Foreign Direct Investment (FDI) In E-Retailing Sector Of India 2016 Series: A Guide For Businesses And Entrepreneurs

Foreign Direct Investment (FDI) In E-Retailing Sector Of India 2016 SeriesE-commerce has generated tremendous interest among various stakeholders and entrepreneurs in India. Indian government is also interested in helping the e-commerce entrepreneurs and stakeholders in having a trouble free environment. Indian government is also committed to protect the socio economic interests of India. As a result the government is bringing policy reforms but in a bit by bit fashion. However, policy clarity, especially a good techno legal framework, in India is still missing. Nevertheless, foreign direct investment (FDI) aspects of e-commerce are witnessing consolidation and are frequently clarified by Indian government.

As per the FDI policy, contained in the “Consolidated FDI Policy Circular 2015” (pdf) (FDI Policy) as amended from time to time, FDI up to 100% under automatic route is permitted in Business to Business (B2B) e-commerce. No FDI is permitted in Business to Consumer (B2C) e-commerce. However, FDI in B2C e-commerce is permitted in following circumstances:

i) A manufacturer is permitted to sell its products manufactured in India through e-commerce retail.

ii) A single brand retail trading entity operating through brick and mortar stores, is permitted to undertake retail trading through e-commerce.

iii) An Indian manufacturer is permitted to sell its own single brand products through e-commerce retail. Indian manufacturer would be the investee company, which is the owner of the Indian brand and which manufactures in India, in terms of value, at least 70% of its products in house, and sources, at most 30% from Indian manufacturers.

2.0 In order to provide clarity to the extant policy, guidelines for foreign direct investment on e-commerce sector have been formulated and are enumerated below:

2.1 Definitions:

i) E-commerce- E-commerce means buying and selling of goods and services including digital products over digital & electronic network.

ii) E-commerce entity– E-commerce entity means a company incorporated under the Companies Act 1956 or the Companies Act 2013 or a foreign company covered under section 2 (42) of the Companies Act, 2013 or an office, branch or agency in India as provided in section 2 (v) (iii) of FEMA 1999, owned or controlled by a person resident outside India and conducting the e-commerce business.

iii) Inventory based model of e-commerce– Inventory based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.

iv) Marketplace based model of e-commerce– Marketplace based model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller.

2.2 Guidelines for Foreign Direct Investment on e-commerce sector:

i) 100% FDI under automatic route is permitted in marketplace model of e-commerce.

ii) FDI is not permitted in inventory based model of e-commerce.

2.3 Other Conditions:

i) Digital & electronic network will include network of computers, television channels and any other internet application used in automated manner such as web pages, extranets, mobiles etc.

ii) Marketplace e-commerce entity will be permitted to enter into transactions with sellers registered on its platform on B2B basis.

iii) E-commerce marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfillment, call centre, payment collection and other services.

iv) E-commerce entity providing a marketplace will not exercise ownership over the inventory i.e. goods purported to be sold. Such an ownership over the inventory will render the business into inventory based model.

v) An e-commerce entity will not permit more than 25% of the sales affected through its marketplace from one vendor or their group companies.

vi) In marketplace model goods/services made available for sale electronically on website should clearly provide name, address and other contact details of the seller. Post sales, delivery of goods to the customers and customer satisfaction will be responsibility of the seller.

vii) In marketplace model, payments for sale may be facilitated by the e-commerce entity in conformity with the guidelines of the Reserve Bank of India.

viii) In marketplace model, any warrantee/ guarantee of goods and services sold will be responsibility of the seller.

ix) E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field.

x) Guidelines on cash and carry wholesale trading as given in para of the FDI Policy (pdf) will apply on B2B e-commerce.

3.0 Subject to the conditions of FDI policy on services sector and applicable laws/regulations, security and other conditionalities, sale of services through e-commerce will be under automatic route.

4.0 The above decision will take immediate effect.

Related Documents:

(1) Consolidated FDI Policy Circular Of 2015 By DIPP (pdf)

(2) Guidelines For Foreign Direct Investment (FDI) On E-Commerce 2016 Series (pdf)

(3) Review Of Foreign Direct Investment (FDI) Policy On Insurance Sector 2016 (pdf)

(4) Review Of Foreign Direct Investment (FDI) Policy On Pension Sector 2016 (pdf)

Source: E-Retailing Laws In India.

