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REPORT ON

Strategies for Doing Business in India


With Special Emphasis On

INTELLECTUAL PROPERTY RIGHTS


INCLUDING
TECHNOLOGY TRANSFER
CHILD LABOUR
CORRUPTION
&
ESTABLISHING AN OFFICE IN INDIA

for

The Commercial Section of the Royal Norwegian


Embassy,
New Delhi, India

(Innovation Norway's office in New Delhi)

REPORT PREPARED BY

VAISH ASSOCIATES, ADVOCATES

Flat No 903, Indra Prakash Building


21, Barakhamba Road, New Delhi 110001 (India)
Phone: +91 11 42492532 (Direct) Mobile :- 9810081079
Fax: +91 11 23320484 email:- vpdalmia@vaishlaw.com

Website: www.vaishlaw.com
Strategies for Doing Business in India

ABOUT THE AUTHOR


The Author, Vaish Associates Advocates1, established in the year 1971, is
a full service law firm having vast knowledge reservoir and intellectual
resource base. The firm is known, domestically and internationally for its
expertise in Tax, Corporate and Business Advisory Services, Intellectual
Property, Information Technology and Competition Laws.

The firm has its presence at four important locations in India i.e. Delhi,
Mumbai, Gurgaon and Bengaluru and associates in almost all the major
cities in India.

The firm is the only law firm from India to be a part of World Law Group2,
which is a network of 50 independent law firms from 37 countries with
more than 260 offices in major commercial centres worldwide and legal
expertise of more than 10,500 lawyers globally.

The present report has been prepared by the Heads of various practice
groups with the assistance of their team of associates.

1
www.vaishlaw.com
2
www.theworldlawgroup.com

2
© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

INDEX
Sr. No. Contents Page Nos.

1. Introduction 5

2. Abbreviations 6

3. India as a business destination 9

4. Intellectual Property Laws In India 12

4.1. Trademarks 13

4.2. Patent 16

4.3. Copyright 20

4.4. Industrial Design 22

4.5. Geographical Indications 24

4.6. Semiconductor Integrated Circuits Layout Design 25

4.7. Plant Varieties and Farmers‘ Rights 25

5. Data Protection in India 27

6. Enforcement of Intellectual Property Rights in India 29

6.1. Infringement of Trademarks 30

6.2. Infringement of Patents 32

6.3. Infringement of Copyright 32

6.4. Infringement of Industrial Designs 33

6.5. Infringement of Semiconductor Integrated Circuits Layout Designs 33

6.6. Infringement of Plant Varieties and Farmers‘ Rights 34

6.7. Infringement of Geographical Indications 34

6.8. Administrative Remedies against IPR violations 34

7. Piracy and counterfeiting in India 36

8. Establishing presence In India by Foreign Companies 39

8.1. Legal entity for doing business in India 39

8.2. Foreign Direct Investment 47

8.3. Licenses/Permissions/Registrations 49

9. New Direct Tax Code 52

10. Distribution and Warehousing 56

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

11.Labour Laws 60

11.1. Child labour in India 60

11.2. Penalties for employing Child Labour 62

11.3. Prevention of child labour 62

11.4. Corporate Social Responsibility in India 63

12.Corruption in India 65

13.Litigation 68

13.1. Time frame for litigation 69

13.2. Cost of litigation 69

13.3. Mechanism for enforcement of judgments 70

14.Arbitration – The preferred mode 71

15.Technology Transfer 74

16.Specific Guidelines for Foreign companies 77

16.1. Non Disclosure Agreements (NDA) 79

16.2. Sample - Non Disclosure Agreement (NDA) 80

17.Domestic laws of India 85

18.Important International Conventions ratified by India 87

19.Important websites 88

20.Disclaimer 91

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

INTRODUCTION

This report has been prepared by the author Vaish Associates Advocates,
a leading Indian Law firm, on the instructions of the Commercial Section
of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's
office in New Delhi), for the benefit of the Norwegian entities, who may be
interested in developing business with in India. It is important to note
that the present report has been prepared for giving an overview to the
Norwegian entities, who may be interested in understanding various
aspects of Indian laws like intellectual property, labour, corporate,
arbitration, tax and penal laws etc. for connecting with and establishing a
business in India. The focus of the present report is Intellectual Property
Rights, Technology Transfer, Data Protection, Labour Laws, Business Laws
and other related aspects.

The present report has been prepared by adopting a simplistic approach,


so as to enable the reader, to understand the intricacies pertaining to
India, Indian Legal system and Laws.

This report should be read and understood in the context in which it has
been prepared. It is pertinent to mention herein that investment from
Norwegian entities in India between the periods of April 2000 to March
2010 form a share of only 0.04 %3 of the total Foreign Direct Investment
(FDI) made by various countries in India, which is indicative of the fact
that there is a good potential for Norwegian business entities to explore
business opportunities in India.

We would like to make it clear that the present report should not be taken
as a professional advice on the laws and issues dealt herein as the
information provided in this report is only for general understanding. It is
advised that proper professional assistance should be taken before
initiating any business venture in India.

3
http://dipp.nic.in/fdi_statistics/india_FDI_March2010.pdf

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

ABBREVIATIONS

ADB Asian Development Bank

APAs Advance Pricing Agreements

ADR Alternative Dispute Resolution

BIFR Board For Industrial and Financial Reconstruction

CAT Central Administrative Tribunal

CBI Central Bureau Of Investigation

CESTAT Central Excise Service Tax Appellate Tribunal

CFC Controlled Foreign Corporation

CPI Corruption Perceptions Index

CSR Corporate Social Responsibility

CVC Central Vigilance Commission

CVOs Chief Vigilance Officers

DIPP Department of Industrial Policy & Promotion

DRT Debts Recovery Tribunal

FDI Foreign Direct Investment

FDI POLICY Foreign Direct Investment Policy

FEMA Foreign Exchange Management Act, 1999

FEMA Foreign Exchange Management (Establishment in


REGULATIONS India of Branch or Office or Other Place of Business)
Regulations, 2000

FICCI Federation of Indian Chamber of Commerce and


Industry

FII Foreign Institutional Investors

FIPB Foreign Investment Promotion Board

FIR First Information Report

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

FMCG FAST MOVING CONSUMER GOODS

GAAR General Anti- Avoidance rules

GDP Gross Domestic Product

GIs Geographical Indications

ICC International Chamber of Commerce

ICICI Industrial Credit and Investment Corporation of India

ICDR International Centre for Dispute Resolution

IDBI Industrial Development Bank of India

IEC Code Importer- Exporter Code

IFCI Industrial Finance Corporation of India

ILO International Labour Organization

IMF International Monetary Fund

INR Indian National Rupees

IP Intellectual Property

IPAB Intellectual Property Appellate Board

IPO Indian Patent Office

IPR Intellectual Property Rights

IT Act Information Technology Act

ITAT Income Tax Appellate Tribunal

JV Joint Venture

LCIA London Court of International Arbitration

MCA Ministry of Corporate Affairs

NASSCOM National Association of Software and Service


Companies

NIAPC National Initiative Against Piracy and Counterfeiting

NRIs Non-resident Indians

PAN Permanent Account Number

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

PCT Patent Cooperation Treaty

PIOs Persons of Indian Origin

PPPs Purchasing Power Parity

PSUs Public Sector Undertakings

RBI Reserve Bank of India

RO Receiving Office

RTI Right to Information

SIAC Singapore International Arbitration Centre

TAN Tax Deduction Account Number

TDRs Transferable Development Rights

TRIPS Trade Related Aspects of Intellectual Property Rights

UCC Universal Copyright Convention

UNESCO United Nations Educational, Scientific and Cultural


Organization

UNCITRAL United Nations Commission on International Trade


Law

VAT Value Added Tax

WIPO World Intellectual Property Organization

WOS Wholly-owned Subsidiary

WTO World Trade Organization

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

INDIA AS A BUSINESS DESTINATION

India is the seventh-largest country by geographical area and second-


largest by population in the world. The current population of India in the
year 2010 is around 1,162,000,0004 (1.162 Billion). India is the world‘s
largest democracy and second fastest growing market in Asia. The
economy of India is fourth largest in the world by Purchasing Power Parity
(PPP) behind U.S.A., China and Japan.5 It is the eleventh largest economy
in the world in terms of nominal Gross Domestic Product (GDP). 6 For the
year 2010-2011 International Monetary Fund ( IMF) has projected India‘s
GDP at 8.8 %7, making it one of the fastest growing economies in the
world and the second fastest in Asia.

India with its more than one billion population and an open market
provides profitable and diverse opportunities for investment and trade.
India is one of the fastest growing consumer markets in the world. India
is generating huge demand in major sectors such as Energy, Telecom,
Banking, Finance, Healthcare, Petroleum and Natural gas, infrastructure,
information technology, transportation, and defense. India has a strong
manufacturing and export oriented industrial framework, with added
advantage of having a large skilled resource pool. All these factors put
together makes India one of the most preferable destination of Foreign
Investments.

India is sovereign, socialistic, democratic, republic with a parliamentary


system of government, as it is federal in nature with strong unitary
features. India has 29 states and 6 union territories with New Delhi as its
capital. The Governance structure is divided into three distinct but
interrelated branches, namely, Legislature, Executive and Judiciary.

Indian Legislature has two legislative chambers and deals with matters
relating to administration, budget, international relations, policies and
passing of laws on the matters enlisted in the constitution. The Union
Executive of India consists of the President, Vice President, and a Council
of Ministers, led by the Prime Minister, to aid and advise the President. Its
power extends to all the matters on which Parliament can make laws and
matters covered under any international treaty or agreement.

Central and State Governments with various autonomous Government


bodies such as Municipalities and village Panchayats ( Village council),

4
http://populationcommission.nic.in/welcome.htm
5
"CIA — The World Fact book — Rank Order — GDP (purchasing power parity)". .
6
International Monetary Fund, World Economic Outlook Database, April 2010: Data for the year
2009. .
7
http://www.imf.org/external/country/IND/index.htm

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

form the executive arm of India who are involved in execution of laws.
However, in the last 25 years, Indian economy has opened up
considerably, wherein the Government has started functioning towards an
open economy with minimal controls, regulations and licensing. Laws
have been liberalized. Setting up of industries has become comparatively
easy because of the single window schemes of the Government.

Judiciary in India is not only independent but also functions as a watchdog


under the Constitution of India. It takes care of the enforcement and
interpretation of laws in India. One of the prominent features of the
Indian Judicial system is the absence of any biased approach, making it
equally efficient for foreigners. Other features of the Indian judicial
system include well defined hierarchy of courts, codified laws and
procedures. The Supreme Court of India and Indian High Courts have the
inherent powers to adjudicate upon the issues pertaining to procedures
and other related issues, which may not have been properly codified. All
the judgments of the Supreme Court of India and Indian High Courts have
the force of law and binding upon the Government of India and the states.

A hierarchy of Courts administers justice in India. Indian Judicial system


is divided into three broad levels. The Supreme Court is the highest
judicial body in India. It is situated at New Delhi. It is the highest Court of
appeal and is guardian and interpreter of Constitution of India. It is
followed by High Court at the State level. Furthermore, the District Courts
are responsible for judicial matters at District level. Various Tribunals
have also been set up in India for specific matters to provide speedy and
effective justice.

India being a part of Commonwealth Nations follows the Common law


principles besides its well enacted laws. It is pertinent to mention that
foreigners in India can sue even the Government of India, or any Indian
state.

However, Indian courts for their slow judicial process are often criticised
world over. Therefore, Alternative Dispute Resolution (ADR) mechanisms
which include Arbitration, Mediation and Conciliation, etc. play a
significant role in resolving commercial disputes in India. Indian law
recognises ADR mechanisms as an effective method for resolution of
disputes and arbitration awards are enforceable like final decree of Court.

All these factors put together make India one of the leading international
and financial destinations in the world. India with its abundant availability
of skilled human resources along with adequate natural resources and raw
materials provides a large and growing domestic market. India's economic
development continues at a rapid pace, despite global economic
downturn. Foreign investors are looking at India as an attractive and
dynamic investment destination as it promises strong growth prospects

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

along with high returns. A large number of Corporate and Multinational


Companies from all over the world are coming to India and are
establishing their businesses in India, making it one of the most preferred
business destinations in the world.

It shall be interesting to note some facts and figures8 pertaining to the


Indian economy depicted as below:-

From April 2000 to March 2010

Cumulative Amount Of Foreign Direct US$ 161.536 Billion


Investment (FDI)
into India

From April 2009 to March 2010

Amount Of Foreign Direct Investment (FDI) US$ 34.167 Billion


into India

It is interesting to note that as per the report of the Department of


Industrial Policy & Promotion (DIPP), functioning under the Ministry of
Commerce and Industry, Government of India, the total Foreign Direct
Investment (FDI) from the year 2000 to March 2010, from Norway is
US$ 45.26 Million, which is only 0.04 % of the total Foreign Direct
Investment (FDI) made by various countries in India.

The above data is indicative of the fact that opportunities are wide open
to explore the Indian market, which is immense and exciting.

8
http://dipp.nic.in/fdi_statistics/india_FDI_March2010.pdf

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

INTELLECTUAL PROPERTY LAWS IN INDIA


With the rapid globalization and opening up of the Indian economy,
―Intellectual Property‖ has become one of the key wealth drivers in the
present international trade. Intellectual Property Rights have also
acquired importance for the reason that India itself is a huge market
because of its vast geography, population and constantly increasing
purchasing power of its people.

India being a member of World Trade Organization (WTO) is also a


signatory to TRIPS Agreement. It is pertinent to note that Indian Statutes
pertaining to the Intellectual Property are now TRIPS compliant.

India has enacted laws covering various aspects of Intellectual Property


as enumerated herein below:

 Trademarks
 Patents
 Copyrights and related rights
 Industrial Designs
 Geographical Indications
 Lay out Designs of Integrated Circuits
 Plant varieties
 Data Protection, Technology Transfer and Trade Secrets

Broadly, the following Statutes deal with the above matters relating to
Intellectual Property:

 The Trade Marks Act, 19999


 The Patents Act, 197010
 The Copyright Act, 195711
 The Designs Act, 200012
 The Geographical Indications of Goods (Registration and Protection)
Act, 199913
 The Semiconductor Integrated Circuits Layout-Design Act, 200014
 The Protection of Plant Varieties and Farmers‘ Right Act, 200115
 The Information Technology Act, 200016
 The Indian Contract Act, 1872

9
http://ipindia.nic.in/tmr_new/tmr_act_rules/TMRAct_New.pdf
10
http://ipindia.nic.in/ipr/patent/patents.htm
11
http://www.copyright.gov.in/Documents/CopyrightRules1957.pdf
12
http://ipindia.nic.in/ipr/design/design_act.PDF
13
http://ipindia.nic.in/girindia/GI_Act.pdf
14
http://www.mit.gov.in/sites/upload_files/dit/files/SICLDA.pdf
15
http://agricoop.nic.in/PPV&FR%20Act,%202001.pdf
16
http://www.mit.gov.in/sites/upload_files/dit/files/downloads/itact2000/itbill2000.pdf

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

Trademarks

Incorporating the settled international principles of protection of


Intellectual Property Rights, India has codified its law on trademarks in
the form of Trade Marks Act, 1999. It is to be noted that in order to seek
protection of a trademark in India, registration of the same is not
compulsory.

India is a signatory to the Paris Convention for the Protection of Industrial


Property, 188317, including patents, marks, industrial designs, utility
models, trade names (designations under which an industrial or
commercial activity is carried on), geographical indications (indications of
source and appellations of origin) and the repression of unfair
competition. It is pertinent to note that Norway is also a signatory to the
Paris convention for the Protection of Industrial Property, 1883. In view
of the above, Norwegian Companies are entitled for and can seek
protection of their trade names in India without the obligation of
registration.

India is a signatory to the Madrid Protocol18, which provides extensive


protection to Indian trademarks overseas and facilitates foreign firms to
file their trademarks in India. The Madrid Protocol is a simple, facilitative
and cost-effective system for international registration of trade marks.
The system based on Madrid Protocol provides a simplified process for
filing, registration and maintenance of trademark rights in more than one
jurisdiction on a global basis, enabling the registrants to have better
trademark protection. However, the Madrid Protocol has not become
effective till date, and the same is likely to be effective by December
2010.

The (Indian) Trade Marks Act, 1999, apart from providing the remedy
against infringement of registered trademarks, also recognizes the
common law remedy of passing off for unregistered trademarks.

