of the system, the Quality of Service for various parameters forming part of the mobile communication has been prescribed in these regulations.

(3) The modes for delivery of messages for mobile banking: During consultation process, most of the stakeholders opined that SMS (Short Messaging Service), IVR (Interactive Voice Response), WAP (Wireless Access Protocol) platform can be used across both CDMA and GSM and methods like JAVA/ BREW applications and STK may also be preferred. It is seen that various modes of communication that can be used for mobile financial transactions offer different functionality and has its own merits. Some of the methods of communication may not be suitable for low-end handsets. The Authority felt that, considering the ease of use and availability across all the mobile handsets, SMS, USSD and IVR need to be mandated. The Authority also felt that WAP and STK could be optionally allowed for such communications. Accordingly, provisions have been made in the regulations. The Authority may also prescribe, from time to time, any other methods of communications.

(4) Being a financial transaction the consumer would like to receive confirmation of the outcome of the transaction at the earliest. In the case of SMS, there could be a possibility that the SMS is not delivered due to customer related issues or network related issues. To address this issue it has also been mandated that in such cases an USSD communication is also sent to the customer confirming the completion of transaction. Wherever the network permits, the service provider, through mutual agreement with the bank, should implement such a system where the confirmation message shall be sent with a request for delivery report confirmation to Access Provider’s SMSC. Access Provider’s SMSC will try to deliver such messages immediately within the time limit prescribed in these regulations and inform back the delivery status with proper error code towards application hosted at the backend. In case the SMS delivery fails, the error code received from the SMSC can be used by the system in the backend to trigger an USSD towards the customer. Considering the fact that USSD messages cannot be stored, it has also been provided in the regulations that the expiry time for SMS will be a minimum of seventy two hours.

(5) The time frame for delivery of messages for mobile banking: Most of the stakeholders had suggested different time frames for different methods of communication. After considering various suggestions in this regard, the Authority decided the time frame for delivery of the messages for mobile banking transaction. Measurement methodology for the time frame for delivery of the messages generated by the customer or the bank relating to banking services provided to the customers are prescribed in Schedule-I. These time frames are for the first delivery attempt.

(6) QOS parameters: During consultation process most of the stakeholders agreed with the present quality of service parameter for the network which are already prescribed by the TRAI in accordance with Standards Of Quality Of Service Of Basic Service( Wireline) and Cellular Mobile Telephone Services, Regulation, 2009. The Authority considered the matter and felt that the quality of service standards already laid down by the Authority would be sufficient to address network related quality of service parameters. However, for protecting the interest of consumers the Authority has prescribed the following three Customer Centric parameters:

(a) Time taken to deliver error and success confirmation message: This parameter signifies the efficiency in the delivery of error and success confirmation messages. As per this parameter the error messages and successful confirmation messages sent by the banking system based on customer action shall be delivered to the customer within 2 minutes. The regulations further provide that in case a message generated by the customer or the bank cannot be delivered due to any reason the access provider shall immediately send an error message intimating the non-completion of the process to the customer or the bank, as the case may be.

(b) Transaction update on the system: Any message triggered through a consumer action for mobile banking services shall be updated in the system for any transaction on a real time basis.

(c) Success of delivery of financial transaction messages: This parameter signifies the efficiency in the successful delivery of financial transaction message.

(7) Periodical reporting system: The regulations provide for periodical reporting of performance of service providers against the quality of service benchmarks prescribed in these regulations in such format and at such interval as may be prescribed by the Authority.

(8) Security requirements: During consultation process, all the stakeholders opined that security is a critical issue. The most important security components are stated to be Authenticity and authorization, Integrity, Non-repudiation, and Confidentiality. The GSM/CDMA system architecture takes care of End to End Encryption, Authentication, Authorization, Integrity and Non-repudiation, which are governed by international standard bodies.

(9) Accordingly, the Authority has prescribed in these regulations that the confidentiality of end to end encryption, integrity, authentication and non-repudiation of communication shall be in accordance with the standards certified by ITU/ETSI/TEC/ International standardization bodies such as 3GPP/3GPP2/IETF/ANSI/TIA/IS or any other international standard as may be approved by the Central Government.

The Mobile Banking (Quality of Service) Regulations, 2012

Mobile banking is increasingly being explored in India for online payment purposes. Realising the importance of this issue, the Telecom Regulatory Authority of India (TRAI) has issued regulations in this regard through Notification No. 305-27/2011-QoS, dated 17th April, 2012.

The same are known as Mobile Banking (Quality of Service) Regulations, 2012 and they have been issued by TRAI in exercise of the powers conferred by section 36 read with sub-clauses (i) and (v) of clause (b) of sub-section (1) of section 11 of the Telecom Regulatory Authority of India Act, 1997 (24 of 1997). They shall come into force from the date of their publication in the Official Gazette.

2. Definitions.― In these regulations, unless the context otherwise requires,-

(a) “Access Providers” includes the Basic Telephone Service Provider, Cellular Mobile Telephone Service Provider and Unified Access Service Provider;

(b) “Act” means the Telecom Regulatory Authority of India Act, 1997 (24 of 1997);

(c) “Authority” means the Telecom Regulatory Authority of India established under sub section (1) of section 3 of the Act;

(d) “Banking services” means the services provided by the bank to its customer;

(e) “Cellular Mobile Telephone Service”,–

(i) Means telecommunication service provided by means of a telecommunication system for the conveyance of messages through the agency of wireless telegraphy where every message that is conveyed thereby has been, or is to be, conveyed by means of a telecommunication system which is designed or adapted to be capable of being used while in motion;

(ii) Refers to transmission of voice or non-voice messages over Licensee’s Network in real time only but service does not cover broadcasting of any messages, voice or non-voice, however, Cell Broadcast is permitted only to the subscribers of the service;

(iii) In respect of which the subscriber (all types, pre-paid as well as post-paid) has to be registered and authenticated at the network point of registration and approved numbering plan shall be applicable;

(iv) Includes both Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA) Technology;

(f) “Cellular Mobile Telephone Service Provider” means a licensee authorized to provide Cellular Mobile Telephone Service under a licence granted under section 4 of the Indian Telegraph Act, 1885 (13 of 1885), in a specified service area;

(g) “Customer” means a customer of a service provider to whom these regulations apply and includes its consumer and subscriber;

(h) “IVR” or “Interactive Voice Response” means a technology that allows a computer to interact with a person through the use of voice and Dual Tone Multi Frequency keypad inputs;

(i) “Mobile banking” or “m-banking” means delivery of banking services through mobile phones;

(j) “Message” shall have the meaning assigned to it in clause (3) of section 3 of the Indian Telegraph Act, 1885 (13 of 1885);

(k) “Regulations” mean the Mobile Banking (Quality of Service) Regulations, 2012;

(l) “SMS” means a message which is sent through short message service and includes a Multimedia Message which is sent through Multimedia Message Service (MMS);

(m) “STK” or “SIM Application Tool Kit” means a standard of GSM system which enables SIM to initiate actions which can be used for various value added services;

(n) “Subscriber” means a person or legal entity who subscribes to telecom service provided by an Access Provider;

(o) “Unified Access Services”, –

(i) Means telecommunication service provided by means of a telecommunication system for the conveyance of messages through the agency of wired or wireless telegraphy;

(ii) Refers to transmission of voice or non-voice messages over licensee’s network in real time only but service does not cover broadcasting of any messages, voice or non-voice, however, Cell Broadcast is permitted only to the subscribers of the service;

(iii) In respect of which the subscriber (all types, pre-paid as well as post-paid) has to be registered and authenticated at the network point of registration and approved numbering plan shall be applicable;

(p) “Unified Access Service Provider” means a licensee authorised to provide Unified Access Services under a licence granted under section 4 of the Indian Telegraph Act,1885(13 of 1885), in a specified service area;

(q) “USSD” or “Unstructured Supplementary Service Data” means a real-time or instant session-based messaging service;

(r) “WAP” or “Wireless Application Protocol” means an open protocol for wireless multimedia messaging;
(s) All other words and expressions used in these regulations but not defined, and defined in the Indian Telegraph Act, 1885 (13 of 1885) and the Telecom Regulatory Authority of India Act 1997 (24 of 1997) and the rules and other regulations made thereunder, shall have the meanings respectively assigned to them in those Acts or the rules or such other regulations, as the case may be.

3. Mode and Time frame for delivery of message for mobile banking. ―

(1) Every Access Provider, acting as bearer, shall facilitate the banks to use SMS, USSD and IVR to provide banking services to its customers and deliver the message generated by the bank or the customer within the time frame specified in sub-regulation (5).

(2) Every Access provider shall ensure that in case SMS is used for mobile banking transaction, a report confirming the delivery of the message is sent to the customer or the bank, as the case may be:

Provided that every service provider shall, establish, if network permits, through mutual agreement with the bank, a system to ensure that if SMS sent by the bank is not delivered to the customer, the system shall trigger USSD communication to the customer confirming the completion of the transaction.

(3) An Access Provider may allow the bank to use WAP or STK to provide banking services to its customers and shall comply with the time frame for delivery of the messages generated by the customer or the bank specified in sub-regulation (5):

Provided that the Authority may, from time to time, specify any other means of communication and its quality of service parameter for delivery of message.

(4) Every Access provider shall ensure that for availing the banking services such as cash deposit, cash withdrawal, money transfer and balance enquiry, the customer is able to complete the transaction in not more than two stage transmission of message in the case of SMS or not more than two stage entry of options in the case of USSD and IVR.

(5) Every Access Provider shall meet the following time frame for delivery of the messages generated by the customer or the bank relating to banking services provided to the customers, namely:-

1. SMS Response time <= 10 seconds
2. USSD Response time <= 2 seconds
3. IVR Response time <= 10 seconds
4. WAP Response time <= 10 seconds
5. STK Response time <= 10 seconds

Provided that the expiry time for SMS shall be seventy two hours;

Provided further that in the case of an USSD communication triggered by the system referred to in sub-regulation (2), the time frame shall start from the time USSD is triggered by the system.

(6) Every Access Provider shall ensure that if SMS is used for mobile transaction the SMS, sent by the bank, shall be sent as transactional messages through separate telecom resources, as provided in the Telecom Commercial Communications Customer Preference Regulations, 2010 (6 of 2010) dated 1st December, 2010.

(7) The measurement methodology in respect of the means of communication provided in sub-regulation (5) is specified in the Schedule-I.

(8) Every Access Provider shall ensure that the equipments installed in its network are capable of delivering messages within the time frame fixed under sub-regulation (5).

4. Quality of service parameters for m-banking communication. ― (1) The Network Service Quality Parameters for Cellular Mobile Telephone Services as specified in the Standards of Quality of Service of Basic Telephone Service (Wireline) and Cellular Mobile Telephone Service Regulations, 2009 (7 of 2009) shall apply to all m-banking messages.

(2) Every Access Provider shall meet the following customer centric quality of service parameters, namely:-

1. Time taken to deliver error and success confirmation message- 99.5 % within 2 minutes.

2. Transaction update on the system- 100 %

3. Success of delivery of financial transaction messages- 99.5 %

(3) Every Access Provider shall measure its quality of service in respect of each parameter against their benchmark in accordance with the measurement methodology specified in the Schedule-II.

5. Security requirements for m-banking communication. ― (1) Every Access Provider shall protect privacy and security of m-banking communication and ensure the confidentiality of end-to-end encryption, integrity, authentication and non-repudiation of such communication.

(2) The end-to-end encryption, integrity, authentication and non-repudiation of m-banking communication in the network of the Access Provider shall be in accordance with the standards certified by International Telecommunication Union (ITU) or European Telecommunications Standards Institute (ETSI) or Telecommunication Engineering Centre (TEC) or International standardization bodies such as Third Generation Partnership Project (3GPP) or Third Generation Partnership Project 2 (3GPP2) or Internet Engineering Task Force (IETF) or American National Standards Institute (ANSI) or Telecommunications Industry Association (TIA) or Interim Standard (IS) or any other international standard as may be approved by the Central Government.

6. Reporting. ―Every Access provider shall submit to the Authority its compliance reports of benchmarks in respect of each Quality of Service parameter specified under sub regulation (5) of regulation 3 and sub regulation (2) of regulation 4 in such manner and such format, at such intervals and within such time limit, as may be specified by the Authority by an order or direction.

7. Obligation of the Access Providers. ― (1) Every Access Provider shall maintain record of mobile banking messages for six months for audit purposes.

(2) In case the message generated by the customer or the bank, in the process of m-banking transaction is not delivered due to any reason, the Access Provider shall immediately send an error message intimating the non completion of the process to the customer or the bank, as the case may be.

(3) Every Access Provider shall maintain records of every m-banking communication in compliance of time frame for delivery of the messages specified in regulation 3 and benchmark of each of the quality of service parameters specified in regulation 4, in such manner and in such format, as may be specified by direction, by the Authority, from time to time.

(4) The Authority may, if it considers expedient so to do, and to ensure compliance of the provisions of these regulations, at any time, direct any of its officers or employee or any agency appointed by the Authority in this behalf, to inspect the records maintained under sub-regulations (1), (2) and (3).

(5) Every Access Provider shall maintain complete and accurate record of the consumers, using banking service through mobile phones.

8. Interpretation. ― In case of any doubt regarding interpretation of any of the provisions of these regulations, the clarifications issued by the Authority in this regard, shall be final and binding.

Home Ministry Blocked Telenor’s Security Clearance Before FIPB

Foreign Investment Promotion Board (FIPB) is an integral part of foreign investments in India. Under the consolidated FDI policy of India 2012, the Minister of Finance who is in-charge of FIPB would consider the recommendations of FIPB on proposals with total foreign equity inflow of and below Rs.1200 crore.

The recommendations of FIPB on proposals with total foreign equity inflow of more than Rs. 1200 crore would be placed for consideration of CCEA. The CCEA would also consider the proposals which may be referred to it by the FIPB/ the Minister of Finance (in-charge of FIPB).

Amid of 2G spectrum scam and related controversies, Telenor is looking forward to new telecom partner in India. Telenor is also in the process of starting a new company in India and it has already filed a FIPB application. The strategy of Telenor in this regard is very simple. It would first find a solution with the current partner Unitech and would then find a suitable new partner.

However, the real problem is that Telenor is not disclosing the name of potential and possible partner for it new joint venture. World over telecom equipment providers like Huawei and ZTE are under attacks from regional governments over cyber security issues.

For instance, recently the cyber security concerns excluded Huawei from Australian Broadband Project (ABP). Even ZTE has been accused of facilitating e-surveillance in Iran. Now it has been reported that the US House Intelligence Committee is investigating Huawei role amid concerns that it is an arm of Beijing’s cyber-espionage effort.

In such circumstances, if Telenor has any potential plans to have Huawei, ZTE or their affiliates as a partner in its latest joint venture, this may raise red flag before the Home Ministry of India.

In fact, it has been reported that Home Ministry of India has declined to issue a security clearance to Telenor for its new joint venture. Telenor has made an application to the FIPB last month but it has not been listed for approval till now because Home Ministry has placed an objection in this regard.

Home Ministry has objected to the fact that Telenor has neither identified its investing entity nor the Indian partner as per the terms of Press Note No 3 of 2007. The application by Telenor requested for certain relaxations and exemptions from disclosures that seem to have been opposed by Home Ministry.

Another problem with Telenor’s application is that the application named all three board directors as Norwegians whereas security conditions in Press Note No 3 stipulate that majority of the board directors should be Indian citizens.

Further, the Home Ministry is also insisting upon identification of the Indian partner so that its antecedents as well as those of its owners or directors are verified by the Intelligence Bureau before giving a no-objection certificate.

The Home Ministry also needs to check the backgrounds of the designated chairman, managing director, chief executive officer or chief financial officer if they are foreign nationals.

These are genuine concerns and they are closely related with cyber security and national security aspects as well. Realising the gravity of the situation, recently an inter-ministerial meeting was held to resolve this problem. However, the officials from Home Ministry did not attend the meeting. This means Telenor has to change its strategy of non disclosure and come up with some better strategy.

FDI In Mining Sector Of India Under Consolidated FDI Policy Of India 2012

This is in continuance of our series on consolidated FDI policy of India 2012 by DIPP. The previous articles in this regard are

(1) Consolidated FDI policy of India 2012 by DIPP: objectives,

(2) Consolidated FDI policy of India 2012 by DIPP: definitions,

(3) Consolidated FDI policy of India 2012 by DIPP: general provisions,

(4) FDI in limited liability partnerships (LLPs) in India 2012,

(5) Permissible direct and indirect foreign investment in an Indian company,

(6) Foreign investment promotion board (FIPB) and FDI policy of India 2012,

(7) Prohibited sectors under the consolidated FDI policy of India 2012,

(8) FDI in agriculture and animal husbandry under consolidated FDI policy of India 2012,

In this article Perry4Law and Perry4Law Techno Legal Base (PTLB) would discuss the provisions pertaining to FDI in mining sector of India under consolidated FDI policy of India 2012.

As per the FDI policy of India 2012, FDI in mining and exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores; subject to the Mines and Minerals (Development & Regulation) Act, 1957 is allowed upto 100% through automatic route.

Similarly, FDI in coal and lignite mining for captive consumption by power projects, iron and steel and cement units and other eligible activities permitted under and subject to the provisions of Coal Mines (Nationalization) Act, 1973 is allowed upto 100% through automatic route.

FDI for setting up coal processing plants like washeries subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing is allowed upto 100% through automatic route.

FDI in mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities subject to sectoral regulations and the Mines and Minerals (Development and Regulation Act 1957) is allowed upto 100% through government approval route.

India has large reserves of beach sand minerals in the coastal stretches around the country. Titanium bearing minerals viz. Ilmenite, rutile and leucoxene, and Zirconium bearing minerals including zircon are some of the beach sand minerals which have been classified as “prescribed substances” under the Atomic Energy Act, 1962.

Under the Industrial Policy Statement 1991, mining and production of minerals classified as “prescribed substances” and specified in the Schedule to the Atomic Energy (Control of Production and Use) Order, 1953 were included in the list of industries reserved for the public sector. Vide Resolution No. 8/1(1)/97-PSU/1422 dated 6th October 1998 issued by the Department of Atomic Energy laying down the policy for exploitation of beach sand minerals, private participation including Foreign Direct Investment (FDI), was permitted in mining and production of Titanium ores (Ilmenite, Rutile and Leucoxene) and Zirconium minerals (Zircon).

Vide Notification No. S.O.61(E) dated 18.1.2006, the Department of Atomic Energy re-notified the list of “prescribed substances” under the Atomic Energy Act 1962. Titanium bearing ores and concentrates (Ilmenite, Rutile and Leucoxene) and Zirconium, its alloys and compounds and minerals/concentrates including Zircon, were removed from the list of “prescribed substances”.

(i) FDI for separation of titanium bearing minerals and ores will be subject to the following additional conditions viz.:

(a) Value addition facilities are set up within India along with transfer of technology;

(b) Disposal of tailings during the mineral separation shall be carried out in accordance with regulations framed by the Atomic Energy Regulatory Board such as Atomic Energy (Radiation Protection) Rules, 2004 and the Atomic Energy (Safe Disposal of Radioactive Wastes) Rules, 1987.

(ii) FDI will not be allowed in mining of “prescribed substances” listed in the Notification No. S.O. 61(E) dated 18.1.2006 issued by the Department of Atomic Energy.

Clarification: (1) For titanium bearing ores such as Ilmenite, Leucoxene and Rutile, manufacture of titanium dioxide pigment and titanium sponge constitutes value addition. Ilmenite can be processed to produce ‘Synthetic Rutile or Titanium Slag as an intermediate value added product.

The objective is to ensure that the raw material available in the country is utilized for setting up downstream industries and the technology available internationally is also made available for setting up such industries within the country. Thus, if with the technology transfer, the objective of the FDI Policy can be achieved, the conditions prescribed at (i) (a) above shall be deemed to be fulfilled.

FDI In Agriculture And Animal Husbandry Under Consolidated FDI Policy Of India 2012

This is in continuance of our series on consolidated FDI policy of India 2012 by DIPP. The previous articles in this regard are

(1) Consolidated FDI policy of India 2012 by DIPP: objectives,

(2) Consolidated FDI policy of India 2012 by DIPP: definitions,

(3) Consolidated FDI policy of India 2012 by DIPP: general provisions,

(4) FDI in limited liability partnerships (LLPs) in India 2012,

(5) Permissible direct and indirect foreign investment in an Indian company,

(6) Foreign investment promotion board (FIPB) and FDI policy of India 2012,

(7) Prohibited sectors under the consolidated FDI policy of India 2012.

In this article Perry4Law and Perry4Law Techno Legal Base (PTLB) would discuss the provisions pertaining to FDI in Agriculture and Animal Husbandry under consolidated FDI policy of India 2012.

A 100% FDI through automatic route is available regarding the following:

(a) Floriculture, Horticulture, Apiculture and Cultivation of Vegetables & Mushrooms under controlled conditions;

(b) Development and production of Seeds and planting material;

(c) Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture, under controlled conditions; and

(d) Services related to agro and allied sectors

Besides the above, FDI is not allowed in any other agricultural sector/activity. Further, other conditions are also required to be complied with in this regard. These include:

(a) For companies dealing with development of transgenic seeds/vegetables, the following conditions apply:

(i) When dealing with genetically modified seeds or planting material the company shall comply with safety requirements in accordance with laws enacted under the Environment (Protection) Act on the genetically modified organisms.

