LEGAL ENVIRONMENT FOR DOING BUSINESS IN INDIA

Uttamkumar HATHI

2nd Edition revision- 2013 December

Email: uttam@bruschambers.com
uttam.hathi@gmail.com

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LEGAL ENVIRONMENT FOR DOING BUSINESS IN INDIA

Abstract:
Business entry in foreign jurisdiction needs a strategic analysis wherein legal framework is an important aspect. This
presents the legal environment and the framework a paramount aspect to be understood to do business in India. It
presents the basic legal framework to be analyses for India entry for foreign enterprise; it also presents the framework
for outbound investments.
This presents the legal structure in India and encompasses a brief overview of the enactments to be considered for doing
business in India.

Keywords: Indian legal system business regulation Investment outward investments downstream investment taxation
structure investment technology trademark license agreement intellectual property labor regulation direct indirect
taxation environment consumer legislation corporate bankruptcy law winding up companies sectoral analysis

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A)
B)
C)
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VII
D)
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II-ii
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F)
G)

TABLE OF CONTENTS
INTRODUCTORY- strategy and law
LEGAL SYSTEM IN INDIA AND DISPUTE RESOLUTION
Legal Families and Legal Rules- common law & civil law
BUSINESS REGULATION IN INDIA
Economic Regulations
Labour Regulations
Tax Framework
-Direct Taxes
-Indirect Taxes
Cross Border Investments And Transactions
Environment And Consumer Legislation
Corporate Bankruptcy Law And Winding Up Of Companies
Intellectual Property Laws
COURTS AND LITIGATIONS IN INDIA
Courts in India and its jurisdiction & certain reliefs available in Indian
courts
Alternative Dispute Resolution
Arbitration
Conciliation
Enforcement of foreign awards
Enforcement of foreign judgments
INVESTING IN INDIA
Entry options for foreign investors
Indian FDI policy
Entry routes for FDI Investments
Entities Into Which FDI can be Made
Permissible Impermissible Sector and Sector Caps on Investments
Who can Invest in India
Types of Instruments
Calculation of Foreign Investment
Foreign Investment Into/ Downstream Investment by Indian
Companies
Downstream Investment by an Indian Company which is not Owned
And/Or Controlled By Resident Entity/ies
FOREIGN
TECHNOLOGY
AND
TRADEMARK
LICENSE
AGREEMENTS
OUTWARD INVESTMENTS:

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Appendix
Appendix I
Appendix II
Appendix III
Appendix IV
Appendix V

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Primer on land -Maharashtra

Setting up an Industry in Gujarat- Primer
Primer on Double Taxation Avoidance Agreements
Listing of Securities on the Indian Stock Exchanges by a Company
Incorporated under the Laws of India
Incorporation of a Subsidiary under Automatic Route in India- A Practical
Guide.

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102

Appendix VI

Brief Sectoral Analysis for FDI1) Banking 2) Capital Markets 3) Venture Capital and Private Equity
4) Insurance 5) Real Estate Sector

107

Appendix VII

Rules For Foreign Nationals on Indian Assignment

111

Appendix VIII

Sector Specific Criteria & Conditions for FDI

112

Appendix IX

Important circulars and guidelines of RBI

130

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A)

INTRODUCTORY- strategy and law

Trade and business are more global today then earlier, regimes earlier expanded to encompass global trade, today it is the
large appropriate footprinted nimble innovative companies which rule the roost. The classical route for creating
appropriate footprint in non domiciled country is starting with trade for market access, graduating to establishing
country offices, subsidiary, manufacturing units to independent global units with a central governance body. The need
for creating footprints globally are varied, templated on the strategy and needs of an enterprise namely as optimizing
productivity and costs using geographies to service addressable markets, effectuating manufacturing units on the
criticalness of components of the final product, factors of production coupled with volume efficiencies, availability of
skilled labor. Destinations are sought accordingly and templated to the strategy of the enterprise.
Wherein:
A strategy is defined as a pattern, of purposes, policies, programmes, actions, decisions, or resource allocations that define what an
organisation is, what it does, and why it does it. Strategies can vary by level function, and by time frame. 1(Bryson, 1995, p.32)
further Johnson and Scholes (1999) note that:
Strategy is the direction and scope of an organisation over the long term: which achieves advantage for the organisation through its
configuration of resources within a changing environment, to meet the needs of markets and to fulfill stakeholder expectations
(p.10).2
Inter spaced herein in corporate strategy of enterprises having operations multinationally is the legal environment. This
is a writing to appreciate and critically see the legal environment of India a business destination for an enterprises seeking
global footprint.
On Strategy eminent writers have written as:
# Michael Porter, On Competition (1998)-The essence of strategy is choosing what not to do. # Clayton Christensen, The Innovators Dilemma (1997) -There is something about the way that decisions get made in
successful organisations that sows the seeds of eventual failure. Many large companies adopt a strategy of waiting until new markets
are large enough to be interesting. But this is not often a successful strategy.
# Jeff Bezos, founder of Amazon -There are two ways to extend a business. Take inventory of what youre good at and
extend out from your skills. Or determine what your customers need and work backward, even if it requires learning new skills.
# Peter Drucker, Managing in Turbulent Times (1980)- One gets paid only for strengths; one does not get paid for
weaknesses. The question, therefore, is first: What are our specific strengths? And then: Are they the right strengths? Are they the
strengths that fit the opportunities of tomorrow, or are they the strengths that fitted those of yesterday? Are we deploying
our strengths where the opportunities no longer are, or perhaps never were? And finally, what additional strengths do we have to
acquire?
#Theodore Levitt, Thinking in Management (1983) Sustained success is largely a matter of focusing regularly on the right
things and making a lot of uncelebrated little improvements every day.
In consideration of the strategy, an important element thereto are the legal framework and environment and the taxation
structure which plays a deterministic role for an entry in an geography. Primarily Strategy for doing business in India may
evolve from:
Observing the economic and political environment in India;
Understanding the ability of the investor to carry out operations in India, the location of its customers, the
quality and location of its workforce.
In India the framework for governance of business environment flow from enactments passed by the
legislature/assembly under the federal structure under whose domain it entails. India is a constitutional republic with a
partly federal system of governance. The union and the states, both legislate on subjects as laid out in the Indian
Constitution. This legal framework created through Indian Constitution play a very important role in the country's
overall progress and economic development3. These enactments then where available on its delegated authorization
form the backbone of the administrative executive. With the changing circumstances and environment these enactments
are amended from time to time. To appreciate navigation of the nuances of a business legal environment its
understanding is mandated.
This book presents the present a brief scenario of the Indian Legal legal-regulatory environment.

Bryson J M (1995) Strategic Planning for Public and Nonprofit organisations. A guide to strengthening and sustaining organisational
achievement. Jossey Bass, San Francisco.
2 Johnson G & Scholes K (1999) Exploring Corporate Strategy Text and Cases, 5th ed., Prentice Hall, London.
3 See list of central Acts- http://indiacode.nic.in/incodis/alpha.htm
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B)

LEGAL SYSTEM IN INDIA

Legal Families and Legal Rules
Comparative legal scholars agree that, even though no two nations' laws are exactly alike, some national legal systems are
sufficiently similar in certain critical respects to permit classification of national legal systems into major families of law.
Although there is no unanimity among legal scholars on how to define legal families, "among the criteria often used for
this purpose are the following:
historical background and development of the legal system,
theories and hierarchies of sources of law,
the working methodology of jurists within the legal systems,
the characteristics of legal concepts employed by the system,
the legal institutions of the system, and
the divisions of law employed within a system"4
Based on this approach, scholars identify two broad legal traditions: Civil law and Common law.
According to the law and finance literature, the English and French legal traditions spread throughout the world through
conquest, colonization, and imitation5. Apart from the French model, there are said to be two other civil law traditions:
the German and the Scandinavian. The seminal moment for the German legal tradition is the adoption of the German
Civil Code in 1900. Much like its French counterpart, the German legal tradition is based on Roman civil law and was
subsequently exported to other countries6. By contrast, the Scandinavian legal tradition, which developed relatively
independently in the seventeenth and eighteenth centuries, is less closely linked with Roman civil law7 and has not
spread throughout the world8.Finally, some studies refer to a socialist-transition legal family, which is based on the legal
tradition that emerged from the breakup of the Soviet Union9.
The genesis of the classed two broad legal traditions: Civil law and Common law may be stated as:
Civil Law: The Civil, or Romano-Germanic legal tradition is the most influential, and the most widely distributed legal
tradition around the world. It originates in Roman law, uses statutes and comprehensive codes as a primary means of
ordering legal material, and relies heavily on legal scholars to ascertain and formulate its rules. Legal scholars typically
identify three currently common families of laws within the civil law tradition: French, German, and Scandinavian. The
French Commercial Code was written under Napoleon in 1807, and brought by his armies to Belgium, the Netherlands,
part of Poland, Italy, and Western regions of Germany. In the colonial era, France extended her legal influence to the
Near East and Northern and Sub-Saharan Africa, Indochina, Oceania, and French Caribbean islands. French legal
influence has been significant as well in Luxembourg, Portugal, Spain, some of the Swiss cantons, and Italy. When the
Spanish and Portuguese empires in Latin America dissolved in the 19th century, it was mainly the French civil law that
the lawmakers of the new nations looked to for inspiration.
The German Commercial Code was written in 1897 after Bismarck's unification of Germany, and perhaps because it was
produced several decades later, was not as widely adopted as the French Code. It had an important influence on the legal
theory and doctrine in Austria, Czechoslovakia, Greece, Hungary, Italy, Switzerland, Yugoslavia, Japan and Korea.
Taiwan's laws came from China, which borrowed heavily from the German Code during its modernization.
The Scandinavian family is usually viewed as part of the civil law tradition, although its law is less derivative of Roman
law than the French and German families10. Although Nordic countries had civil codes as far back as the 18th century,
these codes are not used any more. Most writers describe the Scandinavian laws as similar to each other but "distinct"
from others, so the 4 Nordic countries are treated generally as a separate family.

Glendon, M., Gordon M., Osakwe C., Comparative Legal Cambridge. Cambridge University Press. 1992 Ed., UK; Since 1970
See Beck & Levine, ibid. at 258-60
6 See ibid. at 256, 258-59.
7 Some studies regard the Scandinavian countries as part of the civil law tradition. See e.g. Rafael La Porta et al., Law and Finance
(1998) 106 Journal of Political Economy 1113 at 1115 [La Porta et al., Law and Finance]. Others treat it as a separate legal family. See
e.g. La Porta, Lopez-de-Silanes & Shleifer, Securities Law, supra note 9 at 14.
8 See Beck & Levine, supra note 10 at 257.
9 See Simeon Djankov, Caralee McLiesh & Andrei Shleifer, Private Credit in 129 Countries Journal of Financial Economics 84 (2007)
299329.
10 Zweigert, Konrad, Kotz H., Introduction to Comparative Law, Oxford: Clarendon Press.
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Common Law: The family referred to as the common law tradition includes the law of England and those laws
modeled on English law. The common law historically is formed by judges who have to resolve specific disputes. Largely
precedents from judicial decisions, as opposed to contributions by the scholars, shape common law. The roots of
English law presently are from enactments by the legislature, wherein the incremental changes are from judicial
decisions. Common law has spread to British colonies, including the United States, Canada, Australia, India, Singapore
and many other countries.
The tradition of the English Common Law has been one of gradual development from decision to decision: historically
speaking, it has been case law derived, not enacted law. On the Continent, the development since the reception of
Roman law has been quite different, from the interpretation of the Justinian's Corpus Juris to the codification, nation by
nation, of abstract rules. So common law comes from the court, Continental Law from study, the great jurists of
England was judges, in the Continent professors. Base premise being, in the Continent, lawyers faced with a problem,
even a new and unforeseen one, ask what solution the rule provides, in England and the United States they predict how
the judge would deal with the problem, given existing decisions.
In most cases, such classification is uncontroversial. In some cases, however, while the basic origin of laws is clear, laws
over time have been amended to incorporate the needs of the adopting country as well as influences from other families.
For example, although Ecuador is a French civil law country, its company law was revised in 1977 in part to incorporate
some common law rules. After World War II, the American occupying army changed some Japanese laws, although their
basic German civil law structure remained. While Italian laws originate in the French tradition, over years they had some
German influence. In all these and several other cases, they have classified a country based on the original structure of
the laws it adopted, rather than on the revisions.
Yet these and similar classifications are not at all self-evident. Rather, for about eighty per cent of the 129 countries that
Djankov, McLiesh & Shleifer11 examined, the categorization according to legal origin is far from clear. The difficulty
arises mainly with respect to legal systems in Eastern Europe, Asia, Africa, and Latin America. Further these can be
amplified as: if the Company Law of the Peoples Republic of China12 of 1993 was primarily based upon the company
laws of Taiwan, France, Germany, and Japan. For language reasons, legislators paid particularly close attention to the
Taiwanese law. Yet, Taiwans company law is itself a hybrid, since it was originally based on both German and Japanese
law and, Japan after World War II, came under U.S. influence13. As a result, codified Chinese company law is to a large
extent a mixture of various legal influences and not simply of German legal origin. This can also be seen in other areas
of Chinese law because, in contrast to Germany (or France), there is no comprehensive civil code14, and Chinese
securities law as the securities law panning the world is in principle based on the U.S. model15. It is more difficult to
criticize the classification of Japan as being of German legal origin. Between 1890 and 1900 Japan did indeed copy large
parts of the five major German codes16.
In Japan however, these legal transplants have not necessarily retained their importance to Japanese law. For example,
the Commercial Code of Japan has been substantially changed since World War II, in particular because of American
influence17. The same is true for other areas of trade and business law18. Indian law other than family law has followed

ibid @38
Adopted at the 5th Sess. of the Standing Comm. 8th Natl Peoples Cong., 29 December 1993, promulgated as Order No. 16 of the
President of the P.R.C., 29 December 1993, effective 1 July 1994, trans. in The Company Law of the Peoples Republic of China
(Beijing: Foreign Language Press, 2001) (P.R.C.).
13 See Mathias M. Siems, Convergence in Shareholder Law(Cambridge: Cambridge University Press)
14 There are only two legislative sources. See General Principles of the Civil Law of the Peoples Republic of China (adopted at the 4th
Sess. of the 6th Natl Peoples Cong., 12 April 1986, promulgated as Order No. 37 of the President of the P.R.C., 12 April 1986,
effective 1 January 1987) (P.R.C.), trans. by Chinacourt, online: Chinacourt <http://en.chinacourt.org/public/detail.php?id=2696>; The
Contract Law of the Peoples Republic of China (adopted at the 2d Sess. of the 9th Natl Peoples Cong., 15 March 1999, effective 1
October 1999)(P.R.C.), trans. online: Judicial Protection of IPR in China <http://www.chinaiprlaw.com/english/laws/laws2.htm>.
15 See Lawrence S. Liu, Chinese Characteristics Compared: A Legal and Policy Perspective of Corporate Finance and Governance in
Taiwan and China (2001) at 2, online: Social Sciences Research Network <http://ssrn.com/abstract=273174>.
16 See e.g. Zweigert & Ktz; supra note 16 at 298-301. But see Masao Ishimoto, Linfluence du Code civil franais sur le droit civil
japonais [1954] R.I.D.C. 744.
17 See generally Curtis Milhaupt, Creative Norm Destruction: The Evolution of Nonlegal Rules in Japanese Corporate Governance
(2001) 149 U.Pa. L. Rev. 2083. Milhaupt writes: [T]he validity of the classification scheme used [by certain authors] to create the legal
origin variable is highly suspect. For example, these studies list Japan as belonging to the German civil law family. This is partially, but
only partially, true of Japans five major codes ... But many subsequent Commercial Code revisions and [a number of] important
11
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the path of common law due to colonization as in many parts of the world, though many a laws are written codes as
opposed to principles evolved from judicial pronouncements; primordial being the law for contracts which as then was
the principles of contract law as laid down by pronouncements in England.
The religious traditions, such as Jewish law, Canon Law, Hindu law, and Muslim law, appear to be less relevant in
matters of investor protections. Thus the Arabian countries unquestionably belong to Islamic law as far as family and
inheritance law is concerned, just as in India personal law belongs to the religion professed by its citizen. In India family
and inheritance law derives its origin on religious precepts of its citizen, as for Hindus the applicable family and
inheritance law has its genesis in ancient Hindu law, for Muslims Islamic laws, albeit largely codified accepting customs
and traditions where uncodified. Economic law of these countries (including commercial law and the law of contract and
tort) is heavily impressed by the legal thinking of the colonial and mandatory powers the Common Law in the case of
India, French law in the case of most of the Arab States.
France adopted a civil law system characterized by fact-finding by state-employed judges, automatic review of decisions,
and, later, a reliance on codes rather than judicial discretion. In contrast, England developed a common law system that
relied on fact-finding by juries, independent judges, infrequent appeals, and judge-made law rather than strict codes. It
may be probably said that pure legal systems no longer exists, In India with the large number of tribunals being formed
under countries classed as common law system as in India, to address the need of specialized domain knowledge,
address the delays in judicial system, but with a conflicting mandate without its attendant jurisprudence, subject to
appeals thereto to judicial system, tribunals largely mandated to be a bench of ex judges man along with technical
members, thus reflecting distinct partial move towards the civil law system. Similarly civil law systems have adopted
nuanced approaches of the common law system.
Analysis of legal families has becomes relevant in finance where legal system plays a crucial back of the mind role in
capital investments and capital flows, notwithstanding that securities laws are harmonized to US securities laws,
primodial research being The Economic Consequences of Legal Origins19 for the last dozen years, Raphael La Porta,
Florencio Lopez-de-Silanes, Andrei Shleifer, Robert Vishny (LLSV), and an array of co-authors and independent
scholars have put together an impressive collection of papers which argue that legal origin helps explain investor
protection, labor regulation, government ownership of banks, unemployment, the size of capital markets, and numerous
other aspects of modern economies. To classify countries into legal families, LLSV relied principally on a publication of
the American Association of Law Libraries called "Foreign Law: Current Sources of Codes and Basic Legislation in
Jurisdictions around the World" by Reynolds and Flores20.

economic regulatory statutes [bearing on investor protections] are of U.S. origin. German law has had only a minor influence on postwar
Japanese legal developments. Thus, the classification for Japan is only about partially accurate and no theory is offered to explain why
legal origin, as opposed to subsequent legal developments, would be determinative of corporate governance patterns. It would not be
surprising if the classifications of legal origin for other countries in the study were subject to similar defects (ibid. at 2123, n. 131).
18 See R. Daniel Kelemen & Eric C. Sibbitt, The Americanization of Japanese Law (2002) 23 U. Pa. J. Intl Econ. L. 269.
19 Raphael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, Robert Vishny (LLSV): Journal of Economic Literature 2008, 46:2,
285332: http:www.aeaweb.org/articles.php?doi-10.1257/jel.46.2.285
20 Reynolds, Flores., Foreign Law: Current Sources of Codes and Basic Legislation in Jurisdictions Around the World; 1989 Compare
Thorsten Beck & Ross Levine, Legal Institutions and Financial Development in Claude Mnard & Mary M. Shirley, eds., Handbook
of New Institutional Economics (Dordrecht, Neth.: Springer, 2005) 251 at 254-58 (tracing origins to the fifteenth century for France and
to the sixteenth and seventeenth centuries for England).

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C)

BUSINESS REGULATION IN INDIA

I) Economic Regulations: Economic laws of the country may be mapped broadly into:
i) Corporate Laws: Primarily the Companies Act, 2013 ("Companies Act") and the regulations laid down by the
Securities and Exchanges Board of India ("SEBI");
ii) Operational and contract laws as Industries (Development and Regulation) Act, 1951; Indian Contract Act,
1872, Sale of Goods Act, 1930, Specific Relief Act, 1963, Competition Act, 2002.
iii) Exchange Control Laws: Primarily the Foreign Exchange Management Act, 1999 ("FEMA") and numerous
circulars, notifications and press notes issued under the same;
iv) Sector Specific Laws: Specific Laws relating to Financial Services (banking, non-banking financial services),
Infrastructure (highways, airports) and other sectors:
v) Intellectual property laws; and,
vi) Tax framework;

The main enactments may be stated as:

Companies Act, 2013: In the business framework domain, high at the pecking order for business legal environment is
the enactment pertaining to corporate body as to its structuring, setting up, operation, governance et al. India gave to
itself a fresh enactment for the same being Companies Act, 2013. The objective behind the 2013 Act is lesser
Government approvals and enhanced self-regulations coupled with emphasis on corporate democracy. The 2013 Act
delinks the procedural aspects from the substantive law and provides greater flexibility in rule-making to enable
adaptation to the changing economic and technical environment.Under this Act, it empowers the Central Government
to regulate the formation, financing, functioning and winding up of companies. It contains the mechanism regarding
organisational, financial, managerial and all the relevant aspects of a company. Operating the Act would need rules to be
formulated, the same are yet to be notified fully, thus only a part (98 sections of 470 sections of the 2013 Act has been
operationalised/notified, for the non operationalised parts the provisions from the earlier 1956 Act prevails.
Mergers and Acquisitions- Mergers and amalgamations are the subject matter of the Companies Act. The power to
approve amalgamations, mergers and de-mergers rests with the State High Courts of India for both listed and unlisted
companies wherein the registered offices of the company are registered. This power was under the 1956 Act was
proposed to be transferred pursuant to the Companies (Second Amendment) Act, 2002, to the National Company Law
Tribunal (hereinafter the "NCLT") this position is maintained under the 2013 Act. The present 2013 Act has transferred
the same to NCLT subject to being notified.
Under the provisions laid down GoI may order the amalgamation of two or more companies if it believes this to
be in the public interest. The Board for Industrial and Financial Reconstruction (hereinafter "BIFR") can issue
orders under the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter "SICA"), for the
amalgamation of a sick industrial company with another company [which powers when notified would be
transferred to NCLT and dealt under Chapter XIX of the 2013 Companies Act -Revival and Rehabilitation Of
Sick Companies]
SEBI regulates takeovers and substantial acquisitions of shares of a listed company vide the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter "SEBI Takeover Regulations") as amended
from time to time. The same usually provide for acquirers to make public announcements in cases of acquisition of
shares beyond a certain percentage, consolidation of holdings and acquisition of control over a company however
the same is done away with in the transfer of shares between Indian promoters and foreign collaborators who are
shareholders. The regulations also provide for bail out takeovers i.e. the substantial acquisition of shares in a
financially weak company in pursuance of an approved scheme of rehabilitation.
Industries (Development and Regulation) Act, 1951: In order to provide the Central Government with the means
to implement its industrial policies, several legislations have been enacted. The most important being the Industries
(Development and Regulation) Act, 1951 (IDRA). The main objectives of the Act is to empower the Government to
take necessary steps for the development of industries; to regulate the pattern and direction of industrial development;
and to control the activities, performance and results of industrial undertakings in the public interest.
Indian Contract Act, 1872 The bulk of the transactions in trade, commerce and industry are based on contracts. In
India, the Indian Contract Act, 1872 is the governing legislation for contracts, which lays down the general principles
relating to formation, performance and enforceability of contracts and the rules relating to certain special types of
contracts like Indemnity and Guarantee; Bailment and Pledge; as well as Agency. The allied Acts to contract formation
are Sale of Goods Act, 1930 and Specific Relief Act, 1963.

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Competition Act: The GoI has notified the Competition Act, 2002 (hereinafter "Competition Act") which shall repeal
the MRTP Act as and when all the substantive provisions of the Competition Act are notified in their entirety21 Under
the Competition Act, mergers, amalgamations and acquisitions with substantial asset base or turnover would require to
be scrutinized by the CCI. A Combination that exceeds the threshold limits specified in the Competition Act in terms of
assets or turnover or which causes or is likely to cause an appreciable adverse effect on competition within the relevant
market in India can be scrutinized by the CCI.
The Competition Act would require the CCI to be notified of mergers exceeding combined assets of INR 10 billion or
combined turnover of INR 30 billion. The Competition Act also empowers the CCI to scrutinize mergers after they are
announced. The CCI would be empowered to launch an investigation on its own initiative or in response to complaints
from a consumer or a voluntary consumer organization or at the request of the GoI or a State Government or a
statutory authority. The highlights of the Act are as:
The main objectives of the Competition Act are to promote and sustain competition in markets in India, to protect
the interests of consumers and to ensure freedom of trade for market participants.
The Competition Act prohibits anti-competitive agreements; prohibits abuse of dominance; regulates combinations,
such as acquisitions, mergers and amalgamations of a certain size; establishes the CCI and sets its functions and
powers.
The Competition Act applies to all enterprises and primarily seeks to address the following anti-trust situations: (i)
anti-competitive agreements; (ii) abuse of dominant position and (iii) combinations.
(a) Anti-Competitive Agreements: In terms of the Competition Act, agreements with respect to production,
supply, distribution, storage, acquisition or control of goods, or provision of services, which cause or are likely to
cause an appreciable adverse effect on competition are void.
(b) Abuse of Dominant Position: The Competition Act restrains enterprises from the abuse of their dominant
positions. "Dominant Position" means the position of strength enjoyed by an enterprise in the relevant market in
India, which enables it to operate independently of competitive forces prevailing in the relevant market, or affects
its competitors or consumers or the relevant market in its favour.
(c) Combination- The Competition Act has introduced the concept of "Combination" of enterprises and persons.
In terms of the Competition Act, a Combination may be formed by either the acquisition of enterprises by
persons; or the acquiring of control by enterprises; or the merger or amalgamation of enterprises The provisions
of the Competition Act render any Combination, which causes or is likely to cause an appreciable adverse effect
on competition within the relevant market in India void. The Competition Act authorizes the CCI to enquire into
anti-competitive agreements and (or) abuse of a Dominant Position by initiating suo moto inquiries; or upon
receipt of complaint from any person, consumer or their association or trade association; or upon a reference
made to it by the GoI or a State Government or a statutory authority. In cases of Combination, the CCI may
take cognizance of the same either suo moto or upon prior notification by parties. Such prior notifications by
parties in respect of a Combination are mandatory. The CCI has powers to pass, inter alia, all or any of the
following orders in case of an adverse finding:
Orders to cease and desist;
Orders that impose penalties as the CCI may deem fit upon each of such person or enterprises which are
parties to such agreements or abuse;
Orders directing the modification of agreements;
Order that an acquisition, acquiring of control and merger or amalgamation shall not be given effect to.
Orders directing the break-up of a dominant entity.
Securities law- the gamut of laws and regulation as securities law for primary markets (IPOs, QIPs, etc.) or in the
secondary markets (insider trading, market manipulation, etc.) emanate from the Securities and Exchange Board of
India Act, 1992 and its Rules, Regulations, General Orders, Guidelines, Master Circulars & Circulars.
The Foreign Exchange Management Act, 1999 ("FEMA") consolidates the law relating to foreign exchange
with the objective of facilitating external trade and payments and for promoting the orderly development and

., all cases pertaining to monopolistic or restrictive trade practices pending ( including such cases, in which any unfair trade practice
has also been alleged) before the MRTP Commission shall after the expiry of two years stand transferred to the Competition Appellate
Tribunal. Further, cases pertaining to unfair trade practices shall stand transferred to the National Commission constituted under the
Consumer Protection Act, 1986.
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maintenance of the foreign exchange market in India.

FEMA, along with the rules and regulations framed under it, governs foreign exchange transactions in and from
India. All foreign investments into India interalia for FDI/FII are governed under FEMA.
FEMA places all foreign exchange offences under the purview of civil law, thus subjecting them only to monetary
penalties in contrast with their categorization as criminal offences under the previous (FERA) regime.

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II)
LABOUR REGULATIONS
General: Another important aspect of legislations is the industrial relations, which involves various aspects of
interactions between the employer and the employees; among the employees as well as between the employers. In such
relations whenever there is a clash of interest, it may result in dissatisfaction for either of the parties involved and hence
lead to industrial disputes or conflicts.
Wages and fringe benefits vary considerably by industry, company size and region. Wages have two components: the
basic salary and the dearness allowance, linked to the cost-of-living index. A mandatory bonus supplements wages.
Companies use both time and piece rates. The former are more common in organized industries, such as engineering,
chemicals, cement, paper and glass. Piece rates are encouraged to boost productivity. Some industries also pay
production premiums.
In the organized sector, wages are often set by settlements reached between trade unions and management. The GoI sets
the national floor minimum wage and different industries-specific higher minimum wages. By law, women are entitled to
remuneration equal to men for performing equivalent work. Further, fringe benefits are provided by an employer to his
employees (including former employees) for their employment such as inter alia any privilege, service, facility or amenity
directly or indirectly.
Share options are also offered to employees especially in the information technology sector. All share option schemes
are required to be approved by a shareholders' meeting and overseen by a compensation committee in case of listed
companies. Sweat equity shares are another form of compensation given to employees. Sweat equity shares are shares
issued to employees or directors at discount or for consideration other than cash for providing know-how or making
available rights in the nature of intellectual property rights or value additions. There are separate rules and regulations for
the issue of sweat equity shares for listed and unlisted companies.
Retrenchments and lay-offs of workmen require full explanation to and prior approval from state governments.
Employment/ Labour Legislation:
In India, the employment laws applicable to employees are based on the category into which the employee falls. Such
employees can be broadly divided into two categories:
(i) "Managerial Personnel" performing predominantly managerial, administrative and supervisory duties. Typically, the
Managerial Personnel are governed by the terms and conditions of their contracts of employment, service rules and
agreements negotiated with the employer, if any, and do not enjoy any additional protection of law or security of
service.
(ii) "Workmen" performing non-supervisory work including any manual, unskilled, skilled, technical operation or
clerical work for hire or reward. Workmen enjoy several protections, (majority of them dealing with social security
measures) benefits and amenities including terminal benefits.
There are several legislations which regulate the conditions of employment, work environment and other welfare
requirements of certain specific industries. These enactments deal with factories and workshops; mines and minerals;
plantations; shops and establishments as well as transportation. Some of the major legislations are:The Industrial Disputes Act, 1947 is the main legislation for investigation and settlement of all industrial disputes. The
Act enumerates the contingencies when a strike or lock-out can be lawfully resorted to, when they can be declared illegal
or unlawful, conditions for laying off, retrenching, discharging or dismissing a workman, circumstances under which an
industrial unit can be closed down and several other matters related to industrial employees and employers. The
Industrial Disputes Act, 1948 (hereinafter "ID Act") provides for the machinery for the settlement of industrial disputes
through negotiations. The ID Act applies to all industrial establishments all over India whatever the strength of their
workers may be. The law provides that no employee in any industrial establishment who has worked for duration greater
than one year may be retrenched without adequate notice and compensation as prescribed under the ID Act.
The Factories Act, 1948 is the umbrella legislation enacted to regulate the working conditions in factories including the
working time of workers. According to the Act, a 'factory' means "any premises including the precincts thereof:- (i)
whereon ten or more workers are working, or were working on any day of the preceding twelve months, and in any part
of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on; or (ii) whereon
twenty or more workers are working, or were working on any day of the preceding twelve months, and in any part of

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which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on; but this does
not include a mine subject to the operation of the Mines Act, 1952 , or a mobile unit belonging to the armed forces of
the union, a railway running shed or a hotel, restaurant or eating place."
The Act is administered by the Ministry of Labour and Employment through its Directorate General Factory Advice
Service & Labour Institutes (DGFASLI) and by the State Governments through their factory inspectorates. DGFASLI
serves as a technical arm to assist the Ministry in formulating national policies on occupational safety and health in
factories and docks.
The Shops and Establishments Act, 1953 was enacted to provide statutory obligation and rights to employees and
employers in the unorganised sector of employment, i.e. shops and establishments. It is applicable to all persons
employed in an establishment with or without wages, except the members of the employer's family. It is a State
legislation and each State has framed its own rules for the Act. The State Government can exempt, either permanently or
for a specified period, any establishments from all or any provisions of this Act. The Act provides for compulsory
registration of shop/ establishment within thirty days of commencement of work and all communications of closure of
an establishment within 15 days from its closing. It provides to regulate the working time of workers in commercial
establishments or shops thus lays down the hours of work per day and week as well as the guidelines for spread-over,
rest interval, opening and closing hours, closed days, national and religious holidays, overtime work, etc.
This being a state enactment an indication under Bombay Shops and Establishments Act, 1948 a representative
enactment is:
Bombay Shops and Establishments Act, 1948 regulates within its jurisdiction conditions of work and employment in
shops, commercial establishments, residential hotels, restaurants, eating houses, theatres, other places of public
entertainment and other establishments. Provisions include Regulation of Establishments, Employment of Children,
Young Persons and Women, Leave and Payment of Wages, Health and Safety etc.
According to Section 7 of the Bombay Shops and Establishments Act, 1948, the establishment must be registered as
follows:
Under Section 7(4), the employer must register the establishment in the prescribed manner within 30 days of the date on
which the establishment commences its work.
Under Section 7(1), the establishment must submit to the local shop inspector Form A and the prescribed fees for
registering the establishment.
Under Section 7(2), after the statement in Form A and the prescribed fees are received and the correctness of the
statement is satisfactorily audited, the certificate for the registration of the establishment is issued in Form D, according
to the provisions of Rule 6 of the Maharashtra Shops and Establishments Rules of 1961.
A statement containing the employers and managers name and the establishments name (if any), postal address, and
category must be sent to the local shop inspector with the applicable fees.
Maharashtra Shops & Establishment Rules, provides Schedule for fees for registration & renewal of registration
premised on the number of employees, the slabs being for: 0, 1 to 5, 6 to 10, 11 to 20, 21 to 50, 51 to 100, 101 or more
employees
In addition, an annual fee (three times the registration and renewal fees) is charged as trade refuse charges (TRC), under
the Mumbai Municipal Corporation Act, 1888.
The Trade Unions Act, 1926, Indian law recognizes the existence of trade unions. This Act is applicable to unions of
workers as well as associations of employers. This Act deals with the registration of trade unions, their rights, their
liabilities and responsibilities as well as ensures that their funds are utilised properly. It provides for rights and
obligations of the trade unions officers. It gives legal and corporate status to the registered trade unions. It also seeks to
protect them from civil or criminal prosecution so that they could carry on their legitimate activities for the benefit of
the working class.
The Employees' State Insurance Act, 1948 (hereinafter "ESI Act") deals with insurance of employees in India. The
main objective of the ESI Act is to provide medical and sickness benefits to the workers, maternity benefits to the
women workers, benefits to the dependents of the workers and compensation to them for fatal and other work related
injuries.
Minimum Wages Act, 1948 provides for minimum statutory wages for scheduled employment. These minimum wages
are fixed in order to curb exploitation. The law provides for the fixation of the minimum wages and the basis for fixing
them.

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 Workmen's Compensation Act, 1923; provides for the payment of compensation by certain classes of employers to
their workmen for injury by accident.
The Payment of Gratuity Act, 1972 provides for payment of gratuity to an employee who has rendered continuous
service for five (5) years or more. A statutory right of gratuity has also been given to all employees whose services are
terminated on account of superannuation, retirement, resignation, death, or disablement. It entitles workers to a gratuity
of up to INR 350,000 after five years of continuous service.
The Payment of Bonus Act, 1965 provides that every employee shall be entitled to be paid a bonus by his employer in
an accounting year in accordance with the provisions contained in it, provided that such employee has worked in the
concerned establishment for not less than thirty (30) working days during the course of that year.
Employees Provident Fund: India has a specific legislation dealing with the provident fund. Under the Employees'
Provident Funds and Miscellaneous Provisions Act, 1952 ("PF" Act), the employer has to set up a compulsory
contributory fund for the future of the employee, which has to be paid to him following his retirement, or is paid to his
dependents in the case of employee's premature death. The Employees' Provident Fund ( Third Amendment) Scheme,
2008 and Employees' Pension ( Third Amendment) Scheme, 2008 has introduced a new category of an 'International
worker' and every international worker employed with an establishment in India to whom the PF Act applies, would be
required to become a member of PF fund unless he/she qualifies as an " excluded employee".
The Maternity Benefits Act, 1961 provides for maternity benefits to women working in any establishment for the
period of her actual absence, that is the period immediately preceding the day of her delivery, the actual day of her
delivery and for a period of six weeks immediately following the day of her delivery, miscarriage or medical termination
of pregnancy.
The Equal Remuneration Act, 1976 provides for equal remuneration to men and women and prevents discrimination
against women on the ground of sex, in matters of employment.
The Plantation Labour Act, 1951 provides for the welfare of plantation labour and regulates the conditions of work in
plantations. According to the Act, the term 'plantation' means "any plantation to which this Act, whether wholly or in
part, applies and includes offices, hospitals, dispensaries, schools, and any other premises used for any purpose
connected with such plantation, but does not include any factory on the premises to which the provisions of the
Factories Act,1948 apply".
The Act is administered by the Ministry of Labour through its Industrial Relations Division. The Division is concerned
with improving the institutional framework for dispute settlement and amending labour laws relating to industrial
relations. It works in close co-ordination with the Central Industrial Relations Machinery (CIRM) in an effort to ensure
that the country gets a stable, dignified and efficient workforce, free from exploitation and capable of generating higher
levels of output.
The Mines Act, 1952 contains provisions for measures relating to the health, safety and welfare of workers in the coal,
metalliferous and oil mines. According to the Act, the term 'mine' means "any excavation where any operation for the
purpose of searching for or obtaining minerals has been or is being carried on and includes all borings, bore holes, oil
wells and accessory crude conditioning plants, shafts, opencast workings, conveyors or aerial ropeways, planes,
machinery works, railways, tramways, sidings, workshops, power stations, etc. or any premises connected with mining
operations and near or in the mining area".
The Act is administered by the Ministry of Labour and Employment through the Directorate General of Mines Safety
(DGMS). DGMS is the Indian Government regulatory agency for safety in mines and oil-fields. It conducts inspections
and inquiries, issues competency tests for the purpose of appointment to various posts in the mines, organises
seminars/conferences on various aspects of safety of workers.
The Contract Labour (Regulation & Abolition) Act, 1970 was enacted to regulate employment of contract labour so as
to place it at par with labour employed directly, with regard to the working conditions and certain other benefits.
Contract labour refers to "the workers engaged by a contractor for the user enterprises". These workers are generally
engaged in agricultural operations, plantation, construction industry, ports & docks, oil fields, factories, railways,
shipping, airlines, road transport, etc. It applies to every establishment in which twenty or more workmen are employed
on any day of the preceding twelve months, as contract labour and aims at placing the contract labour at par with labour

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employed directly, in respect of the working conditions and certain other benefits available under labour law.
The Act is implemented both by the Centre and the State Governments. The Central Government has jurisdiction over
establishments like railways, banks, mines etc. and the State Governments have jurisdiction over units located in that
state. In the Central sphere, the Central Industrial Relations Machinery (CIRM) headed by Chief Labour Commissioner
(Central) and his officers have been entrusted with the responsibility of enforcing the provisions of the Act and the rules
made there under.
The Building & Other Construction Workers (Regulation of Employment & Conditions of Service) Act, 1996 was
enacted to regulate the employment and conditions of service of building and other construction workers and to provide
for their safety, health and welfare measures. The Act is applicable to every establishment which employs ten or more
workers in any building or other construction work and to the projects costing more than Rs. 10 lakhs. The Act contains
provision for immediate assistance to the workers in case of accidents; old age pension; loans for construction of house;
premia for group insurance; financial assistance for education, medical expenses and maternity benefits, etc.
The Motor Transport Workers Act, 1961 was enacted to provide for the welfare of motor transport workers and to
regulate the conditions of their work. It applies to every motor transport undertaking employing five or more motor
transport workers. The State Government may, after giving notification in the Official Gazette, apply all or any of the
provisions of this Act to any motor transport undertaking employing less than five motor transport workers. According
to the Act, 'motor transport undertaking' means "an undertaking engaged in carrying passengers or goods or both by
road for hire or reward and includes a private carrier".
Every employer of a motor transport undertaking to which this Act applies shall have the undertaking registered under
this Act. No adult motor transport worker shall be required or allowed to work for more than eight hours in any day and
forty-eight hours in any week. Also, no adolescent shall be employed or required to work as a motor transport worker in
any motor transport undertaking for more than six hours a day including rest interval of half-an-hour; and between the
hours of 10 P.M. and 6 A.M.
The Sales Promotion Employees (Conditions of Service) Act, 1976 was enacted to regulate certain conditions of
service of sales promotion employees in certain establishments. According to the Act, the term 'sales promotion
employees' means, "any person by whatever name called (including an apprentice) employed or engaged in any
establishment for hire or reward to do include any such person: - (i) who, being employed or engaged in a supervisory
capacity, draws wages exceeding sixteen hundred rupees per mensem; or (ii) who is employed or engaged mainly in a
managerial or administrative capacity".
The Act shall apply to every establishment engaged in the pharmaceutical industry. The Central Government may, by
notification in the Official Gazette, apply the provisions of this Act, to any other establishment engaged in any notified
industry. Every employer in relation to an establishment shall keep and maintain such registers and other documents and
in such manner as may be prescribed.
The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979 was enacted to
protect the rights and safeguard the interest of migrant workers. The Act intends to regulate the employment of interstate migrant workmen and to provide their conditions of service. It applies to every establishment and the contractor,
who employ five or more inter-state migrant workmen. The Act has provision for issue of Pass-Book to every inter-state
migrant workman with full details, payment of displacement allowance, payment of journey allowance including payment
of wage during the period of journey, suitable residential accommodation, medical facilities and protective clothing,
payment of wages, equal pay for equal work irrespective of sex etc.
The responsibility for enforcement of the Act in establishments where the Central Government is the appropriate
Government lies with the office of the Chief Labour Commissioner (Central) and for the establishments located under
the States sphere lies with the respective State Governments.
Contract Labour (Regulation And Abolition) Act, 1970: The CLRA Act regulates the conditions of employment of
contract labour and inter alia requires the principle employer and the contractor to obtain certain registrations / licenses
prior to engaging contract labour.
Child Labour (Prohibition And Regulation) Act, 1986: The Child Labour Act prohibits the engagement of children
(persons below the age of 14) in certain employments and regulates the conditions of work of children in certain other
employments.
The Apprentices Act,1961:The Apprentices Act provides for the practical training of technically qualified persons and
the regulation and control thereof.
Employment Exchanges (Compulsory Notification Of Vacancies) Act, 1959:This Act seeks to inform job seekers
about vacancies in various employment sectors and requires the establishments to notify to the employment exchanges

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of any vacancy in employment positions, prior to filling up such vacancy. This Act is applicable to every public
establishment and notified private establishment having a minimum of 25 employees.
Also, to extend a measure of social assistance to workers in the unorganised sector, the concept of 'Labour Welfare
Fund' was evolved and five welfare funds were set up under the Ministry of Labour and Employment. These funds are
aimed to provide housing, medical care, educational and recreational facilities to workers employed in beedi industry,
certain non-coal mines and cine workers. Such funds are financed out of the proceeds of cess levied under respective
Cess/Fund Acts. The various legislation so enacted include:The Mica Mines Labour Welfare Fund Act, 1946 - was enacted to provide for constitution of a fund for
financing the activities which promote welfare of labour employed in the mica mining industry.
The Limestone and Dolomite Mines Labour Welfare Fund Act, 1972 - was enacted to provide for the levy and
collection of a cess on limestone and dolomite for financing the activities which promote the welfare of
persons employed in the limestone and dolomite mines.
The Iron Ore Mines, Manganese Ore Mines & Chrome Ore Mines Labour Welfare Fund Act, 1976 - was
enacted to provide for financing the activities which promote the welfare of persons employed in the iron ore
mines, manganese ore mines and chrome ore mines.
The Beedi Workers Welfare Fund Act, 1976 - was enacted to provide for financing the measures which
promote the welfare of persons engaged in beedi establishments.; and
The Cine Workers Welfare Fund Act, 1981 - was enacted to provide for financing the activities which
promote the welfare of certain cine-workers.
The above Acts provide that the fund may be applied by the Central Government to meet the expenditure incurred in
connection with measures and facilities which are necessary to provide the welfare of the respective workers.

