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Ahlawat & Associates ranked amongst Top 50 law firms in India by RSG Consulting

04 Dec, 2019 | Legal

We are pleased and delighted to share with you that Ahlawat & Associates has been ranked amongst the top 50 law firms of 2019 by RSG Consulting in its India Report.

The rankings were unveiled at the RSG India Summit held on 26th November 2019 at the Four Seasons Hotel in Mumbai. RSG rankings are widely considered to be the most robust ranking of Indian law firms and is even used by the UK and Indian governments and academic institutions such as Harvard University as a source of reference. The rankings are conducted every alternate year and are based on number of deals, client satisfaction reviews and practice areas among other things.

Provided below is the link to the rankings:


New criteria for classification of MSMEs is good news for the defence sector

13 Aug, 2018 | Legal

In a significant move, the Union Cabinet decided in February 2018 to change the basis of categorisation of micro, small and medium enterprises from the quantum of investment in plant and machinery/equipment to annual turnover. Based on the decision of the cabinet, the Ministry of Micro, Small and Medium Enterprises (MSMEs) will move a formal amendment to the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. The cabinet decision will come into effect after the Amendment Bill is passed by the Parliament and assented to by the President of India. This could take several months but there is no reason why the Bill should run into rough weather in the Parliament.

The basis of classification of MSMEs is contained in Section 7 Chapter III of the MSMED Act, 2006 which reads as follows:

7. Classification of enterprises. – (1) Notwithstanding anything contained in Section 11 B of the Industries (Development and Regulation) A ct, 1951 (65 of 1951), the central Government may, for the purpose of this Act, by notification and having regard to the provisions of sub-sections (4) and (5), classify any class or classes of enterprises, whether proprietorship, Hindu undivided family, association of persons, cooperative society, partnership firm, company or undertaking, by whatever name called, –

  1. For enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951), as –
    • a micro enterprise, where the investment in plant and machinery does not exceed twenty-five lakh rupees;
    • a small enterprise, where the investment in plant and machinery is more than twenty-five lakh rupees but does not exceed five crore rupees; or
    • a medium enterprise, where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees;
  2. in the case of enterprises engaged in providing or rendering of services, as –
    • a micro enterprise, where the investment in equipment does not exceed ten lakh rupees;
    • a small enterprise, where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees; or
    • a medium enterprise, where the investment in equipment is more than two crore rupees but does not exceed five crore rupees.

[As per Section 2 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), the First Schedule of the Act contains the list of industries which are controlled by the Union of India. This list includes the defence industry.]

The cabinet has decided to amend Section 7 of the MSED Act, 2006. The amended section will define the enterprises manufacturing goods or rendering services in terms of their turnover. The cut-off for each of the three MSME categories will be as follows:

  1. A micro enterprise will be defined as a unit where the annual turnover does not exceed five crore rupees.
  2. A small enterprise will be defined as a unit where the annual turnover is more than five crore rupees but does not exceed seventy five crore rupees.
  3. A medium enterprise will be defined as a unit where the annual turnover is more than seventy five crore rupees but does not exceed two hundred fifty crore rupees.

These monetary limits may be varied by the Central Government in future through a notification but the revised cap shall not exceed the limits mentioned above by more than three times. The amendment to the MSMED Act, 2006 will contain a provision to this effect, thereby making it easier for the government to change the limits, as and when required, without going through the cumbersome procedure of amending the MSMED Act, 2006.

This change will eliminate the uncertainties inherent in the existing system of classifying the enterprises based on investment in plant and machinery or equipment. The investment figures can be manipulated and, in any case, the existing method of classification provides an edge to the enterprises set up in the earlier years over the ones set up later because of the escalation in the cost of plant, machinery and equipment. Moreover, with the Goods and Services Tax regime in place, it will be easier for the regulatory authorities to make a more accurate and objective assessment of the turnover of an enterprise than the assessment of investment made by an enterprise in plant and machinery or equipment.

The move to amend the MSMED Act, 2006 should have a very positive impact on the enterprises falling in the category of MSMEs. As a matter of fact, the new definition should bring more enterprises within the MSME ambit, irrespective of the cost of plant and machinery, as long as the turnover is within the prescribed limits. This should help the enterprises in the initial stages of their operation to grow by taking advantage of various schemes and incentives meant for this sector. The Ministry of MSME has a number of schemes and so does the National Small Industries Corporation. The details of these schemes are available on their websites.

