Monthly Archives: April 2012

US India Cyber Security Relationship Needs Rejuvenation

International community is taking cyber
security
very seriously. Even NATO
had requested cyber security cooperation from India.
Indian
cyber security and international cooperation
must be
rejuvenated in the context of contemporary developments. Keeping this
is mind, the Indo
US cyber security relationship needs improvements.
 

United States is presently engaged in
serious cyber
security

FIPB Rejected Telenor’s Joint Venture Proposal Being Pre Mature

Norwegian telecom major Telenor is looking forward to new telecom partner in India. However, till now Telenor has not disclosed the name of its potential partner(s), directors, key personnel, etc. Even in its application to Foreign Investment Promotion Board (FIPB), Telenor has not disclosed the name of its partners and other crucial details.
As a result the Home Ministry blocked Telenor’s security clearance before FIPB. Further, it is also clear that the Foreign Investment Promotion Board (FIPB) under the FDI Policy of India 2012is required to consider many factors before any approval is granted in this regard. Telenor application is not satisfying those conditions and criteria.

For instance, while approving the investment proposals, FIPB shall take note that investment is not coming from countries of concern and/or unfriendly entities. Further, telecom service providers, ISPs and telecom infrastructure providers must comply with licensing and security requirements notified by the Department of Telecommunications for all services in order to make FDI in India.
The Chief Officer In-charge of technical network operations and the Chief Security Officer should be a resident Indian citizen. The officers/officials of the licensee companies dealing with the lawful interception of messages will be resident Indian citizens. The majority Directors on the Board of the company shall be Indian citizens. FDI shall be subject to laws of India and not the laws of the foreign country/countries.
The positions of the Chairman, Managing Director, Chief Executive Officer (CEO) and/or Chief Financial Officer (CFO), if held by foreign nationals, would require to be security vetted by Ministry of Home Affairs (MHA). Security vetting shall be required periodically on yearly basis. In case something adverse is found during the security vetting, the direction of MHA shall be binding on the licensee.

It seems Telenor failed to satisfy many of these requirements. As a result, its application to establish a new joint venture was rejected by FIPB labeling it as pre mature. FIPB believes that the said proposal is pre-mature as crucial details pertaining to the investee company; specific Telenor entity through which FDI would be routed; details of the Indian partner; the quantum of FDI envisaged, etc are missing. FIPB would not process the application till all missing information and details are provided by Telenor.

FDI In Pharmaceuticals 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. In this article Perry4Lawand Perry4Law Techno Legal Base (PTLB) would discuss the FDI in Pharmaceuticals sector of India under the consolidated FDI policy of India 2012.

FDI in Greenfield is allowed up to 100% through automatic route. FDI in Existing Companies is allowed up to 100% through government approval route.

FDI In Non-Banking Finance Companies (NBFC) 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. In this article Perry4Lawand Perry4Law Techno Legal Base (PTLB) would discuss the FDI in Non-Banking Finance Companies (NBFC) sector of India under the consolidated FDI policy of India 2012.

FDI in Non-Banking Finance Companies (NBFC) is allowed up to 100% under the automatic route in only the following activities:

(i) Merchant Banking

(ii) Under Writing

(iii) Portfolio Management Services

(iv) Investment Advisory Services

(v) Financial Consultancy

(vi) Stock Broking

(vii) Asset Management

(viii) Venture Capital

(ix) Custodian Services

(x) Factoring

(xi) Credit Rating Agencies

(xii) Leasing & Finance

(xiii) Housing Finance

(xiv) Forex Broking

(xv) Credit Card Business

(xvi) Money Changing Business

(xvii) Micro Credit

(xviii) Rural Credit

The other conditions in this regard are:

(1) Investment would be subject to the following minimum capitalisation norms:

(i) US $0.5 million for foreign capital up to 51% to be brought upfront

(ii) US $ 5 million for foreign capital more than 51% and up to 75% to be brought upfront

(iii) US $ 50 million for foreign capital more than 75% out of which US$ 7.5 million to be brought upfront and the balance in 24 months.

(iv) 100% foreign owned NBFCs with a minimum capitalisation of US$ 50 million can set up step down subsidiaries for specific NBFC activities, without any restriction on the number of operating subsidiaries and without bringing in additional capital. The minimum capitalization condition shall not apply to downstream subsidiaries.

(v) Joint Venture operating NBFCs that have 75% or less than 75% foreign investment can also set up subsidiaries for undertaking other NBFC activities, subject to the subsidiaries also complying with the applicable minimum capitalisation norm mentioned in (i), (ii) and (iii) above and (vi) below.

(vi) Non- Fund based activities : US $0.5 million to be brought upfront for all permitted non-fund based NBFCs irrespective of the level of foreign investment subject to the following condition:

It would not be permissible for such a company to set up any subsidiary for any other activity, nor it can participate in any equity of an NBFC holding/operating company.
The following activities would be classified as Non-Fund Based activities:

(a) Investment Advisory Services

(b) Financial Consultancy

(c) Forex Broking

(d) Money Changing Business

(e) Credit Rating Agencies

(vii) This will be subject to compliance with the guidelines of RBI.

(i) Credit Card business includes issuance, sales, marketing and design of various payment products such as credit cards, charge cards, debit cards, stored value cards, smart card, value added cards etc.

(ii) Leasing & Finance covers only financial leases and not operating leases.

(2) The NBFC will have to comply with the guidelines of the relevant regulator/ s, as applicable.

FDI In Insurance 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. In this article Perry4Lawand Perry4Law Techno Legal Base (PTLB) would discuss the FDI in the insurance sector of India under the consolidated FDI policy of India 2012.

FDI in Insurance sector is allowed up to 26% through automatic route. The following conditions must also be fulfilled in this regard:

(1) FDI in the Insurance sector, as prescribed in the Insurance Act, 1938, is allowed under the automatic route.

(2) This will be subject to the condition that Companies bringing in FDI shall obtain necessary license from the Insurance Regulatory and Development Authority for undertaking insurance activities.

FDI In Infrastructure Company In The Securities Market 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. In this article Perry4Lawand Perry4Law Techno Legal Base (PTLB) would discuss the FDI in infrastructure company in the securities market sector of India under the consolidated FDI policy of India 2012.

FDI in Infrastructure Company in the Securities Market, namely, stock exchanges, depositories and clearing corporations, in compliance with SEBI Regulations, is allowed up to 49% (FDI & FII) [FDI limit of 26 per cent and an FII limit of 23 per cent of the paid-up capital] through government approval route.

Further, FII can invest only through purchases in the secondary market.

FDI In Credit Information Companies (CIC) 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. In this article Perry4Lawand Perry4Law Techno Legal Base (PTLB) would discuss the FDI in credit information companies (CIC) sector of India under the consolidated FDI policy of India 2012.

FDI in Credit Information Companies (CIC) is allowed up to 49% (FDI and FII) through government approval route.

The other conditions in this regard are:

(1) Foreign investment in Credit Information Companies is subject to the Credit Information Companies (Regulation) Act, 2005.

(2) Foreign investment is permitted under the Government route, subject to regulatory clearance from RBI.

(3) Investment by a registered FII under the Portfolio Investment Scheme would be permitted up to 24% only in the CICs listed at the Stock Exchanges, within the overall limit of 49% for foreign investment.

