Tribunal awards relief to Japanese Company’s Indian subsidiary in income tax liabilities 

Tribunal awards relief to Japanese Company’s Indian subsidiary in income tax liabilities 

Author: Ms. Pankhuri Jain, Partner & Mr. Anmol Chawla, Associate at ZEUS Law

Published in asiancommunitynews.com on 7th June 2023

In this era of globalization, India is becoming one of the fastest-growing economies in the world. To take advantage of this development, many foreign investors are actively participating in expanding their businesses in India by establishing Indian Companies or setting up their wholly owned subsidiary companies in India.

Idemitsu Lube India Pvt. Ltd. (“Assessee Company”), set up in India, is one such wholly owned subsidiary of a Japanese company, named M/s. Idemitsu Kosan Co. Ltd. The Assessee Company claims to be engaged in the business of trading petro-chemical products, including lubricant oil, and providing technical assistance in related areas. The Assessee Company was agitated by the assessment done by the Income Tax Authorities, where the Company was directed to pay higher income tax. The Assessee Company challenged such an assessment by taking recourse to the procedure provided under the Income Tax Act, 1961, and got relief from the Income Tax Appellate Tribunal. The Hon’ble Appellate Tribunal pronounced the Order on 27.04.2023, in the case titled as “ACIT, Special Range-4, New Delhi vs. Idemitsu Lube India Pvt. Ltd.” bearing ITA Nos. 7255 & 7256/Del/2018, wherein it dismissed the appeals of the Income Tax Authorities and allowed the objections raised by Idemitsu Lube India Pvt. Ltd. Further, the Appellate Tribunal referred back the matter to the Commissioner of Income Tax (A) (“CIT(A)”), directing him to grant adequate opportunity of hearing to both parties with regard to the new issues raised before him.

The Japan company’s subsidiary running its operations in India, filed its return of income for Assessment Years 2012-13. The return was selected for scrutiny, and thereafter, assessment was done under the Income Tax Act. In assessment, the Income Tax Officials determined the total taxable income to be higher than what was disclosed by the Assessee Company in the return basis inclusion of foreign exchange gain from ECB loans taken by the Company. Accordingly, higher tax was computed and demanded on the higher income. Aggrieved by the assessment, the Assessee Company carried the matter before CIT(A) and got relief. The income tax authorities filed the appeal against CIT(A)’s order.

The Assessee Company submitted that it was engaged in the construction of the new manufacturing plant at Maharashtra, and for that, it has taken ECB loan from its parent company in Japan. It further submitted that since the ECB loan has been utilized for acquisition of fixed assets of the new plant, the foreign exchange translation gain on reinstatement of ECB loans was capital in nature. The Company stated that as per Accounting Standard 11 (“AS 11”) issued by Institute of Chartered Accountant of India, such gain is to be excluded from the computation of taxable income. On the contrary, the Assessing Officer of Income Tax was of the view that the Company has converted the foreign currency loan into Indian Rupees and part of it was deposited in the bank account in the form of FDRs. Hence, the foreign exchange gain of re-assessment of ECB loan was of revenue nature which is to be added in the income of the Company.

CIT(A) after perusing all the documents relating to ECB loans, was of the opinion that the ECB loans obtained by the company were utilized for the acquisition of capital assets for new plant in India. CIT(A) was further of the opinion that provisions of Section 43A of Income Tax Act providing for treatment of foreign exchange rate fluctuations are not applicable to the facts of the case since the capital assets are not acquired from outside India. Hence, CIT(A) held that foreign exchange gain on reinstatement of ECB loan to be non-taxable. The Hon’ble Appellate Tribunal was also in consonance with the findings of CIT(A) and dismissed the Appeals filed by the Income Tax officials.

As for the new issues raised by Assessee Company, the Hon’ble Appellate Tribunal held that CIT(A) was not justified in not adjudicating the issues and restored the issues back to CIT(A) with directions to decide it after giving reasonable opportunity of hearing.

About Authors: Ms. Pankhuri Jain is a Partner and Mr. Anmol Chawla is an Associate in ZEUS Law Associates, which is an ISO certified full service corporate commercial law firm with a team of dedicated and experienced lawyers well versed in handling domestic and cross border transactions across sectors, jurisdictions and regulatory landscapes.

by handyland

National Medical Device Policy 2023: Six strategies to tap potential 

National Medical Device Policy 2023: Six strategies to tap potential 

Author: Ms. Jayshree Chandra, Senior Partner & Ms. Sangini Tyagi, Associate at ZEUS Law

Published in asiancommunitynews.com on 4th June 2023

Government of India recently notified the National Medical Device Policy, 2023 (“NMD Policy, 2023”). The NMD Policy, 2023 aims to build upon existing measures and facilitate the orderly growth of the medical device sector, which is projected to grow from $11 billion to $50 billion by 2030.

The policy focuses on creating an enabling ecosystem for manufacturing and innovation, streamlining regulations, promoting training and capacity building programs, and fostering talent and skilled resources aligned with industry requirements.

The policy outlines a plan for the sector's rapid development to fulfil objectives such as access and universality, affordability, quality, patient-centred care, preventive and health promotion, safety, research and innovation, and skilled labour.

Policy Strategies:

A set of plans encompassing six major areas of government interventions, including regulatory streamlining, enabling infrastructure, facilitating R&D and innovation, attracting investments, human resource development, and brand positioning and awareness creation is contemplated under the NMD Policy, 2023.

It aims to enhance ease of conducting research and business, establish world-class common infrastructure facilities, promote R&D and innovation, attract private investments, develop skilled workforces, and create a dedicated Export Promotion Council for the sector.

• Regulatory Streamlining:

Measures for improving the ease of conducting research and business while maintaining a balance between patient safety and product innovation is the need of the hour. Innovations planned under the policy include developing a "Single Window Clearance System" for licensing of medical devices for easing compliance burden by involving all stakeholder departments/organizations such as AERB, MeitY, DAHD, etc., enhancing the role of Indian standards like BIS, and designing framework for coherent pricing regulations to make available quality and effective medical devices to all citizens at affordable prices. The NMD Policy, 2023 further aims is to establish an institutional framework that will harmonize the regulations of the National Medical Commission (NMC), the code of ethics followed by industry associations, and other relevant entities to promote ethical marketing of medical devices.

• Enabling Infrastructure:

The establishment and strengthening of large medical device parks, clusters, and facilities with excellent common infrastructure near economic zones with necessary logistics connectivity is contemplated under the National Industrial Corridor Programme and the proposed National Logistics Policy 2021 under PM Gati Shakti.

• Facilitating R&D and Innovation:

The policy envisages to promote research and development innovation  as contemplated in the proposed National Policy on R&D and Innovation in the Pharma-MedTech Sector through creation of innovation centres, 'plug and play' infrastructures, centres of excellence at academic and research institutions, and support for start-ups.

• Attracting Investment in the Sector:

In addition to existing initiatives like Make in India, Ayushman Bharat, Heal-in-India, and the Start-up Mission, the policy contemplates fresh measures to promote private investments, venture capital funding, and public-private partnerships in domestic manufacturing with special focus on start-ups.

• Human Resources Development:

The policy envisages a steady supply of future ready skilled MedTech human resources across the value chain and supporting skill development, reskilling, and upskilling of professionals in the medical device industry through specialized multidisciplinary courses to be offered from existing institutions, and collaborations with foreign institutions.

• Brand Positioning and Awareness Creation:

The policy proposes the establishment of an Export Promotion Council for the sector to address market access issues. It also encourages learning from successful manufacturing and skilling systems worldwide and fosters networking and knowledge exchange across the industry.

The NMD Policy, 2023 is expected to strengthen the Indian medical device industry as a competitive, self-reliant, resilient and innovative sector to meet healthcare needs and requirements of patients not only in India but across the globe. The Indian medical device industry holds huge potential and the foreign companies looking to explore investment and business opportunities may closely follow the interventions and initiatives introduced by the Indian Government in this sector.

(This Article is solely for information purposes, does not constitute legal or professional advisory and should not be relied upon or used as a substitute for legal advice from attorney.)

About the Authors: Jayshree Navin Chandra, Senior Partner at ZEUS Law, has been a practicing lawyer since 2001 with extensive corporate and transactional advisory experience. She advises and represents clients ranging from Fortune 500 companies to start-ups as well as Central and State Government departments and public bodies in a wide range of domestic and cross border transactions, across industries in practice areas including Corporate and Company Law, M&A and Joint Venture, Private Equity, FDI & FII, Real Estate and Infrastructure, Data privacy and protection, Intellectual Property & Commercial Law Advisory.

Sangini Tyagi, is an Associate at ZEUS Law and works in the Corporate & Commercial and Infrastructure & Real Estate practice vertical.

ZEUS Law Associates is an ISO certified full service corporate commercial law firm with a team of dedicated and experienced lawyers well versed in handling domestic and cross border transactions across sectors, jurisdictions and regulatory landscapes. The firm’s practice areas include Corporate and Company Law, M&A and Joint Venture, Private Equity, FDI & FII, Real Estate and Infrastructure, Intellectual Property & Commercial Law, Litigation, Alternate Dispute Resolution, Indirect Tax and NRI Services.

by handyland

Production Linked Incentive Scheme 2.0 for IT Hardware to establish India as global electronics manufacturing hub

Production Linked Incentive Scheme 2.0 for IT Hardware to establish India as global electronics manufacturing hub

Author: Mr. Sunil Tyagi, Managing Partner, at ZEUS Law

Published in asiancommunitynews.com on 29th May 2023

The Production Linked Investment Scheme (PLI) for IT Hardware, notified in March, 2021, proposed a financial incentive to boost domestic manufacturing and attract large investments in the value chain. It gave impetus to the vision of the National Policy on Electronics (NPE 2019) to position India as a global hub for electronics system design and manufacturing (ESDM) by encouraging and incentivising capabilities in India for developing core components, including chipsets, and creating an enabling environment for the Industry to compete globally.

To capitalise on India’s presence as one of the fastest growing digital economies and building on the success of the Production Linked Incentive Scheme for mobile phones, the union cabinet two weeks ago approved the Production Linked Incentive Scheme 2.0 for IT Hardware. Such initiatives undoubtedly acknowledge that the global electronics manufacturing ecosystem is coming to India and with a budgetary outlay of 17,000 crore the Production Linked Incentive Scheme 2.0 for IT Hardware is slated to propel India into the fore as a major electronics manufacturing country.

The Production Linked Incentive Scheme 2.0 for IT Hardware covers laptops, tablets, all-in-one PC’s, servers and ultra-small form factor devices. The budgetary outlay allocated for the scheme is 17,000 crore and the tenure of the scheme is 6 (six) years. The minimum thresholds required to be achieved by a successful applicant, in any given year, to be eligible for an incentive under the Production Linked Incentive Scheme 2.0 for IT Hardware include an expected incremental production of INR 3.35 Lakh crore, an expected incremental investment of INR 2,430 crore and incremental direct employment of 75,000. Applicants intending to apply under the scheme would have to show their capacity for achieving the aforementioned targets in order to be considered eligible to move an application under the Production Linked Incentive Scheme 2.0 for IT Hardware.

As India emerges as a major contender and trusted supply chain partner in the ESDM segment, incentives to be disbursed under the Production Linked Incentive Scheme 2.0 for IT Hardware are expected to encourage large IT hardware companies to flock to India to establish manufacturing facilities in India, not only to supply to domestic markets within India but also to utilize the facilities situated in India as export hubs for exporting to foreign markets. Entities interested in moving an application under the Production Linked Incentive Scheme 2.0 for IT Hardware would need to follow the Ministry of Electronics and Information Technology closely for updates on the notification of the scheme and its guidelines.

About the Authors: Mr. Sunil Tyagi, has been a practicing lawyer for over 30 years and is the Managing Partner and Co-founder of ZEUS Law Associates. He leads the Real-Estate & Infrastructure, Corporate & Commercial Law and Compliance divisions. He is well versed in the intricacies of Indian Civil Law, Business and Commercial Law and regularly advises foreign investors as well as Indian entrepreneurs on their business and legal strategy with respect to investment in India.