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III)
TAX FRAMEWORK
Taxation Structure and Incentives
India has a federal structure and a well-developed three-tier tax framework, comprising of taxes levied by the Central
Government, the State Governments and the Local Authorities. Power to levy taxes and duties is distributed among the
aforesaid three tiers, in accordance with the provisions of the Constitution of India. Further fiscal revenue is shared
between the Central Government and the State Governments. The principle taxes and duties that the Central
Government is empowered to levy are, inter alia, Income Tax (which is a direct tax), Customs duty, Central Excise,
Central Sales Tax (hereinafter "CST ') and Service Tax (which are indirect taxes). The principal taxes levied by the State
Governments are, inter alia, Value Added Tax (hereinafter "VAT"), Stamp Duty, State Excise duty (levied on the
manufacture of alcohol, alcoholic preparations, and narcotic substance), Land Revenue, Entertainment tax and Tax on
Professionals. The Local Authorities are empowered to levy tax on immovable properties, Octroi, tax on markets and
tax or user charges for utilities such as water supply and drainage. The incidence of tax can either be direct or indirect.
In order to encourage savings, investments and to provide incentives for industrial growth and development, both
Central and State Governments offer a number of concessions to an investor in India from time to time.
Tax Administration
All taxpayers, including foreign companies are required to follow a uniform financial year from April 1 to March 31 for
the purposes of filing tax returns. The law requires that the taxpayer companies must file their prescribed periodical
returns tax returns on or before a due date specified in the respective legislations. If tax authorities can prove
concealment of income or duty/ tax evasion, a 100 to 300 percent penalty may be levied on the tax evaded. Refund
claims must be filed within one year of the end of the assessment year.
The Central Board of Direct Taxes and the Central Board of Excise and Customs in the Ministry of Finance of the
Government of India are the nodal administrative bodies for administration of direct taxes and federal indirect taxes,
respectively. VAT and CST are administered by the respective State tax administration.
i) DIRECT TAXES
Corporate Taxation
In case of resident companies, tax is levied on their gross global income less allowable deductions which include inter
alia, expenditures for materials, wages, salaries, bonuses, commissions, rent, repairs, insurance, royalty payments, interest,
lease payments, depreciation, expenditures for scientific research and contributions to scientific research associations. A
company is deemed to be a resident company if it is incorporated in India or is wholly controlled and managed from
India. A resident company is not only taxed at a lower rate but is also entitled to additional incentives and rebates.
4) A Foreign Company means a company, which is not a resident company, as defined above. Foreign companies
are subject to Indian income tax in respect of income derived from Indian sources or deemed to be so derived.
5) A branch of a foreign company is liable to corporate tax on the profits attributable to such branch at the rate
applicable to a foreign company. Further the rules on deductibility of expenses remain the same as those for
resident companies for computing taxable income.
The taxable income of companies is computed as profits or gains in business, capital gains and income from other
sources. Corporate tax rates have decreased in recent years, in keeping with the Central Government's aim to widen tax
base and ensure greater compliance.
Capital Gains on share transfer
Long-term capital gains (hereinafter "LTCG") on disposal of shares held in a company for more than one year and all
other assets held for more than three years are computed by deducting cost, adjusted for cost inflation index in case of
all assets, other than bonds or debentures, at the prescribed rates, from net sale proceeds.
LTCG arising from transfer of listed securities, on which Security Transaction Tax is paid, is exempt from tax. LTCG
from sale of a long-term capital asset are exempt from capital gains tax where amount of such capital gains is reinvested
in certain specified assets within a specified period. LTCG from transfer of listed securities is also exempt from tax
subject to compliance with certain specified conditions.
In case of non-residents, capital gain on transfer of shares or debentures of an Indian company is calculated by
converting asset cost and transfer expenses into foreign currency in which they were purchased and computed capital
gain is then transferred back into INR. The computation is carried out in the above manner in order to shield such
transfers from exchange fluctuations.

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Buy-back of shares by a company is subject to capital gains tax in the hands of the shareholder. The IT Act, 1961
(hereinafter "IT Act") exempts from tax LTCG of investors in infrastructure projects under certain specified conditions.
Short term capital gains i.e. gains arising from transfer of capital assets held for not more than three years or one year for
shares and other specified securities are charged at normal rates applicable for personal or corporate taxation. However,
short term capital gains arising from transfer of listed securities are charged at a lower rate of taxation subject to
compliance with certain specified conditions.
In respect of capital assets held as business assets any excess amount realized over written down value of such block of
assets is treated as short term capital gains and is taxed at normal rates applicable to business profits.
Dividend Distribution Tax
The company is liable to pay Dividend Distribution Tax (hereinafter "DDT") on the amounts declared or distributed as
dividend. Since DDT is paid by the company at the time of declaration or distribution of dividends, such dividends are
not taxed in the hands of recipient (irrespective of the fact that whether dividends are paid to a resident or non-resident
shareholder). As a result withholding tax is not payable on dividends distributed by an Indian company.
Withholding Tax
Indian tax law provides for deduction of tax at source on various types of income, commonly known as "Withholding
Tax". It may be noted that generally, all amounts payable to non-residents such as royalties, technical services fees and
interest on loans are subject to the provisions of withholding tax. Further tax deducted at source is required to be
deposited by person deducting such tax with the Central Government.
Minimum Alternate Tax
In case tax liability of the company (Indian company or Foreign Company) is less than 10% of book profits, such book
profit is deemed to be 'taxable income', and such company is liable to pay a Minimum Alternate Tax at the prescribed
rate.
Fringe Benefits Tax
With effect from 1 April 2005, fringe benefits provided by the employer to the employees are taxable separately in the
hands of employer except certain specific type of benefits, which are taxed in the hands of employee as perquisite.
Expenditure incurred by employers on provision of fringe benefits to employees is allowable as deduction in
computation of taxable income. However, tax on fringe benefit paid by the employer is not allowable as deduction from
gross income.
Loss relief
Losses arising from business operations in an assessment year may be carried forward and set off against future business
profits over the next eight assessment years. However unabsorbed depreciation may be carried forward indefinitely.
Business losses may be carried forward only where tax return is filed by the due date. Further closely held companies are
required to satisfy 51 percent continuity of ownership test to qualify for carrying forward business losses to be set off.
Re-organizations
The I.T. Act contains special provisions for facilitating amalgamations and mergers and specifically exempts transfer of a
capital asset in a scheme of amalgamation by the amalgamating company to the amalgamated company subject to certain
conditions. In a cross border transaction, when a foreign holding company transfers its shareholding in an Indian
company to another foreign company as a result of a scheme of amalgamation, such transfer of capital asset, i.e. shares
in the Indian company, is also exempt from capital gains tax in India subject to certain conditions.
In case of a merger, relinquishment of shares of the amalgamating company held by shareholders is not regarded as a
transfer of shares and, subject to the prescribed conditions, is exempt from capital gains tax.
In respect of a de-merger, subject to the fulfillment of certain prescribed conditions, transfer of assets by the de-merged
company to the resulting (Indian) company is exempt from capital gains tax.
ii) INDIRECT TAXES
Apart from above taxes, companies in India are also subject to indirect taxes which are levied both by the Central
Government and the State Government and the Local Authorities. In the past few years, indirect taxes have been

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steadily lowered and their structure and complexities have been rationalized.
Excise duty
Excise duty is levied by the Central Government on the manufacture of goods in India at the rates and on the basis of
classification under the Central Excise Tariff Act, 1985 (hereinafter the "Excise Tariff"), which is aligned with the
Harmonised System of Nomenclature. Further the Central Government provides for concessional rate or exemption
from Excise Duty, by way issue of notifications which may be conditional or un-conditional.
Presently most goods are chargeable to peak rate of Excise Duty of 12% ad valorem22. Base of determining excise duty
payable is transaction value or the Maximum Retail Price (hereinafter MRP"), after allowing permissible notified
deduction for each product liable to excise duty with reference to the MRP. Certain goods are liable to specific rate of
Excise Duty irrespective of sale price. Excise Duty is payable by the manufacturer and is collected from the customer as
part of sales consideration.
Customs Duty
The Central Government levies customs duty on import and export of goods at the rates and on the basis of
classification under the Customs Tariff Act, 1975 (hereinafter the "Customs Tariff") which is based on the
internationally accepted Harmonized System of Nomenclature ("HSN"). The general rules of interpretation with
respect to tariff are mentioned in the Tariff Act. The rates are applied to the transaction value of goods (for transactions
between unrelated parties) as provided under the Customs Act, 1962 (the "Customs Act") or by notification in the
official gazette. Customs Duty on import comprise of the following:
Basic Customs Duty (hereinafter "BCD");
An "Additional Customs Duty", also known as Countervailing Duty (hereinafter "CVD") which is equivalent to
Excise Duty leviable on the like goods produced or manufactured in India, calculated either on the total of transaction
value of the products plus BCD or on the basis of MRP;
Additional duty of customs, also known as Special Additional Duty to counter-balance sales tax/ VAT, local tax or
other charges leviable on articles on its sale, purchase in India.
Further, the Central Government, if satisfied that circumstances exist which render it necessary to take immediate action
to provide for the protection of the interests of any industry, from a sudden upsurge in the import of goods of a
particular class or classes, may provide for a Safeguard Duty. Safeguard Duty is levied on such goods as a temporary
measure and the intention for the same is protection of a particular industry from the sudden rise in import.
Under Section 9A of the Tariff Act, the Central Government can impose an Antidumping Duty on imported articles, if
it is exported to India at a value less than the normal value of that article in other jurisdictions. Such duty is not to
exceed the margin of dumping with respect to that article. The law in India with respect to anti-dumping is based on the
'Agreement on Anti-Dumping' pursuant to Article VI of the General Agreement on Tariffs and Trade, 1994.
Service Tax
In the year 1994 the Central Government introduced the levy of Service Tax on notified services in terms of Chapter V
of the Finance Act, 1994 ( hereinafter the "Finance Act"). All Services save and except the notified negative list are
subject to service tax23; current rate of service tax is 12% ad valorem(effective service tax including education and higher
education cess is 12.3%). Service tax is payable by service provider and is collected as part of consideration from
recipient of services. Where however services are provided from overseas and received and consumed in India and
service provider do not have an office in India, recipient of services is liable to pay service tax. Exports of services are
governed under 6A of Service Tax Rules 1994. The essential requisites for a service to be designated as an export service
are:
It must be a service as defined under sub-section 44 of section 65B
It must be provided by a service provider located in the taxable territory
It must be provided to a service receiver located outside India
It must not be a service specified in the negative list
It must be provided at a place that is outside India
The payment for such service is received by the service provider in convertible foreign exchange
The service provider and service receiver are not merely establishments of a distinct person by virtue of item
(b) of Explanation 2 of clause 44 of section 65B of the Act.

22
23

Standard rate of excise duty to 12 per cent, merit rate 6 per cent and the lower merit rate 2 per cent with few exemptions for 2012
Notification No. 19 /2012-Service Tax

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Cenvat Credit
To avoid cascading effect of taxes, the Central Government has introduced a scheme of allowing credit of Excise Duty,
CVD and Service Tax paid on inputs, specified capital goods and input services used in or in relation to the manufacture
of excisable goods or for providing taxable services to be set off against excise duty or service tax liability. The scheme
of Cenvat credit is codified under the Cenvat Credit Rules, 2004. Where however finished products are not liable to duty
or output services are either exempt or not liable to service tax, Cenvat credit is not allowed. In case of export of
finished goods or taxable services, procedure is provided for adjustment or cash refund of accumulated Cenvat credit.
VAT or CST
VAT is a multi-stage tax on goods that is levied across various stages of production and supply with credit given for tax
paid at each stage of Value addition. VAT is a State levy and is collected under the authority of the respective State VAT
Act. Further while CST is leviable under the Central Sales Tax Act, 1956, it is administered by the State VAT authorities.
VAT or CST is payable on each leg of sales transaction depending upon the nature of transaction. In case of intra-State
sales transaction VAT is payable and in case of inter-State sales transaction CST is payable. Further input credit of VAT
paid on purchase of the goods is available to be set off against VAT or CST liability of the Dealer. However input credit
of CST paid on purchases is not allowed.
Entry Tax
In addition to VAT many States also levy Entry Tax on entry of goods in the State, which is allowed to be set off against
VAT or CST liability of the Dealer under specified conditions.
States in India levy moderate taxes on motor vehicles and freight traffic; municipalities charge taxes on services and levy
professional fees. Financial instruments and transactions in India attract stamp duties that are levied at the federal and
state levels.

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IV)

CROSS BORDER INVESTMENTS AND TRANSACTIONS

i) Bilateral Investment Promotion And Protection Agreement (BIPA)
Bilateral Investment Promotion and Protection Agreement (BIPA)
India has comprehensive double-taxation avoidance agreements in force with several countries. Most of such
agreements allow relief from double tax by credit method or by a combination of credit and exemption methods.
Accordingly domestic companies are allowed credit against Indian income tax of aggregate income tax paid overseas.
Further credit is limited to lesser of actual tax paid on foreign income and Indian tax applicable to such income. Further
tax rates for transaction between the countries having double-taxation avoidance agreements are governed by such
agreements.
In order to encourage capital inflows and provide safe business environment for all investments abroad, many countries
have entered into bilateral investment treaties or agreements. Bilateral Investment Promotion and Protection Agreement
(BIPA) is one such bilateral treaty which is defined as an agreement between two countries (or States) for the reciprocal
encouragement, promotion and protection of investments in each other's territories by the companies based in either
country (or State). These bilateral agreements have, by and large, standard elements and provide a legal basis for
enforcing the rights of the investors in the countries involved. The Government of India has, so far, signed BIPAs with
58 countries out of which 49 BIPAs have already come into force and the remaining agreements are in the process of
being enforced.
ii) Double-Taxation Avoidance Agreements
India has comprehensive double-taxation avoidance agreements in force with several countries. Most of such
agreements allow relief from double tax by credit method or by a combination of credit and exemption methods.
Accordingly domestic companies are allowed credit against Indian income tax of aggregate income tax paid overseas.
Further credit is limited to lesser of actual tax paid on foreign income and Indian tax applicable to such income. Further
tax rates for transaction between the countries having double-taxation avoidance agreements are governed by such
agreements.
iii) Transfer Pricing
Transfer Pricing Legislation (TPL")24 was introduced in India in the year 2001 with the objective of providing a
comprehensive set of regulations for the administration of transfer pricing. TPL is aimed at providing a detailed
statutory framework that enables computation of reasonable, fair and equitable tax and profits and thereby prevent
losses of India's legitimate share of revenue.
TPL primarily requires any income arising from an international transaction between two or more associated enterprises
either or both of whom are non-residents to be at arm's length price (hereinafter "ALP") and comparable to similar
transactions between unrelated enterprises. Further transaction may relate to:
purchase, sale or lease of tangible or intangible property; or
provision of services; or
lending or borrowing money; or
any other transaction having a bearing on income, profits, losses or assets of the enterprises; or
mutual agreements or arrangements for allocation or apportionment of, or any contribution to, any cost or expense
incurred.
The I.T. Act, including TPL is administered by the Central Board of Direct Taxes (hereinafter the "CBDT"). The I.T.
Act vide Sections 92A to 92F provides for computation of income from an international transaction, which is in general
influenced by the Organization for Economic Cooperation and Development (hereinafter "OECD") norms, though
provides for more stringent penal provisions. In order to bring transactions between a foreign entity and its Permanent
Establishment (hereinafter "PE") within the purview of TPL, the term PE has been included within the generic
definition of an enterprise25. This has been carried out even though a PE is not a separate legal entity. As a result thereof,
transactions between a foreign enterprise and its PE, for example between the head office of such enterprise outside
India and its branch in India, are also subject to the provisions of TPL. Further, TPL would also be applicable to
transactions between a foreign enterprise and a PE of another foreign enterprise.

The TPL comprises inter alia, Sections 92 to 92F of the Income-Tax Act 1961 and Rules 10A to 10E of the Income-Tax Rules, 1962
Permanent Establishment has been defined in Section 92F to include a fixed place of business through which the business of the
enterprise is wholly or partly carried out. It is included within the definition of an Enterprise under the TPL
24
25

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TPL recognizes determination of pricing between associated enterprises on an arm's length basis26. ALP is a price
applied in a transaction between persons other than associated enterprises, in uncontrolled conditions. TPL provides for
ALP to be determined by application of one of the stipulated methods namely; Traditional Transactional Methods
comprising of Uncontrolled Price Method; Resale Price Method; Cost Plus Method; Transactional profit methods
comprising of Profit Split Method and Transactional Net Margin Method or such other method(s) as may be prescribed
by the CBDT.
TPL further requires taxpayer to be in compliance with two key requirements: (a) Maintenance of prescribed
information and documents, and (b) Obtaining an accountant's certificate. The Indian tax authorities are empowered
under the provisions of TPL to make adjustments to income generated from an international transaction if, inter alia, in
their opinion price charged has not been determined in accordance with the most appropriate method or documents
have not been maintained as required or data used in the computation of ALP is not reliable or correct. Further such
adjustments may be upwards or downwards.
Penalties have been provided as a disincentive for non-compliance with procedural requirements. Penalties are also
provided for failure to maintain and furnish documents, failure to furnish a report from an accountant and if there is a
concealment of income in case of a post-enquiry adjustments. Penalty for failure to maintain and furnish documents is 2
percent of value of the international transactional27. Penalty for failure to furnish a report from an accountant as required
is Indian Rupees (hereinafter "INR") 10000028. In the event there is deemed to be a concealment of income in case of a
post-enquiry adjustments, TPL prescribes imposition of 100 to 300 percent of additional tax on such adjusted amount.

26Notification

No. 31/2012 [F.No. 500/185/2011-FTD I], dated 17-8-2012 - Where the variation between the arm's length price
determined under section 92C and the price at which the international transaction has actually been undertaken does not exceed five per
cent of the latter, the price at which the international transaction has actually been undertaken shall be deemed to be the arm's length
price for assessment year 2012-13.
27 Sections 271AA and 271G of the I-T Act respectively
28 Section 271BA of the I-T Ac

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V) ENVIRONMENT AND CONSUMER LEGISLATION

i) Environment
The applicable enactments pertaining to environment protection are as:
The Environment (Protection) Act, 1986: this Act authorizes the central government to protect and improve
environmental quality, control and reduce pollution from all sources, and prohibit or restrict the setting and /or
operation of any industrial facility on environmental grounds.
The National Environmental Tribunal Act, 1995: this Act has been created to award compensation for
damages to persons, property, and the environment arising from any activity involving hazardous substances.
The National Environment Appellate Authority Act, 1997: this Act has been created to hear appeals with
respect to restrictions of areas in which classes of industries etc. are carried out or prescribed subject to certain
safeguards under the EPA.
The Biological Diversity Act, 2002: This is an Act to provide for the conservation of biological diversity,
sustainable use of its components, and fair and equitable sharing of the benefits arising out of the use of
biological resources and knowledge associated with it.
Rules

The Environment (Protection) Rules, 1986: these rules lay down procedures for setting standards of emission
or discharge of environmental pollutants.
The objective of Hazardous Waste (Management and Handling) Rules: 1989 these rules deals with control,
generation, collection, treatment, import, storage, and handling of hazardous waste.
The Manufacture, Storage, and Import of Hazardous Rules, 1989: define the terms used in this context, and
sets up an authority to inspect, once a year, the industrial activity connected with hazardous chemicals and
isolated storage facilities.
The Manufacture, Use, Import, Export, and Storage of hazardous Micro-organisms/ Genetically Engineered
Organisms or Cells Rules, 1989: were introduced with a view to protect the environment, nature, and health, in
connection with the application of gene technology and microorganisms.
The Public Liability Insurance Act and Rules and Amendment, 1992: was drawn up to provide for public
liability insurance for the purpose of providing immediate relief to the persons affected by accident while
handling any hazardous substance.
The Biomedical waste (Management and Handling) Rules, 1998: these rules pertains to health care institutions,
streamline the process of proper handling of hospital waste such as segregation, disposal, collection, and
treatment.
The Environment (Siting for Industrial Projects) Rules, 1999: lay down detailed provisions relating to areas to
be avoided for siting of industries, precautionary measures to be taken for site selecting as also the aspects of
environmental protection which should have been incorporated during the implementation of the industrial
development projects.
The Municipal Solid Wastes (Management and Handling) Rules, 2000: apply to every municipal authority
responsible for the collection, segregation, storage, transportation, processing, and disposal of municipal solid
wastes.
The Ozone Depleting Substances (Regulation and Control) Rules, 2000: these rules have been laid down for
the regulation of production and consumption of ozone depleting substances.
The Batteries (Management and Handling) Rules, 2001: rules shall apply to every manufacturer, importer, reconditioner, assembler, dealer, auctioneer, consumer, and bulk consumer involved in the manufacture,
processing, sale, purchase, and use of batteries or components so as to regulate and ensure the environmentally
safe disposal of used batteries.
The Noise Pollution (Regulation and Control) (Amendment) Rules 2002: lay down such terms and conditions
as are necessary to reduce noise pollution, permit use of loud speakers or public address systems during night
hours (between 10:00 p.m. to 12:00 midnight) on or during any cultural or religious festive occasion.

Forest and wildlife

The Indian Forest Act, 1927 - and Amendment, 1984: It was enacted to consolidate the law related to forest,
the transit of forest produce, and the duty leviable on timber and other forest produce.
The Wildlife Protection Act, Rules 1973 and Amendment 1991: provides for the protection of birds and
animals and for all matters that are connected to it whether it be their habitat or the waterhole or the forests
that sustain them.
The Forest (Conservation) Act and Rules, 1981: provides for the protection of and the conservation of the
forests.

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Water
The Easement Act, 1882: This Act defines private rights to use a resource that is, groundwater, by viewing it as
an attachment to the land. It also states that all surface water belongs to the state and is a state property.
The Indian Fisheries Act, 1897: establishes two sets of penal offences whereby the government can sue any
person who uses dynamite or other explosive substance in any way (whether coastal or inland) with intent to
catch or destroy any fish or poisonous fish in order to kill.
The River Boards Act, 1956: enables the states to enroll the central government in setting up an Advisory River
Board to resolve issues in inter-state cooperation.
The Merchant Shipping Act, 1970: This aims to deal with waste arising from ships along the coastal areas
within a specified radius.
The Water (Prevention and Control of Pollution) Act, 1974: establishes an institutional structure for preventing
and abating water pollution. It establishes standards for water quality and effluent. Polluting industries must
seek permission to discharge waste into effluent bodies.
The CPCB (Central Pollution Control Board) was constituted under this Act.
The Water (Prevention and Control of Pollution) Cess Act, 1977: provides for the levy and collection of cess or
fees on water consuming industries and local authorities.
The Water (Prevention and Control of Pollution) Cess Rules, 1978: contains the standard definitions and
indicate the kind of and location of meters that every consumer of water is required to affix.
The Coastal Regulation Zone Notification, 1991: puts regulations on various activities, including construction,
are regulated. It gives some protection to the backwaters and estuaries.
Air

The Factories Act, 1948: was the first to express concern for the working environment of the workers. The
amendment of 1987 has sharpened its environmental focus and expanded its application to hazardous
processes.
The Air (Prevention and Control of Pollution) Act, 1981: provides for the control and abatement of air
pollution. It entrusts the power of enforcing this Act to the CPCB.
The Air (Prevention and Control of Pollution) Rules, 1982: defines the procedures of the meetings of the
Boards and the powers entrusted to them.
The Atomic Energy Act, 1982: deals with the radioactive waste.
The Air (Prevention and Control of Pollution) Amendment Act, 1987: empowers the central and state
pollution control boards to meet with grave emergencies of air pollution.
The Motor Vehicles Act, 1988 states that all hazardous waste is to be properly packaged, labeled, and
transported.

The various statutes mentioned above confer power on the appropriate government, (i.e., the GoI or the relevant state
governments) to make rules there under for the purpose of giving effect to the various provisions contained in the
statutes.
Further, the authorities constituted under the various statutes are conferred with powers to make regulations in certain
cases and the appropriate governments are also conferred with powers to issue notifications as may be required.
Therefore, in addition to the statutes and the rules framed there under, the various regulations and notifications issued
have to be taken into consideration for purposes of compliance.
Consequences of non-compliance with relevant provisions of the statutes are provided in the respective statutes.
Violation of provisions attract inter alia, fine and (or) imprisonment. In some extreme cases, licenses and consents are
liable to be cancelled.
The GoI notified The National Rehabilitation and Resettlement Policy 2007 ( hereinafter "R&R Policy") to inter alia
minimize displacement and promote non displacing or least displacing alternatives for the affected families, to ensure
adequate rehabilitation package and special care for protecting the rights of the weaker sections of society, to provide a
better standard of living and where displacement is on account of land acquisition, facilitate harmonious relationship
between the requiring body and affected families through mutual cooperation.

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In order to give statutory effect to the R&R Policy 2007 and provide for social impact assessment, the GoI had
introduced the Rehabilitation and Resettlement Bill 2007 which presently stands lapsed29.
ii) CONSUMER LAWS
The central consumer legislation is the Consumer Protection Act, 1986 (hereinafter "CPA"). The CPA is a
comprehensive piece of consumer legislation enacted for the better protection of the interests of consumers by
providing for the establishment of consumer councils and other forums for the settlement of consumer disputes.
Though there are various scattered pieces of legislation relating to inter alia, standardization, grading, packaging and
branding, prevention of food adulteration, weights and measures and hoarding and profiteering which do not specifically
mention the concept of consumer interest however contain provisions nevertheless to defend consumers.
Under the provisions of the CPA, a "Consumer" means, inter alia, any person who buys goods or hires or avails of any
services for a consideration. Upon the detection of any defect in the goods or of any deficiency in the services availed by
a consumer, there is a right available to such consumer to file a complaint with the appropriate dispute redressal forum.
There is a three-tiered structure of forums established under the CPA: the District Consumer Disputes Redressal
Forums (hereinafter "District Forums"), the State Consumer Disputes Redressal Commissions (hereinafter "State
Commissions") and the National Consumer Disputes Redressal Commission (hereinafter "National Commission"). The
jurisdiction of these forums to entertain a complaint by a consumer depends on the value of the goods and services and
the compensation claimed.
In cases where the value does not exceed INR 2 million the jurisdiction is that of the concerned District Forum. Where
the value exceeds INR 2 million but does not exceed INR 10 million, the complaint lies with the concerned State
Commission and in cases where the value exceeds INR 10 million the complaint is filed with the National Commission.
If the consumer is not satisfied by order passed by any forum, the consumer may file an appeal against the said order
with the higher forum. Appeals against orders of the National Commission are filed with the Supreme Court.
In addition to the consumer dispute redressal agencies, there are consumer protection councils, namely, the Central
Consumer Protection Council and State Consumer Protection Councils. The objectives of these councils are the
promotion and protection of consumer rights.

29

http://www.prsindia.org/billtrack/lapsed/

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VI)
CORPORATE BANKRUPTCY LAW AND WINDING UP OF COMPANIES
Joseph Schumpeter famously identified the process of Creative Destruction as the essential fact about capitalism.30 In
Schumpeters view, the entrepreneur is the agent of creative destruction,31 and the distinguishing attribute of
entrepreneurial activity is novelty. Entrepreneurs create new products, improve the manufacture of existing products
with new methods, exploit new sources of supply, and develop new forms of organization.32When an enterprise is
unable to profitably grow and expand the business on a sustained basis, may have to take a decision of either
restructuring its organisation or closing it. Thus, the management may either revive the company if it is potentially viable
or ensure the closure of an unviable unit so as to release the investments locked up in such units for productive use
elsewhere. This process is captured under bankruptcy law and its efficacy varies amongst sovereign states on the rules
(enactment) procedures and its implementation.
In order to wind up or close a business organisation, an entrepreneur must take into account the interests of its
employees, creditors, shareholders, etc. Hence he/she must follow the basic regulatory requirements of the country. In
India the revival of Industrial companies is governed under Sick Industrial Companies (Special Provisions) Act, 1985,
(When notified would be under Chapter XIX of the 2013 Companies Act -Revival and Rehabilitation Of Sick
Companies) the winding up process is governed under the Companies Act, 1956 (till the provisions of 2013 Act are
notified).
Sick Industrial Companies (Special Provisions) Act,198533 This Act states the regulation that relates to sick
industries in India and is applicable only to industrial companies, as indicated by its title and preamble, This was a
special legislation enacted in public interest with the twin objects of:
securing the timely detection of sick and potentially sick companies,
speedy determination and enforcement of remedial measures in respect of such companies.
Sick industries are those industries which make losses that are more or less permanent and are not likely to be
eliminated easily. Sick industrial unit is defined34 as a unit or a company (having been in existence for not less than five
years) which is found at the end of any financial year to have incurred accumulated losses equal to or exceeding its
entire net worth35.
In the normal course, such units would close down or would undergo extensive restructuring to eliminate the
operations or activities that are particularly unprofitable. To deal with such a problem, SICA or was enacted. It aimed
to detect industrial sickness and provide for speedy remedial measures. Hence, a quasi-judicial body had been
established called Board for Industrial and Financial Reconstruction (BIFR) in the Department of Economic
Affairs, Ministry of Finance. It a quasi-judicial body for revival and rehabilitation of potentially sick undertakings
and for closure/liquidation of non-viable and sick industrial companies. The Industrial Finance Division of the
ministry dealt with the appointment of the Chairman and the Members of BIFR and Appellate Authority for
Industrial and Financial Reconstruction (AAIFR) as well as with all the other matters relating to industrial sickness.
[This Act was repealed and replaced by Sick Industrial Companies (Special Provisions) Repeal Act,2003, which
made the whole process more transparent and simpler by setting up of National Company Law Tribunal (NCLT) in

30 JOSEPH A. SCHUMPETER, CAPITALISM, SOCIALISM AND DEMOCRACY 83 (5th ed. 1976) Schumpeter developed the
underlying concept in his Theory of Economic Development, where he referred to the new combination of means of production as
the fundamental phenomenon of economic development. JOSEPH A. SCHUMPETER, THE THEORY OF ECONOMIC
DEVELOPMENT: AN INQUIRY INTO PROFITS, CAPITAL, CREDIT, INTEREST, AND THE BUSINESS CYCLE74 (Redvers
Opie trans., 3d prtg., Harvard Univ. Press 1949) (1934.
31 SCHUMPETER, THEORY, supranote 17, at 74 (The carrying out of new combinations we call enterprise; the individuals whose
function it is to carry them out we call entrepreneurs.).
32 SCHUMPETER, THEORY, supranote 17, at 74 (The carrying out of new combinations we call enterprise; the individuals whose
function it is to carry them out we call entrepreneurs.).
33 Subject to notifying of Sick Industrial Companies (Special Provisions) Repeal Act, 2003 provisions of SICA incorporated in Chapter
VI A of the Companies Act are to plug the loopholes in the erstwhile SICA. Under it, the Board for Industrial and Financial
Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) were dissolved and replaced by
National Company Law Tribunal (NCLT) and National Law Appellate Tribunal (NCLAT) respectively.
34 2(o): "sick industrial company" means an industrial company (being a company registered for not less than five years) which has at the
end of any financial year accumulated losses equal to or exceeding its entire net worth. Explanation. -- For the removal of doubts, it is
hereby declared that an industrial company existing immediately before the commencement of the Sick Industrial Companies (Special
Provision) Amendment Act, 1993 (12 of 1994), registered for not less than five years and having at the end of any financial year
accumulated losses equal to or exceeding its entire net worth, shall be deemed to be a sick industrial company.]
35 SICA: 2[(ga) "net worth" means the sum total of the paid-up capital and free reserves. Explanation.-- For the purposes of this clause,
"free reserves" means all reserves credited out of the profits and share premium account but does not include reserves credited out of reevaluation of assests, write back of depreciation provisions and amalgamation;]

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place of BIFR.]36. As a part of the continuous reforms process, the Government has been making efforts to bring
more flexibility in the process of winding up of an industrial unit through a practicable exit policy.
Winding Up a Registered Company and an Unregistered Company
Winding up of a company is defined as a process by which the life of a company is brought to an end and its property
administered for the benefit of its members and creditors. An administrator, called the liquidator, is appointed and he
takes control of the company, collects its assets, pays debts and finally distributes any surplus among the members in
accordance with their rights. At the end of winding up, the company will have no assets or liabilities. When the affairs
of a company are completely wound up, the dissolution of the company takes place. On dissolution, the company's
name is struck off the register of the companies and its legal personality as a corporation comes to an end.
The procedure for winding up differs depending upon whether the company is registered or unregistered. A company
formed by registration under the Companies Act, 1956 is known as a registered company. It also includes an existing
company, which had been formed and registered under any of the earlier Companies Acts.
(1)

Winding up a Registered Company

The Companies Act provides for two modes37 of winding up a registered company-1) by the Tribunal (court) 2)
Voluntary.
(a) Grounds for Compulsory Winding Up or Winding up38 by the Tribunal39 :
If the company has, by a Special Resolution, resolved that the company be wound up by the Tribunal.
If default is made in delivering the statutory report to the Registrar or in holding the statutory meeting. A petition
on this ground may be filed by the Registrar or a contributory before the expiry of 14 days after the last day on
which the meeting ought to have been held. The Tribunal may instead of winding up, order the holding of
statutory meeting or the delivery of statutory report.
If the company fails to commence its business within one year of its incorporation, or suspends its business for a
whole year. The winding up on this ground is ordered only if there is no intention to carry on the business and
the Tribunal's power in this situation is discretionary.
If the number of members is reduced below the statutory minimum i.e. below seven in case of a public company
and two in the case of a private company.
If the company is unable to pay its debts.
If the tribunal is of the opinion that it is just and equitable that the company should be wound up.
Tribunal may inquire into the revival and rehabilitation of sick units. It its revival is unlikely, the tribunal can
order its winding up.
If the company has made a default in filing with the Registrar its balance sheet and profit and loss account or
annual return for any five consecutive financial years.
If the company has acted against the interests of the sovereignty and integrity of India, the security of the State,
friendly relations with foreign States, public order, decency or morality.
The petition for winding up to the Tribunal40 may be made by: The company, in case of passing a special resolution for winding up.
A creditor, in case of a company's inability to pay debts.
A contributory or contributories, in case of a failure to hold a statutory meeting or to file a statutory report or in
case of reduction of members below the statutory minimum.
The Registrar, on any ground provided prior approval of the Central Government has been obtained.
A person authorised by the Central Government, in case of investigation into the business of the company where
it appears from the report of the inspector that the affairs of the company have been conducted with intent to
defraud its creditors, members or any other person.
The Central or State Government, if the company has acted against the sovereignty, integrity or security of India
or against public order, decency, morality, etc.
(b)

Voluntary Winding Up of a Registered Company41

This being subject to notifying of the National Company Law Tribunal

Section 424 of the Companies Act,1956
38 Section 433 of the Companies Act,1956
39 To be read as Court till notifying of the National Company Law Tribunal (NCLT)
40 Section 439 interpreted of the Companies Act,1956
36
37

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When a company is wound up by the members or the creditors without the intervention of Tribunal, it is called as
voluntary winding up. It may take place by: By passing an ordinary resolution in the general meeting if: - (i) the period fixed for the duration of the company
by the articles has expired; or (ii) some event on the happening of which company is to be dissolved, has
happened.
By passing a special resolution to wind up voluntarily for any reason whatsoever.
Within 14 days of passing the resolution, whether ordinary or special, it must be advertised in the Official Gazette
and also in some important newspaper circulating in the district of the registered office of the company.
The Companies Act provides for two methods for voluntary winding up: Members' voluntary winding up42
It is possible in the case of solvent companies which are capable of paying their liabilities in full. There are two
conditions for such winding up: A declaration of solvency must be made by a majority of directors, or all of them if they are two in number. It will
state that the company will be able to pay its debts in full in a specified period not exceeding three years from
commencement of winding up. It shall be made five weeks preceding the date of resolution for winding up and
filed with the Registrar. It shall be accompanied by a copy of the report of auditors on Profit & Loss Account and
Balance Sheet, and also a statement of assets and liabilities upto the latest practicable date; and
Shareholders must pass an ordinary or special resolution for winding up of the company.
The provisions applicable to members' voluntary winding up are as follows: Appointment of liquidator and fixation of his remuneration by the General Meeting.
Cessation of Board's power on appointment of liquidator except so far as may have been sanctioned by the
General Meeting, or the liquidator.
Filling up of vacancy caused by death, resignation or otherwise in the office of liquidator by the general meeting
subject to an arrangement with the creditors.
Sending the notice of appointment of liquidator to the Registrar.
Power of liquidator to accept shares or like interest as a consideration for the sale of business of the company
provided special resolution has been passed to this effect.
Duty of liquidator to call creditors' meeting in case of insolvency of the company and place a statement of assets
and liabilities before them.
Liquidator's duty to convene a General Meeting at the end of each year.
Liquidator's duty to make an account of winding up and lay the same before the final meeting.

Creditor's voluntary winding up43

It is possible in the case of insolvent companies. It requires the holding of meetings of creditors besides those of the
members right from the beginning of the process of voluntary winding up. It is the creditors who get the right to
appoint liquidator and hence, the winding up proceedings are dominated by the creditors.
The provisions applicable to creditors' voluntary winding up are as follows:The Board of Directors shall convene a meeting of creditors on the same day or the next day after the meeting at
which winding up resolution is to be proposed. Notice of meeting shall be sent by post to the creditors
simultaneously while sending notice to members. It shall also be advertised in the Official Gazette and also in two
newspapers circulating in the place of registered office.
A statement of position of the company and a list of creditors along with list of their claims shall be placed before
the meeting of creditors.
A copy of resolution passed at creditors' meeting shall be filed with Registrar within 30 days of its passing.
It shall be done at respective meetings of members and creditors. In case of difference, the nominee of creditors
shall be the liquidator.
A five-member Committee of Inspection is appointed by creditors to supervise the work of liquidator.
Fixation of remuneration of liquidator by creditors or committee of inspection.
Cessation of board's powers on appointment of liquidator.
As soon as the affairs of the company are wound up, the liquidator shall call a final meeting of the company as well as
that of the creditors through an advertisement in local newspapers as well as in the Official Gazette at least one month

Part VII Chapter III- Voluntary Winding up starting from Section 484 of the Companies Act,1956
Reading into Section 489 of the Companies Act,1956
43 Part VII Chapter III- Creditors Winding up starting from Section 499 of the Companies Act,1956
41
42

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before the meeting and place the accounts before it. Within one week of meeting, liquidator shall send to Registrar a
copy of accounts and a return of resolutions.
(ii)
Winding up an Unregistered Company
According to the Companies Act, an unregistered company includes any partnership, association, or company
consisting of more than seven persons at the time when petition for winding up is presented. But it will not cover the
following: A railway company incorporated by an Act of Parliament or other Indian law or any Act of the British
Parliament;
A company registered under the Companies Act, 1956;
A company registered under any previous company laws.
An illegal association formed against the provisions of the Act.
However, a foreign company carrying on business in India can be wound up as an unregistered company even if it has
been dissolved or has ceased to exist under the laws of the country of its incorporation.
The provisions relating to winding up of an unregistered company: Such a company can be wound up by the Tribunal but never voluntarily.
Circumstances in which unregistered company may be wound up are as follows:
If the company has been dissolved or has ceased to carry on business or is carrying on business only
for the purpose of winding up its affairs.

If the company is unable to pay its debts.

If the Tribunal regards it as just and equitable to wind up the company.

Contributory means a person who is liable to contribute to the assets of a company in the event of its being
wound up. Every person shall be considered a contributory if he is liable to pay any of the following amounts:
Any debt or liability of the company;

Any sum for adjustment of rights of members among themselves;

Any cost, charges and expenses of winding up;

On the making of winding up order, any legal proceeding can be filed only with the leave of the Tribunal.
(iii)
Fast Track mode of winding up of a Company/Defunct companies
Power of Registrar to Strike Defunct Company off Register44.
(1) Where the Registrar has reasonable cause to believe that a company is not carrying on business or in operation, he
shall send to the company by post a letter inquiring whether the company is carrying on business or in operation.
Thus a Company can be wound up under section 560 of the Companies Act, 1956. Under a FAST TRACK EXIT
MODE45 for this, the Company should be defunct company i.e. a dormant company with nil Assets and nil Liabilities
i.e. all the assets should be disposed off and all liabilities should be cleared. For this purpose, the Company should
prepare audited Accounts for the period ending not later than 30 days from filing the winding up application. Said
accounts should show nil Assets and nil Liabilities.

44
45

Section 560 of the Companies Act,1956

General Circular No. 36/2011: F. No. 2/3/2011-CL V, Government of India, Ministry of Corporate Affairs dated 7.6.2011.

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VII)
INTELLECTUAL PROPERTY LAWS
Intellectual property rights as a collective term includes the following independent IP rights which can be collectively
used for protecting different aspects of an inventive work for multiple protection:- Patents, Copyrights, Trademarks,
Registered (industrial) design, Protection of IC layout design, Geographical indications, and Protection of undisclosed
information.
The importance of intellectual property in India is well established at all levels statutory, administrative and judicial. India
ratified the agreement establishing the World Trade Organization (hereinafter "WTO"). This agreement, inter alia,
contains an agreement on Trade Related Aspects of Intellectual Property Rights (hereinafter "TRIPS"). India has laid
down minimum norms and standards with respect to Patents; Trademarks; Copyright; Geographical indications; and
Designs. Wherein TRIPS lays down minimum standards for the protection and enforcement of intellectual property
rights in member countries. Such countries are required to promote effective and adequate protection of intellectual
property rights with the objective of reducing distortions and impediments to international trade. The obligations under
the TRIPS agreement relate to the provision of minimum standards of protection within the legal systems and practices
of the member countries.
i) Patents - Patent Act, 1970:In accordance with the terms of TRIPS, India was imparted a total period of ten years (1995-2004) to apply the
provisions of TRIPS and for extending product patent protection to areas of technology not hitherto protected.
India had taken a three-phase obligation under the terms of TRIPS. In the first phase, India's Patent Act, 1970 was
amended by the Patents (Amendment) Act, 1999, to introduce a transitional (mailbox) facility to receive and hold patent
applications in the fields of pharmaceuticals and agriculture chemicals until the end of 2004.
In the second phase, the GoI was obligated to increase the term of a patent to twenty years from the date of filing of the
patent application. It was further obligated to amend the laws on infringement in order to shift the burden of proof away
from the defendant and to alter the section on compulsory licenses. Pursuant to the above, the Patents (Amendment)
Act, 2002 was enacted.
In the third phase, the GoI was obligated to pass a law to introduce product patent protection in all fields of technology.
The Patent (Third Amendment) Act, 2005 (hereinafter "2005 Act") was enacted.
The 2005 Act seeks to protect the interests of consumers with in-built safeguards, checks and balances. It contains
comprehensive provisions to deal with issues concerning pricing of products. Safeguards include inter alia, provisions
for compulsory licensing to ensure availability of products at reasonable prices, parallel import of products, acquisition
of patent rights by the GoI, revocation of patents in the public interest and provisions to deal with emergency situations.
The 2005 Act also seeks to protect the interests of the domestic industries including inter alia, the pharmaceutical and
chemical industries. The Patents Act, 1970, incorporates special measures to protect national security. It empowers the
GoI to withhold any information relating to any patentable invention or application that it considers prejudicial to
national security.
ii) Trademarks- Trademarks Act, 1999:Trademarks in India are governed by the Trademarks Act, 1999 (hereinafter "TM Act"). The TM Act broadens the
definition of a "trademark" and simplifies procedures. Trademarks consist of inter alia, a device, brand, heading, label,
ticket, name, signature, word, letter, numeral, shape of goods and packaging or combination of colors that are capable of
being represented graphically and capable of distinguishing the goods or services of one person from those of others.
The TM Act provides for exclusive registration of service marks, based on international classification of services, in
addition to goods. It also includes provisions for registering collective marks. It prohibits registration of certain marks
that are mere reproductions or imitations of a "well known mark" and provides for a single registration application in
more than one class of goods and services. The definition of "mark" is extended to include the shape of goods,
packaging, and combination of colors.
The TM Act provides for registration of trademarks and allows the assignment of trademarks to another entity. Non-use
of a mark over a specified period is one of the grounds for canceling registration.
The TM Act makes trademark infringement a non-bailable offence and punishment has been extended to a maximum of
three years' imprisonment. It also harmonizes penal provisions with those of the Copyright Law.
iii) Copyright- Copyright Act, 1957
Copyright in India for published and unpublished literary, dramatic, musical, artistic and film works is protected under
the Copyright Act, 1957. The Copyright Act extends copyright protection to inter alia, computer software, commercial
art, posters, drawings, designs and monograms, and the sale and hire of computer programs, films and sound recordings.
They also provide for improved protection of literary and artistic work and establish more efficient enforcement. Audio

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or audio-visual recordings of a live performance and their public broadcasts now require the consent of the
performer(s).
iv) Geographical Indications of Goods (Registration and Protection) Act, 1999
Geographical Indications relating to goods in India are dealt with by the Geographical Indications of Goods
(Registration and Protection) Act, 1999 ("GI Act"). TRIPS contains a general obligation that parties shall provide the
legal means for interested parties to prevent the use of any means in the designation or presentation of a good that
indicates or suggests that the good in question originates in a geographical area other than the true place of origin in a
manner which misleads the public as to the geographical origin of the good.
The GI Act was enacted to register and protect geographical indication of goods that originate from or are manufactured
in a particular territory, region or even locality. These goods include agricultural, natural or manufactured goods that are
distinct from similar products due to quality, reputation or any other characteristic that is essentially attributable to their
geographical origin. Under the GI Act, such distinctive geographical indication can be protected by registration thus
facilitating the promotion of Indian goods when exported overseas and in turn protecting consumers from deception.
Registered geographical indication shall not be the subject matter of assignment, transmission, licensing, pledge,
mortgage or any such other agreement.
v) Designs Act, 2000
TRIPS provides for the objective of protection of new or original independently created industrial Designs. Pursuant to
the same, the object of the Designs Act, 2000 (hereinafter "Designs Act") is to protect new or original designs that are
independently created in order to be applied to or that are applicable to a particular article to be manufactured by
industrial process or means.
As per the Designs Act, "design" means only the features of shape, configuration, pattern, ornament or composition of
lines or colors applied to any "article" whether in two dimensional or three dimensional or in both forms, by any
industrial process or means, whether manual mechanical or chemical, separate or combined, which in the finished article
appeal to and are judged solely by the eye.
The registration of a design confers copyright upon the registered proprietor, which grants the exclusive right to the
holder to apply a design to an article in the relevant registered class for the period of registration. Registration of a design
is valid for ten years.
The Designs Act provides for civil remedies in cases of infringement of copyright in a design, but does not provide for
criminal actions. The civil remedies available in such cases are injunctions, damages, compensation, or delivery-up of the
infringing articles.
India is a signatory to the Washington Treaty of 1989, which is administered by the World Intellectual Property
Organization (hereinafter "WIPO"). The main obligations of the same are in respect of the original layout designs of
integrated circuits. This is reflected in The Semiconductor Integrated Circuits Layout-Design Act, 2000.
vi) Information Technology Act, 2000
Information Technology: In accordance with the changing scenario of transactions which are the subject of intellectual
property rights, India's Information Technology Act, 2000 (hereinafter "IT Act") was enacted to provide legal
recognition for transactions carried out by means of e-commerce and facilitates electronic filing of documents with state
agencies. The IT Act also addresses computer crime, hacking, damage to computer source code, breach of
confidentiality and viewing of pornography. The legislation gives broad discretion to law enforcement authorities
through a number of provisions. The key provisions of the IT Act are:
Authentication of electronic records by use of asymmetric crypto systems and hash functions;
Legal recognition to the electronic form of information required to be submitted and (or) retained under any law;
Legal recognition to authentication by means of digital signature certificates issued by Certifying Authorities;
Provisions for the appointment of a controller for the purpose of licensing, certifying and monitoring the activities
of certifying authorities;
Consequential amendments to certain laws including inter alia, the Indian Penal Code, the Indian Evidence Act and
the Reserve Bank of India Act recognizing transactions and evidence in electronic form.
The IT Act specifies that an Internet Service Provider (hereinafter "ISP") is not liable for any third-party information
transmitted over its network or data made available by it purely in its capacity as an intermediary, if it is able to prove

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that the offence or contravention was committed without its knowledge or it had exercised due diligence to prevent
such violation.