(4) Such FII investment would be permitted subject to the conditions that:

(a) No single entity should directly or indirectly hold more than 10% equity.

(b) Any acquisition in excess of 1% will have to be reported to RBI as a mandatory requirement; and

(c) FIIs investing in CICs shall not seek a representation on the Board of Directors based upon their shareholding.

FDI In Commodity Exchanges 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. In this article Perry4Lawand Perry4Law Techno Legal Base (PTLB) would discuss the FDI in commodity exchanges sector of India under the consolidated FDI policy of India 2012.

(1) Futures trading in commodities are regulated under the Forward Contracts (Regulation) Act, 1952. Commodity Exchanges, like Stock Exchanges, are infrastructure companies in the commodity futures market. With a view to infuse globally acceptable best practices, modern management skills and latest technology, it was decided to allow foreign investment in Commodity Exchanges.

(2) For the purposes of this chapter/article,

(i) Commodity Exchange is a recognised association under the provisions of the Forward Contracts (Regulation) Act, 1952, as amended from time to time, to provide exchange platform for trading in forward contracts in commodities.

(ii) Recognised association means an association to which recognition for the time being has been granted by the Central Government under Section 6 of the Forward Contracts (Regulation) Act, 1952

(iii) Association means any body of individuals, whether incorporated or not, constituted for the purposes of regulating and controlling the business of the sale or purchase of any goods and commodity derivative.

(iv) Forward contract means a contract for the delivery of goods and which is not a ready delivery contract.

(v) Commodity derivative means-

(a) A contract for delivery of goods, which is not a ready delivery contract; or

(b) A contract for differences which derives its value from prices or indices of prices of such underlying goods or activities, services, rights, interests and events, as may be notified in consultation with the Forward Markets Commission by the Central Government, but does not include securities.

FDI in commodity exchanges is allowed up to 49% (FDI & FII) [Investment by Registered FII under Portfolio Investment Scheme (PIS) will be limited to 23% and Investment under FDI Scheme limited to 26% ] through government approval route (FDI).

The other conditions in this regard are as follow:

(i) FII purchases shall be restricted to secondary market only and

(ii) No non-resident investor/ entity, including persons acting in concert, will hold more than 5% of the equity in these companies.

FDI In Banking 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. In this article Perry4Lawand Perry4Law Techno Legal Base (PTLB) would discuss the FDI in banking sector of India under the consolidated FDI policy of India 2012.

FDI in private banking sector of India is allowed up to 74% where FDI up to 49% is allowed through automatic route and FDI beyond 49% but up to 74% is allowed through government approval route.

These conditions must also be satisfied in this regard:

(1) This 74% limit will include investment under the Portfolio Investment Scheme (PIS) by FIIs, NRIs and shares acquired prior to September 16, 2003 by erstwhile OCBs, and continue to include IPOs, Private placements, GDR/ADRs and acquisition of shares from existing shareholders.

(2) The aggregate foreign investment in a private bank from all sources will be allowed up to a maximum of 74 per cent of the paid up capital of the Bank. At all times, at least 26 per cent of the paid up capital will have to be held by residents, except in regard to a wholly-owned subsidiary of a foreign bank.

(3) The stipulations as above will be applicable to all investments in existing private sector banks also.

(4) The permissible limits under portfolio investment schemes through stock exchanges for FIIs and NRIs will be as follows:

(i) In the case of FIIs, as hitherto, individual FII holding is restricted to 10 per cent of the total paid-up capital, aggregate limit for all FIIs cannot exceed 24 per cent of the total paid-up capital, which can be raised to 49 per cent of the total paid-up capital by the bank concerned through a resolution by its Board of Directors followed by a special resolution to that effect by its General Body.

(a) Thus, the FII investment limit will continue to be within 49 per cent of the total paid-up capital.

(b) In the case of NRIs, as hitherto, individual holding is restricted to 5 per cent of the total paid-up capital both on repatriation and non-repatriation basis and aggregate limit cannot exceed 10 per cent of the total paid-up capital both on repatriation and non-repatriation basis. However, NRI holding can be allowed up to 24 per cent of the total paid-up capital both on repatriation and non-repatriation basis provided the banking company passes a special resolution to that effect in the General Body.

(c) Applications for foreign direct investment in private banks having joint venture/subsidiary in insurance sector may be addressed to the Reserve Bank of India (RBI) for consideration in consultation with the Insurance Regulatory and Development Authority (IRDA) in order to ensure that the 26 per cent limit of foreign shareholding applicable for the insurance sector is not being breached.

(d) Transfer of shares under FDI from residents to non-residents will continue to require approval of RBI and Government as per para 3.6.2 above as applicable.

(e) The policies and procedures prescribed from time to time by RBI and other institutions such as SEBI, D/o Company Affairs and IRDA on these matters will continue to apply.

(f) RBI guidelines relating to acquisition by purchase or otherwise of shares of a private bank, if such acquisition results in any person owning or controlling 5 per cent or more of the paid up capital of the private bank will apply to non-resident investors as well.

(ii) Setting up of a subsidiary by foreign banks

(a) Foreign banks will be permitted to either have branches or subsidiaries but not both.

(b) Foreign banks regulated by banking supervisory authority in the home country and meeting Reserve Bank‘s licensing criteria will be allowed to hold 100 per cent paid up capital to enable them to set up a wholly-owned subsidiary in India.

(c) A foreign bank may operate in India through only one of the three channels viz., (i) branches (ii) a wholly-owned subsidiary and (iii) a subsidiary with aggregate foreign investment up to a maximum of 74 per cent in a private bank.

(d) A foreign bank will be permitted to establish a wholly-owned subsidiary either through conversion of existing branches into a subsidiary or through a fresh banking license. A foreign bank will be permitted to establish a subsidiary through acquisition of shares of an existing private sector bank provided at least 26 per cent of the paid capital of the private sector bank is held by residents at all times consistent with para (i) (b) above.

(e) A subsidiary of a foreign bank will be subject to the licensing requirements and conditions broadly consistent with those for new private sector banks.

(f) Guidelines for setting up a wholly-owned subsidiary of a foreign bank will be issued separately by RBI.

(g) All applications by a foreign bank for setting up a subsidiary or for conversion of their existing branches to subsidiary in India will have to be made to the RBI.

(iii) At present there is a limit of ten per cent on voting rights in respect of banking companies, and this should be noted by potential investor. Any change in the ceiling can be brought about only after final policy decisions and appropriate Parliamentary approvals.

FDI in public banking sector of India is allowed up to 20% (FDI and Portfolio Investment) through government approval route subject to Banking Companies (Acquisition and Transfer of Undertakings) Acts 1970/80. This ceiling (20%) is also applicable to the State Bank of India and its associate Banks.

FDI In Asset Reconstruction Companies 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. In this article Perry4Lawand Perry4Law Techno Legal Base (PTLB) would discuss the FDI in asset reconstruction companies of India under the consolidated FDI policy of India 2012.
Foreign investment in other financial services, other than those discussed in the present and subsequent articles would require prior approval of the Government. For the purposes of FDI, Asset Reconstruction Company (ARC) means a company registered with the Reserve Bank of India (RBI) under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
FDI in ARC is allowed up to 49% of paid-up capital of ARC through government approval route.