(ii) Any import of genetically modified materials if required shall be subject to the conditions laid down vide Notifications issued under Foreign Trade (Development and Regulation) Act, 1992.

(iii) The company shall comply with any other Law, Regulation or Policy governing genetically modified material in force from time to time.

(iv) Undertaking of business activities involving the use of genetically engineered cells and material shall be subject to the receipt of approvals fromGenetic Engineering Approval Committee (GEAC) and Review Committee on Genetic Manipulation (RCGM).

(v) Import of materials shall be in accordance with National Seeds Policy.

(b) The term “under controlled conditions” covers the following:

(i) Cultivation under controlled conditions for the categories of Floriculture, Horticulture, Cultivation of vegetables and Mushrooms is the practice of cultivation wherein rainfall, temperature, solar radiation, air humidity and culture medium are controlled artificially. Control in these parameters may be effected through protected cultivation under green houses, net houses, poly houses or any other improved infrastructure facilities where micro-climatic conditions are regulated anthropogenically.

(ii) In case of Animal Husbandry, scope of the term under controlled conditions covers –

(a) Rearing of animals under intensive farming systems with stall-feeding. Intensive farming system will require climate systems (ventilation, temperature/humidity management), health care and nutrition, herd registering/pedigree recording, use of machinery, waste management systems.

(b) Poultry breeding farms and hatcheries where micro-climate is controlled through advanced technologies like incubators, ventilation systems etc.

(iii) In the case of pisciculture and aquaculture, scope of the term under controlled conditions covers –

(a) Aquariums

(b) Hatcheries where eggs are artificially fertilized and fry are hatched and incubated in an enclosed environment with artificial climate control.

(iv) In the case of apiculture, scope of the term under controlled conditions covers –

(a) Production of honey by bee-keeping, except in forest/wild, in designated spaces with control of temperatures and climatic factors like humidity and artificial feeding during lean seasons.
For tea sector including tea plantations, a FDI of 100% through Government route is permissible. Besides this, FDI is not allowed in any other plantation sector/activity. Further, the following conditions also apply in this case:

(i) Compulsory divestment of 26% equity of the company in favour of an Indian partner/Indian public within a period of 5 years

(ii) Prior approval of the State Government concerned in case of any future land use change.

Prohibited Sectors Under The Consolidated FDI Policy Of India 2012

This is in continuance of our series on consolidated FDI policy of India 2012 by DIPP. The previous articles in this regard are

(1) Consolidated FDI policy of India 2012 by DIPP: objectives,

(2) Consolidated FDI policy of India 2012 by DIPP: definitions,

(3) Consolidated FDI policy of India 2012 by DIPP: general provisions,

(4) FDI in limited liability partnerships (LLPs) in India 2012,

(5) Permissible direct and indirect foreign investment in an Indian company,

(6) Foreign investment promotion board (FIPB) and FDI policy of India 2012.

In this article Perry4Law and Perry4Law Techno Legal Base (PTLB) would discuss the category of prohibited sectors that have been kept out of the permissible FDI scheme of 2012.

FDI is prohibited in:

(a) Retail Trading (except single brand product retailing)
(b) Lottery Business including Government /private lottery, online lotteries, etc.
(c) Gambling and Betting including casinos etc.
(d) Chit funds
(e) Nidhi company
(f) Trading in Transferable Development Rights (TDRs)
(g) Real Estate Business or Construction of Farm Houses
(h) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
(i) Activities / sectors not open to private sector investment e.g. Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems).

Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities.

In other sectors/activities, FDI up to the limit indicated against each sector/activity is allowed, subject to applicable laws/ regulations; security and other conditionalities. In sectors/activities without FDI limits, FDI is permitted upto 100% on the automatic route, subject to applicable laws/ regulations; security and other conditionalities.

Wherever there is a requirement of minimum capitalization, it shall include share premium received along with the face value of the share, only when it is received by the company upon issue of the shares to the non-resident investor. Amount paid by the transferee during post-issue transfer of shares beyond the issue price of the share, cannot be taken into account while calculating minimum capitalization requirement.

Foreign Investment Promotion Board (FIPB) And FDI Policy Of India 2012

This is the sixth article of the series. The previous articles in this regard are consolidated FDI policy of India 2012 by DIPP: objectives, consolidated FDI policy of India 2012 by DIPP: definitions, consolidated FDI policy of India 2012 by DIPP: general provisions, FDI in limited liability partnerships (LLPs) in India 2012, permissible direct and indirect foreign investment in an Indian company.

In this article Perry4Law and Perry4Law Techno Legal Base (PTLB) would discuss the provisions pertaining to foreign investment promotion board (FIPB) under the FDI policy of India 2012. These are as follows:

(1) Constitution Of FIPB: FIPB comprises of the following Secretaries to the Government of India:

(a) Secretary to Government, Department of Economic Affairs, Ministry of Finance – Chairperson.
(b) Secretary to Government, Department of Industrial Policy & Promotion, Ministry of Commerce & Industry.
(c) Secretary to Government, Department of Commerce, Ministry of Commerce & Industry.
(d) Secretary to Government, Economic Relations, Ministry of External Affairs.
(e) Secretary to Government, Ministry of Overseas Indian Affairs.

The Board would be able to co-opt other Secretaries to the Central Government and top officials of financial institutions, banks and professional experts of Industry and Commerce, as and when necessary.

(2) Levels Of Approvals For Cases Under Government Route: The Minister of Finance who is in-charge of FIPB would consider the recommendations of FIPB on proposals with total foreign equity inflow of and below Rs.1200 crore.

The recommendations of FIPB on proposals with total foreign equity inflow of more than Rs. 1200 crore would be placed for consideration of CCEA.

The CCEA would also consider the proposals which may be referred to it by the FIPB/ the Minister of Finance (in-charge of FIPB).

(3) Cases Which Do Not Require Fresh Approval: Companies may not require fresh prior approval of the Government i.e. Minister in-charge of FIPB/CCEA for bringing in additional foreign investment into the same entity, in the following cases:

(i) Entities the activities of which had earlier required prior approval of FIPB/CCFI/CCEA and which had, accordingly, earlier obtained prior approval of FIPB/CCFI/CCEA for their initial foreign investment but subsequently such activities/sectors have been placed under automatic route;

(ii) Entities the activities of which had sectoral caps earlier and which had, accordingly, earlier obtained prior approval of FIPB/CCFI/CCEA for their initial foreign investment but subsequently such caps were removed/increased and the activities placed under the automatic route; provided that such additional investment alongwith the initial/original investment does not exceed the sectoral caps; and

(iii) Additional foreign investment into the same entity where prior approval of FIPB/CCFI/CCEA had been obtained earlier for the initial/original foreign investment due to requirements of Press Note 18/1998 or Press Note 1 of 2005 and prior approval of the Government under the FDI policy is not required for any other reason/purpose.

(4) Online Filing Of Applications For FIPB/Government Approval: Guidelines for e-filing of applications, filing of amendment applications and instructions to applicants are available at FIPB‘s website.

Permissible Direct And Indirect Foreign Investment In An Indian Company

This is the fifth article of the series. The previous articles in this regard are consolidated FDI policy of India 2012 by DIPP: objectives, consolidated FDI policy of India 2012 by DIPP: definitions, consolidated FDI policy of India 2012 by DIPP: general provisions, FDI in limited liability partnerships (LLPs) in India 2012.

In this article Perry4Law and Perry4Law Techno Legal Base (PTLB) would discuss calculation of foreign investment, total foreign investment limits, direct and indirect foreign investment in Indian companies, etc.

As per the consolidated FDI circular 2012 issued by DIPP:

(1) Investment in Indian companies can be made both by non-resident as well as resident Indian entities. Any non-resident investment in an Indian company is direct foreign investment. Investment by resident Indian entities could again comprise of both resident and non-resident investment. Thus, such an Indian company would have indirect foreign investment if the Indian investing company has foreign investment in it. The indirect investment can also be a cascading investment i.e. through multi-layered structure.

(2) For the purpose of computation of indirect Foreign investment, Foreign Investment in Indian company shall include all types of foreign investments i.e. FDI; investment by FIIs (holding as on March 31); NRIs; ADRs; GDRs; Foreign Currency Convertible Bonds (FCCB); fully, compulsorily and mandatorily convertible preference shares and fully,compulsorily and mandatorily convertible Debentures regardless of whether the said investments have been made under Schedule 1, 2, 3 and 6 of FEM (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000.

(3) Guidelines for calculation of total foreign investment i.e. direct and indirect foreign investment in an Indian company.

(i) Counting the Direct Foreign Investment: All investment directly by a non-resident entity into the Indian company would be counted towards foreign investment.

(ii) Counting of indirect foreign Investment:

(a) The foreign investment through the investing Indian company would not be considered for calculation of the indirect foreign investment in case of Indian companies which are owned and controlled by resident Indian citizens and/or Indian Companies which are owned and controlled by resident Indian citizens.

(b) For cases where condition (a) above is not satisfied or if the investing company is owned or controlled by non resident entities‘, the entire investment by the investing
company into the subject Indian Company would be considered as indirect foreign investment,

provided that, as an exception, the indirect foreign investment in only the 100% owned subsidiaries of operating-cum-investing/investing companies, will be limited to the foreign investment in the operating-cum-investing/ investing company. This exception is made since the downstream investment of a 100% owned subsidiary of the holding company is akin to investment made by the holding company and the downstream investment should be a mirror image of the holding company. This exception, however, is strictly for those cases where the entire capital of the downstream subsidiary is owned by the holding company.

Illustration

To illustrate, if the indirect foreign investment is being calculated for Company X which has investment through an investing Company Y having foreign investment, the following would be the method of calculation:

(a) Where Company Y has foreign investment less than 50%- Company X would not be taken as having any indirect foreign investment through Company Y.

(b) Where Company Y has foreign investment of say 75% and:

(i) invests 26% in Company X, the entire 26% investment by Company Y would be treated as indirect foreign investment in Company X;
(ii) Invests 80% in Company X, the indirect foreign investment in Company X would be taken as 80%
(iii) Where Company X is a wholly owned subsidiary of Company Y (i.e. Company Y owns 100% shares of Company X), then only 75% would be treated as indirect foreign equity and the balance 25% would be treated as resident held equity. The indirect foreign equity in Company X would be computed in the ratio of 75: 25 in the total investment of Company Y in Company X.

(c)The total foreign investment would be the sum total of direct and indirect foreign investment.

(d) The above methodology of calculation would apply at every stage of investment in Indian companies and thus to each and every Indian company.

(e) Additional conditions:

(i) The full details about the foreign investment including ownership details etc. in Indian company(s) and information about the control of the company(s) would be furnished by the Company(s) to the Government of India at the time of seeking approval.

(ii) In any sector/activity, where Government approval is required for foreign investment and in cases where there are any inter-se agreements between/amongst share-holders which have an effect on the appointment of the Board of Directors or on the exercise of voting rights or of creating voting rights disproportionate to shareholding or any incidental matter thereof, such agreements will have to be informed to the approving authority. The approving authority will consider such inter-se agreements for determining ownership and control when considering the case for approval of foreign investment.

(iii) In all sectors attracting sectoral caps, the balance equity i.e. beyond the sectoral foreign investment cap, would specifically be beneficially owned by/held with/in the hands of resident Indian citizens and Indian companies, owned and controlled by resident Indian citizens.

(iv) In the I& B and Defence sectors where the sectoral cap is less than 49%, the company would need to be ‗owned and controlled‘ by resident Indian citizens and Indian companies, which are owned and controlled by resident Indian citizens.

For this purpose, the equity held by the largest Indian shareholder would have to be at least 51% of the total equity, excluding the equity held by Public Sector Banks and Public Financial Institutions, as defined in Section 4A of the Companies Act, 1956. The term largest Indian shareholder‘, used in this clause, will include any or a combination of the following:

(i) In the case of an individual shareholder,

(a) The individual shareholder,
(b) A relative of the shareholder within the meaning of Section 6 of the Companies Act, 1956.
(c) A company/ group of companies in which the individual shareholder/HUF to which he belongs has management and controlling interest.

(ii) In the case of an Indian company,

(a) The Indian company

(b) A group of Indian companies under the same management and ownership control.

For the purpose of this Clause, Indian company shall be a company which must have a resident Indian or a relative as defined under Section 6 of the Companies Act, 1956/ HUF, either singly or in combination holding at least 51% of the shares.

(iii) Provided that, in case of a combination of all or any of the entities mentioned in Sub-Clauses (i) and (ii) of clause 4.1.3(v)(d)(A) above, each of the parties shall have entered into a legally binding agreement to act as a single unit in managing the matters of the applicant company.
If a declaration is made by persons as per section 187C of the Indian Companies Act about a beneficial interest being held by a non resident entity, then even though the investment may be made by a resident Indian citizen, the same shall be counted as foreign investment.

(4) The above mentioned policy and methodology would be applicable for determining the total foreign investment in all sectors, except in sectors where it is specified in a statute or rule there under. The above methodology of determining direct and indirect foreign investment therefore does not apply to the Insurance Sector which will continue to be governed by the relevant Regulation.

(5) Any foreign investment already made in accordance with the guidelines in existence prior to February 13, 2009 (date of issue of Press Note 2 of 2009) would not require any modification to conform to these guidelines. All other investments, past and future, would come under the ambit of these new guidelines.

European Firms And Companies Can Be Held Liable For Other’s Cyber Attacks

Recently the European Parliament’s Civil Liberties Committee approved the legislative plans according to which the firms and companies can be held liable for any cyber attacks that others commit “for their benefit”. The proposal is also trying to establish criminal liability of certain “legal persons” within a company for certain cyber crimes.

The crux of these provisions is that specified legal persons would be liable for offences committed for their benefit, whether deliberately or through a lack of supervision. These companies/legal persons may also face penalties such as exclusion for entitlement to public benefits or judicial winding-up.

Naturally, European companies and firms in general and the appointed legal persons in particular must be well trained in cyber law and possible cyber crimes committed against them. If you are an interested in online cyber law trainings in India for international students, check the PTLB’s Blog in this regard.

Take the example of energy sector in Europe that is increasingly relying upon information and communication technology (ICT) for their business and operations. The smart meters are becoming headache for electric energy companies’ world over and European energy companies would also face the same. Manipulation of such smart meters by third part can bring legal troubles for legal persons responsible for their cyber security and safety.

Further, EU member countries will be required to ensure that their networks of national contact points are available round the clock and that they can respond to urgent requests within a maximum of eight hours in order to prevent cyber-attacks spreading across borders. This has been proposed to ensure critical ICT infrastructure protection in Europe.

The proposed law would make it a criminal offence to conduct cyber attacks on computer systems. Individuals could face imprisonment of two years for such offence. A maximum penalty of at least five years in jail could apply if aggravating circumstances or considerable damage, financial costs or loss of financial data occurred.

Individuals found in possession of or distributing hacking software and tools also face criminal charges under the proposed law. Using another person’s electronic identity in order to commit an attack that causes prejudice to the rightful identity owner could result in offenders serving a minimum of three years in jail if they are under the maximum penalties that could be imposed.

Tougher penalties would be imposed on criminal organisations. Those harsher penalties will also be imposed for attacks on critical infrastructure such as the IT systems of power plants or transport networks. If damage caused by attacks is insignificant then no criminal sanctions should apply. Criminal offences will also apply for the sale or production of tools that are used to commit cyber-attack crimes.

Malware like Stuxnet and Duqu have already proved that critical infrastructures like power grids, nuclear facilities, satellites, defense networks, governmental informatics infrastructures, etc are vulnerable to sophisticated cyber attacks. This is a grave issue which even Indian government must take very seriously before rolling the smart meters in India.

FDI In Limited Liability Partnerships (LLPs) In India 2012

The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India (GOI) has released the Consolidated FDI Policy of India 2012. The FDI policy 2012 has become effective from April 10, 2012.

The FDI policy 2012 has provided certain crucial definitions that must be well known to all concerned. Perry4Law and Perry4Law Techno Legal Base (PTLB) have already shared the general conditions to be followed by all concerned to make successful and legal FDI in India.

In this post, Perry4Law and PTLB would share the conditions precedent for FDI in Limited Liability Partnerships (LLPs) in India as per the Consolidated FDI Policy of India 2012 of DIPP.

FDI in LLPs in India is permitted, subject to the following conditions:

(i) FDI will be allowed, through the Government approval route, only in LLPs operating in sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions (such as ‘Non Banking Finance Companies’ or ‘Development of Townships, Housing, Built-up infrastructure and Construction-development projects’ etc.).

(ii) LLPs with FDI will not be allowed to operate in agricultural/plantation activity, print media or real estate business.

(iii) An Indian company, having FDI, will be permitted to make downstream investment in an LLP only if both-the company, as well as the LLP- are operating in sectors where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions.

(iv) LLPs with FDI will not be eligible to make any downstream investments.

(v) Foreign Capital participation in LLPs will be allowed only by way of cash consideration, received by inward remittance, through normal banking channels or by debit to NRE/FCNR account of the person concerned, maintained with an authorized dealer/authorized bank.

(vi) Investment in LLPs by Foreign Institutional Investors (FIls) and Foreign Venture Capital Investors (FVCIs) will not be permitted. LLPs will also not be permitted to avail External Commercial Borrowings (ECBs).

(vii) In case the LLP with FDI has a body corporate that is a designated partner or nominates an individual to act as a designated partner in accordance with the provisions of Section 7 of the LLP Act, 2008, such a body corporate should only be a company registered in India under the Companies Act, 1956 and not any other body, such as an LLP or a trust.

(viii) For such LLPs, the designated partner “resident in India”, as defined under the ‘Explanation’ to Section 7(1) of the LLP Act, 2008, would also have to satisfy the definition of “person resident in India”, as prescribed under Section 2(v)(i) of the Foreign Exchange Management Act, 1999.

(ix) The designated partners will be responsible for compliance with all the above conditions and also liable for all penalties imposed on the LLP for their contravention, if any.

(x) Conversion of a company with FDI, into an LLP, will be allowed only if the above stipulations are met and with the prior approval of FIPB/Government.

Consolidated FDI Policy Of India 2012 By DIPP: General Provisions

The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India (GOI) has released the Consolidated FDI Policy of India 2012. The FDI policy 2012 has become effective from April 10, 2012.

The FDI policy 2012 has provided certain crucial definitions that must be well known to all concerned. Perry4Law and Perry4Law Techno Legal Base (PTLB) are sharing the general conditions to be followed by all concerned to make successful and legal FDI in India through this post.

(1) Who Can Invest In India: A non-resident entity (other than a citizen of Pakistan or an entity incorporated in Pakistan) can invest in India, subject to the FDI Policy. A citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route.

NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to invest in the capital of Indian companies on repatriation basis, subject to the condition that the amount of consideration for such investment shall be paid only by way of inward remittance in free foreign exchange through normal banking channels.

OCBs have been derecognized as a class of investors in India with effect from September 16, 2003. Erstwhile OCBs which are incorporated outside India and are not under the adverse notice of RBI can make fresh investments under FDI Policy as incorporated non-resident entities, with the prior approval of Government of India if the investment is through Government route; and with the prior approval of RBI if the investment is through Automatic route.

An FII may invest in the capital of an Indian Company under the Portfolio Investment Scheme which limits the individual holding of an FII to 10% of the capital of the company and the aggregate limit for FII investment to 24% of the capital of the company. This aggregate limit of 24% can be increased to the sectoral cap/statutory ceiling, as applicable, by the Indian Company concerned through a resolution by its Board of Directors followed by a special resolution to that effect by its General Body and subject to prior intimation to RBI. The aggregate FII investment, in the FDI and Portfolio Investment Scheme, should be within the above caps.

The Indian company which has issued shares to FIIs under the FDI Policy for which the payment has been received directly into company‘s account should report these figures separately under item no. 5 of Form FC-GPR. A daily statement in respect of all transactions (except derivative trade) has to be submitted by the custodian bank in floppy / soft copy in the prescribed format directly to RBI.

Only SEBI registered FII and NRIs as per Schedules 2 and 3 respectively of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations 2000, can invest/trade through a registered broker in the capital of Indian Companies on recognised Indian Stock Exchanges.

A SEBI registered Foreign Venture Capital Investor (FVCI) may contribute up to 100% of the capital of an Indian Venture Capital Undertaking (IVCU) and may also set up a domestic asset management company to manage the fund. All such investments can be made under the automatic route in terms of Schedule 6 to Notification No. FEMA 20. A SEBI registered FVCI can invest in a domestic venture capital fund registered under the SEBI (Venture Capital Fund) Regulations, 1996. Such investments would also be subject to the extant FEMA regulations and extant FDI policy including sectoral caps, etc. SEBI registered FVCIs are also allowed to invest under the FDI Scheme, as non-resident entities, in other companies, subject to FDI Policy and FEMA regulations.

Further, FVCIs are allowed to invest in the eligible securities (equity, equity linked instruments, debt, debt instruments, debentures of an IVCU or VCF, units of schemes / funds set up by a VCF) by way of private arrangement / purchase from a third party also, subject to terms and conditions as stipulated in Schedule 6 of Notification No. FEMA 20 / 2000 -RB dated May 3, 2000 as amended from time to time. It is also being clarified that SEBI registered FVCIs would also be allowed to invest in securities on a recognized stock exchange subject to the provisions of the SEBI (FVCI) Regulations, 2000, as amended from time to time, as well as the terms and conditions stipulated therein.