A mention must be made of the Public Procurement Policy for MSEs Order, 2012 which was notified by the government under Section 11 of the MSMED Act, 2006. This policy, which apparently is not applicable to the medium enterprises and came into force on 01 April 2012, aims at promoting micro and small enterprises by supporting them in marketing their products and services without compromising on the imperatives of competitiveness and sound procurement practices. Some of the salient features of this policy are:

  •  Every procuring entity under the administrative control of the central government shall set an annual target for procurement of 20 per cent of requirement from the MSEs with a sub-target of 4 per cent (out of 20 per cent) for procurement from MSEs owned by the SC/ST entrepreneurs. This has been made mandatory from 01 April 2015.
  • Tenders to be issued to MSEs free of cost and no earnest money to be taken from the enterprises registered as MSEs.
  • MSEs quoting price which is within 15 per cent of the price quoted by the lowest bidder (L1), if such L1 bidder is not from the MSE category, to be allowed to supply 20 per cent of the tendered value at L1 price.
  • Reservation of 358 items for procurement exclusively from the MSEs.
  • Procuring entities to upload their annual requirement on their official websites and also to conduct Vendor Development Programmes or Buyer-Seller meets for MSEs, especially the SC/ST entrepreneurs.

It is not known how the 2012 policy is playing out, especially in defence, but it will not be surprising if the implementation of the policy has not been very smooth, especially in regard to achieving the percentage targets for procurement from the MSEs and the SC/ST entrepreneurs. In any case, the 2012 notification does not seem to have been harmonised with or specifically superseded by the Public Procurement (Preference to Make in India) Order 2017 issued by the Department of Industrial Policy and Promotion (DIPP) on 15 June 2017.

The 2017 order, among other things, provides that an opportunity should be given to a ‘local supplier’ to match the L1 bid, where such bid is from a ‘non-local’ supplier, provided the bid of the local supplier is within 20 per cent of the L1 bid. Subject to the local supplier agreeing to match the L1 price, 50 per cent of the order has to be placed on that supplier if the order is divisible. Where the order is not divisible, the entire order can be placed on the local supplier under these circumstances.

The 2012 and the 2017 orders do not seem to have been incorporated by the Ministry of Defence (MoD) in its capital procurement system. Therefore, change in the basis of classification of MSMEs may not benefit much the MSMEs which are operating in the defence sector and eyeing big capital contracts if one looks at their prospects in the light of these orders. But there are at least two areas in which the change in the basis of classification of MSMEs is likely to have a visible impact in the defence sector. These two areas are Defence Offsets and the Make projects.

With the change in the basis of classification, more enterprises are likely to qualify as MSMEs. Therefore, the foreign suppliers who have to discharge offset obligation will have a wider base of the potential Indian Offset Partners (IOPs) from the MSME sector to choose from. This should help the MSMEs as the foreign suppliers prefer to choose them as IOPs because of the multiplier benefit available to them if they choose MSMEs as their IOPs.

The wider MSME base also improves the prospects of more and more ‘Make’ projects being undertaken by these enterprises as projects with development cost up to Rs 3 crore and Rs 10 crore are reserved under the Make I and Make II sub-categories respectively. Since the Make II category entails self-funding of the cost of prototype development by the industry, the bigger enterprises who may now qualify as MSMEs because of lifting of restriction on investment in plant and machinery and equipment may evince a greater interest in those projects.

IPR Issues in Defence Procurement

13 Aug, 2018 | Legal

The stupendous 30-point jump in the global ease-of-doing business index this year, catapulting India to the 100th position, has overshadowed many factors that impact the business climate in India both for the domestic industry as well as the foreign companies. This jump has been made possible by a substantial improvement in regard to paying of taxes, resolving insolvency and getting credit in Mumbai and Delhi.

Notwithstanding the question whether these two cities constitute a fairly reasonable sample, it is ironic that in regard to ‘starting a business’, which is one of the ten parameters comprising the index, India has moved down one rank from 155 last year to 156. This is indicative of the risk in being dazzled by the statistics.

This also brings into focus the need to identify and deal with the real sector-specific factors impacting the business climate in India. All these sector-specific factors are not captured by the constituent parameters of the ease-of-doing index, though it is these factors which have a more immediate bearing on sectors such as defence which is thriving not in cities like Mumbai and Delhi but in states like

Karnataka and Telengana. These states are increasingly becoming hubs of defence innovation, services and manufacturing.

One sector-specific factor that does not even figure among the ten parameters that comprise the ease-of-doing-business index concerns the Intellectual Property (IPR) regime in India. Presumably it is subsumed in some other parameter like ‘starting a business’ or ‘enforcing contracts’. It is also possible to draw the inference that the quality of the IPR regime is not considered to be among the factors that have a direct bearing on ease of doing business but such a view could induce a false sense of complacency.

