Posted on: July 2, 2020 Posted by: Rugveda Satbhai Comments: 0
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Legal System 

Many business laws in India precede the country’s independence in 1947. For example, the Indian Contract Act of 1872 is still in force, although specific contracts such as partnerships and the sale of goods are now covered by newer laws. The Partnership Act of 1932 covers partnership firms in India. Business laws regulating chartered accountants and cost accountants were passed in 1949 and 1959, respectively. The Banking Regulation Act of 1949 continues to regulate private banking companies and manage banks in India. In 2012, it was amended by the Banking Law (Amendments) Act. Under these amendments, the Reserve Bank of India (RBI) was given the power to restrict voting rights and share acquisition in a bank. The RBI established the Depositor Education and Awareness Fund. Banks are now able to issue both equity and preference shares under RBI guidelines.

While India is often criticized for complex regulations, it is important to keep in mind that in some cases, these laws are simpler than those of other countries like the U.S. Furthermore, most regulations are consistent across the country, and attorneys in India can practice in any state. Filing a lawsuit is seldom productive in most commercial disputes since court cases can drag on for decades and collection can take even longer. For large deals, binding third-country arbitration can be the best way to resolve disputes.

Following India’s economic development in the 21st century, the Ministry of Corporate Affairs passed the Competition Act of 2002 and the Limited Liability Act in 2008. These promote sustainable competition in markets, prohibit anti-competitive business practices, and protect consumer interests while ensuring free trade.

The Parliament of India passes and amends the regulations for both businesses and investors. In addition to provisions from the Companies Act of 1956, the Companies Act of 2013 features provisions regarding mergers and acquisitions, board room decision-making, related party transactions, corporate social responsibility, and shareholding. The act was further amended through the Companies Act of 2015 which eliminated the procedural common seal, declarations for the commencement of businesses, and minimum paid-up capital requirements. The amendment also relaxed governing-related party transactions while limiting access to strategic corporate resolutions in India.

As a member of the International Labour Organization, India offers protections for employees. These include the Payment of Wages Act of 1936, the Industrial Employment Act of 1946, the Industrial Disputes Act of 1947, the Payment of Bonus Act of 1965, and the Payment of Gratuity Act of 1972. Protections include annual bonuses of 8.33% and separation fees of about 15 days per year of employment. Other labour laws such as the Building and Other Construction Workers Acts of 1996 and the Workmen’s Compensation Act of 1923 (amended in 2000) are in effect. Passed in 1926, the Trade Unions Act deals with the registration, rights, liabilities, and responsibilities of trade unions. The Industrial Disputes Act of 1946 regulates trade unions and matters between industrial employers and employees.

Business laws in India include consumer protection. The Consumer Protection Act, 1986 mandates Consumer Dispute Redressal Forums at local and national levels. Older laws, such as the Standards of Weights & Measures Act of 1956, ensure fair competition in the market and free flow of correct information from providers of goods and services to consumers.

Due to the growth of trade, the Indian government promised stability and predictability, with a view to boost investor confidence and promote greater Foreign Direct Investment (FDI). Further to its promise to maintain a business-friendly regulatory environment, the government in its initial round of policy changes, liberalised the FDI regime to allow FDI in railways and defence, followed by labour reforms, complete deregulation of diesel prices and a further easing of FDI rules in construction.

The Foreign Trade (Development and Regulation) Act of 1992 was passed to facilitate imports and augment exports. The latest EXIM Policy, known as the Foreign Trade Policy, was issued for April 2015 to March 2020. The Service Exports from India Scheme (SEIS) replaced the Served from India Scheme. The SEIS extends the duty-exempted scrip to Indian service providers and provides notified services in a specified mode outside the country. Under the Export Promotion Capital Goods Scheme, the export obligation requires six times the duty saved on imported capital goods; in the case of local sourcing of capital goods, the export obligation is reduced by 25%. Beyond goods and services, the Foreign Exchange Management Act of 1999 regulates foreign exchange transactions including investments abroad.