ZEUS Law Associates is an ISO certified full service corporate commercial law firm with a team of dedicated and experienced lawyers well versed in handling domestic and cross border transactions across sectors, jurisdictions and regulatory landscapes. The firm’s distinct practice areas include Corporate & Commercial Law, Real Estate & Infrastructure, Litigation, Alternate Dispute Resolution, Indirect Tax and NRI Services.

by handyland

Green Channel Route: Automatic Approval of Combinations under the Competition Regime of India

Green Channel Route: Automatic Approval of Combinations under the Competition Regime of India 

Author: Ms. Jayshree Navin Chandra, Senior Partner, and Mr. Naman Dutt, Associate, ZEUS Law.

The ‘Green Channel’ or ‘Green Channel Route’ introduced for acquisition/merger review by the Competition Commission of India (“CCI”) is oriented to provide same day approvals for the notified transactions under the Competition Act, 2002. The ‘Green Channel Route’ is a first-of-its-kind system where qualifying transactions, meeting the prescribed thresholds under the Competition Act, 2002 which have no overlaps, are approved upon filing. It promotes a speedy, transparent and accountable merger review process, creating a balance between facilitation and enforcement.

The Competition Act, 2002 defines ‘Combinations’ as acquisition of one or more enterprises or merger or amalgamation of enterprises which exceeds the threshold prescribed under the Act. The CCI keeps track of the market conditions and accordingly regularly updates the thresholds for the purposes of ‘Combinations’. The enterprises and groups are required to notify the CCI of the acquisition, merger or amalgamation, in case the joint assets or turnover or the total value of transaction(s) of the companies exceed the prescribed thresholds.

The CCI has introduced the ‘The Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011’ (“Combination Regulations”) which regulates the procedure for the notification, review, and approval of the ‘Combinations’ by the CCI in India. The procedures and conditions laid down under the Competition Act and Combination Regulations, ensures that any resultant ‘Combination’ does not cause any appreciable adverse effect on competition in the relevant market in India.

As per the procedures laid down in the Competition Act and Combination Regulations, the entire process from notification to review to approval of a ‘Combination’ used to take 210+ days. However, vide the Competition (Amendment) Act, 2023, the time period has been reduced from 210 days to 150 days.

In 2019, the Competition Commission of India, considering the long period in ‘Combination’ review process, amended the Combination Regulations, and introduced the ‘Green Channel Route’ merger review process. The ‘Green Channel Route’ is an automated approval mechanism which acts to filter certain kinds of acquisition, merger or amalgamation transactions which are unlikely to cause any adverse effect to the competition regime. The ‘Green Channel Route’ bypasses the regular legal proceedings to enable speedy settlements and quicker administrative decisions, by eliminating the mandatory 150 days period under the Competition Act, otherwise applicable for ‘Combinations’.

Moreover, the Competition (Amendment) Act, 2023, has now formally included the ‘Green Channel Route’ to the Competition Act, by adding Section 6(4) and Section 6(5) in the Competition Act.

The Combination Regulations provide the methodology for self-assessment by a proposing party to a ‘Combination’. The proposing party is to consider all of the relevant market definitions in all cogent and reasonable manner to determine on their own whether the proposed transaction would come under the scope of the 'Green Channel Route’. The proposing parties should ensure that:

• There is no ‘horizontal overlap’ between the proposing parties, i.e., the proposing parties do not manufacture similar or identical or substitutable goods;
• There is no ‘vertical overlap’ between the proposing parties, i.e., the proposing parties are not involved in any activity relating to production, supply, sale and distribution of goods that belong to different levels of the product chain; and
• There is no ‘complimentary overlap’ between the proposing parties, i.e., the proposing parties are not involved in any activity relating to production, supply, sale and distribution of goods which act as complimentary to each other.

Proposing parties who meet the ‘Green Channel Route’ requirements, are required to submit the requisite form along with a declaration stating that the ‘Green Channel’ requirements & eligibility criteria have been met with and that the proposed ‘Combination’ will not have any significant negative impact on competition. If CCI determines that the transaction is suitable for processing via the ‘Green Channel Route’ an acknowledgment is issued which is deemed as approval under Section 31(1) of the Competition Act 2002.

Since the introduction of the Green Channel Route, the CCI has approved 80+ Combinations via the ‘Green Channel Route’. The ‘Green Channel Route’ provides for reliable and quick review of Combination cases, establishing an equilibrium between the proposing parties/companies and CCI, and creating a business friendly and healthy economic environment. The ‘Green Channel Route’ has also allowed ‘Combinations’ wherein the entities have exceeded the threshold limits as the actual proposed transaction did not pose any significant risks of negative impact on competition because their activities did not overlap.

The introduction of the CCI’s ‘Green Channel Route’ is another step forward in the ‘Ease of Doing Business’ initiative of the Government of India. The ‘Green Channel Route’ benefits the Indian and foreign corporations by creating a quick and smooth merger review system, that encourages more cross-border acquisitions, cross-border mergers and amalgamations.

 Ms. Jayshree Navin Chandra is a Senior Partner and Mr. Naman Dutt is an Associate at Zeus Law. Views are personal.

by handyland

Challenging The Arbitrator For Bias And Partiality: Does The Arbitration And Conciliation Act, 1996, Provide Effective Remedy?

Challenging the Arbitrator for Bias and Partiality: Does the Arbitration and Conciliation Act, 1996, Provide Effective Remedy?

Author: Ms. Neetika Bajaj, Managing Associate & Ms. Kopal Mittal, Associate at ZEUS Law

Published in Livelaw on 17th May 2023

Independence, impartiality and party autonomy are the hallmarks of an effective and fair arbitral proceeding.  Rule against bias is one of the fundamental principles of natural justice which applies to all judicial and quasi-judicial proceedings. The lack of independence or impartiality on the part of a sole arbitrator, or one or more members of an arbitral tribunal, may constitute a ground for a challenge to the mandate of the arbitrator or the final award pronounced in the arbitral proceedings. This ground of challenge and the challenge procedure is provided under Section 12 and 13, respectively, of the Arbitration and Conciliation Act, 1996 (“the Act”).  An arbitrator’s appointment may be challenged at two stages- first, at the time of appointment itself, when the arbitrator provides the mandatory disclosure in terms of the grounds stated in the Fifth Schedule of the Act, and second, during the course of the arbitral proceedings.

However, many argue that the Act does not provide an effective remedy when it comes to challenging the mandate of the arbitrator on the ground of “bias” and “partiality” during the conduct of the arbitral proceeding. This argument demands a brief analysis of the purported infirmity in the Act.

What Constitutes “Bias”?

The Act does not define the terms “bias” or “partiality” on the part of an arbitrator. However, Clause 12(3)(a) of the Act talks about circumstances that may give rise justifiable doubts as to the “independence and impartiality” of an arbitrator. The Fifth Schedule to the Act lists out the grounds that would act as a guide in this determination such as arbitrator’s relationship with the parties or counsel, relationship of the arbitrator to the dispute or arbitrator’s direct or indirect interest in the dispute, etc.

The Hon’ble Supreme Court of India in the case of VoestalpineSchienen GmbH v. Delhi Metro Rail Corporation Ltd.^[1] while embarking on the “apprehension of bias” held that “the amended provision is enacted to identify the “circumstances” which give rise to “justifiable doubts” about the independence or impartiality of the arbitrator. If any of those circumstances as mentioned therein exists, it will give rise to justifiable apprehension of bias. The Fifth Schedule to the Act enumerates the grounds which may give rise to justifiable doubts of this nature.”

Another judgment of the Supreme Court^[2] described bias as “a preconceived opinion or a predisposition or predetermination to decide a case or an issue in a particular manner, so much so that such predisposition does not leave the mind open to conviction. It is in fact, a condition of mind, which sways judgments and renders the judge unable to exercise impartiality in a particular case”.

Challenge Procedure Under the Act

It is settled law that a party alleging “apprehension of bias” against an arbitrator(s) can avail the remedy only in terms Section 13 of the Act. A reading of the said section will reveal that the aggrieved party has three (3) options to avail the remedy.

First, Section 13(1) gives the option to the parties to the arbitration to agree on a “procedure” to challenge the arbitrator. In our opinion, the parties will rarely agree on a “challenge procedure” since, in a normal course of proceedings, if one party is raising the allegations of bias and partiality, it is more likely than not germinates from the arbitrator’s purported bias and partiality in the favour of the other party. In such a case, where one party is seemingly benefitting from the alleged bias, it is unlikely that it would be interested in challenging the mandate of the arbitrator. As a natural corollary, it would be virtually impossible that the parties would reach a consensus on the challenge procedure. Further, there is no clarity under the law or any legal precedent as to what would be that challenge procedure. Will the parties go to a neutral third person or approach an independent institution? Then the question arises, what would be the statutory sanctity of an order passed by such a neutral third person or an independent institution. This would result in the first option being virtually infructuous.

Second, Section 13(3) of the Act gives the arbitrator(s), accused of bias and partiality, an option to recuse on the basis of the “written statement of reasons” filed before the arbitrator by the aggrieved party. If the arbitrator(s) decides to recuse, the challenge ends in success and a new arbitrator is appointed who takes on the proceedings either from the stage where they were left or from the beginning, depending on the discretion of the new arbitral tribunal.

However, if the arbitrator(s) decides not to recuse, then Section 13 says that the same arbitral tribunal or the sole arbitrator, whatever the case maybe, shall decide on the challenge on the basis of the same “written statement of reasons”. Now, this is a tricky terrain. If the arbitrator(s) has already decided not to recuse then it is somewhat an indication of the decision of the arbitrator in its own favour. This is especially so in the case of an sole arbitrator. According to common logic and basic notions of human behaviour, if a person has decided that he/she is not biased and, therefore, is not ready to recuse then what is the likelihood that that person will decide against himself/herself. A bleak one, right?

Further, the Act does not provide a right of appeal against the order of the arbitrator under Section 13(3) till such ground is available under Section 34 of the Act after the final award is given by the same arbitral tribunal.

Therefore, the aggrieved party has to wait till the final determination to challenge the “bias and partiality” unless the award comes in its favour.

“Wisdom” of the Parliament

 It is argued that the said challenge procedure is against the  principle of natural justice. particularly, the principle that “no one can be the judge in its own case”.

So, why has our Parliament decided to frame the law in such a way? While the Indian Arbitration Act is based, and derived from, the UNICTRAL Model Law, the Indian Parliament decided to depart from it on the subject of impartiality. The reason for this departure was explained by a judgment of High Court of Karnataka^[3] wherein the court states that “The legislature thought in its wisdom that frequent recourse to appellate remedy, destroys the essence of the spirit behind the enactment of the Arbitration and Conciliation Act, 1996. As there is no inherent right of appeal except as conferred by the statute, it is difficult for the Court to hold that, it amounts to arbitrariness violating the protective cover of Article 14 of the Constitution of India”. A similar view was taken by the High Court of Andhra Pradesh in M. Mohan Reddy  vs. Union of India and Ors.^[4]

 However, the 1940 Act provided a curial remedy granting powers to the court to remove the arbitrator “who has misconducted himself or the proceedings”. This remedy was, obviously, taken away in the light of the observation that this curial approach has a “scope for a lot of abuse”. This question was also mediated in the 176^th Report of the Law Commission on the Arbitration and Conciliation Amendment Bill, 2001 wherein it was felt that if an immediate appeal is provided, the party who wants to delay the arbitral proceedings will, in almost every case, file an objection before the arbitral tribunal pleading bias or other disqualification and then file an appeal under Section 37 of the Act.

 How our Challenge Procedure Differs from Other Prominent Jurisdictions?

 It is imperative to point out that the “challenge procedure” under the Indian Arbitration Act is in stark contrast to the procedures adopted in other model nations. For instance, Section 24 of the UK’s Arbitration Act (Arbitration and Conciliation Act, 1996) stipulates that such challenges would lie under the jurisdiction of the Courts of UK. Further, Section 13 of the Commercial Arbitration Act, 2012 (WA) stipulates that the Courts of Australia shall have the jurisdiction to decide on the challenge to an arbitrator where “circumstances exist that give rise to justifiable doubts as to his impartiality or independence”. Furthermore, the rules of the leading institutes for international arbitration also envisage the adjudication of such challenges by person(s)/authority(ies) other than the challenged arbitrator. For instance, under the Rules of Arbitration of the International Chamber of Commerce (ICC), 2021, the International Court of Arbitration attached to the ICC has the power to decide any challenge to an arbitrator on the ground of suspected bias. Also, as per Rule 16 of the SIAC Rules, 2016, the challenge to the arbitrator/arbitral tribunal lies before the Court[5].