The law of passing off is based on the principles of natural justice. Though
there is no statutory definition of the word passing off under the Indian
Law, however, it can be defined as misrepresentation and deception
carried out to create confusion in the market to take the advantage of the
goodwill and reputation of another for earning illegal profits. The remedy
of passing off is available to unregistered trademark owners, who have
acquired the right over the trademark by virtue of being first adopter and
first user of the trademark. The law of passing off is also applicable to well
known trademarks enjoying international trans border reputation, which

17
http://www.wipo.int/treaties/en/ip/paris/
18
http://www.wipo.int/madrid/en/

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

may not have been registered in India or have any actual business
presence in India.

Furthermore, it gives protection to both the ―trademarks‖ as well as


―service marks‖. It is pertinent to mention herein that (Indian) Trade
Marks Act, 1999, provides protection to the well known trademarks and
recognizes the principle of trans-border reputation. The term well known
trademark means a trademark which has acquired substantial goodwill
and reputation amongst the public in India or out of India. The Indian
judiciary is pro-active in the protection of trademarks, and has also
extended the protection to Domain Names treating the same at par with
Trademarks.

As per the (Indian) Trade Marks Act, 1999 a registrable ―trademark‖


includes a device, brand, heading, packaging, numeral, shape of goods (3
Dimensional trademark), label, ticket, name, signature, word, letter,
combination of colours.

Procedure for registration of a trademark in India can be


understood with the help of the following flowchart:

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

Presently, the process of registration of a trademark may take 3 to 4


years in a non-opposition case. During the course of the process of
registration, public is given an opportunity to oppose the registration of a
trademark by filing a petition known as opposition. The registration of a
trademark can be opposed on various grounds such as the registration is
likely to create confusion or deception in the market, identical to the
trademark of the opponent or violates any other right of the opponent
etc.

Foreign Entities may file an application for registration of a trademark in


India through a duly appointed registered agent/attorney or
representative in India. It may be noted that in case a foreign entity does
not have an office in India, such foreign entity can file an application for
registration of a trademark only through an Indian registered agent or
attorney. Under the (Indian) Trade Marks Act, 1999, any foreign entity
from a Convention Country recognized by India, can claim priority of
registration from the earliest corresponding application in the Convention
country provided that the application is filed in India within six months of
the priority date. The advantage of claiming priority is that the Indian
application will be treated to have been filed on the same date when the
first application for the registration of such trademark was filed.

Duration of registration: A trademark is registered initially for a period


of 10 years from the date of the application. The registration can be
renewed for further period of ten years and can subsequently be renewed
time and again.

Rectification or cancellation: In case a trademark has been wrongly


registered or violates the right of any party, the same can be cancelled on
a petition before the Registrar of Trademarks, India or the Intellectual
Property Appellate Board19 (IPAB) (an Appellate authority under the
(Indian) Trade Marks Act, 1999).

Assignment and Licensing: A registered as well as an unregistered


trademark can be assigned or licensed in India subject to the written
agreement between the parties, however, the assignment of a registered
trademark should be registered with the Registrar of Trademarks.

19
http://www.ipab.tn.nic.in/

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

Patent

Indian Patent Law is compliant with the TRIPS Agreement and at par with
Patent Laws internationally. The (Indian) Patents Act, 1970, governs the
law of patents in India. It is important to note that in the year 2005
(Indian) Patents Act, 1970, underwent a major change to meet the
requirements of the TRIPS Agreement, and one of important aspect of the
aforesaid amendment was the introduction of the ―Product‖ Patent in
India.

An invention relating either to a product or process that is new, involving


inventive step and capable of industrial application can be patented in
India. However, it must not fall into the category of inventions that are
non-patentable as provided under Section 3 and 4 of the (Indian) Patents
Act, 1970. Section 3 & 4 of the Patents Act, 1970 enumerates various
inventions which are not patentable in India.

In India, a patent application can be filed, either alone or jointly, by true


and first inventor or his assignee. However, the legal representative of
any deceased person can also make an application for grant of patent.

The Indian Patent office publishes a journal, known as ―The Patent Office
Journal‖ and is freely available on Indian Patent Office website20. The
website also provides the status of the pending applications, and facilitate
search of the published and granted patents by the Indian Patent office21.

Procedure for Grant of Patent in India

After filing the application for the grant of patent, a request for
examination is required to be made for examination of the application by
the Indian Patent Office. After the First Examination Report is issued, the
Applicant is given an opportunity to meet the objections raised in the
report. The Applicant has to comply with the requirements within 12
months from the issuance of the First Examination Report22. If the
requirements of the first examination report are not complied with within
the prescribed period of 12 months, then the application is treated to
have been abandoned by the applicant. After the removal of objections
and compliance of requirements, the patent is granted and notified in the
Patent Office Journal. However, before the grant of patent and after the
publication of application, any person can make a representation by way
of pre-grant opposition. It is pertinent to mention that a post-grant
opposition can also be filed by any person interested, within a period of
one year from the date of grant of the patent. Some of the grounds for

20
www.ipindia.nic.in
21
http://ipindia.nic.in/ipirs/patentsearch.htm
22
Section 21 of Patents Act, 1970 and Rule 24(b)(4) of the Patent Rules, 2003

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

filing of pre and post grant opposition are prior art, patent being wrongly
granted, prior publication, prior public use, obviousness, lack of inventive
step, failure to disclose the source or geographical origin of biological
material used for the invention and anticipation etc. The process of the
grant of patent in India can also be understood from the following flow
chart.

Filing of Application for Grant of Patent in India by Foreigners


Since, both India and Norway are signatories to the Paris Convention for
the Protection of Industrial Property, 1883 and the Patent Cooperation
Treaty (PCT), 197023 Norwegian entities can adopt any of the aforesaid
routes for filing of application for grant of patent in India.
An international application known as PCT application 24 can be filed in
India in the Patent Offices located at Kolkata, Chennai, Mumbai and

23
http://www.wipo.int/pct/en/texts/articles/atoc.htm
24
http://ipindia.nic.in/ipr/patent/PCTApplication_01October2009.pdf

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

Delhi. All these offices act as Receiving Office (RO) for International
application.

Where an application for grant of patent in respect of an invention in a


Convention Country has been filed, then similar application can also be
filed in India for grant of patent by such applicant or the legal
representative or assignee of such person within twelve months from the
date on which the basic application was made in the Convention Country
i.e. the home country. The priority date in such a case is considered as
the date of making of the basic application.

Term of Patent

Term of patent in India is 20 years from the date of filing of patent


application. It is important to note that a patentee has to renew the
patent every year by paying the renewal fee which can be paid every year
or in lump sum.

Rights Granted by Patent

If the grant of the patent is for a product, then the patentee has a right to
prevent others from making, using, offering for sale, selling or importing
the patented product in India.

If the patent is for a process, then the patentee has the right to prevent
others from using the process, using the product directly obtained by the
process, offering for sale, selling or importing the product in India directly
obtained by the process.

Before filing an application for grant of patent in India, it is important to


note “What is not Patentable in India?”. Following i.e. an invention
which is (a) frivolous, (b) obvious, (c) contrary to well established natural
laws, (d) contrary to law, (e) morality, (f) injurious to public health, (g) a
mere discovery of a scientific principle, (h) the formulation of an abstract
theory, (i) a mere discovery of any new property or new use for a known
substance or process, machine or apparatus, (j) a substance obtained by
a mere admixture resulting only in the aggregation of the properties of
the components thereof or a process for producing such substance, (k) a
mere arrangement or rearrangement or duplication of known devices, (l)
a method of agriculture or horticulture and (m) inventions relating to
atomic energy are not patentable in India.

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

Compulsory Licenses

One of the most important aspects of Indian Patents Act, 1970, is


compulsory licensing of the patent subject to the fulfillment of certain
conditions. At any time after the expiration of three years from the date
of the sealing of a patent, any person interested may make an application
to the Controller of Patents for grant of compulsory license of the patent,
subject to the fulfillment of following conditions, i.e.

 the reasonable requirements of the public with respect to the


patented invention have not been satisfied; or
 that the patented invention is not available to the public at a
reasonable price; or
 that the patented invention is not commercially used or put to
industrial application in India within three years from the date of
grant of patent.

It is further important to note that an application for compulsory licensing


may be made by any person notwithstanding that he is already the holder
of a license under the patent.

However, before the grant of a compulsory license, the controller of


Patents shall take into account following factors:

 The nature of invention;


 The time elapsed, since the sealing of the patent;
 The measures already taken by the patentee or the licensee to
make full use of the invention;
 The ability of the applicant to work the invention to the public
advantage;
 The capacity of the applicant to undertake the risk in providing
capital and working the invention, if the application for
compulsory license is granted;
 As to the fact whether the applicant has made efforts to obtain a
license from the patentee on reasonable terms and conditions;
 National emergency or other circumstances of extreme urgency;
 Public non commercial use;
 Establishment of a ground of anti competitive practices adopted
by the patentee.

The grant of compulsory license cannot be claimed as a matter of right, as


the same is subject to the fulfilment of above conditions and discretion of
the Controller of Patents. Further judicial recourse is available against any
arbitrary or illegal order of the Controller of Patents for grant of
compulsory license.

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

Copyright
Indian copyright law is at parity with the international standards as
contained in TRIPS. The (Indian) Copyright Act, 1957, pursuant to the
amendments in the year 1999, fully reflects the Berne Convention for
Protection of Literary and Artistic Works, 188625 and the Universal
Copyrights Convention26, to which India is a party. India is also a party to
the Geneva Convention for the Protection of Rights of Producers of
Phonograms27 and is an active member of the World Intellectual Property
Organization (WIPO)28.

Copyright of ―works‖ of foreign nationals, whose countries are member of


Convention Countries to which India is a signatory, are protected in India
through the International Copyright Order, 199929. It may be noted that
since Norway has also ratified all the conventions mentioned above, thus
―works‖ from Norway can seek full protection in India.

It is pertinent to mention herein that along with the (Indian) Trade Marks
Act, 1999, the protection can also be obtained under the (Indian)
Copyright Act, 1957 with respect to the artwork, layout, pattern, style,
get-up and colour-combinations of packaging and labels which are
capable of being registered under the (Indian) Trade Marks Act, 1999 as a
trademark.

“Work” Protected in India

Under the (Indian) Copyright Act, 1957,

 artistic work including a painting, a sculpture, a drawing (including a


diagram, map, chart or plan), an engraving, a photograph, a work
of architecture or artistic craftsmanship, dramatic work,

 literary work (including computer programmes, tables, compilations


and computer databases),

 musical work (including music as well as graphical notation),

 sound recording, and

 cinematograph film

25
http://www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=15
26
http://portal.unesco.org/en/ev.php-
URL_ID=15381&URL_DO=DO_TOPIC&URL_SECTION=201.html
27
http://www.wipo.int/treaties/en/ip/phonograms/trtdocs_wo023.html
28
http://www.wipo.int/portal/index.html.en
29
http://copyright.gov.in/Documents/International%20Copyright%20Order.htm

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

are protected.

The Indian Courts have also been pro active for the protection of
Copyright of foreign authors/owners, which includes software, motion
pictures including screen play of motion pictures and database. The
(Indian) Copyright Act, 1957 provides for both civil and criminal remedies
against infringement of copyright in India.

The Government of India is also taking initiative to combat piracy in the


software industry, motion pictures and the music industry along with
players in the industry through their associations and organizations like
NASSCOM (National Association of Software and Service Companies) 30,
NIAPC (National Initiative Against Piracy and Counterfeiting) etc.

Need of Registration of Copyright

In India, the registration of copyright is not necessary as the registration


is treated as mere recordal of a fact. The registration does not
create/confer any new right and is not a pre-requisite for initiating action
against infringement of copyright.

It is important to note here that there is no prescribed time limit within


which registration of a copyright can be obtained. However, presently the
registration of a copyright may take a period of 1 to 1 ½ years.

It is to be noted that awareness of Intellectual Property (IP) Laws is


considerably low even among the enforcement authorities in India, and
most of the IP litigation is confined to metropolitan cities. It is always
advisable to register the copyright as the copyright registration certificate
is accepted as a proof of ownership in a Court of law and Police
authorities, and acted upon smoothly by them.

The law of copyright in India not only provides for civil remedies in the
form of injunction, damages etc. but also makes instances of infringement
of copyright, a cognizable offence punishable with 3 years of
imprisonment and fine. The (Indian) Copyright Act, 1957 gives power to
the police to register the Complaint (First Information Report, i.e., FIR)
and act on its own without any further intervention of Courts.

Licensing and Assignment of Copyright

The copyright in any work, present or future, can only be assigned or


licensed in writing by the copyright owner or his duly authorized agent.

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Strategies for Doing Business in India

Duration/Term of Copyright

In the case of original literary, dramatic, musical and artistic works, the
duration of copyright is the lifetime of the author or artist, and 60 years
counted from the year following the death of the author.

In the case of cinematograph films, sound recordings, photographs,


posthumous publications, anonymous and pseudonymous publications,
works of government and works of international organizations are
protected for a period of 60 years which is counted from the year
following the date of publication.

Industrial Design
Industrial Design, also known as Patent Design in some parts of the world
is protected in India under the (Indian) Designs Act, 2000.

Industrial Design refers to creative activity which results in the


ornamental or formal appearance of a product. It is to be noted that India
is also a member country of the Paris Convention for Protection of
Industrial Property, 1883 under the arrangement of which a design from a
member country is protected under the (Indian) Designs Act, 2000 in a
similar manner as an Indian design is protected. It is important to note
that India being a member of the Paris Convention for Protection of
Industrial Property, 1883 accords equal protection to the Industrial
Designs which are registered in Norway as provided under the (Indian)
Designs Act, 200031.

However, registration of a design in India is a pre-condition for claiming


and enforcing any right under the (Indian) Designs Act, 2000. Protection
to any foreign Industrial Design is subject to a precondition i.e. any
design which is registered in a convention32 country, must be applied for
registration in India within a period of 6 months from the date of the first
convention application, i.e. the first application in the foreign country. The
advantage of filing an application within a period of six months from the
date of first application is that the Indian application will be treated to
have been filed on the same date when the first application for the
registration of design was filed.

31
http://www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=2
32
http://www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=2

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Strategies for Doing Business in India

Registrable Industrial Designs

Features of shape, configuration, pattern, ornament or composition of


lines or colours applied to any article, whether in two dimensional or three
dimensional or in both forms, can be registered under the (Indian)
Designs Act, 2000. However, functionality aspects of a design are not
protected under the (Indian) Designs Act, 2000 as the same are subject
matter of patents.

Registration, Cancellation and Enforcement of Designs

Design of an article is not registrable in India, if it –

 is not new or original;

 has been disclosed to the public anywhere in India or in any


other country by publication in tangible form or by use in any
other way prior to the filing date or priority date of the
application;

 is not significantly distinguishable from known designs or


combination of known designs;

 comprises or contains scandalous or obscene matter.

The above grounds may also be used for cancellation of the registration of
any design, and as a defense in an infringement proceeding.

It is advised that any foreign entity, interested in protecting any of its


Industrial Design in India, should file an application for registration of
design in India within 6 months from the date of the corresponding
convention application, i.e. the first application filed in the home country.
The advantage of filing an application within a period of six months from
the date of first application is that the Indian application will be treated to
have been filed on the same date when the first application for the
registration of design was filed.

Duration of Protection of a Design

Initially a protection of 10 years is given to the proprietor of a registered


design with regard to exclusive rights to sell, make or import the articles
and initiating an action against an infringer. This initial period of 10 years

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

can be further extended by a period of 5 years on the payment of renewal


fees. In India the maximum validity of a registration under the (Indian)
Designs Act, 2000 can be 15 years.

The (Indian) Designs Act, 2000 also introduces international system of


classification for registration. Restoration of lapsed designs or renewal of
expired registration is also permitted under the (Indian) Designs Act,
2000.

Geographical Indications
A Geographical Indication is a sign used on goods that have a specific
geographical origin and possesses qualities or a reputation that are due to
that place of origin. Geographical Indications are introduced under the
TRIPS Agreement, which came into effect from January 1, 1995. In recent
years, Geographical Indications (GIs) has emerged as one of the most
important instruments of protecting the quality, reputation or other
characteristics of goods, which are essentially attributable to their
geographical origin. Geographical Indications have proved to be very
valuable as they identify the source of the product and are an indicator of
quality. Most commonly, a Geographical Indication consists of the name
of the place pertaining to the origin of the goods, such as ―Darjeeling‖
(India) for tea, ―Stilton‖ (England) for cheese, ―Swiss‖ (Switzerland) for
chocolate, ―Roquefort‖ (France) for cheese, Røros (Norway) for Organic
thick sour milk, Hardanger (Norway) for Apple juice and Oppdal (Norway)
for Almond potatoes etc.

By registering a Geographical Indication in India, one can prevent


unauthorized use of the registered Geographical Indication by others, by
initiating infringement action by way of a Civil suit or criminal complaint.

