At the time when India is completing two decades of the economic liberalization there are several laurels which the policymakers can boast of.  The path-breaking shift from the license-raj to a regime focusing on regulation introduced by the Government of India in the landmark year 1991 have been continued through further economic reforms and the same has also found support from the regulators and the market players.

Certain important and recent legal developments in this area are set out below.

Certain important and recent legal developments in this area are set out below.

US PRESIDENT ENDORSES BRAND INDIA

In the last two decades, India has witnessed a sea change in its foreign investment policy resulting in it being one of the most preferred investment destinations. With growing globalisation and liberalisation, brand awareness has been created in the Indian masses and today India is the one of the biggest and fastest emerging markets for various businesses across the world. Being geographically vast and culturally diverse, India offers the most favorable franchising environment with a huge consumer market. Franchising in this respect has managed to pick up as a successful business module for local companies in India.

Exchange Control

External Commercial Borrowing Liberalised – Flexibility to Telecommunication Companies for Raising Funds

RBI has brought in changes to the existing policy governing External Commercial Borrowings (“ECB”). RBI has amended the existing ECB policy vide its circular, dated January 25, 2010. With this circular, RBI has given flexibility to telecommunication companies on the issue of tapping ECB for payment of Spectrum Allocation Fee (“Fee”) by allowing them to meet the Fee out of rupee resources and then refinance it with a long-term ECB, under the approval route. However, under this amendment certain conditions are to be met for availing the flexibility of replacing rupee debt with foreign debt. The conditions are that ECBs should be raised within 12 months from the date of payment of the final installment to the GOI; the Authorised Dealer (“AD”) should monitor the end-use of funds and domestic banks will not be permitted to provide any guarantee. All other conditions of ECBs – such as eligible borrower, recognised lender, all-in cost, average maturity – should be complied with.

Companies (Central Government’s) General Rules and Forms (Second Amendment), 2010

The GOI vide notification no. G.S.R. 177(E) dated March 05, 2010, has amended the rules by insertion of Rule 20(G) which provides that an application for rectification of mistakes made while filing Form No.1, Form No. 1A and Form No. 44 electronically, on the Ministry of Corporate Affair’s website, shall be made to the Registrar of Companies (“ROC”) in Form No. 68 and such application shall be accompanied by fee of INR 1000 for rectification of mistakes in Form No. 1 and Form No.1A and INR 10,000 for rectification of mistakes in Form No. 44 respectively. The application in Form No. 68 to be made within a period of 365 days from the date of approval of Form No. 1, Form No. 1A and Form No. 44 respectively by the ROC.

Amendments in Information Technology Act, 2000 The Information Technology (Amendment) Act, 2008 has come into force from October 27, 2009. Some key amendments in the Information Technology Act, 2000 (“IT Act”) are highlighted below:

Exchange Control

Liberalization of Foreign Technology Agreement policy

Ministry of Commerce and Industry, GOI, has on December 16, 2009 issued Press Note No.8 (2009 Series) for the liberalization of outbound remittances made for technology collaborations and use of trademarks and brand name, by removing the earlier limits. The remittance for royalties and lump sum fees paid towards transfer of technology, use of trademark and brand name would henceforth be permitted under the automatic route, i.e. without any approval of GOI. Indian companies will now have to directly approach their designated Authorised Dealers (“AD”) with necessary documentation, for payment to foreign technical collaborators. Accordingly, the previous Press Note (Press Note 2 (2003) which provided for the limit on the payment of royalty (5 per cent on domestic sales / 8 per cent on exports) and payment of technical fee (US$ 2 million) has been superseded. The GOI would separately notify suitable post-reporting system for technology transfer / collaborations and use of trade mark / brand name.