The following other conditions must be satisfied in this regard:

(i) Persons resident outside India, other than Foreign Institutional Investors (FIIs), can invest in the capital of Asset Reconstruction Companies (ARCs) registered with Reserve Bank only under the Government Route. Such investments have to be strictly in the nature of FDI. Investments by FIIs are not permitted in the equity capital of ARCs.

(ii) However, FIIs registered with SEBI can invest in the Security Receipts (SRs) issued by ARCs registered with Reserve Bank. FIIs can invest up to 49 per cent of each tranche of scheme of SRs, subject to the condition that investment by a single FII in each tranche of SRs shall not exceed 10 per cent of the issue.

(iii) Any individual investment of more than 10% would be subject to provisions of section 3(3) (f) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Consolidated FDI Policy Of India 2012 By DIPP

It is very cumbersome and inconvenient
to report all
links to our previous posts on the topic consolidated FDI policy of
India 2012 in every subsequent post. Therefore, Perry4Law
and Perry4Law
Techno Legal Base (PTLB) have decided to report
the
previous posts in this regard at this post.

This post would act as the base for all
previous
posts on this topic and we would keep on updating this

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.

FDI In Wholesale Trading And E-Commerce Sectors 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:
In this article Perry4Lawand Perry4Law Techno Legal Base (PTLB) would discuss the FDI limits in wholesale trading and e-commerce sectors of Indiaunder consolidated FDI policy of India 2012.
 (i) FDI in cash and carry wholesale trading/ wholesale trading (including sourcing from MSEs), would be allowed upto 100% through automatic route.
Cash and Carry wholesale trading/Wholesale trading would mean sale of goods/merchandise to retailers, industrial, commercial, institutional or other professional business users or to other wholesalers and related subordinated service providers. Wholesale trading would, accordingly, be sales for the purpose of trade, business and profession, as opposed to sales for the purpose of personal consumption. The yardstick to determine whether the sale is wholesale or not would be the type of customers to whom the sale is made and not the size and volume of sales. Wholesale trading would include resale, processing and thereafter sale, bulk imports with ex-port/ex-bonded warehouse business sales and B2B e-Commerce.
The following Guidelines for Cash and Carry Wholesale Trading/Wholesale Trading (WT) would apply:
(a) For undertaking WT, requisite licenses/registration/ permits, as specified under the relevant Acts/Regulations/Rules/Orders of the State Government/Government Body/Government Authority/Local Self-Government Body under that State Government should be obtained.
(b) Except in case of sales to Government, sales made by the wholesaler would be considered as cash and carry wholesale trading/wholesale trading with valid business customers, only when WT are made to the following entities:
(i) Entities holding sales tax/ VAT registration/service tax/excise duty registration; or
(ii) Entities holding trade licenses i.e. a license/registration certificate/membership certificate/registration under Shops and Establishment Act, issued by a Government Authority/ Government Body/ Local Self-Government Authority, reflecting that the entity/person holding the license/ registration certificate/ membership certificate, as the case may be, is itself/ himself/herself engaged in a business involving commercial activity; or
(iii) Entities holding permits/license etc. for undertaking retail trade (like tehbazari and similar license for hawkers) from Government Authorities/Local Self Government Bodies; or
(iv) Institutions having certificate of incorporation or registration as a society or registration as public trust for their self consumption.
An Entity, to whom WT is made, may fulfill any one of the 4 conditions.
(c) Full records indicating all the details of such sales like name of entity, kind of entity, registration/license/permit etc. number, amount of sale etc. should be maintained on a day to day basis.
(d) WT of goods would be permitted among companies of the same group. However, such WT to group companies taken together should not exceed 25% of the total turnover of the wholesale venture
(e) WT can be undertaken as per normal business practice, including extending credit facilities subject to applicable regulations.
(f) A Wholesale/Cash and carry trader cannot open retail shops to sell to the consumer directly.
FDI in E-commerce activities 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.
FDI in test marketing of such items for which a company has approval for manufacture is allowed upto 100% through government approval route, provided such test marketing facility will be for a period of two years, and investment in setting up manufacturing facility commences simultaneously with test marketing.
FDI in Single Brand product retail trading is allowed upto 100% through government approval route. For this purpose:
(1) Foreign Investment in Single Brand product retail trading is aimed at attracting investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices.
(2) FDI in Single Brand product retail trading would be subject to the following conditions:
(a) Products to be sold should be of a Single Brand only.
(b) Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more countries other than India.
(c) Single Brand product-retail trading would cover only products which are branded during manufacturing.
(d) The foreign investor should be the owner of the brand.
(e) In respect of proposals involving FDI beyond 51%, mandatory sourcing of at least 30% of the value of products sold would have to be done from Indian small industries/ village and cottage industries, artisans and craftsmen‘. ‘Small industries’ would be defined as industries which have a total investment in plant and machinery not exceeding US $ 1.00 million. This valuation refers to the value at the time of installation, without providing for depreciation. Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a ‘small industry’ for this purpose. The compliance of this condition will be ensured through self-certification by the company, to be subsequently checked, by statutory auditors, from the duly certified accounts, which the company will be required to maintain.
(3) Application seeking permission of the Government for FDI in retail trade of Single Brand products would be made to the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy and Promotion. The application would specifically indicate the product/ product categories which are proposed to be sold under a Single Brand. Any addition to the product/ product categories to be sold under Single Brand would require a fresh approval of the Government.
(4) Applications would be processed in the Department of Industrial Policy and Promotion, to determine whether the products proposed to be sold satisfy the notified guidelines, before being considered by the FIPB for Government approval.

FDI In Telecom Services, ISPs And Telecom Infrastructure Providing Sectors 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,

(9) FDI in mining sector of India under consolidated FDI policy of India 2012,

(10) FDI in petroleum and natural gas sector of India under consolidated FDI policy of India 2012

(11) FDI in micro and small enterprises (MSEs) sector of India under consolidated FDI policy of India 2012

(12) FDI in defence sector of India under consolidated FDI policy of India 2012

(13) FDI in broadcasting sector of India under consolidated FDI policy of India 2012

(14) FDI in print media sector of India under consolidated FDI policy of India 2012

(15) FDI in civil aviation sector of India under consolidated FDI policy Of India 2012

(16) FDI in courier services sector of India under consolidated FDI policy of India 2012

(17) FDI in construction development sector of India under consolidated FDI policy of India 2012

(18) FDI in industrial parks segment of India under consolidated FDI policy of India 2012

(19) FDI in satellites and private security agencies sectors of India under consolidated FDI policy of India 2012

In this article Perry4Law and Perry4Law Techno Legal Base (PTLB) would discuss the FDI limits in telecom services, ISPs and telecom infrastructure providing sectors of India under consolidated FDI policy of India 2012.

Telecom service providers, ISPs and telecom infrastructure providers must comply with licensing and security requirements notified by the Department of Telecommunications for all services in order to make FDI in India.

FDI in telecom services is allowed upto 74% where upto 49% FDI can be made through automatic route and beyond 49% but upto 74%, FDI can be made through government approval route.

The following conditions must also be fulfilled in this regard:

(1) General Conditions:

(i) This is applicable in case of Basic, Cellular, Unified Access Services, National/ International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services (GMPCS) and other value added Services.

(ii) Both direct and indirect foreign investment in the licensee company shall be counted for the purpose of FDI ceiling. Foreign Investment shall include investment by Foreign Institutional Investors (FIIs), Non-resident Indians (NRIs), Foreign Currency Convertible Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and convertible preference shares held by foreign entity. In any case, the Indian shareholding will not be less than 26 percent.