Duration of Protection

A Geographical Indication is registered for a period of ten years and the


registration may be renewed from time to time for a period of 10 years at
a time.

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

Semiconductor Integrated Circuits Layout Design

In compliance with the TRIPS Agreement, India has enacted the


Semiconductor for Integrated Circuits Layout-Designs Act, 2000 in order
to provide protection to integrated circuits.

The Act defines ―Layout-Design‖ to mean a layout of transistors and other


circuitry elements and includes lead wires connecting such elements and
expressed in any manner in a semiconductor integrated circuit. Under the
(Indian) Semiconductor for Integrated Circuits Layout-Designs Act, 2000,
a Semiconductor Integrated Circuit has been defined as a product having
transistors and other circuitry elements which are inseparably formed on
a semiconductor material or an insulating material or inside the
semiconductor material and designed to perform an electronic circuitry
function.

A Layout Design which is (a) not original (b) has been commercially
exploited in India or in a convention country or (c) not inherently
distinctive or distinguishable from any other registered Layout-Design
cannot be registered as a Layout-Design. In order to claim protection for
Layout Design, it is mandatory that it should be registered.

Registration of a Layout-Design is valid only for a period of 10 years from


the date of its registration or commercial exploitation in any country,
whichever is earlier.

Infringement of a Layout-Design is considered to be a criminal offence in


India. Infringement of a registered layout design has been made
punishable under the (Indian) Semiconductor for Integrated Circuits
Layout-Designs Act, 2000 with imprisonment of up to 3 years and fine of
INR 50,000 (Approx. US$ 1075) up to maximum of INR 10,00,000 (US$
21500).

Plant Varieties and Farmers’ Right

Similarly, in compliance with TRIPS Agreement, India has enacted the


Protection of Plant varieties and Farmers‘ Rights Act, 2001, which
provides for the establishment of an effective system for protection of
plant varieties, the rights of farmers and plant breeders and to encourage
the development of new varieties of plants.
At present the Government of India has notified the following crops with
their genera (class), eligible for registration of varieties:

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

―Black gram, Bread wheat, Chickpea, Field pea, Green gram, Kidney
bean, Lentil, Maize, Pearl millet, Pigeon pea, Rice and Sorghum‖

Procedure for Registration

A new variety shall be registered if it conforms to the criteria of novelty,


distinctiveness, uniformity and stability. After an application is made for
the registration of the Plant Variety, the Registrar examines the
application to see if it fulfills the criteria for registration of a Plant Variety.
On being satisfied, the Registrar accepts the application, resulting in
publication in the Journal for public objections, if any. The Registrar
registers the application if the application remains unopposed or the
opposition is decided in favour of the Applicant.

Duration of Protection

The maximum duration of protection of registered varieties is as given


below:

 For trees and vines – 18 years;


 For other varieties – 15 years;
 For existing varieties -15 years from the date of that variety.

Rights of the Breeder

Under Indian law, a certificate of registration for a variety confers an


exclusive right on the breeder or his successor, agent or licensee to
produce, sell, market, distribute, import or export the variety.

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

DATA PROTECTION
India presently does not have any express legislation governing data
protection or privacy. However, the relevant laws in India dealing with
data protection are the Information Technology Act, 2000 and the
(Indian) Contract Act, 187233, which deals with the contractual
relationship between the parties. It may be noted that a codified law on
the subject of data protection is likely to be introduced in India in the
near future.

It is pertinent to note that there is also no interference by the


Government of India until and unless the information sought by the
Government falls in any one of the category of exceptions, provided under
the Constitution of India, as mentioned hereinafter:

 in the interests of the sovereignty and integrity of India,

 the security of the State,

 friendly relations with foreign States,

 public order,

 decency or morality,

 in relation to contempt of court,

 defamation, or

 incitement to an offence.

The (Indian) Information Technology Act, 2000 deals with the issues
relating to payment of compensation (Civil) and punishment (Criminal) in
case of wrongful disclosure and misuse of personal data and violation of
contractual terms in respect of personal data.

Under the (Indian) Information Technology Act, 2000, a body corporate


who is possessing, dealing or handling any sensitive personal data or
information, and is negligent in implementing and maintaining reasonable
security practices resulting in wrongful loss or wrongful gain to any
person, then such body corporate may be held liable to pay damages to
the person so affected. It is to be noted that there is no upper limit
specified for the compensation that can be claimed by the affected party
in such circumstances.

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Strategies for Doing Business in India

Under the (Indian) Information Technology Act, 2000, disclosure of


information, knowingly and intentionally, without the consent of the
person concerned and in breach of the lawful contract has been also made
punishable punishment of imprisonment for a term extending to three
years and fine extending to INR 5,00,000 (Approx. US$ 10750).

As of now, it can be said that the issue of data protection is more of a


matter governed by the contractual relationship between the parties than
the law. It is important to note that the parties are free to enter into
contracts to determine their relationship defining the terms personal data,
personal sensitive data, data which may not be transferred out of or to
India and mode of handling of the same under the provisions of the
Indian Contract Act, 1872. The entire data handling of the personal data
and the personal sensitive data will depend upon the contract between
the foreign entities and Indian entities.

It is advised that the Norwegian entities should enter into contracts to set
out safeguards that may not be too dissimilar to those used in Norway to
set out the contractual obligations between them for
protection/processing of personal data.

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

ENFORCEMENT OF INTELLECTUAL PROPERTY LAWS IN


INDIA

India has a well-established statutory, administrative and judicial


framework to safeguard Intellectual Property Rights (IPRs), however, it is
still plagued with the problem of enforcement of IPR. Though concern has
been always been expressed about slow judicial system in India involving
tedious procedure of trial and conviction, the recent years have witnessed
the versatility of Indian Courts for protection of Intellectual Property
Rights. It is advised that by adopting right policies and strategies, IP can
be effectively protected with the help of law enforcement authorities.
Strategies and contracts are the most significant instruments for
protection of IPR in India. The strategy for the protection and
enforcement of IPR shall definitely include ―when to start and end a
litigation?”.

For any IPR enforcement strategy or any case in Indian Courts, one must
understand the Indian Judicial system and psychology of the Indian
judiciary. While Indian Courts are active in granting equitable reliefs like
injunctions, etc., it has been generally observed that they are reluctant in
awarding punitive damages. It is important to note that Indian High
Courts particularly Delhi High Court and Bombay High Court are proactive
in the protection and enforcement of Intellectual Property Rights in India.
It is reiterated that Indian Courts are free of any bias, as such foreigners
can freely enforce their rights under Indian laws.

In a typical case for enforcement of Intellectual Property Rights pertaining


to infringement of Trademark and passing off, infringement of Copyright,
Patent, Design, Geographical Indication and Plant Variety, following reliefs
can be claimed in a civil suit:

 Permanent Injunction;
 Interim Injunction;
 Damages;
 Accounts and handing over of profits;
 Anton Pillar Order (Appointment of Local Commissioner by the
Court for custody/ sealing of infringing material/accounts);
 Delivery up of goods/packing material/dyes/plates for
destruction.

In case of infringement of Trademark and passing off, infringement of


Copyright, Geographical Indication, Plant Variety and Semiconductor
Integrated Circuits Layout Design following Criminal action can be
initiated:

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

 Registration of First Information Report (FIR); or


 Filing of a Criminal Complaint before a Competent Magisterial
Court;
 Filing of application before the Court for issue of search and
seizure warrants;
 Raid of the Premises of the accused by Police on registration of
FIR or on the orders of the Court and seizure of the infringing
material;
 Arrest and prosecution of the counterfeiters, in case involving
cognizable offence.

In India, wherever provisions have been made for criminal prosecution for
violation of Intellectual Property Rights, a criminal case can be filed
against known as well as unknown persons.

It is also important to note that both civil and criminal remedies,


wherever applicable, can be availed simultaneously and both the
remedies are coexistent.

Infringement of Trademark

The Indian law recognizes both statutory rights of infringement as well as


common law action of passing off of Trademarks. A trademark owner in
India can bring a:

 Statutory action of infringement where the trademark is registered;


and
 Common law action of passing off where the trademark is not
registered.

In order to establish infringement with regard to a registered trademark,


it is required to establish that the infringing mark is identical or
deceptively similar to the registered mark.

In the case of a passing off action, besides proving that the marks are
identical or deceptively similar, it is also necessary to establish that the
use of the mark is likely to deceive or cause confusion resulting in
damage to the goodwill and reputation. However, proof of actual
deception or confusion is not necessary. In India, both the passing off
action and infringement action can be combined together. The registration
cannot upstage a prior consistent user of trademark in India, for the rule
followed is ‗priority in adoption of trademark prevails over priority in
registration of trademark‘.

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Strategies for Doing Business in India

The concept of ―Well-known‖ trademarks is recognised in India and a


well-known trade mark is protected in India even if it is not registered in
India. Trans-border or spill-over reputation can be relied upon even if a
trademark has not been used in India.

Remedies for Trademark Infringement and Passing off

In the case of misuse of a trademark, the law provides for both civil and
criminal remedies. In a Civil action all of the above mentioned relief can
be claimed.

The (Indian) Trade Marks Act, 1999, also provides for criminal action
against offences relating to a trademark, whether registered or
unregistered. The offences under the (Indian) Trade Marks Act, 1999, are
punishable with imprisonment up to 3 years and fine up to INR 2,00,000/-
(approx. US$ 4300). The minimum term of imprisonment shall not be less
than 6 months.

The selection of a civil or criminal remedy by an aggrieved party is


dependent upon various circumstances and factors pertaining to each
case. Generally, civil remedies should be preferred.

Quasi-Judicial Remedies

 Opposition (Before the Registrar) – Opposition to the registration of


a trademark can only be filed after publication of the trademark
within a total period of 4 months from the date of publication in the
Trademark Journal. During the course of the process of registration,
public is given an opportunity to oppose the registration of a
trademark by filing an opposition petition on various grounds such
as the registration is likely to create confusion or deception in the
market, identical to the trademark of the opponent or violates any
other right of the opponent etc.

 Cancellation (Before the Registrar as well as Intellectual Property


Appellate Board) - In case a Trademark has been wrongly
registered, the registration of the same can be cancelled on various
grounds which may be similar to the grounds on which an
opposition can be filed including the grounds of wrong and
fraudulent registration and non-user etc.

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Strategies for Doing Business in India

Infringement of Patent
Patent infringement proceedings can only be initiated after grant of patent
in India but may include claim retrospectively from the date of publication
of the application for grant of the patent. Infringement of a patent
consists of the unauthorized making, importing, using, offering for sale or
selling any patented invention within the India.

Remedies for infringement of Patent

Under the (Indian) Patents Act, 1970 only civil action can be initiated in a
Court of Law and no penal action can be initiated. Further, a suit for
infringement can be defended on various grounds including the grounds
on which a patent cannot be granted in India. and based on such defence
revocation of Patent can also be claimed.

Infringement of Copyright
Both civil as well as criminal remedies are available under the (Indian)
Copyright Act, 1957, against the infringement of a copyright, and the
remedies are similar to the remedies relating to the infringement of the
Trademark.

It is also important to note that a suit or criminal complaint can be filed


by joining actions under the (Indian) Trade Marks Act, 1999 and the
(Indian) Copyright Act, 1957 in appropriate cases where the trademark
involves an artistic work.

Offences relating to the infringement of Copyright under the (Indian)


Copyright Act, 1957 are punishable with minimum sentence of
imprisonment of 6 months which my extend up to 3 years and minimum
fine of INR 50,000 (approx. US$ 1075) which may extent up to INR
2,00,000 (approx. US$ 4300).

In order to curtail piracy and protection of computer programs, special


provisions have been made under the (Indian) Copyright Act, 1957. Any
person who knowingly uses a pirated copy of a computer programs is also
liable to be imprisoned for a term which shall not be less than seven days
but which may extend to three years and with fine which shall not be less
than INR 50,000 (approx. US$ 1075) but which may extend to INR
2,00,000 (approx. US$ 4300).

Copyright infringement is a cognizable offence, which means that police


on the complaint of a complainant can directly initiate criminal
prosecution by lodging a First Information Report (FIR), investigate,

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

search and seize the infringing goods from known and unknown offenders
and arrest the offenders.

Quasi-Judicial Remedies are also available, wherein an application, by


the owner of copyright or by his duly authorized agent, can be made to
the Registrar of Copyrights for banning the import of infringing copies into
India and delivery of the confiscated copies.

Infringement of Design

An action for infringement of design can only be initiated after the


registration of the design under the (Indian) Designs Act, 2000, which
only provides for civil remedies as already mentioned above. In case a
civil action has been initiated on the basis of a design which has been
wrongly registered for any reason as provided under the (Indian) Designs
Act, 2000, revocation or cancellation of the registered design may be set
up as a defence.

Infringement of Semiconductor Integrated Circuits


Layout Design

A registered Layout-Design is infringed by a person who, not being the


registered proprietor of the Layout-Design or a registered user thereof
does any act of reproducing, importing, selling or otherwise distributing
for commercial purposes a registered layout-design in its entirety or any
part thereof.

The Act does not provide for any civil remedy, however, we are of the
opinion that preventive reliefs can be claimed by way of permanent
injunction coupled with an interim injunction, which is an order passed by
the Court during the pendency of litigation in the court of law, delivery
up/destruction of infringing goods and damages. Under the (Indian)
Semiconductor Integrated Circuits Layout Design Act, 2000, any person
found to be infringing a registered layout design can be punished by way
of imprisonment for a maximum of three years and/or a fine [minimum
INR 50,000 (approx. US$ 1075) and maximum INR 10,00,000 (approx.
US$ 21500 )].

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

Infringement of Plant Varieties and Farmers’ Rights


Any person, who produces, sells imports or exports any variety without
the permission of the owner, infringes the rights of owner. Use of a
denomination which is similar to a registered denomination and likely to
confuse the general public also amounts to infringement.

Infringement of any right under the Plant Varieties and Farmers‘ Rights
attracts both Civil and Criminal action. A criminal action under the Act
entails punishment up to two years and fine of INR 50,000 (approx. US$
1075).

Infringement of Geographical Indications


The remedies relating to the infringement of Geographical Indications are
similar to the remedies relating to the infringement of Trademark.
Similarly, under the (Indian) Geographical Indications of Goods
(Registration and Protection) Act, 1999, falsification of a Geographical
Indication will carry a penalty with imprisonment for a term which may
not be less than six months but may extend to three years and with fine
which may not be less than INR 50,000 (approx. US$ 1075) but may
extend to INR 2,00,000 (approx. US$ 4300).

Administrative Remedies against IPR Violations

Border Control Measures

Enforcement under the (Indian) Customs Act, 196234

The Government of India under Section 11 of the (Indian) Customs Act,


1962, is empowered to prohibit importation and exportation of goods of
specified description, if it deems necessary to do so. The provision, inter
alia, empowers the government to prohibit the import or export of goods
for ‗the protection of patents, trademarks and copyrights. The goods
imported in contravention of the provisions of the Customs Act or any
other laws for the time being in force are liable to be confiscated. In this
regard, a customs officer is empowered to inspect any premises,
conveyance, x-ray any person and effect search and seize in case where
they have reasons to believe that the goods are of contraband nature.
They can also investigate or interrogate any person and arrest him.

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

Intellectual Property Rights (Imported Goods) Enforcement Rules,


200735

India has notified the Intellectual Property Rights (Imported Goods)


Enforcement Rules, 2007. The rules comply with border measures as
required by the TRIPS Agreement empowering the Customs Officers to
enforce IPR over the imported products. Actions under Customs Act are
independent to the remedies provided under various statues on
Intellectual Property. As per Rule 2(b) of the Intellectual Property Rights
(Imported Goods) Enforcement Rules, 2007, Intellectual Property includes
patents, designs, and geographical indications together with trademarks
and copyrights. Under the above Rules, a notice by way of an application
has to be filed along with supporting documents, including:

 Proof of ownership of the Intellectual Property;


 Grounds for the suspension of release of the goods allegedly
infringing IPR;
 Details of consignment and prima facie evidence of infringement;
 Description of goods with sample, model or photograph of the
genuine product; and
 Name of customs airport/ customs port/land customs port/ land
customs satiation.

Upon receipt of the Application, in the prescribed format, the Custom


Authorities may register the Complaint and enforce Border Control
measure for the protection of the Intellectual Property Rights. It is
important to note that this right is not unfettered. Certain provisions have
been also made and an elaborate procedure has been laid down for the
release of the seized goods upon an application of the importer of the
goods.

35
http://www.cbec.gov.in/customs/cs-act/notifications/notfns-2k7/csnt47-2k7.htm

35
© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

PIRACY AND COUNTERFEITING IN INDIA

Needless to say that piracy and counterfeiting is rampant world over and
India is no exception. A survey conducted by International Chamber of
Commerce36 puts India as the third most unfavorable country for IP
environment.