Amendments in (Substantial Acquisition of Shares and Takeovers) Regulations, 1997

Securities and Exchange Board of India (“SEBI”) has amended the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (“Takeover Code”). Under the erstwhile Regulation 3(2) of the Takeover Code, acquisition of American Depository Receipts (“ADR”) / Global Depository Receipts (“GDR”) were exempted from open offer requirement until the time of their conversion into the underlying equity shares carrying voting rights. SEBI has now clarified that an exemption from open offer would be available only as long as the ADR / GDR holders remain passive investors without any kind of voting arrangement on the underlying equity shares whatsoever.

Certain important and recent legal developments in this area are set out below.

Anti Dumping Duties

Aviation

Up gradation & Modernisation of 35 Non- Metro Airports

GOI has decided to upgrade and modernize thirty five (35) non-metro airports across the country. In the first phase ten (10) airports namely Kolkata, Hyderabad (Bagumpet), Visakhapatnam, Bhubaneswar, Lucknow, Indore, Ahmedabad, Amritsar, Guwahati and Jaipur are being taken up for development through PPP mode.

Reserve Bank of India's Thrust to Indian Depository Receipts The Reserve Bank of India ("RBI") vide its circular dated July 22, 2009 ("Circular") has provided much needed clarity for/to foreign companies ("Issuing Company") desirous of issuing Indian Depositary Receipts ("IDRs") . As per the said Circular, consequential amendments will be made to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 ("FEMA 20 Regulations") and the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 ("FEMA 19 Regulations").

Foreign Trade

New Foreign Trade Policy, 2009-2014

The GOI vide notification dated August 27, 2009 has notified the new Foreign Trade Policy 2009-14.  Following are some of the significant features of the new policy:

SEBI Informal Guidance on the Applicability of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997

The facts before the SEBI for informal guidance were as follows:

A company had set up an Employees Welfare Trust ("Trust") which has the power to invest its surplus funds into the market in buying various securities, including securities of the company. The invested money will be invested in the name of the trustees and will be used for the benefit of the beneficiaries of the Trust. However, no person who is a member of the promoter group of the company or a director or key management personnel of the company or is a relative of any of these persons can become a trustee. Further if a trustee takes up any of these positions or is a relative of a person in any of these positions, then he would need to resign from the trusteeship of the said Trust. 

New Legislation

Limited Liability Partnership Rules, 2009

The Ministry of Corporate Affairs ("MCA"), GOI vide Notification dated April 01, 2009, published in the official gazette of India, has notified the Limited Liability Partnership Rules, 2009 ("LLP Rules"). The LLP Rules, 2009 contains administrative provisions for formation, management, reconstruction and winding up of LLPs. The LLP Rules have also provided with the forms for the purpose of formation, management etc of the LLPs under the Limited Liability Partnership Act, 2009 and the manner and conditions of filing, recording or registering of documents, forms, notices, statements, returns etc.

Hillary Visit Marks Conclusion of Important Agreements

A new dialogue structure raised between India and United States of America (“US”) during the visit of US secretary of states Hillary Clinton recently gave way to the conclusion of three path-breaking agreements. The End-User Monitoring Agreement basically governs sensitive technology control requirements in order to prevent the leaking of technology to other countries and `minimize' security risks to US and its allies. It will require the end-user nations like India to let the US monitor the use of defence equipment and technology that India procures from US. This is not an India-specific clause but a requirement of the US Arms Export Control Act of 1996.

The other two important agreements, one on creation of a Science and Technology Endowment Board and another, a Technical Safeguards Agreement have been entered into by which the US government has given clearance for launch by Indian Space Research Organisation of Algerian satellites ALSAT-2A and ALSAT-2B, which have US components, on board an Indian space launch vehicle.

Anti-Dumping Duties   

1.  Anti-dumping duties have been levied on the goods originating in or exported from the countries given below:  

·         Rubber chemicals namely MBT, CBS, TDQ, PVI, TMT and PX-13 from the People’s Republic of China and Korea.  

·         ‘Partially Oriented yarn’ corrected as ‘Partially Oriented Yarn of Polyester’.   

·         Sulphur Black, the People’s Republic of China.  

·         Cable Ties, from, the People’s Republic of China and Taiwan.  