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D)

COURTS AND LITIGATIONS IN INDIA.

I) Courts in India and its Jurisdiction:
An Aspect of appreciating the economic condition in a country is the factor of the efficacy and integrity of a dispute
redressal system. Dispute redressal system which is primordial function of the judiciary unless contracted by parties to
avail alternate dispute redressal system under the framework of established enactments.
The Indian Judiciary is partly a continuation of the British legal system established by the English in the mid-19th
century based on a typical hybrid legal system in which customs, precedents and legislative law -have validity of law. The
Constitution of India is the supreme legal document of the country. There are various levels of judiciary in India
different types of courts, each with varying powers depending on the tier and jurisdiction bestowed upon them. They
form a strict hierarchy of importance, in line with the order of the courts in which they sit, with the Supreme Court of
India at the top, followed by High Courts of respective states with district judges sitting in District Courts and
Magistrates of Second Class and Civil Judge (Junior Division) at the bottom. Courts hear criminal and civil cases,
including disputes between individuals and the government. The Indian judiciary is independent of the executive and
legislative branches of government according to the Constitution.

India has a highly developed codified legal system, initially inherited from the British but thereafter extensively reworked and substantively re-structured and a subtle movement toward tribunalisation46 thus a biased shift towards the
Civil Law legal system.
India also possesses a judicial system that is ranked as one of the finest in the world and administered by a three-tiered
judicial structure. The Supreme Court of India (hereinafter "Supreme Court") is the apex federal court below which fall
the respective High Courts that head state-level judicial administration. Each state is further divided into judicial districts
presided over by a District and Sessions Judge, who is the highest judicial authority in a district. The judicial districts
comprise of trial courts of civil and criminal jurisdiction.
Supreme Court: The Supreme Court of India is the highest court of the land as established by Part V, Chapter IV of
the Constitution of India. According to the Constitution of India, the role of the Supreme Court is that of a federal
court, guardian of the Constitution and the highest court of appeal. Articles 124 to 147 of the Constitution of India lay
down the composition and jurisdiction of the Supreme Court of India.
The proceedings of the Supreme Court are conducted in English only. Supreme Court Rules, 1966 are framed under
Article 145 of the Constitution to regulate the practice and procedure of the Supreme Court.
Primarily, it is an appellate court which takes up appeals against judgments of the High Courts of the states and
territories.

46 S.D. Joshi v. High Court of Judicature at Bombay AIR 2011 SC 848) following Harinagar Sugar Mills Ltd v/s Shyam Sundar Jhunjhunwala
AIR 1961 SC 1669 reiterated Lord Sankey, L.C. in Shell Company of Australia v. Federal Commissioner of Taxation [1931] A.C. 275
observed:
The authorities are clear to show that there are tribunals with many of the trappings of a court, which, nevertheless, are not courts in
the strict sense of exercising judicial power.... In that connection it may be useful to enumerate some negative propositions on this
subject:
1. A tribunal is not necessarily a court in this strict sense because it gives a final decision.
2. Nor because it hears witnesses on oath.
3. Nor because two or more contending parties appear before it between whom it has to decide.
4. Nor because it gives decisions which affect the rights of subjects.
5. Nor because there is an appeal to a court.
6. Nor because it is a body to which a matter is referred by another body. See Rex v. Electricity Commissioners
Further in Harinagar Sugar Mills Ltd v/s Shyam Sundar Jhunjhunwala AIR 1961 SC 1669
In my opinion, a Court in 'the strict sense is a tribunal which is a part of the ordinary hierarchy of Courts of Civil Judicature maintained
by the State under its constitution to exercise the judicial power of the State. These Courts perform all the judicial functions of the State
except those that are excluded by law from their jurisdiction. The word "judicial", be it noted, is itself capable of two meanings. They
were admirably stated by Lopes, L.J. in Royal Aquarium and Summer and Winter Garden Society v. Parkinson (2), in these words:
"The word 'judicial' has two meanings. It may refer to the discharge of duties exercisable by a judge or by justices in court, or to
administrative duties which need not be performed in court, but in respect of which it is necessary to bring to bear a judicial mind- that
is, a mind to determine what is fair and just in respect of the matters under consideration."That an officer is required to decide matters
before him "judicially" in the second sense does not make him a Court or even a tribunal, because that only establishes that he is
following a standard of conduct, and is free from bias or interest.

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The Supreme Court exercises original, appellate and advisory jurisdiction. Its exclusive original jurisdiction extends to all
disputes between the GoI and one or more States or between two or more States. The Constitution gives an extensive
original jurisdiction to the Supreme Court to enforce fundamental rights. The appellate jurisdiction of the Supreme
Court can be invoked by a certificate of the High Court concerned or by special leave granted by the Supreme Court in
respect of any judgment, decree or final order of a High Court in cases both civil and criminal, involving substantial
questions of law as to the interpretation of the constitution. Under its advisory jurisdiction, the President of India is
entitled to consult the Supreme Court on any question of fact or law of public importance.
It also takes writ petitions in cases of serious human rights violations or any petition filed under Article 32 which is the
right to constitutional remedies or if a case involves a serious issue that needs immediate resolution.
The Supreme Court has been responsible for the introduction of several concepts of critical importance including inter
alia, the concept of Public Interest Litigation (hereinafter "PIL") which stands for litigation in the interests of the public
in general. Through the PIL, the Supreme Court has imparted an easier access to the law and introduced a broader
public interest perspective to litigation addressing important issues including inter alia, human rights, consumer welfare
and protection of the environment.
The Supreme Court of India had its inaugural sitting on 28 January 1950.
High Courts: There are 21 High Courts in India at present. High Courts have powers of superintendence over all
courts within their jurisdiction. Certain High Courts have original in addition to appellate jurisdiction. The precise
territorial jurisdiction of each High Court varies, these courts have jurisdiction over a state, a union territory or a group
of states and union territories.
High Courts are instituted as constitutional courts under Part VI, Chapter V, Article 214 of the Indian Constitution.
Primarily the work of most High Courts consists of Appeals from lower courts and writ petitions in terms of Article 226
of the Constitution of India. Writ Jurisdiction is original jurisdiction of High Court. High courts may also enjoy original
jurisdiction in certain matters if so designated specifically in a state or Federal law. e.g.: Company law cases are instituted
only in a High Court.
The High Courts are the principal civil courts of original jurisdiction in the state along with District Courts which are
subordinate to the High courts. Below the High Courts are a hierarchy of subordinate courts such as the civil courts,
family courts, criminal courts and various other district courts. However, High courts exercise their original civil and
criminal jurisdiction only if the courts subordinate to the High court in the state are not competent (not authorized by
law) to try such matters for lack of pecuniary, territorial jurisdiction.
Article 141 of the Constitution of India mandates that subordinate Courts are bound by the judgments and orders of the
Supreme Court of India as precedence.
Tribunals: Certain important areas of law have dedicated tribunals in order to facilitate the speedy dissemination of
justice by individuals qualified in the specific fields. These include the Company Law Board, the Income Tax Appellate
Tribunal, the Labour Appellate Tribunal, the Copyright Board, Securities Appellate Tribunal and others.
Certain disputes may be referred to in-house dispute redressal systems within certain government bodies and
government companies.
i) Jurisdiction:
Jurisdiction may be defined as the power or authority of a court to hear and determine a cause, to adjudicate and exercise
any judicial power in relation to it, which may depend upon fulfillment of certain conditions or upon the existence of a
particular fact. If such a condition is satisfied, only then does the authority or Court, as the case may be, have the
jurisdiction to entertain and try the matter. Jurisdiction of the courts may be classified under the following categories:
Original and Appellate Jurisdiction: The jurisdiction of a court may be classified as original and appellate. In the exercise
of original jurisdiction, a court entertains and decides suits and in exercise of its appellate jurisdiction, it entertains and
decides appeals from lower courts. Munsiffs Courts, Courts of Civil Judge and Small Cause Courts possess original
jurisdiction only, while District Courts and High Courts have original as well as appellate jurisdictions, subject to certain
exceptions. Indian courts generally have jurisdiction over a specific suit in the following circumstances:
o Where the whole or part of the cause of action (the act or omission that triggered the dispute) arose in the territorial
jurisdiction of the court.
o Where the defendant resides within the territorial jurisdiction of the court.
o Where the subject of the suit is immovable property (real property and items permanently affixed thereto), where
such immovable property is situated within the jurisdiction of the court.
Thus may be also stated as:
Territorial or Local Jurisdiction: Every court has its own local or territorial limits beyond which it cannot exercise its
jurisdiction. The Government fixes these limits.
Pecuniary Jurisdiction: The Code of Civil Procedure provides that a court will have jurisdiction only over those suits

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the amount or value of the subject matter of which does not exceed the pecuniary limits of its jurisdiction. Some
courts have unlimited pecuniary jurisdiction i.e. High Courts and District Courts in certain states have no pecuniary
limitations.
Jurisdiction as to Subject Matter: Different courts have been empowered to decide different types of suits. Certain
courts are precluded from entertaining certain suits. For example, the Presidency Small Causes Courts has no
jurisdiction to try suits for specific performance of contract, partition of immovable property etc. Similarly, matters
pertaining to the laws relating to tenancy are assigned to the Presidency Small Causes Court and therefore, no other
Court would have jurisdiction to entertain and try such matters.

ii) Certain Reliefs Available Before The Indian Courts:

In a civil action amongst the gamut of reliefs the following are sought after:
Interim Relief: As suits filed in Indian courts can often take inordinate amounts of time, the plaintiff may apply for
urgent relief to seek an injunction restraining the opposite party from disturbing the status quo. Interim orders are those
orders passed by the court during the pendency of a suit or proceeding which do not determine finally the substantive
rights and liabilities of the parties in respect of the subject matter of the suit or proceeding. Interim orders are necessary
to deal with and protect rights of the parties in the interval between the commencement of the proceedings and final
adjudication. They enable the court to grant such relief or pass such order as may be necessary, just or equitable. Hence,
interim proceedings play a crucial role in the conduct of litigation between the parties. Injunctions are a popular form of
interim relief. Injunctions may be temporary (granted for any time period up to the conclusion of the suit) or permanent.
The grant of injunction is a discretionary remedy and in the exercise of judicial discretion in granting or refusing to grant,
the court will take into consideration the following guidelines:
Prima Facie Case: The applicant must make out a prima facie case in support of the right claimed by him and
should be able to convince the court that there is a bonafide dispute raised by the applicant - that there is a strong
case for trial which needs investigation and a decision on merits and on the facts before the court there is a
probability of the applicant being entitled to the relief claimed by him.
Irreparable Injury The applicant must further satisfy the court that he will suffer irreparable injury if the injunction
as prayed is not granted, and that there is no other remedy open to him by which he can be protected from the
consequences of apprehended injury.
Balance of Convenience: In addition to the above two conditions, the court must also be satisfied that the balance
of convenience must be in favor of the applicant. In order to determine the same the court needs to look into the
factors such as whether it could cause greater inconvenience to the plaintiff if the injunction was not granted.
whether the party seeking injunction could be adequately compensated by awarding damages and the defendant
would be in a financial position to pay them.
Specific Relief: The Specific Relief Act, i963 provides for specific relief for the purpose of enforcing individual civil
rights and not for the mere purpose of enforcing civil law and includes all the cases where the Court can order specific
performance of an enforceable contract. Specific performance is an order of the court which requires a party to perform
a specific act, usually what is stated in a contract. While specific performance can be in the form of any type of forced
action, it is usually used to complete a previously established transaction, thus being the most effective remedy in
protecting the expectation interest of the innocent party to a contract. The aggrieved party may approach a Court for
specific performance of a contract. The Court will direct the offender party to fulfill his part of obligations as per the
enforceable contract.
Damages: Under the common law, the primary remedy upon breach of contract is that of damages. The goal of
damages in tort actions is to make the injured party whole through the remedy of money to compensate for tangible and
intangible losses caused by the tort. Under the (Indian) Contract Act, the remedy of damages is laid down in Section 73
and 74. Section 73 states that where a contract is broken, the party suffering from the breach of contract is entitled to
receive compensation from the party who has broken the contract. However, no compensation is payable for any
remote or indirect loss or damage.
Section 74 deals with liquidated damages and provides for the measure of damages in two classes: (i) where the contract
names a sum to be paid in case of breach; and (ii) where the contract contains any other stipulation by way of penalty. In
both classes, the measure of damages is as per Section 74, reasonable compensation not exceeding the amount or penalty
stipulated for.
II)
Alternative Dispute Resolution
The concept of "Alternative Dispute Resolution" on the lines of internationally accepted standards was comprehensively
re-modeled in India with the advent of the economic liberalization policies of the GoI. The objective was to facilitate

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structured economic development that would be in requirement of quick and cost effective resolution of domestic and
trans-national business and commercial disputes. The law pertaining to arbitration in India is contained in the
Arbitration and Conciliation Act, 1996 (hereinafter "Arbitration Act"). This is the prime legislation relating to domestic
arbitration, international commercial arbitration and enforcement of foreign arbitral awards and also to define the law
relating to conciliation and for matters connected therewith or incidental thereto. It repealed the three statutory
provisions for arbitration: - (i) the Arbitration Act, 1940; (ii) the Arbitration (Protocol and Convention) Act, 1937;
and (iii) the Foreign Awards (Recognition and Enforcement) Act, 1961.
i) Arbitration:
The Arbitration and Conciliation Act, 1996 (Arbitration Act 1996) is based on the UNCITRAL Model Law of
International Commercial Arbitration. It encompasses both domestic and international commercial arbitration and gives
freedom to the arbitrating parties in case of trans-border contracts to choose the venue as well as the rules governing
their arbitration. It further accords due recognition to mediation and conciliation. The Arbitration Act contains elaborate
provisions on the composition and jurisdiction of arbitral tribunals and the conduct of arbitral proceedings. Under its
provisions, an arbitration agreement must evince an agreement to refer the dispute to arbitration. Further, the
Arbitration Act incorporates the principle of finality of the arbitral award as in UNCITRAL and ICC and accords
arbitral awards final and binding status qua parties. Under the Arbitration Act, interference of the courts in matters
connected with inter alia, the conduct of arbitration, decision of the arbitrator and the awards has been minimized.
Courts are empowered however, to order interim measures of protection including inter alia, securing the amount in
dispute, detention, preservation or inspection of property and the appointment of receivers.
The Arbitration Act 1996 contains elaborate provisions in respect of "Conciliation" based on the
UNCITRALConciliation Rules (Sections 61 to 81 of the Arbitration Act). Conciliation can be resorted to in relation to
disputes arising out of a legal relationship, whether contractual or not. There are elaborate provisions in respect of inter
alia, role of the conciliator, disclosure of information, settlement agreements, confidentiality and admissibility of
evidence in other proceedings. Settlement agreements are final and binding on the parties and hold the same status and
effect as an arbitral award. Settlement agreements can be enforced as a decree of court.
Domestic Arbitration is defined as an alternative dispute resolution mechanism in which the parties get their disputes
settled through the intervention of a third person and without having recourse to the court of law. It is a mode in which
the dispute is referred to a nominated person who decides the issue in a quasi-judicial manner after hearing both sides.
Generally, the disputing parties refer their case to an arbitral tribunal and the decision arrived at by the tribunal is known
as an 'award'.
While, the term 'international commercial arbitration' means "an arbitration relating to disputes arising out of legal
relationships, whether contractual or not, considered as commercial under the law in India and where at least one of the
parties is:- (i) an individual who is a national of, or habitually resident in, any country other than India; or (ii) a body
corporate which is incorporated in any country other than India; or (iii) a company or an association or a body of
individuals whose central management and control is exercised in any country other than India; or (iv) the Government
of a foreign country".
The Act covers the following recognized forms of arbitration:
(a) Ad-hoc Arbitration: Ad-hoc arbitration is where no institution administers the arbitration. The parties
agree to appoint the arbitrators and either set out the rules which will govern the arbitration or leave it to
the arbitrators to frame the rules. Ad-hoc arbitration is quite common in domestic arbitration in India.
The absence of any reputed arbitral institution in India has allowed ad-hoc arbitration to continue to be
popular. In cross border transactions it is quite common for parties to spend time negotiating the
arbitration clause, since the Indian party would be more comfortable with ad-hoc arbitration whereas
foreign parties tend to be more comfortable with institutional arbitration.
(b) Institutional Arbitration: As stated above, institutional arbitration refers to arbitrations administered by an
arbitral institution. Institutions such as the International Court of Arbitration attached to the International
Chamber of Commerce in Paris (ICC), the London Court of International Arbitration (LCIA) and the
American Arbitration Association (AAA) are well known world over and often selected as institutions by
parties from various countries. Within Asia, greater role is played by institutions such as the Singapore
International Arbitration Centre (SIAC), the Hong Kong International Arbitration Centre (HKIAC) and
China International Economic and Trade Arbitration Commission (CIETAC). The Dubai International
Arbitration Centre is also evolving into a good center for arbitration. While Indian institutions such as the

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(c)

(d)

Indian Council of Arbitration attached to the Federation of Indian Chambers of Commerce and Industry
(FICCI), the International Centre for Alternative Dispute Resolution under the Ministry of Law & Justice
(ICADR), and the Court of Arbitration attached to the India Merchants' Chamber (IMC) are in the
process of spreading awareness and encouraging institutional arbitration, it would still take time for them
to achieve the popularity enjoyed by international institutions.
Statutory Arbitration: Statutory arbitration refers to scenarios where the law mandates arbitration. In such
cases the parties have no option but to abide by the law of land. It is apparent that statutory arbitration
differs from the above types of arbitration because (i) the consent of parties is not required; (ii) arbitration
is the compulsory mode of dispute resolution ; and (iii) it is binding on the Parties as the law of land.
Sections 24, 3i and 32 of the Defence of India Act, i97i, Section 43(c) of The Indian Trusts Act, i882 and
Section 7B of the Indian Telegraph Act, i885 are the statutory provisions which deal with statutory
arbitration.
Foreign Arbitration: When arbitration proceedings are conducted i.e. seated in a place outside India and
the award is required to be enforced in India, such a proceeding is termed as a Foreign Arbitration.

The major provisions relating to Arbitration in the Act are:The parties to a present dispute may make an agreement called as the 'arbitration agreement47' that instead of going to
the court; they shall refer the dispute to arbitration. The parties to the agreement may refer to arbitration, a dispute:Which has arisen or which may arise between them, In respect of a defined legal relationship, whether contractual or
not.
Thus, all matters of civil nature whether they relate to present or future disputes may form the subject matter of
reference. Even disputes such as infringement of intellectual property rights shall also be covered.
Although no formal document is prescribed, an arbitration agreement/clause must be in writing. If the arbitration
agreement/clause is contained in a document, the document must be signed by the concerned parties. Besides, the
agreement may be established by: - (i) an exchange of letters, telex, telegram or other means of telecommunications; or
(ii) an exchange of statements of claims and defence in which the agreement is alleged by one party and is not denied by
the other.
The disputes that cannot be referred to arbitration are: Insolvency proceedings.
Lunacy proceedings.
Proceedings for appointment of a guardian to a minor.
Question of genuineness or otherwise of a will or matter relating to issue of a probate.
Matter of criminal nature.
Matters concerning public charitable trusts.
Disputes arising from and founded on an illegal contract.
The agreement mandatorily requires the appointment of an arbitrator. An arbitrator is a person appointed, with or
without mutual consent of the contending parties, for the purpose of investigation and settlement of a difference or
dispute referred to him. The arbitral tribunal may be constituted by one or more arbitrators. The parties are free to fix
the number of arbitrators by agreement. Accordingly, the reference may be made either to a single arbitrator or a panel
of odd number (i.e. 3, 5, 7 etc) of arbitrators. If there is no agreement, the reference shall be made to a sole arbitrator.
Unless otherwise agreed by the parties, an arbitrator may be of any nationality. In case of an international commercial
arbitration, where the parties belong to different nationalities, the Chief Justice of India may appoint an arbitrator of a
nationality other than that of the parties.
The parties are free to agree on a procedure for appointing the arbitrator or arbitrators. If there is such an agreement,
the appointment has to be made in accordance with it. The agreement may provide for the number of arbitrators,
qualifications of arbitrator, procedure of appointment, procedure of challenging the appointment, termination of

47 It is yet undecided on the principles of standard form contracts the in-principle applicability of arbitration agreement as between a
member broker of a stock exchange and his/its principal on disputes arising between a broker and his/its principal binding to arbitration
under the auspices of an broker/financial intermediary sponsored exchange as NSE/BSE as opposed to the practice across major
financial centres wherein principal has an option to opt out.

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appointment, procedure to be followed by arbitrators, place of arbitration, language, etc.

The duties of the Arbitral Tribunal are: - (i) to act independently and impartially and treat the parties equally; (ii) to give
each party full opportunity to present his case.
The parties may agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings. In the
absence of such agreement, the arbitral tribunal may conduct the proceedings in the manner it considers appropriate and
shall be empowered to determine the admissibility, relevance, materiality and weight of any evidence. The tribunal shall
decide whether to hold oral hearings for presentation of evidence or for oral argument, or whether to conduct the
proceedings on the basis of documents and other materials.
An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal. The award shall
state its date and place of arbitration. The arbitral award shall state the reasons upon which it is based, unless the parties
have agreed that no reasons are to be given or in case of award on a settlement between the parties. A signed copy of the
award shall be delivered to each party.
An arbitral award is itself enforceable as a decree of the court, normally after three months from the date on which it
was received by the parties, provided no application for setting aside the award is made or if it is made the same has
been rejected. The arbitral award shall be final and binding on the parties and persons claiming under them respectively.
The arbitral proceedings shall be terminated when:The final arbitral award is made,
i) The claimant withdraws his claim, and the respondent does not object to it,
ii) The parties agree on the termination,
iii) The continuation of proceedings has for any other reason become unnecessary or impossible.
Ambiguity had been created in the interpretation of Clause (2) of Section 2- This Part shall apply where the place of
arbitration is in India. Thus the principal issue is whether Part I of the Arbitration and Conciliation Act, 1996 applies to
arbitrations where the seat of arbitration is outside India by judgments of Bhatia International Vs. Bulk Trading S.A. &
Anr., (2002) 4 SCC 105 and Venture Global Engineering Vs. Satyam Computer Services Ltd. & Anr. 2008 (1) Scale 214
has been laid to rest in Bharat Aluminium v Kaiser Aluminium Technical Services 2012 (8) SCALE 333 a five member
bench judgment and also did assuage the sentiment under Bilateral Investment Promotion and Protection Agreements
created by the award in the White Industries V/s Republic of India.
ii) Conciliation:
The Arbitration and Conciliation Act, 1996 provides statutory recognition to conciliation as a distinct mode of dispute
settlement. Conciliation is defined as the process of amicable settlement of disputes by the parties with the assistance of
a conciliator. It differs from arbitration in the sense that in arbitration the award is the decision of the third party or the
arbitral tribunal, while in the case of conciliation the decision is of the parties which is arrived at with the mediation of
the conciliator.
The major provisions relating to Conciliation in the Act are:A party initiating the conciliation shall send a written notice to the other party, briefly identifying the subject of the
dispute and inviting it for conciliation. The conciliation proceedings shall commence on acceptance of invitation by the
other party. If the party initiating conciliation does not receive a reply within 30 days from the date the invitation was
sent or within the specified period, it may opt to treat this as a rejection and inform the same to the other party. If it
rejects the invitation, there can be no conciliation proceeding.
Unless otherwise agreed there shall be one conciliator. The parties may however, agree that there shall be two or
three conciliators, who shall act jointly. The sole conciliator shall be appointed by mutual consent of the parties. In case
of two conciliators, each party may appoint one conciliator. In case of three conciliators, each party may appoint one
conciliator and the third conciliator may be appointed by mutual agreement of the parties who shall act as the presiding
conciliator. However, the parties may agree that a conciliator shall be appointed or recommended by an institution or a
person.
Each party shall submit to the conciliator a brief written statement describing the general nature of the dispute and
the points at issue. A copy of the same shall be sent to the other party. The conciliator may require of each party to send

34|P a g e

a detailed statement supported by documents and other evidence, a copy whereof shall be sent to the other party also.
Any factual information concerning the dispute received by the conciliator from a party, shall be disclosed to the other
party to allow it an opportunity to present any explanation, except however, when a party gives any information subject
to a condition that should be kept confidential.
The parties involved shall co-operate with the conciliator in good faith, comply with requests for submitting written
materials, providing evidence and attending meetings. A party may submit to the conciliator suggestions for the
settlement of the dispute.
The functions of a Conciliator are:(a) To assist the parties in an independent and impartial manner, to reach an amicable settlement of their
dispute.
(b) To be guided by principles of objectivity, fairness and justice.
(c) To give consideration to rights and obligations of the parties, trade usages, circumstances surrounding the
dispute and any previous business practice between the parties.
(d) To conduct the conciliation proceedings in an appropriate manner, taking into account the circumstances
of the case and wishes of the parties.
(e) To make proposals for a settlement of the dispute.
(f)
Not to act as an arbitrator or as a representative of a party in any arbitral or judicial proceeding in respect
of the same dispute, unless otherwise agreed by the parties.
(g) Not to act as a witness in any arbitral or judicial proceedings.
If it appears to the conciliator that a settlement is possible, he shall formulate the terms of a possible settlement and
submit them to the parties for their observations. The conciliator shall then reformulate the possible settlement in the
light of observations received from the parties. If the parties reach on a settlement, they may draw up and sign a written
settlement agreement with the assistance of the conciliator. The conciliator shall authenticate the settlement agreement
and furnish a copy thereof to each of the parties. The settlement agreement shall be final and binding on the parties and
shall have the same effect as of an arbitral award.
The conciliation proceedings shall be terminated when:(a) A settlement agreement is signed by the parties,
(b) A written declaration is made by the conciliators after consultation with the parties, that further efforts at
conciliation are no longer justified,
(c) A written declaration is made by the conciliator, after the deposits required in relation to costs of the
proceedings are not received from the parties, that the proceedings are terminated,
(d) A written declaration is made by the parties to the conciliator, that the conciliation proceedings are
terminated,
(e) A written declaration is sent by a party to the other party and the conciliator, that the conciliation
proceedings are terminated.
III)
Enforcement of Arbitral Awards: A Foreign Award is defined in Section 44 and Section 53 of the
Arbitration &Conciliation Act, 1996. India is a signatory to the New York Convention as well the Geneva
Convention. Some of the provisions of the Act relating to foreign award are:(i)
Where a commercial dispute covered by an arbitration agreement to which either of the Convention apply,
arises before a judicial authority in India, it shall at the request of the party be referred to arbitration.
(ii) The party applying for the enforcement of a foreign award shall produce the original award or a duly
authenticated copy thereof, the original arbitration agreement or a certified copy thereof, and evidence to
prove that the award is a foreign award.
(iii) If the court is satisfied that the foreign award is enforceable, the award shall be deemed to be a decree of
the court. An appeal shall lie against the order of the court refusing to refer the parties to arbitration or
refusing to enforce a foreign award.
Any foreign award which is enforceable under the Act shall be binding and may be relied upon by the parties by
way of defence, set off or otherwise in any legal proceedings in India. Thus, if a party receives a binding award
from another country which is a signatory to the New York Convention or the Geneva Convention and the
award is made in a territory which has been notified as a convention country by India, the award would then be
enforceable in India. There are about 47 countries which have been notified by the Central Government as
reciprocating convention countries, with the most recent addition being China. Section 48 of the Act deals with
the conditions to be met for the enforcement of foreign awards made in countries party to the New York

35|P a g e

Convention. It stipulates that the only cases where enforcement can be refused are when one party is able to
show that:
(i) the parties were under some incapacity as per the applicable law or that the agreement was not valid under
the law of the country where the award was made or the law which the parties have elected;
(ii) that the party against whom the award has been made was not given adequate notice of appointment of
arbitrators, arbitration proceedings or was otherwise unable to present his case;
(iii) the award addresses issues outside the scope of the arbitration agreement, and if separable, any issue which
is within the ambit of the agreement would remain to be enforceable;
(iv) the composition of the tribunal or the procedure were not in accordance with the agreement of the parties
or if there was no such agreement with the law of the country where the arbitration took place; and
(v) lastly, the award has been set aside or suspended by a competent authority in the country in which it was
made or has otherwise not yet become binding on the parties.
(vi)
Additionally, enforcement may also be refused if the subject matter of the award is not capable of
settlement by arbitration under the laws of India or if the enforcement of the award would be contrary to the
public policy of India.
Principle of public policy for the purposes of section 48 (Conditions for enforcement of foreign awards):
In Re: Saw Pipes48, - the ambit and scope of the courts jurisdiction under Section 34 (setting aside of arbitral award under
part 1) of the 1996 Act pertaining to public policy was under consideration. Supreme Court therein considered the
meaning to be assigned to the phrase public policy of India occurring in Section 34(2)(b)(ii)49, and returned a finding
that;
(@ paragraph 31) Therefore, in our view, the phrase public policy of India used in Section 34 in context is required to be given
a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public
interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has
varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said
to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view
in addition to narrower meaning given to the term public policy in Renusagar case it is required to be held that the award could
be set aside if it is patently illegal. The result would be award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interests of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public
policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such award is
opposed to public policy and is required to be adjudged void.
For the purposes of execution under section 48 it (Saw Pipes) had adjudged as;
Mr. Desai submitted that the narrow meaning given to the term 'public policy' in Renusagar's case is in context of the fact that the question
involved in the said matter was with regard to the execution of the award which had attained finality. It was not a case where validity of the
Award is challenged before a forum prescribed under the Act. He submitted that the scheme of Section 34 which deals with setting aside the
domestic arbitral award and Section 48 which deals with enforcement of foreign award are not identical. A foreign award by definition is
subject to double exequatur. This is recognized inter alia by Section 48 (1) and there is no parallel provision to this clause in Section 34. For
this, he referred to Lord Mustill & Stewart C. Boyd QC's "Commercial Arbitration" 2001 wherein [at page 90] it is stated as under:"Mutual recognition of awards is the glue which holds the international arbitrating community together, and this will only be strong if the
enforcing court is willing to trust, as the convention assumes that they will trust, the supervising authorities of the chosen venue. It follows that
if, and to the extent that the award has been struck down in the local court it should be a matter of theory and practice be treated when
enforcement is sought as if to the extent it did not exist."
He further submitted that in foreign arbitration, the award would be subject to being set aside or suspended by the competent authority under
the relevant law of that country whereas in the domestic arbitration the only recourse is to Section 34. The aforesaid submission of the learned

48

Oil and Natural Gas Corporation Limited v. Saw Pipes Limited; (2003) 5 SCC 705

49 34 Application for setting aside arbitral award.

(b) the Court finds that(i) the subject- matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India. Explanation.- Without prejudice to the generality of sub- clause (ii), it
is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award
was induced or affected by fraud or corruption or was in violation of section 75 or section 81.

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senior counsel requires to be accepted. From the judgments discussed above, it can be held that the term 'public policy of India' is required to be
interpreted in the context of the jurisdiction of the Court where the validity of award is challenged before it becomes final and executable. The
concept of enforcement of the award after it becomes final is different and the jurisdiction of the Court at that stage could be limited. Similar is
the position with regard to the execution of a decree. It is settled law as well as it is provided under Code of Civil Procedure that once the decree
has attained finality, in an execution proceeding, it may be challenged only on limited grounds such as the decree being without jurisdiction or
nullity. But in a case where the judgment and decree is challenged before the Appellate Court or the Court exercising revisional jurisdiction, the
jurisdiction of such Court would be wider. Therefore, in a case where the validity of award is challenged there is no necessity of giving a
narrower meaning to the term 'public policy of India'. On the contrary, wider meaning is required to be given so that the 'patently illegal
award'
This inclusive interpretation of patently illegal as set forth in the said judgment, then read to define and be a part the
public policy of India.
But in Venture Global50 the court relying on the Saw Pipes ratio on patent illegality and of Bhatia International51 on
application of part I to part II annulled a foreign arbitral award under a civil suit being in the nature for setting aside a foreign
arbitral award on the ground that Indian law is a substantive law of the contract and that Indian law would govern the
dispute resolution
Bharat Aluminium overruled Bhatia International which then ruled that Part I of the Act applies to all arbitrations, including
international commercial arbitrations seated outside India, unless the parties have expressly or impliedly excluded its
application to international commercial arbitrations seated outside India.
In Phulchand Exports Ltd52 on an application to enforce a foreign award in India re-opened the arbitral tribunals decision
on its merits on the grounds of public policy doctrine being read as coterminous in section 34 and 48 of the Act.
This was recently addressed in Re; Shri Lal Mahal Ltd53 which overruled an earlier Supreme Court judgment of Saw Pipes
and held that enforcement of a foreign arbitral award could not be challenged on the grounds of patent illegality. It
held that review of a foreign arbitral award on its merits is untenable as it is not permitted under the New York
Convention. The judgment exposes the difference in the scope of inquiry during the annulment of a domestic award and
the enforcement of a foreign award. It stated that the expression public policy of India under section 48 of Act should
be construed narrowly; whereas the same could be given a wider meaning under section 34 of the Act. The relevant
findings of Shri Lal Mahal Ltd are as:
26We have no hesitation in holding that Renusagar must apply for the purposes of Section 48(2)(b) of the 1996 Act. Insofar
as the proceeding for setting aside an award under Section 34 is concerned, the principles laid down in Saw Pipes would govern the
scope of such proceedings.
27. We accordingly hold that enforcement of foreign award would be refused under Section 48(2)(b) only if such enforcement would
be contrary to (i) fundamental policy of Indian law; or (2) the interests of India; or (3) justice or morality. The wider meaning given
to the expression public policy of India occurring in Section 34(2)(b)(ii) in Saw Pipes is not applicable where objection is raised
to the enforcement of the foreign award under Section 48(2)(b).

50

Venture Global Engineering v Satyam Computer Services Ltd (2008) 4 SCC 190

51

Bhatia International v Bulk Trading SA [2002] 4 SCC 105

32. To conclude, we hold that the provisions of Part I would apply to all arbitrations and to all proceedings relating thereto.
Where such arbitration is held in India the provisions of Part I would compulsorily apply and parties are free to deviate only
to the extent permitted by the derogable provisions of Part I. In cases of international commercial arbitrations held out of
India provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions.
In that case the laws or rules chosen by the parties would prevail. Any provision, in Part I, which is contrary to or excluded by
that law or rules will not apply.
35. Lastly, it must be stated that the said Act does not appear to be a well-drafted legislation. Therefore the High Courts of
Orissa, Bombay, Madras, Delhi and Calcutta cannot be faulted for interpreting it in the manner indicated above. However, in
our view a proper and conjoint reading of all the provisions indicates that Part I is to apply also to international commercial
arbitrations which take place out of India, unless the parties by agreement, express or implied, exclude it or any of its
provisions. Such an interpretation does not lead to any conflict between any of the provisions of the said Act.

52

Phulchand Exports Ltd v OOO Patriot (2011) 10 SCC 300

ibid.

53

37|P a g e

28. It is true that in Phulchand Exports, a two-Judge Bench of this Court speaking through one of us (R.M. Lodha, J.) accepted
the submission made on behalf of the appellant therein that the meaning given to the expression public policy of India in Section
34 in Saw Pipes must be applied to the same expression occurring in Section 48(2)(b) of the 1996 Act. However, in what we have
discussed above it must be held that the statement in paragraph 16 of the Report that the expression public policy of India used in
Section 48(2)(b) has to be given a wider meaning and the award could be set aside, if it is patently illegal does not lay down correct
law and is overruled.
43. Moreover, Section 48 of the 1996 Act does not give an opportunity to have a second look at the foreign award in the award enforcement stage. The scope of inquiry under Section 48 does not permit review of the foreign award on merits. Procedural defects
(like taking into consideration inadmissible evidence or ignoring/rejecting the evidence which may be of binding nature) in the course
of foreign arbitration do not lead necessarily to excuse an award from enforcement on the ground of public policy.
45 While considering the enforceability of foreign awards, the court does not exercise appellate jurisdiction over the foreign award
nor does it enquire as to whether, while rendering foreign award, some error has been committed. Under Section 48(2)(b) the
enforcement of a foreign award can be refused only if such enforcement is found to be contrary to (1) fundamental policy of Indian
law; or (2) the interests of India; or (3) justice or morality.
IV)

Enforcement of Foreign Judgments:

The definition of judgment as given in Section2(9) of the Code of Civil Procedure, 1908 ("CPC") is inapplicable
to foreign judgments'. A foreign judgment must be understood to mean "an adjudication by a foreign court upon
a matter before it" and not the reasons for the order made by it. The foreign Court must be competent to try the
suit, not only with respect to pecuniary limits of its jurisdiction and the subject matter of the suit, but also with
reference to its territorial jurisdiction. In addition, the competency of the jurisdiction of the foreign court is not
be judged by the territorial law of the foreign state, but rather, by the rule of Private International Law.
A foreign judgment may be enforced in India by filing a suit upon judgment under Section 13 of CPC or if the
judgment is rendered by a court in a "reciprocating territory", by proceedings in execution under Section 44A of
the CPC. A "reciprocating territory" is one, which is notified by the Government of India as a "reciprocating
territory" under Section 44A of the CPC. For instance, U.K. has been notified by the Government of India as a
"reciprocating territory" but the U.S. has not. The judgment of a foreign court is enforced on the principal that
where a court of competent jurisdiction has adjudicated upon a claim, a legal obligation arises to satisfy the claim.
Judgments of specified courts in reciprocating countries can be enforced directly by execution proceedings as if
these foreign judgments are decrees of the Indian courts. Foreign judgments of non-reciprocating countries can
be enforced in India only by filing a suit based on the judgment. A foreign judgment is usually recognized by
Indian courts unless it is proved that:
(i) it was pronounced by a court which did not have jurisdiction over the matter;- The jurisdiction of foreign
courts is decided by applying rules of conflict of laws. Even if the court did not have jurisdiction over the
defendant, its judgment can be enforced if the defendant has appeared before the foreign court and not
disputed its jurisdiction.
(ii) it was not given on the merits of the case; While a decision of a foreign court must be based on the merits
of a case, the mere fact that it was ex-parte (in the absence of a party) does not preclude enforcement. The
test is whether it was passed as a mere formality or penalty or whether it was based on a consideration of
the truth and of the parties' claim and defense
(iii) it appeared on the face of the proceeding to be founded on an incorrect view of international law or a
refusal to recognize Indian law (where applicable); the mistake or incorrectness must be apparent on the
face of the proceedings. Merely because a particular judgment does not conform to Indian law when it is
under no obligation to take cognizance of the same does not preclude enforcement.
(iv) principles of natural justice were ignored by the foreign court;- The term 'natural justice' to enforcement
refers to the procedure rather than to the merits of the case. There must be something which is repugnant
to natural justice in the procedure prior to the judgment.
(v) the judgment was obtained by fraud; or
(vi) the judgment sustained a claim founded on a breach of Indian law.: as a gambling debt cannot be enforced
in India,
Where any judgment from a 'reciprocating' territory is in question, a party may directly apply for execution under
Section 44A of CPC. Execution of the foreign judgment is treated as if it was passed by a District Court in India.
However, the parties may still challenge the enforcement under the provisions of Section 13 of the CPC.

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E)

INVESTING IN INDIA
I) ENTRY OPTIONS FOR FOREIGN INVESTORS:
Subject to stated regulations non Residents/Foreign companies have the option to set-up their business operations in
India either in the stated form of incorporated entities or unincorporated entities. These may be in fresh participation of
participation in an existing entity.
i) Unincorporated entities:
A foreign company not opting to be incorporated in India is permitted to set up its business operations in India through
any of the following offices:
Liaison Office of a foreign company;
Branch Office of a foreign company; or
Project Office of a foreign company.
Such offices can undertake activities permitted to them under the Regulations framed under FEMA for the same. These
offices are further required to be in compliance with provisions of the Companies Act as applicable to them. The
approvals to set-up these offices are accorded by the RBI on a case-to-case basis, except project office for which no
approval is required, as the RBI has granted a general permission for the same54.
(a) Liaison Office (or Representative Office):A "Liaison Office" means a place of business to act as a channel of communication between the principal place of
business or head office by whatever name called and entities in India. It is not permitted to undertake any business
activity in India and cannot earn any income in India, and therefore is required to maintain itself out of inward
remittances received from the head office outside India. The activities of the liaison office are typically restricted to the
following:
Representing the parent company or group companies in India;
Promoting exports from and imports to India; or group companies and
Promoting technical and financial collaborations between parent companies in India; and
Acting as a channel of communication between the parent company and Indian companies.
The role of such office is limited to collecting information about possible market opportunities and providing
information about the company to prospective customers in India. All expenses of liaison offices have to be met from
remittance from abroad. Liaison offices do not have any authority to enter into any contract in India. Foreign insurance
companies can establish liaison offices in India, after obtaining approval from the Insurance Regulatory and
Development Authority (hereinafter IRDA").
(b) Branch Office: Foreign Companies engaged in manufacturing or trading activities outside India are allowed to set-up a "Branch Office"
in India. A branch office is permitted to carry on the following activities, which are wider in scope as compared to the
activities permitted to a liaison office:
Export and Import of goods;
Rendering professional or consultancy services;
Carrying out research assignments, in areas in which the parent company is engaged;
Promoting technical or financial collaborations between Indian companies and their parent or overseas group
company;
Representing the parent company in India and acting as buying / selling agent in India;
Rendering services in Information Technology and development of software in India;
Rendering technical support to the products supplied by parent / group companies;
The profits of a branch office are permitted to be remitted outside India subject to the payment of the applicable Indian
taxes and RBI guidelines. A branch office is not permitted to engage in any manufacturing, processing activities in India,
directly or indirectly. Retail trading activities of any nature are not allowed for a branch office in India.
(c) Project Office: A "Project Office" means a place of business established to represent the interests of a foreign company executing a
project in India. Such offices are prohibited from undertaking or carrying on any activity other than the activity relating
and incidental to the execution of the project for which such office is established.