A report published by FICCI's37 (Federation of Indian Chamber of


Commerce and industry) National Initiative Against Piracy and
Counterfeiting38 indicates the magnitude of the problem of Counterfeiting
and Piracy in India, which is grave enough to cause alarm.

More or less all industries are a victim of piracy and counterfeiting in


India. Despite the fact that India has a very large drug manufacturing
industry, fake medicines are estimated to occupy between 15 to 20
percent of the total Indian market. The entertainment industry is the
most affected industry in India and is passing through a tough phase. An
estimated 40% of music industry‘s production ends being copied and
distributed illegally in India. Similarly, the automobile industry is no
exception. As per the report in India, 1 in 3 automotive parts are copied.
Spurious car parts take up an estimated 37% of the market in India.

It has been reported that the impact of counterfeiting in FMCG sector is 8-


10%, hampering quality of goods as well as raising concerns about health
issues. 10% of the major soft drinks sold in India are fakes & 10-30 % of
cosmetics, toiletries and packaged foods are counterfeited.

The report further raises serious concerns on the Intellectual Property


protection regime in India by adversely reflecting on the Indian
enforcement agencies, public awareness and lack of will for enforcement
of Intellectual Property Rights.

The report further states that a random search of registered Indian


companies reveals that, there are over 60 companies starting with the
word ‗Nike‘; 65 companies starting with the word ‗Rolex‘; 217 companies
starting with the word ‗Intel‘. This is not limited only to multinationals and
there are 136 companies beginning with the word Tata, and over 400
companies beginning with the word ‗Reliance‘. The veracity of these
claims may be checked from the website of Ministry of Corporate Affairs,
Government of India40.

36
http://www.iccwbo.org/uploadedFiles/BASCAP/Pages/Survey%20findings%20report.pdf
37
http://www.ficci.com
38
http://www.nipo.in/ficciniapc.htm
39

http://www.mca.gov.in/DCAPortalWeb/dca/MyMCALogin.do?method=setDefaultProperty&mode=3
1).

36
© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

The above report is indicative of the grim situation of the IP regime in


India, requiring attention from all concerned. However, the proactive
approach of various Indian High Courts and the Supreme Court of India
for the protection of Intellectual Property Rights is a matter of some
comfort.

Enforcement of Intellectual Property Rights have remained very


ineffective in India, as there is no serious threat of being caught or
punished when found involved in its violation. The laxity in enforcement is
the result of slackness on the part of the enforcement machinery, viz. the
police and the courts on one hand and the passive attitudes on the part of
right holders on the other. Most of the Indian states do not have any
special police cells for enforcement of Intellectual Property Rights. A
plausible reason for this is the greater involvement of the police force in
more demanding criminal cases. The strength of the force and the
enforcement infrastructure are also not adequate to tackle effectively the
problems of India's size and complexity. As a natural consequence, low
order crimes like piracy do not receive the highest attention from the
police.

Moreover, most of the Indian courts do not have any designated or


specialized courts for trying cases relating to Intellectual Property Right
violations. The right holders are also to be blamed for their ―not so
serious‖ attitude towards the piracy phenomenon. If, in some cases,
pirates are prosecuted, the clumsy and sluggish judicial system ensures
that the culprits remain unpunished for long if not for ever. This
demotivates the right holders from involving themselves actively in the
battle against piracy. Many of them feel that it is better to tolerate the
monetary losses due to piracy than to undergo sufferings involved in
chasing the police and attending court cases with no definite outcomes in
the foreseeable future.

The lack of infrastructural facilities in India also influences piracy in some


way or the other which is one of the possible reasons for India not
emerging as an integrated market place. The markets in India have
remained fragmented, thus giving enough scope to the local
suppliers/sellers to manipulate the conditions in their favour. This
provides an ideal environment for piracy to breed in. The pirates in India
are seen more to operate at the local levels, and such markets are
captured by the pirates who swing into action in the absence of concerted
efforts from the legitimate producers.

40

http://www.mca.gov.in/DCAPortalWeb/dca/MyMCALogin.do?method=setDefaultProperty&mode=3
1).

37
© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

STRATEGIES FOR PROTECTION OF IPR IN INDIA

Some of the suggestions to the foreign entities for protection of their


Intellectual Property Rights in India are:-

 Register Intellectual Property Rights;

It has been observed that a registration certificate may carry a


greater value than the actual evidence of user of the IPR before
courts as well as enforcement agencies;

 Make Intellectual Property protection a priority;

 Implement clear and effective policies and strategies for IP


protection;

 Whenever possible, prefer to give a public notice against any


violation of the IPR through at least 2 newspapers of the national
level, as such publications are treated as pubic knowledge and
defence of ignorance about the rights of the IP holder may not be
taken in the court;

 Wherever required, enter into elaborate assignments, licensing or


user agreements, and care should be taken to make provisions for
all post termination IPR issues;

 Take care to register the IPR in your name and not the Indian
entity. Licensing to the Indian Partner is the best policy;

 Discourage the policy of permissive user;

 Conduct regular due diligence exercise to protect and detect IP


violations;

 Determine the risks that your IP faces and keep a watch over
potential registrations, risks and violations, and take timely action
to oppose any such registrations or violations;

 In case IP litigation is initiated, take the same to its logical


conclusion by restraining the actual violation, however do not
prolong the litigation, until and unless absolutely necessary, for
damages or compensation. It has been observed that Indian courts
are not very inclined towards granting punitive or exemplary
damages.

38
© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

ESTABLISHING PRESENCE IN INDIA BY FOREIGN


COMPANIES

India is being considered today as one of the most powerful emerging


economies of the world. As a result of wide ranging programs of economic
reforms, India is moving firmly into the front ranks of the rapidly growing
Asia-Pacific Economic Region. India has made significant progress and is
considered as a country where ―an economic miracle is waiting to
happen‖. India has simplified its laws and policies permitting the entry of
multinationals, by allowing setting up of joint ventures, cross border
mergers and acquisitions.

The laws and procedures for a foreign entity to establish its presence in
India either as a Foreign Company and/or as an Indian company have
been outlined below in brief.

Legal Entity for Doing Business in India

A foreign entity could undertake business activities through various


modes. The various modes of doing business in India have been analysed
under two headings, namely, ―while retaining the status of a Foreign
Company‖ and ―as an Indian company‖.

While retaining the status as a Foreign Company

A foreign company may establish its presence in India by setting up:

 Liaison office

 Branch office

 Project office

While retaining the status as an Indian Company

A Foreign Company can carry out its business activities in India by


incorporating an Indian Company as a

 Wholly-owned Subsidiary (WOS)

 Joint Venture (JV)

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

WOS/JV is incorporated and governed by the provisions of the Indian


Companies Act, 195641 as amended from time to time.

Liaison Office

A foreign entity can set up a liaison office to explore and understand the
business and investment climate in India. A liaison office acts as a
communication channel between the foreign entity and its present or
prospective customers in India. The Liaison office can be set up to
establish business contacts and/or gather market information to promote
the products and services of foreign entity. However, it cannot undertake
any commercial, trading or industrial activity or earn any income in India.
A liaison office must maintain itself out of the inward remittances received
from abroad through normal banking channels. It can neither borrow nor
lend money.

Establishment of liaison office is regulated by the Foreign Exchange


Management (Establishment in India of Branch or Office or Other Place of
Business) Regulations, 200042 ―FEMA Regulations‖), issued by the Reserve
Bank of India43 (―RBI‖). As per the FEMA Regulations, a liaison office is
permitted to carry out following activities in India:

 Representing in India the parent company / group companies.

 Promoting export import from / to India

 Promoting technical / financial collaboration between parent / group


companies and companies in India.

 Acting as a communication channel between the parent company


and Indian companies.

In order to establish a liaison office, a foreign entity is required to obtain


prior approval of RBI. In order to set-up a liaison office in India, the
foreign entity is required to have a track record of making profit for the
immediately preceding three financial years in its home country and
should also have a net worth of not less than US$ 50,000 or its
equivalent. It may be noted that any transgression from the activities
permitted by RBI can jeopardize the approval granted to the liaison office
and may also attract monetary penalty.

41
http://www.mca.gov.in/Ministry/actsbills/pdf/Companies_Act_1956_Part_1.pdf
42
http://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=176
43
http://www.rbi.org.in/

40
© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

Once approval is obtained from the RBI for setting up of the liaison office,
the foreign company will have to apply for registration of the place of
business with the Registrar of Companies under the (Indian) Companies
Act, 1956, within 30 days of receipt of approval.

Since a liaison office is not permitted to carry on any business activities,


ordinarily, no there is no tax in India on such liaison office. However, the
liaison office needs to withhold taxes under the (Indian) Income-tax Act,
196144 on specified payments as under and file periodical withholding tax
returns:

Section Nature of Payment

192 Salary

193 Interest on securities

194 Dividends

194A Interest other than "Interest on securities"

194B Winnings from lottery or crossword puzzle

194BB Winnings from horse race

194C Payments to contractors

194D Insurance commission

194E Payments to non-resident sportsmen or sports associations

Payments in respect of deposits under National Savings Scheme,


194EE
etc.

Payments on account of repurchase of units by Mutual Fund or


194F
Unit Trust of India

194G Commission, etc., on the sale of lottery tickets

194H Commission or brokerage

194I Rent

194J Fees for professional or technical services

44
http://law.incometaxindia.gov.in/DIT/Income-tax-acts.aspx

41
© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

194K Income in respect of units

194L Payment of compensation on acquisition of capital asset

Payment of compensation on acquisition of certain immovable


194LA
property

195 Other sums

Branch Office

The foreign entity can also establish a branch office in India subject to the
FEMA Regulations in terms of which, apart from other conditions, prior
permission of RBI is required. As per the FEMA Regulations, a branch
office of a foreign company can undertake the following activities:

 Export/import of goods

 Rendering professional or consultancy services

 Carrying out research work, in which the parent company is


engaged

 Promoting technical or financial collaboration between Indian


companies and parent or overseas group companies

 Representing the parent company in India and acting as


buying/selling agent in India

 Rendering services in information technology and development of


software in India

 Rendering technical support to the products supplied by


parent/group companies

 Foreign airline/shipping company

Permission to open a branch office is to be obtained from RBI by making


an application in prescribed form. The foreign entity is required to have a
track record of making profit for the immediately preceding five financial
years in its home country and should also have a net worth of not less
than US$ 100,000 or its equivalent. While considering the application for
setting up of a branch, the RBI also looks into the previous links of the

42
© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

foreign company with India, whether the foreign entity did some business
in India in the past.

Once approval is obtained from the RBI, for setting up of the branch
office, the foreign company will have to apply for registration of the place
of business with the Registrar of Companies under the (Indian)
Companies Act, 1956, within 30 days of opening of the branch.

The branch office is considered as a part of the foreign company and is


not to be treated as a separate legal entity. The profit accruing from the
branch office, net of applicable Indian taxes may be remitted/ transmitted
outside India through an authorized dealer (banker of the branch office in
India) upon furnishing the following documents to the satisfaction of the
authorized dealer bank:

(a) Certified copy of the audited balance-sheet and profit and loss
account for the relevant year;

(b) A Chartered Accountant‘s certificate certifying-

(i) The manner of arriving at the remittable profit,

(ii) That the entire remittable profit has been earned by

undertaking the permitted activities, and

(iii) That the profit does include any profit on revaluation of the

assets of the branch.

The foreign company would be subject to taxation in India on the income


attributable to the activities performed by its branch in India, as the
branch would constitute a fixed place of business and, therefore, a
Permanent Establishment of the foreign company in India.

The branch office of a foreign company is liable for income tax in India at
the rate of 40%, along with surcharge of 2.5 % on this rate for the
current financial. An additional surcharge by way of education cess at the
rate of 3% is levied on the above income tax and surcharge. In other
words, the effective rate of tax in respect of branch office of a foreign
company would be 42.23%. Further, any income earned by the branch
office by virtue of rendering services to a foreign company shall also be
subject to the transfer pricing regulations.

43
© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

In India, the aforesaid education cess is being levied and collected by the
Indian Government for two specified purposes. Firstly, the education cess
of 2% is collected for the purpose of funding the primary education for
the children in India and secondly, the education cess of 1% is collected
for the purpose of funding the secondary and higher education in India.

Project Office

Project office means a place of business to represent the interests of the


foreign company executing a project in India. No prior approval of the RBI
is required by a foreign company in order to establish a project office
provided the foreign entity has secured a contract to execute a project in
India from an Indian company. Moreover, any of the following conditions
must also be satisfied for establishing a project office in India;

 The project must be funded directly by inward remittance from


abroad, or

 The project is funded by a bilateral or multilateral International


Funding Agency (such as the IMF45, ADB46, World Bank47, etc.), or

 The project must have been cleared by an appropriate authority


(such as the concerned Ministry or Department), or

 The contract awarding Indian company / entity must have been


granted a Term Loan by a Public Finance Institution (such as
ICICI48, IDBI49, IFCI50, etc. as defined under the (Indian)
Companies Act, 1956) or a bank in India for the project.

However, if the above conditions are not met, the foreign company has to
obtain approval from RBI.

Further, a project office established in India is permitted to carry out


activity relating to and incidental to the execution of the project only.

Profits or surplus relating to a project office can be remitted abroad, net


of applicable Indian taxes, only on the completion of the project.

45
http://www.imf.org/external/index.htm
46
http://www.adb.org/
47
http://www.worldbank.org/
48
http://www.icicibank.com/
49
http://www.idbi.com/
50
http://www.ifciltd.com/

44
© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

Following documents must be produced to the satisfaction of the


authorized dealer bank through whom the remittance is affected:

(a) Certified copy of the final audited project accounts;

(b) A Chartered Accountant‘s certificate showing the manner of arriving


at the remittable surplus;

(c) Income tax assessment order or either documentary evidence


showing payment of income tax and other applicable taxes, or a
Chartered Accountant certificate stating that sufficient funds have
been set aside for meeting all Indian tax liabilities; and

(d) Auditor‘s certificate stating that no statutory liabilities in respect of


the project are outstanding.

Setting up a wholly-owned subsidiary (WOS) /Joint Venture (JV)

When foreign company intends to establish its 100% owned entity, such
foreign company can set up a WOS, wherein entire shareholding of the
WOS shall be held by such foreign company. However, JV Company is
set-up by the foreign company with one or more Indian or foreign
partner(s), and the shareholding of such JV Company is held by both the
joint venture partners in agreed ratio. The procedure for setting up a
WOS and JV Company is similar.

Incorporation of a WOS or forming a JV company with an Indian partner is


the most favored route for foreign companies wishing to establish a base
in India subject to the Foreign Direct Investment Policy (―FDI Policy‖) of
the Government of India, which is discussed hereinafter.

A WOS/JV can be incorporated under the Indian Companies Act, 1956,


either as a private limited company or a public limited company. The
company, once incorporated, is treated like other Indian companies and
enjoys all the benefits of being an Indian company. In the case of a
private company, there are certain restrictions on the transfer of its
shares, the number of members, and total prohibition on invitations to
the public for share subscriptions and acceptance of deposits from
outsiders. A private company (which is not a subsidiary of a public limited
company) enjoys many privileges against a public company, mainly
because it is exempted from many procedural requirements, which apply
to public companies.

45
© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

For incorporation of WOS/JV, the first step is to apply to the Registrar of


Companies concerned which works under the Ministry of Corporate Affairs
(MCA) for a suitable name. An application is to be submitted with the
Registrar of Companies, along with the prescribed fee. There are certain
Government guidelines, which are followed by Registrar of Companies
while granting name approval. On being satisfied in all respects, the
Registrar of Companies grants the approval and issues a letter to this
effect.

A company can be incorporated by at least two persons (natural or


juristic), in case of a private company or at least seven, in case of a public
company by subscribing their names to the Memorandum of Association
and filing with the Registrar of Companies certain documents.

At the time of registration, fees payable to the Registrar of Companies


depends upon the authorized share capital of the company proposed to be
in incorporated. On completion of the prescribed formalities, the Registrar
of Companies issues a Certificate of Incorporation and from the date of
incorporation, a Company is capable of exercising all the functions of an
incorporated company.

A company incorporated in India under the (Indian) Companies Act, 1956


Public or Private, is liable to income tax at the rate of 30% on net income,
along with surcharge of 7.5 % ( if the net income exceeds INR
1,00,00,000, approx. US$ 214992.13) on above rate for the current
financial year. An additional surcharge by way of education cess at the
rate of 3% is levied on the income tax and surcharge, thereby, making
the effective rate of tax as 33.22%.

After the incorporation, WOS/JV would be required to comply with


ongoing statutory compliances and maintenance of statutory registers.