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Parliament Passes The Insolvency And Bankruptcy Code, 2016 To Ensure Ease Of Doing Business In India

Parliament Passes The Insolvency And Bankruptcy Code, 2016 To Ensure Ease Of Doing Business In IndiaFinancial and economic reforms are interrelated. Of late, there has been an increase in bad debts and unrecoverable loans from corporate and individuals in India. Some of them run in crores and Indian government, banks and even private lenders were helpless in recovering the same from defaulters. The current legal procedures are too cumbersome and lengthy that they are practically ineffective in recovering the money. It was strongly felt that a new legal framework was urgently needed that is in conformity with international best practices in this field. At the same time the proposed legal framework was required to ensure ease of doing business in India.

Keeping these objective in mind, the the Insolvency And Bankruptcy Code 2016 (pdf) was passed by Lok Sabha On 05-05-2016. The Bill was also passed by the Rajya Sabha (pdf) on 11-05-2016. It will become a law once President signs it.

In India, the legal and institutional machinery for dealing with debt default has not been in line with global standards. The recovery action by creditors, either through the Contract Act or through special laws such as the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, has not had desired outcomes. Similarly, action through the Sick Industrial Companies (Special Provisions) Act, 1985 and the winding up provisions of the Companies Act, 1956 have neither been able to aid recovery for lenders nor aid restructuring of firms. Laws dealing with individual insolvency, the Presidential Towns insolvency Act, 1909 and the Provincial Insolvency Act. 1920, are almost a century old. This has hampered the confidence of the lender. When lenders are unconfident, debt access for borrowers is diminished. This reflects in the state of the credit markets in India. Secured credit by banks is the largest component of the credit market in India. The corporate bond market is yet to develop.

The objective of the new law is to promote entrepreneurship, availability of credit, and balance the interests of all stakeholders by consolidating and amending the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner and for maximization of value of assets of such persons and matters connected therewith or incidental thereto.

The law aims to consolidate the laws relating to insolvency of companies and limited liability entities (including limited liability partnerships and other entities with limited liability), unlimited liability partnerships and individuals, presently contained in a number of legislations, into a single legislation. Such consolidation will provide for a greater clarity in law and facilitate the application of consistent and coherent provisions to different stakeholders affected by business failure or inability to pay debt.

The salient features of the law are as follows:

(a) Clear, coherent and speedy process for early identification of financial distress and resolution of companies and limited liability entities if the underlying business is found to be viable.

(b) Two distinct processes for resolution of individuals, namely- “Fresh Start” and “Insolvency Resolution”.

(c) Debt Recovery Tribunal and National Company Law Tribunal to act as Adjudicating Authority and deal with the cases related to insolvency, liquidation and bankruptcy process in respect of individuals and unlimited partnership firms and in respect of companies and limited liabilities entities respectively.

(d) Establishment of an Insolvency and Bankruptcy Board of India to exercise regulatory oversight over insolvency professionals, insolvency professional agencies and information utilities.

(e) Insolvency professionals would handle the commercial aspects of insolvency resolution process. Insolvency professional agencies will develop professional standards, code of ethics and be first level regulator for insolvency professionals members leading to development of a competitive industry for such professionals.

(f) Information utilities would collect, collate, authenticate and disseminate financial information to be used in insolvency, liquidation and bankruptcy proceedings.

(g) Enabling provisions to deal with cross border insolvency.

The essential idea of the new law is that when a firm defaults on its debt, control shifts from the shareholders / promoters to a Committee of Creditors, who have 180 days in which to evaluate proposals from various players about resuscitating the company or taking it into liquidation. When decisions are taken in a time-bound manner, there is a greater chance that the firm can be saved as a going concern, and the productive resources of the economy (the labour and the capital) can be put to the best use. This is in complete departure with the experience under the SICA regime where there were delays leading to destruction of the value of the firm.

The vision of the new law is to encourage entrepreneurship and innovation. Some business ventures will always fail, but they will be handled rapidly and swiftly. Entrepreneurs and lenders will be able to move on, instead of being bogged down with decisions taken in the past.

A key innovation of the Insolvency and Bankruptcy Code is four pillars of institutional infrastructure.

The first pillar of institutional infrastructure is a class of regulated persons, the ‘Insolvency Professionals’. They would play a key role in the efficient working of the bankruptcy process. They would be regulated by ‘Insolvency Professional Agencies’.

The second pillar of institutional infrastructure is a new industry of `Information Utilities’. These would store facts about lenders and terms of lending in electronic databases. This would eliminate delays and disputes about facts when default does take place.

The third pillar of institutional infrastructure is in adjudication. The NCLT will be the forum where firm insolvency will be heard and DRTs will be the forum where individual insolvencies will be heard. These institutions, along with their Appellate bodies, viz., NCLAT and DRATs will be adequately strengthened so as to achieve world class functioning of the bankruptcy process.