·         Phenol, from, Singapore, South Africa and the European Union. 

·         Compact Fluorescent Lamps (CFL), from China, Srilanka and Vietnam.

Liberalizing the Foreign Investment Norms

Under the existing Foreign Direct Investment (“FDI”) policy in India, foreign investment is freely allowed in Indian companies except those engaged in prohibited sectors. Prohibited sectors cover gambling and betting, lottery, atomic energy and multi-brand retail trading. Investments limits and other conditions are prescribed in some sensitive sectors e.g. those subjected to industrial licensing, reserved for the small scale sectors and sectors considered sensitive to the security of the nation e.g. Defence, Telecom, Information and Broadcasting, Airports etc.

Slow and Steady Wins the Race

The age old parable of the hare and the tortoise applies on all fours to the state of the Indian economy. While all the so called developed nations seem to have developed a ‘too fast too soon burnout syndrome’; India continues to inch forward slowly yet surely to retention of economic stability.

Meaning of ‘Related to Any Promoter’ used in Clause 49 of Listing Agreement SEBI has previously amended Clause 49 of the listing agreement inter-alia including a provision stating that if the non-executive Chairman is a promoter or is related to promoters or persons occupying management positions at the board level or at one level below the board, at least one-half of the board of the company should consist of independent directors.  SEBI has now clarified the phrase ‘related to any promoter’ used in the above amendment by specifying that a) If the promoter is a listed entity, its directors other than the independent directors, its employee or its nominees shall be deemed to be related to it. b) If the promoter is an unlisted entity, its directors, its employee or its nominees shall be deemed to be related to it.

Anti-Dumping Duties: Anti-Dumping duty has been imposed on import into India of following goods: · Hydrofluoric acid originating in or exported from China; · Pentaerythritol from Chinese Taipei and Japan; · Diclofenac Sodium originating in or exported from China; · Fully drawn yarn or Fully oriented yarn or Spin drawn yarn or Flat yarn of Polyester (non-textured and non-POY) and other yarns from M/s H.K. Corporation, Republic of Korea; · Vitrified and Porcelain Tiles from China with the exception of certain exporters; · Recordable Digital Versatile Disc (“DVD”) of all kinds originating in or exported from China, Hong Kong, Chinese Taipei. The anti-dumping duty varies depending upon the country from which the DVD has been imported;· Nylon Tyre Cord Fabrics from the China. 

Global Mess and India  The effect of the global meltdown is making the tremors felt across the length and breadth of the Indian economy. The housing bubble, which burst in the United States of America (“US”) resulted in the sub-prime crisis which destroyed investor wealth worth trillion of US Dollars (“USD”). A crisis of such mammoth proportions has claimed such high profile investment banks like Bear Sterns, Lehman Brothers and one of the most venerable insurers in the world, the American International Group (taken over by the US Government for about USD 85 billion.).

Meaning of “Shareholders Having Trading Rights” The term “shareholders having trading rights” has been interpreted under Securities Contracts (Regulation) (Manner of Increasing and Maintaining Public Shareholding in Recognized Stock Exchanges) Regulations, 2006 to mean a shareholder who has a trading interest in the stock exchange, whether directly or indirectly through a person having trading rights. This would ensure that at least 51% of the equity share capital of the recognized stock exchange is held by public.

Overseas Investment by Mutual Fund – LiberalizationThe aggregate ceiling for overseas investment by mutual funds registered with Securities and Exchange Board of India (“SEBI”) has been enhanced from USD 5 billion to USD 7 billion with effect from April 3, 2008.

Anti-Dumping Duties

 Anti-dumping duties have been levied on the goods originating in or exported from the countries given below:

UNDER PRESSURE The International Monetary Fund (IMF) has confirmed that the United States (“US”) economy will slide into a “mild recession” in 2008, as a fallout of the US housing crisis, credit squeeze, high energy costs and slow growth in disposable incomes.