(iii) FDI in the licensee company/Indian promoters/investment companies including their holding companies shall require approval of the Foreign Investment Promotion Board (FIPB) if it has a bearing on the overall ceiling of 74 percent. While approving the investment proposals, FIPB shall take note that investment is not coming from countries of concern and/or unfriendly entities.

(iv) The investment approval by FIPB shall envisage the conditionality that Company would adhere to licence Agreement.

(v) FDI shall be subject to laws of India and not the laws of the foreign country/countries.

(2) Security Conditions:

(i) The Chief Officer In-charge of technical network operations and the Chief Security Officer should be a resident Indian citizen.

(ii) Details of infrastructure/network diagram (technical details of the network) could be provided on a need basis only to telecom equipment suppliers/manufacturers and the affiliate/parents of the licensee company. Clearance from the licensor (Department of Telecommunications) would be required if such information is to be provided to anybody else.

(iii) For security reasons, domestic traffic of such entities as may be identified /specified by the licensor shall not be hauled/routed to any place outside India.

(iv) The licensee company shall take adequate and timely measures to ensure that the information transacted through a network by the subscribers is secure and protected.

(v) The officers/officials of the licensee companies dealing with the lawful interception of messages will be resident Indian citizens.

(vi) The majority Directors on the Board of the company shall be Indian citizens. Recently, the Home Ministry of India blocked Telenor’s FIPB application on certain grounds, including absence of resident directors, and this condition has made the license conditions even more stringent.

(vii) The positions of the Chairman, Managing Director, Chief Executive Officer (CEO) and/or Chief Financial Officer (CFO), if held by foreign nationals, would require to be security vetted by Ministry of Home Affairs (MHA). Security vetting shall be required periodically on yearly basis. In case something adverse is found during the security vetting, the direction of MHA shall be binding on the licensee.

(viii) The Company shall not transfer the following to any person/place outside India:-

(a) Any accounting information relating to subscriber (except for international roaming/billing) (Note: it does not restrict a statutorily required disclosure of financial nature); and

(b) User information (except pertaining to foreign subscribers using Indian Operator‘s network while roaming).

(ix) The Company must provide traceable identity of their subscribers. However, in case of providing service to roaming subscriber of foreign Companies, the Indian Company shall endeavour to obtain traceable identity of roaming subscribers from the foreign company as a part of its roaming agreement.

(x) On request of the licensor or any other agency authorised by the licensor, the telecom service provider should be able to provide the geographical location of any subscriber (BTS location) at a given point of time.

(xi) The Remote Access (RA) to Network would be provided only to approved location(s) abroad through approved location(s) in India. The approval for location(s) would be given by the Licensor (DOT) in consultation with the Ministry of Home Affairs.

(xii) Under no circumstances, should any RA to the suppliers/manufacturers and affiliate(s) be enabled to access Lawful Interception System(LIS), Lawful Interception Monitoring(LIM), Call contents of the traffic and any such sensitive sector/data, which the licensor may notify from time to time.

(xiii) The licensee company is not allowed to use remote access facility for monitoring of content.

(xiv) Suitable technical device should be made available at Indian end to the designated security agency /licensor in which a mirror image of the remote access information is available on line for monitoring purposes.

(xv) Complete audit trail of the remote access activities pertaining to the network operated in India should be maintained for a period of six months and provided on request to the licensor or any other agency authorised by the licensor.

(xvi) The telecom service providers should ensure that necessary provision (hardware/software) is available in their equipment for doing the Lawful interception and monitoring from a centralized location.

(xvii) The telecom service providers should familiarize/train Vigilance Technical Monitoring (VTM)/security agency officers/officials in respect of relevant operations/features of their systems.

(xviii) It shall be open to the licensor to restrict the Licensee Company from operating in any sensitive area from the National Security angle.

(xix) In order to maintain the privacy of voice and data, monitoring shall only be upon authorisation by the Union Home Secretary or Home Secretaries of the States/Union Territories.

(xx) For monitoring traffic, the licensee company shall provide access of their network and other facilities as well as to books of accounts to the security agencies.

(xxi) The aforesaid Security Conditions shall be applicable to all the licensee companies operating telecom services covered under this circular irrespective of the level of FDI.

(xxii) Other Service Providers (OSPs), providing services like Call Centres, Business Process Outsourcing (BPO), tele-marketing, tele-education, etc, and are registered with DoT as OSP. Such OSPs operate the service using the telecom infrastructure provided by licensed telecom service providers and 100% FDI is permitted for OSPs. As the security conditions are applicable to all licensed telecom service providers, the security conditions mentioned above shall not be separately enforced on OSPs.

(3) The above General Conditions and Security Conditions shall also be applicable to the companies operating telecom service(s) with the FDI cap of 49%.

(4) All the telecom service providers shall submit a compliance report on the aforesaid conditions to the licensor on 1st day of July and January on six monthly basis.

(a) FDI in ISP with gateways is allowed upto 74% where FDI upto 49% would be through automatic route and FDI beyond 49% but upto 74% would be through government approval route.

(b) FDI in ISP‘s not providing gateways i.e. without gate-ways (both for satellite and marine cables) would be allowed upto 74% where FDI upto 49% would be through automatic route and FDI beyond 49% but upto 74% would be through government approval route.

The new guidelines of August 24, 2007 Department of Telecommunications provide for new ISP licenses with FDI up to 74%.

(c) Radio paging

(d) End-to-End bandwidth

(a) FDI for infrastructure providers providing dark fiber, right of way, duct space, tower (IP Category I) is allowed upto 100% where FDI upto 49% would be through automatic route and FDI beyond 49% shall be through government approval route.

(b) Electronic Mail

(c) Voice Mail

Investment in all the above activities is subject to the conditions that such companies will divest 26% of their equity in favour of Indian public in 5 years, if these companies are listed in other parts of the world.

FDI In Satellites And Private Security Agencies Sectors 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,

(9) FDI in mining sector of India under consolidated FDI policy of India 2012,

(10) FDI in petroleum and natural gas sector of India under consolidated FDI policy of India 2012

(11) FDI in micro and small enterprises (MSEs) sector of India under consolidated FDI policy of India 2012

(12) FDI in defence sector of India under consolidated FDI policy of India 2012

(13) FDI in broadcasting sector of India under consolidated FDI policy of India 2012

(14) FDI in print media sector of India under consolidated FDI policy of India 2012

(15) FDI in civil aviation sector of India under consolidated FDI policy Of India 2012

(16) FDI in courier services sector of India under consolidated FDI policy of India 2012

(17) FDI in construction development sector of India under consolidated FDI policy of India 2012

(18) FDI in industrial parks segment of India under consolidated FDI policy of India 2012

In this article Perry4Law and Perry4Law Techno Legal Base (PTLB) would discuss the FDI limits in satellites and private security agencies sectors Of India under consolidated FDI policy of India 2012.

FDI in satellites, including their establishment and operation and subject to the sectoral guidelines of Department of Space/ISRO, is permissible upto 74% through government approval route.

Further, FDI in private security agencies is allowed upto 49 % through government approval route.

Vodafone Served Notice Upon Indian Government Over Retrospective Taxation Issue

The recent Vodafone tax case has become a bone of contention between Vodafone and Indian government. Vodafone has been maintaining that imposing a retrospective taxation liability upon it would be counter productive for the foreign direct investment (FDI) in India.