 Conclusion

 The above discussion, undoubtedly, raises questions as to efficacy of the remedy provided under Section 13 of the Act. However, the wisdom of the Parliament, in the light of the track record of abusive litigation, can also not be ignored. So, can there be a middle ground? Article 25 of the Peru Law which was discussed by Dr Pieter Sanders in his Article “Unity and Diversity in the Adoption of the Model Law”^[6] suggests an alternate remedy:

“If there is one arbitrator, the judge or the arbitral institute organizing the arbitration decides on the challenge. If there is more than one arbitrator, the arbitral tribunal decides on the vote without the vote of the challenged arbitrator. In case there is a tie, the chairman or, if he is challenged, the most senior member of the Tribunal decides. In all cases decision is final.”

A similar approach, appropriately adopted in the Indian context, appears to be a feasible option rather leaving the aggrieved party hanging till the end of the arbitral proceedings.

Views are personal

Neetika Bajaj, Managing Associate and Kopal Mittal, Associate, Zeus Law Associates

 Ms. Neetika Bajaj leads the Disputes Practice at Zeus Law Associates. The Zeus Disputes Practice has developed into a niche and specialised practice group consisting of members with expertise and experience in handling all stages of complex commercial domestic and international including relating court litigation.

[1] (2017) 4 SCC 665.

[2] West Bengal and Others v. Shivananda Pathak and Others (MANU/SC/0342/1998)

[3] R.K. Agrawal and Ors. vs. B.P.K. Johri and Ors (MANU/KA/0020/2001)

[4] MANU/AP/0407/1999.

[5] “Court” means the Court of Arbitration of SIAC and includes a Committee of the Court [Rule 1.3 of the SIAC Rules, 2016].

[6] Pieter Sanders, Unity and Diversity in the Adoption of the Model Law, Arbitration International, (Kluwer Law International 1995 Volume 11 Issue 1 ).

by handyland

Slump Sale and Its Implications: The Indian Scenario

Slump Sale and Its Implications: The Indian Scenario

Author: Mr. Sandeep Bhuraria, Senior Partner & Ms. Parijat , Senior Associate at ZEUS Law

Published in asiancommunitynews.com on 30th April 2023

While acquiring a business undertaking, what you acquire is as cogent as how you acquire it. The question of “mode of acquisition” is crucial as it has a direct implication on several commercial considerations like tax liabilities, stamp duty implications, etc. Slump sale is a concept emanating from the Income Tax Act, 1961 and functions as one of the effective modes of acquisition of a business undertaking.

SLUMP SALE AS A CONCEPT

The Companies Act, 2013 (“Act”) does not define a slump sale transaction. Section 2(42C) of the Income Tax, Act 1961 (“IT Act”) defines the term slump sale as transfer of one or more undertaking(s) for lump sum consideration. Furthermore, a slump sale does not involve values being assigned to individual assets and liabilities of the undertaking so transferred.

CONSTITUENTS OF A VALID SLUMP SALE

1. TRANSFER OF THE WHOLE UNDERTAKING

• Explanation 1 to Section 2(19AA) of the IT Act prescribes that any part of an undertaking/ unit / division of a business activity taken as a whole without assigning values to the individual assets and liabilities of the said business activity constitutes an ‘undertaking’ for the purposes of slump sale.
• Essentially, it is an undertaking as a whole that is transferred on a going concern basis by way of a slump sale and not individual assets and labilities of the said undertaking. Thus, a transferred undertaking must be an identifiable stand alone business activity along with all its assets and liabilities like employees, contractual obligations, debt or borrowings, assets in the form of plant, machinery, immovable and movable property, etc.

1. SALE IS ON A GOING CONCERN BASIS

• While the term ‘sale’ is not defined under IT Act, inference can be drawn from Section 4 of the Sales of Goods Act, 1930 (“SOGA”) which defines sale as a contract whereby the seller transfers the property in goods to a buyer for a price. Thus, in terms of SOGA, payment of monetary consideration is one of the necessary requirements of sale.
• Since a part of an undertaking comprising of a business activity is sought to be transferred by way of a slump sale, the same is done on a ‘as is, where is’ basis. In other words, transfer of an undertaking under slump sale is as a going concern. 

1. CONSIDERATION FOR SLUMP SALE

• The consideration paid for effecting a slump sale is mandatorily lumpsum.

MODES OF EFFECTING A SLUMP SALE

• A slump sale can be undertaken by way of a Business Transfer Agreement (“BTA”).
• A BTA entails hiving off an undertaking from a corporate entity, i.e., the transferor and vesting the same into the transferee corporate for a lump sum monetary consideration.
• BTA is a far speedier mechanism for effecting a slump sale, however, often the stamp duty and tax implications on a BTA are higher in comparison to a slump sale carried out pursuant to a Scheme of Arrangement.

1. CORPORATE COMPLIANCES

• The charter documents of the transferor company and the transferee company must contain enabling provisions for transfer of a part of a business undertaking/slump sale.
• Section 180 of the Act mandates that a pre-requisite to transfer an undertaking is to procure prior consent of the shareholders by passing a special resolution.

1. TAX IMPLICATIONS

• Section 50B of the IT Act is a special provision for computation of capital gains tax in case of slump sale and prescribes that slump sale shall be exigible to capital gains tax.
• Section 50B(1) of the IT Act provides that capital gains arising from transfer of any capital asset forming a part of the undertaking which is held for more than thirty-six months preceding the date of sale, shall be computed as long term capital gain. In case, the undertaking is held for less than thirty six month, then the profits and gains arising out of transfer of such an undertaking shall be short term capital gain.

1. EXEMPTIONS IN CASE OF HOLDING AND SUBSIDIARY COMPANY

• In terms of Section 47 of the IT Act, certain transactions as prescribed therein are not considered as ‘transfer’ and hence, are not amenable to capital gains tax.
• As per Section 47(iv) of the IT Act, transfer of capital asset by a parent company to its subsidiary company is exempted from capital gains tax, provided that the parent company holds the entire shareholding of the subsidiary company and the subsidiary company is an Indian company.
• Similarly, according to Section 47(v) of the IT Act, transfer of capital asset by a subsidiary company to its parent company is exempted from capital gains tax, provided the parent company holds the entire shareholding of the subsidiary company and the parent company is an Indian company.
• It may be noted that if the capital asset so transferred in furtherance of Sections 47(iv) and 47(v) of the IT Act is converted as stock in trade for business, or if the parent company ceases to hold the share capital of the subsidiary company before the expiry of 8 years then the aforesaid exemptions are withdrawn.

1. STAMP DUTY IMPLICATIONS

• A BTA generally attracts imposition of levy of stamp duty under Article 23 of the Schedule to the Indian Stamp Act, 1899 (“ISA”) under the heading of ‘conveyance’ if the same is ‘deed of conveyance’. The rate of the levy of stamp duty varies from state to state depending upon where in India, the BTA is executed. 

(This Article is solely for information purposes, does not constitute legal or professional advisory and should not be relied upon or used as a substitute for legal advice from attorney.) 

“About the Authors: Mr. Sandeep Bhuraria, has been a practicing lawyer for about 30 years and is a Senior Partner at ZEUS Law Associates. He leads the Commercial Litigation and Restructuring division. He is well versed in the intricacies of Indian Commercial, Civil and Insolvency Laws. He regularly advises foreign investors as well as Indian entrepreneurs on their legal strategy with respect to restructuring their businesses in India. Parijat, is a Senior Associate at ZEUS Law Associates and works in the Commercial Litigation and Restructuring vertical.

 ZEUS Law Associates is an ISO certified full service corporate commercial law firm with a team of dedicated and experienced lawyers well versed in handling domestic and cross border transactions across sectors, jurisdictions and regulatory landscapes. The firm’s distinct practice areas include Corporate & Commercial Law, Real Estate & Infrastructure, Litigation, Alternate Dispute Resolution, Indirect Tax and NRI Services.”

by handyland

Piercing the Corporate Veil in India: An Investor Perspective

Piercing the Corporate Veil in India: An Investor Perspective

Author: Ms. Pankhuri Jain, Partner & Ms. Nikita Maheshwari, Associate at ZEUS Law

Published in asiancommunitynews.com on 24th April 2023

India is one of the fastest growing economies in the world. With globalization and recent technological advances, foreign investments in Indian companies are becoming increasingly common. Foreign direct investments can be made in a variety of ways- whether it is opening a subsidiary or associate company in India, acquiring a controlling interest in an existing Indian company, or by means of a merger or joint venture with an Indian company. Furthermore, there is no requirement to be an Indian resident, in order to be a Director in an Indian company.

However, the Indian legal and economic fabric has some unique facets, which such foreign investors must be aware of. The present article will shed light on one such concept, which is the lifting of the corporate veil of a company to impose liabilities on its beneficial owners, shareholders, and Directors. The concept of lifting of the corporate veil of a company is recognized globally, both by statute and Courts, including in Japan, Korea, among other nations.

A company is a juristic person. The corporate veil is a legal metaphor, which separates the company from its members / human agencies. The corporate personality, however, makes it dependent on its human agencies/ individuals, who function on behalf of the company but are immune from its liabilities. The essence of a distinct and separate personality of a company forms one of the fundamentals of company law and the substratum of all commercial arrangements in India, as also enshrined in the Companies Act.

However, given the complexity of commercial transactions and the fraudulent activities and illegalities which may emanate therefrom, an exception to the principle of the company as a separate legal entity has developed. The doctrine of piercing the corporate veil disregards the separate legal personality of the company and attributes the acts of the company to those directly exercising control over operations of the company – such as its directors or ultimate beneficial owners, whether domestic or foreign.

A company’s distinct personality is a statutory privilege which is expected to be used exclusively for a lawful purpose. Where the human agencies in charge of day to day affairs of a company take the corporate personality of the company as a means to commit fraudulent acts, then the courts will take liberties to pierce through the corporate shell.

Since lifting of the corporate veil is an ever evolving concept, there is no exhaustive list of grounds basis which the veil can be pierced. However, the Supreme Court of India has laid down two major instances where the veil is lifted – (i) statutory provisions; and (ii) judicial grounds. Indian law does not distinguish between domestic and foreign investors / beneficial owners / Directors in so far imposition of liability is concerned.

Statutory Provisions

There may be occasions where the company and its members benefit by circumventing the law. The Companies Act imposes fines and penalties for instances of Director and shareholder misconduct and warrants the piercing of corporate veil to ascertain such individual liability.

The Companies Act may disregard the corporate personality before the incorporation/ formation of a company. Issuing a prospectus with misleading information or fraudulently inducing a person to invest money in the company, will attract individual liability.

The Companies Act may also pierce the veil during the working of such a company.   For instance, failure to file annual returns of the company,  failure to refund application fee, failure to hold shareholder meetings, failure to give notice of board meetings, misdescription of the name of the company and certain related party transactions. The Central Government of India also has the power to pierce the veil to investigate into the ownership of a company and determine its beneficiaries.

Judicial Grounds

The judicial grounds for piercing the corporate shell usually come into play at the stage of utilisation of funds of such a company. One of the most common grounds for lifting the corporate veil by Courts in India is when a company has been used as a vehicle for indulging in fraudulent activities by individuals hiding behind the corporate personality. Where the corporate character is employed for the purpose of committing illegality or for defrauding others, Courts will ignore the corporate character and look at the reality behind the veil.

Personal liability of directors and shareholders of a company also attaches in cases of delinquency of taxes. The Income Tax Authorities may exercise their right to ignore the corporate veil, if the company is formed merely to evade tax and shield its human agencies from legal enforcement.

The Courts in India also possess authority to pierce the veil and hold the concerned individuals accountable in cases where the company’s acts are against public interest or public policy of India. In fact, Courts in India have observed that when a company has been incorporated simply to make gains or avoid welfare law, the veil may be lifted to determine the true intent and character of the company.

The principle of corporate personality is still the universally accepted rule and piercing the corporate veil is the exception to this rule. Through the application of this doctrine in a cautious manner, Courts in India are lifting the veil to put an end to the shams committed behind the cloak of ‘corporate personality’ by both domestic and foreign investors.

There are many instances in which foreign investors, shareholders and Directors get caught in the web of fraud being spun by individuals in India who are actively managing the affairs of such a company. The corporate veil is pierced, imposing liability on such foreign investors, shareholders and Directors. Thus, as a matter of abundant caution, it is imperative that such foreign entities safeguard their individual rights and interests, and participate actively in the management of the company(ies) to prevent any unlawful activities and conduct in their names.