Refer the last available Master Circular on Establishment of Liaison, Branch, Project Offices in India by Foreign Entities issued by
Reserve bank of India the 2012 being RBI/2012-13/7;Master Circular No. 7/2012-13 dated July 02, 2012

54

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In order to set up a project office, a foreign company has to secure from an Indian company, a contract to execute a
project in India, and the fulfillment of one of the following conditions:
Such project is funded directly by inward remittance from abroad; or
Such project is funded by bilateral or multilateral international financing agency; or
Such project has been cleared by an appropriate authority; or
The company or entity in India awarding the contract has been granted a term loan by a public financial institution or
a bank in India for the project.
The above as its nature would be only vide fresh participation
(d) Limited Liability Partnership
A Limited Liability Partnership ( LLP") is a form of business entity which permits individual partners to be shielded
from the liabilities created by another partner's business decision or misconduct. In India, LLPs are governed by The
Limited Liability Partnership Act, 2008. The LLP is a body corporate and exists as a legal person separate from its
partners. Foreign investment in LLPs is permitted under the government approval route only in LLPs operating in
sectors where 100 per cent FDI is allowed through the automatic route and there are no performance linked conditions.
(e) Partnership
A partnership is a relationship created between persons who have agreed to share the profits and losses of a business at a
agreed proportion carried on by all of them, or any of them acting for all of them. A partnership is not a legal entity
independent of its partners. The partners own the business assets together and are personally liable for business debts
and taxes. In the absence of a partnership agreement, each partner has an equal right to participate in the management
and control of the business and the profits/losses are shared equally amongst the partners. Any partner can bind the
firm and the firm is liable for all the liabilities incurred by any partner on behalf of the firm. Foreign investment is
permitted in Indian partnership firms subject to prior approval of RBI.
(e) Trust
A trust arises when one person (the "trustee") holds legal title to property but is under an equitable duty to deal with the
property for the benefit of some other person or class of persons called beneficiaries. Like a partnership, a business trust
is not regarded as a legal entity. The trust, as such, does not incur rights or liabilities. The beneficiaries do not generally
obtain rights against or incur liabilities to third parties because of the transactions or actions undertaken by the trustee in
exercising its powers and carrying out its duties as a trustee. If the trustee of a business trust is a corporation, the
participants may effectively limit their liability to the assets of the corporate trustee and the assets held by the
corporation on trust for the beneficiaries. A foreign resident may only be the beneficiary of a trust, which is set up as a
venture capital fund and only after receiving the prior consent of the FIPB.
ii) Incorporated entities:
A foreign company opting for the incorporation route for setting up its operations in India is required to incorporate a
company in India through either (1) a Joint Venture or (2) a Wholly Owned Subsidiary Companies in India are regulated
inter alia, vide the provisions of the Companies Act, 1956 ("Companies Act"). A "Company' stands for a company
formed and registered under the Companies Act. A Company may be incorporated as one of the following two types:
Private Company is a company with a minimum paid up capital of INR 100,000 or higher; by its articles restricts
the right to transfer its shares, limits the number of its members to fifty, prohibits invitation to the public to
subscribe for any shares in or debentures of the company and prohibits any invitation or acceptance of deposits
from persons other than its members, directors or their relatives.
Public Company (listed or unlisted) which is (i) not a private company; (ii) a company with a minimum paid up
capital of INR 500,000 or higher; and (iii) a private company, which is a subsidiary of a public Company
These are subject to norms/regulation as laid down for Foreign Direct Investments (FDI).
II)
INDIAN FOREIGN DIRECT INVESTMENT (FDI) POLICY55
India maintains capital control on current account, FDI investment into India are subject to capital control norms and
thus are regulated by the central bank viz. Reserve Bank of India. The Department of Industrial Policy and Promotion
(DIPP), Ministry of Commerce & Industry, Government of India makes policy pronouncements on FDI through Press
Notes/ Press Releases which are notified by the Reserve Bank of India as amendments to the Foreign Exchange
Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 (notification

55

Refer the FDI policy at http://dipp.nic.in for its full import, and Appendix VIII for FDI sector cap & conditions

40|P a g e

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, etc56.
This may be contra-distinguished with other capital control countries where FDI norms are mandated through an
enactment e.g. Bhutan.
III)
ENTRY ROUTES FOR FDI INVESTMENT:
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.
i) Under the Automatic Route, the non-resident investor or the Indian company does not require any approval
from Government of India for the investment.
ii) Under the Government Route, prior approval of the Government of India is required. Proposals for foreign
investment under Government route are considered by FIPB.
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(beyond 49%), private sector banking, broadcasting, 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
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
iii) 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.
FDI policy clarify that :
i) FDI 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 save and except the reporting aspect.
ii) 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.
IV)

ENTITIES INTO WHICH FDI CAN BE MADE

i) FDI in an Indian Company: Indian companies can issue capital against FDI.
ii) FDI in Partnership Firm / Proprietary Concern:
(a) 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;
(1) Amount is invested by inward remittance or out of NRE/FCNR(B)/NRO account maintained with
Authorized Dealers/ Authorized banks.
(2) The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business or
print media sector.
(3) Amount invested shall not be eligible for repatriation outside India.
(b) 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.
(c) 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

56

notification No.FEMA 20/2000-RB dated May 3, 2000

41|P a g e

(d)

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.
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.

iii) 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 the 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 setup as an incorporated company under the Companies Act, 1956, then a person resident outside India (nonresident 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.
iv) FDI in Trusts: FDI in Trusts other than VCF is not permitted.
v) FDI in Limited Liability Partnerships (LLPs): FDI in LLPs is permitted, subject to the following conditions:
(a) 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.).
(b) LLPs with FDI will not be allowed to operate in agricultural/plantation activity, print media or real estate
business.
(c) 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.
(d) LLPs with FDI will not be eligible to make any downstream investments.
(e) 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.
(f)
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).
(g) 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.
(h) 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.
(i)
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.
(j)
Conversion of a company with FDI, into an LLP, will be allowed only if the above stipulations (except
clause 3.2.5(e) which would be optional in case of a company) are met and with the prior approval of
FIPB/Government.
vi) FDI in other Entities: FDI in resident entities other than those mentioned above is not permitted.
V) PERMISSIBLE / IMPERMISSIBLE SECTOR AND SECTOR CAPS ON INVESTMENTS: 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. These are subject to a prohibited list and a permitted list of sectors and for
certain sectors with caps. The caps in various sector(s) are detailed in Chapter 6 of FDI circular see Appendix VI.
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.
PERMITTED SECTORS: In the named sectors/activities, FDI up to the limit indicated in the FDI policy against each
sector/activity is allowed, subject to applicable laws/ regulations; security and other conditionalities. Herein its specifies
the limits of FDI permissible, whether its through automatic or government route. In sectors/activities not listed , FDI

42|P a g e

is permitted up to 100% on the automatic route, subject to applicable laws/ regulations; security and other
conditionalities.
i) Under the Automatic Route, the non-resident investor or the Indian company with FDI does not require any
approval from Government of India for the investment.
ii) Under the Government Route, prior approval of the Government of India is required. Proposals for foreign
investment under Government route are considered by FIPB.
Additionally FDI for the following scenario require FIPB approvals: Proposals where more than 24% foreign equity
is to be inducted for manufacture of items reserved for the Small Scale Sector;
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.
VI)

WHO CAN INVEST IN INDIA?

i) A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/ activities which
are prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only
under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest,
only under the Government route, in sectors/activities other than defence, space and atomic energy and
sectors/ activities prohibited for foreign investment.
ii) 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.
iii) OCBs57 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.
(a) 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.
(b) 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 of FDI norms.
(c) 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 and also uploaded directly
on the OFRS web site (https://secweb.rbi.org.in/ORFSMainWeb/Login.jsp).
iv) 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.
v) 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.

'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.

57

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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.
vi) Qualified Foreign Investors (QFls) investment in equity shares:
(a) 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.
(b) 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.
(c) 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 non-interest bearing Rupee account. In case
dividend payments are credited to the single non-interest bearing Rupee 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 non-interest bearing Rupee 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.
VII)
TYPES OF INSTRUMENTS.
i) 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].
ii) 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.
iii) The inward remittance received by the Indian company vide issuance of DRs and FCCBs are treated as FDI
and counted towards FDI.
iv) Issue of shares by Indian Companies under FCCB/ADR/GDR:
(a) Indian companies can raise foreign currency resources abroad through the issue ofFCCB/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.
(b) 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.
(c) 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

44|P a g e

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:(1) 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;
(2) Deposits with branch/es of Indian Authorized Dealers outside India; and
(3) Treasury bills and other monetary instruments with a maturity or unexpired maturity of one year or
less.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) 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.
VIII) CALCULATION OF FOREIGN INVESTMENT
TOTAL FOREIGN INVESTMENT i.e. DIRECT AND INDIRECT FOREIGN INVESTMENT IN
INDIAN COMPANIES.
i) 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.
ii) 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.
iii) Guidelines for calculation of total foreign investment i.e. direct and indirect foreign investment in an Indian
company.
(a) Counting the Direct Foreign Investment: All investment directly by a non-resident entity into the Indian
company would be counted towards foreign investment.
(b) Counting of indirect foreign Investment:
(1) 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 .
(2) For cases where condition (a) above is not satisfied or if the investing company is owned or controlled

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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:
i) where Company Y has foreign investment less than 50%- Company X would not be taken as having any
indirect foreign investment through Company Y.
ii) where Company Y has foreign investment of say 75% and:
(a) invests 26% in Company X, the entire 26% investment by Company Y would be treated as indirect
foreign investment in Company X;
(b) Invests 80% in Company X, the indirect foreign investment in Company X would be taken as 80%
(c) 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. (Coco Cola factor)
iii) The total foreign investment would be the sum total of direct and indirect foreign investment.
iv) The above methodology of calculation would apply at every stage of investment in Indian companies and
thus to each and every Indian company.
v) Additional conditions:
(a) 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.
(b) 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.
(c) 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.
(d) 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.
(1) 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:
In the case of an individual shareholder,
The individual shareholder,
A relative of the shareholder within the meaning of Section 6 of the Companies Act, 1956.
A company/ group of companies in which the individual shareholder/HUF to which he belongs has
management and controlling interest.
In the case of an Indian company
The Indian company
A group of Indian companies under the same management and ownership control.
a. 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

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combination holding at least 51% of the shares.

Provided that, in case of a combination of all or any of the entities mentioned in *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.
(i) 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.
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.
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.
IX)
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 Paragraph 4.1.
(b) For the purpose of this chapter,
(i) 'Downstream investment' means indirect foreign investment, by one Indian company, into another Indian
company, by way of subscription or acquisition, in terms of Paragraph 4.1. Paragraph 4.1.3 provides the
guidelines for calculation of indirect foreign investment, with conditions specified in paragraph 4.1.3 (v).
(ii) 'Foreign Investment' would have the same meaning as in Paragraph 4.1
(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):
1. 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.
2. Those companies, which are Core Investment Companies (CICs), will have to additionally follow RBI's
Regulatory Framework for CICs.
(d) 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.
X) DOWNSTREAM INVESTMENT BY AN INDIAN COMPANY WHICH IS NOT OWNED AND/OR
CONTROLLED BY RESIDENT ENTITY/IES:
(a) Downstream investment by an Indian company, which is not owned and/ or controlled by -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.
Note: Downstream investment/s made by a banking company, as defined in clause (c) of Section 5 of the
Banking Regulation Act, 1949, incorporated in India, which is owned and/or controlled by non-residents/ a nonresident entity/non-resident entities, under Corporate Debt Restructuring (CDR), or other loan restructuring
mechanism, or in trading books, or for acquisition of shares due to defaults in loans, shall not count towards
indirect foreign investment. However, their 'strategic downstream investment' shall count towards indirect foreign
investment. For this purpose, 'strategic downstream investments' would mean investment by these banking
companies in their subsidiaries, joint ventures and associates.
(b) Downstream investments by Indian companies will be subject to the following conditions:
1. 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);

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2.
3.
4.

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;
issue/transfer/pricing/valuation of shares shall be in accordance with applicable SEBI/RBI guidelines;
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
paragraphs 7.c and 8.b.1.

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F)

FOREIGN TECHNOLOGY AND TRADEMARK LICENSE AGREEMENTS

FEMA and the FDI policy allow foreign technology collaboration agreements for the acquisition of foreign technology
and trademark license agreements for the use of trademarks and brand names without requiring financial contributions
on the part of foreign companies.

In the context of technology collaborations, the foreign company can confine itself to the transfer of technology against
the eligible terms of payment namely, technical know-how fees, payments for design and drawing, payment for
engineering service and royalty. The payment may be in the nature of lump sum payments and royalty. In the context of
trademark licenses, the payment is normally in the form of royalty.
The induction of know-how in the case of foreign technology collaborations and the permission to use trademarks and
brand names in the case of trademark licenses may be given effect to either under
the automatic approval route or
after obtaining prior approval of Project Approval Board approval in case of proposed technical collaboration
and FIPB approval in case of proposed financial and technical collaboration.
I) The Automatic Approval Route:
Payments for Technology Transfers: RBI allows payments by Indian companies in the context of proposals for
technology collaboration under the automatic route subject to the following limits:
i. the lump sum payments not exceeding US $ 2 Million;
ii. royalty payable being limited to 5 per cent for domestic sales and 8 per cent for exports without any restriction
on the duration of royalty payments
Royalty payments for technology collaboration agreements are generally calculated on the basis of net ex-factory sale
price of the product, exclusive of excise duties, minus the cost of the standard bought- out components and the landed
cost of imported components, irrespective of the source of procurement, including ocean freight, insurance, custom
duties etc.
Payments for use of Trade Marks and Brand Names: Under the automatic approval route, payment of royalty up to 2%
for exports and 1% for domestic sales is allowed for the use of trademarks and brand names of the foreign collaborator
without technology transfer. The royalty on brand names or trademarks is calculated as inter alia, a percentage of net
sales, viz., gross sales less agents or dealers commission, transport cost and standard bought out components.58
II)
The GoI Approval Route:
All other proposals for foreign technology collaboration and or trademark licence agreements not meeting any or all of
the parameters for automatic approval are considered for approval on merits by the Project Approval Board (hereinafter
"PAB") or the FIPB (if in combination with foreign investment). Such proposals include inter alia, proposals involving
existing joint venture or technology transfer or trademark agreement in the same field in India.
It may be noted that payments for hiring of foreign technicians, deputation of Indian technicians abroad, are governed
by separate RBI procedures and rules and are not covered by the foreign technology collaboration approvals. Under the
FEMA Regulations, the limit for remittance towards consultancy services procured from outside India is USD 1 million
per project.

58 The Delhi Bench of the Income Tax Appellate Tribunal rejected the Transfer Pricing Officers attempts to divide the taxpayers
royalty payment made to a Japanese company under a license agreement between the use of technology and the use of a trademark. The
tribunal found the license agreement was single and indivisible. Maruti Suzuki India Ltd. v. ACIT (ITA No. 5237/Del/2011).

49|P a g e

G)

OUTWARD INVESTMENTS:
The policy for regulating overseas investments by Indian entrepreneurs and all other related aspects like finance and
insurance is governed by the circulars and guidelines issued by the Reserve Bank of India from time to time. Guidelines
and circulars are defined as the documents notified by the Reserve Bank for the purpose of clarifying and interpreting
the various provisions of a law or regulation. For example, Foreign Exchange Management Act (FEMA) is an umbrella
Act regulating all foreign exchange transactions including investments abroad. It is under this Act that the Reserve Bank
of India is authorised to issue various circulars, guidelines, rules and notifications, etc. for managing the various aspects
of capital outflows. One of the most important guidelines relating to doing business abroad is the Master Circular on
Direct Investment by Residents in Joint Venture (JV)/ Wholly Owned Subsidiary (WOS) Abroad59".

The Indian companies can directly invest outside India by way of contribution to the capital or subscription to the
Memorandum of Association of a foreign entity, signifying a long term interest in the overseas entity. It involves setting
up a Joint Venture (JV) or a Wholly Owned Subsidiary (WOS) abroad and does not include portfolio investment. A joint
venture abroad means a foreign concern formed registered or incorporated in a foreign country in accordance with the
laws and regulations of that country and in which investment has been made by an Indian entity. While a wholly owned
subsidiary abroad means a foreign concern formed, registered or incorporated in a foreign country in accordance with
the laws and regulations of that country and whose entire capital is owned by an Indian entity.
Resident corporate entities and partnership firms registered under the Indian Partnership Act, 1932 (Indian Party) are
eligible to make direct investment abroad in JVs/ WOSs. Also, a firm or a company or body corporate registered or
incorporated in India as well as proprietary concerns are permitted to open overseas branch. Besides such direct
investment, listed Indian Companies can invest up to 25% of the net worth in overseas companies, listed on a
recognized stock exchange, that have at least 10% share in an Indian company listed on a recognized stock exchange in
India as on 1st January of the year of investment or by way of rated debt securities issued by the same companies.
However, this 10 % holding should be a direct holding and not through a subsidiary or a special purpose vehicle (SPV).
Indian party has been permitted to make investment in overseas Joint Ventures (JV) / Wholly Owned Subsidiaries
(WOS), not exceeding 400 per cent of the net worth as on the date of last audited balance sheet of the Indian party. The
ceiling of 400 per cent of net worth will not be applicable where the investment is made out of balances held in
Exchange Earners' Foreign Currency account of the Indian party or out of funds raised through ADRs/GDRs.
The total financial commitment of the Indian party, in all the Joint Ventures / Wholly Owned Subsidiaries put together,
shall not exceed 400% of the net worth of the Indian party as on the date of the last audited balance sheet. For the
purpose of determining the 'total financial commitment' within the limit of 400% as specified above, the following shall
be reckoned, namely:
100% of the amount of equity shares;
100% of the amount of compulsorily and mandatorily convertible preference shares;
100% of the amount of other preference shares;
100% of the amount of loan;
100% of the amount of guarantee (other than performance guarantee) issued by the Indian party;
100% of the amount of bank guarantee issued by a resident bank on behalf of JV or WOS of the Indian party
provided the bank guarantee is backed by a counter guarantee / collateral by the Indian party.
50% of the amount of performance guarantee issued by the Indian party provided that the outflow on account
of invocation of performance guarantee results in the breach of the limit of the financial commitment in force,
prior permission of the Reserve Bank is to be obtained before executing remittance beyond the limit prescribed
for the financial commitment.
The proposal from Indian companies for overseas investment in Joint Ventures (JVs) and Wholly Owned Subsidiaries
(WOSs) abroad are considered in terms of the guidelines issued in this regard by the Government from time to time.
Under the guidelines, all applications for grant of approval for setting up joint ventures/wholly owned subsidiaries are to
be made and processed by the Reserve Bank of India. There are two categories of applications for setting up overseas
JVs and WOSs: - automatic Route and Approval of the Reserve Bank which is not covered under the automatic route.

59

http://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=7352

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Appendix I
PRIMER ON LAND IN THE STATE OF MAHARASHTRA
MEANING OF LAND:
Land includes benefits that arise out of land and all things attached to the earth.
The term land not only means the surface of the ground but also everything on or over or under it. Land in its ordinary
normal conditions means entire land. It includes upper soil, sub-soil whether beit clay sand or gravel60.
The definition of land is wide enough to take within its fold buildings also, as building ia a thing permanently attached to
the earth. The expression permanently has been held to be used as an antithesis to temporarily61.
(Immovable property is defined under Bombay General Clauses Act,1897)
Land Records- For the purposes of Maharashtra Land Revenue Code 196662, "Land Records" means records
maintained under the provisions of or for the purposes of the (this)code . It includes a copy of maps and plans or a final
town planning scheme, improvement scheme or a scheme of consolidation of holdings63.
This is the primordial provision pertaining to land records though derivative, this has a large persuasive value on
presumption on title to land.
Land Related applicable Laws are as:
1.
Maharashtra Land Revenue Code 1966
2.
Maharashtra Regional and Town Planning Act, 1966
3.
Bombay Tenancy and Agricultural Lands Act, 1948 and Its Rules
4.
The Bombay Preventation of Fragmentation and Consolidation of Holding Act, 1947
5.
The Maharashtra Agricultural Lands (Ceiling On Holdings) Act, 1961
6.
The Bombay Village Panchayat Act, 1958
7.
The Bombay Provincial Municipal Corporations Act, 1949
8.
Maharashtra Restoration of Lands to Schedule Tribes Act 1974
9.
Maharashtra Restoration of Lands to Schedule Tribes Rules 1975
10.
Maharashtra Project Affected Person Rehabilation Act, 1989
11.
Maharashtra Groundwater Regulation for Drinking Water Purposes Act, 1993
12.
Maharashtra Groundwater (Regulation for Drinking Water Purposes Rules, 1975
13.
The Mamalatdar Court Act, 1906
14.
The Maharashtra Co-Op Society Act, 1960
15.
The Land Acquisition Act, 1894
16.
Transfer of Property Act, 1882
17.
The Bombay Highway Act, 1955
18.
The National Highway Act, 1956
19.
Hindu Succession Act, 1956
20.
Registration Act, 1908
21.
Indian Forest Act 1927
22.
The Environment Protection Act 1986
23.
Maharashtra Gunthewari Developments (Regularisation, Upgradation and Control) Act 2001
Land Revenue Administration
History:- The history of Land Administration dates back to the days of kings and Kingdoms. The Land Revenue was
the major source of revenue for the kings. The prosperity of the kingdom was depending upon levy of tax and its
recovery. The Minister of Vijapur kingdom Todarmal was the founder of Ryotwari land revenue system. This system
was introduced by Chhatrapati Shivaji in his "Hindavi Swaraj". This system became so popular that British rule was
compelled to adopt this system in old Bombay Province. The present system of preparing and maintaining land records
is a scientific form of Ryotwari Land Revenue System.
Objective:- Main Objective of Land Revenue Administration are;

12 App Cases 651(1881)

AIR 1972 A.P. 244 Re: Sri Anjaneyaswamy Temple
62 The preamble to the act reads as : Whereas it is expedient to unify and amend the law realting to land and land revenue in the state of
Maharashtra and to provide for matters connected therewith;
63 Sec 2(18) of Maharashtra Land Revenue Code 1966
60
61

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1.
2.
3.

to assess and collect of land revenue, collection of local cess on behalf of local bodies, collection of
court fees, recovery of loans and advances, other dues of various departments, and all other dues
recoverable as arrears of land revenue,
to Prepare and maintain "Land Records" related to revenue accounts,
to exercise the statutory powers endowed under the Maharashtra Land Revenue Code, 1966, the
Mamlatdar Courts Act, the Land Acquisition Act, 1894 of various other land reform enactments.

DEPARTMENTS OF REVENUE ADMINISTRATION:Revenue administration is divided into four separate departments which are as mentioned below:
i. Recovery of Revenue,
ii. Measuring of lands,
iii. The registration of land alienations, and
iv. Treasury.
To appreciate as a primer on the land laws of Maharashtra one needs a basic understand of The Department of Land Records:
At the State level, the Land Records Department is controlled by the Director of Land Records and Settlement
Commissioner, Maharashtra State, Pune. At the district and taluka level the work is done by the District Inspector of
Land Records and Taluka Inspector of Land Records respectively.
Functions of the Land Records department are as follows:1. to maintain all survey, classification and settlement records up-to-date by keeping a careful note of all changes
by conducting field operations preliminary to incorporation of the changes in survey records;
2. to collect and provide statistical information necessary for the sound administration of all matters connected
with land;
3. to simplify the procedure and reduce the cost of litigation in revenue and civil courts by providing reliable
survey and other land records for the purpose;
4. to supervise the preparation and maintenance of Record of Rights by periodical inspection and maintenance
and repairs of the boundary marks of individual fields;
5. to conduct periodical revision settlement operations;
6. to organize and carry out surveys of village sites on an extensive scale and arrange for their proper
maintenance;
7. to maintain up-to-date all village maps by incorporating necessary changes as and when they occur;
8. to maintain all tahsil maps up-to-date, to reprint them and to arrange for their distribution to various
departments for administrative purposes and for sale to public; and
9. to train revenue officers in survey and settlement matters.
List of Land Records:
All records maintained under various "Village Forms" are land records.
Map or plan of survey number or subdivision of survey number prepared under the MLR Code 1966.
Town Planning Records: Maps of Town Planning Scheme, Improvement Scheme etc.

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CHANGE IN RIGHT OVER LAND

Rights over Land may change due to the following:
1. Transfer of land.
2. Inheritance
3. Partition
Transfer of land
Land is transferable immovable property. "Transfer of Property" means an act by which a living person conveys
property, in present or in future, to one or more other living persons, or to himself and one or more other living
persons. "Living person" includes a company or association or body of individuals.
Section 7 of Transfer of Property Act, 1882 state that, every person competent to contract and entitled to transferable
property, or authorised to dispose of transferable property not his own, is competent to transfer such property either
wholly or in part, and either absolutely or conditionally, in the circumstances, to the extent and in the manner, allowed
and prescribed by any law for the time being in force.
Transfer of rights to Land can be done by following:
Sale of property
Lease or renting of Property
Mortgage of Property
Gifting Property
Exchange of property
Inheritance:
Property received from a decedent, either by will or through state laws of interstate succession, where the decedent has
failed to execute a valid will. Or through a valid will, where will is a document in which a person specifies the method to
be applied in the management and distribution of his estate after his death.
Partition:
Any division of real property or personal property between co-owners, resulting in individual ownership of the interests
of each.
The registration of land alienations:- The transfer of land is legal and valid if the same is registered as per provisions
of Transfer of Property Act, and the Indian Registration Act, 1908. The land transfers are registered with the SubRegistrar who has his office in each Taluka.
Restrictions over Transfer of Land
The laws which are restricting persons rights of transfer of the land are as follows:
A) Maharashtra Land Revenue Code1966:
Forfeited land: Failure to pay arrears of land revenue makes the holding liable to forfeiture. On forfeiture the occupancy
ceases to be property of the occupant under section 72 of MLR Code 1966. The forfeited land shall not change
hands by way of inheritance or by will.
Tribal land: Under section 36A, the land of a Tribal cannot be transferred in favour of any non-Tribal without
permission of State Government and/or Collector as the case may be.
B) Bombay Tenancy and Agricultural Lands Act, 1948:
1) Tiller land: To gain maximum revenue from the land in India the British rulers introduced three major
forms of land settlements namely Zamindari, Raiyatwari and Mahalwari. Under the influence of these systems actual
cultivators turned into tenants. These land system created intermediary between the State and the actual tillers of the soil.
These intermediaries had no interest in improvement of the land. Against this background intermediary interests were
abolished by the Government by framing policy Land to the tillers" In the Maharashtra under section 32 of the
Bombay Tenancy and Agricultural Lands Act, 1948. Provides compulsory transfer of ownership rights of tenanted lands
to the tenants from 1st April 1957. The title of landlord passed to the tenant on 1st April 1957. There is complete sale
and purchase to effectuate this The tiller who purchased the land under this act is classified as an Occupant Class II. The
land of Occupant Class II is heritable but transfer of land is valid subject to fulfilling conditions imposed by the
Government.

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No land purchased by tenant under section 32, 32F, 32O, 33C, or 43 ID or sold to any person under section 32P or 64
shall be transferred by sale, gift, exchange, mortgaged, leased or assignment, without the previous sanctioned of the
collector. Sanctioned is not required when land is to be mortgaged in favour of Government.
The collector may grant permission for transfer of land in any of the following circumstances, namely:a. That the land is require for agricultural purpose by industrial or commercial undertaking in connection with
any industrial or commercial operations carried on by such undertaking;
b. That the transfer is for the benefit of any educational or charitable institution;
c. That the land is required by a co- operative farming society;
d. That the land is being sold in execution of a decree of a Civil Court or for the recovery of arrears of land
revenue under the provision of the code;
e. That the land is being sold bona fide for any non agricultural purpose;
f. That the land is being sold by a land owner on the ground that
i. He is permanently giving up the by profession of an agriculturist, or
ii. He is permanently rendered incapable of cultivating the land personally;
g. That the land is being gifted in favour ofi.
.The bodies or institution mentioned d in section 88A and clauses a & b of section 88B or
ii.
A member of land-owners family;
h. That the land is being exchangedi.
With the land of equal or nearly equal value owned and cultivated personally by the member of the same
family; or
ii.
With the land of equal or nearly equal value situate in the same village owned and cultivated personally
by another land owner with a view to forming compact block of his holding or with view to having
better management of the land:
Provided that ,the total land held and cultivated personally by any of the parties to the exchange whether
as a owner or tenant or partly as does not exceed the area as a result of exchange;
i. That the land is being leased by a land owner who is a minor; or a widow or person subject to any physical
or mental disability or the member of the armed forces or among the land owners holding the land jointly;
j. That the land is being portioned among the heirs or survivors of the deceased land owner;
k. That the land is being mortgaged in favour of society registered or deem to be registered under the
Maharashtra Co-op Societies Act 1960 for raising a loan for paying the purchase price of such land.
l. That the land is being transferred to the person who by reason of acquisition of his land for any development
project has been displaced and requires to be resettled.
Where sanctioned for sale of land given in the circumstances specified in the clauses a, b, c, e, or f it shall be subject to
the condition of the land owner paying to the State Government a nazrana equal to 20 times assessment of the land.
In the case of portioned sanctioned under clause j it shall be subjected to the condition that they are allotted to
each sharer shall not be less than the unit specified by the State Government under clause c of sub section I of subsection27.
2) Transfer to non agriculturist barred under Section 63:
No sale, gifts, exchange or lease of any land shall be valid in favour of person who is not an agriculturist. However
collector may grant permission for transfer under the below mentioned conditions:
a) Such a person bona fide requires the land for a non agricultural purposes; or
b) The land is required for the benefit of an industrial or commercial undertaking or an educational or
charitable institution; or
c)
Such land being mortgaged, mortgage has obtained from collector a certificate that he intends to take the
profession of an agriculturist and agrees to cultivate the land personally; or
d) The land is required by co-op society; or
e)
The land is required for cultivating it by a personally by a person, who, not being an agriculturist, intends to
take to the profession of agriculture and to whom collector has given certificate that such person is intend
to take to the profession of agriculture and is capable of cultivating land personally; or
f) Such land is being sold in execution of decree of a civil court, or recovering arrear of land revenue.
Transfer to non agriculturist for bona-fide industrial use64:

64

Section 63-1A Transfer to non agriculturist for bonafide industrial use

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No permission is required to sell the land to the person who may or may not be an agriculturist for the purpose of
bona-fide industrial use if the land situates within the industrial zone of a draft plan or final regional plan or draft of
final town planning scheme prepared under the MRTP Act 1966.
C) The Bombay Prevention of Fragmentation and Consolidation of Holdings Act, 1947:
Under this Act government is empowered to declare the area as a local area for determine minimum size of any class
of land that can be cultivated profitably as a separate plot. The size of the land so determined is called standard area.
Fragments means plot of agricultural land of less extent than the appropriate standard area determined for the local
area.
Under section 7: Fragment is not allowed to transfer except to the owner of a contiguous survey number or
recognized sub-division of survey numbers. Also no land shall be transferred so as to create fragment.
Under section 8: No land in local area shall be transferred or partitioned so as to create fragment.
Under section 27: There is ban on transfer of land, execution of awards and decrees during the continuance of the
consolidation of holdings.
Under section 31: There are restrictions on alienation and sub division of consolidated holdings.
D) Maharashtra Agricultural land s Ceiling on Holding Act, 1961.
The basic objective of fixation of ceiling on landholdings is to acquire land above a certain level from the present
landholders for its distribution among the landless. It is primarily a redistributive measure based on the principle of
socio-economic justice.
This act is restricting the size of holdings which a person or family can own. Acquisition of land in excess of the ceiling
is prohibited. Land rendered surplus to the ceiling is taken over by the state and distributed among the weaker sections
of the community.
Any person or family cannot hold land in excess of ceiling area fixed on 26th September 1961 Person or family cannot
transfer surplus land until the land in excess of the ceiling area is determined under the act.(Section 8) A person
possessing land in excess of ceiling area cannot acquire land by transfer. (Section9).
The land held by individual or the family of the Maharashtra State or the part of India is to be taken into consideration
while calculating the ceiling area.
For fixing ceiling areas lands have been classified in five classes as detailed below:
Class Of Land

Ceiling Area
Hectares
7-28-43

Acres
18

10-92-65

27

Land which has un-assured supply of water for only one crop.

14-56-86

36

Dry Land situated in Mumbai Sub Urban District and Districts of Thana, Raigad,
Ratanagiri, Sindhdurg, Bhandara, Gadchiroli, Sironcha talukas of Chandrapur District
which is under paddy cultivation for continuous period of three years.
Dry Crop Lands other than all above lands.

14-56-86

36

21-85-29

54

Land with assured supply of water for irrigation and capable of yielding at least two crops
in a year
Land which has assured supply of water for only one crop.

E) The Maharashtra Co-op Act, 1960.

While taking loan from co-operative society member is furnishing undertaking to the society that he is mortgaging his
own agricultural land against the said loan amount. Under section 48, a charge on land continues until the whole debt,
due to the society is satisfied.

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F) Transfer of Property Act, 1882.

Section 52 of the Transfer of Property Act provides that during the pendency of any litigation affecting the immovable
property it can not be transferred or otherwise dealt with by any party to the suit so as to affect the rights of the other
party under any decree or order which may be made therein.
G) Registration Act,1908
a. Section 17 of the Registration Act, 1908 lays down different categories of documents for which registration is
compulsory. The documents relating to the following transactions of immovable properties are required to be
compulsorily registered; Instruments of gift of *immovable property
b. Lease of immovable property from year to year or for any term exceeding one year or reserving a yearly rent.
c. Instruments which create or extinguish any right or title to or in an immovable property of a value of more than
one hundred rupees.
d. Immovable property includes: Land, buildings, hereditary allowances, rights to ways, lights, fisheries or any
other benefit to arise out of land, and things attached to the earth, or permanently fastened to any thing which is
attached to the earth, but not standing timber, growing crops nor grass.
Under section 49 of the above Act, if the registration of the above transactions is not effectuated it creates an
impediment to its evidenciary value of transfer.65
H) Wakf Land
Wakf is a permanent dedication of movable or immovable properties for religious, pious or charitable purposes as
recognized by Muslim Law. No transfer of immovable of a wakf , by way of sale or mortgage, exchange or lease for
period of exceeding three years is validly allowed without previous sanctioned of the Wakf Board.
I) Trust Lands
These lands attract the provisions of the charitable Trust Acts. The trusties are competent to dispose of the trust
property exercising the powers vested in them by the Trust Deed.

65 49. Effect of non-registration of documents required to be registered.-No document required by section 17 47[or by any provision of
the Transfer of Property Act, 1882,] to be registered shall(a) affect any immovable property comprised therein, or
(b) confer any power to adopt, or
(c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered:
47[Provided that an unregistered document affecting immovable property and required by this Act, or the Transfer of Property Act,
1882, to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief
Act, 187748, 49[* * *] or as evidence of any collateral transaction not required to be effected by registered instrument.]

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Classification Of Land in Maharashtra:

Classification of land are varied but may be summarized as:
As per its economic uses.
Agricultural land.
Non agricultural land.
Forest Land.
As per its geographical nature: Water bodies, Rivers streamaCreeks, Reservoirs, Tanks, Lakes, Canals and Drains are classified as the land.)
Wastelands (Salt affected land; Gullied/Eroded land, Water logged areas, Undulating upland, with/without
scrubs, Sandy area, Rocky outcrops.)
Coastal wetland (Tidal/Mudflats, Saltpans, Vegetated, Non-Vegetated.)
sub-classified as per soil composition/soil classification;
Best black soil and the black mixed soil,
Medium height and soft red and combined soil,
Lowest dark or daski soil having sand or springs, and
Inferior hard and dry soil.
Agricultural Land: Agricultureincludes horticulture, poultry farming, the rising of crops, fruits, vegetables, flowers,
grass or trees of any kind, breeding of livestock including cattle, horses, donkeys, mules, pigs, breeding of fish and
keeping of bees, the use of land for grazing, cattle and for any purpose which is ancillary to its cultivation or other
agricultural purpose.
Classification of Agricultural Land can be as following:
Warkas Land: The warkas land66 is the land of the poor productivity. This land is used by the farmer during
the monsoon to grow low-grade millets such as nachani and warai. Its cultivation involved burning of the
vegetation on the land, (rab manure) preparing the soil with a pick and sowing by hand.
Jirayat land (Dry crop); Jirayat land is the land where cultivation is depends upon annual rainfall. The jirayat
land is used for seasonal crops, kharif and rabi. The agricultural sessions of kharif crops starts from June and
agricultural sessions of rabi crops are starts from September-October.
Bagayat or Garden land/ irrigated land, Jirayat land is the land where cultivation is depends upon annual
rainfall. The jirayat land is used for seasonal crops, kharif and rabi. The agricultural sessions of kharif crops
starts from June and agricultural sessions of rabi crops are starts from September-October.
Rice land or paddy land: In coastal and heavy rainfall area where main crop is rice, lands are classified into to
two categories namely; rice land and warkas land.
Improvements for the Better Cultivation of the Land:"Improvement" in relation to land means any work which adds materially to the value of the land. The works
which makes improvement in the land are
1. the construction of tanks, wells, water channels, embankments and other works for storage, supply or
distribution of water for agricultural purposes;
2. the construction of works for the drainage of land or for the protection of land from floods, or from erosion
or other damage from water;
3. the planting of trees and the reclaiming, clearing, enclosing, leveling or terracing of land;
4. the erection of buildings on or in the vicinity of the holding, elsewhere than in the gaothan required for the
convenient or profitable use or occupation of the holdings ; and
5. the renewal or reconstruction of any of the foregoing works, or alternations therein or additions there to;
However the below mentioned works are not improvements.
Temporary wells and such water-channels, embankments, leveling, enclosures or other works, or petty
alterations in or repairs to such works, as are commonly made by cultivators of the locality in the ordinary
course of agriculture; or

66

Sec 2(20A) of Bombay Tenancy and Agricultural Lands Act, 1948

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any work which substantially diminishes the value of any land wherever situated, in the occupation of any
other person, whether as occupant or tenant.

Farm building67:- It means a structure erected on the agricultural land for the purposes as mentioned below;
1. for residence of members of the family, servants or tenants of the holder,
2. for the storage of agricultural implements, manures or fodder,
3. for the storage of agricultural produce,
4. for sheltering cattle.
5. for any other purpose which is an integral part of his cultivating ;(ex crushing, sifting etc.
Farm building means the residence of a cultivator or his tenants and his barns and cattle-sheds etc. even if it is of a
landlord for the purpose of supervising the cultivation of his land, water-lifts and granaries and that is inseperable from
the cultivation or agricultural use68.
Restrictions on the Use of the Land:
In developing area it is essential to use the land for the best purposes for which it is most suitable for e.g. residential,
commercial, industrial, agricultural, recreational, etc. To achieve this object, the land use plans (Regional Plan) are
prepared by the Government. In the Regional Plan, land allocation for different purposes is made by dividing land in
the Zones. Broadly lands are divided in the zones as mentioned below:
1. Urbanisable Zone
2. Industrial Zone
3. Recreational Zone
4. Forest Zone
5. Green Zone
If the land is situated within the limit of Regional Plan, the use of land should be in confirmative to land use plan. Buyer
or developer of the land must know the restrictions imposed on the use of the land.
Green Zone
All lands are basically agricultural land so all lands not falling in any non-agricultural categories are deemed to be
agricultural land irrespective of they are used for cultivation or not. Where the area is primarily engaged in agricultural
activity the Regional Plan allocates the land of the area for agricultural activity and categories it as the Green Zone.
The aim is to protect agricultural activity, preserve area for recreational use and arrest urban sprawl. Although Green
Zone is much like Forest zone, lands falling under Green Zone cannot be purely used for agricultural activity alone
for number of reasons. For example;
1. In every village there are some places which are reserved for village settlement. The place reserved for this
purpose is called Gaothan. Population of rural area is ever increasing. To meet the growing requirement of
housing and allied activities provisions are made in MLR Code and in the Bombay Village Gram Panchayat
Act for extension of Gaothan.
2. Agricultural land is required to use for other purposes such as, agro-based industries for processing farm
produce.
3. Village needs roads for commuting, a hospital for the health care and schools for education.
4. Although poultry farms, horticultural project, cattle stables, piggeries, sheep farms are agricultural activities,
they consume agricultural land for erecting buildings for above production.
5. Due to high value and shortage of large size land in urban area many space extensive activities such as
educational, medical, social, cultural religious institutions, film and video shooting sites are not possible in
urban areas.
Generally the Regional Plans permits below mentioned activities in the Green Zone under some conditions.
a) Gaothan and Gaothan Expansion Schemes.
b) Farm buildings as permissible under Section 41of the Maharashtra Land Revenue Code,1966.
c) Holiday resorts, holiday homes.
d) Single-family houses on plots not less than 2000 sq.m. in area.
e) Educational, medical, social, cultural and religious institutions along with residential quarters, and shops for
the staff and the primary school, pre-primary school and health centre.

67
68

Sec 2(9)
AIR 1920 Bom 148 Re: Vithal Dattatraya

58|P a g e

f) Film and video shooting sites with studio and other related facilities
g) Godowns, container park, open ground storage of non-hazardous and non-obnoxious nature on the major
district roads, state highways, or road having width 15.00m or more and away from 500m from Gaothan and
National Highway.
h) Agricultural and allied activities and agro-based industries, rice mill, poha mill, saw mill, cold storage,
horticultural project, poultry farms, cattle stables, piggeries, sheep farms.
i)
Religious places, crematorium and cemetery;
j) Parks, gardens, play fields, golf courses, swimming pools, race courses, shooting ranges, camping grounds,
facilities for water sports, amusement parks, theme parks;
k) Fish farms, fish drying, storage of boats, servicing and repairs of boats;
l)
Quarrying of stone, murum or earth including mechanised stone crushing or stone dressing and temporary
housing of laborers, office of the supervisors, managers and other accessory buildings related to quarrying
activity.
m) Small scale industries and resource based industries and processing plants employing local resources and
giving employment to the local population in the rural areas having land requirements of not more than 4000
sq.m subject to not more than 2.0 ha in each village may be freely allowed in villages located 8 km from
major industrial department.
n) Roads and bridges, railways, heliports, airports, ports, jetties, dams, pipelines, electricity transmission lines,
communication towers, rope ways and such other essential services.
o) Highway amenities and services such as petrol pump, small shops, service stations including emergency repair
services, restaurants, parking lots and police check-post.
Non Agricultural Land
Land can be called non agricultural land, if any activity in the nature of development is carried over on the land
which makes land unfit for cultivation.
Section 42: Permission for non-agricultural use of the Maharashtra Land Revenue Code 1966
No land used for agriculture shall be used for any non-agricultural purpose; and no land assessed for one nonagricultural purpose shall be used for any other non-agricultural purpose or for the same non-agricultural purpose
but in relaxation of any of the conditions imposed at the time of the grant or permission for non-agricultural
purpose, except with the permission of the Collector.
Further under section 44, before carrying out any development on the land, an eligible person has to apply to the
collector for the permission to convert the use of agricultural land for any non-agricultural purpose, or to change
the use of land from one non-agricultural purpose to another non-agricultural purpose.
Procedure: The applicant may than Fill a Form of application to convert use of land which has to be attached with
the documents mentioned. The collector has to follow the procedure for granting permision to convert the use of
any agricultural land for the non agricultural purpose or to change the use of any one non agricultural purpose to
other nonagricultural purpose. The collector may refuse permission for conversion of land if the collector feels that
the permission is contradictory to the laws. The person to whom the permission is granted or deemed to be granted
may then inform in writing to the Thashildar throughthe Thalti the date on which the change of user of land is
commenced within thrithy days from such date, if the person fials to inform than he shall be liable to pay in
addtion to the non agricultiral assessment such fine as the Collector may subject to the rules and the regulations laid
down by laws imposes.
Grant Of Sanad:
Where land is permitted to be used for non-agricultural purpose, a Sanad shall be granted to the holder thereof
in the form in Schedule IV if the land is situated outside the jurisdiction of the Planning Authority, and in the form
in Schedule V if the land is situated within the jurisdiction of the Planning Authority.
Sanad is agreement between government and occupant. Conditions of sanad are binding on both the
government and occupant. Sanad is prima facie evidence of title but not conclusive evidence.
Penalties for unauthorised non-agricultural useIf any land is used for non agricultural purpose by occupant without obtaining permission, it is lawful for the
collector to stop its unauthorised use, ask him to pay NA taxes and penalty.

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OWNERSHIP, POSSESSION / OCCUPANCY OF LAND

Ownership and occupant of land are two different concepts and has a major play in appreciating the status of
land in Maharashtra. In terms of law, "Occupant69" is a person having lawful and actual possession of the land. Other
than tenant of Government leasee. Possession of the land is also termed as the occupancy. Occupant is responsible to
pay land revenue to the Government. Occupancy is liable to forfeiture in case occupant fails to pay land revenue to the
Government. On forfeiture occupant and his heirs loses all their right on the land.
POSSESSION OF THE LAND: Person can have control over land only if he is directly in contact with the land. In
other words person can control over the land if the land is under his possession. It directly means word possession
and word ownership goes together. Possession is most important component of the ownership.
If owner is not in touch with land and somebody else is having control over the land, under certain circumstances owner
may lose his ownership. There are legal provisions for granting ownership to the person having control on land for long
period as adverse possession .
TYPE OF POSSESSIONS:
a) Authorized Possession:-When person is possessing land by way of ownership, grant, licence, lease etc. such
possession is called authorised possession.
b) Unauthorised Possession:-When possession is acquired by encroachment or trespass, such possession is called
unauthorised possession.
c) Wrongful Possession: Conversion of use of land from one purpose to other purpose requires proper permission under section 42 of
MLR Code 1966. If the possessor of land has change the use of land without permission or violated any terms
or conditions of N.A. order, then his possession is called wrongful possession.
If the land is under possession of the person after expiry of period of lease or tenancy or after termination of
lease or tenancy or breach of any conditions annexed to the tenure then his possession is called wrongful
possession.
If person is unauthorizedly occupying or wrongfully in possession of any land or foreshore vesting in the State
Government it shall be lawful for the Collector to evict such person. The buyer should note that the land
reserved for grazing is Government land.
d) Adverse Possession: This is one of the methods for acquiring title to the land by the person having possession of the land for a long
period. Once adverse possession is proved by the person, owner loses his right over land/property even
though that person possesses the land through inappropriate means.
Only physical possession on land is not enough for acquiring title to the land/property. Possessor has to get it
registered in his name in the village form VII-B every year during the period of crop inspection. Adverse
possession is protected by law of limitation. If possessor possesses the land/property more than twelve year,
real owner loses his right to take action for claiming relief against adverse possession.