The incentives provided for foreign investors and grants allowed to investors vary depending on the sector, geographic areas, and are commonly in the form of tax concessions. To encourage exports, the foreign trade policy of India enlists various schemes, such as export-oriented units, electronics hardware technology parks, software technology parks, biotechnology parks and special economic zones (SEZ), which provide for exemptions in respect of tax, import and export duties and restrictions on investments.

As a founding member of the World Trade Organization in 1995, India has updated business laws regarding copyrights, patents, and trademarks to meet the Agreement on Trade-related Aspects of Intellectual Property Rights. Indian companies and the federal government honour the global IP rights. However, because music copyrights are different in India, both Indian and Western IP owners in the entertainment industry have suffered due to digital piracy. Even so, there are few IP-related disputes outside of several celebrated pharmaceutical industry cases. In 2013, India’s Supreme Court denied Novartis an extension to update its cancer drug Glivec due to “evergreening” charges.

E-commerce and online expansion of companies prompted India to create regulations to cover cyber law and security compliances, such as the techno legal regulatory provisions in the Companies Act of 2013. The Information Technology Act of 2000 is the primary law for e-commerce regulation in India. In 2008, the IT Act was amended to provide explicit legal recognition of electronic transactions.

The Government of India enacted the Competition Act 2002, to replace the Monopolies and Restrictive Trade Practices Act 1969, which governs the restrictive agreements and practices. Unlike its predecessor that aimed at curbing monopolies, the Competition Act aims at promoting competition. It contains specific provisions on anti-competitive agreements, the abuse of dominant positions and mergers, amalgamations, and takeovers. The Competition Commission of India (CCI) has been established to monitor, regulate, control, and adjudicate anti-competitive agreements, abuse of dominant position, and combinations.

The enactment of the Insolvency and Bankruptcy Code, 2016 which facilitates the faster resolution of insolvency proceedings related to companies and individuals. It aims to complete the insolvency resolution process within 180 days from commencement. If the insolvency cannot be resolved within this time, the assets of the borrowers may be sold to repay creditors. The insolvency resolution processes will be conducted by licensed insolvency professionals who must be members of insolvency professional agencies (IPAs). An Insolvency and Bankruptcy Board of India has been set up to regulate the functioning of insolvency professionals and IPAs.

Regulating Authorities and Business Organisations

Reserve Bank of India (RBI) (website: www.rbi.org.in)

The RBI regulates the inward and outward remittance of currency from India. It regulates transactions involving the issue of shares to a non-resident and the transfer of shares between a resident and a non-resident.

Ministry of Commerce and Industry (Department of Industrial Policy and Promotion (DIPP)) (website: www.dipp.nic.in)

The DIPP formulates FDI policy and prescribes the sectoral caps on foreign investment into an Indian company. It also operates an online portal (www.ebiz.gov.in) to facilitate, among other things, the following government to business services:

  • Reporting of foreign remittances.
  • Applications for environmental clearance.
  • Reporting about foreign investment in India.

Foreign Investment Promotion Board (FIPB) (website: http://fipb.gov.in)

The FIPB processes FDI applications in relation to foreign investment in sectors that are under the approval route. However, the government has proposed to abolish the FIPB in 2017 or 2018.

Ministry of Corporate Affairs (MCA) (website: www.mca.gov.in)

The MCA is responsible for administering, among other things, the Companies Act 2013 and the Limited Liability Partnership Act 2008. The online portal of MCA facilitates the compliance filings to be made by a company and an LLP including incorporation-related form filings, annual returns, and so on.

Securities and Exchange Board of India (SEBI) (website: www.sebi.gov.in)

SEBI is the regulator for the securities market of India. Activities such as the public issuance of shares and the trading of shares by listed public companies are governed by SEBI.

Rugveda Satbhai
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