(2) Qualified Foreign Investors (QFls) investment in equity shares: QFls are permitted to invest through SEBI registered Depository Participants (DPs) only in equity shares of listed Indian companies through recognized brokers on recognized stock exchanges in India as well as in equity shares of Indian companies which are offered to public in India in terms of the relevant and applicable SEBI guidelines/regulations. QFls are also permitted to acquire equity shares by way of right shares, bonus shares or equity shares on account of stock split / consolidation or equity shares on account of amalgamation, demerger or such corporate actions subject to the prescribed investment limits. QFIs are allowed to sell the equity shares so acquired subject to the relevant SEBI guidelines.

The individual and aggregate investment limits for the QFls shall be 5% and 10% respectively of the paid up capital of an Indian company. These limits shall be over and above the FII and NRI investment ceilings prescribed under the Portfolio Investment Scheme for foreign investment in India. Further, wherever there are composite sectoral caps under the extant FDI policy, these limits for QFI investment in equity shares shall also be within such overall FDI sectoral caps.

Dividend payments on equity shares held by QFls can either be directly remitted to the designated overseas bank accounts of the QFIs or credited to the single rupee pool bank account. In case dividend payments are credited to the single rupee pool bank account they shall be remitted to the designated overseas bank accounts of the QFIs within five working days (including the day of credit of such funds to the single rupee pool bank account). Within these five working days, the dividend payments can be also utilized for fresh purchases of equity shares under this scheme, if so instructed by the QFI.

(3) Entities Into Which FDI Can Be Made:

(a) FDI in an Indian Company: Indian companies can issue capital against FDI.

(b) FDI in Partnership Firm / Proprietary Concern: A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest in the capital of a firm or a proprietary concern in India on non-repatriation basis provided;

(i) Amount is invested by inward remittance or out of NRE/FCNR(B)/NRO account maintained with Authorized Dealers / Authorized banks.
(ii) The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business or print media sector.
(iii) Amount invested shall not be eligible for repatriation outside India.

(c) Investments with repatriation option: NRIs/PIO may seek prior permission of Reserve Bank for investment in sole proprietorship concerns/partnership firms with repatriation option. The application will be decided in consultation with the Government of India.

(d) Investment by non-residents other than NRIs/PIO: A person resident outside India other than NRIs/PIO may make an application and seek prior approval of Reserve Bank for making investment in the capital of a firm or a proprietorship concern or any association of persons in India. The application will be decided in consultation with the Government of India.

(e) Restrictions: An NRI or PIO is not allowed to invest in a firm or proprietorship concern engaged in any agricultural/plantation activity or real estate business or print media.

(f) FDI in Venture Capital Fund (VCF): FVCIs are allowed to invest in Indian Venture Capital Undertakings (IVCUs) /Venture Capital Funds (VCFs) /other companies, as stated in paragraph 3.1.6 of this Circular. If a domestic VCF is set up as a trust, a person resident outside India (non-resident entity/individual including an NRI) can invest in such domestic VCF subject to approval of the FIPB. However, if a domestic VCF is set-up as an incorporated company under the Companies Act, 1956, then a person resident outside India (non-resident entity/individual including an NRI) can invest in such domestic VCF under the automatic route of FDI Scheme, subject to the pricing guidelines, reporting requirements, mode of payment, minimum capitalization norms, etc.

(g) FDI in Trusts: FDI in Trusts other than VCF is not permitted.

(h) FDI in Limited Liability Partnerships (LLPs): FDI in LLPs is permitted, subject to the following conditions:

(i) FDI will be allowed, through the Government approval route, only in LLPs operating in sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions (such as ‘Non Banking Finance Companies’ or ‘Development of Townships, Housing, Built-up infrastructure and Construction-development projects’ etc.).

(ii) LLPs with FDI will not be allowed to operate in agricultural/plantation activity, print media or real estate business.

(iii) An Indian company, having FDI, will be permitted to make downstream investment in an LLP only if both-the company, as well as the LLP- are operating in sectors where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions.

(iv) LLPs with FDI will not be eligible to make any downstream investments.

(v) Foreign Capital participation in LLPs will be allowed only by way of cash consideration, received by inward remittance, through normal banking channels or by debit to NRE/FCNR account of the person concerned, maintained with an authorized dealer/authorized bank.

(vi) Investment in LLPs by Foreign Institutional Investors (FIls) and Foreign Venture Capital Investors (FVCIs) will not be permitted. LLPs will also not be permitted to avail External Commercial Borrowings (ECBs).

(vii) In case the LLP with FDI has a body corporate that is a designated partner or nominates an individual to act as a designated partner in accordance with the provisions of Section 7 of the LLP Act, 2008, such a body corporate should only be a company registered in India under the Companies Act, 1956 and not any other body, such as an LLP or a trust.

(viii) For such LLPs, the designated partner “resident in India”, as defined under the
‘Explanation’ to Section 7(1) of the LLP Act, 2008, would also have to satisfy the definition of “person resident in India”, as prescribed under Section 2(v)(i) of the Foreign Exchange Management Act, 1999.

(ix) The designated partners will be responsible for compliance with all the above conditions and also liable for all penalties imposed on the LLP for their contravention, if any.

(x) Conversion of a company with FDI, into an LLP, will be allowed only if the above stipulations are met and with the prior approval of FIPB/Government.

(i) FDI in other Entities: FDI in resident entities other than those mentioned above is not permitted.

(4) Types Of Instruments: Indian companies can issue equity shares, fully, compulsorily and mandatorily convertible debentures and fully, compulsorily and mandatorily convertible preference shares subject to pricing guidelines/valuation norms prescribed under FEMA Regulations. The price/ conversion formula of convertible capital instruments should be determined upfront at the time of issue of the instruments. The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with the extant FEMA regulations [the DCF method of valuation for the unlisted companies and valuation in terms of SEBI (ICDR) Regulations, for the listed companies.

Other types of Preference shares/Debentures i.e. non-convertible, optionally convertible or partially convertible for issue of which funds have been received on or after May 1, 2007 are considered as debt. Accordingly all norms applicable for ECBs relating to eligible borrowers, recognized lenders, amount and maturity, end-use stipulations, etc. shall apply. Since these instruments would be denominated in rupees, the rupee interest rate will be based on the swap equivalent of London Interbank Offered Rate (LIBOR) plus the spread as permissible for ECBs of corresponding maturity.

The inward remittance received by the Indian company vide issuance of DRs and FCCBs are treated as FDI and counted towards FDI.

(a) Issue of Shares by Indian Companies under FCCB/ADR/GDR:

(i) Indian companies can raise foreign currency resources abroad through the issue of FCCB/DR (ADRs/GDRs), in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Government of India there under from time to time.

(ii) A company can issue ADRs / GDRs if it is eligible to issue shares to persons resident outside India under the FDI Policy. However, an Indian listed company, which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by the Securities and Exchange Board of India (SEBI) will not be eligible to issue ADRs/GDRs.

(iii) Unlisted companies, which have not yet accessed the ADR/GDR route for raising capital in the international market, would require prior or simultaneous listing in the domestic market, while seeking to issue such overseas instruments. Unlisted companies, which have already issued ADRs/GDRs in the international market, have to list in the domestic market on making profit or within three years of such issue of ADRs/GDRs, whichever is earlier. ADRs / GDRs are issued on the basis of the ratio worked out by the Indian company in consultation with the Lead Manager to the issue. The proceeds so raised have to be kept abroad till actually required in India. Pending repatriation or utilization of the proceeds, the Indian company can invest the funds in:-
(a) Deposits, Certificate of Deposits or other instruments offered by banks rated by Standard and Poor, Fitch, IBCA ,Moody’s, etc. with rating not below the rating stipulated by Reserve Bank from time to time for the purpose;

(b) Deposits with branch/es of Indian Authorized Dealers outside India; and

(c) Treasury bills and other monetary instruments with a maturity or unexpired maturity of one year or less.

(iv) There are no end-use restrictions except for a ban on deployment / investment of such funds in real estate or the stock market. There is no monetary limit up to which an Indian company can raise ADRs / GDRs.

(v) The ADR / GDR proceeds can be utilized for first stage acquisition of shares in the disinvestment process of Public Sector Undertakings / Enterprises and also in the mandatory second stage offer to the public in view of their strategic importance.

(vi) Voting rights on shares issued under the Scheme shall be as per the provisions of Companies Act, 1956 and in a manner in which restrictions on voting rights imposed on ADR/GDR issues shall be consistent with the Company Law provisions. Voting rights in the case of banking companies will continue to be in terms of the provisions of the Banking Regulation Act, 1949 and the instructions issued by the Reserve Bank from time to time, as applicable to all shareholders exercising voting rights.

(vii) Erstwhile OCBs who are not eligible to invest in India and entities prohibited from buying, selling or dealing in securities by SEBI will not be eligible to subscribe to ADRs/ GDRs issued by Indian companies.

(viii) The pricing of ADR / GDR issues should be made at a price determined under the provisions of the Scheme of issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Government of India and directions issued by the Reserve Bank, from time to time.

(ix) The pricing of sponsored ADRs/GDRs would be determined under the provisions of the Scheme of issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Government of India and directions issued by the Reserve Bank, from time to time.

(b) Two-way Fungibility Scheme: A limited two-way Fungibility scheme has been put in place by the Government of India for ADRs / GDRs. Under this Scheme, a stock broker in India, registered with SEBI, can purchase shares of an Indian company from the market for conversion into ADRs/GDRs based on instructions received from overseas investors. Re-issuance of ADRs / GDRs would be permitted to the extent of ADRs / GDRs which have been redeemed into underlying shares and sold in the Indian market.

(c) Sponsored ADR/GDR issue: An Indian company can also sponsor an issue of ADR / GDR. Under this mechanism, the company offers its resident shareholders a choice to submit their shares back to the company so that on the basis of such shares, ADRs / GDRs can be issued abroad. The proceeds of the ADR / GDR issue are remitted back to India and distributed among the resident investors who had offered their Rupee denominated shares for conversion. These proceeds can be kept in Resident Foreign Currency (Domestic) accounts in India by the resident shareholders who have tendered such shares for conversion into ADRs / GDRs.

(5) Issue/Transfer Of Shares:

(a) Capital Instrument: The capital instruments should be issued within 180 days from the date of receipt of the inward remittance received through normal banking channels including escrow account opened and maintained for the purpose or by debit to the NRE/FCNR (B) account of the non-resident investor. In case, the capital instruments are not issued within 180 days from the date of receipt of the inward remittance or date of debit to the NRE/FCNR (B) account, the amount of consideration so received should be refunded immediately to the non-resident investor by outward remittance through normal banking channels or by credit to the NRE/FCNR (B) account, as the case may be. Non-compliance with the above provision would be reckoned as a contravention under FEMA and would attract penal provisions. In exceptional cases, refund of the amount of consideration outstanding beyond a period of 180 days from the date of receipt may be considered by the RBI, on the merits of the case.

(b) Issue Price of Shares: Price of shares issued to persons resident outside India under the FDI Policy, shall not be less than –

(i) the price worked out in accordance with the SEBI guidelines, as applicable, where the shares of the company is listed on any recognised stock exchange in India;

(ii) the fair valuation of shares done by a SEBI registered Category – I Merchant Banker or a Chartered Accountant as per the discounted free cash flow method, where the shares of the company is not listed on any recognised stock exchange in India ; and

(iii) the price as applicable to transfer of shares from resident to non-resident as per the pricing guidelines laid down by the Reserve Bank from time to time, where the issue of shares is on preferential allotment.

(c) Foreign Currency Account: Indian companies which are eligible to issue shares to persons resident outside India under the FDI Policy may be allowed to retain the share subscription amount in a Foreign Currency Account, with the prior approval of RBI.

(d) Transfer of Shares and Convertible Debentures:

(i) Subject to FDI sectoral policy (relating to sectoral caps and entry routes), applicable laws and other conditionalities including security conditions, non-resident investors can also invest in Indian companies by purchasing/acquiring existing shares from Indian shareholders or from other non-resident shareholders. General permission has been granted to non-residents/NRIs for acquisition of shares by way of transfer subject to the following:

(a) A person resident outside India (other than NRI and erstwhile OCB) may transfer by way of sale or gift, the shares or convertible debentures to any person resident outside India (including NRIs).
(b) NRIs may transfer by way of sale or gift the shares or convertible debentures held by them to another NRI.
(c) A person resident outside India can transfer any security to a person resident in India by way of gift.
(d) A person resident outside India can sell the shares and convertible debentures of an Indian company on a recognized Stock Exchange in India through a stock broker registered with stock exchange or a merchant banker registered with SEBI.
(e) A person resident in India can transfer by way of sale, shares/convertible debentures (including transfer of subscriber‘s shares), of an Indian company under private arrangement to a person resident outside India, subject to these guidelines.
(f) General permission is also available for transfer of shares/convertible debentures, by way of sale under private arrangement by a person resident outside India to a person resident in India, subject to these guidelines.
(g) The above General Permission also covers transfer by a resident to a non-resident of shares/convertible debentures of an Indian company, engaged in an activity earlier covered under the Government Route but now falling under Automatic Route, as well as transfer of shares by a non-resident to an Indian company under buyback and/or capital reduction scheme of the company.
(h) The Form FC-TRS should be submitted to the AD Category-I Bank, within 60 days from the date of receipt of the amount of consideration. The onus of submission of the Form FC-TRS within the given timeframe would be on the transferor/transferee, resident in India.

(ii) The sale consideration in respect of equity instruments purchased by a person resident outside India, remitted into India through normal banking channels, shall be subjected to a Know Your Customer (KYC) check by the remittance receiving AD Category-I bank at the time of receipt of funds. In case, the remittance receiving AD Category-I bank is different from the AD Category-I bank handling the transfer transaction, the KYC check should be carried out by the remittance receiving bank and the KYC report be submitted by the customer to the AD Category-I bank carrying out the transaction along with the Form FC-TRS.

(iii) Escrow: AD Category-I banks have been given general permission to open Escrow account and Special account of non-resident corporate for open offers / exit offers and delisting of shares. The relevant SEBI (SAST) Regulations or any other applicable SEBI Regulations/ provisions of the Companies Act, 1956 will be applicable. AD Category-I banks have also been permitted to open and maintain, without prior approval of RBI, non-interest bearing Escrow accounts in Indian Rupees in India on behalf of residents and/or non-residents, towards payment of share purchase consideration and/or provide Escrow facilities for keeping securities to facilitate FDI transactions subject to the terms and conditions specified by RBI. SEBI authorised Depository Participants have also been permitted to open and maintain, without prior approval of RBI, Escrow accounts for securities subject to the terms and conditions as specified by RBI. In both cases, the Escrow agent shall necessarily be an AD Category- I bank or SEBI authorised Depository Participant (in case of securities‘ accounts). These facilities will be applicable for both issue of fresh shares to the non- residents as well as transfer of shares from / to the non- residents.

(5) Prior Permission of RBI in certain cases for Transfer of Capital Instruments

Except cases mentioned in subsequent paragraph below, the following cases require prior approval of RBI:

(i) Transfer of capital instruments from resident to non-residents by way of sale where:

(a) Transfer is at a price which falls outside the pricing guidelines specified by the Reserve Bank from time to time and the transaction does not fall under the exception given in subsequent para.
(b) Transfer of capital instruments by the non-resident acquirer involving deferment of payment of the amount of consideration. Further, in case approval is granted for a transaction, the same should be reported in Form FC-TRS, to an AD Category-I bank for necessary due diligence, within 60 days from the date of receipt of the full and final amount of consideration.

(ii) Transfer of any capital instrument, by way of gift by a person resident in India to a person resident outside India. While forwarding applications to Reserve Bank for approval for transfer of capital instruments by way of gift, relevant documents should be enclosed. Reserve Bank considers the following factors while processing such applications:

(a) The proposed transferee (donee) is eligible to hold such capital instruments under Schedules 1, 4 and 5 of Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.
(b) The gift does not exceed 5 per cent of the paid-up capital of the Indian company/each series of debentures/each mutual fund scheme.
(c) The applicable sectoral cap limit in the Indian company is not breached.
(d) The transferor (donor) and the proposed transferee (donee) are close relatives as defined in Section 6 of the Companies Act, 1956, as amended from time to time.
(e) The value of capital instruments to be transferred together with any capital instruments already transferred by the transferor, as gift, to any person residing outside India does not exceed the rupee equivalent of USD 50,000 during the financial year.
(f) Such other conditions as stipulated by Reserve Bank in public interest from time to time.

(iii) Transfer of Shares from NRI to Non-Resident

In the following cases, approval of RBI is not required:

(a) Transfer of shares from a Non Resident to Resident under the FDI scheme where the pricing guidelines under FEMA, 1999 are not met provided that :-

(i) The original and resultant investment are in line with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation, etc.;
(ii) The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST, buy back); and
(iii) Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

(b) Transfer of shares from Resident to Non Resident:

(i) Where the transfer of shares requires the prior approval of the FIPB as per the extant FDI policy provided that:

(a) The requisite approval of the FIPB has been obtained; and
(b) the transfer of share adheres with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time.

(ii) where the transfer of shares attract SEBI (SAST) guidelines subject to the adherence with the pricing guidelines and documentation requirements as specified by Reserve Bank of India from time to time.

(iii) where the transfer of shares does not meet the pricing guidelines under the FEMA, 1999 provided that:-

(a) The resultant FDI is in compliance with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc.;

(b) The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST); and

(c) Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

(iv) where the investee company is in the financial sector provided that :

(a) NOCs are obtained from the respective financial sector regulators/ regulators of the investee company as well as transferor and transferee entities and such NOCs are filed along with the form FC-TRS with the AD bank; and

(b). The FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, pricing, etc.), reporting requirements, documentation etc., are complied with.

(iv) Conversion of ECB/Lumpsum Fee/Royalty etc. into Equity

(i) Indian companies have been granted general permission for conversion of External Commercial Borrowings (ECB) (excluding those deemed as ECB) in convertible foreign currency into equity shares/fully compulsorily and mandatorily convertible preference shares, subject to the following conditions and reporting requirements.

(a) The activity of the company is covered under the Automatic Route for FDI or the company has obtained Government approval for foreign equity in the company;
(b) The foreign equity after conversion of ECB into equity is within the sectoral cap, if any;
(c) Pricing of shares is as per the specified provision;
(d) Compliance with the requirements prescribed under any other statute and regulation in force; and
(e) The conversion facility is available for ECBs availed under the Automatic or Government Route and is applicable to ECBs, due for payment or not, as well as secured/unsecured loans availed from non-resident collaborators.

(ii) General permission is also available for issue of shares/preference shares against lump sum technical know-how fee, royalty, subject to entry route, sectoral cap and pricing guidelines and compliance with applicable tax laws.

(iii) Issue of equity shares under the FDI policy is allowed under the Government route for the following:

(v) Import of capital goods/ machinery/ equipment (excluding second-hand machinery), subject to compliance with the following conditions:

(a) Any import of capital goods/machinery etc., made by a resident in India, has to be in accordance with the Export/ Import Policy issued by Government of India/as defined by DGFT/FEMA provisions relating to imports.
(b) There is an independent valuation of the capital goods/machinery/equipments (including second-hand machinery) by a third party entity, preferably by an independent valuer from the country of import along with production of copies of documents/certificates issued by the customs authorities towards assessment of the fair-value of such imports.
(c) The application clearly indicating the beneficial ownership and identity of the Importer Company as well as overseas entity.
(d) Applications complete in all respects, for conversions of import payables for capital goods into FDI being made within 180 days from the date of shipment of goods.

(vi) Pre-operative/ pre-incorporation expenses (including payments of rent etc.), subject to compliance with the following conditions:

(a) Submission of FIRC for remittance of funds by the overseas promoters for the expenditure incurred.
(b) Verification and certification of the pre-incorporation/pre-operative expenses by the statutory auditor.
(c) Payments should be made by the foreign investor to the company directly or through the bank account opened by the foreign investor as provided under FEMA Regulations.
(d) The applications, complete in all respects, for capitalization being made within the period of 180 days from the date of incorporation of the company

General conditions:

(i) All requests for conversion should be accompanied by a special resolution of the company.
(ii) Government‘s approval would be subject to pricing guidelines of RBI and appropriate tax clearance.

(6) Specific Conditions In Certain Cases:

(a) Issue of Rights/Bonus Shares – FEMA provisions allow Indian companies to freely issue Rights/Bonus shares to existing non-resident shareholders, subject to adherence to sectoral cap, if any. However, such issue of bonus / rights shares has to be in accordance with other laws/statutes like the Companies Act, 1956, SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (in case of listed companies), etc. The offer on right basis to the persons resident outside India shall be:

(a) in the case of shares of a company listed on a recognized stock exchange in India, at a price as determined by the company;
(b) in the case of shares of a company not listed on a recognized stock exchange in India, at a price which is not less than the price at which the offer on right basis is made to resident shareholders.

