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Doing Business in India | Warsaw | Poland | 24 April 2018

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Doing business and investing in India can seem like a bewildering experience for new market entrants. IndusLaw helped Polish businesses see the wood for the trees during a workshop in Warsaw last week, with Ran Chakrabarti flagging some of the big picture issues

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Doing Business in India | Warsaw | Poland | 24 April 2018

  1. 1. Doing Business in India An Overview Ran Chakrabarti | Warsaw | 24 April 2018
  2. 2. Overview | Structural Nuances & Structural Reforms | Business Models | Entry Options | Foreign Direct Investment | The Foreign Exchange Management Act (FEMA) | The Companies Act (2013) | Employment Law | Intellectual Property | Dispute Resolution 2
  3. 3. Structural Nuances & Structural Reforms | Quasi federal system - Center has competence over the courts and judiciary, defense, banking, institutions - States have competence over agriculture, land, trade and commerce within states | Goods & Services Tax (2016) - Unified indirect tax code: 4 rates depending on the product or service and credit for downstream inputs | Insolvency & Bankruptcy Code (2016) - Aims to put creditors in charge of distressed corporates, restructuring in a time bound manner (maximum 270 days) or insolvency and a carve up of the assets | Demonetisation (2016) - The net growth in Corporate Income Tax is 22.4 per cent and in Personal Income Tax is 8.5 per cent [businesstoday] - An increase in central indirect tax collection by about 26.2 percent and direct tax collection has increased to 14.4 percent [firstpost.com] | World Bank Ease of Doing Business 2018 - Up from 137 to 100 3
  4. 4. Business Models | Selling products in the Indian Market - Distributorship model The process of movement of products from the manufacturer to the end consumer including distributors, wholesalers and brokers - Franchising model Permission granted by a company to other firms or people to sell products or services to consumers under its name The franchisor may control various factors such as pricing & other brand related elements - Joint venture A business arrangement between two or more companies to pool their resources for the purpose of accomplishing a risk reduced mechanism in a commercial enterprise • Can be incorporated or unincorporated • Critical to clarify reserved matters, put and call exits and valuation in deadlock scenarios • Critical to allocate responsibilities and limit liabilities in unincorporated joint ventures 4
  5. 5. Business Models | Manufacturing products in India - Special Economic Zones • A geographical region with liberal economic laws, created for promoting manufacturing exports and economic development • Wide variety of special exemptions, relating to taxes, quotas, customs and labor regulations • For export only - Make in India • A national program initiated by the Government of India • designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property and build best in class manufacturing infrastructure in the country 5
  6. 6. Entry Options | As a Foreign Company - A liaison office • Limited scope of activity • A marketing face in India • Cannot trade or generate revenue in India • Must be funded entirely from the company (a profit making track record during the immediately preceding three financial years in the home country and net worth of not less than USD 50,000 or its equivalent) - A project office • Where a non-resident company has secured a contract to execute a project in India • Activities must be related to the particular project • Onetime turnkey projects • Often enter into unincorporated joint ventures with other partners 6
  7. 7. Entry Options | As a Foreign Company - Branch Office • Subject to Reserve Bank of India permission with limited scope of activities • Requires a profit making track record during the immediately preceding five financial years in the home country and a net worth of not less than USD 100,000 - Can • Export and import of goods • Professional or consultancy services, including Informational Technology and Software and technical support • Promoting technical or financial collaborations between Indian companies and parent • Representing the parent company in India, including airlines and shipping companies - Cannot • Manufacturing in India (except in an SEZ) or processing activities on its own • However, it is allowed to outsource these activities to a domestic manufacturer 7
  8. 8. Entry Options | As a Foreign Company - Offshore contractual arrangement with Indian counter-party (such as a distributor) • Simple, low cost, but depends entirely on counter-party network in the market • Consider issues relating to intellectual property relating to the product or service • Avoid setting up a permanent establishment through seconding personnel 8
  9. 9. Entry Options | As an Indian Company (subject to FDI regulations) - A wholly owned subsidiary or a majority owned company of the parent company • Maintain control • Fund through equity instruments • Companies Act (2013) and appointment of directors (one must be Indian resident) • Key directors duties - A joint venture with an Indian partner • Ideal for a business which requires leveraging Indian counter-party’s local knowledge and network in the market? • Fund through equity or transfer of intangibles (such as Intellectual Property or assets) • Shareholders agreement essential, with deadlock provisions carefully thought out 9