Advantages of setting up WOS/JV

 Greater flexibility with respect to the activities that can be carried


out in India.

 Limited liability of the foreign company.

 (Effective rate of tax is 33.22%) than that of a branch office


(effective rate of tax is 42.23%).Ease of divestment, with minimal
cost, by way of a sale of equity shares to third parties.

46
© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

Disadvantages

 The dividend distributed by the subsidiary/JV to the foreign


company/JV partner will be subject to dividend distribution tax
(effective tax rate is 16.61%). Also, a company cannot distribute its
entire profit as dividend because of the requirement of the (Indian)
Companies Act, 1956 to allocate a certain percentage, not
exceeding 10% of its book profit to reserves.

Closure/winding-up of WOS/JV company, being governed by the


provisions of the Indian Companies Act, 1956, is relatively more time
taking process as it involve several compliances. Whereas closure of
branch office is speedy process as it requires prior permission of RBI and
intimation to Registrar of Companies.

Foreign Direct Investment

Foreign Investment in India is understood as an investment in an


enterprise by a non resident entity whether by way of issuance of new
equity capital or re-investment of earnings. Foreign Investment is of two
kinds-(i) Foreign Direct Investment and (ii) Foreign Portfolio investment.
The Government of India recognizes the key role of FDI in economic
development not only as an addition to domestic capital but also as an
important source of technology and global best practices. FDI in India is
subject to the Industrial Policy and Procedures notified by the Ministry of
Commerce and Industry, Government of India and the provisions of the
(Indian) Foreign Exchange Management Act, 199951 (―FEMA‖). Under
FEMA, the RBI has notified regulations in consonance with the Industrial
Policy.

Investments can be made by non-resident entities in the shares fully,


compulsorily and mandatorily convertible debentures52/fully, compulsorily
and mandatorily convertible preference shares of an Indian company,
through two routes: (a) the automatic route and (b) the Government
route. Foreign investment is freely allowed in all sectors including the
services sector, except a few sectors where the existing and notified
sectoral policy does not permit FDI beyond a ceiling.

51
http://finmin.nic.in/the_ministry/dept_eco_affairs/america_canada/fema_acts/index.htm
52
Debenture is a loan fund and the debentures holder is a creditor of a company. Convertible
debenture is convertible into equity share as per the terms of issue of such debenture.

47
© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

FDI for virtually all items/activities can be brought in through the


Automatic Route under powers delegated to the RBI, and for the
remaining items/activities through Government approval. Government
approvals are accorded on the recommendation of the Foreign Investment
Promotion Board (FIPB), which comprises of the core group of secretaries
of the Government of India.

Debenture is a loan fund and the debentures holders are a creditor of a


company. Convertible debenture is convertible into equity share as per
the terms of issue of such debenture.

However, there are still few sectors in which FDI is totally prohibited i.e.
foreign entities are not allowed to set-up business in such sectors.
Following is the list of activities in which FDI is prohibited:

 Retail Trading (except single brand product retailing)53

 Atomic Energy

 Lottery Business including Government/private lottery, online


lotteries, etc.

 Gambling and Betting including Casinos etc.

 Business of chit fund (chit fund activities carried out as per Chit
Fund Act, 198254 and it is a kind of savings scheme practiced in
India.)

 Nidhi Company (Nidhi Company/Mutual benefit Society means a


company notified by the Central Government under Section 620A of
the Indian Companies Act, 1956. It is a non-banking finance
company doing the business of lending and borrowing with its
members or shareholders).

 Trading in Transferable Development Rights (TDRs)

 Real Estate Business or Construction of Farm Houses

 Activities/ Sectors not opened to private sector investment.

 Agricultural activity excluding Floriculture, Horticulture, and


Development of seeds, Animal Husbandry, Pisciculture, Aquaculture,
and Cultivation of Vegetables & Mushrooms under controlled
conditions and services related to agro and allied sectors.

53
Government of India has introduced a discussion paper on allowing FDI in multi-brand retail
trading. http://www.dipp.nic.in/DiscussionPapers/DP_FDI_Multi-
BrandRetailTrading_06July2010.pdf
54
http://gov.ua.nic.in/society/acts/cpage1.htm

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

 Plantation Activity excluding Tea sector.

Besides FDI in any form, foreign technology collaboration in any form


including licensing for franchise, trademark, brand name, management
contract is completely prohibited for Lottery Business and Gambling and
Betting activities.

All foreign investments are freely repatriable. Dividends declared on


foreign investments can be also be remitted freely through an Authorized
Dealer subject to deduction of tax at source or dividend distribution tax, if
any, as the case may be. Interest on fully and compulsorily convertible
debenture is also freely repatriable net of applicable taxes.

Foreign investors can sell shares held in the Indian company without prior
approval of RBI subject to reporting requirements and compliance of the
pricing norms.

Licenses/Permissions/Registrations

After setting-up/incorporation of the desired business structure, following


licenses/permissions/registrations are required to be obtained by the
entity so set up for commencement of operations in India:

General permissions

 Obtaining Permanent Account Number (PAN)

PAN is unique alphanumeric combination issued by the Income-tax


department under section 139A of the (Indian) Income Tax Act 1961. The
primary purpose of PAN is to identify all financial transactions entered by
any business entity in India. PAN is mandatory for undertaking all
financial transactions including opening a bank account, receiving taxable
salary or professional fees, entering into sale or purchase of goods,
materials, services and assets. Further, as per section 206AA of the
(Indian) Income Tax Act 1961, in every case where tax is required to be
deducted at source, furnishing of PAN of the recipient has been made
mandatory. In case, PAN of the deductee is not available, then tax would
be required to be deducted at the higher of the following rates:

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

1. at the rate specified in relevant section; or

2. at the rates in force as defined in section 2(37A);

3. at the rates of twenty per cent.

 Tax Deduction Account Number (TAN):

TAN is an alphanumeric number issued under section 203A of the (Indian)


Income Tax Act, 1961 to those business entities which are required to
deduct and withhold tax on payments made by them under the (Indian)
Income Tax Act, 1961.

 Opening bank account in the designated bank in India

Every business entity is required to open a bank account with a


designated bank in India for day-to-day monetary transaction.

Specific permissions

 Obtaining Central Sales tax/Value Added Tax (VAT)


registration

Central Sales Tax and/or VAT is leviable on a business entity intending to


make sale of movable goods within India under the (Indian) Central Sales
Tax Act, 195655 (for making inter-state sales) and VAT (for doing intra-
state sales) and hence, such entity is required to get itself registered as a
dealer under the respective laws.

 Obtaining Service tax registration

Service tax is levied on certain identifiable taxable services provided in


India by specified service providers. If the business entity is falling under
the category of any of the specified service providers, it would be required
to obtain registration certificate for the same from the concerned
authority.

55
http://finmin.nic.in/the_ministry/dept_revenue/rtiman/salestax/sales-
tax%20Folder/CSTAct1956.pdf

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

 Obtaining Excise registration

In case the business entity is engaged in manufacturing excisable


goods56, it would be required to get itself registered according to the
provisions of (Indian) Central Excise Act, 1944 and pay excise duty
thereof.

 Obtaining Importer- Exporter Code (IEC Code)

In case the business entity would be engaged in the business of import or


export of goods or services, it would be required to obtain IEC from the
Director General of Foreign Trade under (Indian) Foreign Trade
(Development & Regulation) Act, 199257.

Apart from the abovementioned general and specific


licenses/approval/registrations, entities operating in specific industrial
sectors may also be subject to licensing/approval/registration requirement
as per respective industrial and labour laws.

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

New Direct Taxes Code

Direct taxes regime in India is currently governed by the Income Tax Act,
1961 and the Wealth Tax Act, 1957. The current regime is perceived to
be complex, litigation-prone and laden with varying tax rates and
incentives. The Government of India, with a view to simplifying the
current tax regime, fostering voluntary compliance, providing stability in
tax rates and reducing scope for litigation, introduced Direct Taxes Code
Bill, 200958 (‗Code‘), which is intended to replace the existing regime
relating to direct taxes. The new regime is expected to improve tax
administration, lower tax rates and at the same time check avoidance and
evasion of tax. The new Code is expected to be tabled before the Indian
Parliament soon and is expected to be legislated and come into force from
April 1, 2011.

Salient features of the Code

The following are some of the salient features of the Code.

Lower tax rates

The Code proposes to have a uniform tax rate for domestic and foreign
companies. Further, the Code proposes to lower the corporate tax rate
for domestic companies from 30% to 25% and for foreign companies
from 40% to 25%. In addition, levy of surcharge and cess on the tax
rates is proposed to be removed.

The Code proposes to introduce branch profits tax @15% in respect of


foreign companies operating in India through their branches. Branch
profits tax will be in addition to corporate tax.

Residential status of foreign companies

A foreign company is deemed to be a tax resident of India if the control


and management of its affairs is situated wholly in India. Once a
company becomes a tax resident in India, its global income becomes
taxable in India. Under the Code, this provision is sought to be altered to
the effect that a foreign company will be deemed to be a tax resident of

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
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India in case the place of effective management of such company is


located in India. The place of effective management is defined as:

 the place where the board of directors of the company or its


executive directors, as the case may be, make their decisions;
or

 in a case where the board of directors routinely approve the


commercial and strategic decisions made by the executive
directors or officers of the company, the place where such
executive directors or officers of the company perform their
functions.

Limited treaty override provisions

Under the current regime, a tax payer is allowed to take the benefits of
the provisions of relevant Double Taxation Avoidance Treaty, wherever
applicable, if provisions of the Treaty are more beneficial to him in
comparison to domestic tax laws. Under the Code, concept of limited
treaty override has been introduced.

The effect of such proposal is that in specified circumstances, the


taxpayer will not be allowed to take the benefit of the provisions of
Treaty. The specified circumstances are:

 Where General Anti- Avoidance rules (GAAR) are invoked;


 Where Controlled Foreign Corporation (―CFC‖) rules are
invoked;
 Where branch profits tax is levied.

General Anti Avoidance Rules (GAAR)

The concept of GAAR is sought to be introduced in the Code. Where an


arrangement, besides obtaining a tax benefit for the taxpayer, is also
either not at arm‘s length or represents misuse or abuse of the provisions
of the Code or lacks commercial substance or is entered or carried on in a
manner not normally employed for bona-fide business purposes, GAAR
provisions would come into effect. Under GAAR provisions, the Revenue
would be empowered to disregard the transaction, re-allocate any
income, expenditure etc. between parties and re-compute the taxable
income of the parties. The detailed rules regarding GAAR will be notified
by the Government at a later stage.

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

Advance pricing agreements (APAs)

The current transfer pricing regime in India does not have enabling
provisions regarding APAs. The Code proposes to introduce the concept
of APAs, wherein the arm‘s length price of an international transaction
between associated enterprises, at the option of the taxpayer, will be
determined prior to entering into such transaction. This is intended to
reduce subsequent disputes between the taxpayer and the Revenue.

Income of Foreign Institutional Investors (FII)

In order to remove the uncertainty around taxation of FIIs, it is proposed


that income of FIIs from purchase and sale of shares and securities will be
taxed as ‗capital gains‘ and not business income. Further, there will be no
withholding tax on capital gains.

Controlled Foreign Corporation Rules

The Government proposes to introduce Controlled Foreign Corporation


provisions so as to provide that passive income earned by a foreign
company which is controlled directly or indirectly by Indian residents,
shall be taxed in the hands of resident shareholders as dividend received
from the foreign company, irrespective of whether such income is
declared as dividend or not.

Capital gains

Under the Code, the following are some of the significant changes
proposed in the capital gains tax regime:

 Capital gains to be taxed as ordinary income, at rates


applicable to the taxpayer; preferential rate to be done
away with;
 Gain on sale of shares or units of equity oriented fund held
for more than one year to be computed after deducted a
specified percentage (to be notified later). Indexation of
cost not available;
 Appropriate transition regime to be provided to shift from
current nil rate of tax on listed shares.

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Strategies for Doing Business in India

Investment-linked incentives

The Code proposed to move away from the current profit based tax
incentives to investment based tax incentives. Under the proposed
regime, in respect of specified businesses, a taxpayer shall be allowed to
recover all capital and revenue expenditure (except land, goodwill and
financial instruments) before computing his taxable profits. Existing profit
linked incentives are proposed to be grandfathered under the proposed
regime.

Business re-organization

Under the current regime, certain kinds of business re-organization


(amalgamations and demergers) are tax-neutral. The Code seeks to
expand the current scope of business re-organization to include merger of
unincorporated bodies and conversion of firm into a company etc. which
will be treated as tax neutral.

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

DISTRIBUTION & WAREHOUSING

As per the current foreign investment guidelines59, 100% foreign


investment is permitted under the automatic route for trading companies
for the following activities in India:

(i) Cash & Carry trading Wholesale Trading/ Wholesale Trading.

The Cash & Carry Wholesale trading/Wholesale trading means sale of


goods/merchandise to retailers, industrial, commercial, institutional or
other professional business users or to other wholesalers and related
subordinated service providers. In other words, wholesale trading would
be sales for the purpose of trade, business and profession, as opposed to
sales for the purpose of personal consumption (Retail).

Wholesale trading would include resale, processing and thereafter sale,


bulk imports with export/ex-bonded warehouse business sales and B2B e-
Commerce.

The guidelines for foreign investment in Cash & Carry Wholesale


Trading/Wholesale Trading (WT) are as under:

(a) For undertaking WT, requisite licenses/registration/ permits, as


specified under the relevant Acts/Regulations/Rules/Orders of the State
Government/Government should be obtained.

(b) Except in case of sales to Government, sales made by the wholesaler


would be considered as ‗cash & carry wholesale trading/wholesale trading‘
with valid business customers, only when WT are made to the following
entities:

 Entities holding sales tax/ VAT registration/service tax/excise


duty registration; or

 Entities holding trade licenses i.e. a license/registration


certificate/membership certificate/registration under Shops
and Establishment Act, issued by a Government Authority/
Government Body/ Local Self-Government Authority,
reflecting that the entity/person holding the license/
registration certificate/ membership certificate, as the case
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http://siadipp.nic.in/policy/fdi_circular/fdi_circular_1_2010.pdf (Page 62)

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may be, is itself/ himself/herself engaged in a business


involving commercial activity; or

 Entities holding permits/license etc. for undertaking retail


trade or

 Institutions having certificate of incorporation or registration


as a society or
 registration as public trust for their self consumption.

(c) Full records indicating all the details of such sales like name of
entity, kind of entity, registration/license/permit etc. number, amount of
sale etc. should be maintained on a day to day basis.

(d) WT of goods would be permitted among companies of the same


group. However, such WT to group companies taken together should not
exceed 25% of the total turnover of the wholesale venture and the
wholesale made to the group companies should be for their internal use
only.

(e) WT can be undertaken as per normal business practice, including


extending credit facilities subject to applicable regulations.

(f) A Wholesale/Cash & carry trader cannot open retail shops to sell to the
consumer directly.

(ii) Trading for exports.

(iii) E-commerce activities:

E-commerce activities refer to the activity of buying and selling by a


company through the e-commerce platform. Such companies would
engage only in Business to Business (B2B) e-commerce and not in retail
trading, inter-alia implying that existing restrictions on foreign investment
in domestic trading would be applicable to e-commerce as well.

(iv) 100% foreign investment is permitted under the approval


route for trading companies for the following activities:

(a) Trading of items sourced from small scale sector.

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Strategies for Doing Business in India

(b) Test marketing of such items for which a company has


approval for manufacture, provided such test marketing
facility will be for a period of two years, and investment in
setting up manufacturing facility commences simultaneously
with test marketing.

(v) 51% foreign investment is permitted under the approval


route for single brand retail trading:

Foreign investment up to 51%, under the approval route is allowed in


retail trade of ‗Single Brand‘ products. This is, inter alia, aimed at
attracting investments in production and marketing, improving the
availability of such goods for the consumer, encouraging increased
sourcing of goods from India, and enhancing competitiveness of Indian
enterprises through access to global designs, technologies and
management practices.

The aforesaid Single Brand retail trading of products is subject to the


following conditions:

(a) Products to be sold should be of a ‗Single Brand‘ only.

(b) Products should be sold under the same brand internationally


i.e. products should be sold under the same brand in one or more
countries other than India.

(c) ‗Single Brand‘ product-retailing would cover only products which


are branded during manufacturing.

Warehousing

Under Chapter IX of the Customs Act, 196260, private warehouses can be


established by obtaining a license from the authorities, wherein dutiable
goods imported by or on behalf of the licensee, or any other imported
goods in respect of which facilities for deposit in a public warehouse are
not available, may be deposited. However the control over such licensed
warehouse will remain with a duly appointed custom officer.