In the meantime, the Indian government has recently released the consolidated FDI policy of India 2012. It aims at strengthening the FDI regime of India. However, mere formulating a FDI policy is not sufficient. Indian government must also ensure that the FDI policies and norms are clear, unambiguous and transparent. At the same time, Indian government must also maintain a balance between FDI in India, sovereignty and international arbitration mandates.

In the latest development in Vodafone taxation issue, Vodafone has served a notice on the Indian government on its proposal to impose a retrospective tax liability. The notice has been served upon the Prime Minister’s Office, Finance Minister, Law and Justice and Communications and IT Ministries as well.

The notice alleges that the proposed Finance Bill, 2012, with its retrospective nature, violates international legal protections granted to international investors. The notice has been served by Vodafone’s Dutch subsidiary and is the first step required prior to commencement of international arbitration under the Bilateral Investment Treaty (BIT) between India and the Netherlands.

Vodafone has been contending that under the treaty the Indian government is liable to accord fair and equitable treatment to investors, provide security, not breach the legitimate expectations of investors in making investments and not deny justice or breach previously provided assurances. Let us see how Indian government would react to the same.

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.

FDI In India, Sovereignty And International Arbitration

In the past, India rejected the ratification of an international arbitration clause in its free trade agreement with the European Union. Some considered it as objectionable yet we believe that such a precaution is a must in the current scenario of uncertainties and global economic slowdowns.

Those who opposed such a move on the part of India believe that it is not an encouraging sign for foreign investments in India. They believe that foreign investors will have a fear factor while doing business with India.

The Indian government has recently released the consolidated FDI policy of India 2012. It is a combination of liberalisation, automation and government regulations. So the FDI environment of India is clear and unambiguous in nature.

The recent Vodafone tax case has raised many crucial questions regarding FDI in India, taxation regime of India, governmental policies, arbitration mandates, etc. Even Vodafone has served a notice upon Indian government declaring its intentions to start an international arbitration if retrospective tax liability is imposed upon it.

India has a tendency to take action only on eleventh hour when things are already in bad shape. This is the reason why 2G scams, Vodafone tax controversy, inadequate technology statues, etc are haunting Indian government now. For some strange reason India has always preferred a knee jerk reaction instead of a well defines policy environment with transparency and accountability.

In the present circumstances refusing to approve an arbitration clause in various free trade agreements and FDI treaties is natural. India cannot afford the agitation of various disputes at international level till it makes its own turf clear and strong.

Dispute resolution of matters pertaining to national issues and foreign relations is a sovereign function that India cannot allow to be taken away. If arbitration disputes are directly taken to international platforms/institutions this would undermine the very sovereignty of India. This fact must be clearly mentioned in the FDI policies of India and other such trade agreements.

However, in order to do so, India must make its dispute resolution machinery effective and litigant friendly. Some believe that the present dispute resolution mechanisms of India, whether courts or arbitration, are in a very poor state of condition. Technological innovations like e-courts and online dispute resolution (ODR) are seldom used in India. They must be frequently used by India.

The arbitration law of India is outdated and needs urgent amendment. If India is really serious about FDI it must improve the business doing environment and effective dispute resolution policy. But allowing disputes to be taken to international institutions is the last option that India must exercise even if it means loosing the valuable FDI.

In the ultimate analysis, if there is a choice between sovereignty and FDI/FTA, all countries would choose the former. So we have to invent a formula that does not touch either. This can be done by improving the decaying legal, arbitration and judicial system of India rather than allowing the matters to be taken out of India for settlement.

FDI In Industrial Parks Segment 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,

(9) FDI in mining sector of India under consolidated FDI policy of India 2012,

(10) FDI in petroleum and natural gas sector of India under consolidated FDI policy of India 2012

(11) FDI in micro and small enterprises (MSEs) sector of India under consolidated FDI policy of India 2012

(12) FDI in defence sector of India under consolidated FDI policy of India 2012

(13) FDI in broadcasting sector of India under consolidated FDI policy of India 2012

(14) FDI in print media sector of India under consolidated FDI policy of India 2012

(15) FDI in civil aviation sector of India under consolidated FDI policy Of India 2012

(16) FDI in courier services sector of India under consolidated FDI policy of India 2012

(17) FDI in construction development sector of India under consolidated FDI policy of India 2012

In this article Perry4Law and Perry4Law Techno Legal Base (PTLB) would discuss the FDI in Industrial Parks sector of India under consolidated FDI policy of India 2012. FDI in industrial parks, new and existing, is allowed upto 100% through automatic route.

(i) Industrial Park is a project in which quality infrastructure in the form of plots of developed land or built up space or a combination with common facilities, is developed and made available to all the allottee units for the purposes of industrial activity.

(ii) Infrastructure refers to facilities required for functioning of units located in the Industrial Park and includes roads (including approach roads), water supply and sewerage, common effluent treatment facility, telecom network, generation and distribution of power, air conditioning.

(iii) Common Facilities refer to the facilities available for all the units located in the industrial park, and include facilities of power, roads (including approach roads), water supply and sewerage, common effluent treatment, common testing, telecom services, air conditioning, common facility buildings, industrial canteens, convention/conference halls, parking, travel desks, security service, first aid center, ambulance and other safety services, training facilities and such other facilities meant for common use of the units located in the Industrial Park.

(iv) Allocable area in the Industrial Park means-

(a) In the case of plots of developed land- the net site area available for allocation to the units, excluding the area for common facilities.

(b) In the case of built up space- the floor area and built up space utilized for providing common facilities.

(c) In the case of a combination of developed land and built-up space- the net site and floor area available for allocation to the units excluding the site area and built up space utilized for providing common facilities.

(v) Industrial Activity means manufacturing; electricity; gas and water supply; post and telecommunications; software publishing, consultancy and supply; data processing, database activities and distribution of electronic content; other computer related activities; basic and applied R&D on bio-technology, pharmaceutical sciences/life sciences, natural sciences and engineering; business and management consultancy activities; and architectural, engineering and other technical activities.

FDI in Industrial Parks would not be subject to the conditionalities applicable for construction development projects etc. provided the Industrial Parks meet with the under-mentioned conditions:

(i) It would comprise of a minimum of 10 units and no single unit shall occupy more than 50% of the allocable area;

(ii) The minimum percentage of the area to be allocated for industrial activity shall not be less than 66% of the total allocable area.

FDI In Construction Development 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,

(9) FDI in mining sector of India under consolidated FDI policy of India 2012,

(10) FDI in petroleum and natural gas sector of India under consolidated FDI policy of India 2012

(11) FDI in micro and small enterprises (MSEs) sector of India under consolidated FDI policy of India 2012

(12) FDI in defence sector of India under consolidated FDI policy of India 2012

(13) FDI in broadcasting sector of India under consolidated FDI policy of India 2012

(14) FDI in print media sector of India under consolidated FDI policy of India 2012

(15) FDI in civil aviation sector of India under consolidated FDI policy Of India 2012

(16) FDI in courier services sector of India under consolidated FDI policy of India 2012

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

FDI in Townships, housing, built-up infrastructure and construction-development projects (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure) would be allowed upto 100% through automatic approval route.