FII Investments in Debt Securities The Securities & Exchange Board of India (“SEBI”) had announced the increase in the cumulative debt investment limit available for investment by FII(s)/sub accounts in government securities/T-Bills from USD 2 billion to USD 2.6 billion, vide circular dated January 19, 2007. Now the said limit has been further enhanced to USD 3.2 billion.

Guidelines for FDI in Industrial Parks GOI, vide its Press Note 2 (2000) permitted up to 100 per cent FDI under automatic route in industrial park(s). Later, in 2005 the GOI vide its Press Note 2 (2005) permitted up to 100 per cent FDI under automatic route in construction development project(s), prescribing therein, among others, the condition for minimum capitalization norms, minimum area requirements and lock-in of original investment. 

Anti-Dumping Duties

Anti-dumping duties have been levied on the goods originating in or exported from the countries given below:

Requirement of Credit Rating

Earlier for public / rights issue of debt instruments, credit rating was required to be obtained from not less than two credit rating agencies. Pursuant to the amendment to the SEBI (Disclosure and Investor Protection) Guidelines, 2000 (“DIP Guidelines”) that credit rating from one credit rating agency would suffice.

Exchange Earner's Foreign Currency (“EEFC”) Account- Liberalisation The Reserve Bank of India (“RBI”) vide its circular dated October 6, 2007 has amended regulation 4 of the Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2000 (the “FCA Regulations”). In terms of the said regulation 4 of the FCA Regulations, a person resident in India is permitted to open and maintain with an Authorized Dealer (“AD”) in India a foreign currency account known as EEFC account, subject to the terms and conditions of the EEFC account scheme as specified in the schedule to the FCA Regulations. Currently, EEFC accounts are permitted to be maintained in the form of non-interest bearing current accounts.

THE YEAR GONE BY…

By all accounts the year 2007 was a remarkable year in the history of Indian economy. Prosperous twelve months - with positive indicators such as a stable 8-9 per cent annual growth, five-fold increase in Foreign Direct Investment (“FDI”) inflows, a booming capital market, an ever growing and economically prosperous middle class has put India as the second fastest growing economy in the world.

SEBI vide its circular has stated that the Depository Participants (“DP”) shall ensure that they have a satisfactory internal control procedure in place. 

With a view to provide greater flexibility to the corporate(s) in managing their liquidity and interest costs dynamically, the RBI vide its circular dated September 26, 2007 has enhanced the existing limit for prepayment of ECB from USD 400 million to USD 500 million.

Anti-dumping duties have been levied on the goods originating in or imported into India from the countries given below:

India, the second fastest-growing economy in the world continues to witness sizeable inflows of foreign institutional and direct investment into various sectors of the economy. Sectors such as manufacturing, construction, finance, banking, telecom, Information Technology (“IT”) and real estate, were the main recipients of foreign investment.

Exchange Control Current Account Transactions-– Liberalisation

The Reserve Bank of India (“RBI”), through its recent circulars have amended the Foreign Exchange Management (Current Account Transactions) Rules, 2000, (the “Current Account Rules”), to introduce following changes:

In accordance with the announcements made in the Annual Policy Statement for the year 2007-08, the Securities Exchange Board of India (“SEBI”) and Reserve Bank of India (“RBI”) has introduced following changes:

India and the United States of America (‘USA” or “US”) have finalized the much awaited nuclear energy accord under which India will have access to US civil nuclear fuel and technology to meet India’s growing energy requirements, in exchange of which India will allow international inspection of its civil nuclear reactor facilities.

SEBI Allows NSE to Set Up Reporting Platform for Corporate Bonds Trading SEBI vide its circular dated March 1, 2007 has authorized the National Stock Exchange of India Limited (“NSE”) to set up and maintain a corporate bond reporting platform with immediate effect.

Certain important and recent legal developments in this area are set out below. Exchange Control Liberalisations in Project and Service Exports The Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 and the Memorandum of Instructions on Project & Service Exports (“PEM”) of October 2003 have been modified by the RBI vide its circular dated January 8, 2007. 

