Marketing

Case Laws, Investment(Savings), Loan Or Working Capital, Market Research & Analysis, Marketing

FOREIGN DIRECT INVESTMENT IN INDIA

fsadmin / December 13, 2021

FDI is one of the important tools of economic growth for a developing nation like India. So to boost the flow of foreign investment the process of liberalization is undertaken. However, liberalization of an economy always comes with regulations. Routes for FDI Basically, there are two routes for FDI in India. There is the Automatic Route, where no approval or authority is required by the private foreign investor. He can invest in any company it wishes with no need for government approval. And then there is the Government Route. In this route, there is no investment without the prior approval of the Government of India. Foreign Direct Investment in India does not have a uniform rate. Some industries allow 100% FDI, i.e. the entire funds of the business can be from foreign direct investment. The percentages vary from 26% to 49% to 51%. There are a few industries where FDI is strictly prohibited under any route. These industries are Atomic Energy Generation Any Gambling or Betting businesses Lotteries (online, private, government, etc) Investment in Chit Funds Nidhi Company Agricultural or Plantation Activities (although there are many exceptions like horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc) Housing and Real Estate (except townships, commercial projects, etc) Trading in Transferable Development Rights (TDR’s) Cigars, Cigarettes, or any related tobacco industry SECTOR SPECIFIC CONDITION FOR FDI FOR 100% AUTOMATIC ROUTE 1. Air Transport Services (non-scheduled and other services under civil aviation sector) Main condition: 1. Non-Scheduled Air Transport Services 2. Helicopter services/seaplane services requiring DGCA approval Other condition: (a) Air Transport Services would include Domestic Scheduled Passenger Airlines; Non-Scheduled Air Transport Services, helicopter and seaplane services. (b) Foreign airlines are allowed to participate in the equity of companies operating Cargo airlines, helicopter and seaplane services, as per the limits and entry routes mentioned above. (c) Foreign airlines are also allowed to invest in the capital of Indian companies, operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital. Such investment would be subject to the following conditions: (i) It would be made under the Government approval route. (ii) The 49% limit will subsume FDI and FII/FPI investment. (iii) The investments so made would need to comply with the relevant regulations of SEBI, such as the Issue of Capital and Disclosure Requirements (ICDR) Regulations/Substantial Acquisition of Shares and Takeovers (SAST) Regulations, as well as other applicable rules and regulations. (iv) A Scheduled Operator’s Permit can be granted only to a company: iv.a) that is registered and has its principal place of business within India; iv.b) the Chairman and at least two-thirds of the Directors of which are citizens of India; and iv.c) the substantial ownership and effective control of which is vested in Indian nationals. (v) All foreign nationals likely to be associated with Indian scheduled and non-scheduled air transport services, as a result of such investment shall be cleared from security view point before deployment; and (vi) All technical equipment that might be imported into India as a result of such investment shall require clearance from the relevant authority in the Ministry of Civil Aviation. (i) The FDI limits/entry routes, mentioned