About the Authors: Pankhuri Jain has been a practicing lawyer for over 14 years and is a Partner at ZEUS Law. She heads the Project Team, which deals in complex commercial and civil disputes, scams, corporate investigations, etc., spread across various courts and forums. Nikita Maheshwari is an Associate at ZEUS Law and works in the Dispute Resolution practice vertical, with a focus on commercial litigation.

ZEUS Law Associates is an ISO certified full service corporate commercial law firm with a team of dedicated and experienced lawyers well versed in handling domestic and cross border transactions across sectors, jurisdictions and regulatory landscapes. The firm’s distinct practice areas include Litigation, Alternate Dispute Resolution, Corporate & Commercial Law, Real Estate & Infrastructure, Indirect Tax and NRI Services.

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Regulatory Framework for Import of Cosmetics from Korea, Japan, other countries

Regulatory Framework for Import of Cosmetics from Korea, Japan, other countries

Author: Ms. Jayshree Chandra, Senior Partner & Ms. Nitika Bakshi, Associate at ZEUS Law

Published inasiancommunitynews.com on 18th April 2023

India proffers a large and diverse market for the import and sale of cosmetics and has recently witnessed a rise in demand for Korean and Japanese skin-care and cosmetic imported products. These products have created a niche for themselves and are capturing a significant portion of the cosmetics market-share in India.

The Central Government notified on 15.12.2020, the Cosmetics Rules, 2020 (“Rules”), with a view to update and streamline the process of import registration of cosmetics and to address the various concerns and challenges faced by the stakeholders regarding the application for grant of import registration. The Rules regulate the import of cosmetics in India to ensure safety, quality and performance of the cosmetics being imported into India.

As per the Drugs and Cosmetics Act, 1940 (“Act”), cosmetics are defined to mean any article intended to be rubbed, poured, sprinkled or sprayed on, or introduced into, or otherwise applied to, the human body or any part thereof for cleansing, beautifying, promoting attractiveness, or altering the appearance, and includes any article intended for use as a component of cosmetic.

The import of cosmetics in India, is regulated through a system of registration by the CDSCO under the provisions of the Act and the Rules. Any product falling under the ambit of the definition of cosmetic (as detailed above) is required to be registered along with pack size, variants and manufacturing premises, before import into the country. It is prescribed under the Rules that no cosmetic can be imported into India unless with the product has been registered in accordance with the Rules (Rule 12). Under the Fourth Schedule of the Rules, cosmetics have been categorised and classified into different variants and the category/ variant needs to be specified when moving an application for Import Registration Certificate for import of cosmetics products into India and fees is payable accordingly as per the Third Schedule.

The application for registration of a cosmetic product intended to be imported into India can be made through the online portal of the Central Government. The application for grant of Import Registration Certificate for import of cosmetics products into India may be filed by the manufacturer himself or his authorised agent or the importer in India or the subsidiary in India authorised by the manufacturer.

The applicants must also be cognizant of the labelling requirements set forth in the Rules and note that no cosmetic product may be imported into India unless it is packed and labelled in conformity with the Rules (specifically Rule 34 read with Chapter VI of the Rules) and the label of imported cosmetics bears the registration certificate number of the product and the name and address of the registration certificate holder for marketing the said products in India.

Further, imported cosmetics are also required to comply with applicable BIS standards and the specifications prescribed under the Rules or any other standards of quality and safety, applicable to it, and other provisions under the Rules. Cosmetics not under the Ninth Schedule are required to meet the requirements under these Rules and specifications and standards applicable to it in the country of origin. It is important to note that no cosmetic, the manufacture, sale or distribution of which is prohibited in the country of origin, shall be imported under the same name or under any other name except for the purpose of examination, test or analysis.

Moreover, applicants must be aware that cosmetic products having any drug claim on the label/ literature would not come under the definition of cosmetics as per the Act and therefore cannot be considered for registration as a cosmetic. Also the applicant must ensure that the cosmetic imported does not purport or claim to purport or convey any idea which is false or misleading to the intending user.

In case of a ‘New Cosmetic’ permission for import of such new cosmetic is required to be specially sought under the Rules. Further, a separate procedure in respect of import of cosmetics already registered for import has also been detailed under the Rules.

In view of the regulatory framework under the Act and Rules, manufacturers, its authorised agent/ importer must furnish the necessary forms, information, documentation and certifications to the CDSCO (in the form and manner provided in the Rules) and ensure that their cosmetic products comply with the standards and prescriptions detailed in the Rules to seek registration for import of their respective cosmetic products into India.

Manufacturers of cosmetics are required to comply with another set of compliances for undertaking manufacture of cosmetics for sale and distribution including applying for license to manufacture cosmetics for sale and distribution in India. Similarly there are separate compliances for sale and distribution of cosmetics in India.

The import of cosmetics in India is subject to the regulatory framework set forth in the Act and Rules and it is essential for manufacturers, their agents, importers, distributors to comply with the necessary standards and specifications and seek the appropriate registrations and licenses so that they are able to operate in the Indian market and access its diverse and burgeoning consumer base.

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(This Article is solely for information purposes, does not constitute legal or professional advisory and

should not be relied upon or used as a substitute for legal advice from attorney.)

About the Authors: Jayshree Navin Chandra, Senior Partner at ZEUS Law, has been a practicing lawyer since 2001 with extensive corporate and transactional advisory experience. She manages and oversees the Corporate & Commercial, M&A, Infrastructure & Real Estate and Technology practice at the firm and advises and represents clients ranging from Fortune 500 companies to start-ups as well as Central and State Government departments and public bodies in a wide range of domestic and cross border transactions, across industries. Nitika Bakshi, is an Associate at ZEUS Law and works in the Corporate, Commercial & Technology practice vertical.

ZEUS Law Associates is an ISO certified full service corporate commercial law firm with a team of dedicated and experienced lawyers well versed in handling domestic and cross border transactions across sectors, jurisdictions and regulatory landscapes. The firm’s practice areas include Corporate & Commercial Law, M & A, Infrastructure & Real Estate, Litigation, Alternate Dispute Resolution, Indirect Tax, Technology & E-commerce and NRI Services.

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UP Warehousing & Logistics Policy 2022: A roadmap for an integrated logistics ecosystem in the state

UP Warehousing & Logistics Policy 2022: A roadmap for an integrated logistics ecosystem in the state

Author: Mr. Sunil Tyagi, Managing Partner & Ms. Anisha Jhawar, Associate at ZEUS Law

Published in asiancommunitynews.com on 31st March 2023

The Government of Uttar Pradesh has recently notified UP Warehousing and Logistics Policy 2022 (‘Policy’) which envisions to provide for a friendly trajfor attracting investment, being home to:

1. Dadri - an intersecting point of Western Dedicated Freight Corridor (or WDFC) and Eastern Dedicated Freight Corridor (or EDFC). The WDFC and EDFC provides an easy accessibility to the western port of JNPT Port at Mumbai and eastern port of Haldia at Kolkata;
2. Various multi-modal inland waterway terminals at Prayagraj, Ghazipur/ Rajghat, Varanasi;
3. The good national highway networks in the country, 3 existing and 2 upcoming international airports, as well as 7 existing and 8 upcoming domestic airports;
4. Several dry ports such as – Inland Container Depot at Kanpur and Dadri; Multi-Modal Logistics Hub at Dadri and Boraki;
5. Varanasi that is set to serve as Freight Village, a trans-shipment hub for inbound and outbound cargo;
6. Several integrated upcoming townships along the Delhi Mumbai Industrial Corridor (DMIC) and Amritsar Kolkata Industrial Corridor (AKIC), in the Greater Noida Area;
7. Proposed Integrated Manufacturing Cluster (IMC) under AKIC Project at Prayagraj and Agra;
8. And other industrial infrastructure projects such as Defence Industrial Corridors, Medical Device Park, etc.

The vision of the Policy is to develop a seamless, technologically enabled, well integrated, resilient, and sustainable logistics ecosystem, efficient in cost and time, in the State with the enhanced operational efficiency and competitiveness of the businesses.

The strategies adopted by the Government of Uttar Pradesh is five-fold: (i) robust infrastructure development; (ii) comprehensive logistics plannings (iii) sustainable logistics; (iv) developing ecosystem support for logistics; (v) attracting investments for logistics.

For attracting the inbound investment, the Policy provides for incentive schemes (both front end and back end) for the development of storage facilities, logistics parks and dry ports, inland waterway facility, truckers bay and cargo terminals.

The front-end subsidies include those exemptions/ concessions allowed before the commencement of the commercial operations and back-end subsidies include those provided only after the project completion and commencement of commercial operations. For availing the incentives at earlier stages, registration with Nodal Agency is required and at later stages, a Letter of Comfort is required to be obtained by the eligible project companies/offices.

The Nodal Agency, i.e. Uttar Pradesh State Industrial Development Authority has been designated to administer and implement the Policy through the Online Incentive Management System (OIMS). Moreover, a single window clearance system, ‘Nivesh Mitra’ has been set up by the State Government which provides for a list of the online NOCs/ clearances/ approvals required for setting up, operating the industries in the State, all of which can be applied and received at the same portal.

With the coming of the Policy, the warehouses have also been permitted to operate 24*7, female employment are encouraged in all shifts with adequate safety and security measures, and measures have also been followed for fast-track land allotment for setting up of logistics park.

State of Uttar Pradesh, being located adjacent to the National Capital Region, is one of the most attractive destination states in terms of lucrative investment avenues with easy accessibility and connectivity for logistics, developing an integrated system for robust transportation infrastructure, institutional governance mechanism, smart logistics practices and upskilling the workforce for the same.

The launch of the New UP Warehousing and Logistics Policy 2022 is a welcome initiative for promoting rapid industrialisation and infrastructure development in the State as the manufacturing activity is intrinsically linked with the logistics sector. It is expected that this Policy will enable the State to become more investor friendly with proactive governance measures in place. However, the on-ground impact of the Policy is yet to be seen. The stakeholders of the said sector will need to closely observe the action plans, guidelines and notifications as may be brought forth by the State Government from time to time as a part of the Policy’s initiatives.

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Mr. Sunil Tyagi, has been a practicing lawyer for over 30 years and is the Managing Partner and Co-founder of ZEUS Law Associates. He leads the Corporate & Commercial Law, Real-Estate & Infrastructure and Compliance divisions. He is well versed in the intricacies of Indian Civil Law, Business and Commercial Law and regularly advises foreign investors as well as Indian entrepreneurs on their business and legal strategy with respect to investment in India. Ms. Anisha Jhawar is an Associate at ZEUS Law and works in the Corporate and Commercial practice vertical.

ZEUS Law Associates is an ISO certified full service corporate commercial law firm with a team of dedicated and experienced lawyers well versed in handling domestic and cross border transactions across sectors, jurisdictions and regulatory landscapes. The firm’s practice areas include Corporate & Commercial Law, M & A, Infrastructure & Real Estate, Litigation, Alternate Dispute Resolution, Indirect Tax, Technology & E-commerce and NRI Services.

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All you need to know about Mergers & Demergers in India.

Mergers and Demergers in India

Author: Mr. Sandeep Bhuraria, Senior Partner & Ms. Parijat, Senior Associate at ZEUS Law

Published in asiancommunitynews.com on 12th March 2023

Mergers and demergers are critical restructuring tools that facilitate momentous growth and diversity for companies. In India, the process of mergers and demergers is by way of a tribunal governed scheme and as per the procedure prescribed under the Companies Act, 2013 (“Act”). The tax implications on a Scheme of Arrangement between companies involving merger and amalgamation is dictated in terms of the Income Tax Act, 1961 (“IT Act”).

Statutory Scheme and Definitions

The term ‘merger’ has not been defined under the Act, but the concept in essence is explained. Merger is the process of combining two or more distinct entities in such a manner that it amounts to not only accumulation of the assets and liabilities of the said entities but also the said entities are organized into one business entity.

Section 2 (1B) of the IT Act defines ‘amalgamation’ as merger of one or more companies into another company or merger of two or more companies to form one company in such a manner that the assets and liabilities of the amalgamating companies vest in the amalgamated company.

The concept of ‘demerger’ has been elucidated in Section 2 (19AA) of the IT Act, wherein a demerged undertaking is transferred by a demerged company to the resulting company as a going concern, pursuant to a Scheme of Arrangement sanctioned under Sections 230-232 of the Act.