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The owner of the goods, with the sanction of the proper officer and on
payment of the prescribed fees, may either before or after warehousing
the goods -

(a) Inspect the goods;

(b) Separate damaged or deteriorated goods from the rest;

(c) Sort the goods or change their containers for the purpose of
preservation, sale, export or disposal of the goods;

(d) Deal with the goods and their containers in such manner as may be
necessary to prevent loss or deterioration or damage to the goods;

(e) Show the goods for sale; or

(f) Take samples of goods without entry for home consumption, and if
the proper officer so permits, without payment of duty on such samples.

The owner of the warehoused goods may also, with the permission of the
custom authorities, carry on any manufacturing process or other
operations in the warehouse in relation to such goods.

Any warehoused goods may be exported to a place outside India without


payment of import duty and subject to fulfillment of certain conditions.

However, if the Central Government is of opinion that warehoused goods


of any specified description are likely to be smuggled back into India, it
may, by notification in the Official Gazette, direct that such goods shall
not be exported to any place outside India without payment of duty or
may be allowed to be so exported subject to such restrictions and
conditions as may be specified in the notification.

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

LABOUR LAW

In India, both Central and State Governments have enacted laws to deal
with and regulate labour issues. There are currently 47 Central Laws and
157 State regulations, which can be collectively termed as Labour &
Industrial Laws in India. Indian Labour laws have been enacted primarily
for the protection of the rights and interest of labour from the organized
as well as unorganized sector against exploitation. Resort to the courts
can only be made in special circumstances and situations.

Indian Labour Laws seek to protect and safeguard the interests of


workmen in general to create a healthy work environment for higher
production and productivity, and also developing and coordinating
vocational skill training and employment services.

Indian labour laws govern almost all the aspects of employment such as
payment of wages, minimum wages, payment of bonus, payment of
gratuity, contributions to provident fund and pension fund, working
conditions and accident compensations etc.

The following are main areas dealt with under the various labour laws:

 Labour policy and legislation;


 Safety health and welfare of labour;
 Social security of labour;
 Policy relating to special target groups such as women and child
labour;
 Labour and employment statistics;
 Workers‘ education;
 Emigration of labour for employment abroad;
 Employment services and vocational training;
 Administration of central labour and employment services; and
 International cooperation in labour and employment matters.

Child Labour in India

The Constitution of India incorporates provisions to secure protection to


children. It expressly prohibits the employment of a child below the age of
14 years in any activity whatsoever, be it mine or in any hazardous
employment or even as a domestic servant. The Indian Government has
enacted the Child Labour (Prohibition & Regulation) Act, 198661, which
prohibits the employment of children who have not completed the age of

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Strategies for Doing Business in India

14 years in occupations like cleaning of ash pits, building operation,


manufacturing or handling of pesticides and insecticides, manufacturing of
matches, explosives, fireworks, and many more etc.

The problem of child labour continues to pose a challenge before India,


for which the Government of India has been taking various pro-active
measures to tackle this problem. However, considering the magnitude
and extent of the problem and that it is essentially a socio-economic
problem inextricably linked to poverty and illiteracy, the problem is still
extremely grave and requires concerted efforts from all sections of the
society.

Child labour means work that is done by children under the age of 14,
which restricts or damages a child's physical, emotional, intellectual,
social and spiritual growth.

India has ratified following ILO Core Conventions62 dealing with human
rights and fundamental rights:

 C29 Forced Labour Convention, 193063


 C105 Abolition of Forced Labour Convention, 195764
 C100 Equal Remuneration Convention, 195165
 C111 Discrimination (Employment and Occupation) Convention,
195866

The most recent and comprehensive ILO standards on child labour are the
Minimum Age Convention, 1973 (No.138)67, and its accompanying
Recommendation (No.146), and the Worst Forms of Child Labour
Convention, 1999 (No.182)68 and its accompanying Recommendation. These
conventions are not yet ratified by India.

India has also not ratified69 the following core conventions:-

 Freedom of Association and Protection of Right to Organised


Convention (No.87)
 Right to Organise and Collective Bargaining Convention (No.98)

62
http://www.ilo.org/ilolex/english/convdisp1.htm
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http://www.ilo.org/ilolex/cgi-lex/ratifce.pl?C029
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http://www.ilo.org/ilolex/cgi-lex/ratifce.pl?C105
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http://www.ilo.org/ilolex/cgi-lex/ratifce.pl?C100
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http://www.ilo.org/ilolex/cgi-lex/ratifce.pl?C111
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http://www.ilo.org/ilolex/cgi-lex/ratifce.pl?C138
68
http://www.ilo.org/ilolex/cgi-lex/ratifce.pl?C182
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http://labour.nic.in/ilas/indiaandilo.htm

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Strategies for Doing Business in India

In terms of the above ILO conventions, India has enacted appropriate


legislations which include the Bonded Labour System (Abolition) Act, 197670,
the Child Labour (Prohibition & Regulation) Act, 198671 and the Equal
Remuneration Act, 197672. A complete list of Indian Labour laws can be
found from the website of the Ministry of Labour and Employment 73,
Government of India at and accessed from the following link i.e.
http://labour.nic.in/act/welcome.html.

Penalties for employing Child Labour

Employment of child labour may lead to the following legal consequences,


besides causing disrepute to the foreign entity:

 Whoever employs any child, who is under the age of 14, shall be
punishable with imprisonment for a term not less than three
months and which may extend to one year or with fine which
shall not be less than INR 10,000 (approx. US$ 215) and may
extend to INR 20,000 (approx. US$ 430); and

 Subsequent commission of offence is punishable with


imprisonment for a term which shall not be less than six months
but which may extend to two years.

Preventing Employment of Child Labour

 It is advisable that the foreign entities should enter into specific


contracts with the Indian Partners, agents, service providers and
contractors etc. ensuring non promotion of Child Labour and non
indulgence in any illegal practice of child labour;

 Breach of the contract shall be treated as a breach of contract


leading to termination of the contract with the foreign entity;

 The contract should also provide for the individual liability of the
Indian Partners, agents, service providers and contractors etc.,
in case of breach of contract and employment of child labour;

 The contract should also provide for an indemnity clause in case


of violation of any law relating to child labour; and

 It is advisable to conduct a due diligence to ensure that no child


below the age of 14 is employed and all Labour laws and

70
http://indiacode.nic.in/fullact1.asp?tfnm=197619
71
http://indiacode.nic.in/fullact1.asp?tfnm=198661
72
http://indiacode.nic.in/fullact1.asp?tfnm=197625
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http://labour.nic.in/

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Strategies for Doing Business in India

regulations are duly complied with. This is also a norm followed


by various Indian industries.

Corporate Social Responsibility in India

It is advisable that a foreign entity should formulate a Corporate Social


Responsibility (CSR) policy to guide its strategic planning and providing a
road map to its CSR initiatives. The policy should broadly cover
prevention of child labour, welfare of employees, community, working
conditions, skill development, health, safety, education and non-
discrimination etc. Some of the suggestions for formulation of CSR policy
in India are as under:

 Make a formal policy and a code of conduct for preventing all


forms of child labour falling under the ILO Conventions,
complying with at least the ILO conventions and national and
local legislation;

 Make it explicit in contracts with your Indian Partners, agents,


service providers and contractors etc., which should also be
extended to the sub-contractors at least to the extent of the
labour law compliances, that the Company follows the policy of
intolerance against employment of child labour;

 Ensure that children in the ages of 14 to 18, which are allowed


to work according to international agreements and/or national
law, are not engaged in the worst forms of child labour as
specified in ILO Convention 182 or any other national and local
legislation;

 Bring awareness among all those who are associates with you
about the ills of child labour and encourage them to work
towards the prevention of the child labour;

 Ensure that the ILO‘s other core conventions are adhered to for
the protection of basic rights of the workers;

 Ensure payment of at least fair and reasonable prices for the


services obtained to discourage employment of child labour and
exploitation of labour;

 Provide special facilities such as crèches and day-care centres


for employees, to help them keep their children out of child
labour; and

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 Conduct labour audit at regular intervals for child labour abuse


and worker welfare.

It has been found that the system of sub-contracting in India is one of the
major culprits for employment of child labour, as in the case of sub-
contractors the foreign entities may not have any direct control for
prevention of Child Labour. To prevent child labour, it is suggested that a
contract with Indian Partners, agents, service providers and contractors
etc. specifically prohibiting the use of child labour by them, their agents,
service providers or sub-contractors shall be preferred. Any breach in
such contract shall be treated as severe breach of the contract leading to
serious consequences.

Detailed information about the Indian Labour Laws and Government


reports on the subject can be found at the website of the Ministry of
Labour, Government of India.74

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http://labour.nic.in/welcome.html.

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

CORRUPTION IN INDIA

Corruption has global dimensions, but the general perception of the


corruption in India is that it is deep rooted and a menace, which has a
drastic psychological effect particularly on the foreign entities coming to
India, which may be from a country where corruption is condemned from
top to bottom.

In a report, known as Corruption Perceptions Index (CPI), 2009 75, by


Transparency International, India has been positioned at 84th among a
survey of 180 countries.

There are various laws which have been enacted by the Government of
India for eradication of corruption including the Right to Information Act,
200576. Under the Right to Information Act, 2005 (RTI Act), any citizen of
India can seek information from government departments and agencies
on any matter relating to their affairs and financial dealings. The
commencement of this Act has resulted in transparency in the functioning
of Government agencies thereby resulting in cleansing of the system.

The RTI Act extends to all government bodies, which are owned,
controlled or substantially financed by the Government of India. Right to
Information Act, 2005 mandates timely response to citizen‘s requests for
government information. Subject to the exceptions under the RTI Act, the
Right to Information Act, 2005 empowers every citizen to

 Ask any questions from the Government or seek any


information;
 Take copies of any government documents;
 Inspect any government documents;
 Inspect any Government works; and
 Take samples of materials of any Government work.

Indian Laws to combat Corruption

The (Indian) Prevention of Corruption Act, 198877, is a special enactment


by the Parliament of India to combat corruption in government agencies
and public sector businesses in India.

There is a complete mechanism for dealing with corruption in India, as


may be evident from the list of agencies and forums involved in

75
http://www.transparency.org/policy_research/surveys_indices/cpi/2009/cpi_2009_table
76
http://righttoinformation.gov.in/rti-act.pdf
77
http://www.cbi.gov.in/rt_infoact/pcact.pdf

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prevention of corruption78. The Central government, State Governments


and various other government agencies have appointed special officers for
dealing with the issue of corruption. Some of the authorities dealing and
combating corruption are Central Bureau Of Investigation (CBI), Banking
Ombudsman, Insurance Ombudsman and Chief Vigilance Officers (CVOs)
of various government departments and agencies.

Punishment

It is important to note that accepting bribe is not the only offence but
offering and giving bribe is also an offence in India. So, while doing any
business in India, getting entangled in any manner whatsoever in the web
of bribery, resulting in corruption must be avoided.

It is ironical that Section 24 of the (Indian) Prevention of Corruption Act,


198879 provides immunity from prosecution to a bribe-giver if the bribe
giver makes a statement in a court of law that he offered bribe, and
becomes a witness in a case relating to bribe against a public servant.

Under Section 12 of the (Indian) Prevention of Corruption Act, 1988,


offering a bribe is a punishable offence.

Under the (Indian) Prevention of Corruption Act, 1988 an offence relating


to corruption is punishable with imprisonment, which may vary from 5 to
7 years along with fine.

Avoiding Corruption in India

Despite the wide spread perception of corruption in India, it will be wrong


to presume that business cannot be done in India without indulging in
corruption.

Corruption, unfortunately, extends into most spheres of life


and is mainly due to the illicit nexus between various government
functionaries and those who deal with them. Corruption in India not only
deteriorates the quality of governance, but also threatens the
fundamental roots of democracy. The revelations of numerous scams and
embezzlement not only tend to undermine the security and integrity of
the India, but also disrupt the people's trust and belief in the Government
of India. The general perception about India is that the bribe is not only

78
http://www.combatcorruptionindia.org/resources/agencies2fightcorruption.pdf
79
http://www.cbi.gov.in/rt_infoact/pcact.pdf)

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paid for getting things done but also for getting right things done at the
right time.

Corruption is a serious problem, but despite what some


believe, the situation is not as bad as it seems. India is now no longer
considered a soft state. With the introduction of new regime like RTI Act,
Central Vigilance Commission (CVC), Anti-Corruption Bureau to combat
corruption, India is moving in the right direction to make the system more
efficient and transparent. Corruption is an epidemic, it has to be cured
and the only vaccine against corruption is transparency, accountability
and professionalism. While doing business in India, one of the primary
rules to avoid corruption is to be legally compliant. The resolve to follow
rules and adhere to the law of the land will definitely help foreign entities
to avoid corruption and carry on the business in a legal manner. There are
numerous examples of successful business ventures in India by foreign
entities, which have achieved success without indulging into any
corruption by being legally compliant and adhering to the law of the land.

Some of the suggestions for avoiding and combating bribery and


corruption in India are:-

 Be transparent and legally compliant;

 Maintain complete records of all transactions;

 Follow timelines for compliances;

 Discourage the policy of giving discounts on your products or


services;

 Avoid cash transactions and prefer the payments through banks;

 Formulate an anti-corruption and anti-bribery policy, and


communicate it to all employees and make breaching it a disciplinary
offence;

 Educate your employees and others associated with you about the
consequences of getting involved in corruption in any form;

 prohibit offering, giving or acceptance of bribes, gifts, hospitality or


expenses by employees or other parties involved, which may result in
influencing the outcome of business transactions;

 prohibitdonations to political parties or charities to obtain a business


advantage; and

 Take the help of higher officials of the concerned departments in case


of harassment or demand of bribery for redressal of grievances

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

LITIGATION IN INDIA

India has well defined substantive and procedural laws along with a well
established system of judicial enforcement of rights. An elaborate
mechanism is provided for grievance redressal under Indian statutes. A
complete hierarchy of courts and tribunals has been set up.80 India has
three tier system of judiciary, which includes District Courts, at the first
tier, comprising judges for adjudicating upon civil disputes and criminal
cases at the lowest level. At the second tier, each state in India has a
High Court which has the appellate and supervisory jurisdiction over all
the courts and tribunals in such state. The Supreme Court of India81,
which is at the third tier, is the highest court of justice in India having
appellate and supervisory jurisdiction over High Courts of all the states.
The Supreme Court of India and all the High Courts also act as the
custodians of the constitution of India. Government of India has also
formed special tribunals to deal with matters of specific nature, such as
Intellectual Property Appellate Board (IPAB)82, Income Tax Appellate
Tribunal (ITAT)83, Debt Recovery Tribunal(DRT)84, Central Administrative
Tribunal(CAT)85, Board for Industrial and Financial Reconstruction (BIFR)86
and Central Excise Service Tax Appellate Tribunal(CESTAT)87.

Doing litigation in India may be an unending process, frustrating the


entire purpose of litigation. Indian Judicial System is marred with
exceptional judicial delays and slow process. The present sad scenario of
Indian courts can be understood from the data derived from the website
of the Supreme Court of India88, pertaining to the pendency of cases in
various Indian Courts. A glimpse at the data given hereinafter of the
pending cases in the Indian courts is grave enough to pose caution. As of
May 2010, 55,797 cases are pending with the Supreme Court of India,
over 3 million cases are pending in the 21 High Courts and over 26.3
Million civil and criminal cases are pending in the District Courts89.

The litigation in India should be initiated only after a well thought strategy
about the entire process, time and cost involved. Litigation in India should
not be initiated impulsively. Though it may not be possible to avoid
litigation at all times but strategies can be formed to successfully end the

80
http://indiancourts.nic.in/index.html
81
http://www.supremecourtofindia.nic.in/
82
http://www.ipab.tn.nic.in/
83
http://itat.nic.in/
84
http://www.drt.co.in/
85
http://cgat.gov.in/
86
http://www.bifr.nic.in/
87
http://cestat.gov.in/
88
http://www.supremecourtofindia.nic.in/new_s/pendingstat.htm
89
http://www.supremecourtofindia.nic.in/HCquarterly_pendency_Dec2008.pdf

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litigation by achieving practical objects. It should also be kept in mind


that Indian Courts are not very pro-active in granting heavy damages or
compensation. Alternative Dispute Resolutions like arbitration is a well
recognised method of avoiding litigation in India.

Time frame for Litigation


In view of the above data, it is very difficult to predict a time band within
which litigation in India can be completed from the filing of the suit and
till the appellate stages are over. However, a well thought strategy can
definitely put an end to the unending and unpredictable litigation in India.

So, while doing business in India, the first endeavour should be to avoid
litigation. However, there may be situations when a foreign entity may
get embroiled in an unavoidable forced litigation in Indian Courts.