(b) Prior permission of RBI for Rights issue to erstwhile OCBs- OCBs have been de-recognised as a class of investors from September 16, 2003. Therefore companies desiring to issue rights share to such erstwhile OCBs will have to take specific prior permission from RBI. As such, entitlement of rights share is not automatically available to erstwhile OCBs. However bonus shares can be issued to erstwhile OCBs without the approval of RBI.
(c) Additional allocation of rights share by residents to non-residents – Existing non-resident shareholders are allowed to apply for issue of additional shares/ fully, compulsorily and mandatorily convertible debentures/ fully, compulsorily and mandatorily convertible preference shares over and above their rights share entitlements. The investee company can allot the additional rights share out of unsubscribed portion, subject to the condition that the overall issue of shares to non-residents in the total paid-up capital of the company does not exceed the sectoral cap.

(d) Acquisition of shares under Scheme of Merger/Demerger/Amalgamation – Mergers/demergers/ amalgamations of companies in India are usually governed by an order issued by a competent Court on the basis of the Scheme submitted by the companies undergoing merger/demerger/amalgamation. Once the scheme of merger or demerger or amalgamation of two or more Indian companies has been approved by a Court in India, the transferee company or new company is allowed to issue shares to the shareholders of the transferor company resident outside India, subject to the conditions that:

(i) the percentage of shareholding of persons resident outside India in the transferee or new company does not exceed the sectoral cap, and

(ii) the transferor company or the transferee or the new company is not engaged in activities which are prohibited under the FDI policy.

(e) Issue of shares under Employees Stock Option Scheme (ESOPs) –

(i) Listed Indian companies are allowed to issue shares under the Employees Stock Option Scheme (ESOPs), to its employees or employees of its joint venture or wholly owned subsidiary abroad, who are resident outside India, other than to the citizens of Pakistan. ESOPs can be issued to citizens of Bangladesh with the prior approval of FIPB. Shares under ESOPs can be issued directly or through a Trust subject to the condition that:

(a) The scheme has been drawn in terms of relevant regulations issued by the SEBI, and
(b) The face value of the shares to be allotted under the scheme to the non-resident employees does not exceed 5 per cent of the paid-up capital of the issuing company.

(ii) Unlisted companies have to follow the provisions of the Companies Act, 1956. The Indian company can issue ESOPs to employees who are resident outside India, other than to the citizens of Pakistan. ESOPs can be issued to the citizens of Bangladesh with the prior approval of the FIPB.

(iii)The issuing company is required to report (plain paper reporting) the details of granting of stock options under the scheme to non-resident employees to the Regional Office concerned of the Reserve Bank and thereafter the details of issue of shares subsequent to the exercise of such stock options within 30 days from the date of issue of shares in Form FC-GPR.
(f) Share Swap: In cases of investment by way of swap of shares, irrespective of the amount, valuation of the shares will have to be made by a Category I Merchant Banker registered with SEBI or an Investment Banker outside India registered with the appropriate regulatory authority in the host country. Approval of the Foreign Investment Promotion Board (FIPB) will also be a prerequisite for investment by swap of shares.
3.5.7 Pledge of Shares:

(a) A person being a promoter of a company registered in India (borrowing company), which has raised external commercial borrowings, may pledge the shares of the borrowing company or that of its associate resident companies for the purpose of securing the ECB raised by the borrowing company, provided that a no objection for the same is obtained from a bank which is an authorised dealer. The authorized dealer, shall issue the no objection for such a pledge after having satisfied itself that the external commercial borrowing is in line with the extant FEMA regulations for ECBs and that:

(i). the loan agreement has been signed by both the lender and the borrower,
(ii) there exists a security clause in the Loan Agreement requiring the borrower to create charge on financial securities, and
(iii) the borrower has obtained Loan Registration Number (LRN) from the Reserve Bank: and the said pledge would be subject to the following conditions :

(a). the period of such pledge shall be co-terminus with the maturity of the underlying ECB;
(b). in case of invocation of pledge, transfer shall be in accordance with the extant FDI Policy and directions issued by the Reserve Bank;
(c). the Statutory Auditor has certified that the borrowing company will utilized / has utilized the proceeds of the ECB for the permitted end use/s only.

(b) Non-resident holding shares of an Indian company, can pledge these shares in favour of the AD bank in India to secure credit facilities being extended to the resident investee company for bonafide business purpose, subject to the following conditions:

(i) in case of invocation of pledge, transfer of shares should be in accordance with the FDI policy in vogue at the time of creation of pledge;
(ii) submission of a declaration/ annual certificate from the statutory auditor of the investee company that the loan proceeds will be / have been utilized for the declared purpose;
(iii) the Indian company has to follow the relevant SEBI disclosure norms; and
(iv) pledge of shares in favour of the lender (bank) would be subject to Section 19 of the Banking Regulation Act, 1949.

(c) Non-resident holding shares of an Indian company, can pledge these shares in favour of an overseas bank to secure the credit facilities being extended to the non-resident investor / non-resident promoter of the Indian company or its overseas group company, subject to the following:

(i) loan is availed of only from an overseas bank;
(ii) loan is utilized for genuine business purposes overseas and not for any investments either directly or indirectly in India;
(iii)overseas investment should not result in any capital inflow into India;
(iv) in case of invocation of pledge, transfer should be in accordance with the FDI policy in vogue at the time of creation of pledge; and
(v) submission of a declaration/ annual certificate from a Chartered Accountant/ Certified Public Accountant of the non-resident borrower that the loan proceeds will be / have been utilized for the declared purpose.

(7) Entry Routes For Investment:

(a) Investments can be made by non-residents in the equity shares/fully, compulsorily and mandatorily convertible debentures/ fully, compulsorily and mandatorily convertible preference shares of an Indian company, through the Automatic Route or the Government Route. Under the Automatic Route, the non-resident investor or the Indian company does not require any approval from Government of India for the investment. Under the Government Route, prior approval of the Government of India is required. Proposals for foreign investment under Government route, are considered by FIPB.

(b) Guidelines for establishment of Indian companies/ transfer of ownership or control of Indian companies, from resident Indian citizens to non-resident entities, in sectors with caps:

In sectors/activities with caps, including inter-alia defence production, air transport services, ground handling services, asset reconstruction companies, private sector banking, broadcasting, commodity exchanges, credit information companies, insurance, print media, telecommunications and satellites, Government approval/FIPB approval would be required in all cases where:

(i) An Indian company is being established with foreign investment and is owned by a non-resident entity or
(ii) An Indian company is being established with foreign investment and is controlled by a non-resident entity or
(iii) The control of an existing Indian company, currently owned or controlled by resident Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens, will be/is being transferred/passed on to a non-resident entity as a consequence of transfer of shares and/or fresh issue of shares to non-resident entities through amalgamation, merger/demerger, acquisition etc. or
(iv) The ownership of an existing Indian company, currently owned or controlled by resident Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens, will be/is being transferred/passed on to a non-resident entity as a consequence of transfer of shares and/or fresh issue of shares to non-resident entities through amalgamation, merger/demerger, acquisition etc.
(v) It is clarified that these guidelines will not apply to sectors/activities where there are no foreign investment caps, that is, 100% foreign investment is permitted under the automatic route.
(vi) It is also clarified that Foreign investment shall include all types of foreign investments i.e. FDI, investment by FIIs, NRIs, ADRs, GDRs, Foreign Currency Convertible Bonds (FCCB) and fully, mandatorily & compulsorily convertible preference shares/debentures, regardless of whether the said investments have been made under Schedule 1, 2, 3 and 6 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations.

(8) Caps On Investment: Investments can be made by non-residents in the capital of a resident entity only to the extent of the percentage of the total capital as specified in the FDI policy. The caps in various sector(s) are detailed in this circular.

(9) Entry Conditions On Investment: Investments by non-residents can be permitted in the capital of a resident entity in certain sectors/activity with entry conditions. Such conditions may include norms for minimum capitalization, lock-in period, etc. The entry conditions in various sectors/activities are detailed in this circular.

(10) Other Conditions On Investment Besides Entry Conditions: The entry conditions on foreign investment, the investment/investors are required to comply with all relevant sectoral laws, regulations, rules, security conditions, and state/ local laws/ regulations.

(11) Foreign Investment Into/Downstream Investment By Indian Companies:

(a) The Guidelines for calculation of total foreign investment, both direct and indirect in an Indian company, at every stage of investment, including downstream investment, have been detailed in this circular.

(b) For the purpose of this chapter downstream investment means indirect foreign investment, by one Indian company, into another Indian company, by way of subscription or acquisition, in terms of this circular. The circular provides the guidelines for calculation of indirect foreign investment, with conditions specified therein.

(c) Foreign investment into an Indian company engaged only in the activity of investing in the capital of other Indian company/ies (regardless of its ownership or control):

(i) Foreign investment into an Indian company, engaged only in the activity of investing in the capital of other Indian company/ies, will require prior Government/FIPB approval, regardless of the amount or extent of foreign investment. Foreign investment into Non-Banking Finance Companies (NBFCs), carrying on activities approved for FDI, will be subject to the conditions specified in paragraph 6.2.24 of this Circular.

(ii) Those companies, which are Core Investment Companies (CICs), will have to additionally follow RBI‘s Regulatory Framework for CICs.
(iii) For infusion of foreign investment into an Indian company which does not have any operations and also does not have any downstream investments, Government/FIPB approval would be required, regardless of the amount or extent of foreign investment. Further, as and when such a company commences business(s) or makes downstream investment, it will have to comply with the relevant sectoral conditions on entry route, conditionalities and caps.

Note: Foreign investment into other Indian companies would be in accordance/ compliance with the relevant sectoral conditions on entry route, conditionalities and caps.

(d) Downstream investment by an Indian company which is owned and/or controlled by non resident entity/ies:

(i) Downstream investment by an Indian company, which is owned and/ or controlled by non-resident entity/ies, into another Indian company, would be in accordance/compliance with the relevant sectoral conditions on entry route, conditionalities and caps, with regard to the sectors in which the latter Indian company is operating.

(ii) Downstream investments by Indian companies will be subject to the following conditions:

(a) Such a company is to notify SIA, DIPP and FIPB of its downstream investment in the form available at http://www.fipbindia.com within 30 days of such investment, even if capital instruments have not been allotted along with the modality of investment in new/existing ventures (with/without expansion programme);
(b) downstream investment by way of induction of foreign equity in an existing Indian Company to be duly supported by a resolution of the Board of Directors as also a shareholders Agreement, if any;
(c) issue/transfer/pricing/valuation of shares shall be in accordance with applicable SEBI/RBI guidelines;
(d) For the purpose of downstream investment, the Indian companies making the downstream investments would have to bring in requisite funds from abroad and not leverage funds from the domestic market. This would, however, not preclude downstream companies, with operations, from raising debt in the domestic market. Downstream investments through internal accruals are permissible, subject to the provisions of this circular.

Consolidated FDI Policy Of India 2012 By DIPP: Definitions

The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India (GOI) has released the Consolidated FDI Policy of India 2012. The FDI policy 2012 has become effective from April 10, 2012.

The FDI policy 2012 has provided certain crucial definitions that must be well known to all concerned. Some of the definitions that have been selected by Perry4Law and Perry4Law Techno Legal Base (PTLB) to be shared with their viewers are:

(a) 2.1.5- Capital means equity shares; fully, compulsorily and mandatorily convertible preference shares; fully, compulsorily and mandatorily convertible debentures. However, warrants and partly paid shares can be issued to person/ (s) resident outside India only after approval through the Government route. This is so because review of FDI policy to include warrants and partly-paid shares is under consideration of the Indian Government.

(b) 2.1.6- Capital account transaction means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and includes transactions referred to in sub-section (3) of section 6 of FEMA.

(c) 2.1.7-A company is considered as “Controlled” by resident Indian citizens if the resident Indian citizens and Indian companies, which are owned and controlled by resident Indian citizens, have the power to appoint a majority of its directors in that company .

(d) 2.1.8- Depository Receipt (DR) means a negotiable security issued outside India by a Depository bank, on behalf of an Indian company, which represent the local Rupee denominated equity shares of the company held as deposit by a Custodian bank in India. DRs are traded on Stock Exchanges in the US, Singapore, Luxembourg, etc. DRs listed and traded in the US markets are known as American Depository Receipts (ADRs) and those listed and traded anywhere/elsewhere are known as Global Depository Receipts (GDRs).

(e) 2.1.9- Erstwhile Overseas Corporate Body (OCB) means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least sixty percent by non-resident Indian and includes overseas trust in which not less than sixty percent beneficial interest is held by non-resident Indian directly or indirectly but irrevocably and which was in existence on the date of commencement of the Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs) ) Regulations, 2003 (the Regulations) and immediately prior to such commencement was eligible to undertake transactions pursuant to the general permission granted under the Regulations.

(f) 2.1.11- FDI means investment by non-resident entity/person resident outside India in the capital of an Indian company under Schedule 1 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations 2000.

(g) 2.1.14-Foreign Institutional Investor (FII) means an entity established or incorporated outside India which proposes to make investment in India and which is registered as a FII in accordance with the SEBI (FII) Regulations 1995.

(h) 2.1.15- Foreign Venture Capital Investor (FVCI) means an investor incorporated and established outside India, which is registered under the Securities and Exchange Board of India (Foreign Venture Capital Investor) Regulations, 2000 {SEBI(FVCI) Regulations} and proposes to make investment in accordance with these Regulations.

(i) 2.1.16- Government route means that investment in the capital of resident entities by non-resident entities can be made only with the prior approval of Government (FIPB, Department of Economic Affairs (DEA), Ministry of Finance or Department of Industrial Policy & Promotion, as the case may be).

(j) 2.1.17- Holding Company‘ would have the same meaning as defined in Companies Act 1956.

(k) 2.1.18- Indian Company means a company incorporated in India under the Companies Act, 1956.

(l) 2.1.19- Indian Venture Capital Undertaking (IVCU) means an Indian company:─

(i) Whose shares are not listed in a recognised stock exchange in India;

(ii) Which is engaged in the business of providing services, production or manufacture of articles or things, but does not include such activities or sectors which are specified in the negative list by the SEBI, with approval of Central Government, by notification in the Official Gazette in this behalf.

(m) 2.1.20- Investing Company means an Indian Company holding only investments in other Indian company/ (ies), directly or indirectly, other than for trading of such holdings/securities.

(n) 2.1.21- Investment on repatriable basis means investment, the sale proceeds of which, net of taxes, are eligible to be repatriated out of India and the expression investment on non-repatriable basis shall be construed accordingly.

(o) 2.1.22- Joint Venture (JV) means an Indian entity incorporated in accordance with the laws and regulations in India in whose capital a non-resident entity makes an investment.

(p) 2.1.26- A company is considered as ‘Owned‘ by resident Indian citizens if more than 50% of the capital in it is beneficially owned by resident Indian citizens and / or Indian companies, which are ultimately owned and controlled by resident Indian citizens;

(q) 2.1.27- Person includes

(i) an individual
(ii) a Hindu undivided family,
(iii) a company
(iv) a firm
(v) an association of persons or a body of individuals whether incorporated or not,
(vi) every artificial juridical person, not falling within any of the preceding sub-clauses, and
(vii) any agency, office, or branch owned or controlled by such person.

(r) 2.1.29- Person resident in India means -
(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include –
(A) A person who has gone out of India or who stays outside India, in either case-
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;
(B) A person who has come to or stays in India, in either case, otherwise than-
(a) for or on taking up employment in India; or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;
(ii) any person or body corporate registered or incorporated in India,
(iii) an office, branch or agency in India owned or controlled by a person resident outside India,
(iv) an office, branch or agency outside India owned or controlled by a person resident in India.

(s) 2.1.32- A Qualified Foreign Investor (QFI) means a non-resident investor (other than SEBI registered FII and SEBI registered FVCI) who meets the KYC requirements of SEBI for the purpose of making investments in accordance with the regulations/orders/circulars of RBI/SEBI.

(t) 2.1.39- Transferable Development Rights (TDR) means certificates issued in respect of category of land acquired for public purposes either by the Central or State Government in consideration of surrender of land by the owner without monetary compensation, which are transferable in part or whole.

(u) 2.1.40- Venture Capital Fund (VCF) means a Fund established in the form of a Trust, a company including a body corporate and registered under Securities and Exchange Board of India (Venture Capital Fund) Regulations, 1996, which

(i) has a dedicated pool of capital;
(ii) raised in the manner specified under the Regulations; and
(iii) invests in accordance with the Regulations.

Consolidated FDI Policy Of India 2012 By DIPP: Objectives

Perry4Law and Perry4Law Techno Legal Base (PTLB) would like to inform that the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India (GOI) has issued the Consolidated FDI Policy of India 2012. The same would be effective from April 10, 2012.

The consolidated FDI policy of India 2012 reflects the intent and objective of the GOI to attract and promote foreign direct investment (FDI) in order to supplement domestic capital, technology and skills, for accelerated economic growth. FDI, as distinguished from portfolio investment, has the connotation of establishing a lasting interest in an enterprise that is resident in an economy other than that of the investor.

To achieve this objective, the Indian Government has put in place a policy framework on FDI, which is transparent, predictable and easily comprehensible. This policy framework has been incorporated in the Consolidated FDI Policy of India 2012, which may be updated every year, to capture and keep pace with the regulatory changes, effected in the interregnum.

DIPP, Ministry of Commerce and Industry, GOI makes policy pronouncements on FDI through Press Notes/ Press Releases which are notified by the Reserve Bank of India (RBI) as amendments to the Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 (notification No.FEMA 20/2000-RB dated May 3, 2000). These notifications take effect from the date of issue of Press Notes/ Press Releases, unless specified otherwise therein. In case of any conflict, the relevant FEMA Notification will prevail. The procedural instructions are issued by the Reserve Bank of India vide A.P. Dir. (series) Circulars. The regulatory framework, over a period of time, thus, consists of Acts, Regulations, Press Notes, Press Releases, Clarifications, etc.

The present consolidation subsumes and supersedes all Press Notes/Press Releases/Clarifications/ Circulars issued by DIPP, which were in force as on April 09, 2012, and reflects the FDI Policy as on April 10, 2012. This Circular accordingly will take effect from April 10, 2012. Reference to any statute or legislation made in this Circular shall include modifications, amendments or re-enactments thereof.

Notwithstanding the rescission of earlier Press Notes/Press Releases/Clarifications/Circulars, anything done or any action taken or purported to have been done or taken under the rescinded Press Notes/Press Releases/Clarifications/Circulars prior to April 10, 2012, shall, in so far as it is not inconsistent with those Press Notes/Press Releases/Clarifications/Circulars, be deemed to have been done or taken under the corresponding provisions of this circular and shall be valid and effective.

Federal Communications Commission Process Reform Act of 2012

The Federal Communications Commission Process Reform Act of 2012 (FCCPRA 2012) is a legislative process to amend the Communications Act of 1934 and to provide for greater transparency and efficiency in the procedures followed by the Federal Communications Commission (FCC). Kindly check an appropriate proper source for complete, updates and authentic information in this regard.

The proposed Act provides that the FCC may not issue a notice of proposed rulemaking unless the Commission provides for a period of not less than 30 days for the submission of comments and an additional period of not less than 30 days for the submission of reply comments on such notice and the Commission includes in such notice the following:

‘‘(A) Either—

‘‘(i) an identification of—

‘‘(I) a notice of inquiry, a prior notice of proposed rulemaking, or a notice on a petition for rulemaking issued by the Commission during the 3-year period preceding the issuance of the notice of proposed rulemaking concerned and of which such notice is a logical outgrowth; or

‘‘(II) an order of a court reviewing action by the Commission or otherwise directing the Commission to act that was issued by the court during the 3-year period preceding the issuance of the notice of proposed rulemaking concerned and in response to which such notice is being issued; or

‘‘(ii) a finding (together with a brief statement of reasons therefor)—

‘‘(I) that the proposed rule or the proposed amendment of an existing rule will not impose additional burdens on industry or consumers; or

‘‘(II) for good cause, that a notice of inquiry is impracticable, unnecessary, or contrary to the public interest.

‘‘(B) The specific language of the proposed rule or the proposed amendment of an existing rule.

‘‘(C) In the case of a proposal to create a program activity, proposed performance measures for evaluating the effectiveness of the program activity.

‘‘(D) In the case of a proposal to substantially change a program activity—

‘‘(i) proposed performance measures for evaluating the effectiveness of the program activity as proposed to be changed; or

‘‘(ii) a proposed finding that existing performance measures will effectively evaluate the program activity as proposed to be changed.

‘‘(2) Requirements for Rules.—Except as provided in the 3rd sentence of section 553(b) of title 5, United States Code, the Commission may not adopt or amend a rule unless—

‘‘(A) the specific language of the adopted rule or the amendment of an existing rule is a logical outgrowth of the specific language of a proposed rule or a proposed amendment of an existing rule included in a notice of proposed rulemaking, as described in subparagraph (B) of paragraph (1);

‘‘(B) such notice of proposed rulemaking—

‘‘(i) was issued in compliance with such paragraph and during the 3-year period preceding the adoption of the rule or the amendment of an existing rule; and

‘‘(ii) is identified in the order making the adoption or amendment;

‘‘(C) in the case of the adoption of a rule or the amendment of an existing rule that may have an economically significant impact, the order contains—

‘‘(i) an identification and analysis of the specific market failure, actual consumer harm, burden of existing regulation, or failure of public institutions that warrants the adoption or amendment; and

‘‘(ii) a reasoned determination that the benefits of the adopted rule or the amendment of an existing rule justify its costs (recognizing that some benefits and costs are difficult to quantify), taking into account alternative forms of regulation and the need to tailor regulation to impose the least burden on society, consistent with obtaining regulatory objectives;

‘‘(D) in the case of the adoption of a rule or the amendment of an existing rule that creates a program activity, the order contains performance measures for evaluating the effectiveness of the program activity; and

‘‘(E) in the case of the adoption of a rule or the amendment of an existing rule that substantially changes a program activity, the order contains—

‘‘(i) performance measures for evaluating the effectiveness of the program activity as changed; or

‘‘(ii) a finding that existing performance measures will effectively evaluate the program activity as changed.