Certain important and recent legal developments in this area are set out below. 

Taming Growth In an effort to curb the growing inflation, the Reserve Bank of India (“RBI”) fired a fresh salvo at the end of the financial year 2006-07 (“FY-07”). The triple whammy involved a 0.5% increase in the Cash Reserve Ratio (“CRR”), a 0.25% increase in the repo rate, and a 0.5% reduction in the interest rate that the RBI pays on the cash reserves maintained by banks with it.

Current Account Transactions for purchase of trademark/ franchise – Liberalisation

The Foreign Exchange Management (Current Account Transactions) Rules, 2000 (“Current Account Rules”) stands amended through a GOI notification dated July 10, 2006.

Investment in ADRs/ GDRs/ Foreign Securities and overseas ETFs by Mutual Funds

Pursuant to the enhancement in overseas investment limits by the RBI, the SEBI vide its circular dated January 4, 2007 has now decided that mutual funds (‘MF’) can invest in America Depository Receipt (‘ADR’)/ Global Depository Receipts (‘GDR’)/ Exchange Traded Funds (‘ETFs’)/Foreign Securities within overall limit of USD 3 billion. This will be with a sub-ceiling for individual MFs which should not exceed 10% of the net assets managed by them as on March 31 of each relevant year and subject to a maximum of US $150 million per MF.

India – The Global Leader

Goldman Sachs has projected that India will sustain over 8% growth until 2020 and become the second largest economy in the world ahead of the United States, by 2050. In their words- “…we project India’s potential or sustainable growth rate at about 8% until 2020...”. Standard & Poor’s, the global rating agency, has raised India’s sovereign credit rating to ‘Investment Grade’ (BBB-/A-3).Recent reports released by the Central Statistical Organisation (“CSO”) and the Reserve Bank of India (“RBI”) further affirm the above facts. According to CSO, real gross domestic product (“GDP”) growth accelerated to 9.2% in the second quarter from 8.9 % the preceding quarter and 8.4 % a year ago, led by manufacturing and services sectors. The manufacturing sector with double digit growth of 11.5% maintained it position as key driver of industrial activity, contributing almost 91.2% of the growth in industry. Growth in the services sector accelerated to 10.6 %.

Certain important and recent developments in this area are set out below.

India-ASEAN

The talks between India and ASEAN on the proposed free trade agreement have resumed after India pruned its sensitive list from 854 items to 560 items.

Certain new enactments, and important and recent developments and case laws in this area are set out below.

The Companies (Amendment) Act, 2006

The Companies (Amendment) Act, 2006 has been notified with effect from May 29, 2006.

Road Map towards Full Convertibility

Perhaps the most significant news this quarter has been the release of the much awaited report on "Fuller Capital Account Convertibility" by the Reserve Bank of India. This report lays down, recommends the road map towards fuller convertibility of the Indian Rupee and decontrolling Resident Individuals and Corporate Capital flows. India would thus have far grater freedom in remittances abroad for investments and acquisitions.

Certain new enactments and important and recent case laws in this area are set out below.

Certain important and recent legal developments in this area (including policy changes and legislative amendments, as the case may be) are set out below

Perhaps the most significant news this quarter has been the release of the much awaited report on “Fuller Capital Account Convertibility” by the Reserve Bank of India. This report lays down, recommends the road map towards fuller convertibility of the Indian Rupee and decontrolling Resident Individuals and Corporate Capital flows. India would thus have far grater freedom in remittances abroad for investments and acquisitions.

Certain important and recent legal developments in this area (including policy changes and legislative amendments, as the case may be) are set out below

Certain important and recent legal developments in this segment (including policy changes, and legislative amendments, as the case may be) are set out below

Certain important and recent legal developments in this segment (including policy changes, and legislative amendments, as the case may be) are set out below

Certain important and recent legal developments in this area (including policy changes and legislative amendments, as the case may be) are set out below