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Sec 2(23) of Maharashtra Land Revenue Code 1966

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LAND RECORD
For the purposes of MLR Code, 1966 Land Records"70 means records maintained under the provisions of code. It
includes a copy of maps and plans or a final town planning scheme, improvement scheme or a scheme of consolidation
of holding. Appreciations of land records are primary to understanding the title of the land as per land revenue records.
Department of Land Records
At the State level, the Land Records Department is controlled by the Director of Land Records and Settlement
Commissioner, Maharashtra State, Pune. At the district and taluka level the work is done by the District Inspector of
Land Records and Taluka Inspector of Land Records respectively. Functions of the Land Records department are as
follows:1. to maintain all survey, classification and settlement records up-to-date by keeping a careful note of all changes
by conducting field operations preliminary to incorporation of the changes in survey records;
2. to collect and provide statistical information necessary for the sound administration of all matters connected
with land;
3. to simplify the procedure and reduce the cost of litigation in revenue and civil courts by providing reliable
survey and other land records for the purpose;
4. to supervise the preparation and maintenance of Record of Rights by periodical inspection and maintenance
and repairs of the boundary marks of individual fields;
5. to conduct periodical revision settlement operations;
6. to organize and carry out surveys of village sites on an extensive scale and arrange for their proper
maintenance;
7. to maintain up-to-date all village maps by incorporating necessary changes as and when they occur;
8. to maintain all tahsil maps up-to-date, to reprint them and to arrange for their distribution to various
departments for administrative purposes and for sale to public; and
9. to train revenue officers in survey and settlement matters.
List of Land Records
1. All records maintained under various "Village Forms" are land records.
2. Map or plan of survey number or subdivision of survey number prepared under the MLR Code 1966
3. Town Planning Records: Maps of Town Planning Scheme, Improvement Scheme etc.
Village Forms: Revenue accounts system at village level is maintained by Talathi in 16 village forms. Purposes of
keeping these village forms are as mentioned below:1. To keep revenue accounts relating to area and land revenue.
2. To keep accounts relating to persons from who land revenue is realizable.
3. To keep Revenue Accounts of recoveries, with the balance sheet.
4. To keep Revenue accounts relating to statistics for sound general administration.
5. To keep Accounts of dues other than land revenue and forms and registers in respect of administration and
other matters.
Village form VII to XII is a combined form showing:
1. An index of all rights by survey number and their sub-divisions.
2. Details of crops, fallow, survey and boundary marks.
Below mentioned forms are required to maintain for keeping revenue accounts relating person from whom land
revenue is realizable.
1. Village Form VI
2. Village Form VII-XII
3. Village Form VIII-A
4. Village Form VII-B
5. Village Forms VI-C
Village Form VI
This form is also called register of mutation. Mutation means substitution of the names of a person in the Record of
Right. This is a record of changes in the record of right. This is done by the Revenue Officers u/s 148 to 151 and 154 of
M.L.R. Code 1966. Transfer may be by Will, Sale, Mortgage, Lease, Exchange, Gift or Inheritance.
This is very useful record as one can find out history of land.

70

Section 2(18)

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Village Form VII-XII

This is combined Registered of Record of Right and Registered of crops.
Village Form VII (Record of Right) consists of the below mentioned column.
1. Name of the village
2. Name of the taluka
3. Survey no/Gat No. and its sub division Number.
4. Tenure (Marathi-Bhudharana paddhti-Type of occupancy)
5. Name of the occupant (Marathi-Bhogvatadarache nav)
6. Local name of the field.
7. Cultivable area
8. Total
9. Uncultivable land (Marathi-Pot kharaba) class (a) and Class(b)
10. Total
11. Assessment
12. Judi or special assessment
13. Khata No.
14. Rent Rs. P.
15. Other rights
Explanation of entries:Tenure- Occupancy
[Marathi-Bhudharana- Occupancy, paddhti-Type of( occupancy)]
Occupant
Occupant and occupancy:- Occupant is a person having lawful and actual possession of the land whereas occupancy
means portion of the land held by the occupant. Occupant is responsible to pay land revenue to the Government.
Occupancy is liable to forfeiture in case occupant fails to pay land revenue to the Government. On forfeiture occupant
and his hairs loses all their right on the land. Occupancy is transferable immovable property. The way of transfer may
be by sale, by mortgage, by lease, by exchange, by gift or by his will.
Under section 29 of MLR Code1966 persons are classified into occupant class I and occupant class II.
Occupant Class I: Person classified into this class is free to transfer the agricultural land without permission of
collector in favour of person who is agriculturist.
Occupant Class II: Lands purchased by tenant under the provision of The Bombay Tenancy And Agricultural Lands
Act 1948., lands granted by Government to the Schedule Cast/ Tribes persons, freedom fighter, member of army
forces, ex-service man are allowed to transfer only after collectors permission. Persons holding land under this category
are classified as an Occupant Class II.
Under the column Tenure, Talathi has to write Occupants class (I or II)Local name of field: Considering shape
or location of the field farmers has given names to their field, for example ohalacha mal (field where spring water is
flowing). Local names are useful for finding out exact location of land.
Potkarab Class (a) and Class (b): It means uncultivable portion of the land. It is of two kindsa) that which is classed as a unfit for the cultivation i.e rocky area, land under nala and farm building etc.
b) that which is reserved for public purpose i.e. road, recognized foot path and public place of drinking water
etc.
Khata number: Under this column Talathi has to right khata number of form VIII-A.
Other right
1.
Details of charges of attachment and decrees under the order of civil court or revenue authorities
2.
Details of loan taken by the occupant
3.
If land is classified as a fragment under the section 6 of the Bombay prevention of fragmentation and
consolidation of holding Act 1947, the same is noted as a fragment in this column.
4.
Easement, such as right of way.
5.
If right is acquired by heir-ship, names of heirs with whom land is not in actual possession.
Village Form XII
This is registered of crops. In this form below mentioned details are available:1. Names of the crops and the area covered by them.
2. Names and numbers of the fruit trees and fuel trees.
3. Source of water for irrigation such as wells, tube wells and rivers etc.

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4.
5.
6.

Area under grass.

Area under building, roads and other non agricultural used.
Land that has been left idle in the current crop season to improve the productivity of the land, and land that is
fallowed for a longer time period and for which no cultivation activity has been planned.

Village Form VIII-A

In this form detail of khatedars land with the area and taxes payable by him is entered by Talathi.
Subsidiary Registers
Village Forms VI-C
This is registered of heir-ship cases. In this form below mentioned details are available:1. Name of the deceased occupant or the name of the deceased other right holder.(other right holder means
person whose name is entered in other right column of village form VII).
2. Date of death.
3. Old khata number of village form VIII-A.( deceased occupants khata number)
4. Names of the legal heirs.
5. Names of the heirs with whom land is in actual possession.(Occupant).
6. Details of the order of the Tahasildar as to who should be enter as a Occupant and who should be entered
in the other right column of Village Form VII.
7. Entry number of village form VI regarding decision taken by Tahsildar about heir-ships.
Village Form VII-B
This is register of persons whose names are not enter in a Record of Rights as a occupant but are in actual possession
of the land. Possession of the land for very long period is as good as ownership of the land.
If during the period of crop inspection Talathi finds that the person cultivating land is not the person who is supposed
to cultivate the land as per Record of Right, under the circumstances he has to enter his name in this village form as
possessor of the land and send extract of the same entry to the Tahasildar for further action. Tahasildar has to
complete enquiry as per the rules and decide the matter. For more details please see chapter Possession of the Land
Above forms are very important as they provide protection to all who hold interest in the land. The entries made in the
village forms are evidence of the facts recorded therein under section 35 of the Indian Evidence Act.
The above mentioned land records are open for inspection under section 327 of Maharashtra Land Revenue Code
196671
Also peruse Maharashtra Land Revenue Record of Rights and Registers (Preparation and Maintenance) Rules, 1971.

Section 327 Maharashtra Land Revenue Code 1966

327 Maps and land records open to inspection, etc.
Subject to such rules and the payment of such fees as the State Government may from time to time prescribe in this behalf, all maps
and land records shall, subject to such restrictions as may be imposed, be imposed, be open to the inspection of the public at
reasonable hours and certified extracts from the same or certified copies thereof shall be given to all persons applying for the same.
71

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Developement of the Land

Development72 is defined as the carrying out building, engineering, mining or other operations in, or over or under
land or the making of any material change, in any building or land the use of any building or land and includes
demolition of any existing building, structure or erection or part of such building, structure or erection, reclamation,
redevelopment and layout and subdivision of any land.
" engineering operations " includes the formation or laying out of a street or means of access to a road or laying out of
means of water-supply, drainage, electricity, gas or other public service;
Basic requirement to carry out any development over the land is that the land is require to convert for the purpose for
which land is intend to develop. Basically all lands are agricultural land. Collector of the district is empowered to covert
the land from agricultural to non agricultural purpose and from one non-agricultural purpose to another nonagricultural purpose. More details are given in the chapter Non- Agricultural Land.
Control on development:
Control on development is essential for the achieving the below mention purposes;
1. land be used for the best purposes for which it is most suitable e.g. residential, commercial, industrial,
agricultural, recreational, etc. having regard to both public and private interests;
2. adequate means of communications be provided for traffic throughout the region;
3. building development be concentrated in areas where adequate public and utility services can be supplied
economically;
4. ample area be reserved as open spaces;
5. amenities of the country side be protected including preservation of landscapes; and
6. Preservation of historical monuments, etc.
Regulating the development is State Government subject. The State Government is empowered to enforce and enact
necessary laws and frame policies for the subject. In the Maharashtra, there are number of laws, rules, regulations and
policies in force for regulating development. In this chapter we are considering provisions made under Maharashtra
Regional Town Planning Act, 1966.
MAHARASHTRA REGIONALTOWN PLANNING ACT, 1966
Regional Planning: The statutory powers regarding planning were embodied under the Bombay Town Planning Act,
1915, which was in force till its replacement by the Bombay Town Planning Act, 1954. The Act of 1954 generally
incorporated the provisions of Bombay Town Planning Act, 1915, and in addition made it obligatory on every local
authority (barring village panchayats) to prepare a development plan for the entire area within its jurisdiction.
The Bombay Town Planning Act, 1954, applied to lands included within the municipal limits only and therefore, there
was no provision for exercising proper and effective control over the planning and development of land in peripheral
areas outside the municipal areas which were growing in an irregular and haphazard manner. The evil results of such
uncontrolled growth and development have already become apparent in the vast areas outside Greater Bombay and
Poona Nagpur and by developing counter magnates for the dispersal and reallocation of both industries and population
within the region. and , and other important urban centres. It was considered that the only way to tackle adequately
these evil effects arising out of rapid industrialization and urbanization would be by resorting to regional planning for
areas around the metropolitan centres.
There was no statutory power under the Act of 1954 for the preparation of regional plans which has therefore, been
repealed and replaced by the Maharashtra Regional Town Planning Act, 1966 and constituted Regional Planning
Boards for these three regions and this Act provides for establishment of regions and constitution of Regional Planning
Boards for the preparation of regional plans, designation of sites for new towns, establishment of development
authorities to create new towns, preparation of development plans for the municipal areas and town planning schemes
for execution of the sanctioned development plans. Government has established Metropolitan Regions at Regional and
Town Planning Act, 1966.
Development Plan: Development plan73" means a plan for the development or redevelopment of the area within the
jurisdiction of the local authority.
Act made it obligatory on every Municipal Corporations, Councils and other local authorities (barring village
panchayats) to prepare a Development Plan for the entire area within its jurisdiction. Object of preparing Development

72
73

Section 2(7)- Maharashtra Regional Town Planning Act, 1966

Section 2(9)- Maharashtra Regional Town Planning Act, 1966

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Plan is to use the land for the best purposes for which it is most suitable for e.g. residential, commercial, industrial,
agricultural, recreational, etc.
A Development plan generally indicates the manner in which the use land of in the area of a Planning Authority shall
be regulated, and also indicate the manner in which the development of land therein is to be carried out. It provides all
or any of the following matters;
a.
b.

allocation of the of land for purposes; such as residential, industrial, commercial, agricultural, recreational;
designation of lands for public purpose, such as schools, colleges and other educational institutions, medical
and public health institutions, markets, social welfare and cultural institutions, theatres and places for public
entertainment, or public assembly, museums, art galleries, religious building and government and other public
buildings as may from time to time be approved by the State Government,
c. designation of areas for open spaces, playgrounds, stadium, zoological gardens, green belts, nature reserves,
sanctuaries and dairies,
d. existing plans and future plans for transport and communications, such as roads, high-ways, park-ways, railways, water-ways, canals and air ports, including their extension and development,
e. existing and future provisions of Water supply, drainage, sewerage, sewage disposal, other public utilities,
amenities and services including electricity and gas,
f. reservation of the lands made for community facilities and services,
g. designation of sites for service industries, industrial estates and any other development on an extensive scale,
h. preservation, conservation and development of areas of natural scenery and landscape,
i. preservation of features, structures or places of historical, natural, architectural and scientific interest and
educational value of heritage buildings and heritage precincts,
j. the filling up or reclamation of low lying, swampy or unhealthy areas or leveling up of land,
k. the laying out or re-laying out of land either vacant or already built upon including areas of comprehensive
development,
l. provisions for permission to be granted for controlling and regulating the use and development of land within
the jurisdiction of a local authority including imposition of conditions and restrictions in regard to the open
space to be maintained about buildings, the percentage of building area for a plot, the location, number, size,
height, number of storeys and character of buildings and density of population allowed in a specified area, the
use and purposes to which buildings or specified areas of land may or may not be appropriated, the subdivision of plots the discontinuance of objectionable users of land in any area in reasonable periods, parking
space and loading and unloading space for any building and the sizes of [projections and advertisement signs
and hoardings and other matters as may be considered necessary for carrying out the objects of this Act.
Local Authority has to carry out a survey, prepare an existing land-use map and prepare a Development Plan for the
area. Local authority may for the purpose of implementing the proposals in the final Development Plan, prepare one or
more Town Planning Schemes for the area within its jurisdiction.
Under section 3 of above act,
1. State government may establish any area in the State, by defining its limits, to be a Region for the
purpose of this act and may give name to it. (For example, Mumbai Metropolitan Region is a region established
by the government under this act.)
2. Constitutes a Regional Planning Board for the Region for the purpose of planning the development and use
of land.
It shall be the duty of a Regional Board
a.
to carry out a survey of the Region, and prepare reports on the surveys so carried out;
b.
to prepare an existing-land-use map and such other maps as may be necessary, for the purpose of
preparing a Regional Plan.
Regional Plan
Region may extend over an area of thousands of sq.kms. It comprises Municipal Corporations, Municipal Councils,
non-municipal urban centres, and hundreds of villages. The object of Regional Plan is to regulate future development in
the Region so that it shall develop in a proper and orderly manner.
A Regional Plan may provide for all or any of the following matters;
1. allocation of land for different uses, general distribution and general location of land and the extent to which
the land may be used as residential, industrial, agricultural or as forest, or for mineral exploitation;
2. reservation of areas for open spaces, gardens, recreation, zoological gardens, nature reserves, animal
sanctuaries, dairies and health resorts;

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3.

transport and communications such as roads, highways, railways, water-ways, channels and airports, including
their development;
4. water supply, drainage, sewerage, sewage disposal and other public utilities, amenities and services including
electricity and gas;
5. reservation of sites for new towns, industrial estates and any other large scale development or project which is
required to be undertaken for the proper development of the region or new towns;
6. preservation, conservation and development of areas of natural scenery, forest, wild life, natural resources and
landscaping;
7. preservation of objects, features, structures or places of historical, natural, architectural or scientific interest
and educational value;
8. areas required for military and defense purposes;
9. prevention or erosion, provision for afforestation, or reforestation, improvement and redevelopment of water
front-areas, rivers and lakes;
10. proposals for irrigation, water supply and hydroelectric works, flood control and prevention of river
pollution;
11. providing for the relocation of population or industry from overpopulated and industrially congested areas
and indicating the density of population or the concentration of industry to be allowed in the area.
In the Regional Plan land allocation for different purposes are made by dividing land in the Zones. Broadly lands are
divided in the zones as mentioned below:
a. Urbanisable Zone
b. Industrial Zone
c. Recreational Zone
d. Forest Zone
e. Green Zone
Development Control in the Region
If the land situates within the limits of any planning authority, the land may be developed for residential, commercial,
industrial, warehousing or other urban uses. Such development shall be in conformity with the detailed land use
provisions of the Development Plan, Planning Proposals, Town Planning Schemes, and the related Development
Control Regulations as may be enforced by the concerned planning authorities for their respective areas.
If the land situates outside the limits of any planning authority, the development shall be in conformity with the
detailed land use provisions of the Land use plan and the related Development Control Regulations as may be enforced
by the concerned Special Planning Authority appointed for the Region. Where Development Control Regulations are
inadequate for control.
Special Planning Authority:City And Industrial Development Corporation, Maharashtra housing and Area Development Authority, Maharashtra
Industrial Development Corporation and Mumbai Metropolitan Region Development Authority etc
Development Control outside the Region and Planning Authority
Where there is no Regional Plan, Development Plan or Town Planning Scheme, for development control standardized
building bye laws and DC Rules for B. & C. Class municipal councils are used by Town Planning Department while
scrutinizing miscellaneous building permission cases and layouts received from the Collectors.
District Collector is empowered to grant or refuse development permission.
List of some of the authorities functioning important role In Development Control are given below.
1.
Town Planning Department:
2.
Health Department
3.
The Mumbai Village Panchayat Act, 1958
4.
Laws Related to Development Along Roads
5.
Mumbai Highways Act, 1955
6.
National Highway Act 1956
7.
Environment (Protection) Act, 1986
8.
Indian Forest Act, 1927
9.
Forest Conservation Act, 1980

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10.
11.

Maharashtra Acquisition of Private Forests Act, 1975

Minor Mineral (Extraction) Act, 1955 and Explosives Act, 1984

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Appendix II
SETTING UP AN INDUSTRY IN GUJARAT- PRIMER
Industries Development Regulation Act 1951 requirement
Class of Industriesa) Small Scale Industry (SSI)
b) Medium and Large de-licensed industries
c) Medium and Large licensed industries
SSI
Obtaining provisional SSI registration
Approval for provisional small business registration in the case of small business units should be taken from the
concerned District Industries Center (DIC);
filing of IEM/LOI/LOP in the case of medium and large de-licensed industries as well as licensed industries
Medium and Large de-licensed industries as well as licensed industries
In the case of medium and large de-licensed industries as well as licensed industries, approval is needed from Secretariat
for Industrial Assistance, Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, New Delhi.
1.
Industries licensing policy are regulated under the Industries Development Regulation Act 1951
2.
At present Industrial Licensing for manufacturing is required in case of: Industries under compulsory licensing
Manufacture of item reserved for SSI sector by non SSI units
Project location attracts locational restrictions
Compulsory Licensing
Following industries require compulsory industrial licence under the provisions of I (D&R) Act, 1951.
1.
Distillation and brewing of alcoholic drinks.
2.
Cigars and cigarettes of tobacco and manufactured tobacco substitutes;
3.
Electronic Aerospace and defence equipment: all types;
4.
Industrial explosives, including detonating fuses, safety fuses, gun powder, nitrocellulose and matches;
5.
Hazardous chemicals;
Hydrocyanic acid and its derivatives
Phosgene and its derivatives
Isocyanates and di-isocyanates of hydrocarbon, not elsewhere specified (example: Methyl Isocyanate).
Large or medium industries undertaking manufacture of items reserved for SSI units
The Government has reserved certain items for exclusive manufacture in the small scale sector. Non-small scale units
can undertake the manufacture of items reserved for small scale sector, only after obtaining an industrial licence. In such
cases, the non-small scale unit is required to undertake an obligation to export 50% of the production of SSI reserved
items.
Procedure for obtaining Industrial Licence
Industrial licence is granted by the Secretarial of Industrial Assistance (SIA) on the recommendation of the Licensing
Committee. For the purpose, application in the prescribed form (Form FC-IL) accompanied by a crossed demand draft
of Rs.2,500/- may be submitted to PR&C Section in SIA.
Delicensed Industries
Industries exempted from the provisions of Industrial Licence are required to file Industrial Entrepreneur's
Memorandum (IEM)
Procedure for filing IEM

Industrial undertakings exempt from industrial license are only required to file an Industrial Entrepreneurs
Memoranda (IEM) in Part A, in the prescribed format (Form IEM) with Secretariat for Industrial Assistance (SIA),
Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce & Industry, Government of India, New
Delhi.

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The IEM should be submitted along with a crossed DD of Rs.1000/- for up to 10 items proposed to be
manufactured. For more than 10 items an additional fee of Rs.250/- for up to 10 additional items needs to be paid.

On filing the IEM, an acknowledgement containing the SIA registration No. for future reference is issued. This
acknowledgement is sent by post and no further approval is required.
Upon commencement of commercial production, industrial undertakings need to file information in Part-B of the IEM
to SIA. No fee is to be paid for filing Part-B.
All the fees payable to SIA are paid through a crossed demand draft drawn in favor of Pay & Accounts Officer, Dept of
Industrial Policy and Promotion, Ministry of Commerce & Industry, payable at New Delhi.
Locational Restrictions
Industrial undertakings are free to select the location of their projects. Industrial licence is however required if the
proposed location is within 25 km of standard urban area limits of 23 cities having a population of one million as per
1991 Census. In Gujarat, this provision is applicable in the case of 3 cities namely Ahmedabad, Vadodara and Surat.
The Locational restriction however does not apply:
1.
If the unit were to be located in an area designated as an industrial area before the 25th July, 1991.
2.
In the case of Electronics, Computer software and Printing and any other industry, this may be notified in
future as non polluting industry.
The location of industrial units is subject to applicable local zoning and land use regulations and environmental
regulations.
Land Acquisition Norms
For land acquired in GIDC (Gujarat Industrial Development Corporation) estate, one should get in touch with the
concerned regional office of the GIDC. For government land, one should contact the concerned district collector or
DDO under whose jurisdiction the survey numbers fall, with the recommendation of Industries Commissionerate. For
private land, deemed NA permission up to 10 hectares should be granted by the concerned district collector or DDO
under whose jurisdiction the survey numbers fall.
Environment Clearance

Entrepreneurs are required to obtain statutory clearances relating to Pollution Control and Environment as
may be necessary, for setting up an industrial project for 31 categories of industries in terms of Notification S.O. 60(E)
dated 27.1.94 as amended from time to time, issued by the Ministry of Environment & Forests, Government of India
under The Environment (Protection) Act, 1986. This list includes petrochemical complexes, petroleum refineries,
cement, thermal power plants, bulk drugs, fertilizers, dyes, paper, etc.

However, if investment in the project is less than Rs. 100 crore, such Environmental Clearance is not
necessary, except in cases of pesticides, bulk drugs and pharmaceuticals, asbestos and asbestos products, integrated paint
complexes, mining projects, tourism projects of certain parameters, tarred roads in Himalayan areas, distilleries, dyes,
foundries and electroplating industries.

Setting up industries in certain locations considered ecologically fragile (e.g. Aravalli Range, coastal areas, Doon
valley, Dahanu, etc.) are guided by separate guidelines issued by the Ministry of Environment and Forests.
Details can be obtained at the website of Ministry of Environment and Forests (http://envfor.nic.in).
Pollution Control Board clearance
Barring highly polluting industries, all other items need an NOC to be obtained from the Gujarat Pollution Control
Board. For highly polluting industries, first NOC should be obtained and on effective installation of pollution control
equipments/satisfactory arrangement for disposal of wastes/effluents, consent should be obtained from the Gujarat
Pollution Control Board.
Factory registration: Chief Inspector of Factories, Government of Gujarat, Ahmedabad
Power arrangement
For sanction of power, one will have to apply to the concerned Circle Office of Gujarat Electricity Board. For captive
power, one should apply to the Gujarat Electricity Board and for non-conventional sources of energy; one should apply
to the Gujarat Energy Development Agency, Vadodara.
Water arrangement
For units located in GIDC estates, one should get in touch with the Executive Engineer, GIDC of the concerned region

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and for units located outside GIDC estates for drawing canal water, contact the irrigation department of the Gujarat
government.
Approval of building plans
For units located in GIDC estates, one should get in touch with the Executive Engineer, GIDC and for units located
outside GIDC estates for bore-well permission, get in touch with local authority. For registration for incentives available,
small business units should get in touch with the concerned DIC and others with the office of the Industries
Commissionerate of the state government at Gandhinagar.
Loan: To get term loan up to Rs.240 lakhs for acquisition of fixed assets, one should get in touch with the Gujarat State
Financial Corporation; for term loan exceeding Rs.240 lakhs for acquisition of fixed assets, one should get in touch with
Gujarat Industrial Investment Corporation and consortia of other financial institutions/banks and for working capital,
one should get in touch with any commercial bank.
Certain Specific Approvals Needed:
For food and drug manufacturing units: Commissioner of Food & Drug Administration
Environmental clearance: Forest and Environment Department, Government of Gujarat
Site clearance certificate for LOI holders for converting into IL: Industries Commissionerate, Government of
Gujarat, Gandhinagar
Boiler registration: Chief Inspectorate, Steam & Boiler, Government of Gujarat
Mining of minerals: Commissionerate of Geology & Mining, Government of Gujarat
Storage of explosive materials: Directorate of Explosives, Government of India, Vadodara
Environment Impact Assessment: Department of Environment, GoI
Quality registration: Bureau of Indian Standards, Ahmedabad
Import of machinery: Joint Directorate General of Foreign Trade, Ministry of Commerce, GoI, Ahmedabad
Import of raw materials: Joint Directorate General of Foreign Trade, Ministry of Commerce, GoI, Ahmedabad
Handling of hazardous items: Chief Inspector of Factories, Government of Gujarat, Ahmedabad
Powerloom registration: DIC/IC/Textile Commissioner

STEPS TO SET UP AN INDUSTRY IN GUJARAT

1.0
1.1
1.2

Approval Type
Industrial Approval
Entrepreneurship
Memorandum (EM)
Industrial
Entrepreneurship
Memorandum(IEM)

Authority

Remarks

District Industries Centre

For setting up SME

Prescribed Application form
For setting up projects other
than SME, and not included in
the list of compulsory licensing
provision
Application in prescribed form
(IEM)
Part I .
Format of Follow-Up Report to
be submitted
Till
Commencement
of
Production - Status of Project (format)
After
Commencement
of
Production - Part-B
Projects requiring compulsory
licensing
Application in prescribed form
Application in prescribed form

Secretariat
For
Industrial
Approval(SIA), New Delhi

1.3

Letter of Intent(LOI)

Do

1.4

100% Export Oriented

Development

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Commissioner,

2.0
2.1
2.2

2.3
3.0
3.1
3.2
3.3
4.0

Units(EOU) & SEZ

units
Business Constitution
Registration as Firm

KASEZ

For approval of Name

of
Private/Public
Limited Company/Limi
ted
Liability
Partnership and
incorporation thereof
Cooperative Society

Registrar of Companies

Land for project

Allotment of
plot/shed in Industrial
Estate
Allotment of
Government land
Agricultural Land
NA Permission

Registrar of Firms

Registrar of Cooperatives

For
forming
Society

GIDC

Application in prescribed form

District Collector

No prescribed application

Purchase through negotiation

Collector/DDO

No prior permission required

Prescribed application form for
deemed NA
Application in the prescribed
form by polluting industries like
chemicals, pharmaceuticals, etc.
(other than 99 industries listed
by GPCB)
Specific projects need prior
environmental clearance from
MOEF/State
level
Environment
Impact
Assessment Authority (SEIAA)
On completion of the project
and meeting the norms for
disposal of effluents, G.P.C.B.
will issue consent letter

5.0
5.1

Environment Clearance
No Objection
Certificate

Gujarat Pollution Board

5.2

Environmental
Clearance (EC)

Ministry of Environment and

Forest (MOEF)

5.3

Consent and
Authorization

G.P.C.B.

6.0
6.1

7.0
7.1

Construction of Building
Plan Approval in
GIDC
Industrial Estate
Plan Approval in other
Local Authority,
area
Water Requirement
In Industrial Estate
GIDC

7.2

River/Public Service

8.0
8.1

Power Requirement
Power requirement

9.0
9.1

Financial Requirement
Capital Issue

6.2

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Proprietary
concerns
or
Partnership Firm
Private Ltd. or Public Ltd.
Company

Department of
Narmada & Water Resources,
GoG

Cooperative

Application to
Regional
Manager, GIDC
Application to concerned local
authority, where site is selected
Application
to
Regional
Manager/ Executive Engineer
of GIDC
Application
to
Executive
Engineer
in-charge
of
concerned Irrigation scheme

Gujarat Urja Vikas

Nigam Ltd.-Distribution
Company
or respective
agencies

Application in prescribed form

SEBI

Application in prescribed form

to Security Exchange Board of

India
9.0
9.2

Financial Requirement
Term Loan

9.3

Working Capital

Banks

10.0
10.1
10.2

Final Approval
SME
Large Units

DIC
SIA

11.0
11.1
11.2

Registration of Establishment
Registration
under
Local Authority/Municipal
Shops & Establishment
Corporation
Act
Registration as Factory
Chief Inspector of Factories

12.0
12.1

Value Added Tax

VAT Registration

Financial Institutions or
Bank

Commercial Tax Officer

Application in prescribed form

along with detailed Project
Report
Application to Branch Manager
of a Commercial Bank
Under the 'Single Window Sche
me', both term loan & working
capital up to Rs 25 lakhs is
considered
EM Part II
LOI is to be converted into IL
IEM Part B in case of
delicensed units
Registration of an industrial unit
not covered under Factories Act
Application in prescribed form
under the Factories Act
Application for certificate of reg
istration under GVAT Act
2003. (In case of turnover
exceeding Rs. 5 lakhs having
sales of above Rs. 10,000 VAT
applicable items)

Foreign Technology Agreement

Foreign technology collaboration agreement for acquisition of foreign technology requires approval of
Government of India. It normally includes technical know-how, design and training, engineering services and lump sum
or royalty payments.

Payment for foreign technology collaboration under automatic route is allowed subject to:
The lump sum payment not exceeding US $ 2.0 million.
Royalty payable- limited to 5% for domestic sales and 8% for exports, without any restriction on the duration of the
royalty payments. The royalty limits are net of taxes. The royalty will be calculated on the basis of the net ex-factory sale
price of the product, exclusive of excise duties, minus the cost of the standard bought out components and the landed
cost of imported components, irrespective of the source of procurement, including ocean freight, insurance, custom
duties etc.
Use of Trademarks and Brand Name

Payment of royalty up to 2% for exports and 1% for domestic sales is allowed under automatic route for use of
trademarks and brand name of the foreign collaborator without technology transfer. Royalty on brand name/trade mark
shall be paid as a percentage of net sales, viz., gross sales less agents/dealers commission, transport cost, including
ocean freight, insurance, duties, taxes and other charges, and cost of raw materials, parts and components imported from
the foreign licensor or its subsidiary/affiliated company.

In case of technology transfer, payment of royalty includes the payment of royalty for use of trade mark and
brand name of the foreign collaborator.
Procedure for Automatic Route

Authorized Dealers (ADs) appointed by the RBI allow remittances for royalty, payment of lump-sum fee and
remittance for use of Trade mark/Franchise in India within the limits prescribed under the automatic route.

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RBIs prior approval is required for remittance towards purchase of trade mark/franchise.

Government Approval Project Approval Board

Royalty payment in the following cases requires prior Government approval (through Project Approval Board - PAB
when only technical collaboration is proposed and Foreign Investment Promotion Board - FIPB where both financial &
technical collaboration are proposed):

Sectors/activities which are not on the automatic route for FDI, or

Proposals not meeting any of the parameters for automatic approval

Procedure for Government Approval

Proposals for foreign technology collaboration not covered under the automatic route are considered by the
Project Approval Board (PAB) in the Department of Industrial Policy and Promotion. Application in such cases should
be submitted in Form FC-IL to the Secretariat for Industrial Assistance.
Proposals where both financial & technical collaboration are proposed, application is to be submitted to FIPB. No fee is
payable.
Registrations Firm Structuring:
-proprietorship (individual ownership) business, no registration is required.
- partnership comprising 2-20 owners, one should register with the Registrar of Partnership Firms, Ahmedabad.
-Pvt. Ltd. Co. comprising 2-50 shareholders with limited liability, one will have to register with the Registrar of
Companies.
-Public Ltd. Co. with minimum 7 to maximum unlimited members with limited liability, one has to register with the
Registrar of Companies.
Data details from: Industrial Extension Bureau -The iNDEXTb
iNDEXTb -In 1978, the Gujarat (a state in Republic of India) government formed a single window co-ordination
agency, iNDEXTb, to ensure a smooth start to any new venture. Its functions include promoting NRI and foreign direct
investments, coordinating with various government departments at the state and central levels, with chambers of
commerce and industries associations and monitoring implementation of all industrial approvals through a computerized
system.
Industrial Extension Bureau, A Government of Gujarat Organization
Block No. 18, 2nd Floor, Udyog Bhavan, Sector 11,
Gandhinagar 382 017.
Ph: 079-2325 6009, 23250492 / 93
Fax: 079-23250490
E-mail: indextb@indextb.com

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Appendix III
Primer on Double Taxation Avoidance Agreements
Double taxation is the levying of tax by two or more jurisdictions on the same declared income, profits,
dividend, interest, royalties, etc. The DTAA (Double Taxation Avoidance Agreement) is a positive step taken
towards the avoidance of double taxation that may be faced by individuals or enterprises, or persons, in
general, including companies in another state apart from their state of residence by virtue of a presence,
economic and otherwise in such other state. The initiative of elimination of double taxation was originally taken
up by the League of Nations and was pursued in the OEEC (Organisation for European Economic Cooperation), which is presently known as the OECD (Organisation for Economic Co-operation and
Development).The DTAA is consent based bilateral agreement between two contracting states, setting out the
essentials and the terminology and most importantly the methods of computation of taxes for the avoidance of
double taxation. The United Nations Model Convention as well as the OECD Model Convention 74are
consistent with each other with regards to the basic Framework and the articles of the Conventions, modifying
the articles, wherever necessary.
The United Nation Model Convention pertaining to the Double Taxation Avoidance Agreements75 is only a
model as the name suggests and the contracting states may modify or alter the provisions of this convention to
best suit the conditions prevalent in such contracting states keeping in mind the framework or the essence of
the convention. Thus to read a DTAA it is primordial to appreciate the structure presented by the stated
model convention, the architecture and the provisions of each article of DTAA forming the convention.
It is to be noted that primarily all DTAAs follow the same article numbering for each articles therein.
The provisions of the Model Conventions may be grouped as follows:
a.
b.
c.

d.
e.
f.

Scope provisions: Article 1 (Personal Scope), Article 2 (Taxes Covered), Article 29 (Entry into force) and
Article 30 (Termination)
Definition provisions: Article 3 (General definitions), Article 4 (Resident), Article 5 (Permanent
Establishment)
Substantive provisions: Article 6 (Income from immovable property), Article 7 (Business Profits), Article
8 (Shipping, Inland Waterways Transport And Air Transport), Article 10 (Dividends), Article 11 (Interest),
Article 12 (Royalties), Article 13 (Capital Gains), Article 14 (Independent Personal Services), Article 15
(Dependent Personal Services), Article 16 (Directors Fees And Remuneration Of Top-Level Managerial
Officials), Article 17 (Artistes And Sportspersons), Article 18 (Pensions And Social Security Payments),
Article 19 (Government Service), Article 20 (Students), Article 21 (Other Income), Article 22 (Capital)
Provisions for the elimination of double taxation: Article 23 (Exemption Method/ Credit Method),
Article 25 (Mutual Agreement Procedure)
Anti-avoidance Provisions: Article 9 (Associated Enterprises), Article 26 (Exchange Of Information),
Article 27 (Assistance In The Collection Of Taxes)
Miscellaneous Provisions: Article 24 (Non-Discrimination), Article 28 (Members Of Diplomatic
Missions And Consular Posts)

Herein is a brief analysis of the United Nations Model Convention on DTAA,

SCOPE OF THE CONVENTION
Article 1 -PERSONS COVERED
This article states that the DTAA convention shall be applicable to persons who are residents of one or both of
the contracting states to such convention. An analysis of this article will point out that the first and foremost
thing to be taken into account is that the entity that seeks to take advantage of the DTAA must be a person as
defined in article 3 of the convention and must also be a resident as defined in article 4 of the convention of at
least one of the contracting states. An individual who is a resident of a state other than the respective
contracting states to the convention cannot seek to take advantage of the DTAA between the said contracting
states.

74
75

http://www.oecd.org/tax/treaties/1914467.pdf
http://www.un.org/esa/ffd/documents/UN_Model_2011_Update.pdf

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Article 2-TAXES COVERED

The Model Convention is to apply only to the direct taxes, that is to say the taxes on income and capital and
does not include indirect taxes in its gambit. It makes a further provision in order to avoid the difficulty of
repeatedly amending the convention by stating that such taxes are to include any other identical or substantially
similar taxes which are imposed in the contracting states after the date of signature of the convention, in
addition to or in place of the said existing taxes. The Convention imposes an obligation on the contracting
parties by making it mandatory for each of contracting parties to inform the other contracting party about any
substantial changes in its tax laws.
DEFINITIONS
Article 3- GENERAL DEFINITIONS
The convention goes on to define certain important terms used therein thereafter such as person, company,
enterprise of a contracting state, enterprise of the other contracting state, international traffic, competent
authority and national. When read with the definition of the term company, a person to whom such
convention will be applicable shall include an individual, a body of persons, any other entity, whether corporate
or non corporate as well as any entity which is treated as a body corporate for the purposes of taxation.
However, since the terms body corporate, enterprise , competent authority are not defined in the Model
Convention, it is open to the Contracting States to give the interpretation, that applies best to them. The
convention provides that in its application by a contracting party to it, if any term is not defined in the
convention, such term will have the definition that it has under the tax laws of the said contracting state for the
said purpose. The commentary on article 3 of the model convention clears the ambiguity with respect to the
interpretation of any term not defined in the convention by stating that in case of a conflict between the law in
force at the time of signing the Convention and the law in force at the time of application of the convention,
the latter law will prevail.
It also defines the term International traffic which is relevant with taxation of income from shipping and air
transport of an enterprise having its effective management in a state. It deals with International traffic with
respect to aircrafts and ships, excluding domestic traffic which is to be taxed in the state where domestic traffic
occurs.
Article 4- RESIDENT
For the purposes of applicability of the convention, a resident of a contracting state is given to define any
person, who is liable to taxation in that state according to the domestic laws of that state. Such a liability may
arise on account of his domicile, residence, place of incorporation, place of management or any other criterion
of a similar nature. However, for the purposes of applicability of the convention, it is to be noted that, it shall
not be applicable to a person who is liable to tax in that contracting state in respect of only the income from
sources in that state or capital situated in such contracting state.
The convention further lays down detailed provisions in the event that a person is a resident in both the
contracting states, the persons status with respect to the applicability of the provisions of this convention must
be determined according to the following factors:
a. The state where the person has a permanent residence
b. The state where the persons personal and economic relations are closer
c. The state in which the person has a habitual abode
d. The state of which the person is a national
If none of the above factors help in determination of the status of the person, then the competent authorities
of the respective contracting states shall determine the same by mutual agreement. Where the individual in
question is a company, then it shall be considered as the resident of the contracting state in which there is
effective management of such company.
Article 5- PERMANENT ESTABLISHMENT
Article 5 solely speaks about the permanent establishment of an enterprise in a contracting state other than
the contracting state of residence of such enterprise, laying stress to it to be read with and giving essence to
article 7 of the Convention. The article describes a permanent establishment as a fixed place of business
through which the business of an enterprise is wholly or partly carried out. This article further goes on to
elaborate and give illustrations of what establishments may or may not be considered as a permanent
establishment. In certain cases, even persons acting as agents for the enterprise may be considered as a
permanent establishment in respect of any activities that such agent or person undertakes for the enterprise.

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However, in order for an agent of an enterprise to be termed as permanent establishment, the following
factors are considered:
a. Status of agent, whether dependent or independent;
b. Authority to conclude contracts in the name of the enterprise in that state;
c. Maintenance of a stock of goods or merchandise in the state from which he regularly delivers goods and
merchandise on behalf of the enterprise.
In case of an insurance enterprise of a contracting state, it shall be deemed to be a permanent establishment in
the other contracting state if it collects premiums or insures risks situated therein through an agent other than
an independent agent.
In the event of a parent-subsidiary relationship, if the parent company is situated in one of the contracting
states and the subsidiary company is situated in the other contracting state, the convention clarifies that neither
the parent company, nor the subsidiary company will be considered as a permanent establishment of the other
in the other contracting state.
TAXATION OF INCOME
Article 6 - INCOME FROM IMMOVABLE PROPERTY
The convention does not specifically define the term immovable property. However, it lays down that such
property may be defined in conformity with the domestic laws of the contracting state in which such
immovable property is situated. The convention proceeds to lay down that in case of the income derived by a
resident from the immovable property situated in a contracting state other than the one in which such person is
a resident, such income may be liable to taxation in such other contracting state in which the immovable
property is situated following the principle of law of situs. The article lays down that the income derived from
immovable property in such a case would also include the income derived from agriculture or forestry or the
income derived from the direct use or letting or any other use of immovable property as well as the income
derived from the immovable property of an enterprise and the income derived from the immovable property
used for the performance of independent personal services. Immovable property shall also include property
accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the
provisions of general law respecting landed property apply, usufruct of immovable property and rights to
variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources
and other natural resources. The convention however provides an exhaustive list of exceptions to this category
of immovable property by stating that such immovable property shall specifically not include ships, boats and
aircrafts.
It is noteworthy that this article has been worded in a manner so as to provide that the income derived by a
resident from the immovable property situated in the other contracting state may be liable to taxation in such
other contracting state. This indicates that the income derived may also be liable to taxation in the contracting
state of the resident if it so pleases and is subject to an agreement purporting the same.
Article 7 - BUSINESS PROFITS
This article goes on further to elaborate the necessity to know the importance of a permanent establishment.
It states that the profits derived by an enterprise in a contracting state will be taxable only in that contracting
state. However, this need not be the case if such enterprise also functions through a permanent establishment
in the other contracting state. In the event that the enterprise has such permanent establishment in such other
contracting state, then the profits which are attributable to such permanent establishment may become liable to
taxation in that other contracting state in accordance with the provisions of this convention. Such taxable profit
may also include the sale of goods or merchandise or any other business activities carried on or any other
similar activity carried on from that permanent establishment.
For the purposes of this article and of article 23, the profit or income made by an enterprise through its
permanent establishment in the other contracting state shall be attributed to such permanent establishment as if
the permanent establishment is a distinct entity, functioning wholly independent of the enterprise of which it is
a part.
This article further goes onto elaborate that for the purposes of attributing such income or profits derived from
the permanent establishment in the other contracting state, the following factors will not be taken into
consideration:
expenses incurred for the purposes of the business of the PE (permanent establishment) including
executive and general administrative expenses, whether in the State in which the permanent establishment
is situated or elsewhere.