‘‘(3) Data for Performance Measures.— The Commission shall develop a performance measure or proposed performance measure required by this subsection to rely, where possible, on data already collected by the Commission.

‘‘(b) Adequate Deliberations By Commissioners —The Commission shall by rule establish procedures for—

‘‘(1) informing all Commissioners of a reasonable number of options available to the Commission for resolving a petition, complaint, application, rule making, or other proceeding;

‘‘(2) ensuring that all Commissioners have adequate time, prior to being required to decide a petition, complaint, application, rulemaking, or other proceeding (including at a meeting held pursuant to section 5(d)), to review the proposed Commission decision document, including the specific language of any proposed rule or any proposed amendment of an existing rule; and

‘‘(3) publishing the text of agenda items to be voted on at an open meeting in advance of such meeting so that the public has the opportunity to read the text before a vote is taken.

‘‘(c) Nonpublic Collaborative Discussions.— ‘‘(1) In General.—Notwithstanding section 552b of title 5, United States Code, a bipartisan majority of Commissioners may hold a meeting that is closed to the public to discuss official business if—

‘‘(A) a vote or any other agency action is not taken at such meeting;

‘‘(B) each person present at such meeting is a Commissioner, an employee of the Commission, a member of a joint board established under section 410, or a person on the staff of such a joint board; and

‘‘(C) an attorney from the Office of General Counsel of the Commission is present at such meeting.

‘‘(2) Disclosure of Nonpublic Collaborative Discussions- Not later than 2 business days after the conclusion of a meeting held under paragraph (1), the Commission shall publish a disclosure of such meeting, including—

‘‘(A) a list of the persons who attended such meeting; and

‘‘(B) a summary of the matters discussed at such meeting, except for such matters as the
Commission determines may be withheld under section 552b(c) of title 5, United States Code.

‘‘(3) Preservation of Open Meetings Requirements for Agency Action.—Nothing in this subsection shall limit the applicability of section 552b of title 5, United States Code, with respect to a meeting of Commissioners other than that described in paragraph (1).
‘‘(d) Initiation of Items by Bipartisan Majority- The Commission shall by rule establish procedures for allowing a bipartisan majority of Commissioners to—

‘‘(1) direct Commission staff to draft an order, decision, report, or action for review by the Commission;

‘‘(2) require Commission approval of an order, decision, report, or action with respect to a function of the Commission delegated under section 5(c)(1); and

‘‘(3) place an order, decision, report, or action on the agenda of an open meeting.

‘‘(e) Public review of Certain Reports and Ex Parte Communications-

(1) In General.—Except as provided in paragraph (2), the Commission may not rely, in any order, decision, report, or action, on—

‘‘(A) a statistical report or report to Congress, unless the Commission has published and made such report available for comment for not less than a 30-day period prior to the adoption of such order, decision, report, or action; or

‘‘(B) an ex parte communication or any filing with the Commission, unless the public has been afforded adequate notice of and opportunity to respond to such communication or filing, in accordance with procedures to be established by the Commission by rule.

‘‘(2) Exception—Paragraph (1) does not apply when the Commission for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the order, decision, report, or action) that publication or availability of a report under subparagraph (A) of such paragraph or notice of and opportunity to respond to an ex parte communication under subparagraph (B) of such paragraph are impracticable, unnecessary, or contrary to the public interest.

‘‘(f) Publication of Status of Certain Proceedings and Items- The Commission shall by rule establish procedures for publishing the status of all open rulemaking proceedings and all proposed orders, decisions, reports, or actions on circulation for review by the Commissioners, including which Commissioners have not cast a vote on an order, decision, report, or action that has been on circulation for more than 60 days.

‘‘(g) Deadlines for Action- The Commission shall by rule establish deadlines for any Commission order, decision, report, or action for each of the various categories of petitions, applications, complaints, and other filings seeking Commission action, including filings seeking action through authority delegated under section 5(c)(1).

‘‘(h) Prompt Release of Certain Reports and Decisions Documents-

‘‘(1) Statistical Reports and Reports to Congress-

‘‘(A) Release Schedule- Not later than January 15th of each year, the Commission shall identify, catalog, and publish an anticipated release schedule for all statistical reports and reports to Congress that are regularly or intermittently released by the Commission and will be released during such year.

‘‘(B) Publication Deadlines- The Commission shall publish each report identified in a schedule published under subparagraph (A) not later than the date indicated in such schedule for the anticipated release of such report.

‘‘(2) Decision Documents- The Commission shall publish each order, decision, report, or action not later than 7 days after the date of the adoption of such order, decision, report, or action.

‘‘(3) Effect if Deadline Not Met-

‘‘(A) Notification of Congress- If the Commission fails to publish an order, decision, report, or action by a deadline described in paragraph (1)(B) or (2), the Commission shall, not later than 7 days after such deadline and every 14 days thereafter until the publication of the order, decision, report, or action, notify by letter the chairpersons and ranking members of the Committee on Energy and Commerce of the House of Representatives and the Committee on Commerce, Science, and Transportation of the Senate. Such letter shall identify such order, decision, report, or action, specify the deadline, and describe the reason for the delay. The Commission shall publish such letter.

‘‘(B) No Impact on Effectiveness- The failure of the Commission to publish an order, decision, report, or action by a deadline described in paragraph (1)(B) or (2) shall not render such order, decision, report, or action ineffective when published.

‘‘(i) Biannual Scorecard Reports-

‘‘(1) In general- For the 6-month period beginning on January 1st of each year and the 6-month period beginning on July 1st of each year, the Commission shall prepare a report on the performance of the Commission in conducting its proceedings and meeting the deadlines established under subsections (g), (h)(1)(B), and (h)(2).

‘‘(2) Contents- Each report required by paragraph (1) shall contain detailed statistics on such performance, including, with respect to each Bureau of the Commission—

‘‘(A) in the case of performance in meeting the deadlines established under subsection (g), with respect to each category established under such subsection—

‘‘(i) the number of petitions, applications, complaints, and other filings seeking Commission action that were pending on the last day of the period covered by such report;

‘‘(ii) the number of filings described in clause (i) that were not resolved by the deadlines established under such subsection and the average length of time such filings have been pending; and

‘‘(iii) for petitions, applications, complaints, and other filings seeking Commission action that were resolved during such period, the average time between initiation and resolution and the percentage resolved by the deadlines established under such subsection;

‘‘(B) in the case of proceedings before an administrative law judge—

‘‘(i) the number of such proceedings completed during such period; and
‘‘(ii) the number of such proceedings pending on the last day of such period; and

‘‘(C) the number of independent studies or analyses published by the Commission during such period.

‘‘(3) Publication and Submission- The Commission shall publish and submit to the Committee on Energy and Commerce of the House of Representatives and the Committee on Commerce, Science, and Transportation of the Senate each report required by paragraph (1) not later than the date that is 30 days after the last day of the period covered by such report.

‘‘(j) Transaction Review Standards-

‘‘(1) In General- The Commission shall condition its approval of a transfer of lines, a transfer of licenses, or any other transaction under section 214, 309, or 310 or any other provision of this Act only if—

‘‘(A) the imposed condition is narrowly tailored to remedy a harm that arises as a direct result of the specific transfer or specific transaction that this Act empowers the Commission to review; and

‘‘(B) the Commission could impose a similar requirement under the authority of a specific provision of law other than a provision empowering the Commission to review a transfer of lines, a transfer of licenses, or other transaction.

‘‘(2) Exclusions- In reviewing a transfer of lines, a transfer of licenses, or any other transaction under section 214, 309, or 310 or any other provision of this Act, the Commission may not consider a voluntary commitment of a party to such transfer or transaction unless the Commission could adopt that voluntary commitment as a condition under paragraph (1).

‘‘(k) Access to Certain Information on Commission’s Website- The Commission shall provide direct access from the homepage of its website to—

‘‘(1) detailed information regarding—
‘‘(A) the budget of the Commission for the current fiscal year;

‘‘(B) the appropriations for the Commission for such fiscal year; and

‘‘(C) the total number of full-time equivalent employees of the Commission; and

‘‘(2) the performance plan most recently made available by the Commission under section 1115(b) of title 31, United States Code.

‘‘(l) Federal Register Publication-

‘‘(1) In General.—In the case of any document adopted by the Commission that the Commission is required, under any provision of law, to publish in the Federal Register, the Commission shall, not later than the date described in paragraph (2), complete all Commission actions necessary for such document to be so published.

‘‘(2) Date Described- The date described in this paragraph is the earlier of—

‘‘(A) the day that is 45 days after the date of the release of the document; or

‘‘(B) the day by which such actions must be completed to comply with any deadline under any other provision of law.

‘‘(3) No Effect ob Deadlines for Publication in Other Form- In the case of a deadline that does not specify that the form of publication is publication in the Federal Register, the Commission may comply with such deadline by publishing the document in another form. Such other form of publication does not relieve the Commission of any Federal Register publication requirement applicable to such document, including the requirement of paragraph (1).

‘‘(m) Consumer Complaint Database

‘‘(1) In General- In evaluating and processing consumer complaints, the Commission shall present information about such complaints in a publicly available, searchable database on its website that—

‘‘(A) facilitates easy use by consumers; and

‘‘(B) to the extent practicable, is sortable and accessible by—

‘‘(i) the date of the filing of the complaint;

‘‘(ii) the topic of the complaint;

‘‘(iii) the party complained of; and

‘‘(iv) other elements that the Commission considers in the public interest.

‘‘(2) Duplicative Complaints- In the case of multiple complaints arising from the same alleged misconduct, the Commission shall be required to include only information concerning one such complaint in the database described in paragraph (1).

‘‘(n) Form of Publication-

‘‘(1) In General- In complying with a requirement of this section to publish a document, the Commission shall publish such document on its website, in addition to publishing such document in any other form that the Commission is required to use or is permitted to and chooses to use.

‘‘(2) Exception- The Commission shall by rule establish procedures for redacting documents required to be published by this section so that the published versions of such documents do not contain—

‘‘(A) information the publication of which would be detrimental to national security, homeland security, law enforcement, or public safety; or

‘‘(B) information that is proprietary or confidential.

‘‘(o) Transparency Relating to Performance in Meeting FOIA Requirements- The Commission shall take additional steps to inform the public about its performance and efficiency in meeting the disclosure and other requirements of section 552 of title 5, United States Code (commonly referred to as the Freedom of Information Act), including by doing the following:

‘‘(1) Publishing on the Commission’s website the Commission’s logs for tracking, responding to, and managing requests submitted under such section, including the Commission’s fee estimates, fee categories, and fee request determinations.

‘‘(2) Releasing to the public all decisions made by the Commission (including decisions made by the Commission’s Bureaus and Offices) granting or denying requests filed under such section, including any such decisions pertaining to the estimate and application of fees assessed under such section.

‘‘(3) Publishing on the Commission’s website electronic copies of documents released under such section.

‘‘(4) Presenting information about the Commission’s handling of requests under such section in the Commission’s annual budget estimates submitted to Congress and the Commission’s annual performance and financial reports. Such information shall include the number of requests under such section the Commission received in the most recent fiscal year, the number of such requests granted and denied, a comparison of the Commission’s processing of such requests over at least the previous 3 fiscal years, and a comparison of the Commission’s results with the most recent average for the United States Government as published on www.foia.gov.

‘‘(p) Definitions- In this section:

‘‘(1) Amendment- The term ‘amendment’ includes, when used with respect to an existing rule, the deletion of such rule.

‘‘(2) Bipartisan Majority- The term ‘bipartisan majority’ means, when used with respect to a group of Commissioners, that such group—

‘‘(A) is a group of 3 or more Commissioners; and

‘‘(B) includes, for each political party of which any Commissioner is a member, at least
1 Commissioner who is a member of such political party, and, if any Commissioner has no political party affiliation, at least 1 unaffiliated Commissioner.

‘‘(3) Economically Significant Impact- The term ‘economically significant impact’ means an effect on the economy of $100,000,000 or more annually or a material adverse effect on the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.

‘‘(4) Performance Measures- The term ‘performance measure’ means an objective and quantifiable outcome measure or output measure (as such terms are defined in section 1115 of title 31, United States Code).

‘‘(5) Program Activity- The term ‘program activity’ has the meaning given such term in section 1115 of title 31, United States Code, except that such term also includes any annual collection or distribution or related series of collections or distributions by the Commission of an amount that is greater than or equal to $100,000,000.

‘‘(6) Other Definitions- The terms ‘agency action’, ‘ex parte communication’, and ‘rule’ have the meanings given such terms in section 551 of title 5, United States Code.’’.

(b) Effective Date and Implementing Rules-

(1) Effective Date-

(A) In General- The requirements of section 13 of the Communications Act of 1934, as added by subsection (a), shall apply beginning on the date that is 6 months after the date of the enactment of this Act.

(B) Prior Notices of Proposed Rule Making- If the Federal Communications Commission identifies under paragraph (2)(B)(ii) of subsection (a) of such section 13 a notice of proposed rulemaking issued prior to the date of the enactment of this Act—
(i) such notice shall be deemed to have complied with paragraph (1) of such subsection; and

(ii) if such notice did not contain the specific language of a proposed rule or a proposed amendment of an existing rule, paragraph (2)(A) of such subsection shall be satisfied if the adopted rule or the amendment of an existing rule is a logical outgrowth of such notice.

(C) Schedules and Reports- Notwithstanding subparagraph (A), subsections (h)(1) 17 and (i) of such section shall apply with respect to 2013 and any year thereafter.

(2) Rules- The Federal Communications Commission shall promulgate the rules necessary to carry out such section not later than 1 year after the date of the enactment of this Act.

(3) Procedures for Adopting Rules- Notwithstanding paragraph (1)(A), in promulgating rules to carry out such section, the Federal Communications Commission shall comply with the requirements of subsections (a) and (h)(2) of such section.

Section 3. Categorisation of TCPA Inquiries and Complaints in Quarterly Report- In compiling its quarterly report with respect to informal consumer inquiries and complaints, the Federal Communications Commission may not categorize an inquiry or complaint with respect to section 227 of the Communications Act of 1934 (47 U.S.C. 227) as being a wireline inquiry or complaint or a wireless inquiry or complaint unless the party whose conduct is the subject of the inquiry or complaint is a wireline carrier or a wireless carrier, respectively.

Section 4. Provision of Emergency Weather Information- Nothing in subsection (a) of section 13 of the Communications Act of 1934, as added by section 2 of this Act, shall be construed to impede the Federal Communications Commission from acting in times of emergency to ensure the availability of efficient and effective communications systems to alert the public to imminent dangerous weather conditions.

Section 5. Communications of First Responders- Nothing in subsection (a) of section 13 of the Communications Act of 1934, as added by section 2 of this Act, shall be construed to impede the Federal Communications Commission from acting in times of emergency to ensure the availability of efficient and effective communications systems for State and local first responders.

Section 6. Effect on Other Laws- Nothing in this Act or the amendment made by this Act shall relieve the Federal Communications Commission from any obligations under title 5, United States Code, except where otherwise expressly provided.

Cyber Due Diligence For Paypal And Online Payment Transferors In India

Online payment management in India has become a very lucrative business. The main reason for the same is the recent growth of e-commerce in India. Further, although cash on delivery is the premier mode of payment in India for e-commerce transactions yet a gradual shift to cashless and online payments is happening in India.

For instance, Internet banking guidelines in India by Reserve Bank of India (RBI) have been issued more than a decade ago. Similarly, an integrated banking system of India is in pipeline. Thus, the banking, financial and regulatory environment in India is changing and it is moving towards Internet banking, online payments and e-banking.

However, online shopping in India has certain legal and cyber security issues to be taken care of. For instance, cyber law due diligence in India is an area that e-commerce and online payment players must take care of. Cyber law due diligence for Indian companies is one of the most frequently litigated aspect in India. Lack of cyber law awareness and cyber due diligence awareness is the main reason that many websites and companies have been recently prosecuted in India.

Recently it has been reported that PayPal is planning to expand its domestic presence in Asia, where it has up to now been used mainly for international payments. PayPal is particularly eyeing upon markets of India and China that have huge potentials. PayPal has already applied for a license to work domestically in China and it also plans to do so in India with an eye toward entering Indian market next year. PayPal may also explore and establish mobile-payment system that is in great demand these days.

Even healthcare and pharmaceutical companies are exploring use of e-commerce for increasing their customers and profits. Many pharmaceutical companies are exploring digital communication channels for drugs and healthcare products in India.

E-commerce stakeholders, including online payment players, are required to comply with techno legal requirements in order to do their business legally and effectively. Further, we need dedicated e-commerce laws in India that can cover various techno legal and due diligence aspects. Till clear cut liabilities and rights are demarcated, it is advisable to stay on the side of legal compliance.

National Telecom Policy 2012 Of India By TRAI

National Telecom Policy of India 2011 was suggested in the past and now it has been revised by the Telecom Regulatory Authority of India (TRAI). The proposed National Telecom Policy 2012 of India is an improvement over the Policy suggested in 2011.

Perry4Law and Perry4Law Techno Legal Base (PTLB) provided its techno legal public inputs in this regard and many of them have been endorsed by TRAI.

Some of the suggestions of Perry4Law and PTLB that have been accepted by TRAI pertain to issues like establishing servers in India, establishing cloud computing legal framework in India, establishment of telecom security in India, reconciling privacy rights and law enforcement requirements, reconciling privacy rights and national security requirements, adoption of lawful interception methods, telecom dispute resolution reforms in India, crisis management and emergency response services, delivery of e-services in a time bound manner, digitisation of governmental records, establishing cloud computing best practices in India, encryption and privacy issues of cloud computing, establishing a centralised monitoring system in India, etc.

The following are the core techno legal provisions that have been suggested by TRAI and many of these suggestions have also been provided by Perry4Law and PTLB in the past:

(1) Servers: Ensure that all servers on which sensitive data are hosted are located within the country and ensure that all local content is hosted on servers located within the country.

(2) Cloud Services: To setup an efficient cloud computing environment.

(a) Adopt best practices to address the issues related to cloud services;
(b) Create a secure network for cloud computing covering encryption and privacy;
(c) Create a legal and security frame work covering network security, law enforcement assistance and preservation of cross-border data flows for deployment of Cloud Services;
(d) TRAI to devise appropriate mechanisms to provide interoperability among cloud computing service providers.

(3) Security: To ensure security of the information in the telecom network and monitoring of the information, compliant with the objectives of national security.

(a) Keeping in view individual privacy and in line with international practices, develop and deploy a state of the art system for providing assistance to Law Enforcement Agencies (LEAs);
(b) Mandate and enforce that the Telecom Service Providers take adequate measures to ensure the security of communication in/through their networks by adopting contemporary information security standards;
(c) Create an institutional framework through regulatory measures to ensure that safe-to-connect devices are inducted into the Telecom Networks;
(d) Build national capacity in all areas that impinge on Telecom network security and communication assistance for law enforcement, such as security standards, security testing, interception and monitoring capabilities and manufacturing of critical telecom equipment;
(e) Ensure that all equipments supplied to the telecom service providers are in conformity with the laid down security and safety standards;
(f) Mandate, on consideration of recommendations from TRAI, standards in the areas of functional requirements, safety and security and in all possible building blocks of the communication network i.e. devices, elements, components, physical infrastructure like towers, buildings etc;
(g) Develop a rational criterion for sharing of costs beyond a threshold limit between Government and the service providers in implementing security measures.

(4) Quality of Service: To ensure better quality of experience for telecom consumers.

(a) Quality of Service and consumer interests being under TRAI’s domain, TRAI will appropriately lay down the end-to-end system performance standards, Quality of Service parameters, and measures to Protect consumer interest; (covers all issues of QoS listed in the draft NTP)
(b) TRAI to be given necessary powers including the power to enforce including penalty provisions, to enforce the observance by the service provides of the laid down standards /parameters;
(c) Undertake legislative measures to bring disputes between telecom consumers and service providers within the jurisdiction of Consumer Forums established under Consumer Protection Act.

(5) Emergency Response Services: To enable access to telecommunication services in times of emergency and disasters.

(a) Entrust TRAI, under clause 11 (1) (b) of TRAI Act, with the development of nationwide Unified Emergency Response Mechanism by providing nationwide single access number for emergency services;
(b) To ensure availability of communication to agencies connected with law and order, security and disaster management during calamities and emergencies.

(6) Development of E-Applications: To facilitate the development of e-applications, particularly in Education, Health, Agriculture, Skill development, Small and Medium Enterprises, e-Governance, e-Commerce, e-banking.