It has been observed that most of the litigation which takes place in India
during the course of business by a foreign entity with an Indian, is a
result of bad contracts, which could be avoided by taking care of and
contemplating various contingencies which may arise during the course of
business in India.

Cost of Litigation
Any peculiar civil action in the Court of law involves following components
of costs i.e. Court Fee, Professional Fee and Miscellaneous Expenses and
Disbursements.

In a Civil action, court fee is required to be paid at the time of the


institution of the suit, which may be fixed or ad-valorem (a percentage of
the amount claimed). Generally, the fixed court fee is negligible.
However, any claim relating to recovery, damages, compensation or
property etc. may attract a court fee which is based on a percentage of
the claim amount or the valuation of the subject matter of the suit, e.g.
for a suit for recovery of a sum of INR 60 Million (approx. US$ 1290000)
in Delhi High Court, an amount equivalent to 1 % of the claim i.e. INR
0.6 Million (approx. US$ 12900) has to be paid as court fee at the time of
the institution of the suit. In Criminal matters, only a trifling court fee is
payable.

For any matter relating to litigation, the component of professional fee


may include fee for advice, drafting of pleadings and appearances before
the Court. In India, for professional fees, generally the system of lump-
sum fee and fee on ‗hourly rate‘ basis is followed. However, Indian law

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Strategies for Doing Business in India

does not allow the payment of contingent fees or conditional fees, i.e.,
any fee for services provided where the fee is only payable if there is a
favorable result.

The third component of litigation cost, is usually not very high since the
same pertains to miscellaneous issues related to litigation including
typing, photocopying, postage and courier charges etc.

Mechanism for Enforcement of Judgments


Indian judicial system is a creation of the Constitution of India. The
distinguishing feature of the Indian Judiciary lies in its independence from
the executive / government. The Central & State Governments and their
functionaries are duty bound to obey and implement the orders of the
Courts in India, and any non compliance on their part results in the
initiation of contempt proceedings against them. Besides coded laws,
India also follows the common law principles. The judgments of the High
Courts and Supreme Court of India, as precedents, have the same force
as that of the ―law of the land‖.

The Indian Government Machinery including the police is under an


obligation to follow and implement the orders of the court. There are
special provisions for the enforcement of the orders of the court, including
Contempt of Court proceedings, which provides for a fine as well as
imprisonment, in case of disobedience. There are also other legal means
for execution / compliance of the orders of the court i.e. by way of
appointment of Local Commissioner / Receivers.

As already stated that the Indian Judiciary does not suffer from a
nationalistic approach, which is itself good to build confidence in foreign
entities.

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Strategies for Doing Business in India

ARBITRATION – THE PREFERRED MODE

All Disputes, which are of civil nature, may be resolved at any of the
following two forums i.e. the formal system of redressal through
conventional system i.e. Courts and Tribunals, or Alternate Dispute
Resolution (ADR) i.e. Mediation, Conciliation and Arbitration. Keeping in
view the state of the formal judicial process, it shall always be preferable
to opt for ADR. India has a codified law on ADR i.e. the Arbitration &
Conciliation Act, 199690 which conforms to Model law on International
Commercial Arbitration in 1985 by the United Nations Commission on
International Trade Law91 (UNCITRAL). These Model laws and Rules make
significant contribution to the establishment of a unified legal frame work
for the fair and efficient settlement of disputes arising in international
commercial relations. Keeping in view the above, the (Indian) Arbitration
and Conciliation Act, 1996 was enacted by India wherein provisions have
been made recognizing arbitration agreement, composition of arbitration
tribunal, procedures for conduct of arbitration, making of awards,
recourse against arbitral awards, finality of arbitral awards and their
enforcement, enforcement of foreign awards etc. Both New York
Conventions Awards (Convention on the Recognition and Enforcement of
Foreign Arbitral Awards, New York, 195892) and Geneva Convention
Awards, 192793 are recognised under the Indian Act.

One of the best features of Indian Arbitration and Conciliation Act, 1996 is
that parties to the arbitration agreement have no option except to go for
arbitration in case of any dispute. Further, the parties can choose their
own law, Indian or foreign, on the basis of which arbitration will be
conducted, place and forum of arbitration, within or outside India, adopt
their own procedures or the procedure of any internationally recognized
arbitral forums. The essence of the above is that the parties are free to
resolve their disputes in any manner, whatsoever, as may be agreed
which is free from the shackles of the traditional system of justice.

It is further important to note that all awards passed by the Arbitrator are
final and binding, subject to some reasonable exceptions and the same
are enforceable as a final decree of the court.

The above process considerably reduces the time, which is usually taken
by the conventional system of judicial redressal, and cost for resolution of
dispute between the parties without adhering to the strict procedural
laws. Under the Indian Arbitration & Conciliation Act, 1996, the courts are
also empowered to pass orders for interim measures like preservation,

90
http://indiacode.nic.in/fullact1.asp?tfnm=199626
91
http://www.uncitral.org/
92
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html
93
http://www.arbitrationindia.org/Geneva%20Convention%201961.htm

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Strategies for Doing Business in India

interim custody or sale of any goods, securing the amount in dispute, the
detention, preservation or inspection of the property. Courts are also
empowered to pass any interim injunction or appoint receivers for
protection of the subject matter of the dispute and enforcement of the
arbitral award.

The flexibility of the law and the procedure for arbitration in India makes
it a preferred option for resolution of any dispute as it provides speedy
and effective remedy. Presently, ADR is the preferred mode of dispute
resolution among the Government agencies as well as private parties.

Recommendations

It is strongly recommended that Alternate Dispute Resolution (ADR) i.e.


Mediation, Conciliation and Arbitration should be adopted as a mode of
dispute resolution and for the said purpose care should be taken to:

 Put a specific clause providing for resolution of disputes by ADR in


all agreements.

 Exclude the jurisdiction of the Courts

 Arbitration clause should provide for preferred laws applicable to the


dispute.

 Preferred Forum, procedure and place of Arbitration should also be


properly defined in the contract.

 In case of International commercial arbitrations, rules of


international arbitral institutions like International Chamber of
Commerce (ICC), the International Centre for Dispute Resolution
(ICDR), the international branch of the American Arbitration
Association), the London Court of International Arbitration (LCIA),
the Hong Kong International Arbitration Centre, and the Singapore
International Arbitration Centre (SIAC), may be made applicable.

Sample Arbitration Clause

A sample arbitration clause is given herein below:

― ARBITRATION

(a) Any and all disputes and claims between the parties to this
Agreement arising out of or in connection with this Agreement or its
performance (including the validity of this Agreement) shall, so far
as is possible, be settled amicably between the parties to this
Agreement.

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(b) If after a period of thirty (30) Business Days from such


dispute, the parties to the dispute have failed to reach an amicable
settlement, such disputes arising out of or in connection with this
Agreement or its performance (including the validity of this
Agreement), at the written request of any of the parties to the
dispute, shall be settled by binding arbitration.

(c) Such arbitration shall be under and in terms of the (Indian)


Arbitration and Conciliation Act, 1996 and shall be held in
….(mention place of arbitration). All proceedings of such arbitration
including the award shall be in the English language and shall be
kept confidential by the parties to this Agreement.

(d) The arbitration panel shall consist of three arbitrators. One


arbitrator shall be appointed by the Assignee and one arbitrator
shall be appointed by the Assignor within fifteen (15) days of the
failure to settle the dispute amicably. The two arbitrators appointed
by the Parties shall in turn jointly appoint the third arbitrator. The
third arbitrator shall be selected by the two arbitrators so appointed
within a period of fifteen (15) Business Days of their appointment
and where such third arbitrator has not been selected within the
said period, the third arbitrator shall be appointed in accordance
with the provisions of the (Indian) Arbitration and Conciliation Act,
1996.

(e) The arbitration award rendered shall be final and binding on


the parties to the dispute. The arbitrators panel shall endeavour to
give their award within six (6) months of the dispute being referred
to the arbitration panel.

(f) Prior to or pending arbitration, nothing shall preclude either


party to the dispute from seeking interim or permanent equitable or
injunctive relief, or both, or specific performance from the courts at
………(mention the place of arbitration). The pursuit of equitable or
injunctive relief shall not be a waiver of the duty of the parties to
the dispute to pursue any remedy for monetary damages through
the arbitration described in this Clause.‖

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

TECHNOLOGY TRANSFER

In India there is no special law for dealing with issues relating to the
Technology Transfer. A technology transfer may take place by way of an
assignment or license. However, license is generally the preferred mode
for technology transfer. The subject matter of technology transfer may
include patented as well as non-patented technology, technical
documentation, manuals, trade secrets, business methods, database and
other Intellectual Property including Trade Marks and Copyright etc.
(herein after collectively referred as Technology).

It is advisable that all technology transfer should generally take place by


detailed written agreements, which should enumerate provision for
handling of various issues relating to the subject matter of the technology
transfer agreement, payment of consideration and royalties, and post
termination issues. A strong and elaborate technology transfer agreement
will form the basis of the strong foundation for enforcement of the rights
in the court of Law in India, in case of any violation of any term of the
contract, dispute or breach of trust in handling the information transferred
or licensed under the agreement.

While entering into an agreement for transfer or licensing or assignment


of the Technology, it is necessary to define elaborately and make
provisions at least for the following aspects relating to the technology
transfer:

 Define the Technology which is to be transferred, in specific terms;

 Define the statutory rights, if any, over the Technology;

 Define all other intellectual property rights which are part of the
agreement, whether registered or unregistered;

 Special care should be taken to identify the data, if any;

 An undertaking should be taken from the transferee/licensee that


the transferee/licensee acknowledges your rights over the
Technology in definite and unambiguous terms, and the ownership
over the Technology will not be challenged by the
transferee/licensee;

 Further an undertaking should be procured from the


transferee/licensee that the transferee/licensee will not obtain any
statutory right over any of the subject matter of the agreement in
its own name;

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 It is advisable to incorporate appropriate terms in the agreement for


handling and use of the information provided under the agreement;

 Provision should also be made for handling of the subject matter


after the termination of the agreement, which may include return,
destruction, erasure of the data from the electronic media or any
other medium;

 A specific bar should be placed on the use of the Technology or


Intellectual Property or data etc., after the termination of the
agreement, except as may be provided in the agreement;

 It is advisable to have specific clauses for transfer of the


improvements in the Technology and data generated during the
course of the use of the Technology under the agreement, to the
transferor/licensor without any additional cost;

 Care should be taken to prohibit sub-licensing of the Technology to


any third party;

 The Technology transfer agreement, generally should be non


exclusive, until and unless otherwise provided;

 Wherever possible care should be taken to give a notice as to the


ownership of the copyright in the format as provided under the
Article III(1) of the Universal Copyright Convention94.

It has been generally observed that if suitable provisions have been made
in the agreement relating to transfer/licensing of the Technology, it
becomes comparatively easier to enforce through the courts any violation
of the terms of the agreement or misuse of the rights granted under the
agreement.

Approvals for Foreign Technical Collaboration

The Reserve Bank of India (RBI), allows foreign technology collaboration


by Indian companies with Foreign Entities95, under the Automatic Route,
subject to the fulfillment of the following conditions:

 Lump sum payments for foreign technology collaboration should not


exceed US$ 2 million;

94
http://portal.unesco.org/en/ev.php-
URL_ID=15241&URL_DO=DO_TOPIC&URL_SECTION=201.html
95
http://www.rbi.org.in/scripts/FAQView.aspx?Id=26

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Strategies for Doing Business in India

 Royalty payable should be limited to 5 per cent for domestic sales


and 8 per cent for exports, without any restriction on the duration
of the royalty payments;
 There is no requirement of the registration of the agreement with
the Regional Office of Reserve Bank of India.

If, any proposal for technology transfer does not fulfill any of the above
conditions then the Automatic Route of RBI for technology transfer cannot
be availed, and such proposal will require clearance from Department of
Industrial Policy and Promotion, Ministry of Commerce and Industry,
Government of India.

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Strategies for Doing Business in India

SPECIFIC GUIDELINES FOR FOREIGN ENTITIES

Any foreign entity, who is coming to India for business must believe in
one cardinal principle as a good business strategy i.e. believe in writing,
meaning thereby enter into strong and elaborate contracts, formalize your
relationship and communication with Indian counterparts. If the foreign
entity is strong in written communication, they can expect an effective
and quick judicial redressal of their grievances in case any need arises. It
has been often observed that one of the basic reasons of the problems
faced by foreign entities is the ambiguity in their communications and
contracts.

Some of the suggestions to the foreign entities for a successful business


venture in India are:-

 Believe in writing;

 Be specific and avoid ambiguity;

 Before starting relationship prefer to enter in to non disclosure


agreements (NDA)

 Enter into an elaborate contract;

 Envisage situations and make provisions for termination/revocation


of the contract;

 Preserve your correspondence including emails, as emails are


admissible as evidence in the Indian Courts;

 Prefer Alternative dispute resolution i.e. Arbitration, mediation and


Conciliation;

 It is important to carefully choose the location of the registered


office of the foreign entity in India, which may be different from the
operational offices in India. The registered office of the foreign
entity should be at a strategic location providing all facilities, e.g.
New Delhi, as most Courts and judicial forums, Central Government
offices are situated and seated in New Delhi;

 Choose the place of arbitration and jurisdiction of courts carefully;

 Prefer to choose the jurisdiction of the court and place of


arbitration, where your office is situated. Indian law allows choice of
place of arbitration and jurisdiction of courts;

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Strategies for Doing Business in India

 To protect your IPR, it is advisable to have an exit clause i.e. a


clause to clearly define procedure for terminating the relationship
and conduct thereafter, regarding IPR including all post termination
IPR issues, which may include restriction on the use of the name of
the foreign company as part of the name of the Indian company,
Trademark, non disclosure of secret and confidential business and
technical information provided during the course of the business
relationship etc. in case of breach of the contract or failure of the
venture for any reason;

 The aspect of Technology Transfer in India has to be dealt with


the elaborate drafting of agreements otherwise such agreements for
technology transfer may prove to be self-destructing. It has been
observed that most of the problems relating to technology transfer
relate to secrecy in case of a non-patented technology, transfer,
exclusivity, non-compete and termination in case of any dispute. All
these issues, as already stated can be effectively addressed by
comprehensive and elaborate agreements;

 A typical exit clause, i.e. a clause to clearly define procedure for


terminating the relationship and conduct thereafter, on termination
of a license with respect to technology transfer, Intellectual Property
rights including trademark may be as follows:-

1. the Licensee shall immediately cease, upon termination and


thereafter, any further direct or indirect use of any Technical
Information and/or Confidential Information received from
the Licensor;

2. the Licensee shall immediately cease, upon termination and


thereafter, any further direct or indirect use of the Licensed
(...mention IPR details..), and shall dispose in such manner
as the Licensor may reasonably direct, of any ready stock of
goods, price lists, advertising materials, manuals, packaging
or other materials in its possession, power or control that
bear or otherwise use the Licensed (...mention IPR
details..);

3. the Licensee shall immediately return to the Licensor all


documents, original technical data and technology related to
the Technical Information for the manufacturing and design
of the Licensed Products and/or the Licensed Components,
and all Confidential Information (and any and all copies
thereof) placed at its disposal by the Licensor;

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4. the Licensee shall permanently delete any and all the


Technical Information and/or Confidential Information placed
at its disposal by the Licensor from any electronic device in
its or its representatives‘ possession, custody or control;

5. the Licensee shall destroy all copies of any notes, analysis,


studies or other documents prepared by or on behalf of itself
or by or on behalf of its representatives containing or
reflecting any of the Technical Information and/or
Confidential Information; and

6. the Licensee shall not do anything that might jeopardize the


exclusive right of the Licensor in and to the Licensed
(...mention IPR details..), or any variation thereof, or use
any other word or mark capable of causing confusion
therewith or deceptively similar thereto, whether as part of
its trade, business or corporate name;

and with respect to this clause, the Licensee shall confirm in writing
to the Licensor, that it has done so.‖

NON DISCLOSURE AGREEMENT (NDA)

The protection of a unique idea or model is indispensable to every


business. In order to secure your business secrets and keep them from
being disclosed by your employees or another party, Non-disclosure
Agreement (NDA) is a necessity. Non Disclosure Agreement or
Confidentiality Agreement is a legal contract intended to protect
information that is proprietary or confidential. In India, Nondisclosure
agreements are very important as they can protect any type of trade
secret or confidential information, providing a competitive advantage to
the Company. They also act as a deterrent and provide an advantage in
case of a violation before a court of law, as an NDA is enforceable in
Indian courts of law.