The composite procedure for Mergers and Demergers:

A scheme of Arrangement

• A scheme of arrangement is a National Company Law Tribunal (“NCLT”) approved agreement between two or more companies and its shareholders and creditors. The same may involve the intricacies of mergers and demergers and is prepared in accordance with the provisions envisaged under Sections 230-232 of the Act and accompanying rules thereto.

In principal approval of the Scheme of Arrangement

• The Scheme of Arrangement proposing the merger and/ or a demerger has to be principally approved by the Board of Directors of the transferor companies and the transferee companies.

First Motion Application

• Pursuant thereto, an application under Section 230(1) of the Act, on behalf of the companies is to be filed before the National Company Law Tribunal (“NCLT”) for dispensation of the meetings of shareholders and creditors of the said companies if the requisite no objection certificates have been appended in the said application or in the alternative, to pass appropriate orders for convening meetings of the creditors /shareholders.

Convening of meetings pursuant to the Orders of NCLT

• If the NCLT has passed directions for convening meetings of a particular class of creditors /shareholders, then the notice and agenda of the said meeting shall be sent to all such creditors/shareholders and shall be duly published on the website of the company and by way of an advertisement in the newspapers.
• Once a resolution to approve a Scheme of Arrangement has been approved by 75% of the creditors/shareholders in the said meeting, contents thereof are binding on such creditors/shareholders of the companies.
• A chairperson and scrutinizer’s report are also prepared in respect of the meeting so conducted, pursuant to the orders of the NCLT. A copy of the said application is also served upon the Regulatory Bodies and Statutory Authorities.

Second Motion Application

• Thereafter, a second motion petition is filed before the NCLT seeking approval of the Scheme of Arrangement. The NCLT may pass appropriate directions to approve the said Scheme of Arrangement subject to modifications, if any, and the NCLT is empowered to oversee the implementation of the said scheme. Once the approval of the NCLT is accorded to the Scheme of Arrangement, the same is binding on the company, its members and creditors.

 Tax implications on a Scheme of Arrangement

A transaction involving mergers and demergers are generally considered as tax neutral transactions and Section 47 of the IT Act exempts such transactions from the purview of ‘transfer’ and hence, such transactions are not amenable to capital gains tax.

Tax benefits on Mergers:

• As per section 47(vi) of the IT Act, capital gains arising from the transfer of assets by the amalgamating companies to the amalgamated company is exempt from tax if the amalgamated company is an Indian Company.
• Under section 47(vii) of the IT Act, capital gains arising from the transfer of shares by a shareholder of the amalgamating companies are exempt from tax as such transactions will not be regarded as a ‘transfer’, if the same is made in consideration of the allotment of shares in the amalgamated company; and the amalgamated company is an Indian company.

Tax benefits on Demergers:

• According to Section 47(vib) of the IT Act, if in a demerger, there is any transfer of a capital asset by the demerged company to the resulting company and if the resulting company is an Indian organization, the such a transaction will not attract levy of capital gains tax.
• In terms of Section 47(vid) of the IT Act, if there is an issue or transfer of shares by the resulting company in consideration of the demerger of the said undertaking(s), to the shareholders of the demerged company, the transaction will not be amenable to capital gains tax.

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by handyland

Regulatory Framework for Import of Medical Devices

Regulatory Framework for Import of Medical Devices

Author: Ms. Jayshree Navin Chandra, Senior Partner & Ms. Sangini Tyagi, Associate at ZEUS Law

Published in asiancommunitynews.com on 04th March 2023

The medical device sector in India is an important part of the health care sector and has been growing significantly over the past few decades, presenting exciting business opportunities for both domestic and international manufacturers and entrepreneurs. For India, this sector is highly import dependent and presents a huge opportunity for entites from Japan, South Korea and other east Asian countries to step up and capture a share of the medical devices market.

In order to ensure that appropriate safety and performance standards are met in respect of the medical devices, the Medical Devices Rules, 2017, (“Rules”) have been notified by the Ministry of Health and Family Welfare, Government of India, (“MHFW”) under the Drugs and Cosmetics Act, 1940, (“Act”). The Rules lay down the regulatory framework for the registration of medical devices and manufacture, import, sale and distribution of medical devices which are notified by the Central Drug Standard Control Organisation (“CDSCO”).

Based on different parameters specified in Schedule I of the Rules and the classification of medical devices into four classes based on their level of risk to patients and users – Class A, Class B, Class C and Class D the DGCI from time to time notifies the categorization of the various medical devices under the 4 risk classes. Class A and B devices are considered low risk, while Class C and D devices are considered high risk. The medical devices covered under Class C and Class D have more stringent regulations as compared to Class A and Class B medical devices. Depending on the class of medical devices the registration, the permits and licenses as the case may be for import, manufacturing, sale or distribution are needed to be sought and compliances are to be met under the said Act and Rules.

In 2020 the MHFW issued a notification providing a comprehensive definition of ‘Medical Devices’ to include all devices including an instrument, apparatus, appliance, implant, material or other article, whether used alone or in combination, including a software or an accessory, intended by its manufacturer to be used specially for human beings or animals which does not achieve the primary intended action in or on human body or animals by any pharmacological or immunological or metabolic means, but which may assist in its intended function by such means for one or more of the specific purposes of:

• diagnosis, prevention, monitoring, treatment or alleviation of any disease or disorder;
• diagnosis, monitoring, treatment, alleviation or assistance for, any injury or disability;
• investigation, replacement or modification or support of the anatomy or of a physiological process;
• supporting or sustaining life;
• disinfection of medical devices; and
• control of conception.

CDSCO has created an online medical devices portal for providing a single window for processing the applications for registration, clinical investigation, import, manufacture and sale or distribution of medical devices.

Importer of a medical devices, except for permitted custom made devices and medical devices imported in small quantities for donation to chartable hospital, have to comply with the provisions of Chapter V of the Rules which set out the terms related to application for import, overseas inspection and grant of import license for medical devices. The importer’s authorized agent in India, who has the license to manufacture for sale or distribution, is required to apply for and obtain an import licence as per the provisions of the Rules to the designated licensing authority. In case the medical device being imported does not have a predicate device equivalence i.e., device of similar nature is not already available in the Indian market, then certain additional compliances are required under the Rules including requirement to undertake clinical investigation as per prescribed norms. Further, the importer of a medical device is required to ensure that the medical devices proposed to be imported meet the standards and quality parameters prescribed under the said Rules.

As per amendments to Rules notified on 11^th February, 2020 the registration for import/ manufacturing of medical devices was voluntary for a period of 18 months. However, with effect from 1^st October, 2021 the registration for import/ manufacturing of medical devices has been made mandatory. Time was given to industry players to comply with the relevant provisions of the Rules. Under the Rules import license is now mandatory for import of Class A and Class B medical devices as the 30 months exemption period has expired. Exemption for Class C and Class D medical devices from obtaining import license continues and is due to expire in August of 2023 (42 months from issue of the notification on 11^th February, 2020), post which import license would be mandatory for importers intending to import Class C and Class D medical devices for sale in India. However, the exemption is available to importers who have obtained the registration for import under the 2020 notification.

In view of the current regulatory framework for medical devices, manufacturers, importers and sellers intending to sell/ distribute medical devices in India need to be aware of the classification system, seek registration and licenses/ permits and comply with the relevant provisions of the Rules based on classification of their medical devices.

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(This Article is solely for information purposes, does not constitute legal or professional advisory and should not be relied upon or used as a substitute for legal advice from attorney.)

About the Authors: Jayshree Navin Chandra, Senior Partner at ZEUS Law, has been a practicing lawyer since 2001 with extensive corporate and transactional advisory experience. She manages and oversees the Corporate & Commercial, M&A, Infrastructure & Real Estate and Technology practice at the firm and advises and represents clients ranging from Fortune 500 companies to start-ups as well as Central and State Government departments and public bodies in a wide range of domestic and cross border transactions, across industries. Sangini Tyagi, is an Associate at ZEUS Law and works in the Corporate & Commercial and Infrastructure & Real Estate practice vertical.

ZEUS Law Associates is an ISO certified full service corporate commercial law firm with a team of dedicated and experienced lawyers well versed in handling domestic and cross border transactions across sectors, jurisdictions and regulatory landscapes. The firm’s practice areas include Corporate & Commercial Law, M & A, Infrastructure & Real Estate, Litigation, Alternate Dispute Resolution, Indirect Tax, Technology & E-commerce and NRI Services.

by handyland

Legal Rights of Women in India: At Home, in the Workplace and in Society

Author: Ms. Jayshree Navin Chandra, Senior Partner at Zeus Law

Article published in HIMSHIKHA, Annual special edition 2023

Women in India enjoy several rights and protections under the law which ensure equality between men and women. Moreover, recognizing the decades of oppression, discrimination and denial of opportunities in education, employment, and financial independence that women have experienced, affirmative rights have been made available to women enabling them to reclaim and assert their place at home, at work, and in society as a whole.

The Constitution of India ensures equality before the law and equal protection of the law by the State and prohibits the State from discriminating on the grounds of gender. It further provides for equal opportunity in matters of public employment irrespective of gender. The Constitution also empowers the State to make any special provisions for women and children. The Directive Principles of State Policy also provides for the States to make policies ensuring that both men and women have a right to an adequate means of livelihood, equal pay for equal work, right to just and humane conditions at work as well as maternity relief.

The legal rights of women in India can broadly be categorised into the rights and protections guaranteed to women in the workplace, at home and within society.

At Workplace

Several laws have been enacted by the Central and State legislatures to provide equal rights and protection to women in the workplace.

 The Code on Wages, 2019 prohibit an employer from discriminating on grounds of sex. It also mandates an employer to pay equal remuneration to both men and women for the same work or work of a similar nature, irrespective of geographical location within India. Equal pay for equal work is one of the cornerstones of women’s liberation and their financial independence.

In striving to encourage meaningful participation of women in the workforce and ensure equality of opportunity for women in the workplace, it is important for the law to provide affirmative protections to women at the time of childbirth including adequate maternity leave. The Code on Social Security, 2020  prescribes different maternity benefits to working women in an organised sector including paid leave, paid leave in case of miscarriage and provide that discharge/dismissal of a woman absent from work due to her pregnancy is unlawful except with due procedures to be followed. The new Code also enables women to take care of their children while also maintaining their job. The Act is applicable to all mothers – biological, adoptive or through surrogacy; granting maternity leave for a period of 26 weeks (8 weeks preceding delivery) to the biological mother and 12 weeks in the other two cases. A further leave of 12 weeks (6 weeks preceding delivery) is allowed in each subsequent birth to a woman who has two or more children. In case of miscarriage, 6 weeks of paid leave from the day following a miscarriage are allowed. Moreover, the recent concept of work from home has been introduced for cases where the nature of work is such that the woman may work from home for the period of maternity benefit. Access to other maternity benefits such as nursing breaks, crèche facilities, and payment of medical bonus have also been provided for under the law. The Industrial Relations Code, 2020 also has several safeguards for women including equal remuneration, maternity benefits and a workplace with the required facilities for women.

Further, the Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act and Rules, 2013 mandates every employer to ensure a safe and conducive environment for women at work and prevent sexual harassment at the workplace, which may be in the form of gender discrimination violating a woman’s right to equality and to live with dignity, or in the form of sexually tinted behaviour, direct or indirect, such as physical contact and advances, demand or requests for sexual favours, making sexually coloured remarks, showing pornography, and any other unwelcome physical, verbal or non-verbal conduct of sexual nature.

In addition, the Indian Penal Code (in short, IPC) also deems sexual harassment as a cognizable offense under Section 354A, which means that the accused may be arrested without a warrant and will be punished with imprisonment for a maximum of 3 years and/or a fine.

As per the second Proviso to Section 149(1) read with Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014, every listed company having paid-up share capital of Rs. 100 crore or more, and every public company having a minimum turnover of Rs. 300 crore or more, is required to make provision for appointment of at least one woman director. The Registration of Societies Act, 1860 treats women at par with men to be a member or office bearer of an NGO. Even the Foreign Contribution (Regulation) Act, 2010 enables women to be at par with men to raise funds from foreign sources for running NGOs working for the welfare of people including women’s empowerment and leadership.

At Home

Women are entitled to various legal rights as a daughter, a wife, and a mother.