at paragraph 5.2.9.2 (1) and 5.2.9.2 (2) above, are applicable in the situation where there is no investment by foreign airlines. (ii) The dispensation for NRIs regarding FDI up to 100% will also continue in respect of the investment regime specified at para (c) (ii) above. (d) In addition to the above conditions, foreign investment in M/s Air India Limited shall be subject to the following conditions: (i) Foreign investment in M/s Air India Ltd., including that of foreign airline(s), shall not exceed 49% either directly or indirectly. (ii) Substantial ownership and effective control of M/s Air India Ltd. shall continue to be vested in Indian Nationals 2. Automobiles Main condition: Subject to the provisions of the FDI policy, foreign investment in ‘manufacturing’ sector isunder automatic route. Further, a manufacturer is permitted to sell its products manufactured in India through wholesale and/or retail, including through e-commerce, without Government approval. 3. Biotechnology (Greenfield) Main condition: Greenfield projects Other condition: Nil 4 Broadcast Content Services (Up-linking of Non-‘News & Current Affairs’ TV Channels/ Down-linking of TV Channels) Main condition: Up-linking of Non-‘News & Current Affairs’ TV Channels/ Down-linking of TV Channels Other condition: Nil 5. Broadcasting Carriage Services Main condition: (a)Teleports (setting up of up-linking HUBs/Teleports); (b) Direct to Home (DTH); (c) Cable Networks (Multi System operators (MSOs) operating at National or State or District level and undertaking upgradation of networks towards digitalizationand addressability); (d) Mobile TV; (e) Headend-in-the Sky Broadcasting Service(HITS) (f) Cable Networks (Other MSOs not undertaking upgradation of networks towards digitalization and addressability and Local Cable Operators (LCOs)) Other condition: Infusion of fresh foreign investment, beyond 49% in a company not seeking license/permission from sectoral Ministry, resulting in the change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require Government approval. 6. Capital Goods Main condition: Subject to the provisions of the FDI policy, foreign investment in ‘manufacturing’ sector isunder automatic route. Further, a manufacturer is permitted to sell its products manufactured in India through wholesale and/or retail, including through e-commerce, without Government approval. 7. Cash & Carry Wholesale Trading/Wholesale Trading (including sourcing from MSEs) Main condition: Cash & Carry Wholesale Trading/Wholesale Trading (including sourcing from MSEs) Other condition: Guidelines for Cash & Carry Wholesale Trading/Wholesale Trading (WT): (a) For undertaking WT, requisite licenses/registration/ permits, as specified under the relevant Acts/Regulations/Rules/Orders of the State Government/Government Body/Government Authority/Local Self-Government Body under that State Government should be obtained. (b) Except in case of sales to Government, sales made by the wholesaler would be considered as ‘cash & carry wholesale trading/wholesale trading’ with valid business customers, only when WT are made to the following entities: (i) Entities holding sales tax/ VAT registration/service tax/excise duty registration; or (ii) Entities holding trade licenses i.e. a license/registration certificate/membership certificate/registration under Shops and Establishment Act, issued by a Government Authority/Government Body/Local Self-Government Authority, reflecting that the entity/person holding the license/ registration certificate/ membership certificate,