The fourth pillar of institutional infrastructure is a regulator viz., ‘The Insolvency and Bankruptcy Board of India’. This body will have regulatory over-sight over the Insolvency Professional, Insolvency Professional agencies and information utilities.

The Insolvency and Bankruptcy Code is thus a comprehensive and systemic reform, which will give a quantum leap to the functioning of the credit market. It would take India from among relatively weak insolvency regimes to becoming one of the world’s best insolvency regimes. It lays the foundations for the development of the corporate bond market, which would finance the infrastructure projects of the future. The passing of this Code and implementation of the same will give a big boost to ease of doing business in India.

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Generic Pharmaceutical Companies Of India Passing Through Tough Phase

Generic Pharmaceutical Companies Of India Passing Through Tough PhaseGeneric pharmaceutical companies play a very crucial role in maintaining good public health. These companies provide affordable drugs to masses in a timely manner. There are many life saving drugs that cannot be afforded by masses if they are purchased at their original cost. The generic drugs providers help them in having an affordable healthcare.

Healthcare is expensive because of the amount of investment made in research and development of the pharmaceutical product. This is also the reason why a patent protection is conferred upon the person or entity that comes up with a pharmaceutical product. Once the patent for a drug expires, its open and free availability can boost pharmaceutical business and e-commerce as the generic pharmaceutical companies can provide affordable drugs in large quantity.

One of the aims of World Trade Organisation (WTO) and Trade Related Trade Related Aspects of Intellectual Property Rights (TRIPS) is to ensure a barrier free movement of life saving drugs across various countries. The Doha Declaration also recognises the importance of affordable drugs for saving lives of millions. However, policy decisions adopted by many countries may prevent this from happening.

For instance, recently the United States Food and Drug Administration (U.S. FDA) issued an Import Alert 66-40 titled Detention Without Physical Examination Of Drugs From Firms Which Have Not Met Drug GMPs (PDF). This alert deals with detention without physical examination of drugs from firms which have not met drug good manufacturing practices (GMPs). Many Indian pharmaceutical companies have been listed on this alert and import from them has been banned. In fact, Lupin is recalling 9,210 bottles of Suprax drugs for failure to pass purity test.

While maintaining appropriate standards by the generic pharmaceutical companies of India is need of the hour yet countries like U.S. should not be very strict when it comes to life saving drugs. If the generic drugs produced are not contaminated or sub standard, the countries importing the same must not unnecessarily create procedural and technical hurdles.

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Compulsory Transfer Pricing Audit Based On Monetary Threshold May Be Scrapped In India

Compulsory Transfer Pricing Audit Based On Monetary Threshold May Be Scrapped In IndiaTransfer pricing issues are becoming difficult to mange world over. The Organisation for Economic Co-operation and Development (OECD) has been engaged at international level to provide effective policies and documents to deal with transfer pricing in a more effective manner. Although India falls in the category of Non-OECD economies under the present arrangement of OECD yet India voluntarily provides information about transfer pricing issues.

India has recently expressed her intentions to scrap the compulsory transfer pricing audit based on monetary threshold limits. The idea of selecting transactions for audit based on their risk of revenue leakage stems from India’s discussions with the OECD, which is working on new transfer-pricing documentation rules and a format for country-by-country reporting of income, taxes and economic activity of Multi National Corporations (MNCs).

India has been struggling hard to deal with transfer pricing and taxation issues. Even Vodafone, Nokia and Shell received notices from income tax authorities of India regarding transfer pricing and other taxation issues. Indian government has also proposed establishment of Income Tax Overseas Units (ITOUs) of India in foreign countries.

We at Perry4Law believe that transfer pricing laws and regulations in India need clarification. Similarly, issues like avoidance of tax by certain transactions in securities, avoidance of income-tax by transactions resulting in transfer of income to non residents, international transaction and arm’s length price, etc also required to be taken care of. All this requires a pragmatic and holistic approach on the part of Indian government.

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Vodafone Group Takes Complete Ownership Of Vodafone India Limited (VIL)

Vodafone Group Takes Complete Ownership Of Vodafone India Limited (VIL)Vodafone has been pursuing the tax dispute with Indian tax authorities for long. It was served with multiple notices by the tax department regarding transfer pricing issues as well. Vodafone even stressed that it may invoke the option of invoking an international arbitration in this regard. The Bombay High Court has already dismissed Vodafone’s plea in the transfer pricing case.