After the amendment of 2005 to the Hindu Succession Act, a daughter is now entitled to an equal share in the coparcenary property as the son. Even daughters born out of a live-in relationship of parents can claim their share in the self-acquired property of their parents. Under this amendment, female heirs can also ask for partition of the dwelling house, wholly occupied by the joint family. A minor daughter, legitimate or illegitimate, is also entitled to maintenance from her father under the Code of Criminal Procedure (“CrPC”).

As for regulating and protecting women’s reproductive health in India, the 2021 amendment to the Medical Termination of Pregnancy Act allows for termination of pregnancy of less than 20 weeks on the basis of the opinion of a single doctor and for pregnancy more than 20 weeks but less than 24 weeks on the basis of the opinion and approval of two doctors. The law also specifies the circumstances in which a pregnancy can be terminated, the certified people/doctors to perform the procedure along with the locations for the same. Medical practitioners are prohibited from revealing the name and particulars of the woman in concern.

The law in India also lays down certain cases wherein women can opt for termination of pregnancy. These include rape cases, unmarried girls under the age of 18, lunatics (with a guardian's consent), pregnancies resulting from the failure of sterilization, as well as births of babies who may be handicapped or malformed.

Women in India also enjoy special rights, entitlements and protections under religious personal laws; for instance, under Muslim personal law, a Muslim woman is entitled to Mahr and other properties at the time of divorce as well as maintenance after divorce. Furthermore, the practice of triple talaq has now been declared void, illegal and is considered an offence.

The CrPC also obligates the husband to maintain the divorced wife (irrespective of caste or religion) except when she is able to maintain herself or is living in adultery or when she refuses to live with her husband without reasonable cause, or when both of them are living separately by mutual consent. In the case of sexual intercourse without consent during separation, section 376B of the IPC prescribes punishment for a term not less than 2 years, extending up to 7 years and a fine.

A married woman has the right to live in her husband’s home, which is the matrimonial home, even after the death of her husband. This is irrespective of whether the same is owned by either of them or is on lease/license, or is joint family property.

However, the right of parents-in-law, whether a senior citizen or not, to live peacefully overrides the right of a married/widow woman to the shared household. This view has been upheld by the Delhi High Court in the case of Ravneet Kaur vs. Prithpal Singh Dhingra and it means that she can be evicted, if it is necessary and expedient, at the behest of her aged in-laws in the interest of their maintenance and welfare.

The Dowry Prohibition Act treats the demand or grant of cash/valuables before/after marriage as an offence and provides for punishment along with a fine for harassment, cruelty (mental or physical) and unlawful demands for property/valuable security from the woman by her husband or his relatives

As a mother, a woman is entitled to maintenance from her non-dependent children. In matters of succession under Hindu Succession Act, a widowed mother has a right to an equal share to that of her son/daughter in the property of her husband as class I heir as well as in the partition of joint family/coparcenary property. She has the right to dispose of, by way of sale, will or gift, as she may choose, all the property owned by her. If she dies intestate, all her children inherit her property equally, irrespective of gender.

Women at home, whether as daughters, wives/widows or mothers, are entitled to protection from violence of any kind (physical, emotional, sexual or economic) within the family from the husband or his family under the Protection of Women from Domestic Violence Act, 2005.

In Society

For the holistic emancipation of women, it is imperative that the law creates and protects safe spaces for women in society at large. This commitment to women’s emancipation can be seen in the slew of recent amendments to the Indian Penal Code, 1860 (“IPC”) to prevent and safeguard women from sexual offences, viz. outraging her modesty (Sec. 354), sexual harassment such as unwelcomed contact, advances, sexually coloured remarks (Sec. 354A), assault with the intent to disrobe her (Sec. 354B), voyeurism (Sec. 354C), stalking (Sec. 354D), etc. In such cases, the woman has the right to file an FIR at any police station, irrespective of the location, regardless of whether the offence was committed under the jurisdiction of the particular police station, which is known as a Zero FIR. The Indecent Representation of Women (Prohibition) Act, 1989 prohibits indecent representation of women through advertisement or in publication, etc.

In order for women to seek enforcement of their rights and entitlements under the law, the Legal Services Authorities Act provides for an aggrieved woman to claim free legal services at all levels – district, state and national. Legal services include assistance in conducting any case or other judicial proceedings before any court, tribunal or authority and advising on related matters.

In furtherance of the Constitutional mandate, the States have enacted their own laws providing for the reservation to women in the Panchayat and other local bodies.

Empowerment of women, apart from being key to India’s growth, is also integral to protecting and nurturing human rights. While the necessary strides are being taken under the law in India to protect the rights, entitlement, interests and independence of women, across various spheres of life, in order for this to elicit tangible change in the lives of women, it is imperative to spread awareness about such legislation. Only when women are cognizant of their rights under the law and equity will they be able to enforce and assert themselves in meaningful ways. They will also be able to seek the protection they are entitled to and empower themselves within and outside the home economically, socially and politically.

by handyland

Mandatory Corporate Compliances By Private Companies In India

MANDATORY CORPORATE COMPLIANCES BY PRIVATE COMPANIES IN INDIA

Author: Ms. Jayshree Navin Chandra, Senior Partner and Ms. Nitika Bakshi, Associate at Zeus Law

Published in asiancommunitynews.com on 26th February 2023

The Companies Act, 2013 read with relevant rules (“Act”) provide for the various corporate governance norms and compliances that are essential for proper corporate operation and management and for protecting the rights of various stakeholders. The offences with associated penalties for violations of the various norms are laid out, requiring the corporate entities to meet the compliances prescribed.

This Article aims to discuss certain annual key compliances required of private limited companies.

Director Compliances

• An individual who is to be appointed as a director of a company, is required to apply for and obtain a Director Identification Number. Further, every company is required to file the particulars of its directors and key managerial personnel with the Registrar of Companies (“ROC”) within 30 (thirty) days from the date of appointment and any change taking place in their designation.
• Every director is required to, at the first meeting of the board in which they participate as a director, and thereafter at the first meeting of the board in every financial year or whenever there is any change in the disclosures already made then at the first board meeting held after such change, disclose his concern or interest in any company(ies) or body corporate(s), firm(s) or other association of individual(s) as prescribed under the Act including directorship, partnership interest and shareholding in other companies.
• Each Director is also required to file, with the company in each financial year, the disclosure that they were not disqualified to be a director in the previous financial year.

Board Meeting Compliances

• The first board meeting of the company must be held within 30 days of the date of its incorporation. A company needs to conduct at least 4 meetings of its board of directors every year, with the interval between 2 such meetings not being more that 120 days.
• The Act prescribes that the quorum of the board meeting for private limited companies be 1/3^rd of the total number of directors of the company or 2 directors, whichever is higher. Participation by video conferencing or other audio-visual means is also counted for the purpose of quorum.
• Notice calling the meeting, along with agenda and the notes to agenda, should be sent to all the directors at least 7 days before the date of board However, the board meeting may be called at a shorter notice to transact urgent business.

AGM Compliances

• The Annual General Meeting (“AGM”) provides members with an opportunity to collectively discuss the affairs of the company and to exercise their control over the management of the company. Numerous matters significant and integral to the company are transacted in this meeting including, consideration of financial statements, reports of the board of directors and the auditors, declaration of dividend, appointment of directors in place of those retiring and approval of appointment of auditors and fixing their remuneration. Further other items of business, referred to as special business, may also be transacted at an AGM.
• The AGM must be conducted each year within 6 months from the date of closing of the financial year. There should not be more than 15 months gap between the date of an annual general meeting of a company and that of the next.
• The notice is to be circulated to the shareholders, auditor and directors of the company at least 21 clear days prior to the AGM or AGM may be held at a shorter notice by obtaining consent from at least 95% of the members entitled to vote thereat.

Filing Compliances

• A copy of the financial statements, giving true and fair view of the state of affairs of the company and which is duly adopted at the AGM of the company, is required to be filed with the ROC within 30 days of the date of the AGM.
• A balance sheet, profit and loss account, cash flow statement, along with any other explanatory statement attached in these documents, form part of the financial statements.
• Private Limited Companies are required to file with the ROC, within 60 (sixty) days of the holding of the AGM, their annual return containing the particulars pertaining to the company for the previous financial year. The particulars should include its registered office; principal business activities; particulars of its holding, subsidiary and associate companies; shares, debentures and other securities and shareholding pattern; particulars of members and debenture holders along with changes therein; promoters, directors, key managerial personnel along with changes therein; meetings of members, board and its various committees along with attendance details; and remuneration of directors and key managerial personnel. The annual returns of private limited companies, having paid-up share capital of Rs. 10 Crore or more or turnover of Rs. 50 Crore or more, are required to be certified by a company secretary.
• All companies, who get supplies of goods or services from micro and small enterprises and whose payments to micro and small enterprise suppliers exceed 45 days from the date of acceptance of the goods or services, are required to submit a half yearly return to the Ministry of Corporate Affairs (“MCA”), by 31^st October for the period from April to September and by 30^th April for the period from October to March, stating the amount of payment due and the reasons of the delay.

Statutory Registers

• Further, companies are required to maintain certain statutory registers such as register containing particulars of its directors and key managerial personnel; register of members, debenture-holders and any other security holders; register of investments and securities held, loan, securities and guarantees register; and register of contracts or arrangements in which directors are interested.

The MCA has been periodically reviewing the compliances required under the Act and the Rules made thereunder with an objective of creating and preserving a conducive business and economic environment while encouraging transparency, enhancing accountability and protecting investor interests. It is imperative for foreign investors investing in India, whether in wholly owned entities or as joint ventures, to be cognizant of the mandatory compliances.

 (This Article is solely for information purposes, does not constitute legal or professional advisory and should not be relied upon or used as a substitute for legal advice from attorney.) 

About the Authors: Jayshree Navin Chandra, Senior Partner at ZEUS Law, has been a practicing lawyer since 2001 with extensive corporate and transactional advisory experience. She manages and oversees the Corporate & Commercial, M&A, Infrastructure & Real Estate and Technology practice at the firm and advises and represents clients ranging from Fortune 500 companies to start-ups as well as Central and State Government departments and public bodies in a wide range of domestic and cross border transactions, across industries. Nitika Bakshi, is an Associate at ZEUS Law and works in the Corporate, Commercial & Technology practice vertical.

ZEUS Law Associates is an ISO certified full service corporate commercial law firm with a team of dedicated and experienced lawyers well versed in handling domestic and cross border transactions across sectors, jurisdictions and regulatory landscapes. The firm’s practice areas include Corporate & Commercial Law, M & A, Infrastructure & Real Estate, Litigation, Alternate Dispute Resolution, Indirect Tax, Technology & E-commerce and NRI Services. 

by handyland

Buying a property with your wife as a co-owner- key points to consider

Buying a property with your wife as a co-owner- key points to consider

 Author: Mr. Sunil Tyagi, Managing Partner at ZEUS Law

Published in https://www.moneycontrol.com

Buying an immovable property is a very important decision for an individual and often requires significant investment and therefore, it is essential to explore and weigh all options that can extend financial benefit to a person who is contemplating to buy a property. If the individual is married then one of the most important points to consider while making such a decision is whether to buy the property in his own individual name or to acquire the property in co-ownership with his wife.

This article is focussed on highlighting the key considerations that need to be borne in mind by a married man before deciding whether to buy property individually or jointly with his wife as a co-owner.

1. Deciding the Share of Co-Owners

The most important point to consider at the time of buying a property with your wife as a co-owner is to decide the share in which the ownership of the property would be held between a husband and his wife.  If the registered sale deed of the  property does not mention a definite and ascertainable share of husband and wife respectively, being the two co-owners of the said property, then the ownership is generally considered to be on a 50: 50 basis which resultantly will have tax implications on both the spouses in proportion to the share held by each of them.

2. Stamp Duty Benefits

On purchase of an immovable property, stamp duty at applicable rate is required to be paid to the state government at the time of the registration of the sale deed of the subject property by the seller(s) in favour of the buyer(s). As a part of their social initiatives, several states in India prescribe reduced rate of stamp duty for females.

Therefore, buying a property in co-ownership with your wife would lead to huge savings in the payment of stamp duty.

3. Increase in Loan Eligibility

Often additional funds are required by prospective buyers to purchase a property for which they approach banks/ financial institutions for availing home loan facility. In case, a man makes a joint application with his wife who is also earning for availing such loan facility for purchasing a property then there may be a significant increase in loan eligibility because an individual's loan eligibility is determined by their net income, and in the case of joint applicants, the incomes of all the borrowers are taken into account.