Investment will be subject to the following conditions:

(1) Minimum area to be developed under each project would be as under:

(i) In case of development of serviced housing plots, a minimum land area of 10 hectares

(ii) In case of construction-development projects, a minimum built-up area of 50,000 sq.mts.

(iii) In case of a combination project, any one of the above two conditions would suffice.

(2) Minimum capitalization of US$10 million for wholly owned subsidiaries and US$ 5 million for joint ventures with Indian partners. The funds would have to be brought in within six months of commencement of business of the Company.

(3) Original investment cannot be repatriated before a period of three years from completion of minimum capitalization. Original investment means the entire amount brought in as FDI. The lock-in period of three years will be applied from the date of receipt of each installment/tranche of FDI or from the date of completion of minimum capitalization, whichever is later. However, the investor may be permitted to exit earlier with prior approval of the Government through the FIPB.

(4) At least 50% of each such project must be developed within a period of five years from the date of obtaining all statutory clearances. The investor/investee company would not be permitted to sell undeveloped plots. For the purpose of these guidelines, undeveloped plots will mean where roads, water supply, street lighting, drainage, sewerage, and other conveniences, as applicable under prescribed regulations, have not been made available. It will be necessary that the investor provides this infrastructure and obtains the completion certificate from the concerned local body/service agency before he would be allowed to dispose of serviced housing plots.

(5) The project shall conform to the norms and standards, including land use requirements and provision of community amenities and common facilities, as laid down in the applicable building control regulations, bye-laws, rules, and other regulations of the State Government/Municipal/Local Body concerned.

(6) The investor/investee company shall be responsible for obtaining all necessary approvals, including those of the building/layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of development, external development and other charges and complying with all other requirements as prescribed under applicable rules/bye-laws/regulations of the State Government/ Municipal/Local Body concerned.

(7) The State Government/ Municipal/ Local Body concerned, which approves the building / development plans, would monitor compliance of the above conditions by the developer.

The conditions at (1) to (4) above would not apply to Hotels and Tourism, Hospitals, Special Economic Zones (SEZs), Education Sector, Old age Homes and investment by NRIs. Further, FDI is not allowed in Real Estate Business.

FDI In Courier Services 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,

(9) FDI in mining sector of India under consolidated FDI policy of India 2012,

(10) FDI in petroleum and natural gas sector of India under consolidated FDI policy of India 2012

(11) FDI in micro and small enterprises (MSEs) sector of India under consolidated FDI policy of India 2012

(12) FDI in defence sector of India under consolidated FDI policy of India 2012

(13) FDI in broadcasting sector of India under consolidated FDI policy of India 2012

(14) FDI in print media sector of India under consolidated FDI policy of India 2012

(15) FDI in civil aviation sector of India under consolidated FDI policy Of India 2012

In this article Perry4Law and Perry4Law Techno Legal Base (PTLB) would discuss the FDI in courier services sector of India under consolidated FDI policy of India 2012. FDI in courier services for carrying packages, parcels and other items which do not come within the ambit of the Indian Post Office Act, 1898 and excluding the activity relating to the distribution of letters would be allowed upto 100% through government approval route.

India Expecting A Data Secure Nation Status From European Union

European Union (EU) is well known for its robust and stringent privacy laws and data protection regime. Naturally, EU also expects those dealing with it to follow similar privacy and data protection norms, especially those pertaining to commercial and outsourcing activities.

We have no dedicated data protection laws in India, privacy law in India, data privacy laws in India, etc. There is no second opinion that we need data protection laws in India, privacy rights and laws in India, etc. This is more so in the present information and communication technology (ICT) driven environment in which India is flourishing. Thus, privacy rights in India in the information age needs special attention of Indian government. As on date, privacy rights, privacy laws and data protection laws in India are not in good shape.

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.

This apathy on the part of Indian government and parliament of India is resulting in loss of commercial business opportunities for India. European Union is not allowing sophisticated outsourcing business to India due to absence of privacy, data protection and data security framework in India. In fact, EU has been treating India as a non-data secure country.

EU is reluctant in sending sensitive data, such as patient information for telemedicine, to India under data protection laws in the EU. Although there is an exception to this directive that allows outsourcing to non-data secure countries by adhering to standard contractual clauses that place strict obligations on both parties to ensure privacy of data, yet these are onerous and considered as disincentive for business.

As a result, much of the outsourcing work coming to India is low-end and data processing work. The sophisticated and high end outsourced work in the field of health, clinical research, engineering design and intellectual property rights is very less in India. This situation cannot improve till India is treated as a data secure country by EU.

India has now demanded that the EU lift restrictions on flow of sophisticated outsourcing business to India by designating it as a data secure country. Let us see how EU would respond to this request of India.

FDI In Civil Aviation 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,

(9) FDI in mining sector of India under consolidated FDI policy of India 2012,

(10) FDI in petroleum and natural gas sector of India under consolidated FDI policy of India 2012

(11) FDI in micro and small enterprises (MSEs) sector of India under consolidated FDI policy of India 2012

(12) FDI in defence sector of India under consolidated FDI policy of India 2012

(13) FDI in broadcasting sector of India under consolidated FDI policy of India 2012

(14) FDI in print media sector of India under consolidated FDI policy of India 2012

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

The Civil Aviation sector includes Airports, Scheduled and Non-Scheduled domestic passenger airlines, Helicopter services / Seaplane services, Ground Handling Services, Maintenance and Repair organizations; Flying training institutes; and Technical training institutions.

For the purposes of the Civil Aviation sector:

(i) Airport means a landing and taking off area for aircrafts, usually with runways and aircraft maintenance and passenger facilities and includes aerodrome as defined in clause (2) of section 2 of the Aircraft Act, 1934;

(ii) Aerodrome means any definite or limited ground or water area intended to be used, either wholly or in part, for the landing or departure of aircraft, and includes all buildings, sheds, vessels, piers and other structures thereon or pertaining thereto;

(iii) Air transport service means a service for the transport by air of persons, mails or any other thing, animate or inanimate, for any kind of remuneration whatsoever, whether such service consists of a single flight or series of flights;

(iv) Air Transport Undertaking means an undertaking whose business includes the carriage by air of passengers or cargo for hire or reward;

(v) Aircraft component means any part, the soundness and correct functioning of which, when fitted to an aircraft, is essential to the continued airworthiness or safety of the aircraft and includes any item of equipment;

(vi) Helicopter means a heavier-than -air aircraft supported in flight by the reactions of the air on one or more power driven rotors on substantially vertical axis;

(vii) Scheduled air transport service means an air transport service undertaken between the same two or more places and operated according to a published time table or with flights so regular or frequent that they constitute a recognizably systematic series, each flight being open to use by members of the public;

(viii) Non-Scheduled Air Transport service means any service which is not a scheduled air transport service and will include Cargo airlines;

(ix) Cargo airlines would mean such airlines which meet the conditions as given in the Civil Aviation Requirements issued by the Ministry of Civil Aviation;

(x) Seaplane means an aeroplane capable normally of taking off from and alighting solely on water;

(xi) Ground Handling means (i) ramp handling , (ii) traffic handling both of which shall include the activities as specified by the Ministry of Civil Aviation through the Aeronautical Information Circulars from time to time, and (iii) any other activity specified by the Central Government to be a part of either ramp handling or traffic handling.