(a) Promote an ecosystem for participants in VAS industry value chain to develop applications, particularly to meet the needs of the rural citizens;
(c) Incentivise companies involved largely with the development of e-applications for rural areas and in regional languages;
(c) Put in place an appropriate regulatory framework for delivery of VAS at affordable price so as to fuel growth in entrepreneurship, innovation and provision of region specific content in regional languages;
(d) Encourage development of mobile phones based on open platform standards and leverage the mobile device for enabling secure transactional services including online authentication of identity;
(e) Work with handset manufacturers and international standards bodies to make e-applications interoperable in Indian languages;
(f) Incentivise application developers to provide customized applications suitable for local needs;

(7) Enabling Delivery of E-Services to Rural Areas: To deliver e-services provided by various government agencies to the citizens.

(a) Promote synergies between roll-out of broadband and various Government programs viz. e-governance, e-Panchayat, NMEICT, MNREGA, NKN, AADHAR, AAKASH tablet etc.;
(b) Digitize the content available in the government departments;
(c) Coordinate with State Governments and different Ministries in Government of India such that all procedures are amended, to ensure digital delivery of services, in a definite timeframe;
(d) Coordinate with State Governments and different Ministries in Government of India such that all personnel are trained in a definite timeframe to achieve the desired degree of competence in understanding of the revised procedures and delivery of services;
(e) Equip all the Panchayats and Villages Centres with the requisite Hardware and train the personnel;
(f) Stimulate the demand for e- applications and services by working closely with Department of IT in the promotion of local content creation particularly in regional languages.

(8) Empowering Urban Citizens: To empower citizens in the urban areas through establishment of Fiber networks and deployment of applications required for smart cities and towns.

(a) Provide fiber to home/kerb as an integrated access to meet ICT requirements of urban citizens;
(b) Make regulatory changes to unbundle fiber infrastructure;
(c) Coordinate with State Governments and different Ministries in Government of India such that all procedures for services in urban areas are amended in a definite timeframe to ensure digital delivery of services;
(d) Coordinate with State Governments and different Ministries in Government of India such that all personnel are trained in a definite timeframe to achieve the desired degree of competence in understanding of the revised procedures and delivery of services;
(e) Digitize the content and data available in the government departments, in a definite timeframe;
(f) Provide policy support including standards implementation, for secure communication of information within and between different sectors;
(g) Develop a regulatory framework for Machine to Machine communications;

(9) Innovation and IPR Creation: To promote entrepreneurship, innovation and IPR creation for indigenous product development and its commercialisation.

(a) Develop detailed guidelines for promotion of innovation and IPR creation;
(b) Promote Indian products viz., products having Indian IPR, by stipulating a mandatory market share;
(c) Create a Telecom Research and Development Corporation (TRDC) for setting up of an R&D fund and establishing a Research and Development Park;
(d) Establish a Telecom Research and Development Park for facilitating research, IPR creation and commercialization;
(e) Facilitate access to financial resources on favorable terms and provide fiscal incentives to relevant R&D institutions;
(f) Assist researchers to obtain IPRs for their innovation;
(g) Set up an autonomous Telecommunications Standard Development Organization (TSDO) to develop standards to meet national requirements, to generate IPRs and to participate in international standardization bodies to contribute in formulation of global standards;
(h) Create suitable testing infrastructure to aid in development of new products and services;
(i) Encourage the entrepreneurs to develop and commercialize Indian products by making available requisite funding (pre-venture and venture capital), management and mentoring support.

Kintiskton, MarkMonitor, Google, Online Brand Protection And IP Violations

Almost all small websites and small companies prefer to use limited computational powers, software, hardware, bandwidth consumption, etc. Within these limited resources these small companies and websites have to provide the best results.

However, the entire planning and financial equilibrium of these companies and websites is jeopardised the moment some individual, company or robot crawlers mess up with such website. There are some very aggressive crawler bots that consume the bandwidth meant for entire month in few days.

These crawler bots do not respect the restrictions placed by the robot txt files and even if you block their internet protocol (IP) range, they resurface again with newer IP blocks. In almost all cases this behaviour is attributable to a company or organisation that is helping in investigation, preventing, fighting and remedying intellectual property rights (IPRs) violations.

It may be an IPRs law firm or a company like MarkMonitor that helps in online brand protection and online trademark protection. Such IPRs law firm or company like MarkMonitor are well within their rights to analyse and report online contents for IPRs violations. However, they must do so in a manner that is not only legal but also reasonable and not causing any loss, financial or otherwise, to third parties.

Bombarding websites and blogs having limited capabilities and computational resources with mammoth requests that also bypassing the restrictions placed by website owner is strictly not legal. It involves issues like privacy violations, trespass, unauthorised access, possible denial of service attack and distributed denial of service attack, etc.

For instance, the Kintiskton crawling bot is behaving in the abovementioned manner. Some have claimed that the Kintiskton bot is operating on the part of IPRs law enforcement firms and companies like MarkMonitor.

This also reminds us about our recent series of complaints with Google, MarkMonitor, etc. During the period we pursued our trademark and copyright violation complaints with Google, MarkMonitor was the registrant for the domains blogspot and blogger. The legal notice sent to MarkMonitor to bring to Google’s knowledge the offending act and omissions was replied to after much time with a standard reply that is far from satisfactory.

It is also obvious that MarkMonitor is managing the brand and IPRs related issues of Google. The Kintiskton crawling bot seems to be acting on behalf of MarkMonitor and wherever applicable on behalf of Google as well. However, this could have serious legal consequences as this exercise of Kintiskton crawling bot may not be legally sustainable under the Information Technology Act, 2000 (IT Act 2000) that is the cyber law of India.

Now this fact has also been made public so whoever managing the Kintiskton crawling bot must be aware that this exercise may not be entirely legal and acceptable to users and website owners whose websites are vandalised by the bot. Time has come to change the crawling policy of Kintiskton crawling bot.

New GTLDs, ICANN And Domain Names Disputes Resolutions

If you are having an online presence chances are very good that you may have one or more domain names. Just like physical property, domain names are equivalent to virtual or online property that is a must to have possession these days.

Although the importance of domain name is well understood yet its legal protection in India has not invoked interest among our legislature. Domain name protection in India is still provided under the trademark law of India. Domain names are essential part of commercial activities and we need a separate domain name protection law in India.

The importance of domain names has further increased due to the recent announcement of ICANN to register new generic top level domains (GTLDs). In fact, ICANN’s new generic top level domain names (new GTLDs) registration has begun and is in progress.

Perry4Law and Perry4Law Techno Legal Base (PTLB) recommend that the new GTLD applicants must undertake due diligence before applying for the same. A risks and benefit analysis of ICANN’s new GTLDs registrations must be made by individuals and companies alike.

In particular, the applicants must make a techno legal analysis, new GTLDs due diligence, anticipate possible legal rights objections under ICANN’s new GTLD program, etc. The legal issues of new GTLDs application, their registration and subsequent litigations would surface and a sound strategy in this regard can help in minimising the legal risks associated with the same.

Even after the application period for new GTLDs would be over, there is no guarantee that legal and other objections would not be raised. Independent objections and legal rights objections for ICANN’s new GTLDs would follow after the application period ends.

Legal rights objection assistance for new GTLDs by Perry4Law and PTLB may be sought by the applicants of new GTLDs independent of ICANN or any other organisation. Perry4Law and PTLB are not related to ICANN or any other organisation in this regard.

Trademark and brand protection under new GTLDs registration by ICANN must be rigorously pursued by various stakeholders. It is recommended by Perry4Law and PTLB to formulate a good techno legal strategy by the new GTLDs applicants for successful registration of new GTLDs in their names.

Legal Enablement Of E-Health In India Is Needed

Information and communication technology (ICT) is a real enabler to strengthen healthcare industry of India. Whether it is telemedicine, e-health or any similar concept, technology is central to the successful implementation of these projects.

For some strange reason, health industry of India has neither being given a technology boost nor an appropriate legal framework has been formulated for it by the Indian government. For instance, very few health care industry players in India are using ICT for providing health related services. Similarly, e-health in India is facing legal roadblocks. Till now we do not have any dedicated e-health laws and regulations in India.

Legal enablement of e-health in India is urgently required. When technology is used for medical purposes, it gives rise to medico legal and techno legal issues. In United States, the Health Insurance Portability and Accountability Act of 1996 (HIPAA), Health Information Technology for Economic and Clinical Health Act (HITECH Act), etc are some of the laws that take care of medico legal and techno legal issues of e-health and telemedicine.

As far as India is concerned, we have no dedicated e-health and telemedicine laws in India. Even essential attributes of these laws like privacy protection, data protection, data security, cyber security, confidentiality maintenance, etc are not governed by much needed dedicated laws.

Now health ministry of India has given some hints that it would use technology for health related issues in India. It has decided to utilise technologies like Skype and technological concepts like biometrics, m-health, e-health, etc for India’s primary health centres (PHCs) and sub-centres.

Although the intentions of health ministry may be good yet its implementation is flawed from the very beginning. Health ministry is committing the same blunder that Aadhar project of India has committed. Collecting and using sensitive biometric and personal details without privacy law, data protection law, data security law, etc is counter productive.

There are no procedural and technological safeguards in place in India till now that can protect privacy and data rights of Indian citizens from misuses and e-surveillance. This may be the reason why Aadhar project may be scrapped in the long run. The technological initiatives of health ministry may also face similar fate.

In short, for the successful implementation of e-health and telemedicine in India, legal enablement of the same is absolutely required. Till now neither the Indian government nor the health ministry has provided any information in this regard. Till legal enablement of e-health in India is achieved all initiatives in this direction may prove counter productive.

E-Health In India Is Suffering From Legal Roadblocks

Electronic commerce (e-commerce) has finally been accepted as a viable business model in India. This is despite many shortcomings that are mostly legal and technological in nature. On the legal side, we have no dedicated e-commerce laws and regulations in India. On the technological side we are still looking forward to wider broadband penetration and technology awareness.

However, there is an aspect that may e-commerce enthusiastics in India have failed to understand. Online dealings give rise to many civil and criminal sanctions if not properly undertaken. For instance, if cyber law due diligence in India is not undertaken by e-commerce websites they may be held civilly and criminally liable for act or omissions on their part.

Similarly, e-commerce websites and platforms are Internet intermediaries who may have to comply with not only laws of India but also laws of other jurisdictions. In order to enjoy the protection of safe harbour in India, e-commerce websites must comply with Information Technology (Intermediaries Guidelines) Rules 2011 of India.

Of all e-commerce fields, e-health in India is most delicate and difficult to establish. For instance, individuals and companies are shying away from selling prescribed medicines and drugs online. All the e-commerce players in e-health field are doing are selling healthcare and cosmetics through e-commerce websites.

E-health players in India cannot be blamed for this position. The Indian government has not made conducive environment for e-health in India. Since the legal risks of e-health in India are tremendous, e-health players are not opening online drugs and medicines stores in India.

When technology is used for medical purposes, it gives rise to medico legal and techno legal issues. In United States, the Health Insurance Portability and Accountability Act of 1996 (HIPAA), Health Information Technology for Economic and Clinical Health Act (HITECH Act), etc are some of the laws that take care of medico legal and techno legal issues of e-health and telemedicine.

On the contrary, we have no dedicated e-health and telemedicine laws in India. Even essential attributes of these laws like privacy protection, data protection, data security, cyber security, confidentiality maintenance, etc are not governed by much needed dedicated laws.

E-health and telemedicine are very important part of health policy of India. However, legal enablement of e-health has not taken place in India. It is high time for Indian government in general and health ministry of India in particular to ensure legal enablement of e-health in India.

Independent Objector And Legal Rights Objections For ICANN’s New GTLDs

As you may be aware that ICANN’s new generic top-level domains (GTLDs) registration is in Progress. Once the application period is over, individuals, companies and even ICANN would analyse the applications for possible violation of intellectual property rights (IPRs) like trademark, trade name, etc. Further, brand owners would also closely scrutinise the filled applications for possible brand and goodwill violations.

ICANN has already started the process in this regard. ICANN has proposed to appoint “independent objectors” who would scrutinise the applied GTLDs for possible violations of IPRs and other rights. An independent objector would be responsible for determining if a new GTLD being applied for is in the best interest of the Internet community. If he/she/it reaches a negative conclusion, he/she/it will file formal objections against a new GTLD application.

Similarly, the IPRs owners, brand owners, etc can also escalate their disputes with a dispute resolution authority if they think that the applied GTLD violates their IPRs or brands or other rights. Such legal rights objections under ICANN’s new GTLD domain registration program can be raised by such IPRs owners, brand owners, etc.

The legal rights objection assistance for new GTLDs by Perry4Law as well as an independent objector’s assistance of Perry4Law is available to all stakeholders, GTLDs applicants and opposers, IPRs owners, brand owners, etc. As on now we are not officially affiliated to or attached with ICANN or any other dispute resolution organisation in this regard. We would provide the independent objector services and legal rights objection services independently and on our own without any assistance from ICANN or other institution.

Our purpose is to prepare individuals, organisation, IPRs owners, brand owners, etc in a techno legal manner so that they are well versed with their rights and obligations under the new GTLDs registration process.

Perry4Law, its partners and associates and techno legal segments like Perry4Law Techno Legal Base (PTLB) are neither related nor affiliated with any of the GTLD applicants. We represent absolute impartiality and our decisions are guided by pure legal considerations without any personal preferences and bias.

If you are interested in our independent objector’s services or legal rights objection services, kindly contact us in this regard. Further, if you wish to proceed with your application in a well planned and successful manner, we can provide you with our techno legal expertise in this regard.

Finally, if you wish to resolve your differences and disputes, if any, through our alternative dispute resolution (ADR) platform or online dispute resolution (ODR) platform, we welcome you to do so.

Perry4Law and PTLB wish all the best to all GTLDs stakeholders.

E-Commerce Laws In India

Electronic commerce (e-commerce) is all set for big growth in India. However, legal and regulatory requirements of e-commerce are stringent in nature. In fact cyber law due diligence in India and internet intermediary liability in India are very stringent.

E-commerce websites are Internet intermediaries within the meaning of information technology act 2000 (IT Act 2000). The IT Act 2000 is the cyber law of India that also governs e-commerce regulatory framework. After the passing of the Information Technology (Intermediaries Guidelines) Rules, 2011 of India, e-commerce websites must comply with valid legal requests to retain their safe harbour protections.

Perry4Law and Perry4Law Techno Legal Base (PTLB) have compiled a list of legal articles that are relevant for understanding the techno legal aspects of e-commerce in India. These articles are:

(1) Legal Requirements of Undertaking E-Commerce in India

(2) E-Commerce Laws In India

(3) E-Commerce Lawyers and Law Firms in India

(4) E-Commerce Laws In India-II

(5) Electronic Commerce Laws in India

(6) E-Commerce Regulations and Laws in India

(7) E-Commerce Dispute Resolution in India

(8) Online Dispute Resolution For Cross Border E-Commerce Transactions

(9) E-Health Laws and Regulations in India

We hope our readers would find these articles useful and these articles would help them in establishing and running a legally sustainable e-commerce business in India.

E-Commerce Regulations And Laws In India

Electronic commerce is an area whose legal formalities cannot be taken lightly. Electronic commerce involves multiple jurisdictions and at times multiple laws of different countries are applicable to a single electronic commerce website.

Further, the landscape for electronic commerce dispute resolution in India is also fast changing. With more and more stress upon online disputes resolution (ODR) in India electronic commerce disputants now prefer ODR as a mechanism for dispute resolution. Corporate disputes resolution through ODR in India is also being explored. E-courts and ODR have also added their own valued to electronic commerce and corporate dispute resolutions in India.

Electronic commerce in India is witnessing a good growth due to progressive policies and liberal foreign direct investments (FDIs). E-commerce uses information and communication technology (ICT) to operate. Although many technological aspects are also taken care of by an e-commerce platform, yet establishment and running of an e-commerce website is the most important requirement.

Internet is boundary less and a website hosted in a particular country can be accessed from any part of the world. Further, there may be cases where a websites located in a particular country may attract legal jurisdictions of multiple countries. Thus, compliance with the laws of the principal country as well as those countries where such e-commerce websites targets audience and customers is of prime importance.

There have been instances where e-commerce websites located in India failed to observe cyber law due diligence in India and e-commerce regulations and laws in India. Criminal trials and criminal liabilities have been imposed by Indian legal system upon such websites. The bazee.com case and the criminal and civil trials against companies like Google, Yahoo, Facebook, Microsoft, etc are few examples of the same. Such cases against e-commerce websites and foreign companies would further increase and e-commerce players must appoint nodal officers in India to comply with Indian laws.

Thus, not only legal requirements for undertaking e-commerce in India are stringent but even Internet intermediaries liability in India must be taken seriously by companies engaged in online transactions and businesses. We have no dedicated e-commerce laws in India but the information technology act 2000 (IT Act 2000) covers basic level e-commerce legal framework in India. The IT Act 2000 also prescribes cyber due diligence for foreign websites in India.

E-commerce due diligence in India is a much needed requirement that all e-commerce players, whether Indians or foreign, must undertake as soon as possible. Non observation of local and foreign laws can tarnish the image and brand of a company that cannot be regained again. It is better to err on the side of precaution rather than caught on the wrong side of the law.

National Cyber Coordination Centre (NCCC) Of India

India has too many agencies and authorities and they are scattered all over India. For practical reasons, there are no centralised agency that can manage law and order and cyberspace related issues. This is resulting in increased cyber attacks and cyber crimes committed against India and Indian citizens.

Cyber law issues, cyber security and national security are on agenda of Indian government these days. However, till now cyber security in India is not upto the mark and cyber law of India requires an urgent repeal. This is because the entire approach and attitude of India government is defective.

Indian government has failed to understand that e-surveillance is not a substitute for cyber security capabilities. Instead of developing cyber security capabilities of India, the Indian government is stressing upon growing use of e-surveillance in India and Internet censorship in India.

All these exercises of India government have been done without any legal framework supporting these initiatives of Indian government. Phones are tapped in India without a constitutionally valid phone tapping laws in India. The central monitoring system project of India (CMS Project of India) is also not supported by any legal framework. Surveillance of Internet traffic in India is also another area that requires a sound legal framework. Various authorities with far reaching powers have been created without any legal backing.

Now the government has proposed setting up of National Cyber Coordination Centre (NCCC) of India. The NCCC would provide actionable alerts to government departments in cases of perceived security threats. It is hoped that this would help in fighting terrorists and other cyber criminals.

The NCCC will scan whole cyber traffic flowing at the point of entry and exit at India’s international Internet gateways. The web scanning centre will provide actionable alerts for proactive actions to be taken by government departments. All government departments will now talk to the Internet Service Providers (ISPs) through NCCC for real time information and data on threats. Presently, the monitoring of web traffic is done by Centre for Development of Telematics (C-DoT) which has installed its equipments at the premises of ISPs and gateways.

All tweets, messages, emails, status updates and even email drafts will now pass through the new scanning centre. The centre may probe further into any email or social media account if it finds a perceived threat.

India’s National Security Council Secretariat (NCSC) has asked various departments to assess their needs for officials, who will coordinate with the scanning agency. The National Security Council handles the political, nuclear, energy and strategic security concerns of the country.

This can be another agency without a legal framework. Creating agencies without legal framework is counter productive as it violates civil liberties and human rights. Parliamentary oversight of intelligence agencies of India and proposed NCCC is absolutely required. The Indian government must keep this in mind while creating NCCC.

Mobile Phone Laws In India Required

With the active use of mobile phones in India, dedicated cell phone laws in India and mobile phone laws in India are urgently required. Further, we must also ensure mobile cyber security in India and mobile banking cyber security in India. Even Reserve Bank of India (RBI) has warned Indian banks for inadequate cyber security adoption. Despites these pressing requirements neither mobile phone laws nor mobile phone security has been ensured in India.

Mobile phones are increasingly being used for multi purpose in India. However, legal framework for mobile phones in India is still missing. Some provisions can be made applicable to mobiles in India through the information technology act 2000 (IT Act 2000) but we still do not have a dedicated mobile phone laws in India.

The Department of Telecommunication (DoT) has proposed a new national telecom policy of India 2011 that would be operational very soon. The new telecom policies as well as other projects of Indian government and DoT are excessively favouring e-surveillance in India and surveillance of Internet traffic in India. We need a legally valid e-surveillance policy of India to address these issues. Otherwise, it would violate human rights protection in cyberspace.

The proposal to allow DoT to monitor cell phone locations in India is also a controversial issue. Big brother must not overstep its limits in India. The proposed cell site based e-surveillance in India has crossed this limit well beyond those permitted by Indian Constitution.

We must have well defined procedure and cell site data location laws in India. As we have no dedicated privacy laws, data protection laws, data security laws, anti telemarketing laws, anti spam laws, etc, mobile phones monitoring in India is not legally sustainable.

Even the proposed central monitoring system (CMS) project of India is not legitimate and legally sustainable as there is no legal framework that justifies its operation in India. Currently there is no phone tapping law in India that is constitutionally sound and we urgently need a lawful interception law in India. Similarly, the colonial phone tapping laws of India must be repealed and new and constitutionally sound phone tapping laws in India must be formulated.

The mobile phone laws of India must cover all these issues that are presently left unaddressed. In the absence of such laws, mobile phone data analysis, mobile phone location tracking, mobile phone tapping in India, etc are illegal and unconstitutional.