Thus, if both spouses are earning then the income of both the wife and the husband will be jointly considered by banks/ financial institutions while determining their eligibility for the loan facility. Consequently, they may be eligible for a higher loan amount juxtapose to a situation where the man applies for such loan facility individually or jointly with his wife who is a homemaker.

4. Interest Rate Benefits on Home Loan

Women are favoured applicants for lending institutions and there are better chances of loan approval for woman borrower/ co-borrower as the data shows that loan default among women borrower is much lower than male borrowers. In view of the same, several banks/ financial institutions offer attractive terms, schemes and lower interest rates for a home loan to women borrowers. Therefore, if home loan is availed for a property in co-ownership between a husband and his wife, it would have an impact on the EMI’s and lead to significant savings in the amount repayable to the lender bank in respect of such home loan.

5. Tax Implications

Under the provisions of the Income Tax Act, 1961 (“Act”), the borrowers of a home loan are eligible for tax benefits on both principal repayment and interest payment. Under Section 80C, each joint owner can claim a deduction of up to Rs. 1,50,000/- (Rupees One Lakh and Fifty Thousand only) for principal repayment as well as on registration and stamp duty charges. Furthermore, according to sub-section (b) of section 24 they can also apply for a deduction on housing loan interest from house property income, up to Rs 2,00,000/- (Rupees Two Lakh only).

As per the provisions of the Act, the income earned directly or indirectly by the wife from assets transferred to her will be clubbed with the income of the husband. Therefore, if husband buys a house in his wife’s name, but she does not make any monetary contribution for such purchase, the rental income from this property may be treated as husband’s income and taxed at the applicable rate.

However, in case where wife is working and has an independent income and if the property is purchased with equal monetary contribution by husband and wife then there might be tax benefits if such property is let out. In such an event, the rental income can be shared by the spouses equally which may result in applicability of a lower tax slab to them in accordance to the provisions of the Act.

To sum up, buying a property with your wife as a co-owner can have several implications that need to be analysed before entering into any purchase transaction. The stamp duty benefits for female, increase in loan eligibility due to the combined income of both spouses and taxation benefits when the wife has independent income are some of the advantages of co-owning property with your spouse. However, it is also important to consider the potential tax implications if the wife has no independent income, as the income earned by the wife may be clubbed with the income of the husband. Another important aspect to be mindful of is that problems may arise if the marital relationship gets sour as the wife will be entitled to absolute ownership of her undivided share of the property purchased jointly. It also needs to be kept in mind that in case of joint ownership prior consent of the other would be required for the sale of the co- property. Therefore, it is crucial to weigh the pros and cons of co-owning property with your spouse.

***

by handyland

Developments in the Investor-State Dispute Mechanism in India and its Importance for the Japanese and Korean Investors

Developments in the Investor-State Dispute Mechanism in India and its Importance for the Japanese and Korean Investors

Author: Ms. Neetika Bajaj, Managing Associate and Ms. Astha Garg, Senior Associate at Zeus Law

Published in asiancommunitynews.com on 21st February 2023

Introduction

Recently, Japanese PM Fumio Kishida announced plans of investing $42 billion over the next five years in India.[1] This comes as a major development in the steady grow in economic and commercial relations between India and Japan, with the latter becoming a key partner in India’s economic transformation.

In the recent round of negotiations between India and the Republic of Korea for upgradation of the Comprehensive Economic Partnership Agreement (“CEPA”) which closed as recently as November 2022, both countries agreed to promote conducive trade environments to enable the complete utilization of the benefits offered under the CEPA. This development comes in light of the upcoming 50^th anniversary of the diplomatic relations between the countries[2].

These developments demand a spotlight on the evolution of India’s investment protection and dispute settlement regime to safeguard the interests of both Japanese and Korean investors.

 Role of BITs in Settling Disputes

The instrument, typically, used by States to safeguard and protect investment flowing from their country into a host state has been Bilateral Investment Treaties (“BIT”) and dedicated investment chapters in several comprehensive economic/free trade agreements like the CEPA between India and Japan or the CEPA between India and Korea. These international investment agreements provide for reciprocal commitments among Party States to protect the private foreign investments made into one another.

A major aspect of BITs/investment chapters is the inclusion of provisions relating to dispute resolution, most often, in the form of Investor-State Dispute Settlement (“ISDS”) provisions that allow the aggrieved party to pursue international arbitration against the State. 97% respondents indicated, in the 2018 International Arbitration Survey conducted by the Queen Mary University and the School of International Arbitration, that the reliance by parties on ISDS provisions and subsequently international arbitration is due to the attributes unique to arbitration such as party autonomy, confidentiality, transparency, cost and time efficiency.[3] As a result, international arbitration clauses, coupled with standards of Fair and Equitable Treatment (“FET”) and Most Favourable Nation (“MFN”), were used extensively in BITs.

India’s Approach

Based on this approach, by the end of 2011, India had signed a total of 82 (eighty-two) BITs with 73
(seventy-three) having come into force by the end of that year. Apart from the standalone BITs, India also signed more than ten free trade agreements with investment chapters, among them are the India-Japan CEPA and the India-Korea CEPA.

However, there was an observable shift in India’s stance post the White Industries[4] settlement claim. As a result, India rethought its BIT regime and adopted a framework that is geared more towards preserving the regulatory freedom of States. A New Model BIT was introduced in 2015 with a more guarded scope for investor protections. Following this, India issued notices for the termination of BITs with several nations including Germany and Britain.[5]

Relevance for Japanese and Korean Investors

The New Model BIT and India’s conservative and guarded stance begs the question- whether such a shift in the investor-state regime has any effect on the protection of Japanese and Korean investments in India?

Currently, there are no reports that indicate the potential termination of the existing CEPA between India and Japan and/or India and Korea. However, with the terms of the India-Korea CEPA being renegotiated, investors may be cautious of the difference between the terms of investment protection between the New Model BIT and the subsisting CEPA. The following are some of the key differences between the New Model BIT adopted by India and the existing CEPAs with Japan and Korea which may be subject to these new terms subject to renegotiation:

While the asset-based definition of investment in the CEPA covers any and all assets owned or controlled by the investors, the enterprise-based approach equates an “investment” with an “enterprise” which must necessarily be incorporated in the Host country (India in this case). By doing this, it excludes protection extended to investments made without the incorporation of an enterprise in India.

Further, by excluding the FET and MFN clauses, India has opted to exercise more sovereign and regulatory authority over the process.

Further, the inclusion of a clause, in the New Model, that mandates parties to first exhaust all possible domestic remedies, for a minimum period of five years, only after which can they send a notice for invoking international arbitration may cause some heartburn.

Conclusion

At this point in time, Japanese and Korean investments continue to be protected by their respective CEPAs, and some, like Nissan[6], have been able to effectively utilise it to successfully resolve disputes. However, when structuring their upcoming investments in India, Japanese and Korean companies and their advisors would be well advised to take into account India's evolving regulatory environment.

[1] What does Japan's $42 billion investment mean for India?, Business Standard, 22 March 2022 (Available at https://www.business-standard.com/podcast/economy-policy/what-does-japan-s-42-billion-investment-mean-for-india-122032200088_1.html).

[2] Press Release, “Ninth Round of India-ROK CEPA Up-Gradation Negotiation held in Seoul”, Ministry of Commerce & Industry, 4 November 2022 (Available at https://pib.gov.in/PressReleasePage.aspx?PRID=1873807).

[3] White & Case & School of Int'l Arb., Queen Mary Univ. of London, 2018 International Arbitration Survey: The

Evolution of International Arbitration 5, 2018 (Available at

http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-International-Arbitration-Survey---The-Evolution-of-International-Arbitration-(2).PDF).

[4] In White Industries Australia Limited v. The Republic of India, an arbitral tribunal found that India had violated its obligation to provide the investor (INVESTOR FROM WHICH COUNTRY? with “effective means of asserting claims and enforcing rights”, a provision borrowed from the India-Kuwait BIT, by way of a Most-Favoured Nation clause present in the India-Australia BIT. As a result, the tribunal awarded White Industries a sum of $4.10 million against India.

[5] Parliamentary Committee on External Affairs, India and Bilateral Investment Treaties, September 2021, 17^th Lok Sabha, page 4-6.

[6] Nissan Motor Co., Ltd. v. Republic of India

by handyland

Current Bank Account Holder - A Consumer under Consumer Protection Act?

Current Bank Account Holder - A Consumer under Consumer Protection Act?

Author: Ms. Pankhuri Jain, Partner & Mr. Anmol Chawla, Associate at ZEUS Law

Published in Livelaw on 04th February 2023

The Consumer Protection Act, 1986, came into existence with the purpose of protecting the rights of a consumer by providing cost effective and speedy redressal of their grievances through a quasi-judicial machinery. Keeping with the developments and evolution of our economy, the Consumer Protection Act, 1986 (“old Consumer Act”), was completely overhauled with the advent of the Consumer Protection Act, 2019 (“new Consumer Act”).

The rights and protection granted by the Act are extended and limited to only those who fall under the ambit of the given definition. The definition of the term ‘Consumer’ under the new Act, that we see today, is the result of continuous amendments. The 2019 Act defines the term ‘Consumer’ in context of services, as any person who hires any service for a consideration which has been paid, or has been promised to be paid, and it does not include a person who avails of such a service for any commercial purpose.

Commercial Purpose

It has been expressly mentioned in the new Consumer Act that a person who hires any service for a commercial purpose is not considered a consumer. The term ‘commercial purpose’ was mentioned in the old Consumer Act only with respect to the goods. By the Amendment Act of 1993, an explanation was added to carve out an exception excluding goods bought and used exclusively for the purpose of earning livelihood, by means of self-employment from ‘commercial purpose’. It is to be noted that the given amendment and explanation was limited to the goods bought and used and did not extend to the services hired.

Then, again in 2002, an amendment to the said definition was brought in. In the definition of ‘consumer’ (in relation to services hired), the following words were inserted: “but does not include a person who avails of such services for any commercial purpose”. The earlier explanation was substituted with a new explanation, which read as follows: “commercial purpose does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of self- employment.” Therefore, it was in 2002 that the Act, for the first time, dealt with the aspect of services being hired for a commercial purpose.

The explanation was again revamped with the emergence of the new Consumer Act, wherein its horizon has been narrowed down to include only “goods bought” and the part regarding services availed has been done away with. However, Section 2(7) defining ‘consumer’ still excludes those who avail services for any commercial purpose. The net effect of such a change is that if the services are used for commercial purpose, then the consumer forum does not have to deal with the question of whether such services were availed for earning a livelihood by means of self-employment, and the complainant will directly be considered as not a consumer.

The term ‘commercial purpose’ has not been defined anywhere in the Act. In the absence of a proper definition, the Hon'ble Supreme Court has relied upon its ordinary meaning. Collins English Dictionary defines the word ‘commercial’ as connected with, or engaged in commerce; mercantile; having profit as the main aim. The consistent view that the National Consumer Disputes Redressal Commission has taken with regards to ‘commercial purpose’ is that where a person purchases goods with a view of using such goods for carrying on any activity on a large scale for the purpose of earning profit, then he will not be considered as a “consumer”^[1].

In Synco Textiles Private Limited v. Greaves Cotton and Co. Ltd.^[2], Balakrishna Eradi, J., explained as follows: “The words “for any commercial purpose" are wide enough to take in all cases where goods are purchased for being used in any activity directly intended to generate profit.”

Above definitions and meanings attributed to ‘commercial purpose’ are used in cases of services as well. Recently, in Shrikant G. Mantri vs. Punjab National Bank^[3], the Hon’ble Apex Court elucidated ‘commercial purpose’ to include business-to-business transactions between commercial entities wherein there is a direct nexus with profit-generating activity and the dominant purpose or intention behind the transaction is to be seen rather than the person’s identity or value of the transaction.

Locus of current bank account holders

It is well established that banking services are squarely covered under the ambit of the Consumer Protection Act. However, there are certain challenges which a current bank account holder has to face while holding a bank accountable in case of a deficiency in its services. This has a direct impact on the maintainability of the account holder’s complaint before a consumer forum. A current account holder availing services of a bank for its business is hit by the test of commercial purpose, due to which it is thrown out of the definition of “Consumer”. Be it a corporate entity like a company or a HUF, or an individual, anyone opening a current account is not reckoned as a consumer.