FDI in Airports is allowed in the following categories:

(a) Greenfield projects: FDI is allowed up to 100% through automatic route.

(b) Existing projects: FDI is allowed upto 100% where FDI upto 74% is allowed through automatic route and beyond 74% FDI is allowed through government approval route.

Regarding Air Transport Services:

(a) Air Transport Services would include Domestic Scheduled Passenger Airlines; Non-Scheduled Air Transport Services, helicopter and seaplane services.

(b) No foreign airlines would be allowed to participate directly or indirectly in the equity of an Air Transport Undertaking engaged in operating Scheduled and Non-Scheduled Air Transport Services except Cargo airlines.

(c) Foreign airlines are allowed to participate in the equity of companies operating Cargo airlines, helicopter and seaplane services.

FDI in Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline is allowed upto 49% (100% for NRIs) through automatic route. FDI in Non-Scheduled Air Transport Service is allowed upto 74% (100% for NRIs) where upto 49% is allowed through automatic route and beyond 49% and upto 74% through government approval route.

FDI in Helicopter services/seaplane services requiring DGCA approval is allowed upto 100% through automatic route.

Other services under Civil Aviation sector are as follows:

(1) FDI in Ground Handling Services subject to sectoral regulations and security clearance is allowed upto 74% (100% for NRIs) where upto 46% can be through automatic route and beyond 49% but upto 74% can be made through government approval route.

(2) FDI in Maintenance and Repair organizations; flying training institutes; and technical training institutions is allowed upto 100% through automatic approval route.

FDI In Print Media 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,

(9) FDI in mining sector of India under consolidated FDI policy of India 2012,

(10) FDI in petroleum and natural gas sector of India under consolidated FDI policy of India 2012

(11) FDI in micro and small enterprises (MSEs) sector of India under consolidated FDI policy of India 2012

(12) FDI in defence sector of India under consolidated FDI policy of India 2012

(13) FDI in broadcasting sector of India 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 print media sector of India under consolidated FDI policy of India 2012.

FDI in publishing of newspaper and periodicals dealing with news and current affairs is allowed upto 26% (FDI and investment by NRIs/PIOs/FII) through government approval route.

FDI in publication of Indian editions of foreign magazines dealing with news and current affairs is allowed upto 26% (FDI and investment by NRIs/PIOs/FII) through government approval route.

The following is also worth considering in this regard:

(i) Magazine, for the purpose of these guidelines, will be defined as a periodical publication, brought out on non-daily basis, containing public news or comments on public news.

(ii) Foreign investment would also be subject to the Guidelines for Publication of Indian editions of foreign magazines dealing with news and current affairs issued by the Ministry of Information & Broadcasting on 4.12.2008.

FDI in publishing/printing of Scientific and Technical Magazines/specialty journals/ periodicals, subject to compliance with the legal framework as applicable and guidelines issued in this regard from time to time by Ministry of Information and Broadcasting, is allowed upto 100% through government approval route.

FDI in publication of facsimile edition of foreign newspapers is allowed upto 100% through government approval route.

The following conditions must also be satisfied in this regard:

(i) FDI should be made by the owner of the original foreign newspapers whose facsimile edition is proposed to be brought out in India.

(ii) Publication of facsimile edition of foreign newspapers can be undertaken only by an entity incorporated or registered in India under the provisions of the Companies Act, 1956.

(iii) Publication of facsimile edition of foreign newspaper would also be subject to the Guidelines for publication of newspapers and periodicals dealing with news and current affairs and publication of facsimile edition of foreign newspapers issued by Ministry of Information & Broadcasting on 31.3.2006, as amended from time to time.

FDI In Broadcasting 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,

(9) FDI in mining sector of India under consolidated FDI policy of India 2012,

(10) FDI in petroleum and natural gas sector of India under consolidated FDI policy of India 2012

(11) FDI in micro and small enterprises (MSEs) sector of India under consolidated FDI policy of India 2012

(12) FDI in defence sector of India 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 broadcasting sector of India under consolidated FDI policy of India 2012.

FDI in terrestrial broadcasting FM (FM Radio) subject to such terms and conditions as specified from time to time by Ministry of Information and Broadcasting for grant of permission for setting up of FM Radio Stations would be allowed up to 26% (FDI, NRI & PIO investments and portfolio investment) through government approval route.

FDI in Cable Network, subject to Cable Television Network Rules, 1994 and other conditions as specified from time to time by Ministry of Information and Broadcasting would be allowed up to 49% (FDI, NRI & PIO investments and portfolio investment) through government approval route.

FDI in Direct–to-Home subject to such guidelines/terms and conditions as specified from time to time by Ministry of Information and Broadcasting would be allowed up to 49% (FDI, NRI & PIO investments and portfolio investment) (Within this limit, FDI component not to exceed 20%) with government approval route.

Headend-In-The-Sky (HITS) Broadcasting Service refers to the multichannel downlinking and distribution of television programme in C-Band or Ku Band wherein all the pay channels are downlinked at a central facility (Hub/teleport) and again uplinked to a satellite after encryption of channel. At the cable headend these encrypted pay channels are downlinked using a single satellite antenna, transmodulated and sent to the subscribers by using a land based transmission system comprising of infrastructure of cable/optical fibres network.

FDI limit in (HITS) Broadcasting Service is subject to such guidelines/terms and conditions as specified from time to time by Ministry of Information and Broadcasting. FDI is allowed up to 74% (total direct and indirect foreign investment including portfolio and FDI) where FDI up to 49% would be through automatic route and beyond 49% but up to 74% it would be allowed through government approval route.

For setting up of Up-linking HUB/ Teleports FDI would be allowed up to 49% (FDI & FII) with government approval route. For Up-linking a Non-News and Current Affairs TV Channel FDI would be allowed up to 100% through government approval route. For Up-linking a News and Current Affairs TV Channel subject to the condition that the portfolio investment from FII/ NRI shall not be ―persons acting in concert with FDI investors, as defined in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, FDI would be allowed up to 26% (FDI & FII) through government approval route.

The following conditions must also be satisfied:

(i) All the activities mentioned above will be further subject to the condition that the Company permitted to uplink the channel shall certify the continued compliance of this requirement through the Company Secretary at the end of each financial year.

(ii) FDI for Up-linking TV Channels will be subject to compliance with the Up-linking Policy notified by the Ministry of Information and Broadcasting from time to time.

FDI In Defence 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,

(9) FDI in mining sector of India under consolidated FDI policy of India 2012,

(10) FDI in petroleum and natural gas sector of India under consolidated FDI policy of India 2012

(11) FDI in micro and small enterprises (MSEs) sector of India 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 defence sector of India under consolidated FDI policy of India 2012.

FDI in defence industry subject to Industrial license under the Industries (Development and Regulation) Act 1951 would be allowed up to 26% through government approval route.

The following conditions must be satisfied in this regard:

(i) Licence applications will be considered and licences given by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, in consultation with Ministry of Defence.

(ii) The applicant should be an Indian company / partnership firm.

(iii) The management of the applicant company / partnership should be in Indian hands with majority representation on the Board as well as the Chief Executives of the company / partnership firm being resident Indians.

(iv) Full particulars of the Directors and the Chief Executives should be furnished along with the applications.

(v) The Government reserves the right to verify the antecedents of the foreign collaborators and domestic promoters including their financial standing and credentials in the world market. Preference would be given to original equipment manufacturers or design establishments, and companies having a good track record of past supplies to Armed Forces, Space and Atomic energy sections and having an established R & D base.