ICANN’s New Generic Top-Level Domains (GTLDs) Registration: Risks And Benefits Analysis

The allotment of new generic top level domain names (new GTLDs) by Internet Corporation for Assigned Names and Numbers (ICANN) has been recently approved. Now the process of registration of new GTLDs is in full swing. The new GTLDs application process has started from 12 January 2012 and would end on 29th March 2012. As on 12-02-2012, the applicants have 46 more days to apply for new GTLDs.

While the brand and trademark owners can register their brands and trademarks as the GTLDs yet the entire process is not free from troubles and risks. There would be many unforeseen challenges that would crop up before the applicants. Even the filing of a GTLD application would not be an easy task and would require techno legal expertise.

According to ICANN, the new GTLDs promise to expand the domain name system (DNS) and change the Internet forever. However, ICANN warns that the decision to apply for a new GTLD should not be entered into lightly. This is so because applying to run your own GTLD is not the same as registering a second-level domain name. When you apply for a new GTLD you are applying to run a registry business. You will be responsible for a critical and highly visible piece of Internet infrastructure. This would include legal, administrative, financial and management responsibilities to be fulfilled.

The potential benefits of managing GTLDs include entrepreneurship, increased control, ongoing revenue stream, innovative marketing opportunity, innovative business models, internationalised Domain Names (IDNs), engaging your community, bring together your geographic area, etc.

The potential risks and responsibilities include high investments, possible loss of investment in case of non allotment of applied GTLD, compliance with contractual restrictions, staffing, competition, uncharted territory, etc.

Perry4Law and Perry4Law Techno Legal Base (PTLB) strongly suggest that this is not a complete list of all the risks. Do not rely on this list alone. You should do your own independent research and consult your own technical, business, and legal experts. This list is provided only as general information to get you started.

The introduction of new GTLDs will affect most organisations. Whether or not you decide to apply for a new GTLD, you should still pay attention to the process. In May 2012, once all the applied-for strings have been posted, you will have an opportunity to object to any that you believe would infringe your legal rights. We would cover the Legal Rights Objections under ICANN’s New GTLD scheme separately.

Google And Facebook To Remove Offending Contents Within 15 Days

Companies like Google, Facebook, etc are facing civil and criminal trials in India. In fact, representative of these companies have been asked to personally appear before a criminal court on 13th March 2012. Today a civil court has given 15 more days to companies like Google, Facebook, etc remove objectionable contents form their websites.

The entire issue revolves around Internet intermediaries’ liability in India. Companies like Google, Facebook, etc are Internet intermediaries as per the provisions of Information Technology Act 2000 (IT Act 2000). The IT Act 2000 is the cyber law of India that covers dealings of these companies in cyberspace. If these companies fails to ensure cyber law due diligence in India, they are liable to be prosecuted in India.

Cyber due diligence for companies in India has been ignored for long. However, companies and individuals are now facing legal challenges for ignoring the same. There are certain simple procedures that can be adopted to ensure compliance with Indian laws.

For instance, foreign companies and websites must appoint nodal officers to comply with Indian laws. Similarly, these companies and websites must also formulate an India specific legal strategy to tackle cyber law and intellectual property violation issues more properly.

Perry4Law and Perry4Law Techno Legal Base (PTLB) believe that these companies must ensure compliance with Indian laws in true letter and spirit. The Information Technology (Intermediaries Guidelines) Rules, 2011 of India must be specially taken care of by all Internet intermediaries of India.

Companies like Twitter and Google have already taken initiatives to comply with Indian laws. Twitter has put in place a country specific mechanism to remove offending tweets. Google has also started redirecting Indian bloggers to ***.blogspot.in domains instead of ***.blogspot.com domain. This method would allow Google to remove offending contents pertaining to ***.blogspot.in alone once a valid legal request is made from Indian government or individuals residing in India.

Presently, civil and criminal cases are pending against companies like Google, Facebook, etc before various courts in New Delhi. Before the Delhi High Court, the respondent/complainant of the criminal complaint has placed it final arguments on 02-02-2012 and the petitioner companies would put its final arguments on 14-02-2012.

The civil court of New Delhi would analyse the compliance report of Google, Facebook, etc on 01-03-2012. The 22 firms involved in the case have to submit in writing that they have deleted the content before the next hearing. The criminal trial’s hearing is scheduled on 13th March 2012 where representatives of foreign companies have to be personally present. It seems foreign companies would have a busy month ahead.

Google Incorporation’s Indian Strategy To Counter Legal Disputes

Google is increasingly finding itself involved in various regulatory issues around the globe. Even the Indian shares of legal disputes with Google have increased a lot. Presently, Google is facing a criminal trial in New Delhi and representatives of Google would appear before a Court in New Delhi on 13th March 2012.

In the meantime, a new privacy policy and terms of service (ToS) by Google have also been suggested that would become applicable from 01-03-2012. However, European Union officials have asked Google to put on hold this policy implementation. Only time would tell whether this policy would be implemented or not.

Google has also started redirecting Indian bloggers to ***.blogspot.in domain from the original ***.blogspot.com domain. This way Google can “selectively remove” offending contents in a particular jurisdiction like India and leave the same contents available in other jurisdictions.

Whether it is copyright violation, trademark violation, cyber law infringements or any similar legal issue, Google has been facing many regulatory and legal hurdles. Perry4Law and Perry4Law Techno Legal Base (PTLB) believe that Google has been doing its level best to resolve disputes of various parties though many times disputes are not resolved as per desired expectations. However, Google needs to do something more to avoid future cyber litigations and disputes that are going to increase in India

In order to avoid unnecessary troubles, Google must appoint a nodal officer in India. Further, Google must also keep in mind the privacy rights and laws in India, data protection laws of India, Internet intermediary liability in India and many more such issues.

Perry4Law and PTLB believe that the most important aspect of Google Incorporation’s policy to counter Indian legal disputes is to segregate Indian and non Indian based legal disputes. While dealing with Indian disputes, the Indian team and nodal officer must be pro active. While dealing with disputes involving foreign jurisdictions, Google’s core team may be involved.

Perry4Law and PTLB further believe that legal arguments based upon “subsidiary status” are not good in the long term. Rather, these arguments reflect the “evasive approach” and should be abdicated as soon as possible. Instead a pro active approach must be adopted by Google where legally tenable requests must be entertained immediately and pressure tactics and arm twisting methods should be fought to the maximum possible extent.

Perry4Law and PTLB hope that Google would find these suggestions worth consideration.

Privacy Rights And Laws In India

Privacy rights in India have taken a centre stage in India. From Indian citizens to foreign companies, all are now insisting upon a sound privacy rights regime in India. However, for one reason or other, privacy laws in India have been ignored by Indian government.

Similarly, an exclusive and dedicated data protection law in India is also absent. Absence of proper legal frameworks for privacy and data protection has made the personal information and data of individuals and companies prone to misuse in India.

Telemarketing companies are openly violating privacy of Indians due to lack of proper regulatory regime of India. Spam communications are increasing in India and India has become the premier location to indulge in spam communications.

Privacy rights and data protection rights are essential part of civil liberties protection in cyberspace. With the growing use of information and communication technology (ICT), privacy rights have acquired a very different meaning. It would not be wrong to assume privacy and data protection rights as integral part of human rights protection in cyberspace.

We have no dedicated privacy laws in India and data protection laws in India. The privacy rights in India in the information era are unique in nature that requires a techno legal orientation. The growing use of e-surveillance in India has also necessitated enactment of data privacy laws in India, privacy rights and laws in India and data protection law in India.

At the policy level as well privacy rights and data protection rights have been ignored in India. In fact, an Indian national privacy policy is missing till now. Even legislative efforts in this regard are not adequate in India. A national privacy policy of India is urgently required.

A right to privacy bill of India 2011 has been suggested in the year 2011 yet till now we do not have any conclusive draft in this regard that can be introduced in that parliament of India. In fact, we are still waiting for a public disclosure of final and conclusive proposed draft right to privacy bill 2011 of India that can be discussed in the parliament.

The Supreme Court of India must expand privacy rights in India as that is the need of hour. Fortunately, the issue is already pending before it and there would not be much trouble in formulating a privacy framework for India.

However, the call is for the Indian parliament to take and it must enact sound and effective privacy and data protection laws for India.

Data Protection Laws In India

We have no dedicated data protection laws in India. Data of individuals and companies require both constitutional as well as statutory protection. The constitutional analysis of data protection in India has still not attracted the attention of either Indian individuals/companies nor of Indian government.

The statutory aspects of data protection in India are scattered under various enactments. The Information Technology Act 2000 (IT Act 2000), which is the cyber law of India, also incorporate few provisions regarding data protection in India. However, till now we have no dedicated statutory and constitutional data privacy laws in India and data protection law in India.

Further, we do not have a dedicated privacy law in India as well. Privacy rights in India are still not recognised although the Supreme Court of India has interpreted Article 21 of Indian constitution as the source of privacy rights in India. Just like data protection, provisions pertaining to privacy laws in India are also scattered in various statutory enactments. Privacy rights and laws in India need to be strengthened keeping in mind the privacy rights in India in the information age.

Another related aspect pertains to data security in India. In the absence of proper data protection, privacy rights and cyber security in India, data security in India is also not adequate. Further, we do not have a dedicated cyber security law in India as well.

Perry4Law and Perry4Law Techno Legal Base (PTLB) believe that data protection requirements are essential part of civil liberties protection in cyberspace. With the growing use of information and communication technology (ICT), data protection requirement has become very important. It would not be wrong to assume privacy and data protection rights as integral part of human rights protection in cyberspace.

Perry4Law and PTLB believe that Indian government must formulate different laws for privacy, data protection and data security. The IT Act 2000 has already committed the mistake of incorporating all cyberspace related aspects at a single place. This has resulted in a chaos and we have no effective law for any aspect of cyberspace.

Perry4Law and PTLB suggest that India government must formulate separate laws for issues like privacy, data security and data protection.

Compounding Authority Procedure Under Indian FEMA Act 1999

In this special column, Mr. B.S.Dalal, Senior Partner at Perry4Law and a Techno Legal Banking and Financial Expert, is discussing the current procedure for Compounding Of Contraventions Under Indian FEMA, 1999, as followed by the Compounding Authority.

Reserve Bank of India (RBI) has prescribed a set procedure to compound contraventions under the Indian Foreign Exchange Management Act (FEMA), 1999. It is a good option to set oneself free from legal wrongs without going through the lengthy and costly court and adjudication proceedings.

RBI master circular on compounding of contraventions under Indian FEMA 1999 has been recently issued. It prescribes a set procedure for compounding of contraventions under Indian FEMA 1999. The compounding authority (CA) can compound contraventions committed under the FEMA Act 1999 if an application has been duly made in the prescribed manner.

Once a complete compound application has been made by an applicant, the following procedure would be applied by the RBI:

(1) The CA will exercise jurisdiction in respect of the contraventions alleged to have been committed in relation to any of the provisions of the FEMA, 1999, or any rule, regulation, notification, direction or order issued in exercise of the powers under FEMA, 1999.

(2) The CA will form an opinion on the basis of the application, together with the documents submitted and on the basis of submissions made during the personal hearing on the nature of the contravention.

(3) The application for compounding will be disposed of on merits, upon consideration of the records and submissions and at the absolute discretion of the CA. The following factors, which are only indicative, may be taken into consideration for the purpose of passing the Compounding Order and for arriving at the quantum of sum on payment of which contravention shall be compounded:

(i) The amount of gain of unfair advantage, wherever quantifiable, made as a result of the contravention;

(ii) The amount of loss caused to any authority / agency / exchequer as a result of the contravention;

(iii) Economic benefits accruing to the contravener from delayed compliance or compliance avoided;

(iv) The repetitive nature of the contravention, the track record and / or history of non-compliance of the contravener;

(v) Contravener’s conduct in undertaking the transaction and disclosure of full facts in the application and submissions made during the personal hearing; and

(vi) Any other factor considered relevant and appropriate.

After this stage, the issuance of Compounding Order ensues. The procedure for issuance of a compounding order is as follows:

(1) An opportunity for personal hearing is given to the applicant for further submission of documents in person in support of the application within a specified period. If the contravener or its authorized representative fails to appear in person or make any submissions before the CA for personal hearing, the CA may proceed with the processing of the compounding application on the basis of information and documents available in the application for compounding.

(2) The Compounding Authority will pass a compounding order on the basis of the averments made in the application as well as other documents and submissions made in this context by the contravener during the personal hearings, if any.

(3) Where the compounding of any contravention is made after making of a complaint under sub-section (3) of section 16 of FEMA, 1999 as the case may be, one copy of the compounding order made under sub rule (2) of Rule 8 of Foreign Exchange (Compounding Proceedings) Rules, 2000 will be provided to the applicant (the contravener) and also to the Adjudicating Authority.

Procedure For Compounding of Contraventions Under Indian FEMA, 1999

In this special column, Mr. B.S.Dalal, Senior Partner at Perry4Law and a Techno Legal Banking and Financial Expert, is discussing the current procedure for Compounding Of Contraventions Under Indian FEMA, 1999.

The Reserve Bank of India (RBI) is one of the compounding authorities as per the provisions of Indian Foreign Exchange Management Act (FEMA), Act 1999. The Act empowers RBI for compounding of contraventions under the FEMA 1999. Now the RBI has issued a master circular pertaining to compounding of contraventions under the FEMA Act 1999.

While our previous posts have covered this aspect sufficiently, in this post I would like to discuss the procedure for compounding of contraventions under the FEMA Act 1999. The procedure is as follows:

(1) An application for compounding of a contravention under FEMA Act 1999 can be made to the Compounding Authority (CA) on being advised of a contravention under FEMA Act 1999, either through a memorandum or suo moto on being made or on becoming aware of the contravention. The format of the application is appended to the Foreign Exchange (Compounding Proceedings) Rules, 2000.

(2) The application must also furnish relevant details relating to Foreign Direct Investment, External Commercial Borrowings, Overseas Direct Investment and Branch Office / Liaison Office, as applicable, along with an undertaking that they are not under investigation of any agency such as DOE, CBI, etc. A copy of the Memorandum of Association (MOA) and latest audited balance sheet must also be attached while applying for compounding of contraventions under FEMA, 1999.

(3) All applications for compounding whether on the advice of the Regional Office concerned or suo-moto, relating to the contraventions mentioned at para 3 (a) and (b) above and up to the amount of contravention stated therein, may be submitted by the companies falling under the jurisdiction of the aforesaid Regional Offices to the Regional Office concerned, together with the prescribed fee of Rs.5000/- by way of a demand draft drawn in favour of “Reserve Bank of India” and payable at the concerned Regional Office.

Applications for compounding of all other contraventions together with the prescribed fee of Rs.5000/- by way of a demand draft drawn in favour of “Reserve Bank of India” and payable at Mumbai may be submitted to: The Compounding Authority, [Cell for Effective implementation of FEMA (CEFA)], Foreign Exchange Department, 5th floor, Amar Building, Sir P.M. Road, Fort, Mumbai- 400001.

(4) On receipt of the application for compounding, the proceedings would be concluded and order issued by the CA within 180 days from the date of the receipt of the application for compounding. The time limit for this purpose would be reckoned from the date of receipt of the completed application for compounding by the RBI. The CA may call for any information, record or any other documents relevant to the compounding proceedings and will hold the proceedings. The Compounding Order will be passed by the CA after affording the contravener and others concerned, an opportunity of being heard.

(5) The application will be examined based on the documents and submissions made in the application, in terms of sub rule (1) of rule (4) of the Foreign Exchange (Compounding Proceedings) Rules, 2000 and assess whether the contravention is compoundable and if so, the amount of contravention is accordingly quantified.

(6) The nature of contravention is ascertained keeping in view, inter alia, the following indicative points:

(a) Whether the contravention is technical and / or minor in nature and needs only an administrative cautionary advice;

(b) Whether the contravention is serious in nature and warrants compounding of the contravention; and

(c) Whether the contravention, prima facie, involves money-laundering, national and security concerns involving serious infringement of the regulatory framework.

However, the Reserve Bank reserves the right to classify the contraventions as stated above and neither the contravener nor others have any right to classify any contravention as technical suo moto.

(7) The disposal of the compounding application is made by issue of a Compounding Order specifying the provisions of FEMA,1999 or any rule, regulation, notification, direction or order issued in exercise of the powers under FEMA, 1999, in respect of which contravention has taken place.

(8) The CA may call for any additional information, record or any other document relevant to the compounding proceedings. Such additional information/ documents are required to be submitted within the period as may be specified by the CA and the application may be rejected if such information/documents are not submitted within the prescribed time.

(9) Where there is sufficient cause for further investigation, the Reserve Bank may refer the matter to the Directorate of Enforcement for further investigation and necessary action under FEMA, 1999, as deemed fit or to the Anti- Money Laundering Authority instituted under the Prevention of Money Laundering Act (PMLA), 2002 or to any other agencies, as deemed fit. Such applications will be disposed of by returning the application to the applicant.

Banking Related Mergers and Acquisitions (M&As) in India

In this special column, Mr. B.S.Dalal, Senior Partner at Perry4Law and a Techno Legal Banking and Financial Expert, is discussing the current position of mergers and acquisitions in the banking sector of India.

Mergers and acquisitions (M&A) in India are governed by the various laws. The anti competitive nature of such mergers and acquisition is regulated by the competition commission of India under the competition act, 2002.

Till now all mergers and acquisitions related anti competition issues of banks are governed by the competition commission of India. However, Banking Laws (Amendment) Bill, 2011 has proposed a new section 2A that provides that “Notwithstanding anything contrary contained in Section 2 of the Banking Regulation Act, 1949, nothing contained in Competition Act, 2002, shall apply to any banking company, the State Bank of India, any subsidiary bank, any corresponding new bank or any regional rural bank or cooperative bank or multi-state cooperative bank in respect of the matters relating to amalgamation, merger, reconstruction, transfer, reconstitution or acquisition under respective Acts.”

Through this amendment, the Reserve Bank of India (RBI) is trying to remove the scrutiny of competition commission of India over banking related mergers and acquisitions and keeping the same within its own jurisdiction and powers.

The Banking Laws (Amendment) Bill, 2011 was introduced in Lok Sabha on 22 March, 2011 and referred to Standing Committee on Finance for examination and report on 24 March, 2011. The Parliamentary Standing Committee on Finance of India has given a conditional nod for introduction of Banking Laws Amendment Bill 2011.

Before the Parliamentary Standing Committee on Finance, it has been suggested that the exemption of bank mergers etc. from the scrutiny of the competition commission of India (CCI) would allow RBI to approve bank mergers in public /depositors’ interest, in the interest of the banking system in India and to secure the proper management of the banking company in a timely manner without waiting for approval of the CCI.

The Committee, while supporting the Government’s proposal to keep bank mergers etc., outside the purview of Competition Commission of India for the time being, recommended that this exemption should be considered as a special case and an expedient measure to be revisited in due course in the light of experience gained by both the regulators in question, namely the RBI and the Competition Commission of India. This however does not in any manner convey the Committee’s views on mergers or acquisition policy in banking sector as such, which is an issue meriting a separate discourse.

As Reserve Bank of India has been entrusted with the mandate to grant approval for acquisitions, transfer, mergers etc. in the banking sector, the Committee expect that the Reserve Bank of India would conduct due diligence of “fit and proper” persons/entities and take sufficient safeguards while stipulating conditions as to credentials, source of funds, track record, financial inclusion etc. before granting approvals under this clause.

The Committee also recommended that the Government can consider the merits of issuing non-voting shares as an avenue to expand the capital base of banks without allowing concentration of management control in a few hands and which would also enable them to grow faster.

The Committee also felt that as amendments are being proposed by Government frequently in banking law covering different aspects at different points of time, the Committee would recommend that the Government, instead of bringing piecemeal amendments, should consider formulating an integrated modern banking law for India, which will be comprehensive and will consolidate all related provisions and aspects of banking presently dispersed in different statutes. It may include such other fresh and forward-looking proposals reflecting emerging realities as may be considered necessary by the Government for inclusion in the integrated banking law.

Clearly, once the proposed amendments are passed, the mergers and acquisitions of banks will now come under the purview of the Banking Regulation Act. This means M&A in banking sector would no more require the approval of the Competition Commission of India.

Other banking related reforms are also in pipeline. The Government of India has recently passed a resolution for the constitution of Financial Sector Legislative Reforms Commission (FSLRC) of India. The main objective of constitution of FSLRC is to rewrite and harmonise financial sector legislations, rules and regulations. This had become necessary as the institutional framework governing India’s financial sector was built over a century and the same has become redundant for the contemporary requirements.

Some of the areas that FSLRC can analyse and consider pertain to merger and acquisition norms, non banking financial companies regulation, wealth management regulations, cyber security for banking and financial institutions, due diligence by banks and financial sectors of India, etc.

Non banking finance companies (NBFC) laws in India have also been streamlined by Supreme Court of India. A Bench consisting of Justice Markandey Katju and Justice Gyan Sudha Misra upheld the “constitutional validity” of such State laws and termed such laws as salutary measures which were long overdue to deal with scamsters.

Banking related mergers and acquisitions in India are heading for a big change and all those interested in the same must keep a close watch upon it.