In the recent case of PSS International and Another vs. Punjab National Bank through its Chief Manager and Another^[4], a current account holder was unable to get relief under the shadow of the Consumer Protection Act, wherein accusations of deficiency in service by the bank in providing safe and secure internet banking were raised. The complainant company alleged that huge amounts have been transferred from its current account without its knowledge via internet banking. The Hon’ble National Commission, without exploring the deficiency aspect, dealt with preliminary objection raised by the bank and held the consumer complaint to be not maintainable as being filed by a commercial company, thus hitting the commercial purpose bar.

Earlier also, the Hon’ble National Commission in Nidhi Knitwears (P) Ltd. vs. The Manager Bank of Maharashtra, Ludhiana and Others^[5], has held a company holding a current account filing a consumer complaint against the bank for putting operations on hold without any notice, resulting in heavy losses, as not a consumer. In Anand Nishikawa Company Limited vs. State Bank of Patiala and Others^[6], the complainant company alleged that pursuant to connivance of its officer and certain officers of banks, the banks allowed operation of their current accounts beyond the specified limit. The Hon’ble National Commission relied upon Subhash Motilal (supra) to uphold that a complaint filed by a company operating a current account is not maintainable. Again, in Sutlej Industries Ltd. vs. Punjab National Bank^[7], the Hon’ble National Commission, while dismissing the appeal of the complainant company, upheld the view of the Hon’ble State Commission that the complainant, being a commercial organization, had opened a current account for the purpose of carrying out its business activities serving the commercial interests of the Complainant and hence is not a consumer.

The aforementioned decisions were made despite the fact that a company is statutorily recognised as a consumer and comes under the purview of the Consumer Protection Act. Though the term ‘company’ has not been initially included expressly in the old Consumer Act, yet, the Hon’ble Supreme Court in the case of Karnataka Power Transmission Corporation. and Others vs. Ashok Iron Works Private Limited and Others^[8] held that the definition of ‘person’ is inclusive and not exhaustive, so no doubt that a company is a person within the meaning of Section 2(1)(d) r/w Section 2(1)(m). The scope of the term ‘person’ under the new Consumer Act has now been widened, and the term ‘company’ has been expressly included under Section 2(31)(vi).

The consumer commissions, also, expressed their inability to look into allegations by current account holders not being a company. In Subhash Motilal Shah and Others vs. Melegaon Merchants Co-op Bank Limited^[9], wherein serious accusations of honouring various cheques by the bank were made, which, according to the complainant, were not issued by it but were forged, the National Commission held that its jurisdiction was not invoked. The Commission, keeping in view the amendment of 2002 to the Act, rendered the consumer complaint filed by HUF, a juristic person, not maintainable as it related to a current bank account opened for doing business transactions.

It can be seen from the abovementioned judgments, which have further been echoed by various consumer forums, that a holder of a current account with a bank, is not covered under the definition of ‘Consumer’ and hence a complaint filed by it is not maintainable. This view taken by the Hon’ble National Commission stands in conflict with the objective of the Act to provide an affordable and speedy cure, as it is keeping a current account bank holder, who is availing services of a bank, outside the scope of a consumer and leaving all the holders with no remedy under the Act.

On the other hand, in any of the cases mentioned above, if the complaint would relate to a savings bank account then the complainant could have easily been provided relief under the Consumer Act. Hence, a bank which has committed a deficiency in its services is set free without any repercussions under the Consumer Act, simply on account of the complainant being a current account holder.

The Hon’ble Commission could have considered the fact that it is not necessary that a current account is opened only for furthering the business of a company. The banking services could be availed for other purposes which have no direct relation to the profit-generating activity of a holder. This aspect was considered in V and S International (P) Limited. vs. Axis Bank and Others^[10], wherein the Hon’ble National Commission held a bank liable under the Consumer Act for honouring the cheques by ignoring stop payment instructions of the complainant company as such transaction was not furthering the profit-making activity of the company. The Commission held the complaint to be maintainable even though it relates to the current account of a company. It further stated that the question of whether a current account is used for commercial purpose is to be dealt with on a case-to-case basis. The National Commission held as follows:

“18. ….The acquisition of the goods or the hiring or availing of services, in order to bring the transaction within the purview of Section 2(1)(d) of the Consumer Protection Act, therefore, should be aimed at generating profits for the Company or should otherwise be connected or interwoven with the business activities of the Company. The purpose behind such acquisition should be to promote, advance or augment the business activities of the Company, by the use of such goods or services…

19. It is pertinent to mention that the transactions in the instant case do not squarely fall within the four factors of production which directly relate to profit-making of the Company to be construed as ‘commercial’…”

The National Commission acknowledged that the deficiency by the bank is in respect of an ordinary transaction relating to stop payment instruction and does not result in generation of profit for the current account holder. However, an appeal against this judgment is pending in the Hon’ble Supreme Court^[11] and its operation has been stayed.

Similarly, in Laxmi Engineering Works (supra), the Apex Court, while explaining the term ‘commercial purpose’ in context of goods, stated that it is a question of fact that is to be decided on the basis of the facts and circumstances of each case. Thus, for the determination of commercial purpose, each and every transaction relating to a particular case alleging deficiency shall be examined by viewing its direct effect on the profitability of a complainant rather than them being a current account holder.

Conclusion

In these modern times, services provided by banks have become an indispensable part of conducting businesses, majorly for fulfilling the requirement of payment obligations in any business activity. All business entities or professionals are required to maintain their current bank accounts and undertake transactions in their day-to-day operations. It is evident that there is no direct nexus between the main profit-generating business of an entity and such banking services relating to payment terms, availed by them. As stated in Shrikant G. Mantri (supra), instead of considering a person’s identity, the dominant purpose or intention has to be seen behind a transaction. In consideration of these aspects and the meaning of “commercial purpose” as expounded in Laxmi Engineering (supra), the Hon’ble Supreme Court may consider the ratio of the National Commission’s judgment in V and S International (P) Ltd. (supra) and lay down principles to be employed for assisting in applying the “commercial purpose” test as per the facts of each case. If, upon consideration of facts, it is established that a current account holder is engaging banking services not intertwined in the main activity of their business, it is essential that they be granted protection under the provisions of the Consumer Protection Act.

[1] Laxmi Engineering Works Vs. P.S.G. Industrial Institute, AIR 1995 SC 1428

[2] [1991] 1 CPJ 499

[3] MANU/SC/0225/2022

[4] 2022 SCC OnLine NCDRC 82

[5] MANU/CF/0319/2014

[6] MANU/CF/1168/2014

[7] MANU/CF/0959/2017

[8] MANU/SC/0158/2009

[9] MANU/CF/1058/2013

[10] MANU/CF/0278/2019

[11] Axis Bank vs. V and S International P Ltd, C.A. No. 007629 - / 2019

by handyland

The Union Budget 2023-24: A Quantum Leap for Foreign Investors

The Union Budget 2023-24: A Quantum Leap for Foreign Investors

Author: Mr. Ashwani Sharma, Managing Associate and Ms. Astha Garg, Senior Associate at Zeus Law

Published in asiancommunitynews.com on 04th February 2023

As India enters its 75^th year of independence the Union Government has reinforced, with its Budget for financial year 2023-24, its continued commitment to boost economic growth by investing in infrastructure development leading to an increase in capital expenditure by 37.4% over the revised estimates for the previous year 2022-23[1].

With Amrit Kaal as the motto (which refers, in Vedic astrology, as that critical time when the doors for greater success open up for human beings), the Finance Minister, Ms. Nirmala Sitharaman, laid great emphasis on the technology-driven and knowledge-based growth of the economy with the primary objective of financial stability as she announced the Budget on 1^st February 2023.

Among the Saptarishi (7 priorities of this year’s budget), that seek to guide India into the Amrit Kaal are “Infrastructure and Investment” and the “Financial Sector”.

Investors have much to look forward to, with substantial anticipated growth in the infrastructure, logistics and manufacturing sectors.

1. Infrastructure Sector

This is the third consecutive budget which has seen an enormous increase in the capital investment outlay which was announced at Rs.10 lakh crores i.e. 33% higher than the preceding years and almost 3 times that of 2019-20.

In addition to substantial support being extended to State governments, the Union has announced assistance directed towards private investments which will be facilitated by the newly established Infrastructure Finance Secretariat.

This welcome change bodes specifically well for private investors in the railways, roads, urban infrastructure and power sectors which have until now been primarily dependent on public resources.[2]

Further, a 48% rise in seen in the budget for the renewable energy sector.

Also, an Urban Infrastructure Development Fund, with a budget of a hefty Rs.10,000 crores, is set to be established with the intent of creating urban infrastructure in Tier 2 and Tier 3 cities.

Coastal shipping will be promoted, in line with the saptarishi of “Green Growth”, as a means of energy efficient and low-cost transport, for both, passengers as well as freight.

These provisions open the doors for foreign investors awaiting the opportunity to collaborate or invest in infrastructure projects in India, such as Japan and Korea.

1. Logistics Sector

A hefty budget of Rs.75,000 crores has been set aside for the investment in one hundred critical transport infrastructure projects for improved connectivity for ports, coal, steel, fertilizer and food grains, with Rs.15,000 crores set aside for private investors. As transportation eases, the prices of these goods can be reasonably expected to see a decline.

The revival of fifty additional airports, heliports, water aerodromes and advance landing grounds was also announced with the intent of improving regional air connectivity.

These developments are in alignment with the National Logistics Policy, announced by the Prime Minister, Mr. Narendra Modi, on 17 September, 2022 which is aimed at building a technology-enabled, integrated and cost-effective logistics ecosystem in India.

1. Manufacturing Sector

The manufacturing sector saw a number of concessions/incentives in this Budget:

Technology

1. Relief on custom duty on certain parts of mobile phones, like camera lens, to promote domestic manufacturing of mobile phones;

Chemicals/Pharmaceuticals

• Exemptions of basic custom duty on ethyl alcohol to promote the chemical industry, reduction of basic custom duty on acid grade fluorspar to make domestic fluorochemicals industry more competitive and reduction of basic custom duty on crude glycerin to promote manufacture of epicholorhydrin;
• Reduction of basic custom duty rate on the Lab Grown Diamond seeds with the view to promote the indigenous production of these environment friendly diamonds;

Steel

• Continuation of the exemption of basic custom duty on raw materials for manufacture of CRGO Steel, ferrous scrap and nickel cathode to facilitate the availability of raw materials for the steel sector; and

Electric Vehicles

• Exemption of custom duty on import of capital goods and machinery required for the manufacture of lithium-ion cells for batteries used in electric vehicles to promote the manufacture of electric vehicles.

These developments are consistent with the Union’s Make in India initiative which is directed at facilitating investment and foster innovation.

The Economic Survey, tabled by Finance Minister, one day prior to the issuance of the Union Budget 2023-24, recognized that the Production-Linked Incentive Scheme[3], PM Gati Shakti and the National Logistics Policy together will bring competitiveness in India’s domestic manufacturing and export activities.[4]

1. Prominent Changes in The Financial Sector

The Budget seeks to setup a number of mechanisms to ease the regulatory and compliance framework in India:

1. A national financial information registry will be set up to facilitate efficient flow of credit, promote financial inclusion, and foster financial stability;
2. Central Data Processing Centres will be setup making the process of filing forms with field offices under the Companies Act, 2013 more efficient and expeditious; and
3. Financial sector regulators will be requested to carry out a comprehensive review of existing regulations in order to simplify and make cost effective the cost of compliances.

The implementation of these proposals will go a long way in improving India’s Ease of Doing Business rankings and act as a catalyst in making India an inviting option for investors.

The Way Forward

The Union Budget 2023-24, with its primary tenets of enhance in growth potential, job creation, crowd-in private investments and providing a cushion against global headwinds, estimates a growth of about 7% in this fiscal year. Here’s hoping that the year sees widespread growth across sectors with ample opportunities for foreign investors to flourish.

[1] Budget at a glance: 2023-23 (February 2023), Ministry of Finance, Budget Division

[2] Budget 2023-24, Speech of Niramala Sitharaman, Minister of Finance, February 1, 2023, Page 13

[3] Read more about the Production-Linked Incentive Scheme in our Article titled “Production Linked Incentive (PLI) Scheme: Here is how it works” (Available at https://www.asiancommunitynews.com/production-linked-incentive-pli-scheme-here-is-how-it-works/)

[4] Economic Survey 2023, Government of India, Ministry of Finance, January 2023, Page 343-344, (Available at https://www.indiabudget.gov.in/economicsurvey/doc/echapter.pdf)

by handyland