Case Laws, Marketing, Others

Establishment of Branch/Liaison Office in India by Foreign entities

fsadmin / December 13, 2021

Every business, as it grows, wants to expand its business globally, for this, it need to establish a subsidiary or branch or liaison office in other country/countries. It is also required to obtain prior permissions from the respective authorities of other country in which it is willing to operate its business. (Known as Host Country). India is one of the fastest growing market compare to other countries, and also provides ample opportunities to foreign entities to operate their business from India. Let’s understand in detail: What is Foreign Company, Branch Office/ Liaison Office Permitted and Prohibited areas Rules and regulations for establishment of branch/liaison offices Tax Implications Meaning of Foreign CompanyAs per the legislative provisions, a foreign company means – company or a body corporate incorporated outside India and Which has a place of business Whether by itself or through an agent, physically or through electronic mode, and Conducts any business activity in India. Note: This definition includes a Branch Office; all the provisions of the Companies Act applying to the company will also be applicable for BO. Meaning of Branch Office (BO) A Branch office is an extension of foreign entity for carrying out the permissible activities in any other country/countries. The role of BO is to undertake the permissible activities in India. Permissible Activities: Export / Import of goods. Rendering professional or consultancy services Carrying out research work, in areas in which the parent company is engaged. Promoting technical or financial collaborations between Indian companies and parent or overseas group company. Representing the parent company in India and acting as buying / selling agent in India. Rendering services in information technology and development of software in India. Rendering technical support to the products supplied by parent/group companies. Foreign airline / shipping company. Normally, the Branch Office should be engaged in the activity in which the parent company is engaged. Prohibited areas: Retail trading activities of any nature is not allowed for a Branch Office in India. A Branch Office is not allowed to carry out manufacturing or processing activities in India, directly or indirectly Meaning of Liaison Office (LO) A Liaison office is a representative office of foreign entity which act as a channel of communication between Head Office abroad and parties in India. The role of LO is notundertaking any commercial activities but limited to collecting information and providing information about the company to the prospective Indian Customers. The Permission to set up such offices is initially granted for a period of 3 years and this may be extended from the date of expiry of the original approval/ extension granted by the RBI, if the applicant has complied with the conditions as prescribed by RBI. Permissible Activities: Representing in India the parent company / group companies Promoting export / import from / to India. Promoting technical/financial collaborations between parent/group companies and companies in India. Acting as a communication channel between the parent company and Indian companies. Note: However, no foreign law firm shall be permitted to open any LO as per recently passed order by the Supreme Court of India. Compliances for establishment of branch/liaison offices A body corporate incorporated outside India (including a firm or other associations of individuals), desirous of opening a Liaison office/Branch office have to obtain permission from the RBI under provisions of FEMA 1999. The application for establishing BO / LO in India should be forwarded by the foreign entity through a designated AD Category – I Bank to the address of – Foreign Exchange Department, Reserve Bank of India. The application should be forwarded along with prescribed documents which includes – English version of the Certificate of Incorporation / Registration or Memorandum & Articles of Association attested by Indian Embassy / Notary Public in the Country of Registration. Latest Audited Balance Sheet of the applicant entity The applications from such entities in Form FNC (Annex-1) will be considered by Reserve Bank under two routes: Reserve Bank Route Government Route Where principal business of the foreign entity falls under the sectors where 100 per cent FDI is not permissible. Note: – Applications from entities falling under this category and those from Non – Government Organizations / Non – Profit Organizations / Government Bodies / Departments are considered by the Reserve Bank in consultation with the Ministry of Finance, GOI. Criteria which are considered by the RBI while sanctioning Branch office/Liaison Office of foreign entities: Requirements For Liaison Office For Branch Office Profit making track record Immediately 3 FY in the home country. Immediately 5 FY in the home country. Net Worth >USD 50,000 or its equivalent. >USD 100,000 or its equivalent. The application in Form FNC shall be filed to an Authorized Dealer Category – I along with prescribed documents viz., Copy of Certificate of Incorporation/Registration attested by the Notary Public in the country of registration. AOA/MOA attested by the Notary Public Audited Balance Sheet Bankers’ Report from the applicant’s banker in the country of registration showing the number of years the applicant has had banking relations with that bank. Bankers’ Report from the applicant’s banker in the country of registration showing the number of years the applicant has had banking relations with that bank. Note: Applicants who do not satisfy the eligibility criteria and are subsidiaries of other companies can submit a Letter of Comfort from their parent company as per Annex-2, subject to the condition that the parent company satisfies the eligibility criteria as prescribed above. Compliance under Companies Act, 2013 Such foreign companies shall be governed by the provisions of: (i) Chapter XXII of the Companies Act, 2013 (ii) Companies (Registration of Foreign Companies) Rules, 2014 Rule 3(3) of the Companies (Registration of Foreign Companies) Rules, 2014 requires every foreign to file e-Form FC-1 to the Ministry of Corporate Affairs within 30 days of the establishment of its place of business in India. And Rule 3(4) provides that in case of any alteration in the aforesaid documents the Foreign Company is require to submit a return in e-Form FC-2 containing the particulars of alteration as