Enhanced Due Diligence Measures By Banks Of India For Higher Risk Customers

Reserve Bank of India’s (RBI), notification numbered RBI/2011-12/305 DBOD. AML.BC. No.65 /14.01.001/2011-12, dated 19th December 2011, has been issued under the category Know Your Customer (KYC) norms/Anti-Money Laundering (AML) standards/Combating of Financing of Terrorism (CFT)/Obligation of banks under Prevention of Money Laundering Act (PMLA), 2002- Assessment and Monitoring of Risk.

RBI has pointed towards its Master Circular DBOD.AML.BC.No.2/ 14.01.001 / 2011 -12 dated July 01, 2011 on Know Your Customer (KYC) norms /Anti-Money Laundering (AML) standards/Combating of Financing of Terrorism (CFT)/Obligation of banks under PMLA, 2002 in this regard.

In terms of paragraph 2.3 (b) and (c) of the aforesaid Master Circular, banks are required to prepare a risk profile of each customer and apply enhanced due diligence measures on higher risk customers. Some illustrative examples of customers requiring higher due diligence have also been provided in the paragraph under reference. Further, paragraph 2.12 (a) of the Master Circular requires banks to put in place policies, systems and procedures for risk management keeping in view the risks involved in a transaction, account or banking/business relationship.

The Government of India had constituted a National Money Laundering/Financing of Terror Risk Assessment Committee to assess money laundering and terror financing risks, a national AML/CFT strategy and institutional framework for AML/CFT in India. Assessment of risk of Money Laundering /Financing of Terrorism helps both the competent authorities and the regulated entities in taking necessary steps for combating ML/FT adopting a risk-based approach. This helps in judicious and efficient allocation of resources and makes the AML/CFT regime more robust. The Committee has made recommendations regarding adoption of a risk-based approach, assessment of risk and putting in place a system which would use that assessment to take steps to effectively counter ML/FT. The recommendations of the Committee have since been accepted by the Government of India and need to be implemented.

Accordingly, banks/FIs should take steps to identify and assess their ML/TF risk for customers, countries and geographical areas as also for products/ services/ transactions/delivery channels, in addition to what has been prescribed in RBI’s Master Circular dated July 1, 2011, referred to in paragraph 2 above. Banks/FIs should have policies, controls and procedures, duly approved by their boards, in place to effectively manage and mitigate their risk adopting a risk-based approach as discussed above. As a corollary, banks would be required to adopt enhanced measures for products, services and customers with a medium or high risk rating.

In this regard, Indian Banks’ Association (IBA) has taken initiative in assessment of ML/FT risk in the banking sector. It has circulated to its member banks on May 18, 2011, a copy of their Report on Parameters for Risk Based Transaction Monitoring (RBTM) as a supplement to their guidance note on Know Your Customer (KYC) norms / Anti-Money Laundering (AML) standards issued in July 2009. The IBA guidance also provides an indicative list of high risk customers, products, services and geographies. Banks may use the same as guidance in their own risk assessment.

These guidelines are issued under Section 35A of the Banking Regulation Act, 1949 read with Rule 7 of Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005. Any contravention thereof or non-compliance shall attract penalties under B R Act, 1949.

Electronic Commerce Laws In India

Technology has brought many important changes the way we deal in our day to day lives. Whether it is e-governance or e-commerce, individuals and companies are equally benefited due to use of technology.

Realising that cyberspace can bring many commercial benefits; both individuals and companies are ensuring that they have strong online presence. More and more brand promotion and protection in India are done these days in an online environment. Companies and individuals are also ensuring domain name protection in India so that their reputation and goodwill is not misappropriated by others.

We have no dedicated e-commerce laws in India. However, the information technology act 2000 (IT Act 2000), which is the sole cyber law of India, is regulating the e-commerce business and transactions in India. Internet intermediaries liability in India under the IT Act 2000 is very stringent. Cyber law due diligence in India is one aspect that all e-commerce site owners must frequently engage in.

Electronic commerce in India (E-commerce in India) has slowly and steadily entered the Indian market. Toady from tickets booking to purchasing of good and services, everything happens in an online environment.

Of course, where commercial transactions occur, disputes and differences are bound to occur. To prevent and resolve these disputes we need norms, regulations and laws that are acceptable to all the stakeholders.

The e-commerce law of India is primarily incorporated in the information technology act, 2000 (IT Act 2000) that takes cares of legal obligations of both sellers and buyers of good and services in cyberspace.

The IT Act 2000 prescribes rules and norms for online contract formulation. The traditional concepts of offer, acceptance etc, as applicable under the contractual laws, have also been covered by the IT Act 2000. The only difference is that they have been customised as per the requirements of cyberspace.

However, e-commerce transactions and contracts also attract certain additional legal liabilities that e-commerce players in India are not very much aware. For instance, very few e-commerce players in India are aware that they are “intermediaries” within the meaning of IT Act 2000. Further, there are very few e-commerce lawyers and law firms in India that can provide expert services in this regard.

Further, other laws, including intellectual property laws, make these e-commerce players labile for civil and criminal actions. For instance, these e-commerce players can be held liable for online infringement of copyright in India of the copyright owners.

Similarly, if any person posts an offending material at the e-commerce site or otherwise deal with the e-commerce site in an illegal manner, the e-commerce site owner may find himself in trouble.

Cyber law due diligence in India is one aspect that all e-commerce site owners must frequently engage in. The present laws of India are stringent in nature and subsequently claiming ignorance of such laws would not make much difference.

Perry4Law and Perry4Law Techno Legal Base (PTLB) strongly recommend that before opening an e-commerce site or business, the owner of the same must consult a good techno legal law firm that can advice him upon all the possible and applicable aspect of e-commerce laws in India.

SEBI Guidelines on Outsourcing of Activities by Intermediaries

Securities and Exchange Board of India (SEBI) has issues an important circular numbered CIR/MIRSD/24/2011, dated December 15, 2011. Through this circular, SEBI has provided the guidelines on outsourcing of activities by intermediaries. These guidelines are as follow:

1. SEBI Regulations for various intermediaries require that they shall render at all times high standards of service and exercise due diligence and ensure proper care in their operations.

2. It has been observed that often the intermediaries resort to outsourcing with a view to reduce costs, and at times, for strategic reasons.

3. Outsourcing may be defined as the use of one or more than one third party – either within or outside the group – by a registered intermediary to perform the activities associated with services which the intermediary offers.

4. Principles for Outsourcing: The risks associated with outsourcing may be operational risk, reputational risk, legal risk, country risk, strategic risk, exit-strategy risk, counter party risk, concentration and systemic risk. In order to address the concerns arising from the outsourcing of activities by intermediaries based on the principles advocated by the IOSCO and the experience of Indian markets, SEBI had prepared a concept paper on outsourcing of activities related to services offered by intermediaries. Based on the feedback received on the discussion paper and also discussion held with various intermediaries, stock exchanges and depositories, the principles for outsourcing by intermediaries have been framed. These principles shall be followed by all intermediaries registered with SEBI.

5. Activities that shall not be Outsourced: The intermediaries desirous of outsourcing their activities shall not, however, outsource their core business activities and compliance functions. A few examples of core business activities may be – execution of orders and monitoring of trading activities of clients in case of stock brokers; dematerialisation of securities in case of depository participants; investment related activities in case of Mutual Funds and Portfolio Managers. Regarding Know Your Client (KYC) requirements, the intermediaries shall comply with the provisions of SEBI {KYC (Know Your Client) Registration Agency} Regulations, 2011 and Guidelines issued thereunder from time to time.

6. Other Obligations: The following additional obligations are worth notice:

(i) Reporting To Financial Intelligence Unit (FIU) – The intermediaries shall be responsible for reporting of any suspicious transactions / reports to FIU or any other competent authority in respect of activities carried out by the third parties.

(ii) Need for Self Assessment of existing Outsourcing Arrangements – In view of the changing business activities and complexities of various financial products, intermediaries shall conduct a self assessment of their existing outsourcing arrangements within a time bound plan, not later than six months from the date of issuance of this circular and bring them in line with the requirements of the guidelines/principles.

7. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

The following principles for outsourcing for intermediaries have been prescribed by SEBI:

1. An intermediary seeking to outsource activities shall have in place a comprehensive policy to guide the assessment of whether and how those activities can be appropriately outsourced. The Board / partners (as the case may be) {hereinafter referred to as the “the Board”} of the intermediary shall have the responsibility for the outsourcing policy and related overall responsibility for activities undertaken under that policy.

The policy shall cover activities or the nature of activities that can be outsourced, the authorities who can approve outsourcing of such activities, and the selection of third party to whom it can be outsourced. For example, an activity shall not be outsourced if it would impair the supervisory authority’s right to assess, or its ability to supervise the business of the intermediary. The policy shall be based on an evaluation of risk concentrations, limits on the acceptable overall level of outsourced activities, risks arising from outsourcing multiple activities to the same entity, etc.

The Board shall mandate a regular review of outsourcing policy for such activities in the wake of changing business environment. It shall also have overall responsibility for ensuring that all ongoing outsourcing decisions taken by the intermediary and the activities undertaken by the third-party, are in keeping with its outsourcing policy.

2. The intermediary shall establish a comprehensive outsourcing risk management programme to address the outsourced activities and the relationship with the third party. An intermediary shall make an assessment of outsourcing risk which depends on several factors, including the scope and materiality of the outsourced activity, etc. The factors that could help in considering materiality in a risk management programme include

(i) The impact of failure of a third party to adequately perform the activity on the financial, reputational and operational performance of the intermediary and on the investors / clients;
(ii) Ability of the intermediary to cope up with the work, in case of non performance or failure by a third party by having suitable back-up arrangements;
(iii) Regulatory status of the third party, including its fitness and probity status;
(iv) Situations involving conflict of interest between the intermediary and the third party and the measures put in place by the intermediary to address such potential conflicts, etc.
While there shall not be any prohibition on a group entity / associate of the intermediary to act as the third party, systems shall be put in place to have an arm’s length distance between the intermediary and the third party in terms of infrastructure, manpower, decision-making, record keeping, etc. for avoidance of potential conflict of interests. Necessary disclosures in this regard shall be made as part of the contractual agreement. It shall be kept in mind that the risk management practices expected to be adopted by an intermediary while outsourcing to a related party or an associate would be identical to those followed while outsourcing to an unrelated party.

The records relating to all activities outsourced shall be preserved centrally so that the same is readily accessible for review by the Board of the intermediary and / or its senior management, as and when needed. Such records shall be regularly updated and may also form part of the corporate governance review by the management of the intermediary.

Regular reviews by internal or external auditors of the outsourcing policies, risk management system and requirements of the regulator shall be mandated by the Board wherever felt necessary. The intermediary shall review the financial and operational capabilities of the third party in order to assess its ability to continue to meet its outsourcing obligations.

3. The intermediary shall ensure that outsourcing arrangements neither diminish its ability to fulfill its obligations to customers and regulators, nor impede effective supervision by the regulators. The intermediary shall be fully liable and accountable for the activities that are being outsourced to the same extent as if the service were provided in-house. Outsourcing arrangements shall not affect the rights of an investor or client against the intermediary in any manner. The intermediary shall be liable to the investors for the loss incurred by them due to the failure of the third party and also be responsible for redressal of the grievances received from investors arising out of activities rendered by the third party. The facilities / premises / data that are involved in carrying out the outsourced activity by the service provider shall be deemed to be those of the registered intermediary. The intermediary itself and Regulator or the persons authorized by it shall have the right to access the same at any point of time. Outsourcing arrangements shall not impair the ability of SEBI/SRO or auditors to exercise its regulatory responsibilities such as supervision/inspection of the intermediary.

4. The intermediary shall conduct appropriate due diligence in selecting the third party and in monitoring of its performance. It is important that the intermediary exercises due care, skill, and diligence in the selection of the third party to ensure that the third party has the ability and capacity to undertake the provision of the service effectively. The due diligence undertaken by an intermediary shall include assessment of:

(i) third party’s resources and capabilities, including financial soundness, to perform the outsourcing work within the timelines fixed;
(ii) compatibility of the practices and systems of the third party with the intermediary’s requirements and objectives;
(iii) market feedback of the prospective third party’s business reputation and track record of their services rendered in the past;
(iv) level of concentration of the outsourced arrangements with a single third party; and
(v) the environment of the foreign country where the third party is located.

5. Outsourcing relationships shall be governed by written contracts / agreements / terms and conditions (as deemed appropriate) {hereinafter referred to as “contract”} that clearly describe all material aspects of the outsourcing arrangement, including the rights, responsibilities and expectations of the parties to the contract, client confidentiality issues, termination procedures, etc. Outsourcing arrangements shall be governed by a clearly defined and legally binding written contract between the intermediary and each of the third parties, the nature and detail of which shall be appropriate to the materiality of the outsourced activity in relation to the ongoing business of the intermediary. Care shall be taken to ensure that the outsourcing contract:
(i) clearly defines what activities are going to be outsourced, including appropriate service and performance levels;
(ii) provides for mutual rights, obligations and responsibilities of the intermediary and the third party, including indemnity by the parties;
(iii) provides for the liability of the third party to the intermediary for unsatisfactory performance/other breach of the contract
(iv) provides for the continuous monitoring and assessment by the intermediary of the third party so that any necessary corrective measures can be taken up immediately, i.e., the contract shall enable the intermediary to retain an appropriate level of control over the outsourcing and the right to intervene with appropriate measures to meet legal and regulatory obligations;
(v) includes, where necessary, conditions of sub-contracting by the third-party, i.e. the contract shall enable intermediary to maintain a similar control over the risks when a third party outsources to further third parties as in the original direct outsourcing;
(vi) has unambiguous confidentiality clauses to ensure protection of proprietary and customer data during the tenure of the contract and also after the expiry of the contract;
(vii) specifies the responsibilities of the third party with respect to the IT security and contingency plans, insurance cover, business continuity and disaster recovery plans, force majeure clause, etc.;
(viii) provides for preservation of the documents and data by third party ;
(ix) provides for the mechanisms to resolve disputes arising from implementation of the outsourcing contract;
(x) provides for termination of the contract, termination rights, transfer of information and exit strategies;
(xi) addresses additional issues arising from country risks and potential obstacles in exercising oversight and management of the arrangements when intermediary outsources its activities to foreign third party. For example, the contract shall include choice-of-law provisions and agreement covenants and jurisdictional covenants that provide for adjudication of disputes between the parties under the laws of a specific jurisdiction;
(xii) neither prevents nor impedes the intermediary from meeting its respective regulatory obligations, nor the regulator from exercising its regulatory powers; and
(xiii) provides for the intermediary and /or the regulator or the persons authorized by it to have the ability to inspect, access all books, records and information relevant to the outsourced activity with the third party.

6. The intermediary and its third parties shall establish and maintain contingency plans, including a plan for disaster recovery and periodic testing of backup facilities. Specific contingency plans shall be separately developed for each outsourcing arrangement, as is done in individual business lines. An intermediary shall take appropriate steps to assess and address the potential consequence of a business disruption or other problems at the third party level. Notably, it shall consider contingency plans at the third party; co-ordination of contingency plans at both the intermediary and the third party; and contingency plans of the intermediary in the event of non-performance by the third party. To ensure business continuity, robust information technology security is a necessity. A breakdown in the IT capacity may impair the ability of the intermediary to fulfill its obligations to other market participants/clients/regulators and could undermine the privacy interests of its customers, harm the intermediary’s reputation, and may ultimately impact on its overall operational risk profile. Intermediaries shall, therefore, seek to ensure that third party maintains appropriate IT security and robust disaster recovery capabilities. Periodic tests of the critical security procedures and systems and review of the backup facilities shall be undertaken by the intermediary to confirm the adequacy of the third party’s systems.

7. The intermediary shall take appropriate steps to require that third parties protect confidential information of both the intermediary and its customers from intentional or inadvertent disclosure to unauthorised persons. An intermediary that engages in outsourcing is expected to take appropriate steps to protect its proprietary and confidential customer information and ensure that it is not misused or misappropriated. The intermediary shall prevail upon the third party to ensure that the employees of the third party have limited access to the data handled and only on a “need to know” basis and the third party shall have adequate checks and balances to ensure the same. In cases where the third party is providing similar services to multiple entities, the intermediary shall ensure that adequate care is taken by the third party to build safeguards for data security and confidentiality.

8. Potential risks posed where the outsourced activities of multiple intermediaries are concentrated with a limited number of third parties. In instances, where the third party acts as an outsourcing agent for multiple intermediaries, it is the duty of the third party and the intermediary to ensure that strong safeguards are put in place so that there is no co-mingling of information/documents, records and assets.

Amendment to Mortgage Guarantee Company (Reserve Bank) Guidelines, 2008

As per the Reserve Bank of India’s notification numbered RBI/2011-12/302DNBS (PD-MGC) CC. No. 10/03.11.01/2011-12, dated 16th December 2011, RBI draws attention towards Para 27 of the Mortgage Guarantee Company (Reserve Bank) Guidelines 2008 issued vide Notification DNBS(PD)MGC No.3 /CGM (PK) – 2008 dated February 15, 2008 wherein it has been stated that no mortgage guarantee company shall provide mortgage guarantee for a housing loan with 90% and above LTV ratio. As scheduled commercial banks are expected to seek mortgage guarantee for their housing loans, it has been decided to align the regulatory prescription of LTV ratio for mortgage guarantee companies with that of commercial banks and revise it downwards from 90% to 80% for housing loans exceeding Rs. 20 lakhs. However for small value housing loans i.e housing loans up to Rs. 20 lakh (which get categorized as priority sector advances), LTV ratio should not exceed 90%.

An amending Notification No. DNBS (PD) MGC No. 6 / CGM (US)-2011 dated December 16, 2011 amending Mortgage Guarantee Company (Reserve Bank) Guidelines 2008 clarifies this position.

The Reserve Bank of India, having considered it necessary in public interest and being satisfied that, for the purpose of enabling the Bank to regulate the credit system to the advantage of the country, it is necessary to amend the Mortgage Guarantee Company (Reserve Bank) Guidelines 2008 in exercise of the powers conferred by sections 45JA and 45 (L) of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, hereby directs that the said Directions shall be amended with immediate effect as follows, namely -

Amendment of paragraph 27 –

The existing clause “No mortgage guarantee company shall provide mortgage guarantee for a housing loan with 90% and above LTV ratio” shall be substituted with the following ” No mortgage guarantee company shall provide mortgage guarantee for a housing loan above Rs. 20 lakhs where the LTV exceeds 80%.” For small value housing loans i.e housing loans up to Rs. 20 lakh (which get categorized as priority sector advances), LTV ratio should not exceed 90%.

Deregulation of Interest Rates on Non-Resident (External) Rupee (NRE) Deposits and Ordinary Non-Resident (NRO) Accounts

As per the Reserve Bank of India’s notification numbered RBI/2011-12/303DBOD.Dir.BC. 64 /13.03.00/2011-12, dated 16th December 2011, the RBI referred to paragraph 4 of its circular DBOD.Dir.BC.42/13.03.00/ 2011-12 dated October 25, 2011 on Deregulation of Savings Bank Deposit Interest Rate and paragraph 1 of our its circular DBOD.Dir.BC.59/13.03.00/2011-12 dated November 23, 2011 on Interest Rates on Non-Resident (External) Rupee (NRE) Deposits and FCNR (B) Deposits.

With a view to providing greater flexibility to banks in mobilising non-resident deposits and also in view of the prevailing market conditions, it has been decided to deregulate interest rates on Non-Resident (External) Rupee (NRE) Deposits and Ordinary Non-Resident (NRO) Accounts (the interest rates on term deposits under Ordinary Non-Resident (NRO) Accounts are already deregulated). Accordingly, banks are free to determine their interest rates on both savings deposits and term deposits of maturity of one year and above under Non-Resident (External) Rupee (NRE) Deposit accounts and savings deposits under Ordinary Non-Resident (NRO) Accounts with immediate effect. However, interest rates offered by banks on NRE and NRO deposits cannot be higher than those offered by them on comparable domestic rupee deposits.

Prior approval of the Board/Asset Liability Management Committee (if powers are delegated by the Board) may be obtained by a bank while fixing interest rates on such deposits. At any point of time, individual banks should offer uniform rates at all their branches.

The revised deposit rates will apply only to fresh deposits and on renewal of maturing deposits. Further, banks should closely monitor their external liability arising on account of such deregulation and ensure asset-liability compatibility from systemic risk point of view.

An amending directive DBOD.Dir.BC. 63 /13.03.00/2011-12 dated December 16, 2011 clarifies the position of deregulation of Interest Rates on Non-Resident (External)Rupee (NRE) Deposits and Ordinary Non-Resident (NRO) Accounts.

In exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949, and in modification of the directive DBOD. Dir. BC. 41/ 13.03.00/ 2011-12 dated October 25, 2011 on Deregulation of Savings Bank Deposit Interest Rate and DBOD.Dir.BC.58/13.03.00/2011-12 dated November 23, 2011 on Interest Rates on Non-Resident (External) (NRE) Deposits and FCNR(B) Deposits, the Reserve Bank of India being satisfied that it is necessary and expedient in the public interest so to do, hereby directs that banks are free to determine their interest rates on both savings deposits and term deposits of maturity of one year and above under Non-Resident (External) Rupee (NRE) Deposit accounts and savings deposits under Ordinary Non-Resident (NRO) Accounts with immediate effect. However, interest rates offered by banks on NRE and NRO deposits cannot be higher than those offered by them on comparable domestic rupee deposits.