Among all these developments, the Vodafone Group has recently taken complete ownership of its India telecom venture Vodafone India Ltd. (VIL), by buying out minority partners Piramal Enterprises, and Analjit Singh and Neelu Analjit Singh stakes for a combined Rs10,142 crore.

Vodafone Group initially bought the 24.65% indirect stake in VIL held by Analjit Singh and Neelu Analjit Singh in March 2014. Now the group has also bought the remaining 10.97% stake of VIL from Piramal Enterprises. The Foreign Investment Promotion Board (FIPB) approved both acquisitions following receipt of the approval of the Cabinet Committee on Economic Affairs.

The regulatory environment for telecom sector of India is fast changing to the betterment of various stakeholders. Firstly, the electronic system design and manufacturing policy of India has been liberalised. The FDI Policy in Telecom Sector of India 2014 (PDF) has allowed 100% FDI subject to FIPB approval and other national security requirements. Similarly, approval to establish two semiconductor wafer fabrication manufacturing facilities in India (PDF) has also been granted by Indian Government.

Secondly, the telecom merger and acquisition guidelines of India 2014 have also been released. This would allow more telecom companies to compete against each other and provide better services to the consumers. This would also require compliance with various techno legal compliance requirements by both national and international telecom companies.

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Single Phase Roll Out For E-Forms In India Proposed By Ministry Of Corporate Affairs (MCA) From April 28

Single Phase Roll Out For E-Forms In India Proposed By Ministry Of corporate Affairs (MCA) From April 28The regulatory compliances under Indian Companies Act 2013 have become really daunting. The notification of many provisions of the Indian Companies Act, 2013 (PDF) and corresponding rules thereunder by the Ministry of Corporate Affairs (MCA) has drastically changed the corporate compliance requirements in India.

The roll out plan of various forms under the Companies Act, 2013 (PDF) was also announced by MCA. This roll out plan was supposed to be executed in different phases by MCA.

Now the MCA has decided to follow a single phase roll out plan for e-forms. As a result companies can now upload their e-forms under the 2013 Act from April 28 2014. MCA was originally contemplating to introduce a separate roll out plan for chapter wise e-forms.

This may also be the beginning of new compliance jurisprudence for the corporate environment of India. These include techno legal compliances including compliances regarding cyber law and cyber security due diligence. Both the companies and the concerned directors can be held personally liable for non compliance with various requirements of 2013 Act and other applicable laws of India.

The companies would also be required to keep in mind the requirements pertaining to electronic voting, electronic documents, e-notices of the meetings, etc. Further, the 2013 Act has not forbidden the applicability of other laws of India including the Information technology Act, 2000. This means that both the companies and directors would be required to comply with all techno legal regulatory frameworks of India.

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Corporate Compliance Requirements Have Drastically Changed In India

Corporate Compliance Requirements Have Drastically Changed In IndiaCompanies in India are still trying to understand the implications of the newly formulated Indian Companies Act, 2013. This is natural as well as the new corporate regulatory framework has introduced novel concepts that were not in existence previously. Companies and their directors are finding it difficult to deal with techno legal issues of cyber law, cyber security, cyber forensics, e-discovery, etc that they cannot ignore anymore.

Corporate governance has also been given a totally different meaning with the introduction of concepts like corporate social responsibility. Further, an enhanced scrutiny of corporate affairs has also been ensured by the new framework. The Serious Frauds Investigation office (SFIO) would be seen in more aggressive form in the coming years. In short, the regulatory compliances under the new company law have become very stringent.

Take a simple and hypothetical example of a cyber security breach that company usually faces these days. If the company and its directors fail to take appropriate remedial actions against such cyber security breach, the company and its directors can be held civilly and criminally liable under Indian laws. Recently Target Corporation faced a similar situation where it failed to take the desired action and this resulted in further data theft and damages.

It is obvious that cyber security breaches would raise complicated cyber security issues for Indian companies in the near future. Indian companies are very poor at maintaining proper cyber security and ensuring effective e-discovery practices. These are new compliance requirements that were missing form the Companies Act, 1956. The directors’ liabilities under the 2013 Act have also increased significantly. They can be held liable for their acts or omissions arising out of non compliances under various laws of India, including the Information Technology Act, 2000.

Till now there is no sign that companies and board of directors have started formulating suitable techno legal policies for their companies. If there are no such policies, there is no question of their actual implementation. This would only give rise to multiple and increased litigations and legal disputes in the near future. Perry4Law strongly recommends that companies and board of directors must urgently formulate techno legal policies and implement the same as soon as possible.

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