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Providing an exception to the above it also states that, the following factors shall not be deducted from the
income derived from the PE in order to determine the profits attributable to such PE for taxation
purposes:
a. amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the PE to the
head office of the enterprise or any of its other offices, by way of royalties, fees or other similar
payments in return for the use of patents or other rights, or by way of commission, for specific
services performed or for management, or, except in the case of a banking enterprise, by way of
interest on moneys lent to the PE.
b. amounts charged (otherwise than towards reimbursement of actual expenses), by the PE to the head
office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments
in return for the use of patents or other rights, or by way of commission for specific services
performed or for management, or, except in the case of a banking enterprise, by way of interest on
moneys lent to the head office of the enterprise or any of its other offices.
This article provides for uniformity in the determination of the profits attributable to the PE by stating that the
method used for determining the profits attributable to the PE must be the same, year by year and also that it
may be customary in accordance with the principles of the contracting states in as much as it does not violate
the principles of the convention.
Article 8 - SHIPPING, INLAND WATERWAYS TRANSPORT AND AIR TRANSPORT
In case of an aircraft or a ship operating in international traffic or boats operating in inland waterways, the
profits derived from such aircraft or such ship or such boat may be taxable only in the contracting State where
the effective management of the enterprise is situated. Although effective management is not defined by this
convention, it may be deemed to include places where the key managerial employees or the board of directors
are situated, the place of executive decisions of the enterprise, etc.
In case of a ship or a boat, if the place of effective management of the enterprise is situated on board a ship or
a boat, the place of effective management of the enterprise shall be the contracting state in which the home
harbour or the home port of such ship or boat is situated. In the event of there being no such home harbour or
port, the place of effective management of the enterprise shall be the contracting state of which the operator of
the ship or a boat is a resident.
It also provides for an alternative to the above, for profits from the operation of ships in international traffic
shall be taxable only in the Contracting State in which the place of effective management of the enterprise is
situated unless the shipping activities arising from such operation in the other Contracting State are more than
casual. If such activities are more than casual, such profits may be taxed in that other State. The profits to be
taxed in that other State shall be determined on the basis of an appropriate allocation of the overall net profits
derived by the enterprise from its shipping operations. The tax computed in accordance with such allocation
shall then be reduced by ___ per cent. (The percentage is to be established through bilateral negotiations.)
Article 9 - ASSOCIATED ENTERPRISES
In the event of any transactions between two enterprises, having common control arising out of management,
control or capital, in different contracting states and if there are certain conditions inter se as a result of which,
the enterprises derive such profit, which they would otherwise not have, had they entered into the transaction
independent of such conditions, for the purpose of calculating the tax liabilities of the enterprises, the
contracting states may determine the quantum of profits that might have been derived by such enterprises had
there been no special financial and transactional advantages given to them as a result of their business relations.
It is to be noted that the principles of double taxation shall also be applicable to this article as far as regards the
state of residence provides such deduction in the tax as it deems fit.
However, this article shall not be applicable if by reason of its application any one of the enterprises becomes
liable to penalty with respect to fraud, gross negligence or wilful default as a result of the adjustments being
made in accordance with this article 9.
Article 10 - DIVIDENDS
The dividends paid by a company, which is a resident of a contracting state to a resident of the other
contracting state, are liable to taxation in the other contracting state. However, nothing in this article precludes
the dividends to be liable to taxation by the contracting state of which the company paying the dividends is a
resident. If the beneficial owner of the dividends is a resident of the other contracting state, then the tax
charged on such dividends shall be subject to bilateral negotiations between the competent authorities of such

77|P a g e

contracting states. However, if such beneficial owner carries on business in the other contracting state where
the company paying the dividends is a resident by reason of it being connected to a PE, such dividend shall not
come under the purview of this article 10, but under articles 7 and 14.
In the event that a company is a resident of a contracting state and derives profits or income from the other
contracting state, then the dividends paid by such company to a resident of the other contracting state or the
dividends paid are in respect of a holding which is effectively connected to a PE in such other contracting state,
shall not be liable to taxation in such other contracting state.
Article 11 - INTEREST
The interest arising in a contracting state, paid to a resident of the other contracting state, is liable to taxation in
that other contracting state. However, nothing in this article precludes the interest to be liable to taxation in the
contracting state in which it arises. If the beneficial owner of the interest is a resident of the other contracting
state, then the tax charged on such interest shall be subject to bilateral negotiations between the competent
authorities of such contracting states.
In order to avoid ambiguity, the term interest is defined exhaustively in this very article 11 as income from
debt claims of every kind, whether or not secured by mortgage and whether or not carrying a right to
participate in the debtors profits, and in particular, income from government securities and income from
bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures.
However, the provisions of this article shall not applicable in the following cases:
a. if the beneficial owner of the interest is a resident of a contracting state and carries on business in the
other contracting state in which the interest arises; OR
b. conducts business from such permanent establishment or performs independent services from a fixed base
situated in that other contracting state; and
c. the debt claim in respect of which the interest is paid is effectively connected with:
i.
such permanent establishment or fixed base;
ii.
business activities referred to in article 7 of this convention.
On the satisfaction of the abovementioned factors, the articles applicable for the purposes of taxation would be
article 7 and article 14. For the purposes of this section, interest shall be deemed to arise in a contracting state
when:
a. when the payer is a resident of that state; OR
b. the payer has a permanent establishment or a fixed base in a contracting state, in connection with which
the indebtedness, on which the interest is paid, was incurred and such interest is borne by such permanent
establishment or fixed place.
For the purposes of applicability of this article, it is to be noted that, if the amount of interest paid is greater
than the interest agreed upon by the payer and the beneficial owner by virtue of a special relationship between
the payer and the beneficial owner or between them and some other person, only the amount of interest
payable in the absence of such special relationship shall be taken into consideration. It is also to be noted that
such excess payment made on account of the special relationship mentioned above, shall be liable to taxation in
accordance with the domestic laws of the contracting states and the provisions of this convention.
Article 12 - ROYALTIES
The royalties arising in a contracting state paid to a resident of the other contracting state are liable to taxation
in that other contracting state. However, nothing in this article precludes the royalties from being liable to
taxation in the contracting state in which they arise. If the beneficial owner of the royalties is a resident of the
other contracting state, then the tax charged on such royalties shall be subject to bilateral negotiations between
the competent authorities of such contracting states.
In order to avoid ambiguity, this article gives an exhaustive definition to the term royalties as payments of any
kind received as consideration for:
a. the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph
films, or films or tapes used for radio or television broadcasting, any patent, trademark, design or model,
plan, secret formula or process; OR
b. the use of, or the right to use, industrial, commercial or scientific equipment or for information concerning
industrial, commercial or scientific experience.
However, the provisions of this article shall not be applicable in the following cases:
a. if the beneficial owner of the royalties is a resident of a contracting state and carries on business in the
other contracting state where the royalties arise; OR

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b.

conducts business from such permanent establishment or performs independent services from a fixed base
situated in that other contracting state; and
c. right or property in respect of which the royalties are paid is effectively connected with:
i.
such permanent establishment or fixed base; OR
ii.
business activities referred to in article 7
On the satisfaction of the abovementioned factors, the articles applicable for the purposes of taxation would
article 7 and article 14. For the purposes of this section, royalties shall be deemed to arise in a contracting state
when:
a. when the payer is a resident of that state; OR
b. when the payer has a permanent establishment or a fixed base in a contracting state, in connection with
which liability to pay royalties was incurred and such royalties are borne by such permanent establishment
or fixed place.
For the purposes of applicability of this article, it is to be noted that, if the amount of royalties paid is greater
than the royalties agreed upon by the payer and the beneficial owner by virtue of a special relationship between
the payer and the beneficial owner or between them and some other person, only the amount of royalties
payable having regard to the use, right or information for which they are paid, in the absence of such special
relationship shall be taken into consideration. It is also to be noted that such excess payment made on account
of the special relationship mentioned above, shall be liable to taxation in accordance with the domestic laws of
the contracting states and the provisions of this convention.
Article 13 - CAPITAL GAINS
The gains derived by a resident of a contracting state from the alienation of immovable property in the other
contracting state may be liable to taxation in such other contracting state. Gains that may be taxed by the other
contracting states are as follows:
a. Gains from the alienation of movable property forming part of the business property of a permanent
establishment which an enterprise of a Contracting State has in the other Contracting State; OR
b. Gains from the alienation of movable property pertaining to a fixed base available to a resident of a
Contracting State in the other Contracting State for the purpose of performing independent personal
services; AND
c. Gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of
such fixed base.
The following categories of gains may be taxed only in the state of effective management of the enterprise is
situated:
a. Gains from the alienation of ships or aircraft operated in international traffic, boats engaged in inland
waterways transport; OR
b. Gains from alienation of movable property pertaining to the operation of such ships, aircraft or boats.
In the event of alienation of shares of the capital stock of a company or of an interest in a partnership/ trust/
estate whose property consists principally (the value of such immovable property must exceed 50 per cent of
the aggregate value of all the assets owned by such entity to be termed as principally consisting of immovable
property) of immovable property situated in one of the contracting states, the gains derived from such
alienation will become liable to taxation in that state. However, this provision shall be applicable to the
abovementioned entities only if they are engaged in the business of management of immovable properties
which are used in their business activities.
It is to be noted that if a resident of a contracting state derives gains from the alienation of shares of a
company, which is a resident of the other contracting state, such gains shall be liable to taxation in such other
contracting state. However, this provision is conditional in as far regards as the alienator should have held a
percent of the capital of that company at any time during the twelve month period preceding such alienation.
The percent to be held by the alienator is to be decided by bilateral negotiations between the competent
authorities of the contracting states.
Any other alienation of property, not specifically mentioned in this article shall be liable to taxation only in the
contracting state where the alienator is a resident at the time of such alienation.
Article 14 - INDEPENDENT PERSONAL SERVICES
This article lays down that any income in respect of independent professional services derived by a resident of a
contracting state shall only be liable to taxation in that contracting state. However, it lays down two exceptions
to the generality of the above provision by stating that such income may also be liable to taxation in the other
contracting state if it fulfils any of the following conditions:

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a.

The income is attributable to a fixed base, which the person regularly has available to him in the other
contracting state for performing his activities; OR
b. The income is derived from his activities performed in the other contracting state if his stay in such other
contracting state amounts to or exceeds the aggregate of 183 days in any twelve month period
commencing or ending in any fiscal year concerned.
For the purpose of clarity, the term professional services is defined to include independent scientific, literary,
artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers,
architects, dentists and accountants. It is to be noted that the term professional services has been given an
inclusive definition and not an exhaustive definition in order to widen its scope and must be construed by the
contracting states accordingly.
Article 15 - DEPENDENT PERSONAL SERVICES
This article lays down that the remuneration received by a resident of a contracting state in respect of his
employment shall be taxable only in that contracting state. In the event that such employment is exercised in
the other contracting state and such person receives remuneration from such other contracting state, the
remuneration received from such other contracting state shall be liable to taxation in such other contracting
state. However, such taxation shall be subject to the following conditions:
a. The recipients presence in such other contracting state must amount to or exceed the aggregate of 183
days in any twelve month period commencing or ending in any fiscal year concerned; and
b. The remuneration must be paid by, or on behalf of, an employer who is not a resident of the other
contracting State; and
c. The remuneration must not borne by a permanent establishment or a fixed base which the employer has in
the other contracting State.
In case of remuneration received by a person in respect of his employment being exercised aboard a ship or
aircraft operated in international traffic, or aboard a boat engaged in inland water-ways transport, the
remuneration shall be liable to taxation in the contracting state where the effective management of the
enterprise is situated.
Article 16 - DIRECTORS FEES AND REMUNERATION OF TOP-LEVEL MANAGERIAL
OFFICIALS
The fees and any other remuneration derived by a resident of a contracting state in his capacity as a member of
the Board of Directors or as an official in a top level managerial position of a company which is a resident of
the other contracting state, may be taxed in that state. It is noteworthy that such a provision for taxation is not
mandatory but discretionary and may be set out according to bilateral negotiations between the competent
authorities of the contracting states.
Article 17 - ARTISTES AND SPORTSPERSONS
In case of the income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion
picture, radio or television artiste, or a musician, or as a sportsperson, from his personal activities as such
exercised in the other Contracting State, the income may be liable to taxation in such other contracting state.
This stands true even if the income derived as a result of the abovementioned activities is accrued to some
other person, not being from the class of persons mentioned above.
Article 18 - PENSIONS AND SOCIAL SECURITY PAYMENTS
Any remuneration or any other payments made to a person who is a resident of a contracting state in respect of
his past employment or under a public scheme which is part of the social security system of a Contracting
State, shall be liable to taxation only in that contracting state. However, in the event that such payments are
made by a resident of the other contracting state or any PE situated in such other contracting state, they may
also be liable to taxation in the other contracting state.
Article 19 - GOVERNMENT SERVICE
The remuneration paid by a contracting state to a person as salaries, wages or pensions or any other such
remuneration for the services rendered to that state shall be liable to taxation only in that contracting state
unless the services are rendered in the other contracting state, in which case, the remuneration shall be taxable
in the other contracting state only, if the person fulfils the following conditions:
a. He is a resident of that other contracting state; AND
b. He is a national of that other contracting state; OR

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c. He did not become a resident of that State solely for the purpose of rendering the services.
The provisions of Articles 15, 16, 17 and 18 shall apply to salaries, wages, pensions, and other similar
remuneration in respect of services rendered in connection with a business carried on by a Contracting State.
Article 20 STUDENTS
A student or a business trainee or an apprentice, who is a resident of a contracting state and is present in the
other contracting state solely for the purpose of his education and other training purposes shall not be taxed in
that other contracting state with respect to the payment that he receives for the purposes of his education,
maintenance and training. However, for such payments to be exempt from the tax liability in the other
contracting state, it is important to note that such payments must arise from sources outside such other
contracting state.
Article 21 - OTHER INCOME
This article acts as a savings clause where it states that any other item of income of a resident of a contracting
state, for which express provisions have not been provided for in the convention, shall be liable to taxation in
that contracting state.
TAXATION OF CAPITAL
Article 22- CAPITAL
For the purposes of taxation, capital has been classified into three main or major categories:
a. Capital represented by immovable property: If immovable property is owned by a resident of a contracting
state and situated in the other contracting state, the capital represented by such immovable property shall
be taxable in such other contracting state.
b. Capital represented by movable property: The capital represented by movable property in the other
contracting state shall be taxable in the other contracting state, irrespective of whether it forms a part of
the business property of a PE of an enterprise in such other contracting state or whether it pertains to a
fixed base available to a resident of a contracting state in the other contracting state for performing
independent personal services.
c. Capital represented by ships, aircrafts and boats: In this case, the capital shall be taxable only in the
contracting state where the effective management of the enterprise is situated.
METHODS FOR THE ELIMINATION OF DOUBLE TAXATION
c - EXEMPTION METHOD & CREDIT METHOD
This article is considered to be the essence of and therefore the most important article of the convention. It
provides for the avoidance of the double taxation on the income derived by the person. It is to be noted that
such relief from double taxation is given to the person only in the state of residence and not the other
contracting state. For instance, if the resident of one contracting state derives income from immovable
property situated in the other contracting state and such income is liable to be taxed in the other contracting
state in accordance with the provisions of the convention, the state of residence of such person shall exempt
such income from tax. This stands true in the case of any profits or dividends or interest or royalties that a
person resident in one contracting state may derive from the other contracting state. If such profits or
dividends or interest or royalties are liable to taxation by such other contracting state, the state of residence of
such person shall allow the deduction from tax of such amount as paid by the person in the other contracting
state. However, it is to be kept in mind that such deduction from the state of residence shall be allowed only
for the same head of taxable income and such deduction may not be set off against any other category of
taxable income. DTAA may be modelled either on a exemption method or the credit method
EXEMPTION METHOD -Where a resident of a Contracting State derives income or owns capital which
may be taxed in the other Contracting State, the first-mentioned State shall, subject to the other provisions of
this article, exempt such income or capital from tax.
CREDIT METHOD Where a resident of a Contracting State derives income or owns capital which may be
taxed in the other Contracting State, the first-mentioned State shall allow as a deduction from the tax on the
income of that resident an amount equal to the income tax paid in that other State; and as a deduction from the
tax on the capital of that resident, an amount equal to the capital tax paid in that other State. Such deduction in
either case shall not, however, exceed that part of the income tax or capital tax, as computed before the
deduction is given, which is attributable, as the case may be, to the income or the capital which may be taxed in
that other State.

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SPECIAL PROVISIONS
Article 24 - NON-DISCRIMINATION
This article lays down provisions and safeguards against any kind of discrimination amongst the contracting
states in terms of taxation:
a. Nationals: the national of a contracting state shall not be subject to any kind of taxation in the other
contracting state, which the resident of such other contracting state shall not be subjected to in similar
circumstances.
b. Stateless persons: Resident stateless persons shall not be subject to taxation of any kind in either of the
contracting states, which the residents or nationals of those contracting states shall not be subjected to in
similar circumstances.
c. Permanent establishment: The permanent establishment of an enterprise of a contracting state shall not be
subject to a higher quantum of taxation than what the enterprises of that other state are subjected to.
d. Interest, royalties and other disbursements: For the purpose of determination of taxable profits, the same
method of deduction shall be applied to residents of either of the contracting states and present in the
other contracting states.
e. Enterprises: enterprises, whose capital is either owned or controlled, fully or partly, directly or indirectly by
the resident of the other contracting state, shall not be subject to any additional or burdensome taxes
which the enterprises of that contracting state shall not be subject to.
Article 25 - MUTUAL AGREEMENT PROCEDURE
This article lays down the procedure by which the competent authorities of the contracting state shall mutually
agree upon the issues relating to taxation that may not have been specifically provided in the Convention.
Notwithstanding the generality of this article, it specifically provides for the mutual agreement procedure in the
following cases:
a. Where a person considers that he may be liable to taxation which is not in accordance with the provisions
of this Convention, by virtue of any action by one or both of the contracting states he may, irrespective of
the remedies provided by the domestic law of those States, present his case to the competent authority of
the Contracting State of which he is a resident. However, the article also lays down a period of limitation
for the presentation of the case of a period of 3 months from the date of notification of such action. The
person affected must present his case to the contracting state of which he is national or to the contracting
state of which he is resident, as the case may be.
b. There shall be a Competent Authority to resolve any doubts or difficulties in the application or
interpretation of the Convention.
c. The Competent Authority, in order to discuss the issues relating to double taxation with consultations,
may develop appropriate bilateral procedures, conditions, methods and techniques for the implementation
of the mutual agreement procedure which have not been specifically provided for in this convention.
For the purposes of this article, it is open to the competent authorities of the contracting states to address
the issues mentioned above by the following means:
a. Direct communication with each other
b. Joint Commission consisting of the competent authorities themselves or their representatives.
c. Developing bilateral procedures, conditions, methods, techniques, etc. in order to effectively implement
the solutions mutually agreed upon.
Article 26 - EXCHANGE OF INFORMATION
This article provides for the exchange of information between the competent authorities of the contracting
states, especially for preventing the avoidance or evasion of taxes by the residents of either of the contracting
states. This may be done in order to execute the provisions of the convention as well as for the administration
and enforcement of domestic laws concerning the taxes, in so far as they are not in violation of the provisions
of this Convention. Such information shared between the competent authorities may or may not be of a
confidential nature. The information, when requested by one of the contracting states, shall be provided to it
by the other contracting state by utilising all its information gathering measures, irrespective of whether the
state gathering information has an interest in it, or whether it is held by a bank or a financial institution.
However, such a request from a contracting state does not impose on the other contracting state, an obligation
to carry out any administrative measures contrary to its own or to supply information which would disclose
anything contrary to the public policy or which cannot be obtained ordinarily under the normal course of law
of the contracting state requesting such information.

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Article 27 ASSISTANCE IN THE COLLECTION OF TAXES

Keeping in essence with the convention, this article has been introduced to help the competent authorities of a
contracting state to request the competent authorities of the other contracting state to aide them in collecting
revenue claims in respect of taxes in such other contracting states. It is noteworthy that revenue claims not only
include unpaid dues in respect of taxes, but also the penalties, interests, costs of collection, costs of
conservancy, etc. Therefore, in the event that the competent authorities of a contracting request the competent
authorities of the other contracting state to collect the revenue claim from a person who is liable to pay such
revenue claims in the Contracting State, such request must be accepted by the competent authorities of the
other contracting state in accordance with the provisions of its laws applicable to the enforcement and
collection of its own taxes as if the revenue claim were a revenue claim of that other contracting State. Such an
obligation is extended to the measures of conservancy to ensure the collection of taxes implemented by the
first contracting state. However, it is to be kept in mind that such revenue claim shall not be accorded any
priority over the taxes to be collected in the latter contracting state. However, in the event that such revenue
claim ceases to exist as a revenue claim, the competent authority of the contracting state must immediately
notify the competent authority of the latter contracting state and thereafter suspend or withdraw its request
regarding the collection of such revenue claim. It is to be noted that, notwithstanding the generality of this
article, it shall not impose an obligation on the other contracting state to carry out any measures, administrative
or otherwise, which are contrary or in variance with the domestic laws of such other contracting state.
Article 28 - MEMBERS OF DIPLOMATIC MISSIONS AND CONSULAR POSTS
This Article largely states that this Convention shall not affect any fiscal privileges of members of diplomatic
missions or consular posts under the general rules of international law or under the provisions of special
agreements.
Article 29 ENTRY INTO FORCE
Article 29 of the convention lays down the provisions for the coming into force of the convention including
the mentioning of the place of ratification and the names of the contracting states.
Article 30 TERMINATION
This Article provides for the termination of this convention by either party. Such termination may be effected
through diplomatic channels by giving a prior notice of atleast 6 (six) months of such termination by a
contracting party to the other contracting party.
Author Philip Baker QC a noted author on DTAA lays down the following steps for the operation of the
convention:
1.

At first, the taxpayer has to determine whether the Treaty has been given effect in the domestic law and
whether he will fall within the scope of Article 1, i.e. whether he is a resident of either one or both the
contracting states. Then, he will be required to check whether the Treaty applies to the tax in question and
also whether the Treaty is in operation for the period in question.

2.

At this stage, the tax payer is required to check the relevant definition provisions of the Treaty in order to
determine the residence, taxability, etc.

3.

Next, the tax payer has to determine whether any substantive provisions of the Treaty in respect of income
and capital are applicable to him. This requires characterisation, which can be done with the help of
commentaries, case laws and reports of the Committee on Fiscal Affairs.

4.

At this point, the tax payer has to apply the substantive articles, which is done in either of the following
three ways:
a. Taxability by the state of source without an upper limit;
b. Taxability by the source subject to an upper ceiling set by the Treaty; OR
c. Taxability by the State of Residence.

5.

The substantive provision determined as above should be read with the provisions of Article 23, providing
relief to eliminate double taxation. Double taxation can be eliminated in either of the following ways:

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a.
b.
6.

States applying exemption method of relief grant exemption to incomes falling under the category 4(a)
and credit in respect of foreign taxes, if the income falls under category 4(b).
States applying the credit method of relief grant credit for the tax in the state of source in all cases.

The tax payer needs to follow the exemption or credit into the domestic law of the two states. If the tax
payer does not get the benefit to which he is entitled, he has a right to initiate Mutual Agreement
proceedings, under Article 25.

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The legal interepretation vide case laws for DTAA:

Residency
In Re: General Electric Pension Trust76, , the Authority for Advance Rulings has held that a pension trust
established under US laws was not entitled to benefits of the India-US DTAA since it was exempt from tax
liability in the US.
In Linklaters LLP vs. ITO77 and Clifford Chance vs. DCIT 78 it was held that a UK partnership was eligible to
claim benefits of the tax treaty: In Linklaters LLP, the tax tribunal extended the benefits under the treaty to a
UK Limited Liability Partnership ('LLP') and observed that where a partnership is taxable in respect of its
profits in the hands of partners, as long as the entire income of the partnership firm is taxed in the country of
residence (i.e. UK), treaty benefits could not be denied. In Clifford Chance, the tax tribunal granted benefits of
the treaty to a UK partnership firm comprising lawyers but the issue whether a partnership was entitled to
treaty benefits was not discussed at length.
In DIT v. Chiron Bhering 79, the Bombay High Court noted that although a German limited general
partnership does not pay income tax, it is subject to Gewerbesteuer or trade tax which is specifically covered
under the German-India treaty. On this basis, it was held that the German KG cannot be denied treaty
benefits.
In contrast, the Authority for Advance Ruling held that a Swiss general partnership (Schellenberg Wittmer80) is
not entitled to treaty benefits since it is a fiscally transparent entity. It was further held that the Swiss resident
partners of the partnership could also not take advantage of the treaty since they were not direct recipients of
the income, and because the Swiss-India treaty does not recognize partnerships.
In contrast, the Bombay High Court confirmed that a German partnership (DIT v. Chiron Bhering81) should
be eligible for German-India treaty benefits since the partnership (though fiscally transparent) was subject to a
German trade tax, which was listed as a covered tax under the treaty.
By virtue of a Protocol to the Swiss-India treaty (effective from April 1, 20i2), Swiss pension funds or schemes
would be treated as residents entitled to treaty benefits even if they are generally exempt from tax in
Switzerland. This specific clarification provides some relief, considering that in the US-India context, a US
pension fund (in the case of Re: General Electric Pension Trust82 ) was held not to be entitled to treaty
benefits.
In the case of KSPG Netherlands83 it was held that sale of shares of an Indian company by a Dutch holding
company to a non-resident would not be taxable in India under the India-Netherlands tax treaty. It was further
held that the Dutch entity was a resident of the Netherlands and could not be treated as a conduit that lacked
beneficial ownership over the Indian investments. The mere fact that the Dutch holding company was set up
by its German parent company did not imply that it was not eligible to benefits under the Netherlands-India
tax treaty.
Union of India v. Aazadi Bachao Aandolan 84 : A person is considered a resident of Mauritius for relief under
the tax treaty, as long as it is liable to tax in Mauritius by reason of domicile, residence or place of management.
The Indian tax authorities issued a Circular (789 of 2000) stating that a tax residency certificate (TRC) issued by
the Mauritius tax authorities constitutes sufficient proof of residence in Mauritius and entitlement to treaty

(2006) 280 ITR 425 (AAR).

(132 TTJ 20)
78 (82 ITD 106)
79 TS-12-HC-2013 (BOM)
80 2012] 210 TAXMAN 319 (AAR).
81 TS-12-HC-2013 (BOM).
76
77

(2006)200CTR(AAR)121.
[2010] 322 ITR 696 (AAR)
84 [2003] 263 ITR 706 (SC).
82
83

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relief. This Circular was upheld by the Indian Supreme Court in the landmark Mauritius Case where it was held
in the absence of a 'limitation of benefits' or anti-abuse clause within the treaty, there was nothing illegal about
'treaty shopping' and legitimate tax planning using low tax jurisdictions. The Supreme Court affirmed the time
tested principle laid down by the UK House of Lords in Duke of Westminster Case85 where it was held "every
man is entitled, if he can, to order his affairs so as that the tax attaching under the appropriate Acts is less than
it otherwise would be'. Therefore, based on this judgment and the Circular, any Mauritius based investor with a
valid TRC should be entitled to treaty relief. Following this case, a number of cases have confirmed treaty
benefits for Mauritius based investors including: Dynamic India Fund I86; DDIT v. Saraswati Holdings
Corporation87; E*Trade; In ReCastleton88 and D.B.Zwirn Mauritius Trading 89.
Capital Gains
Trinity Corporation v. CIT90, the Authority for Advance Rulings held that the capital gains from the sale of
shares in an Indian company by a US resident shareholder to a US resident company were taxable in India as
the shares of the Indian company had to be regarded as a capital asset situated in India. Although Article 25 of
the India-US DTAA provides for tax credit from the state of residence in case of double taxation, the
availability of such credit in this case is not assured.
Re RST91- it was held that even in a case where a German company was holding 99.99% of the shares of a
subsidiary in India, the Indian company could not be regarded as a wholly-owned subsidiary of the German
company and therefore the capital gains tax relief which was allowed under Section 47(iv) (for parent-subsidiary
transfers) of the Income Tax Act, 1961 (ITA) could not be applied.
Re: VNU International B.V.,92 the Authority for Advanced Rulings held that where a Dutch company transfers
its holding in an Indian company to a non-resident, the transaction would be eligible for relief against capital
gains tax under the tax treaty but the Dutch company would still be required to file a tax return in India.
Vodafone International Holdings B.V. v Union of India,93 -this dealt with the acquisition of a Cayman Island
based entity from a Cayman based seller by a Dutch subsidiary of Vodafone. The target entity held various
subsidiaries which ultimately held an operating company in India. The Supreme Court of India held that Indian
tax authorities did not have the jurisdiction to tax a sale of shares in a Cayman Islands company by a nonresident and hence the Dutch entity was not required to withhold tax on the purchase consideration.
Credit Suisse (International) Holding AG v. DIT94, the Authority for Advance Rulings held that merger of a
Swiss company (having an Indian subsidiary) into its Swiss parent could not be taxable in India on the basis
that the merger was sanctioned under Swiss law, the transferor ceased to exist and no gains arose from the
merger.
Re: Castleton Investments95, it was held that although the Mauritius investor may not be liable to capital gains
tax, the gains may still be subjected to minimum alternate tax at the rate of i8.5%. It is understood that this
matter currently is being examined by the higher Judiciary.
Permanent Establishment
DITv. Morgan Stanley & Co 96 The Hon'ble Supreme Court held that in case of stewardship activities
performed by employees of the US company in India, since the activities could not be considered as provision
of services by or on behalf of the US company, there would be no service PE implications.

(1936) 19 TC 490, [1936] AC 1.

AAR 1016/2010 dated 18th July, 2012.
87 2009] 111 TTJ 334.
88 2010] 324 ITR 1 (AAR).
89 2011] 333 ITR 32 (AAR).
90 [2007]165TAXMAN272(AAR)
91 2012] 348 ITR 368 (AAR)
92 2011] 334 ITR 56 (AAR)
93 (2012) 6 SCC 757.
94 [2010] 322 ITR 696 (AAR)
95 [2010] 324 ITR 1 (AAR).
85
86

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Airlines Rotables Limited, UK v. Joint Director of Income Tax 97 , the Mumbai Tribunal observed that in order
to constitute a fixed PE under Article 5(1), three conditions needed to be satisfied:
physical criterion, i.e. existence of physical location;
subjective criterion, i.e. right to use that place; and
function criterion, i.e. carrying out business from that place.
The Tribunal further held that the onus was on the tax authorities to show that the taxpayer had a PE in India.
Rolls Royce Plc v. Director of Income Tax 98 the Delhi High Court (affirming a ruling of the Delhi Tribunal)
held that the Indian entity was not merely a post office as argued by the taxpayer but it was a PE for the
following reasons:
it was a fixed place of business in India at the disposal of the UK entity and group companies through
which their business was carried on;
the activity of that place was not preparatory or auxiliary. Instead it was a core activity of marketing,
negotiating, selling of the product and the court called it a "virtual extension/projection of its customer
facing business unit, who has the responsibility to sell the products belonging to the group";
The Indian entity acted almost like a sales office of the UK entity and its group companies.
Not only did the Indian entity and its employees work wholly and exclusively for the UK entity and the
group, they also solicited and received orders wholly and exclusively on behalf of these entities.
Group employees were present in various locations in India and they reported to the Director of the
Indian entity in India.
Rolls Royce Singapore Pvt. Ltd. v. ADIT99 held that a sales agent in India providing services to a Singapore
company would be treated as giving rise to a dependent agent PE in India. The Court noted that the Indian
entity was prohibited from promoting products of competitors, and that the Singapore company exercised
extensive control over the Indian entity whose activities were wholly or almost wholly devoted to the Singapore
company. However, the Court also accepted the established principle that if the agent is compensated the agent
(PE) at arm's length, there can be no further attribution of taxable income.
Linklaters LLP, UK v. ITO100, a dispute on whether legal services provided by a UK law firm employees for
an Indian project gave rise to a service PE, the Mumbai Tribunal rejected the contentions of the taxpayer that:
(i) in order for a PE to arise under Article 5(2) of the (UK)treaty, the basic condition of Article 5(i) (i.e.
existence of a fixed place of business) must first be satisfied; and (ii) that Article 5(2) merely provided an
illustrative list which could only be applied if there was a fixed place of business. The Tribunal held that while
some of the items listed under Article 5(2) were illustrative of Article 5(1), the others, notably a PE due to
building site or construction installation under Article 5(2)(j) or a service PE under Article 5(2)(k) were on a
stand-alone basis, and they did not require a fixed place of business to exist for a PE to be created, provided
the threshold time period prescribed was met.
CIT v. Visakhapatnam Port Trust101, the Andhra Pradesh High Court held that mere supply of a plant by a
German company whose assembly and erection are undertaken by purchaser under supervision of engineer
deputed by supplier does not result in a PE in India
eBay International AG v. ADIT102 , the Tax Tribunal held that Indian company which entered into an exclusive
marketing services arrangement with its Swiss parent should not be viewed as a PE. The Tribunal also held that
fees received by the Swiss entity from Indian customers who used the online e-commerce platform is not in the
nature of technical service fees and hence, not taxable in India in the absence of a PE.

2007] 162 TAXMAN 165 (SC).

[2011]44SOT368(Mum)
98 [2011]339ITR147(Delhi)
99 [2012] 347 ITR 192 (Delhi)
100 (2010) 132 TTJ 20
101 1983 144 ITR 146 AP
102 [2013] 140 ITD 20 (Mum).
96
97

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Steel Authority of India Ltd. v. ACIT103 held that a building site or construction, installation or assembly
project need not be that of the taxpayer and supervisory activities carried out in connection therewith becomes
a PE of the taxpayer if they continue for a period exceeding 6 months.
Article 7 of the India-UK tax treaty provides that if the enterprise carries on business through a PE, the profits
of the enterprise may be taxed in the source State but only so much of them as is directly or indirectly
attributable to that PE. In general, only as much income as is attributable to the activities carried out by that PE
should be taxable in the source State. Indian Revenue authorities have taken the view that the term 'indirectly
attributable' is understood as embodying the 'force of attraction' principle, that is to say, where the foreign
enterprise provides goods or services directly to customers in the source State and its PE in that State is also in
the same line of business, then the source State can tax the entire profits that the foreign enterprise derives
there regardless of whether the PE had a role in carrying out the profit-generating transactions. This view was
affirmed by a decision of an Mumbai Tribunal in Linklaters LLP v ITO104. The Tribunal held that relying on
Article 7(1) of the UN Model Convention commentary on this issue, a view could be taken that the
connotation of "profits indirectly attributable to permanent establishments" extended to incorporation of the
'force of attraction' rule being embedded in Article 7(i).
ADIT v Clifford Chance, the Mumbai Tribunal105 has been held that the India-UK tax treaty does not
embody the force of attraction principle. In this dispute, Indian Revenue authorities sought to tax the entire
legal fee received by a UK LLP for legal services rendered from within and outside India for the reason that
these legal services were in relation to a project being carried out in India. The Tribunal (a Special Bench whose
decision would be binding on all other Tribunals) held that the language of the UK-India tax treaty was very
clear in its import. There was no necessity to therefore relate the provision to Article 7(1) of the UN Model
Convention to understand it as authorizing attribution by way of 'force of attraction'.
DDIT v Dharti Dredging and Infrastructure Ltd.106 the Hyderabad tax Tribunal held that a PE was not
constituted where a dredger was leased by a Dutch company to an Indian company and was operated under the
direction, control and supervision of the Indian company.
In the case of Van OordAtlantaB.V. v ADIT,107 the Kolkata bench of the Income Tax Appellate Tribunal held
that since the Dutch enterprise's dredger was in India for a period much shorter than the 6 month requirement
under the Netherlands-India tax treaty, the dredger could not constitute a PE of the Dutch enterprise.
In many cases activities that. Mitsui & Co.108 , Sumitomo Corporation109 and Metal One Corporation110 it was
held that a liaison office in India would not be treated as a PE since they only carried out ancillary activities or
auxiliary to the main business activities such as collection of information, submission of bids and served as a
mere communication channel. not create a PE even if these are carried out in India.
Ishikawajima Harima Heavy Indus. Company Limited v. DIT111 it was held that for attribution of profits to a
PE of a Japanese company in India, it is necessary to consider the activities actually carried out by the PE. It
was also held that activities carried outside India could not be attributed to the PE. Profits attributable to a PE
will be taxable in India
Nippon Kaiji Kyokoi v. ITO 112 it was further held that fees for inspection and survey services provided by a
Japanese company would be taxable in India to the extent attributable to its PE in India. It was further held
that services not connected to the PE could not be separately taxed as fees for technical services. The Protocol

(2006) 10 SOT 351 (Del).

2010] 40 SOT 51 (Mum).
105 2013] 33 taxmann.com 200 (Mumbai - Trib.) (SB)
106 (2010) 46 DTR 1.
107 (2007) 112 TTJ 229.
108 2008] 114 TTJ 903(DELHI)
109 2007] 110 TTJ 302 (DELHI)
110 2012] 22 TAXMAN 77 (Delhi)
111 288 ITR 408
112 2011] 12 TAXMAN 477 (Mum)
103
104

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to the treaty however clarifies that attribution shall be made with respect to the PE's activities even if the order
for purchase is placed directly with the head office.
WSA Shipping (Bombay) Pvt Ltd. v. ADIT113 the Mumbai Tribunal held that an Indian service provider which
acted on behalf of a Singapore company could not be treated as an agency PE in India since the Indian entity
was an independent agent that provided services to multiple clients.
GIL Mauritius Holdings Ltd. v. ADIT114 the Delhi Tribunal held that presence in India for installation of a
pipeline may not per se be a PE but would give rise to a PE only if it extends for a period beyond 9 months. A
PE may be constituted if a Mauritius entity has a dependent agent in India concluding contracts or maintaining
a stock of goods in India for making deliveries on behalf of the foreign enterprise.
DDIT v. B4U International Holdings Limited115 Mumbai Tribunal held that an Indian entity that did not have
the power to conclude contracts on behalf of a Mauritius enterprise would not be treated as a dependent agent.
It also held that even if there is a PE, as long as the Indian entity was compensated at arm's length, no further
profits could be attributed to the Mauritius based taxpayer.116
Royalty and Fee for Included Services
in cases where technical services are provided by US entities in India, payments for the same will not be subject
to withholding tax under the India-US DTAA unless if stated criteria are satisfied. The Karnataka High Court
in the case of CIT v. De Beers India Minerals (P.) Ltd.117 and the Delhi High Court in CIT v. Guy Carpenter
& Co Ltd.118 have upheld this principle.( The Memorandum of Understanding annexed to the India-US
DTAA explains the concept of the expression make available used in Article 12 and clarifies that other than in
cases where royalty payments are involved, Article 12 only covers services where there is transfer of some
technology, knowledge or skill whereby the recipient is able to independently apply the same.
ITO v Veeda Clinical Research Pvt. Ltd.119 the Tribunal has upheld the principle that 'make available' requires
that the services must enable the recipient of the service to be able to apply the technology directly without
further assistance. In this matter, Indian Revenue authorities sought to bring to tax payments made by an
Indian company to a UK Company for provision of 'in-house training of IT Staff and medical staff and 'market
awareness training'. The Revenue argued these were taxable since services were made accessible to recipients
for a fee and that it would be absurd to keep the 'make available' standard such that a service provider would
have to make the recipient an expert in its own area of core competence. If that would be the case, then the
expert would be rendered redundant once training was imparted. The Tribunal rejected this contention, relied
on previous High Court decisions120 to hold that general training services would not result in transfer of
technology. There must be a transfer such that the recipient is enabled to apply the technology itself. (The
Tribunal also relied on a decision of the Bombay High Court in a previous case involving the same taxpayer
whose decision was made ineffective following a legislative amendment. Bombay High Court had held that, to
be taxable, services had to be rendered within India. This decision led to a retrospective amendment in the tax
legislation which brought within the tax net even those services rendered from outside India.)
Siemens Ltd. v CIT121 The Mumbai Tribunal held that payments made to laboratories, for conducting certain
tests by using highly sophisticated technology without using human intervention for the purpose of
certification does not fall within the meaning of Fees for Technical Services under Section 9(i)(vii) of the ITA.
The definition of royalty is more restricted than under Indian domestic law which has been recently subject to
certain retroactive amendments. It also does not cover payment for use of equipment unlike in several tax

2012] 53 SOT 306 (Mum)

2012] 348 ITR 491 (Del).
115 [2012] 18 ITR 62 (Mumbai).
116 Based on the decision in DIT International Taxation Mumbai Vs M/S Morgan Stanley & Co. [2007] 292 ITR 416.
117 (2012) 346 ITR 467 (Kar.).
118 (2012) 346 ITR 504 (Del.).
119 ITA No.1406/Ahd/2009,taxsutra.com. Order pronounced on 28 June 2013.
120 CIT v. De Beers India Minerals (P.) Ltd (2012) 346 ITR 467 (Kar.). and CIT v. Guy Carpenter & Co Ltd. (2012) 346 ITR 504 (Del.).
121 2013] 30 taxmann.com 200 (Mum)
113
114

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treaties. On this basis, in Nederlandsche Overzee Baggermaatschappij BV122, the Mumbai Tribunal held that
payment to a Dutch firm for use of certain dredging equipment on dry lease was held not to be in the nature of
taxable royalties.
Re: Shell Technology India,123 the Authority for Advance Ruling held that payment for support services
rendered by a Dutch affiliate to an Indian company did not qualify as taxable fees for technical services under
the treaty since the services did not make available any technical knowledge or skill.
De Beers India Minerals124 the Karnataka High Court held that fees paid to a Dutch service provider for
conducting geophysical surveys could not be taxed as fees for technical services in the absence of knowledge
transfer.
Uniflex Cables Ltd. v. DCIT125, a Mumbai Tribunal held that "usance interest" paid by the Indian company to
Japanese vendors (among vendors from other jurisdictions) on letters of credit furnished to them for purchase
of raw materials amount to interest under the DTAA and was hence taxable in India.
Dassault Systems K.K. v. Director of Income-tax (International Taxation)-1126 the company marketed licensed
software products through independent agents with whom it entered into a general value added reseller
agreement ("GVA") that merely allowed them to receive and subsequently sell the software products to the end
users at a price independently determined by them and upon such purchase from the independent intermediary,
the end users were required to enter into a tri-partite end-user license agreement ("EULA") with the Japanese
company and the intermediary, which enabled them to use a license key (which could function only on the end
user's designated machine) to activate the software and register the license, the Indian Authority for Advance
Rulings ("AAR"), New Delhi held that the income derived by the company did not amount to royalty under the
ITA or the DTAA because the copyright continued to vest in the Japanese company.
However, in Acclerys K K v. DIT127 the AAR on similar facts held that since the company had specifically
granted a right to use the copyright in the software to the customers through the vendor license key, the
income from such software supply transaction amounted to royalty and was hence taxable in India.
Ishikawajima Harima Heavy Indus. Company Limited v. DIT128 The Supreme Court of India held that
offshore services may not be taxed in India unless they are rendered and utilized in India. Subsequently, the
Indian Income Tax Act was amended to reflect that even if services are rendered outside India, insofar as they
are utilized in India, they may be taxed in India. However, when the issue was referred to a Tribunal for a
decision in light of this amendment in IHI Corporation v. ADIT (IT)-3129, the Tribunal noted that while the
position had changed with respect to the domestic law, there had been no change in the position of law under
the Japan-India DTAA. Therefore, income from offshore services not being attributable to Indian PE cannot
be taxed in India under the Japan-India DTAA. Applying the principle that in case of inconsistency in the
position under the domestic law and Treaty law, whichever is more beneficial to the taxpayer shall apply, the
Tribunal ruled that income from services rendered offshore may not be taxable in India.
Standard Chartered Bank v. DCIT130 Mumbai Tribunal held that payment for data processing services
provided by a Singapore based company cannot be treated as taxable royalty income since the Indian client did
not have possession or control over the mainframe computer in Singapore and could only transmit the data
and receive back processed information from the server. This case may be contrasted with In Re: Cargo
Community Network Pte. Ltd.131 where it was held that payment to a Singapore based service provider for
access to an internet based air cargo portal would be characterized as taxable royalty payments.

2010] 39 SOT 556

246 CTR 158.
124 2012] 346 ITR 467 (Kar)
125 [2012] 136 ITD 374 (Mum)
126 2010] 322 ITR 125 (AAR)
127 2012] 343 ITR 304 (AAR)
128 288 ITR 408
129 [2013] 32 TAXMAN 132
130 2011 TPI 728 (ITAT-Mumbai)
131 [2007] 289 ITR 355 (AAR)
122
123

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Bharati AXA General Insurance Co. Ltd v. Director of Income Tax132 dealt with the taxability of payments
made by an Indian entity for support services provided by a Singapore company, which included strategic
advice, marketing support, IT services, choosing re-insurance partners, review of actuarial methodologies, etc.
in line with the global practices. The Authority of Advance Ruling (AAR) held that such payments are not FTS
as the services do not "make available" available any technical knowledge, know-how or skill to the Indian
company.
However, in Organisation Development Pte. Ltd. v. DDIT133, the Chennai Tribunal held that payments made
to a a Singapore based service provider for license to a specialized software to enable management based on
'balanced score card' techniques and transfer of knowledge and skill would be treated as fees for technical
services subject to withholding tax in India.
Exchange of Information
In Ram Jethmalani & Ors. vs Union of India134 the Indian Supreme Court noted that while there is a
requirement for confidentiality, the German -India treaty permitted disclosure of information in Court
proceedings. The Government was accordingly directed to reveal details of accused individuals with
Liechtenstein bank accounts, the details of which were shared by the German Government.
Further readings135

(2010) 326 ITR 477 (AAR)

[2012] 50 SOT 421 (Chen)
134 (2011) 339 ITR 107 (SC)
135 Prescribed readings for the position in India:
1. CIT v. Visakhapatnam Port Trust, 144 ITR 146
2. Union of India v. Azadi Bachao Andolan, 263 ITR 706, 723-4
3. Commissioner of Income-tax v. Nirlon Synthetic Fibres and Chemicals Ltd., 137 ITR 1 (Bom)
4. Commissioner of Income Tax v. P.V.A.L. Kulandagan Chettiar, (2004) 267 ITR 654 (SC)
5. Siemens A.G. vs. ITO, (1987) 22 ITD 87 (SB)
6. CIT v. V.R.S.R.M. Firm & Others, 208 ITR 400
7. CIT v. R.M.Muthaiah, (1993) 202 ITR 508
8. Meganbhai v. Union of India, AIR 1969 SC 783
9. CIT v. Isthmian Steamship Lines, (1951) 20 ITR 572
10. Timken India Ltd. vs. CIT, (2002) 256 ITR 460 (Kar)
11. CIT vs. Tata Iron & Steel Company Ltd., 66 TTJ 463; (2000) 248 ITR 190 (Bom)
12. Tata Iron & Steel Co. Ltd. vs. Dy. Commissioner of Income-tax, 62 ITJ 17
13. CIT vs. Laxmi Textile Exporters Ltd., (2000) 245 ITR 521 (Mad)
14. Cape Brandy Syndicate v. IR, 1921 (1) KB 64
15. CIT v. Ajax Products Ltd., 55 ITR 741, 747
16. Jiwandas v. CIT, 4 ITC 40
17. CIT v. Bhattacharjee, (1979) 118 ITR 461
18. CIT v. J. H. Gotla, (1985) 156 ITR 323 (SC)
19. Elphinstone Spinning and Weaving Mills Co. Ltd. v. CIT, (1955) 28 ITR 811 (Bom)
20. CIT v. Kishoresinh Kalyansinh Solanki, (1960) 39 ITR 522 (Bom)
132
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Appendix IV
Listing of Securities on the Indian Stock Exchanges by a Company Incorporated under the Laws of India
Introduction
Till the early nineties, Controller of Capital Issues used to decide about entry of company in the market and also about
the price at which securities should be offered to public. However, following the introduction of disclosure based regime
under the aegis of SEBI, companies can now determine issue price of securities freely without any regulatory
interference, with the flexibility to take advantage of market forces. Thus the issuer in consultation with the merchant
banker on the basis of market demand decides the price.
Under Indian law, an offer of securities by a company to more than 49 shareholders is deemed to be a public offer. The
relevant types of company involved herein are:
"Listed Company" - a company which has any of its securities offered through an offer document listed on a
recognized stock exchange and also includes Public sector Undertakings whose securities are listed on a recognized stock
exchange.
"Unlisted Company" - a company which is not a listed company.
The primary issuances are governed by SEBI in terms of SEBI (Disclosures and Investor protection) guidelines. SEBI
framed its DIP guidelines in 1992. It provides a comprehensive framework for issuing of securities by the companies. It
is subject to listing agreement of the Indian stock exchange. Clause 49 of the Listing Agreement to the Indian stock
exchange comes into effect from 31 December 2005. It has been formulated for the improvement of corporate
governance in all listed companies.
Before a company approaches the primary market to raise money by the fresh issuance of securities it has to make sure
that it is in compliance with all the requirements of SEBI (DIP) Guidelines, 2000.
THE IPO TEAM
The IPO team comprises of:
Intermediaries involved in the Issue Process
(a) The intermediaries involved in an issue as registered with SEBI
Intermediaries which are registered with SEBI are Merchant Bankers to the issue (known as Book Running Lead
Managers (BRLM) in case of book built public issues), Registrars to the issue, Bankers to the issue &
Underwriters to the issue who are associated with the issue for different activities. Their addresses, telephone/fax
numbers, registration number, and contact person and email addresses are disclosed in the offer documents. The
brief role of each intermediaries are as:
(i)
Merchant Banker: Merchant banker does the due diligence to prepare the offer document which
contains all the details about the company. They are also responsible for ensuring compliance with the
legal formalities in the entire issue process and for marketing of the issue.
(ii)
Registrars to the Issue: They are involved in finalizing the basis of allotment in an issue and for sending
refunds, allotment etc.
(iii) Bankers to the Issue: The Bankers to the Issue enable the movement of funds in the issue process and
therefore enable the registrars to finalize the basis of allotment by making clear funds status available to
the Registrars.
(iv) Underwriters: Underwriters are intermediaries who undertake to subscribe to the securities offered by
the company in case these are not fully subscribed by the public, in case of an underwritten issue.
SEBI at various levels examine the compliance with DIP guidelines and ensure that all necessary material information is
disclosed in the draft offer documents.
Other members of the IPO team:
legal advisors - their responsibilities include conducting the due diligence of the company as a comfort to the
merchant bankers, drafting the offer document and advising on the structure of the issue;
auditors - their responsibilities include consolidating the audited financials of the company, restating the
financials and providing comfort on the numbers appearing in the offer document;
rating agency - a rating agency provides a grade to the company after examining its fundamentals;
escrow collection banks - the application money is kept in a bank account opened with escrow collection
banks. Once allotment of the shares is completed, the funds are released to the issuer company; and

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syndicate members - they are intermediaries appointed by the merchant banks who assist the merchant banks
in collection of bids.