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Strategies for Doing Business in India

(Sample)
NON-DISCLOSURE AGREEMENT

THIS AGREEMENT (the ―Agreement‖), made and entered into as of this


(date, month and year) (the ―Effective Date‖)

By and between

ABC Company, with its principal place of business at (Address),


(hereinafter called FIRST PARTY) which expression shall mean and include
unless repugnant to the context, its successors and permitted assigns);
And

XYZ Company, with its principal place of business at (Address)


(hereinafter called SECOND PARTY) which expression shall mean and
include unless repugnant to the context, its successors and permitted
assigns).

WHEREAS the expressions (FIRST PARTY) and (SECOND PARTY) shall be


collectively referred to as the ―Parties‖ and each a ―Party‖.

WHEREAS it is the intention of the Parties hereto to make mutual


disclosure of Confidential Information (as defined below) for the purpose
of discussing the business alliance with respect to (name of the Project)
herein after referred to as (the ―Project‖); and

WHEREAS the Parties desire to maintain their respective rights in their


Confidential Information and to prevent its unauthorized use or
disclosure.

NOW therefore in consideration of the mutual protection of Information


herein by the parties hereto and such additional promises and
understandings as are hereinafter set forth, the parties agree as follows:

1. ―Confidential Information‖ for the purpose of this agreement


shall mean and include any and all information in written,
representational, electronic, verbal or other form relating directly or
indirectly to the present or potential business, operation or financial
condition of or relating to the disclosing party (including, but not
limited to, information identified as being proprietary and/or
confidential or pertaining to, pricing, marketing plans or strategy,
services rendered, customers and suppliers lists, financial or
technical data or know-how, including, but not limited to,
information which relates to data, research or development

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

activities and plans, manufacturing, product plans, products,


services, markets, computer programs, source code, developments,
inventions, processes, designs, technical specifications, drawings,
engineering, hardware configuration information, systems,
methods, formulae, devices, manufacturing and/or test
specifications, patents, patent applications, trade secrets,
trademarks, patentable inventions, copyrightable information, or
service matters or data, personal or sensitive data and any
information which might reasonably be presumed to be proprietary
or confidential in nature, excluding any such information which is
known to the public or lawfully acquired from a third party or known
to the receiving party prior to its disclosure under this Agreement or
required to be disclosed by government or court.

2. The receiving party shall use the same degree of care and
protection to protect the Confidential Information received by it
from the disclosing party as it uses to protect its own Confidential
Information of a like nature, and in no event such degree of care
and protection shall be of less than a reasonable degree of care.
Furthermore, the Recipient shall not disclose to any third party the
Confidential Information disclosed by the Discloser, except as
approved in writing in advance by the Discloser, and shall not use
the Confidential Information for any purpose other than the Project.
Notwithstanding the foregoing, the Recipient may disclose the
Confidential Information of the Discloser to its directors, employees
or agents (collectively, the ―Representatives‖) only if such
Representatives are subject to confidentiality obligations at least as
restrictive as those contained herein. It is further agreed that either
Party may, by obtaining prior written consent of the other Party,
disclose the Confidential Information on ―need to know basis‖ to a
third party to the extent necessary to subcontract or delegate to
such third party all or any part of the works for the Project. In such
a case, such Party shall impose on such third party the same
obligations that it is obligated to perform under this Agreement.

3. Each party and each signer of this agreement individually,


represents and warrants that the respective person signing on
behalf of the Party has the authority and is duly authorized to do so.

4. This Agreement shall remain valid for a period of three (3)


years from the date of execution of this Agreement which term may
be extended by mutual consent in writing of both the parties. This
Agreement may be terminated by either party by giving thirty (30)
days notice in writing to the other party without assigning any
reason whatsoever. The obligations of each party hereunder will

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continue and be binding irrespective of whether the discussion


between the parties materializes into a specific
understanding/business relationship or not.

5. Upon termination or expiration of the Agreement, or upon a


written request of the Discloser, the Recipient shall cease to use the
Confidential Information, and return to the Discloser or destroy such
Confidential Information and all copies, notes or extracts thereof
within seven (7) business days of such termination, expiration or
request.

6. Nothing herein shall obligate any party to proceed with any


transaction or disclose any Confidential Information, and each party
reserves the right to terminate the discussions contemplated by this
Agreement at any time.

7. The parties hereto acknowledge and agree that in the event of


a breach or threatened breach by the other of the provisions of this
Agreement, the party not in breach will have no adequate remedy
in money or damages and accordingly the party not in breach shall
be entitled to injunctive relief against such breach or threatened
breach by the party in breach.

8. Neither party shall use the Confidential Information in a


manner that will jeopardize or adversely affect in any manner future
strategies, plans, business activities, methods, processes,
information, and/or competitive and strategic advantage of the
disclosing party.

9. Each party acknowledges that neither the party nor any of


their respective representatives have made any express or implied
representation or warranty as to the accuracy, completeness,
fitness for a particular purpose of any Confidential Information.

10. Nothing contained herein shall constitute or be construed to


create a joint venture, partnership, contract agreement or other
formal business relationship or entity of any kind between the
Parties. Each Party will act as an independent contractor and not as
an agent of the other Party for any purpose.

11. The Parties acknowledge and agree that nothing contained in


this Agreement shall be construed as granting any property rights,

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by license or otherwise, to any Confidential Information of the


Discloser disclosed pursuant to this Agreement. The Recipient shall
not make, use or sell for any purpose any product or other item
using, incorporating or derived from any Confidential Information of
the Discloser.

12. The parties agree to indemnify and keep indemnified each


other against all loss and damage, which the disclosing party may
suffer as a result of any breach of this Agreement by the receiving
party.

13. No failure or delay by either party in exercising or enforcing


any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise or enforcement of
any right, remedy or power preclude any further exercise or
enforcement thereof or the exercise of enforcement of any other
right, remedy or power.

14. Each party will bear its own costs in connection with the
activities undertaken in connection with this Agreement.

15. Nothing in this Agreement is intended to confer any


rights/remedies under or by reason of this Agreement on any third
party.

16. If any term or provision of this Agreement shall be


determined to be invalid or unenforceable for any reason, such term
or provision shall be limited or eliminated to the minimum extent
necessary so that all other terms and provisions of this Agreement
shall nevertheless remain in full force and effective, and shall be
enforced to the fullest extent permitted by applicable law.

17. The parties agree that any dispute, controversy or claim


arising out of or relating to this Agreement, or the breach,
termination or invalidity thereof, shall be settled by the arbitration
by a sole Arbitrator at Delhi. The language of arbitration shall be
English.

18. The Parties agree that the courts in Delhi shall have the
exclusive jurisdiction and venue of the first instance for actions
arising out of or related to the subject matter in this Agreement,
and the same shall be to the exclusion of all other courts or forums
in India.

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

19. This Agreement shall be governed by and construed in


accordance with the laws of India.

20. This Agreement supersedes all prior discussions and writings


with respect to the Confidential Information and constitutes the
entire Agreement between the parties with respect to the subject
matter hereof.

IN WITNESS WHEREOF, the Parties hereto have caused this AGREEMENT


to be executed in duplicate by their duly authorized representatives as of
the Effective Date and each shall keep one of the executed copies.

Date of Execution:

(________________________) (________________________)

BY: BY:

NAME: NAME:

DESIGNATION: DESIGNATION:

End of Sample NDA

________________________

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

DOMESTIC LAWS OF INDIA


 Central Excise Act, 194496
 Central Sales Tax Act, 195697
 Code of Criminal Procedure, 197398
 Customs Act, 196299
 Foreign Exchange Management (Establishment in India of Branch
Office or other place of business) Regulations, 2000100
 Foreign Exchange Management Act, 1999101
 Foreign Trade (Development & Regulation) Act, 1992102
 Income Tax Act, 1961103
 Indian Penal Code, 1860104
 Intellectual Property Rights (Imported Goods) Enforcement
Rules, 2007105
 The Arbitration and Conciliation Act, 1996106
 The Bonded Labour System (Abolition) Act, 1976107,
 The Child Labour (Prohibition & Regulation) Act, 1986108
 The Child Labour (Prohibition & Regulation) Act, 1986109
 The Companies Act, 1956110
 The Copyright Act, 1957111
 The Designs Act, 2000112
 The Equal Remuneration Act, 1976113
 The Geographical Indications of Good (Registration and
Protection) Act, 1999114
 The Indian Contract Act, 1872115
 The Information Technology Act, 2000116
 The Patents Act, 1970117

96
http://www.cbec.gov.in/excise/cx-act/cx-act-idx.htm
97
http://finmin.nic.in/the_ministry/dept_revenue/rtiman/salestax/sales-
tax%20Folder/CSTAct1956.pdf
98
http://www.mha.nic.in/pdfs/ccp1973.pdf
99
http://www.cbec.gov.in/customs/cs-act/cs-act-idx.htm
100
http://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=176
101
http://finmin.nic.in/the_ministry/dept_eco_affairs/america_canada/fema_acts/index.htm
102
http://dgft.gov.in/exim/2000/ftdract.htm
103
http://law.incometaxindia.gov.in/DIT/Income-tax-acts.aspx
104
http://www.mha.nic.in/pdfs/IPC1860.pdf
105
http://www.cbec.gov.in/customs/cs-act/notifications/notfns-2k7/csnt47-2k7.htm
106
http://indiacode.nic.in/fullact1.asp?tfnm=199626
107
http://indiacode.nic.in/fullact1.asp?tfnm=197619
108
http://labour.nic.in/cwl/ChildLabourAct.doc
109
http://indiacode.nic.in/fullact1.asp?tfnm=198661
110
http://www.mca.gov.in/Ministry/actsbills/pdf/Companies_Act_1956_Part_1.pdf
111
http://www.copyright.gov.in/Documents/CopyrightRules1957.pdf
112
http://ipindia.nic.in/ipr/design/design_act.PDF
113
http://indiacode.nic.in/fullact1.asp?tfnm=197625
114
http://ipindia.nic.in/girindia/GI_Act.pdf
115
http://indiacode.nic.in/fullact1.asp?tfnm=187209
116
http://www.mit.gov.in/sites/upload_files/dit/files/downloads/itact2000/itbill2000.pdf
117
http://ipindia.nic.in/ipr/patent/patents.htm

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

 The Prevention of Corruption Act, 1988118


 The Protection of Plant Varieties and Farmers‘ Rights Act, 2001119
 The Right to Information Act, 2005120
 The Semiconductor Integrated Circuits Layout-Design Act,
2000121
 The Trade Marks Act, 1999122
 The Wealth Tax Act, 1957123

118
http://www.cbi.gov.in/rt_infoact/pcact.pdf)
119
http://agricoop.nic.in/PPV&FR%20Act,%202001.pdf
120
http://rti.gov.in/rti-act.pdf
121
http://www.mit.gov.in/sites/upload_files/dit/files/SICLDA.pdf
122
http://ipindia.nic.in/tmr_new/tmr_act_rules/TMRAct_New.pdf
123
http://law.incometaxindia.gov.in/DIT/other-income-tax-
acts.aspx?page=ODTA&TabId=tab_WTA

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

IMPORTANT INTERNATIONAL CONVENTIONS RATIFIED


BY INDIA

 Agreement on Trade Related Aspects of Intellectual Property Rights


(TRIPS), 1995
 Berne Convention for the Protection of Literary and Artistic Works,
1886124
 Budapest Treaty on the International Recognition of the Deposit of
Microorganisms for the Purposes of Patent Procedure, 1977125
 C100 Equal Remuneration Convention, 1951126
 C105 Abolition of Forced Labour Convention, 1957127
 C111 Discrimination (Employment and Occupation) Convention,
1958128
 C29 Forced Labour Convention, 1930129
 Convention for the Protection of Producers of Phonograms
Against Unauthorized Duplication of Their Phonograms, 1971130
 International Convention for the Protection of Performers,
Producers of Phonograms and Broadcasting Organizations, 1961131
 Paris Convention for the Protection of Industrial Property, 1883132
 Patent Cooperation Treaty, 1970133
 Protocol Relating to the Madrid Agreement Concerning the
International Registration of Marks, 1989134
 Universal Copyright Convention135

124
http://www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=15
125
http://www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=7
126
http://www.ilo.org/ilolex/cgi-lex/ratifce.pl?C100
127
http://www.ilo.org/ilolex/cgi-lex/ratifce.pl?C105
128
http://www.ilo.org/ilolex/cgi-lex/ratifce.pl?C111
129
http://www.ilo.org/ilolex/cgi-lex/ratifce.pl?C029
130
http://www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=18
131
http://www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=17
132
http://www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=2
133
http://www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=6
134
http://www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=8
135
http://portal.unesco.org/la/convention.asp?KO=15381&language=E&order=alpha

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© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

IMPORTANT WEBSITES
S.No Subject Matter Concerned Website Address
. Ministry/Department/In
ternational bodies

1. Matters relating to Department of http://dipp.gov.in


foreign Direct Industrial Policy &
Investment policy and Promotion
incidental matters

2. Matters relating to Reserve Bank of India http://www.rbi.org.


foreign exchange in

3. Approval for technology Reserve Bank of India, http://www.rbi.org.


transfer Department of in
Industrial Policy &
Promotion http://dipp.gov.in

4. Approval for financial Reserve Bank of India, http://www.rbi.org.


collaboration Department of in
Economic Affairs
http://finmin.nic.in

5. Incorporation of a Ministry of Company http://mca.gov.in


company Affairs

6. Matters relating to direct Central Board of Direct http://incometaxin


taxation Taxes dia.gov.in

7. Matters relating to Central Board of Excise http://www.cbec.g


excise ov.in
& Customs
& customs

8. Matters relating import Directorate General of http://dgft.delhi.nic


of goods .in
Foreign Trade

9. Matters relating to Securities and http://www.sebi.go


regulate securities Exchange v.in/
market in India
Board of India

10. Matters relating to Ministry of Labour & http://labour.nic.in


industrial relations & Employment
interests of

88
© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

Workers

11. Responsible for Ministry of External http://meaindia.nic


regulating diplomatic .in
relations Affairs

12. Details of visa Ministry of External http://india.gov.in/


requirements and overseas/passport.
procedure Affairs php

13. Matter related to Central Bureau of http://www.cbi.gov


prevention of Corruption Investigation, Central .in
Vigilance commission
http://cvc.nic.in

14. International World Intellectual http://www.wipo.in


Conventions related to Property Organization t
Intellectual Property
ratified by India

15. International International Labour http://www.ilo.org/


Conventions related to Organization ilolex/english/conv
labour ratified by India disp1.htm

16 International World Trade http://www.wto.or


Organization dealing Organization g/
with the rules of trade
between nations.

17. International United Nations www.uncitral.org/


Organization dealing Commission on
with the modernization International Trade Law
and harmonization of
rules on international
business

18. International United Nations www.unesco.org/


Organization Educational, Scientific
encouraging and Cultural
international peace Organization

19. International Funding Asian Development http://www.adb.or


Agency Bank g

20. International Funding International Monetary http://www.imf.org


Agency Fund /external/index.ht
m

89
© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

21. International Funding World Bank http://www.worldb


Agency ank.org/

21. Public Finance Industrial Credit and http://www.iciciban


Institution Investment Corporation k.com/
of India

22. Public Finance Industrial Development http://www.idbi.co


Institution Bank of India m/

23. Public Finance Industrial Finance http://www.ifciltd.c


Institution Corporation of India om/

24. Tribunal set-up for Intellectual Property http://www.ipab.tn


dealing matters relating Appellate Board .nic.in/
to Intellectual Property

25. Tribunal set-up for Central Administrative http://cgat.gov.in/


dealing matters relating Tribunal
to service of
government employees

26. Tribunal set-up for Debts Recovery http://drt1chennai.


dealing matters relating Tribunal tn.nic.in/
to recovery of debts.

27. Government body that Foreign Investment http://www.fipbindi


offers a single window Promotion Board a.com/
clearance for proposals
on Foreign Direct
Investment in the
country

28. Non-governmental body National Association of http://www.nassco


instrumental in Software and Service m.in/
encouraging Companies
advancement of
research in software
technology

90
© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)
Strategies for Doing Business in India

Disclaimer:

The material contained in this report does not constitute/substitute


professional advice that may be required before acting on any matter.
Neither this report nor the information contained herein constitute a
contract, or will form the basis of a contract between the Commercial
Section of the Royal Norwegian Embassy, New Delhi, India (Innovation
Norway's office in New Delhi) and the reader of this report. Every care
has been taken in preparing the content of this report to ensure accuracy
at the time of publication and creation, however, the Commercial Section
of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's
office in New Delhi) assumes no responsibility for any errors, which
despite all precautions may be found herein.

91
© 2010, India. The Commercial Section of the Royal Norwegian Embassy, New Delhi, India (Innovation Norway's office in New Delhi)