  10. 10. Foreign Direct Investment | Prohibited Sectors | Nuclear energy | Gambling & Betting | Lotteries | Real Estate | Tobacco products | Permitted Sectors - Automatic Route • 100 per cent Key sectors include Real Estate (Township, Housing & Built up Infra), Agriculture & Animal Husbandry, Mining & Exploration, E-Commerce, Railways Infra, Financial Services, Broadcasting Carriage Services, Greenfield Pharmaceuticals, ARC’s, Wholesale Trading and Industrial Parks Single Brand Retailing (subject to 30 per cent local sourcing rule over 5 years) and allowed to sell through e-commerce • 49 per cent Key sectors include Defence, Telecom Services, Insurance, Petroleum Refining, Banking, Infrastructure Companies, Power Exchange, Scheduled Air Transport 10
  11. 11. Foreign Direct Investment | Permitted Sectors - Approval Route • 100 per cent Key sectors include Satellites (establishment and operation), Mining & Mineral Separation, Telecom Services, Scheduled Air Transport, Publishing & Printing • 74 per cent Key sectors include Banking-Private Sector, Brownfield Pharmaceuticals, Private Security Agencies • 49 per cent Key sectors include Broadcasting Content Services • 26 per cent Key sectors include Print Media 11
  12. 12. Foreign Exchange Management Act (FEMA) | Provides the framework regulating - the inflow and outflow of foreign exchange in and out of India - the ownership of property in India by foreign entities - the transfer and issue of shares to foreigners and non-resident Indians (NRIs) - the ability of Indian companies to borrow foreign debt - the ability of Indian companies to provide guarantees and security for the indebtedness of foreign subsidiaries | DoCoMo v Tata (Delhi High Court) 12
  13. 13. Company Law | Companies Act (2013) - Key Provisions • The issue and increase of share capital • Director appointment, removal & decision making • Officer, Key Managerial Personnel, Promoter, Independent Director • Shareholder decision making on key issues • Incurring and extending loans • Providing security for indebtedness • Guarantees and security for third party indebtedness 13
  14. 14. Employment Law | Key Employment Related Issues - Minimum Wage The Minimum Wage Act, 1948 fixes the minimum wage for certain ‘scheduled employment’ categories – which is applicable to the whole of India, the minimum wages given under this Act apply to both skilled as well as unskilled laborers - Maternity Benefits The Maternity Benefits Amendment Act, 2017 regulates maternity leave entitlements and other related benefits for women employed in factories, mines and shops or commercial establishments employing 10 or more employees - Provident Fund Contributions Employee’s Provident Fund (EPF) contribution is a retirement benefit scheme that’s available to all salaried employees This fund is maintained and overseen by the Employees Provident Fund Organisation of India (EPFO) and any company with over 20 employees is required by law to register with the EPFO. - Prevention of Corruption All laws relating to the prevention of corruption are governed by The Prevention of Corruption Act,1988 and The Indian Penal Code, 1860 14
  15. 15. Intellectual Property Law | Key Intellectual Property Law Issues - Registration of your brand in Europe does not afford protection in India - Registration therefore necessary in India - Decision relating to the Toyota Prius brand The Supreme Court held that: “If goodwill or reputation in the particular jurisdiction (in India) is not established by the plaintiff, no other issue really would need any further examination to determine the extent of the plaintiff’s right in the action of passing off that it had brought against the defendants in the Delhi High Court.” - Consider whether you license your Indian subsidiary with the intellectual property, rather than transferring? - Registration of intellectual property created by a joint venture in India 15
  16. 16. Dispute Resolution | Dispute Resolution - Commercially contracting with an Indian party for goods and services • Choosing foreign law and the foreign courts limit the effectiveness of your remedy if your counterparty does not have a place of business or assets in that jurisdiction • You would have to take an award and enforce it in India against the Indian counterparty • Indian law and arbitration therefore might be a sensible choice in certain circumstances - Disputes with joint venture partners • Commonly arises through poorly structured joint venture or shareholder agreements • Must have a deadlock provision that becomes operative as soon as there is deadlock • Require the other party to buy you out, or buy them out at fair value • Fair value to be determined by a pre-appointed accountant • The McDonalds Case 16
  17. 17. BANGALORE DELHI 101, 1st Floor, “Embassy Classic” 2nd Floor, Block D, The Mira #11, Vittal Mallya Road Mathura Road, Ishwar Nagar Bangalore, 560 001 New Delhi 110 065 T: +91 80 4072 6600 T: +91 120 472 8100 E: bangalore@induslaw.com E: delhi@induslaw.com HYDERABAD MUMBAI 204, Ashoka Capitol 1002A, Tower 2, Indiabulls Financial Center Road No.2, Banjara Hills Senapati Bapat Marg, Lower Parel (W) Hyderabad, 500 034 Mumbai, 400 013 T: +91 40 4026 4624 T: +91 22 4920 7200 E: hyderabad@induslaw.com E: mumbai@induslaw.com DISCLAIMER This presentation is for information purposes only. Nothing contained herein is, purports to be, or is intended as legal advice and you should seek legal advice before you act on any information or view expressed herein. Although we have endeavored to accurately reflect the subject matter of this presentation, we make no representation or warranty, express or implied, in any manner whatsoever in connection with its contents. No recipient of this presentation should construe it as an attempt to solicit business in any manner whatsoever. Contact

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