Investment(Savings), Market Research & Analysis, Marketing, Others, Stock Market

Chit Fund Company

fsadmin / December 13, 2021

Introduction A chit fund is a type of rotating savings and credit association system practiced in Pakistan, India, Bangladesh, Sri Lanka and other Asian countries. Chit fund schemes may be organized by financial institutions, or informally among friends, relatives, or neighbours. In some variations of chit funds, the savings are for a specific purpose. Chit funds are often microfinance organizations. Organised chit fund schemes are required to register with the Registrar of Firms, Societies and Chits. A chit fund company is a company that manages, conducts, or supervises such a chit fund, as defined in Section of the Chit Funds Act, 1982. According to Section 2(b) of the Chit Funds Act, 1982: “Chit means a transaction whether called chit, chit fund, chitty, kuree or by any other name by or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical instalments over a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount” Though they are not required to be registered under the RBI Act, chit funds are regulated as Miscellaneous Non-Banking Companies (MNBCs). Their activities relating to soliciting deposits are governed by the Non-Banking Financial Companies and Miscellaneous Non-Banking Companies (Advertisement) Rules (1977) framed by the Government of India under Section 58A of the Companies Act 1956. Other Names for Chit Funds Chit funds are known by a number of names. Internationally, chit funds are known as Rotating Savings and Credit Associations (ROSCA), this is because they provide a facility of saving and borrowing simultaneously. In India, they are called, chit, chitty, or Kuree. After the amendment of the Chit Funds Act in 2019, the following names have also been added. These are, Fraternity Fund, or Rotating Savings, or Credit Institutions. Features of Chit Funds Chit funds have the following features: They have a predetermined value and duration. They work like microfinance institutions. They combine both, credits and savings in a single scheme. They cater to the financial needs of low income households. They allow the deposits made by the contributors to be turned into a lump sum. This is done by three mechanisms. Safe Deposits: A person can deposit the money in the present and enjoy the lump sum in future. Loans: A person can take a loan in the preset and continue to make payments in the future. Insurance: Allows the depositor to enjoy the lump sum in case of an emergency. They offer loan at a lower interest rate than moneylenders. How does Chit Funds work? Let us assume, a chit fund with 12 members, operating for 12 months with a monthly member contribution of Rs.10,000. The chit company would then collect Rs.120,000 every month and offer the amount in an auction, less the chit company fee and a discount. Thus, every month, the members receive the chit amount at Rs. 96,000 (10% chit company fee and 10% discount). If any one member would like to receive the auction, then he/she can receive the entire chit auction amount. If more than one person would like to receive the chit auction, then it selects the lucky member randomly. If no member wants to receive the chit auction, then if offering the chit amount without any discount at Rs.120,000 and it causes a reverse auction. The person offering the lowest amount will get the award of chit auction amount. In any case, every member of the chit receives the chit auction once, the chit discount is spread evenly amongst the members, and the chit company only earns a fee for operating the chit fund. Risk Involved Although there is a law governing the chit funds but still there are a lot of ‘kitty’ and ‘committees’ who operate on the chit fund model but are not regulated. This is the unorganised sector of chit fund. They can have their own modification in the model. Be it in depositing of installments or withdrawal method, unorganized chit funds customize according to their convenience. Then again there is an organised sector which is operated and regulated according to the law and are regulated by the Chit Funds Act, 1982. There are very few companies who operate in the organised sector such a Shriram Chit Funds. After the Saradha Scam in 2013, many people have lost faith in the chit fund scheme. Since even after the regulations there is a huge inherent risk of defaulters and organizer’s authenticity. The Act came into force in 1982 but the scam was exposed in 2013, which clearly reflects that even with the law in place, it is not stringent or regulated enough making chit funds a highly risky affair. Nevertheless it is still popular in the southern states. Tax on Income from Chit Funds The dividend income earned per month is neither tax deductible nor taxable. The overall income is taxable as income from other sources. The overall loss can be claimed as business loss. How to start a Chit Fund Company? To start a chit fund business in India, it is recommended that the promoters of the chit fund company first start a Private Limited Company with the objective of operating a chit fund business. After the incorporation of a private limited company, the company can apply with the relevant Chit Fund Registrar of the State to obtain registration. A chit fund business can commence only after obtaining chit fund business registration from the relevant State Registrar. The documents required to register a Private Limited Company is:- Share capital amount and proposed ratio for holding shares. Two identity proof documents of Directors and Shareholders – Copy of Aadhaar Card/ Voter ID Card/ PAN Card (compulsory). Address proof of the Director or the Shareholder (Voter ID, Passport, Driving license, etc.) Ownership and sale deed (In case your own premise) and one address proof document of registered office (like water,