Basis of Pricing:
The issuer in consultation with the merchant banker on the basis of market demand decides the price. On the basis of
Pricing, an issue can be further classified into Fixed Price issue or Book Built issue.
Fixed Price Issue: When the issuer at the outset decides the issue price and mentions it in the Offer
Document, it is commonly known as "Fixed price issue".
Book built Issue: When the price of an issue is discovered on the basis of demand received from the
prospective investors at various price levels, it is called "Book Built issue".
Classification of Issues:
Primarily, issues made by an Indian company can be classified as Public, Rights, Bonus and Private Placement. While
right issues by a listed company and public issues involve a detailed procedure, bonus issues and private placements are
relatively simpler. The classification of issues is as illustrated below:
1. Public issue: When an issue / offer of securities is made to new investors for becoming part of shareholders'
family of the issuer3 it is called a public issue. Public issue can be further classified into Initial public offer (IPO) and
Further public offer (FPO). The significant features of each type of public issue are illustrated below: (Entity
making an issue is referred as " Issuer")
1.1. Initial public offer (IPO): When an unlisted company makes either a fresh issue of securities or offers its
existing securities for sale or both for the first time to the public, it is called an IPO. This paves way for listing
and trading of the issuer's securities in the Stock Exchanges.
1.2. Further public offer (FPO) or Follow on offer: When an already listed company makes either a fresh issue
of securities to the public or an offer for sale to the public, it is called a FPO.
2. Rights issue (RI): When an issue of securities is made by an issuer to its shareholders existing as on a particular
date fixed by the issuer (i.e. record date), it is called an rights issue. The rights are offered in a particular ratio to the
number of securities held as on the record date.
3. Bonus issue: When an issuer makes an issue of securities to its existing shareholders as on a record date, without
any consideration from them, it is called a bonus issue. The shares are issued out of the Company's free reserve or
share premium account in a particular ratio to the number of securities held on a record date.
4. Private placement: When an issuer makes an issue of securities to a select group of persons not exceeding 49, and
which is neither a rights issue nor a public issue, it is called a private placement. Private placement of shares or
convertible securities by listed issuer can be of two types:
4.1. Preferential allotment: When a listed issuer issues shares or convertible securities, to a select group of
persons in terms of provisions of Chapter XIII of SEBI (DIP) guidelines, it is called a preferential allotment.
The issuer is required to comply with various provisions which inter-alia include pricing, disclosures in the
notice, lock-in etc, in addition to the requirements specified in the Companies Act.
4.2. Qualified institutions placement (QIP): When a listed issuer issues equity shares or securities convertible in
to equity shares to Qualified Institutions Buyers only in terms of provisions of Chapter XIIIA of SEBI (DIP)
guidelines, it is called a QIP.
Offer Documents (ODs)
'Offer document' is a document which contains all the relevant information about the company, promoters, projects,
financial details, objects of raising the money, terms of the issue etc and is used for inviting subscription to the issue
being made by the issuer.
'Offer Document' is called "Prospectus" in case of a public issue or offer for sale and "Letter of Offer" in case of a
rights issue. Terms used for offer documents vary depending upon the stage or type of the issue where the document is
used. The terms used for offer documents are defined below:
Draft offer document: is an offer document filed with SEBI for specifying changes, if any, in it, before it is
filed with the Registrar of companies (ROCs). Draft offer document is made available in public domain
including SEBI website, for enabling public to give comments, if any, on the draft offer document.
Red herring prospectus is an offer document used in case of a book built public issue. It contains all the
relevant details except that of price or number of shares being offered. It is filed with RoC before the issue
opens.

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Prospectus is an offer document in case of a public issue, which has all relevant details including price and
number of shares being offered. This document is registered with RoC before the issue opens in case of a fixed
price issue and after the closure of the issue in case of a book built issue.
Letter of offer is an offer document in case of a Rights issue and is filed with Stock exchanges before the issue
opens.
Abridged prospectus is an abridged version of offer document in public issue and is issued along with the
application form of a public issue. It contains all the salient features of a prospectus.
Abridged letter of offer is an abridged version of the letter of offer. It is sent to all the shareholders along
with the application form.
Shelf prospectus is a prospectus which enables an issuer to make a series of issues within a period of 1 year
without the need of filing a fresh prospectus every time. This facility is available to public sector banks /Public
Financial Institutions.
Placement document is an offer document for the purpose of Qualified Institutional Placement and contains
all the relevant and material disclosures.

PROMOTER:
A 'promoter', as defined under the SEBI (2009) (Issue of Capital and Disclosure Requirements), is:
(i)
a person(s) who is in control of the issue;
(ii)
a person(s) who are instrumental in the formulation of a plan for the proposed IPO; or
(iii)
a person(s) who has been named in the offer document as a promoter.
-Any director or officer of the issuer acting in his professional capacity shall not be deemed to be a promoter.
Where an issuer company has 'identifiable promoters', the SEBI Regulations (2009) (Issue of Capital and
Disclosure Requirements) in a public float process of the Indian company requires detailed disclosures to be
made about the promoter and the promoter is also required to fulfill conditions as set out above and certain
post issue requirements.
Minimum Promoter's contribution and lock-in: In a public issue by an unlisted issuer, the promoters shall contribute
not less than 20% of the post issue capital which should be locked in for a period of 3 years. "Lock-in" indicates a freeze
on the shares. The remaining pre issue capital should also be locked in for a period of 1 year from the date of listing. In
case of public issue by a listed issuer [i.e. FPO], the promoters shall contribute not less than 20% of the post issue capital
or 20% of the issue size. This provision ensures that promoters of the company have some minimum stake in the
company for a minimum period after the issue or after the project for which funds have been raised from the public is
commenced.
IPO Grading:
IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the initial public offering (IPO) of
equity shares or other convertible securities. The grade represents a relative assessment of the fundamentals of the IPO
in relation to the other listed equity securities. Disclosure of "IPO Grades", so obtained is mandatory for companies
coming out with an IPO.
REQUIREMENTS OF COMPANY TO QUALIFY TO MAKE A PUBLIC OFFER:
For a company to qualify to make a public offer:
it must be incorporated under the laws of India;
it must be a 'public company', (that is, not a private company and, inter alia, is authorised by its constitutional
documents to have more than 50 shareholders and there are no restrictions on the transferability of its shares);
neither the company nor its affiliates should be barred from accessing the capital market by SEBI or any other
authorities; and
none of the promoters, directors or persons in control of the company were or are a promoter, director or
person in control of any other company which is barred from accessing the capital market, under any order or
directions made by SEBI.
Indian law does not mandate a minimum number of years that a prospective issuer company must be in existence prior
to its IPO.this is subject to entry norms for accessing capital market.
A public offer must be made by registering an offer document, termed as a 'prospectus', with the Registrar of Companies
(RoC). The draft of the prospectus (DRHP) must be approved by the Securities and Exchange Board of India (SEBI)

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prior to registration with the RoC. A public offer must result in listing of shares on a stock exchange(s) recognised by
SEBI ('recognised stock exchange').
Prior to filing the DRHP, a company must fulfill the following requirements:
structure - convert into a public company by amending its memorandum and articles of association and
incorporating the requirements of the stock exchanges into its articles;
shareholding - ensure that the promoters of the company directly hold such number of equity shares which allows
20 per cent of their post-IPO shareholding to be locked in for three years.
Lock-in shares of promoter Shares which are eligible to be locked in for three years:
must not have been allotted to the promoters in the last one year at a price lesser than the public offer price;
must not have been allotted in the last three years for consideration other than cash, out of revaluation reserves
or capitalisation of intangible assets; or
must not result from a bonus issue by utilisation of revaluation reserves or unrealised profits of the issuer or
from a bonus issue against equity shares which were themselves ineligible for the minimum three year lock-in.
board - the composition of the board of directors may need to be changed to include independent non-executive
directors with appropriate expertise such that there is equal number of non-independent and independent directors
on the board of the company.
corporate governance procedures - the company will need to put in place appropriate corporate governance
procedures for a listed company. This includes constituting certain committees of the board, such as an audit
committee, investor grievance committee and remuneration committee, framing and adopting a code of conduct for
the management and implementing reporting requirements.
On average, a company takes approximately 4-6 months to list its shares. This period commences from filing of the
DRHP with SEBI to the listing of the shares.
Entry Norms for accessing Capital Market:
Entry norms are different routes available to an issuer for accessing the capital market. Indian law allows an issue to be
either through a book-build mechanism or a fixed price mechanism. Book-building is mandatory in the event parameters
(refer entry norms above) linked to the financial performance of the company are not met.
In a fixed priced mechanism, the offer is made to the prospective shareholders in an IPO at a fixed price. All
applications must be made at that price.
In the book-building method, the issuer companies, in consultation with the book-running lead managers, determine a
price band. Prospective investors submit their applications as a bid at a price within the price band. Maximum bids
received at a particular price within the price band is determined to be the issue price and consequently, the prospective
investors themselves 'discover' the price at which they want to buy the shares.
Currently, the book-built method is the most common mechanism adopted in IPOs for pricing.
SEBI has laid down entry norms for entities making a public issue/ offer. The same are detailed below
(A)
An unlisted issuer making a public issue i.e (making an IPO) is required to satisfy the following
provisions:
Entry Norm I (commonly known as "Profitability Route")
The Issuer Company shall meet the following requirements:
(a) Net Tangible Assets of at least Rs. 3 crores in each of the preceding three full years.
(b) Distributable profits in atleast three of the immediately preceding five years.
(c) Net worth of at least Rs. 1 crore in each of the preceding three full years.
(d) If the company has changed its name within the last one year, atleast 50% revenue for the preceding 1 year
should be from the activity suggested by the new name.
(e) The issue size does not exceed 5 times the pre- issue net worth as per the audited balance sheet of the last
financial year
To provide sufficient flexibility and also to ensure that genuine companies do not suffer on account of rigidity of the
parameters, SEBI has provided two other alternative routes to the companies not satisfying any of the above conditions,
for accessing the primary Market, as under:
Entry Norm II (Commonly known as "QIB Route")
(a) Issue shall be through book building route, with at least 50% to be mandatory allotted to the Qualified
Institutional Buyers (QIBs).

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(b) The minimum post-issue face value capital shall be Rs. 10 crores (100 million) or there shall be a compulsory
market-making for at least 2 years
Entry Norm III (commonly known as "Appraisal Route")
(a) The "project" is appraised and participated to the extent of 15% by Financial Institutions / Scheduled
Commercial Banks of which at least 10% comes from the appraiser(s).
(b) The minimum post-issue face value capital shall be Rs. 10 crores or there shall be a compulsory market-making
for at least 2 years.
In addition to satisfying the aforesaid entry norms, the Issuer Company shall also satisfy the criteria of having at least
1000 prospective allotees in its issue.
(B)

A listed issuer making a public issue (FPO) is required to satisfy the following requirements:
(a) If the company has changed its name within the last one year, at least 50% revenue for the preceding 1 year
should be from the activity suggested by the new name.
(b) The issue size does not exceed 5 times the pre- issue net worth as per the audited balance sheet of the last
financial year

Any listed company not fulfilling these conditions shall be eligible to make a public issue by complying with QIB Route
or Appraisal Route as specified for IPOs.
Certain category of entities which are exempted from the aforesaid entry norms, are as under :
(a) Private Sector Banks
(b) Public sector banks
(c) An infrastructure company whose project has been appraised by a Public Financial Institution or IDFC or
IL&FS or a bank which was earlier a PFI and not less than 5% of the project cost is financed by any of these
institutions.
(d) There is no entry norm for a listed company making a rights issue
Thus in case of Book Built issue an issuer company makes an issue of 100% of the net offer to public through 100%
book building process
(a) Not less than 35% of the net offer to the public shall be available for allocation to retail individual investors;
(b) Not less than 15% of the net offer to the public shall be available for allocation to non-institutional investors
i.e. investors other than retail individual investors and Qualified Institutional Buyers;
(c) Not more than 50% of the net offer to the public shall be available for allocation to Qualified Institutional
Buyers:
In case of compulsory Book-Built Issues at least 50% of net offer to public being allotted to the Qualified Institutional
Buyers (QIBs), failing which the full subscription monies shall be refunded.
In case the book built issues are made pursuant to the requirement of mandatory allocation of 60% to QIBs in terms of
Rule 19(2)(b) of Securities Contract (Regulation) Rules, 1957, the respective figures are 30% for RIIs and 10% for NIIs.
In case of fixed price issue the proportionate allotment of securities to the different investor categories in an fixed
price issue is as described below:
1. A minimum 50% of the net offer of securities to the public shall initially be made available for allotment to retail
individual investors, as the case may be.
2. The balance net offer of securities to the public shall be made available for allotment to:
a.
Individual applicants other than retail individual investors, and
b.
Other investors including corporate bodies/ institutions irrespective of the number of securities applied
for.
THE PROCESS IN BRIEF (Book Building Method)
The IPO process comprises the following sequence of events:
The merchant banks and lawyers are appointed. The lawyers and the merchant banks commence due diligence.
The lawyers commence drafting of the draft red herring prospectus (DRHP). The DRHP includes information
about the company's financial statements, business and other corporate and legal information. The DRHP does

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not include details of the price at which the shares would be offered or the period when the issue would be
open for subscription. The DRHP, however, states the number of shares on offer or the total issue size.
The DRHP is approved by the board of directors of the company.
The DRHP is filed with SEBI and the recognised stock exchanges.
SEBI issues observations on the DRHP.
An updated DRHP is submitted to SEBI which incorporates SEBI's observations.
Once SEBI has cleared the DRHP, the updated DRHP, (the red herring prospectus (RHP)), is filed with the
RoC. The RHP states the period for which the issue will be open for subscription.
The merchant banks commence marketing of the issue.
The price band (that is the price range within which the public may apply for the shares) is disclosed through a
public advertisement.
The issue is opened and applications are collected.
Issue closes and the price at which maximum applications have been received is the issue price.
The RHP, now termed the prospectus, is filed with the RoC. The prospectus states the issue price at which
shares would be allotted.
Allotment of shares at the issue price is made to the investors.
Application for listing is made to the recognised stock exchanges.
Listing and trading permission is granted by the stock exchanges and trading commences.

THE PROSPECTUS- briefly stated

The prospectus must contain all the information about the company that investors, and their advisers, would reasonably
require to make an informed assessment of: The assets and liabilities, financial position and performance, profits and
losses, and prospects of the company; and the rights and liabilities attaching to the shares to be offered.
Broadly, the prospectus comprises of the following significant information about an issuer company:
discussions about the business verticals, strengths, opportunities and strategies about the issuer company;
the risk factors affecting the business and results of operations of the issuer company; the litigation involving
the issuer company, directors and its group;
details about the management of the company; the industry in which the company operates; the objective of
the fund raising; and
the financial performance of the company for the last five years or since incorporation, whichever is later.
NATURE OF DUE DILIGENCE NECESSARY FOR A PUBLIC OFFER
A due diligence (or enquiry) process is conducted to make sure the offer document complies with the relevant legal
requirements and no material information of the company is omitted from the prospectus. The offer document is
drafted pursuant to the results of the diligence exercise. The merchant bankers are required to submit a due diligence
certificate to SEBI. The merchant bankers derive their comfort on the diligence based on certification issued by the
lawyers and auditors.
VALUATION
The merchant banks determine the valuation of the issuer company based on parameters such as past financial
performance, strength and reputation of the group which the company is a part of, the performance and governmental
policies towards the industry sector which the company is a part of, feedback from institutional investors, peer
comparison and quality of the board of directors.
The merchant banks must disclose such an analysis in the offer documents and justify the issue price of the securities on
offer.
MARKETING THE FLOAT
The merchant banks commence marketing of the issue to institutional investors once SEBI approves the offer
document. The marketing initiatives begin through road shows where the promoters of the company along with the
merchant banks meet institutional investors. The company also issues advertisements in relation to the public issue.
DILUTION

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In an IPO at least 25 per cent of the post issue share capital must be offered to the public, ie, entities who are not
promoters or their affiliates and at least ten per cent if the post issue capital of the issuer company calculated at the offer
price is more than INR 40bn.
LOCK-IN REQUIREMENTS
Twenty per cent of the post-IPO shareholding held by the promoters directly is locked in for a period of three years
post the allotment of the shares. The remaining pre-IPO shares are locked in for a period of one year post allotment.
However, this restriction does not apply for shares held by SEBI registered venture capital funds and shares allotted
pursuant to an employee stock option scheme.
Existing shareholders, however, may choose to sell their shares, which have been held by them for at least one year prior
to the date of filing of the DRHP with SEBI, as part of the IPO. This is a route preferred by private equity investors
who wish to exit and realise the value of their investment. .
The entire pre-issue capital is locked in for a period of one year from the date of the IPO.
LISTING AGREEMENT
As a pre-requisite to listing, the issuer company is required to enter into a standard listing agreement. The listing
agreement prescribes for post issue disclosure requirements and certain conditions for continued listing, such as,
quarterly and annual disclosure of financial performance of the company, quarterly reporting of the shareholding pattern
of the company, adhering to the corporate governance requirements as set out in this float guide above, and maintaining
of the minimum public float of 25 per cent of the issued capital.

FLOAT BY A FOREIGN COMPANY IN INDIA

For a foreign company to qualify to list its depository receipts on an Indian stock exchange to raise capital from Indian
capital markets, it must meet the following parameters:
It must be incorporated outside India.
It must be listed in the home country of its incorporation.
It must have distributable profits in the immediately preceding years. It must have a trading track record.
It should not be prohibited from accessing capital markets in its home country.
It should satisfy the conditions of good financial health in terms of pre-issue capital, free reserves and market
capitalisation. The parameters for guidance of financial health have been set out under Companies (Issue of
Indian Depository Receipts) Rules (2004).
IDRs allow:
a foreign company to raise capital from Indian capital markets; and
an Indian investor to invest in a foreign company without being subjected to the laws of the country in which
the foreign company is incorporated.
Where an IDR is
a derivative instrument is modelled on global depository receipts and American depository receipts.
Every IDR represents an ownership of certain underlying equity shares of the foreign company.
The IDRs are issued by the depository in India against underlying equity shares of the foreign company, which
are held in custody by an overseas custodian bank.
IDRs are denominated in Indian Rupees.
Foreign institutional investors, sub-accounts of foreign institutional investors and non resident Indians, non institutional
investors and retail individual investors can invest in IDRs.
REGULATORY FRAMEWORK
The regulatory framework for issuance of IDRs comprises of:
Companies Act (1956);
Companies (Issue of Indian Depository Receipts) Rules (2004);
Chapter X of the SEBI (ICDR) Regulations (2009), as amended; IDR Listing Agreement; and
the circulars and notifications issued by the Reserve Bank of India, SEBI and Ministry of Corporate Affairs in
this regard from time to time.

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CONDITIONS FOR AN IDR ISSUE

IDRs must be offered to more than 49 person.
The issue size must be more than INR 500m .
The minimum application amount by an applicant must be of least INR 20,000.
At least 50 per cent of the issue must be allotted to qualified institutional buyers on a proportionate basis and
the remaining to non institutional investors and retail individual investors on a discretionary basis. Qualified
institutional buyers include certain type of public financial institutions, scheduled commercial banks, mutual
funds, foreign institutional investors and sub-accounts, multilateral and bilateral development financial
institutions, venture capital funds, foreign venture capital investors, state industrial development corporation,
insurance companies, national investment funds, insurance funds set up by the army, navy or air force or the
department of posts, and provident funds and pension funds.
The number of underlying equity shares offered in a financial year through IDRs must not exceed 25 per cent
of the outstanding capital of the foreign company.
An issuer company proposing to issue and list IDRs must submit a prospectus, disclosing certain details about
the issuer company, to SEBI and the RoC. The details of the disclosures in the prospectus are set out below.
IDR TEAM
The IDR deal team comprises of all the entities involved in a domestic IPO described above and:
overseas custodian bank - they hold the underlying shares on behalf of the depository;
domestic depository - IDRs are issued by the depository to the investors on the basis of the underlying equity
shares issued by the foreign company; and
the legal advisors - there are two sets of lawyers typically appointed for the transaction, one of them is a
domestic legal counsel (lawyers from the country of the issuing company's incorporation) and the other is the
international legal counsel (Indian counsel). Their responsibilities include conducting due diligence of the
company, drafting the offer document and advising on structuring of the issue. A lawyer from the home
country must be appointed to review the offer document.
The cost of an IDR issue is approximately six to eight per cent of the issue size. This includes predominantly fees to the
merchant banks, the legal advisors, underwriting commissions (if any), fees payable to the depository and the custodians,
the auditors, the registrar to the issue, marketing costs, processing fees to SEBI and the stock exchanges, etc.
THE PROCESS IN BRIEF
The IDR issue process comprises the following sequence of events:
The overseas custodian bank, a domestic depository, merchant banker, lawyers and an underwriter are
appointed for the issue of the IDRs.
The lawyers and the merchant banks commence due diligence.
The draft red herring prospectus (DRHP) is drafted based on the legal, financial and management due diligence
undertaken by the lawyers and the lead managers. The DRHP does not include details of the price at which the
IDRs would be offered or the ratio between the IDRs and the underlying equity shares or the period when the
issue would be open for subscription. The DRHP, however, states the maximum numbers of IDRs on offer or
the total issue size.
The DRHP is approved by the board of directors of the company.
The DRHP is filed with SEBI. This filling can be either confidential or public filing.
SEBI issues observations on the DRHP.
An updated DRHP is submitted to SEBI which incorporates SEBI's observations.
At this juncture, the issuing company decides the ratio between the underlying equity shares and the IDRs.
Certain numbers of IDRs represent certain numbers of underlying equity shares, which is set out in the RHP to
be filed with the Registrar of Companies, New Delhi.
Once SEBI has cleared the DRHP, the updated DRHP, which is now termed as the red herring prospectus
(RHP), is filed with the registrar of companies, New Delhi. The RHP states the period for which the issue shall
be open for subscription.
The lead mangers commence marketing of the issue.
The company, together with lead managers, based on investor feedback, determines the price band (price range
within which the public may apply for the IDRs). This price band is then included in the RHP or intimated to
prospective investors through a public advertisement.

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The issue is opened and applications are accepted.

Issue closes and the price at which maximum applications have been received is determined to be the issue
price.
The prospectus is filed with the RoC, New Delhi. The prospectus states the issue price at which IDRs would
be allotted.
Allotment of underlying equity shares is made to the depository. The said shares are held in custody by an
overseas custodian.
Listing and trading approval is sought for the underlying equity shares. Upon receipt of the approval, IDRs are
issued by the depository to the prospective investors.
Listing and trading approval is sought for the IDRs from the recognised stock exchange where such IDRs are
proposed to be listed.
Upon receipt of the listing and trading approval, the listing and trading of the IDRs commences on the
platform of the stock exchanges.

PROSPECTUS
The prospectus must contain all the information about the company that investors, and their advisers, would reasonably
require to make an informed decision with regard to their investment in the company. Broadly, the prospectus comprises
of the following information about an issuer company which is additional to the information provided in a domestic
IPO:
the financial performance of the company for the last three years;
a brief description of the securities regulations of the country where the issuing company is incorporated;
description of the IDRs and the rights of the IDR holder; and
detailed disclosure on the issue procedure to be followed for the issue of underlying shares and subsequent
IDRs.
The issuance of IDRs may or may not be underwritten.
In case of a non-underwritten issue, the issuer company must receive a minimum subscription of 90 per cent of
the offer as of the issue closure date for the issue to be successful.
In case of an underwritten issue, the Issuer must receive a minimum subscription of 90 per cent of the offer
including the underwriters' commitment within 60 days of the issue closure date.
The IDRs are not automatically fungible into underlying equity shares.
Further, the IDRs can only be redeemed after the completion of one year from the date of issuance of IDRs, if the IDRs
are infrequently traded on the stock exchange(s) in India. 'Infrequently traded' has been defined to mean where the
annualised trading turnover in IDRs during the six calendar months immediately preceding the month of redemption is
less than five percent of the listed IDRs.
LISTING AGREEMENT FOR IDRS
The listing agreement for an IDR is separate from that of an equity issue. The issuer company has to enter into a listing
agreement with the stock exchange, where the Issuer proposes to list its depository receipts. This listing agreement for
an IDR is on similar lines to that of the equity listing agreement applicable to the domestic issuers in an IPO. The
regulators have also introduced another listing agreement for issuer companies located in countries forming a part of the
Multilateral Memorandum of Understanding of International Organization of Securities Commissions as there exist
certain differences in terms of compliance.
The SEBI Manual is SEBI authorized publication that is a comprehensive databank of all relevant Acts, Rules,
Regulations and Guidelines that are related to the functioning of the Board. The details pertaining to the Acts, Rules,
Regulations, Guidelines and Circulars are placed on the SEBI website under the "Legal Framework" section. The
periodic updates are uploaded onto the SEBI website regularly.

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Fast Track Issues (FTI)

SEBI has introduced FTI in order to enable well-established and compliant listed companies satisfying certain specific
entry norms/conditions to access Indian Primary Market in a time effective manner. Such companies can proceed with
FPOs / Right Issues by filing a copy of RHP / Prospectus with the RoC or the Letter of Offer with designated SE,
SEBI and Stock Exchanges. Such companies are not required to file Draft Offer Document for SEBI comments and to
Stock Exchanges.
Entry Norms for companies seeking to access Primary Market through FTI's in case aggregate value of securities
including premium exceeds Rs. 50 lacs:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)

The shares of the company have been listed on any stock exchange having nationwide terminals for a
period of at least three years immediately preceding the date of filing of offer document with RoC/ SE.
The "average market capitalisation of public shareholding" of the company is at least Rs. 10,000 crores
for a period of one year up to the end of the quarter preceding the month in which the proposed issue is
approved by the Board of Directors / shareholders of the issuer;
The annualized trading turnover of the shares of the company during six calendar months immediately
preceding the month of the reference date has been at least two percent of the weighted average number
of shares listed during the said six months period;
The company has redressed at least 95% of the total shareholder / investor grievances or complaints
received till the end of the quarter immediately proceeding the month of the date of filing of offer
document with RoC/ SE.
The company has complied with the listing agreement for a period of at least three years immediately
preceding the reference date;
The impact of auditors' qualifications, if any, on the audited accounts of the company in respect of the
financial years for which such accounts are disclosed in the offer document does not exceed 5% of the
net profit/ loss after tax of the company for the respective years.
No prosecution proceedings or show cause notices issued by the Board are pending against the company
or its promoters or whole time directors as on the reference date; and
The entire shareholding of the promoter group is held in dematerialised form as on the reference date.

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Appendix V
Incorporation of a Subsidiary under Automatic Route in India- A Practical Guide.
Foreign companies are permitted to operate in India through its Indian subsidiary under the Foreign Direct Investment
(FDI) norms as declared from time to time as to be engaged in manufacturing and trading activities as permitted therein.
Incorporation of Indian Subsidiary- Private Limited Company
For convenience it is presented in the form of a checklist, the checklist has been divided into several stages/ steps136:
STAGE I: Preliminary
A) Selection of the type of company:
The first stage is selection of the type of Company and the proposed place of business- registered address which decides
the applicable Registrar of Companies(RoC) office.
Type of Company being considered is a Private Ltd Company wherein private limited company:
1) has a minimum paid-up share capital of Rs.1 Lakh or such higher capital as may be prescribed; and
2) by its Articles Association:
a) restricts the right of transfer of its share;
b) limits the number of its members to 50 which will not include:i) members who are employees of the company; and
ii) members who are ex-employees of the company and were members while in such employment and
who have continued to be members after ceasing to be employees;
c) prohibits any invitation to the public to subscribe for any shares or debentures of the company; and
d) Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their
relatives.
Min/Max number of Shareholders: 2/49.
Min/ Max number of Directors: 2/12
under s. 259 of the Companies Act, 1956 if directors over 12 needs to be appointed it requires approval of the Central
Government
The general steps being generation of Directors Information Number (DIN) and Digital Signature work Company
registration (this step may be avoided for the purposes of incorporation if a director having DIN and digital signature is
co-opted).
B) Generation of Directors Information Number (DIN) and Digital Signature of the Directors:
i) DIN
Decide the proposed directors of the company, forward full name, address, description, citizenship and occupation of
the proposed directors to obtain DIN necessary for incorporation.
Requirement for having DIN:
As per proviso to section 253 of the Companies Act, 1956, inserted by the Companies (Amendment) Act, 2006, w.e.f. 111-2006, no company shall appoint or re-appoint any individual as director of the company unless he has been allotted a
Director Identification Number under section 266B.

136 Incorporation involves mechanical part of filing and advisory services, for a simple incorporation services using stock constitution (MoA &AoA) are best
provided by Company secretaries resulting in being cost effective, corporate lawyers services are used if in-depth advisory services are required. Corporate lawyers
inevitably use services of a professional company secretary for purposes of incorporation and provide advisory services. The professional service providers
recognized by the RoC being Chartered Accountants(CA) / Company Secretaries(CS) / Cost & Works Accountants(CWA). The process of incorporation
starts with Form 1A which requires professional service provider for expedited approval, Form 18 and Form 32 being the mechanical apart of filing for
incorporation requires a professional service provider as affirmed by Delhi High Court in Re: Legum & Law Awareness Society whilst form 1 may be
filed by a advocate- lawyers/advocates/solicitors permitted professionals under the Companies Act 1956. By practice of RoC Form 18 and Form 32 presently
are integral part of the process of incorporation and needs to be uploaded simultaneously which can be through only permitted professional service provider. In the
legal process of incorporation lawyers/advocates/solicitors are not considered as professional by the Registrar of Companies/Ministry of Corporate Affairs further
in India neither are multi disciplinary professional practice permitted.
This has created two layered professional fees in India for mechanical part and for usage of digital signature of a classed professional and advisory service.

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Step 1: One starts incorporation with the generation of Directors Information Number (DIN) of the proposed
Directors. To generate a provisional DIN number(Form DIN-1), please refer http://www.mca.gov.in/MCA21
Please fill in the form from 1a to 14g then submit online, this will generate a provisional DIN number.
Take note of the provisional DIN number that system will provide you online
Take print of the page when provisional DIN number is generated as the hard copy needs to be filed manually.
Step 2: For the DIN identification and residence proofs are required
A For identification proof- (any two): Passport/ Driving License/ Voter ID card (applicable only to Indian)/
PAN (applicable only to Indian)
B For residence proof- (any two): Telephone Bill/ Electricity Bill / Driving License. / Ration Card- ( applicable
only to Indian) / Bank Statement
(Telephone bill, Electricity bill and Bank statement not to be more than 2 months older.)
[the said documents should be apostilled]
Step 3: One should retrieve their Provisional DIN data from http://www.mca.gov.in/MCA21
A print of the retrieved form has to be taken and Fill in the form manually, pasting directors photograph and
signature within the box indicated therein and thereafter air-mail the completed form along with the documents to
our Mumbai Main office, we will check the same and forward the same for processing after which the Directors
will be allotted DIN.
(Kindly check if online payments are accepted from non Indian banks/credit cards if not kindly co-ordinate payment by
an Indian asspciate)
ii) Digital Signature

Requirement for having digital signatures:

Every document prescribed under the Companies Act, 1956 is required to be filed with the digital signature of the
managing director or director or manager or secretary of the Company, and it is compulsorily required to obtain digital
signatures of at least one director to sign the e-Form 1A and other documents. It may be noted that if the director or
other persons covered are having digital signatures, their signatures may be used for the above said purpose and there is
no need take new signature again.
STAGE II : Ascertaining name availability
Name availability is through approval process using form 1A
i)Selection of name:
Six names are required to be selected in order of preference after taking notes of numerous provisions, clarifications,
circulars and rules made by the Ministry of Corporate Affairs, etc. it should be with the meaning of each proposed name
of the Indian Subsidiary company, if it is a coined word then it needs to be stated.
In case key word is required, significance of each key word should be given in the e-Form 1A
Guidelines as to use of words:
The fees payable to the Registrar at the time of registration of a new company varies according to the authorized capital
of a company proposed to be registered as per Schedule X to the Act. Fees can be calculated by the MCA portal.
Tabulated below are required authorized capital and one should bear in mind the fees payable are premises on the
authorized capital selected. With the view to maintain uniformity, following guidelines may be followed in the use of
keywords, while making available the proposed name under sections 20 and 21 of the Companies Act, 1956.
Key words
(1) Corporation
(2) International, Globe, Universal, Continental, Inter- Continental,
Asiatic, Asia, being the firs word of the name
(3) If any of the word at (2) above is used within the name (With or
without brackets)
(4) Hindustan, India, Bharat, being the first word of the name.
(5) If any of the words at (4) above is used within the name (with or
without brackets).
(6) Industries/Udyog.

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Required
authorized capital
25 Crore
5 Crore
2 Crore
2 Crore
25 Lakhs

(7)Enterprises, products, Business, Manufacturing.

5 Crore
50 Lakhs
ii) Applying for ascertaining the availability of the selected name
The promoters are required to make an application to the concerned Registrar of Companies to be submitted
electronically to the Ministry of Corporate Affairs on the portal of MCA. An application shall be in e-Form 1A as
prescribed by Notification No. GSR 56(E) dated 10th Feb., 2006 duly digitally signed by any one promoter or managing
director or director or manager or secretary of the company along with the required fee for ascertaining whether the
selected name is available for adoption by the promoters of the proposed company.
Note: Main objects needs to be stated here which will reflect in the MoA (Memorandum of Association) and cannot be
varied to the main objects as stated in the Articles of Association
Basic requirements for Form 1A are as follows:
a) Details of the applicant (name, address, occupation), in case DIN has been allotted than mandatory DIN.
b) Type of company, options to choose from are: Sec 25, Part IX, Producer IX A company. Along with category and
sub-category of the proposed company.
c) Proposed company having share capital or not.
d) State where the proposed company is to be registered.
e) Name of office of registrar of companies in which the proposed office is to be registered.
f) Details of the promoters (proposed first subscribers to MoA), if allotted Din than mandatory.
g) If, application is being certified by a practicing professional.
h) Proposed name of the company (six names). In case of a new company, if form is certified by a practicing CA, CS,
CWA. then only one name to be entered.
i) In case of name similar to existing company or a foreign holding company, specify name and attach a copy of NOC by
the way of Board Resolution. In case of existing company provide CIN.
j) Main objective of the proposed company, as to be stated in MoA, variance not permitted.
(In case of name of the company giving impression to be a Government entity, copy of approval from the Central
Government, as a proof of NoC.)
Attachments to form 1A:
a) Copy of Board Resolution of the foreign holding company to incorporate a Indian subsidiary
b) Trademark or authorization to use trade mark.
c) Optional attachments If any.
Verification: Certification by any whole time practicing CA, CS, CWA.
iii) Approval of the name:
After receipt of completed application in e-Form 1A, the Registrar intimate whether the proposed name is available for
adoption or not. The confirmation of the name made available by the Registrar is valid for a period of six months. In
case, if the promoters fail to submit all the required documents for incorporation within that period, then they are
required to submit another application after payment of requisite fees.
STAGE III: Settle the Constitution of the proposed Company
Drafting of the MOA and AOA is generally a step subsequent to the availability of name made by the Registrar. It
should be noted that the main objects should match with the objects shown in e-Form. These two documents are
basically the charter and internal rules and regulations of the companies. Therefore, they must be drafted with utmost
care with the experts advice and the other object clause should be drafted in a very broader sense.
STAGE IV: Incorporation process [S. 12(2) (a) of the Companies Act, 1956]
Step 1- Comply with the requirements as per the law of the country in which the promoter Companies have been
incorporated to incorporate a subsidiary in India
- Copy of Board Resolution of the foreign holding company to incorporate a Indian subsidiary
[Copy of the resolution should be apostilled]
Step 2- Execute the Power of Attorney and Letter of Authority by the Promoters of the Indian subsidiary in favour of
Lawyer/CA/CWA/CS

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[The Power of Attorney and Letter of Authority should be apostilled]

Step 3- Finalization of the copy of Memorandum of Association and Article of Association- this is the most crucial step
as this forms the constitution of the company under which it can operate.
Step 4 - Stamping & Registration of Memorandum of Association and Article of Association and signed by at least 2
subscribers viz the main promoter-parent company and another subscriber, individual or a company.
Step 5- Execution of Documents MOA, AOA, and required forms (this should be apostilled)
Step 6- True copy of MOA & AOA the promoter company/ies
Step 7- Filing of documents with the Registrar for a new company:
The promoters are to file the following documents with the Registrar for incorporation of the company. The following
documents shall be submitted to the Registrar along with the adequate filing fees as applicable for registration of the
company online with in a period of six months from the date of intimation of available name under e-Form 1A:
a. Memorandum of Association (MoA) and Articles of Association (AoA) should be duly signed by the
subscribers and witnessed.(S.33)
b. Declaration in e-Form 1 by an advocate or company secretary or chartered accountant engaged in whole time
practice in India or by a person named in the Articles as a director, manager or secretary of the company, that all
the requirements of the Companies Act, 1956 and the rules made there under have been complied with in respect
of registration and matters precedent and incidental thereto, which may be accepted by the Registrar as sufficient
evidence of such compliance. (S.33)
c. E-Form 18 is to be filed with the Registrar electronically, while incorporating a new private limited company or
a public limited company or while shifting the office address, e-form 18 has to be filed with Registrar of
Companies under whose jurisdiction it lies.
Applicable section 146 of the Companies Act, 1956. W.e.f. 24/12/2012 by notification issued by MCA.
d. E-Form 32 is required to be filed with the Registrar electronically for Particulars of appointment of managing
director, directors, manager and secretary and the changes among them or consent of candidate to act as a
managing director or director or manager or secretary of a company and/ or undertaking to take and pay for
qualification shares.
(a) Name and CIN of all the companies in which they are directors;
(b) Names of partnership concerns in which they are partner;
(c) Names of proprietorship concerns in which they are proprietor;
The agreement, if any, which company proposes to enter into with any individual for appointment as a managing
or a whole time director, or a manager. (S.33) if required at the time of incorporation.
Step 8- Payment of the registration and filing fee can be made by credit card, Internet banking, Remittance at the Bank
counter or any other mode approved by Central Government.
A private company can commence business immediately after receiving certificate of incorporation.
STAGE V: Certificate of Incorporation
i) On the satisfaction of the Registrar that the requirements specified in sections 33(1) and 33(2) have been complied
with by the company, he shall retain the documents and register the MOA, AOA and other documents.
ii) Section 34(1) cast an obligation on the Registrar to issue a Certificate of Incorporation,
the receipt of documents.

normally within 7 days of

STAGE VI: Meetings

Hold the first board meeting of the company (S. 166 of the Companies Act, 1956)
Provided that a company may hold its first annual general meeting within a period of not more than eighteen months
from the date of its incorporation; and if such general meeting is held within that period, it shall not be necessary for the
company to hold any annual general meeting in the year on its incorporation or in the following year.

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Provided further that the Registrar may, for any special reason, extend the time within which any annual general meeting
(not being the first annual general meeting) shall be held, by a period not exceeding three months.)
STAGE VII: Initiating Company Operations
Company Seal
Bank Account
Subscribing to shares by shareholders
Issuing share certificates
STAGE VIII: Income Tax (PAN & TAN)
PAN stands for permanent account number. Its a ten-digit alphanumeric number issued by the Income Tax
department. It is mandatory for any company and is issued in its name.
TAN stands for Tax deduction account number. . Its a ten-digit alphanumeric number issued by the Income
Tax department. This number has to be quoted at correspondence related to Tax Deduction at Source. (TDS)

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Appendix VI
SECTORAL ANALYSIS for FDI

1) Banking
The Indian financial sector is in a process of rapid transformation to change into an integrated infrastructure. Reforms
are continuing as part of the overall structural reforms aimed at improving the productivity and efficiency of the
economy and to both stimulate and sustain economic growth. Continued de-regulation and increased competition is
expected to result in the Indian financial services reach previously unattained revenue targets.
RBI formulates the banking policy in India from time to time in the interest of the banking system, monetary stability
and sound economic growth. Such policy is formulated with due regard to inter alia, the interests of the depositors, the
volume of deposits and other resources of the banks and the need for equitable allocation and efficient use of these
deposits and resources.
The current limit for FDI under automatic route in private sector banks is 74 percent subject to conformity with RBI
guidelines issued from time to time. This includes investments in respect of inter alia, initial public offerings; private
placements, ADR(s) and GDR(s) and acquisition of shares from existing shareholders.
Foreign banks may operate in India through one of three channels viz. (i) branches; (ii) wholly owned subsidiary; or (iii)
a subsidiary with aggregate FDI of up to 74 percent in a private sector bank, which may be established through
acquisition of shares of an existing private sector bank provided at least 26 percent of the paid up capital is held by
resident Indians at all times.
FDI and portfolio investments in nationalized banks are subject to overall statutory limits of 20 percent as provided
under the Banking Companies (Acquisition and Transfer of Undertakings) Acts 1970 and 1980.
Banking companies in India are regulated under the Banking Regulation Act, 1949 (hereinafter "BR Act"). The BR Act
regulates inter alia, the business of banking companies; prohibitions on trading; disposal of non-banking assets; rules
pertaining to Boards of Directors; management; powers of the RBI; minimum paid-up capital and reserves requirements;
reserve fund; cash reserves and restrictions on loans and advances.
State-owned financial institutions dominate the Indian banking industry and capital markets. India's commercial and
development banks, insurance companies and the Unit Trust of India (hereinafter "UTI") a mutual fund have
traditionally been the leading sources of funds for both local and foreign-invested enterprises. The much smaller private
financial sector consists of a number of smaller banks, private insurers and a host of mutual funds. India's non-banking
financial sector has gained tremendous importance as well and is witnessing rapid growth. Private and foreign companies
along with state owned insurers and UTI are key players in this part of the sector. The GoI opened the mutual-fund
sector to private participation in 1993. The private sector holds the major portion of mutual-fund assets under
management. Privately owned finance companies, termed as Non-Banking Finance Companies (hereinafter "NBFCs"),
which include a number of leasing companies, are an important source of incremental non-bank funding for firms.
Pension reserves continue to be managed by contributing companies or by the GoI owned Life Insurance Corporation
of India (hereinafter "LIC "). Provident funds are large, but mostly managed by the state. GoI has decided in principle to
open up the sector to allow private pension-fund managers and to set up a separate Pension Fund Regulatory and
Development Authority (hereinafter "PFRDA") as a regulator.
2) Capital Markets
Capital markets and securities transactions are regulated by the division of Capital Markets of the Department of
Economic Affairs, Ministry of Finance, and GoI. The markets have witnessed a transformation over the last decade
placing India amongst the mature markets of the world. Key progressive initiatives include:
Depository and share dematerialization systems that have enhanced the efficiency of the transaction cycle
Replacing the flexible, but often exploited, forward trading mechanism with rolling settlement, to bring about
transparency
The info tech-driven National Stock Exchange (hereinafter "NSE") has been complemented with a national
presence and other initiatives to enhance the quality of financial disclosures. Corporatization of stock exchanges.
SEBI has effectively been functioning as an independent regulator with statutory powers.
Indian capital markets have rewarded FII(s) with attractive valuations and increasing returns.