(vi) There would be no minimum capitalization for the FDI. A proper assessment, however, needs to be done by the management of the applicant company depending upon the product and the technology. The licensing authority would satisfy itself about the adequacy of the net worth of the non-resident investor taking into account the category of weapons and equipment that are proposed to be manufactured.

(vii) There would be a three-year lock-in period for transfer of equity from one non-resident investor to another non-resident investor (including NRIs & erstwhile OCBs with 60% or more NRI stake) and such transfer would be subject to prior approval of the Government.

(viii) The Ministry of Defence is not in a position to give purchase guarantee for products to be manufactured. However, the planned acquisition programme for such equipment and overall requirements would be made available to the extent possible.

(ix) The capacity norms for production will be provided in the licence based on the application as well as the recommendations of the Ministry of Defence, which will look into existing capacities of similar and allied products.

(x) Import of equipment for pre-production activity including development of prototype by the applicant company would be permitted.

(xi) Adequate safety and security procedures would need to be put in place by the licensee once the licence is granted and production commences. These would be subject to verification by authorized Government agencies.

(xii) The standards and testing procedures for equipment to be produced under licence from foreign collaborators or from indigenous R & D will have to be provided by the licensee to the Government nominated quality assurance agency under appropriate confidentiality clause. The nominated quality assurance agency would inspect the finished product and would conduct surveillance and audit of the Quality Assurance Procedures of the licensee. Self-certification would be permitted by the Ministry of Defence on case to case basis, which may involve either individual items, or group of items manufactured by the licensee. Such permission would be for a fixed period and subject to renewals.

(xiii) Purchase preference and price preference may be given to the Public Sector organizations as per guidelines of the Department of Public Enterprises.

(xiv) Arms and ammunition produced by the private manufacturers will be primarily sold to the Ministry of Defence. These items may also be sold to other Government entities under the control of the Ministry of Home Affairs and State Governments with the prior approval of the Ministry of Defence. No such item should be sold within the country to any other person or entity. The export of manufactured items would be subject to policy and guidelines as applicable to Ordnance Factories and Defence Public Sector Undertakings. Non-lethal items would be permitted for sale to persons / entities other than the Central of State Governments with the prior approval of the Ministry of Defence. Licensee would also need to institute a verifiable system of removal of all goods out of their factories. Violation of these provisions may lead to cancellation of the licence.

(xv) Government decision on applications to FIPB for FDI in defence industry sector will be normally communicated within a time frame of 10 weeks from the date of acknowledgement.

FDI In Micro and Small Enterprises (MSEs) 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,

(9) FDI in mining sector of India under consolidated FDI policy of India 2012,

(10) FDI in petroleum and natural gas sector of India 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 manufacture of items reserved for production in Micro and Small Enterprises (MSEs) of India under consolidated FDI policy of India 2012.

FDI in MSEs (as defined under Micro, Small And Meduim Enterprises Development Act, 2006 (MSMED, Act 2006)) will be subject to the sectoral caps, entry routes and other relevant sectoral regulations.

Any industrial undertaking which is not a Micro or Small Scale Enterprise, but manufactures items reserved for the MSE sector would require Government route where foreign investment is more than 24% in the capital. Such an undertaking would also require an Industrial License under the Industries (Development & Regulation) Act 1951, for such manufacture. The issue of Industrial License is subject to a few general conditions and the specific condition that the Industrial Undertaking shall undertake to export a minimum of 50% of the new or additional annual production of the MSE reserved items to be achieved within a maximum period of three years. The export obligation would be applicable from the date of commencement of commercial production and in accordance with the provisions of section 11 of the Industries (Development & Regulation) Act 1951.

FDI In Petroleum And Natural Gas 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,

(9) FDI in mining sector of India 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 petroleum and natural gas sector of India under consolidated FDI policy of India 2012.

FDI in exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas, marketing of natural gas and petroleum products, petroleum product pipelines, natural gas/pipelines, LNG Regasification infrastructure, market study and formulation and Petroleum refining in the private sector, subject to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the Government on private participation in exploration of oil and the discovered fields of national oil companies would be allowed upto 100% through automatic route.

FDI in petroleum refining by the Public Sector Undertakings (PSU), without any disinvestment or dilution of domestic equity in the existing PSUs, would be allowed upto 49% through government approval route.

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.

Legal Formalities Required For Starting E-Commerce Business In India

E-commerce laws and regulations in India are still evolving. This has created a sort of confusion and uncertainty among e-commerce entrepreneurs in India. While some have opened e-commerce outlets through websites others are exploring a more appropriate and legal way of running an e-commerce business in India.

Legal issues of e-commerce in India vary as per different business models. For instance, electronic trading of medical drugs in India requires more stringent e-commerce and legal compliances as compared to other e-commerce activities. Digital communication channels for drugs and healthcare products in India are scrutinised more aggressively than other e-commerce activities. In fact, regulatory and legislative measures to check online pharmacies trading in banned drugs in India are already in pipeline.

Besides there are many legal formalities that are required in order to start a company and e-commerce activity in India. A business can be operated as:

(1) Sole Proprietorship.

(2) Partnership.

(3) Company – Public/Private.

(4) Limited Liability Partnerships (LLP).

Mostly people decide to open a private company to substantiate an e-commerce activity and this article would cover that aspect alone. To incorporate a private limited company you must approve its name, registered office address, have at least 2 directors with director identification numbers (DINs), must have a minimum authorised capital of Rs. 1 Lakh, memorandum of association (MOA) and articles of association (AOA), digital signature certificates (DSCs) wherever applicable, etc. Once these conditions and requirements are fulfilled, a certificate of incorporation is sent by post to the registered office of the newly registered company.

The private limited company is also required to comply with income tax related compliances. These include obtaining permanent account number (PAN), tax deduction account number (TAN), value added tax (VAT) registration and obtaining of tax identification number (TIN), professional tax if applicable, service tax, etc.

In certain cases, compliance with labour laws is also required. For instance, the Shops and Establishment Act is a legislation implemented by various States in India. The Act lays down mutual statutory obligation and rights of employers and employees. Registration of shop/establishment is mandatory within 30 days of commencement of work. Other workmen and labour related legislations cover areas like employees provident fund, employees state insurance, etc.

However, e-commerce in India is also required to be conducted in a legally permissible manner. This is more so when the information technology act 2000 (IT Act 2000) prescribes stringent penal and pecuniary penalties for violation of its provisions during e-commerce transactions.

The e-commerce players must ensure cyber law due diligence in India. This is more so when the cyber law due diligence for companies in India has become very stringent and foreign companies and websites are frequently prosecuted in India for non exercise of cyber due diligence.

The legal requirements for undertaking e-commerce in India also involve compliance with other laws like contract law, Indian penal code, etc. Further, online shopping in India also involves compliance with the banking and financial norms applicable in India. For instance, take the example of PayPal in this regard. If PayPal has to allow online payments receipt and disbursements for its existing or proposed e-commerce activities, it has to take a license from Reserve Bank of India (RBI) in this regard. Further, cyber due diligence for Paypal and other online payment transferors in India is also required to be observed.

Perry4Law and Perry4Law Techno Legal Base (PTLB) wish all the best to all e-commerce players in India and abroad.

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.