Marketing, Others

Copyrights

fsadmin / December 13, 2021

Introduction Copyright is an intellectual property that gives exclusive right to reproduce or authorize another to reproduce artistic, dramatic, literary, or musical works. It also extends to sound broadcasting and cinematographic films. Copyright protection is limited to author’s particular expression of idea, process and concept in a tangible medium. However, law permits fair use. To be copyrighted, a work must show certain minimum levels of creativity and originality. Copyright protection is not granted for an abstract idea nor can facts be copyrighted. Only author’s manner of expressing the idea or compiling the facts can be copyrighted. Things that are protected under Copyright Cinematography film Sound recording Musical work & Sound recording Artistic work like paintings, photographs Original literary others Books Computer programs Website Broadcasts on Radio and Television Published editions Definition of Copyright Section 14 of the Act defines the term “Copyright” as to mean the exclusive right to do or authorize the doing of the following acts in respect of a work or any substantial part thereof, namely- In case of literary, dramatic, or musical work: Reproducing the work in any material form which includes storing of it in any medium by electronic means; Issuing copies of the work to the public which are not already in circulation; Performing the work in public or communicating it to the public; Making any cinematographic film or sound recording in respect of the work; Making any translation or adaptation of the work. Further, any of the above-mentioned acts in relation to work can be done in the case of translation or adaptation of the work. In case of a computer programme: To do any of the acts specified in respect of a literary, dramatic or musical work; and To sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme. However, such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental. In case of an artistic work: Reproducing the work in any material including depiction in three dimensions of a two dimensional work or in two dimensions of a three dimensional work; Communicating the work to the public; Issuing the copies of work to the public which are not already in existence; Including work in any cinematographic film; Making adaptation of the work, and to do any of the above acts in relation to an adaptation of the work. In case of cinematographic film and sound recording: Making a copy of the film including a photograph of any image or making any other sound recording embodying it; Selling or giving on hire or offer for sale or hire any copy of the film/sound recording even if such copy has been sold or given on hire on earlier occasions; and Communicating the film/sound recording to the public. Documents Required Name, Address & Nationality of the Candidate – ID proof NOC from the publisher if work published and publisher is different from the applicant. Search Certificate from Trade Mark Office (TM -60) if any NOC from a person whose photograph appears on the work. Power of Attorney 2 Copies of work KYC of author DD/IPO of Rs. per work ((as applicable) NOC from the author if the candidate is different from the author. Procedure for Copyright Registration An application (including all the particulars and the statement of the particulars) in the format of FORM IV has to be sent to the registrar along with the requisite fees (mentioned in the Schedule 2 of the Act). A separate application has to be made for separate works. Every application has to be signed by the applicant as well as Advocate in whose favour a Vakalatnama or a POA has been executed. The registrar will issue a Dairy number and then there is a mandatory waiting time for a period of 30 days for any objections to be received. If there are no objections received within 30 days, the scrutinizer will check the application for any discrepancy and if no discrepancy is there, the registration will be done and an extract will be sent to the registrar for the entry in the Register of Copyright. If any objection is received, the examiner will send a letter to both the parties about the objections and will give them both a hearing. After the hearing, if the objections are resolved the scrutinizer will scrutinize the application and approve or reject the application as the case may be. Assignment of Copyright The owner of a copyright in an existing work or a prospective owner of a future work may assign to any person the copyright, either wholly or partly and either generally or subject to limitations and either for the lifetime of the copyright or any thereof. However in the case of future work, the assignment shall take effect only when the work comes into existence. It may noted that after assignment, the rights of the assignor in the copyright shall be diluted to the extent of the rights so assigned to the assignee and in respect of the rights so assigned, the assignee shall be considered to be the owner during the period of assignment. The assignment of copyright in any work shall be valid only when it is in writing and signed by the assignor of his duly authorized agent. Advantages of Copyright registration Legal Protection – Helps as prima facie evidence in the court of law over ownership of the work. Along with this, it offers Infringement Protection. It gives the creator the right way to get to people who are copying their work and making a living out of the efforts of the hard created things. Branding or Goodwill – Registered copyright can be applied for marketing and building a sense of goodwill along with quality in the minds of your customers. Registered copyright tells others that you care about want you invented. After The Creators Death – After the creator’s death, protection

FOREIGN DIRECT INVESTMENT IN INDIA

Establishment of Branch/Liaison Office in India by Foreign entities

Chit Fund Company

Copyrights

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