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Many new instruments have been introduced in the markets, including inter alia, index futures, index options,
derivatives and options and futures in select stocks.
SEBI has taken several measures for widening and deepening different segments of capital markets and for promoting
investor protection and market development. In case of the primary market the core focus was to safeguard and
stimulate investors' interest in capital issues by strengthening norms for and raising standards of disclosure in public
issues. Measures for the secondary market aimed at making the market more transparent, modern and efficient. The
safety and integrity of the market were strengthened through the institution of risk management measures which
included a comprehensive system of margins, intra-day trading and exposure limits.
3) Venture Capital and Private Equity
Domestic and offshore (incorporated or established outside India) venture capital funds seeking to invest in India are
regulated by the SEBI under the SEBI (Venture Capital Funds) Regulations, 1996 (hereinafter "VCF Regulations") and
the SEBI (Foreign Venture Capital Investors) Regulations, 2000 (hereinafter "FVCI Regulations") respectively.
Under the VCF Regulations, a domestic venture capital fund may be organized as a trust or company and is permitted to
invest in venture capital undertakings*1], which are not engaged in activities such as non-banking financial services*2,
gold financing*3, activities not permitted under industrial policy of the GoI, etc. Such domestic venture capital funds are
also subject to certain investment restrictions such as minimum capital commitment requirements, capital commitment
target thresholds, etc.
Domestic Venture Capital Undertaking is defined to mean a domestic unlisted Indian company whose shares are not
listed on a recognized stock exchange in India
- Excluding those Non-Banking Financial Companies, which are registered with the RBI and have been categorized as
Equipment Leasing or Hire Purchase Companies.
- Excluding those companies, which are engaged in gold financing for jewellery.
Foreign private equity investors on the other hand, may invest in India either directly under the FDI investment route as
outlined in 1.1 hereinbefore subject to applicable sector-specific requirements and limitations or alternatively, seeks
investment in domestic venture capital funds or undertakings under the provisions of the FVCI Regulations. Under the
FVCI Regulations, foreign investors may also seek registration with the SEBI. Though it is not mandatory for offshore
funds to register as foreign venture capital investors, registration carries significant benefits including inter alia, the
following:
Exemption from income tax on the income generated by such registered investors under the relevant provisions of
the (Indian) IT Act, 1961
Exemption from prior GoI approval in case of seeking to invest in the same field as the one in which it already has
an investment
Free entry and exit pricing exempting investments or exits by foreign venture capital investors involving transfer of
shares between residents and non-residents from the restrictive pricing guidelines of the RBI otherwise applicable to
foreign investors under the FDI investment route Qualified Institutional Buyer (hereinafter "QIB") status, making
such investors eligible to subscribe for securities at the initial public offering of a venture capital undertaking through
the book-building route
Exemption from being classified as a 'promoter' under the SEBI (Disclosure and Investor Protection) Guidelines,
2000 (hereinafter "DIP Guidelines")
Exemption from lock-in requirements otherwise applicable under the DIP Guidelines allowing foreign investors to
safely exit from their investments post-listing
Eligibility criteria for registration of foreign venture capital investors include their track record, professional competence,
financial soundness and experience. Applicants may be constituted of one of several forms such as pension and mutual
funds, investment trusts, partnerships or companies, asset management companies, endowment funds, university funds,
etc.
Investment regulations include inter alia, the permission to invest entire corpus in a domestic venture capital fund and
the requirement to invest two thirds of investible funds in unlisted equity shares or equity linked instruments of a
venture capital undertaking.
4) Insurance
A well-developed and evolved insurance sector is critical for economic development as it provides long term funds for
infrastructure development and strengthens risk taking abilities. Insurance is a federal subject in India. There are two

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legislations that govern this sector: the Insurance Act, 1938 (hereinafter "I-Act") and the Insurance Regulatory and
Development Authority Act, 1999 (hereinafter "IRDA").
The GoI liberalized the insurance sector in 2000 lifting all entry restrictions for private players and allowing foreign
players to enter the market with some limits on direct foreign investment.
The IRDA provides for the protection of the interests of holders of insurance policies and regulates, promotes and
ensures orderly growth of the insurance sector. It further aims to amend the I-Act, the Life Insurance Corporation Act,
1956 and the General Insurance Business (Nationalization) Act, 1972 in order to end the monopoly of the LIC in the life
insurance business and that of the General Insurance Corporation and its subsidiaries in the general insurance business.
With the opening of the Indian market, foreign and private Indian players are keen to convert untapped market potential
into opportunities by providing tailor-made products. The presence of a host of new players in the sector has resulted in
a shift in approach and the launch of innovative products, services and value-added benefits. Foreign majors have
entered the country and have announced joint ventures in both life and non-life areas.
5) Real Estate Sector
Legislative Framework: Property laws in India governing the real estate sector are substantially codified and are
contained in different enactments pertaining to inter alia, transfer of property rights, rent controls and land ceiling.
These enactments deal with and provide for: aspects related to real estate contracts; declaratory relief and injunctions in
respect of property rights; transfer and conveyance of property in terms of inter alia, sale, lease and mortgage; requisite
covenants and terms and conditions to be incorporated in the documentation pertaining to such transfers and
conveyance; testate and intestate succession; grant of letters of representation such as probate, letters of administration
and succession certificates pertaining to property; total or partial partition of properties; stamp duties payable in respect
of property transactions; modalities for computation and quantification of such duties; compulsory and optional
registration of documents in respect of property transactions; consequences arising from non-registration of the
transactions with the registering authorities and procedural laws in respect of enforcement of legal rights pertaining to
properties.
The principal enactment in India pertaining to inter alia, the sale of immovable property is the Transfer of Property Act,
1882 (hereinafter "TPA"). "Sale", under the provisions of the TPA, in respect of an immovable property is a transfer of
ownership, by one living person to another living person in exchange for price paid or promised or part paid or part
promised.
The TPA contains detailed provisions in respect of the implied terms and conditions of such transfer by sale.
Transactions of sale in respect of immovable properties are spread over a period of time commencing from the
negotiations between the parties, perusal and scrutiny of the title deeds of the vendor pertaining to the property for
examination of title thereto, finalizing the terms and conditions of the prospective sale such as inter alia, quantum of
price and the payment installments and completion of the transaction by the execution and registration of the formal
deed or indenture of transfer.
It would be pertinent to note that under Indian law a contract of sale does not, of itself, create any interest or charge on
the property as equitable estates are not accorded recognition.
Growth and Development: Real estate is an underserved sector qua its consumers. The sector is today witness to a wide
spectrum of changes that are transforming India into a preferred and sought after destination for real estate activity.
Two major steps taken by the GoI which have been catalysts in fuelling growth in the real estate sector in India through
FDI & Mutual fund:
The first step comprises of the initiatives that have been taken to allow FDI in real estate in India in townships,
housing, built-up infrastructure and construction development projects. The minimum area to be developed is
10 hectares in case of development of service housing plots, a minimum built-up area of 50,000 sq. meters in
case of construction-development projects and in case of a combination project, any one of the two conditions.
These projects are required to be designed keeping into consideration the local by laws and regulations. The
minimum capitalization required amounts to USD 10 million for a wholly owned subsidiary and USD 5 million
for a joint venture with an Indian partner.

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The second set of initiatives is in relation to the introduction of Real Estate Mutual Funds (hereinafter
"REMFs") in India by way of appropriate amendments to the SEBI (Mutual Funds) Regulations, 1996137 to
permit mutual funds to launch REMFs. As part of the initiative, SEBI has approved certain guidelines for
REMFs based upon recommendations of a committee constituted on real estate investment schemes. As per
the SEBI notification, REMFs are initially proposed to be close-ended with units requiring compulsory listing
on stock exchanges. REMFs may further be subject to declaration of net asset value requirements on a daily
basis.

137

Vide SEBI/IMD/CIR No.4/124477/08- Notification on Real Estate Mutual Fund Schemes and Initial Issue Expenses

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Appendix VII
RULES FOR FOREIGN NATIONALS ON INDIAN ASSIGNMENT
Indian companies are allowed to engage the services of a foreign national (including an NRI or a PIO) on both short
and long term assignments. Indian companies may engage such services on short-term assignments without prior
approval of the RBI subject to compliance with certain procedural requirements. Indian companies are also allowed to
engage the services of foreign nationals on a long-term basis.
A foreign national who is an employee of a foreign company on a deputation to an office or branch or subsidiary or
joint venture of such foreign company is allowed to open, hold and maintain a foreign currency account with a bank
outside India and may receive the salary payable to him in India by credit to such account abroad, subject to the
following conditions:
the amount to be credited should not exceed 75% of the salary accrued to or received by such person from the
foreign company;
the remaining salary should be paid in INR in India; and
the income tax chargeable should be paid on the entire salary in India.
Further, foreign nationals who are not permanently resident in India but are in regular employment with Indian firms or
companies, upon payment of monthly salaries are permitted to make remittances of their net (i.e. after deduction of
taxes, contribution to provident fund etc. and other deductions) salaries for family maintenance.
Registration and Visa Requirements: If the period of engagement of a foreign national is up to 6 months, such national is
required to hold a valid visa such as inter alia, employment, business or tourist. If the period exceeds 6 months, the
foreign national should hold a valid employment visa. Business visas may be issued for up to five years, with a multipleentry provision.
Foreign nationals are required to register themselves with the concerned "Foreigners' Registration Officer" within two
weeks of their first arrival in India, if they hold a visa for a period of more than 180 days. This registration is required
irrespective of whether or not they intend to stay in India for less or more than 180 days. (A person resident in India on
account of his employment or deputation of a specified duration (irrespective of length thereof) or for a specific job or
assignment, the duration of which does not exceed three years, is a resident but not permanently resident.)
Visas may be extended or renewed within India. Expatriate staff would require an employment visa before they are hired
in India. The employment visa is issued to skilled and qualified professionals or persons who are engaged or appointed
by inter alia, companies and organizations as technicians, technical experts, senior executives etc.
Expatriate staff further requires submitting the proof of contract or employment or engagement with the Indian
company for the issue of an employment visa by the Indian Embassy at their current place of residence.

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Appendix VIII
SECTOR SPECIFIC CONDITIONS ON FDI
PROHIBITED SECTORS:
FDI is prohibited in:
(a) Lottery Business including Government /private lottery, online lotteries, etc.
(b) Gambling and Betting including casinos etc.
(c) Chit funds
(d) Nidhi company
(e) Trading in Transferable Development Rights (TDRs)
(f) Real Estate Business or Construction of Farm Houses
(g) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
(h) 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.
PERMITTED SECTORS
In the following 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 not listed below, 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 capitalization
requirement
Sl. No.

Sector/Activity

AGRICULTURE
6.2.1
Agriculture & Animal Husbandry
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
Note: Besides the above, FDI is not allowed in
any other agricultural sector/activity

6.2.1.1

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%
of
FDI
Cap/Equity

Entry Route

100%

Automatic

Other conditions:
I. 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 from Genetic Engineering Approval Committee (GEAC) and
Review Committee on Genetic Manipulation (RCGM).

(v)
Import of materials shall be in accordance with National Seeds Policy.
II. The term "under controlled conditions" covers the following:

'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.

In case of Animal Husbandry, scope of the term 'under controlled conditions' covers

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.

Poultry breeding farms and hatcheries where micro-climate is controlled through

advanced technologies like incubators, ventilation systems etc.

In the case of pisciculture and aquaculture, scope of the term 'under controlled
conditions' covers
Aquariums

Hatcheries where eggs are artificially fertilized and fry are hatched and incubated in
an enclosed environment with artificial climate control.
In the case of apiculture, scope of the term 'under controlled conditions' covers

Prodution 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.
6.2.2
6.2.2.1
6.2.2.2

6.2.3
6.2.3.1

6.2.3.2

Sl. No.
6.2.3.3

Tea Plantation
Tea sector including tea plantations
100%
Government
Note: Besides the above, FDI is not allowed in
any other plantation
Other conditions:
(i)
Compulsory divestment of 26% equity of the company in favour of an Indian partner /
Indian public within a period of 5 years138
(ii)
Prior approval of the State Government concerned in case of any
future land use change.
MINING
Mining and Exploration of metal and non100%
Automatic
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.
Coal and Lignite
(1) Coal & Lignite mining for captive consumption
100%
Automatic
by power projects, iron & steel and cement units
and other eligible activities permitted under and
subject to the provisions of Coal Mines
(Nationalization) Act, 1973
(2) Setting up coal processing plants like washeries
100%
Automatic
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.
Sector/Activity
%
of
FDI
Entry Route
Cap/Equity
Mining and mineral separation of titanium bearing minerals and ores, its value addition and
integrated activities

138

Deleted by PN 6 of 2013

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6.2.3.3.1

6.2.3.3.2

6.2.4

Mining and mineral separation of titanium bearing

100%
Government
minerals & ores, its value addition and integrated
activities subject to sectoral regulations and the
Mines and Minerals (Development and
Regulation Act 1957)
Other conditions:
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 & 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.
(2) 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.
Petroleum & Natural Gas
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

6.2.5
6.2.5.1

PN 6-2013

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Automatic

Petroleum refining by the Public Sector

49%
Government
Undertakings (PSU),without any disinvestment or
Automatic139
dilution of domestic equity in the existing PSUs.
MANUFACTURING
Manufacture of items reserved for production in Micro and Small Enterprises (MSEs)
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

139

100%

6.2.6
6.2.6.1

Sl. No.
6.2.6.2

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.
DEFENCE
Defence Industry subject to Industrial license
26%
Government
under the Industries (Development &
Upto 26%
Regulation) Act
Government
1951
Above 26% to
Cabinet
Committee on
Security (CCS) on
Case to case
basis, which
ensures access to
morden and state
of art technology
in the country140
Sector/Activity
%
of
FDI
Entry Route
Cap/Equity
Other conditions:
(i) Licence applications will be considered and licences given by the
Department of Industrial Policy & Promotion, Ministry of Commerce
& 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

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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) Investment by Foreign Institutional Investors (FIIs) through portfolio investment is not
permitted.
(xvi)
All applications seeking permission of the Government for FDI in defence would be
made to the Secretariat of the Foreign Investment Promotion Board (FIPB) in the Department
of Economic Affairs.
(xvii)
Applications for FDI up to 26% will follow the existing procedure with proposals
involving inflows in excess of Rs. 1200 crore being approved by Cabinet Committee on
Economic Affairs (CCEA). Applications seeking permission of the Government for FDI
beyond 26%, will in all cases be examined additionally by the Department of Defence
Production (DoDP) from the point of view particularly of access to modern and 'state-of-art'
technology.
(xviii)
Based on the recommendation of the DoDP and FIPB, approval of the Cabinet
Committee on Security (CCS) will be sought by the DoDP in respect of cases which are likely to
result in access to modern and 'state-of-art' technology in the country.
(xix)
Proposals for FDI beyond 26% with proposed inflow in excess of Rs. 1200 crores, which
are to be approved by CCS will not require further approval of the Cabinet Committee of
Economic Affairs (CCEA).
(xx) 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.141
SERVICES SECTOR
INFORMATION SERVICES
6.2.7
Broadcasting
6.2.7.1
Broadcasting Carriage Services
6.2.7.1.1
(1)
Teleports (setting up of up74%
Automatic up
linking HUBs/Teleports);
to 49%
(2)
Direct to Home (DTH);
Government
(3)
Cable Networks (Multi System operators
route beyond
(MSOs) operating at National or State or
49% and up to
District level and undertaking upgradation of
74%
networks towards digitalization and addressability);
(4)
Mobile TV;
(5) Headend-in-the Sky Broadcasting Service
(HITS)
6.2.7.1.2
Cable Networks (Other MSOs not undertaking
49%
Automatic
upgradation of networks towards digitalization
and addressability and Local Cable Operators
(LCOs))
6.2.7.2
Broadcasting Content Services
6.2.7.2.1
Terrestrial Broadcasting FM (FM
26%
Government
Sl. No.
Sector/Activity
% of FDI Cap/Equity
Entry Route

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Radio), subject to such terms and

conditions, as specified from time to
time, by Ministry of Information &
Broadcasting, for grant of permission
for setting up of FM Radio stations
6.2.7.2.2
6.2.7.2.3
6.2.7.3

Up-linking of 'News & Current Affairs' TV

26%
Government
Channels
Up-linking of Non-'News & Current
100%
Government
Affairs' TV Channels/ Down-linking of TV
Channels
FDI for Up-linking/Down-linking TV Channels will be subject to compliance with the relevant Uplinking/Down-linking Policy notified by the Ministry of
Information & Broadcasting from time to time.

6.2.7.4

Foreign investment (FI) in companies engaged in all the aforestated services will be subject to relevant
regulations and such terms and conditions, as may be specified from time to time, by the Ministry of
Information and
Broadcasting.

6.2.7.5

The foreign investment (FI) limit in companies engaged in the aforestated activities shall include, in
addition to FDI, 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 entities.
Foreign investment in the aforestated broadcasting carriage services will be subject to the following
security conditions/terms:
Mandatory Requirement for Key Executives of the Company
(i)
The majority of Directors on the Board of the Company shall be
Indian Citizens.
(ii)
The Chief Executive Officer (CEO), Chief Officer In-charge of
technical network operations and Chief Security Officer should be
resident Indian Citizens.
Security Clearance of Personnel
iii) The Company, all Directors on the Board of Directors and such key executives like Managing
Director / Chief Executive Officer, Chief Financial Officer (CFO), Chief Security Officer (CSO), Chief
Technical Officer (CTO), Chief Operating Officer (COO), shareholders who individually hold 10% or
more paid-up capital in the company and any other category, as may be specified by the Ministry of
Information and Broadcasting from time to time, shall require to be security cleared.
(iv) In case of the appointment of Directors on the Board of the Company and such key executives like
Managing Director / Chief Executive Officer, Chief Financial Officer (CFO), Chief Security Officer
(CSO), Chief Technical Officer (CTO), Chief Operating Officer (COO), etc., as may be specified by the
Ministry of Information and Broadcasting from time to time, prior permission of the Ministry of
Information and Broadcasting shall have to be obtained.
It shall be obligatory on the part of the company to also take prior permission from the Ministry of
Information and Broadcasting before effecting any change in the Board of Directors.
The Company shall be required to obtain security clearance of all
foreign personnel likely to be deployed for more that 60 days in a year
by way of appointment, contract, and consultancy or in any other
capacity for installation, maintenance, operation or any other services
prior to their deployment. The security clearance shall be required to
be obtained every two years.
Permission vis-a-vis Security Clearance
(v)
The permission shall be subject to permission holder/licensee
remaining security cleared throughout the currency of permission. In case the security clearance is
withdrawn the permission granted is liable to be terminated forthwith.
(vi)
In the event of security clearance of any of the persons associated with the permission
holder/licensee or foreign personnel is denied or withdrawn for any reasons whatsoever, the permission
holder/licensee will ensure that the concerned person resigns or his services terminated forthwith after
receiving such directives from the Government, failing which the permission/license granted shall be
revoked and the company shall be disqualified to hold any such Permission/license in future for a period
or five years.
Infrastructure/Network/Software related requirement
(vii)
The officers/officials of the licensee companies dealing with the
lawful interception of Services will be resident India citizens.

6.2.7.6

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(viii)
Details of infrastructure/network diagram (technical details of the
network) could be provided, on a need basis only, to equipment
suppliers/manufactures and the affiliate of the licensee company.
Clearance from the licensor would be required if such information is
to be provided to anybody else.
(ix)
The Company shall not transfer the subscribers' databases to any
person/place outside India unless permitted by relevant Law.
(x)
The Company must provide traceable identity of their subscribers.
Monitoring, Inspection and Submission of Information
(xi)
The Company should ensure that necessary provision (hardware/software) is
available in their equipment for doing the Lawful interception and monitoring from a centralized location
as an when required by Government.
(xii)
The company, at its own costs, shall, on demand by the government or its authorized
representative, provide the necessary equipment, services and facilities at designated place(s) for
continuous monitoring or the broadcasting service by or under supervision of the Government or its
authorized representative.
(xiii)
The Government of India, Ministry of Information & Broadcasting or its authorized
representative shall have the right to inspect the broadcasting facilities. No prior permission/intimation
shall be required to exercise the right of Government or its authorized representative to carry out the
inspection. The company will, if required by the Government its authorized representative, provide
necessary facilities for continuous monitoring for any particular aspect of the company's activities and
operations. Continuous monitoring, however, will be confined only to security related aspects, including
screening of objectionable content.
(xiv)The inspection will ordinarily be carried out by the government of India, Ministry of Information &
Broadcasting or its authorized representative after reasonable notice, except in circumstances where
giving such a notice will defeat the very purpose of the inspection.
(xv)The company shall submit such information with respect to its services as may by required by the
Government or its authorized representative, in the format as may be required, from time to time.
(xvi) The permission holder/licensee shall be liable to furnish the Government of India or its authorized
representative or TRAI or its authorized representative, such reports, accounts, estimates, returns or such
other relevant information and at such periodic intervals or such times as may be required.
(xvii)The service providers should familiarize/train designated officials or the Government or officials of
TRAI or its authorized representative(s) in respect of relevant operations/features of their systems.
National Security Conditions
(xviii) It shall be open to the licensor to restrict the Licensee Company from operating in any sensitive
area from the National Security angle. The Government of India, Ministry of Information and
Broadcasting shall have the right to temporally suspend the permission of the permission
holder/Licensee in public interest or for national security for such period or periods as it may direct. The
company shall immediately comply with any directives issued in this regard failing which the permission
issued shall be revoked and the company disqualified to hold any such permission in further for a period
or five years.
(xix)
The company shall not import or utilize any equipment, which are identified as unlawful
and/or render network security vulnerable.

6.2.8
6.2.8.1
6.2.8.2

6.2.8.2.1

118|P a g e

Other conditions
(xx)
Licensor reserves the right to modify these conditions or incorporate new conditions
considered necessary in the interest of national security and public interest or for proper provision of
broadcasting services.
(xxi)
Licensee will ensure that broadcasting service installation carried out by it should not become a
safety hazard and is not in contravention of any statute, rule or regulation and public policy.
Print Media
Publishing of Newspaper and
26% (FDI
Government
periodicals dealing with news and
and
Government
current affairs
investment
Publication of Indian editions of
by
foreign magazines dealing with news
NRIs/PIOs/FII)
and current affairs
26% (FDI
and
investment
by
NRIs/PIOs/FII)
Other Conditions:

6.2.8.3

6.2.8.4.1

6.2.9
6.2.9.1

6.2.9.2

119|P a g e

(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.
Publishing/printing of Scientific and Technical
100%
Government
Magazines/specialty journals/ periodicals,
subject to compliance with the legal framework
as applicable and guidelines issued in this regard
from time to time by
Other Conditions:
(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.
Civil Aviation
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 businessincludes 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 serviceundertaken between the same
two or more places and operatedaccording to a published time table or with flights so regular
or frequentthat they constitute a recognizably systematic series, each flight beingopen to use by
members of the public;
(viii)
"Non-Scheduled Air Transport service" means any service which isnot a scheduled air
transport service and will include Cargo airlines;
(ix)
"Cargo airlines" would mean such airlines which meet the conditions asgiven 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.
Airports
(a) Greenfield projects
(b) Existing projects

100%
100%

Automatic
Automatic up to
74%
Government

route beyond
74%
Air Transport Services
(1) Scheduled Air Transport Service/Domestic
Scheduled Passenger Airline
(2) Non-Scheduled Air Transport Service 74%
FDI (100% for NRIs)

r NRIs)
Automatic up to 49%

Automatic
Government
route beyond
49% and up to
74%

(3)Helicopter services/seaplane
Automatic
services requiring DGCA approval
Other conditions:
(a) Air Transport Services would include Domestic Scheduled Passenger Airlines; NonScheduled Air Transport Services, helicopter and seaplane services.
(b) Foreign airlines are allowed to participate in the equity of companies operating Cargo airlines,
helicopter and seaplane services, as per the limits and entry routes mentioned above.
(c) Foreign airlines are also, henceforth, allowed to invest, in the capital of Indian companies,
operating scheduled and non-scheduled air transport services, up to the limit of 49% of their
paid-up capital. Such investment would be subject to the following conditions:
(i) It would be made under the Government approval route.
(ii) The 49% limit will subsume FDI and FII investment.
(iii) The investments so made would need to comply with the
relevant regulations of SEBI, such as the Issue of Capital and
Disclosure Requirements (ICDR) Regulations/ Substantial
Acquisition of Shares and Takeovers (SAST) Regulations, as
well as other applicable rules and regulations.
(iv) A Scheduled Operator's Permit can be granted only to a company:
a) that is registered and has its principal place of business within India;
b)
the Chairman and at least two-thirds of the Directors of which are citizens of India;
and
c)
the substantial ownership and effective control of which is vested in Indian nationals.
(v)
All foreign nationals likely to be associated with Indian
scheduled and non-scheduled air transport services, as a result of such investment shall
be cleared from security view point before deployment; and
(vi)
All technical equipment that might be imported into India as a result of such investment
shall require clearance from the
relevant authority in the Ministry of Civil Aviation.
Note: The FDI limits/entry routes, mentioned at paragraph 6.2.9.3 (1) and 6.2.9.3 (2) above, are
applicable in the situation where there is no investment by foreign airlines. (d) The policy mentioned at
(c) above is not applicable to M/s Air India Limited.
Other services under Civil Aviation sector

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(1) Ground Handling Services subject to sectoral

regulations and security clearance

74% FDI
(100% for NRIs)

(2) Maintenance and Repair organizations; flying

training institutes; and technical training
institutions

100%

Automatic up
to 49%
Government
route beyond
49% and up to
74%
Automatic

6.2.10

6.2.11
6.2.11.1

6.2.11.2

6.2.12
6.2.12.1

Courier services for carrying packages, parcels

100%
Government
and other items which do not come within the
Automatic142
ambit of the Indian Post Office Act, 1898 and
excluding the activity relating to the
distribution of letters.
Construction Development: Townships, Housing, Built-up infrastructure
Townships, housing, built-up infrastructure and
100%
Automatic
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)
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$10 million for wholly owned subsidiariesand US$ 5 million for joint
ventures with Indian partners. The funds wouldhave 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.
Note:
(i) The conditions at (1) to (4) above would not apply to Hotels & Tourism,Hospitals, Special
Economic Zones (SEZs), Education Sector, Old ageHomes and investment by NRIs.
(ii) FDI is not allowed in Real Estate Business.
Industrial Parks - new and existing
100%
Automatic
(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

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6.2.12.2

6.2.13
6.2.13.1

6.2.14
6.2.15

6.2.15.1.

6.2.16
6.2.16.1

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 spacethe 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. spelt out in para 6.2.11 above, 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.
Satellites - Establishment and operation
Satellites - Establishment and operation,
74%
Government
subject to the sectoral guidelines of
Department of
Space/ISRO
Private Security Agencies
49 %
Government
(i) Telecom services143 (including Telecom
100%
Automatic up
Infrastructure Providers Category-I) All telecom
to 49%
services including Telecom Infrastructure
above 49%
Providers Category-I,viz. Basic, Cellular, United
Government
Access Services, Unified license (Access services),
Unified License, National/ International Long
Distance, Commercial V-Sat, Public Mobile Radio
Trunked Services(PMRTS), Global Mobile
Personal Communications Services (GMPCS), All
types of ISP licences, Voice Mail/Audiotex/UMS,
Resale of IPLC, Mobile Number Portability
services, Infrastructure Provider Category-I
(providing dark fibre, right of way, duct space,
tower) except Other Service Providers.
Other Conditions: FDI upto 100% with 49% under automatic route and beyond 49% through FIPB
route subject to observance of licensing and security conditions by licensee as well as investors as
notified by the Department of Telecommunications (DoT) from time to time.
TRADING
(i) Cash & Carry Wholesale Trading/
100%
Automatic
Wholesale Trading (including sourcing from
MSEs)
Definition: Cash & 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.

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Guidelines for Cash & Carry Wholesale Trading/Wholesale Trading (WT):

(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 & 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

(c)

(d)

(e)
(f)
6.2.16.2
6.2.16.2.1

6.2.16.3

6.2.16.4

(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.
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.
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
WT can be undertaken as per normal business practice, including extending credit facilities
subject to applicable regulations.
A Wholesale/Cash & carry trader cannot open retail shops to sell to the consumer directly.

E-commerce activities
100%
Automatic
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 ecommerce as well.
100%
Test marketing of such items for which a
Government
company has approval for manufacture, 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.
Single Brand product retail trading
100%
Automatic up
to 49%
above 49%
Government
(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) A non-resident entity or entities, whether owner of the brand or otherwise, shall be permitted to
undertake 'Single Brand' product retail trading in the country for the specific brand, directly or
through a legally tenable agreement with the brand owner for undertaking single brand product
retail trading. The onus for ensuring compliance with this condition will rest with the Indian

123|P a g e

entity carrying out single brand product retail trading in India.The investing entity shall provide
evidence to this effect at the time of seeking approval, including a copy of the licensing/
franchise/sub-licence agreement, specifically indicating compliance with the above condition. The
requisite evidence should be filed with the RBI for the automatic route and SIA/FIPB for cases
involving approval." (e)In respect of proposals involving FDI beyond 51%, sourcing of 30% of
the value of goods purchased, will be done from India, preferably from MSMEs, village and
cottage industries, artisans and craftsmen, in all sectors. The quantum of domestic sourcing will
be self-certified by the company, to be subsequently checked, by statutory auditors, from the duly
certified accounts which the company will be required to maintain. This procurement requirement
would have to be met, in the first instance, as an average of five years' total value of the goods
purchased, beginning 1st April of the year during which the first tranche of FDI is received.
Thereafter, it would have to be met on an annual basis. For the purpose of ascertaining the
sourcing requirement, the relevant entity would be the company, incorporated in India, which is
the recipient of FDI for the purpose of carrying out single-brand product retail trading.
(f) Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with
FDI, engaged in the activity of single-brand retail trading.
(3) Application seeking permission of the Government for FDI exceeding 49% in a company which
proposes to undertake single brand retail trading in India would be made to the Secretariat for Industrial
Assistance (SIA) in the Department of Industrial Policy and Promotion. The applications 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. In case of FDI upto 49% the product/ product categories proposed
to be sold except food products would be provided to the RBI.144
(4) Applications would be processed in the Department of Industrial Policy & Promotion, to determine
whether the proposed investment satisfies the notified guidelines, before being considered by the FIPB
for Government approval.
6.2.16.5

Multi Brand Retail Trading

51%

Government

(1) FDI in multi brand retail trading, in all products, will be permitted, subject to the following
conditions:
i.
Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh
poultry, fishery and meat products, may be unbranded.
ii.
Minimum amount to be brought in, as FDI, by the foreign investor, would be US $
100 million.
iii.
At least 50% of total FDI brought in shall be invested in 'backend infrastructure'
within three years of the first tranche of FDI, where 'back-end infrastructure' will
include capital expenditure on all activities, excluding that on front-end units; for
instance, back-end infrastructure will include investment made towards processing,
manufacturing, distribution, design improvement, quality control, packaging,
logistics, storage, ware-house, agriculture market produce infrastructure etc.
Expenditure on land cost and rentals, if any, will not be counted for purposes of
backend infrastructure.
iv.
At least 30% of the value of procurement of manufactured/ processed products
purchased shall be sourced from Indian 'small industries'
which have a total investment in plant & 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. This procurement requirement would have to
be met, in the first instance, as an average of five years' total value of the
manufactured/ processed products purchased,
beginning 1st April of the year during which the first tranche of FDI is received.
Thereafter, it would have to be met on an annual basis.
v.
Self-certification by the company, to ensure compliance of the conditions at serial
nos. (ii), (iii) and (iv) above, which could be cross-checked, as and when required.
Accordingly, the investors shall maintain accounts, duly certified by statutory
auditors.
vi.
Retail sales outlets may be set up only in cities with a population of more than 10
lakh as per 2011 Census and may also cover an area of 10 kms around the

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municipal/urban agglomeration limits of such cities; retail locations will be restricted

to conforming areas as per the Master/Zonal Plans of the concerned cities and
provision will be made for requisite facilities such as transport connectivity and
parking; In States/ Union Territories not having cities with population of more than
10 lakh as per 2011 Census, retail sales outlets may be set up in the cities of their
choice, preferably the largest city and may also cover an area of 10 kms around the
municipal/urban agglomeration limits of such cities. The locations of such outlets
will be restricted to conforming areas, as per the Master/Zonal Plans of the
concerned cities and provision will be made for requisite facilities such as transport
connectivity and parking.
vii.
Government will have the first right to procurement of agricultural products.
viii.
The above policy is an enabling policy only and the State Governments/Union
Territories would be free to take their own decisions in regard to implementation of
the policy. Therefore, retail sales outlets may be set up in those States/Union
Territories which have agreed, or agree in future, to allow FDI in MBRT under this
policy. The list of States/Union Territories which have conveyed their agreement is
at (2) below. Such agreement, in future, to permit establishment of retail outlets
under this policy, would be conveyed to the Government of India through the
Department of Industrial Policy & Promotion and additions would be made to the
list at (2) below accordingly. The establishment of the retail sales outlets will be in
compliance of applicable State/Union Territory laws/ regulations, such as the Shops
and Establishments Act etc.
ix.
Retail trading, in any form, by means of e-commerce, would not be permissible, for
companies with FDI, engaged in the activity of multi-brand retail trading.
x.
Applications would be processed in the Department of Industrial Policy &
Promotion, to determine whether the proposed investment satisfies the notified
guidelines, before being considered by the FIPB for Government approval.
(2) LIST OF STATES/ UNION TERRITORIES AS MENTIONED IN PARAGRAPH
6.2.16.5(1)(viii)
1.
Andhra Pradesh
2.
Assam
3.
Delhi
4.
Haryana
5.
Jammu & Kashmir
6.
Maharashtra
7.
Manipur
8.
Rajasthan
9.
Uttarakhand
10.
Daman & Diu and Dadra and Nagar Haveli (Union Territories)
FINANCIAL SERVICES
Foreign investment in other financial services , other than those indicated below, would require prior
approval of the Government:
6.2.17.1
6.2.17.1.1

6.2.17.1.2

Asset Reconstruction Companies145

'Asset Reconstruction Company' (ARC) means
Upto 100% of paid-up
Up to 49%
a company registered with the Reserve Bank of
capital of ARC (FDI+FII)
Automatic
India under Section 3 of the Securitisation and
above 49%
Reconstruction of Financial Assets and
Government
Enforcement of Security Interest Act, 2002
(SARFAESI Act).
Other conditions:
(i)
Persons resident outside India can invest in the capital of Asset
Reconstruction Companies (ARCs) registered with Reserve Bank , upto 49% on the automatic route and
beyond 49% under the Government Route.
(ii)
No sponsor may hold more than 50% of the shareholding in an ARC either by way of FDI or
by routing it through an FII controlled by the single sponsor.
(iii)
The total shareholding of an individual FII shall not exceed 10% of the total paid-up capital.
(iv)
FIIs registered with SEBI can invest in the Security Receipts (SRs) issued by ARCs registered with

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6.2.17.2
6.2.17.2.1

6.2.17.2.2

Reserve Bank. FIIs can invest up to 74 per cent of each tranche of scheme of SRs. Such investment
should be within the FII limit on corporate bonds prescribed from time to time, and sectoral caps under
extant FDI Regulations should also be complied with.
(v)
All investments would be subject to provisions of section 3(3) (f) of Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
Banking -Private sector
Banking -Private sector
74%
including
Automatic up
investment by FIIs
to 49%
Government
route beyond
49% and up to
74%
Other conditions:
(1)
This 74% limit will include investment under the Portfolio Investment Scheme (PIS) by FIIs,
NRIs and shares acquired prior to September 16, 2003by 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 paidup 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)
(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

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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.
6.2.17.3

6.2.17.4

6.2.17.4.2

6.2.17.4.3

Banking- Public Sector

Banking- Public Sector subject to Banking
Companies (Acquisition & Transfer of
Undertakings) Acts 1970/80. This ceiling (20%) is
also applicable to the State Bank of India and its
associate Banks.
Commodity Exchanges

20% (FDI
Portfolio Investment)

Government

(i)
"Commodity Exchange" is a recognized 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)
"recognized 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 contract for delivery of goods, which is not a ready delivery contract; or

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.
Policy for FDI in Commodity Exchange
(FDI & FII) [Investment by
automatic
Registered FII under
Portfolio Investment
eme (PIS) will
be limited to 23% and
Investment under FDI
Scheme limited to 26% ]
Other conditions:
(i)
(ii)

FII purchases shall be restricted to secondary market only and

No non-resident investor/ entity, including persons acting in concert, will hold more than 5%
of the equity in these companies.
(iii) Foreign investment in commodity exchanges will be subject to the guidelines of the Department
of Consumer Affairs/ Forward Markets Commission (FMC).
6.2.17.5

Credit Information Companies (CIC)

6.2.17.5.1

Credit Information Companies

6.2.17.5.2

Other Conditions:

74% (FDI & FII)

Automatic

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 74% for foreign
investment.

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6.2.17.6

Infrastructure Company in the Securities Market

6.2.17.6.1

Infrastructure
companies
in Securities
49% (FDI & FII)
Automatic
Markets, namely, stock exchanges, depositories
[FDI limit of 26 per
and clearing corporations, in compliance with
and an FII limit of 23 per
SEBI Regulations
cent of the paid-up capital ]
Other Conditions:
FII can invest only through purchases in the secondary market
Insurance
Insurance
26%
Automatic
Other Conditions:
(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 & Development Authority for undertaking insurance activities.

6.2.17.6.2
6.2.17.6.2.1
6.2.17.7
6.2.17.7.1
6.2.17.7.2

6.2.17.8
6.2.17.8.1

6.2.17.8.2

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Non-Banking Finance Companies (NBFC)

Foreign investment in NBFC is allowed under
100%
Automatic
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
Other Conditions:
(1) Investment would be subject to the following minimum capitalization 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)
NBFCs
(i) having foreign investment more than 75% and up to 100%,
and (ii) 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 as mandated by para
3.10.4.1, therefore, 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.

Note: 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. Note: (i) Credit Card business
includes issuance, sales, marketing & 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
6.2.18
6.2.18.1
6.2.18.2
6.2.19
6.2.19.1
6.2.19.2

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OTHERS
Pharmaceuticals
Greenfield
100%
Automatic
Brownfield
100%
Government
Note: Government may incorporate appropriate conditions for FDI in brownfield cases, at the time of
granting approval.
Power Exchanges
Power Exchanges registered under the Central
49% (FDI &FII)
Automatic
Electricity Regulatory Commission
(Power
Market) Regulations, 2010
Other conditions:
foreign investment subject to the following condition:
(i) Such foreign investment would be subject to an FDI limit of 26 per cent and
an FII limit of 23 per cent of the paid-up capital;
(ii) FII investments would be permitted under the automatic route and FDI would be
permitted under the government approval route;
(iii) FII purchases shall be restricted to secondary market only;
(iv) No non-resident investor/ entity, including persons acting in concert, will hold
more than 5% of the equity in these companies; and
(v) The foreign investment would be in compliance with SEBI Regulations; other
applicable laws/ regulations; security and other conditionalities.

Appendix IX
Important circulars and guidelines of RBI
Important circulars and guidelines of RBI pertaining to Outward Investments are:

AP(DIR Series) Circular No.3 dated June 22, 2000 ;

AP(DIR Series) Circular No.13 dated September 14, 2000 ;
AP(DIR Series) Circular No.32 dated April 28, 2001
AP(DIR Series) Circular No.16 dated December 15, 2001
AP(DIR Series) Circular No.18 dated December 18, 2001
AP(DIR Series) Circular No.23 dated February 19, 2002
AP(DIR Series) Circular No.27 dated March 2, 2002
AP(DIR Series) Circular No.43 dated April 30, 2002
AP(DIR Series) Circular No.51 dated June 24, 2002
AP(DIR Series) Circular No. 58 dated December 2, 2002
AP(DIR Series) Circular No. 66 dated January 13,2003
AP (DIR Series) circular No. 68 dated January 13,2003
AP(DIR Series) Circular No. 83 dated March 1, 2003
AP(DIR Series) Circular No. 96 dated April 28, 2003
AP(DIR Series) Circular No. 97 dated April 29, 2003
AP (DIR Series) circular No. 104 dated May 31, 2003
AP (DIR Series) circular No. 107 dated June 19,2003
A.P.(DIR Series) Circular No.97 dated June 21, 2004
A.P. (DIR Series) Circular No. 30 dated April 05, 2006
Circulars of RBI relating to ADRs/GDRs
Circulars of RBI relating to ECBs
Circulars of RBI relating to FCCBs
Circulars of RBI relating to FEMA
Guidelines for prepayment of Foreign Currency Convertible Bond (FCCB) Issues by Indian companies

Master Circular for 2012 issued by the Reserve Bank of India

http://www.rbi.org.in/scripts/BS_ViewMasterCirculardetails.aspx
Master Circulars are a one-point reference of instructions issued by the Reserve Bank of India on a particular subject
between July-June. These are issued on July1 (or the next working day in case July 1 is a holiday) every year and
automatically expire on June 30 next year.
The Master Circulars appear under 10 categories. The link to the various categories is as set forth below. There are 15
Master Circulars under the category Foreign Exchange, the links of which are as below.
1. Banking Regulation
http://rbi.org.in/scripts/BS_ViewMasterCirculardetails.aspx?did=342
2. Co-operative Banking
http://rbi.org.in/scripts/BS_ViewMasterCirculardetails.aspx?did=340
3. Currency
http://rbi.org.in/scripts/BS_ViewMasterCirculardetails.aspx?did=339
4. Financial Institutions
http://rbi.org.in/scripts/BS_ViewMasterCirculardetails.aspx?did=337
5. Financial Markets
http://rbi.org.in/scripts/BS_ViewMasterCirculardetails.aspx?did=336
6. Foreign Exchange
6.1 Master Circular on Foreign Investment in India
http://rbidocs.rbi.org.in/rdocs/notification/PDFs/15MF010712FLS.pdf
6.2 Master Circular on Export of Goods and Services

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http://rbidocs.rbi.org.in/rdocs/notification/PDFs/14ME010212FS.pdf
6.3 Master Circular on External Commercial Borrowings and Trade Credits
http://rbidocs.rbi.org.in/rdocs/notification/PDFs/12EC010712EF.pdf
6.4 Master Circular on Direct Investment by Residents in Joint Venture (JV)/ Wholly Owned Subsidiary
(WOS) Abroad
http://rbidocs.rbi.org.in/rdocs/notification/PDFs/11MD010712IFL.pdf
6.5 Master Circular on Memorandum of Instructions governing money changing activities
http://rbidocs.rbi.org.in/rdocs/notification/PDFs/10MI010712FL.pdf
6.6 Master Circular on Miscellaneous Remittances from India Facilities for Residents
http://rbidocs.rbi.org.in/rdocs/notification/PDFs/06MR010712F.pdf
6.7 Master Circular on Risk Management and Inter-Bank Dealings
http://rbidocs.rbi.org.in/rdocs/notification/PDFs/05RM010712IF.pdf
6.8 Master Circular on Import of Goods and Services
http://rbidocs.rbi.org.in/rdocs/notification/PDFs/13IGSM020712.pdf
6.9 Master Circular on Compounding of Contraventions under FEMA, 1999
http://rbidocs.rbi.org.in/rdocs/notification/PDFs/09MC062812FC.pdf
6.10 Master Circular on Remittance Facilities for Non-Resident Indians / Persons of Indian Origin / Foreign
Nationals
http://rbidocs.rbi.org.in/rdocs/notification/PDFs/08MCEF02072012.pdf
6.11 Master Circular on Establishment of Liaison / Branch / Project Offices in India by Foreign Entities
http://rbidocs.rbi.org.in/rdocs/notification/PDFs/07MCEL02072012.pdf
6.12 Master Circular on Acquisition and Transfer of Immovable Property in India by NRIs/PIOs/Foreign
Nationals of Non-Indian Origin
http://rbidocs.rbi.org.in/rdocs/notification/PDFs/MC04AT28062012.pdf
6.13 Master Circular on Memorandum of Instructions for Opening and Maintenance of Rupee/ Foreign
Currency Vostro Accounts of Non-resident Exchange Houses
http://rbidocs.rbi.org.in/rdocs/notification/PDFs/03MI280612FL.pdf
6.14 Master Circular on Non-Resident Ordinary Rupee (NRO) Account
http://rbidocs.rbi.org.in/rdocs/notification/PDFs/02MC010712FL.pdf
6.15 Master Circular on Money Transfer Service Scheme
http://rbidocs.rbi.org.in/rdocs/notification/PDFs/01MCMTS290612.pdf
7. Government Business
http://rbi.org.in/scripts/BS_ViewMastercirculardetails.aspx?did=334
8. Non-banking Supervision
http://rbi.org.in/scripts/BS_ViewMasterCirculardetails.aspx?did=333
9. Primary Dealers
http://rbi.org.in/scripts/BS_ViewMasterCirculardetails.aspx?did=332
10. Special Programmes
http://rbi.org.in/scripts/BS_ViewMasterCirculardetails.aspx?did=343

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About the Author:

Uttamkumar HATHI
B.Sc; PGDMMT; LL.B; LL.M.
Advocate Bombay High Court
Uttamkumar Hathi has over 20 years of professional practice registered as an advocate from 24th March 1992
with the Bar Council of Maharashtra & Goa under Bar Council of India- the governing body for all law practitioners
under the Advocates Act, 1961. He had a sterling academic cross functional qualification, having done his graduation
Chemistry (B.Sc.) from prestigious St. Xaviers College, Mumbai; post graduation with general management P.G.D.M.M.T from Sasmira and has received gold medal for achieving first class first for the same; LL.B. from
prestigious Government Law College, Mumbai (achieved highest marks in Bombay University for Public International
Law); LL.M with Commercial laws (group I & IV) from Government Law College, Mumbai; Then enrolled with
prestigious BITS, Pilani for his PhD with a topic on finance-bankruptcy.
Professionally he pupilaged and trained with senior counsel Sr. Adv. (late) Mr Mahendra Shah. Today, he with
BRUS Chambers heading Corporate Commercial & Contracts
EMAIL :
MOBILE :
TELEPHONE :
ADDRESS :

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uttam@bruschambers.com
uttam.hathi@gmail.com
+91 9323811723; +91 9757282670
+91-22-22659969
Brus Chambers, 8 RajaBahadur Mansion, 3rd floor,
Ambalal Doshi Marg, Fort Mumbai 400001, India