Whether there is some substance to it or not, it would be unfair to overlook the fact that the IPR-related issues figures prominently in the context of defence manufacturing in India. While the Indian companies have also been raising this issue, it is largely the foreign manufacturers, particularly the US companies, who seem to be more concerned about it.

More to the point, in the IPR index of 45 countries released in February this year by the US Chamber of Commerce, India is placed at the 43rd position, with some other countries like Algeria, Venezuela and Pakistan figuring at the bottom. Unsurprisingly the US itself tops the list, followed by UK, Germany and Japan. China which is considered even in the US as a major violator of the IPR of the American companies is placed at the 27th position in the same list.

Talking about India, Mark Elliot, Executive Vice-President of the Chamber’s Global Intellectual Property Center said “Emerging markets, such as India, have made incremental gains and embraced positive rhetoric with their IP policies, but they have not yet followed up with the legislative reforms innovators need”. While conceding that the new national IP policy announced by India in May 2016 involves speeding up of the patent registration process, he said the policy “resisted the calls from the Western countries to tighten its patent laws”.

The US Chamber of Commerce report of February 2017 also observes that “While the Indian government issued the National Intellectual Property Rights Policy in 2016, IP-intensive industries continued to face challenges in the Indian market with regard to the scope of patentability for computer implemented inventions, Section 3(d) of the Indian Patent Act, and the recent High Court of Delhi decision regarding photocopying copyrighted content”.

The decision of the High Court permitted photocopying of the copyrighted books for use by the students of the Delhi University, leaving the publishers dissatisfied. While this judgement does raise questions about the sanctity of the copyright of the authors and publishers, it is equally questionable to characterise the IPR regime of the country based on one judgement. After all, one swallow does not make a summer.

The Special 301 report on IPR for the year 2017 released by the office of the US Trade Representative in April this year has gone a step further by retaining India on the Priority Watch List ‘for lack of sufficient measurable improvements to its IP framework on longstanding challenges and new issues that have negatively affected U.S. right holders over the past year, particularly with respect to patents, copyrights, trade secrets, and enforcement’.

These reports could possibly be reflecting a prejudice arising from the self interest of the US companies but it would be wrong to dismiss these reports completely out of hand. The India-US trade has grown exponentially in the past few years, touching around USD 15 billion, largely on account of defence purchases under the Foreign Military Sales (FMS) programme of the US Government but the future of this relationship lies in co-development and co-development projects, where the IPR issues will be a major factor.

India and the US have been talking about ToT to the Indian companies under the umbrella of the Defence Trade and Technology Initiative (DTTI). Several technology transfer proposals have been made by the US and projects like construction of an aircraft carrier in India have been making some progress. Despite Trump’s America-first policy, there seems to no reluctance to let manufacturing giants such as

Lockheed Martin offer ToT for manufacturing single-engine F-16 fighter aircraft in India.

If the IPR issues have not come up in a big way in the dialogue on these projects so far it is probably because none of these have reached a stage where the two countries have got down to discussing the nitty-gritty of the projects. It will, therefore, be a good thing to take the issue head on at this stage before it becomes a game spoiler. Three points need to be made in this context.

First, there is no history of IPR-infringement in the field of defence production in India. Till the disintegration of the erstwhile Soviet Union, India was not only importing defence equipment in a fully formed state from that country but also making it in India through transfer of technology to the Defence Public Sector Undertakings. The issue of IPR infringement never figured in this relationship.

Even after disintegration of the Soviet Union, India has continued to buy as well as license-manufacture Russian equipment in India without any major issue being raised by Russia regarding IPR infringement. It is significant because the defence sector is now open to the private sector since 2001 and it is not just the public sector that the Russian companies have to deal with.

In fact, the Indian industry, especially the public sector, is often criticised for not even being able to absorb technology transferred by the foreign manufacturer, much less reverse engineer it. Historically speaking, therefore, the concern about IPR infringement in defence production in India seems to be grossly exaggerated which is in sharp contrast to the history of reverse engineering in China which, paradoxically, figures much higher in the IPR index!

Second, there is a lack of clarity about the specific concerns that the US defence companies have regarding the IPR regime in India. The US Chamber of Commerce report mentions the following key areas of weakness:

  • Overall, National Intellectual Property Rights Policy does not address fundamental weaknesses in India’s IP framework
  • Limited framework for protection of life sciences IP
  • Patentability requirements outside international standards
  • Lengthy pre-grant opposition proceedings in place
  • 2016 High Court ruling on copyright infringement in the University of Delhi copy-shop case continues to weaken the enforcement environment for rights holders
  • Previously used compulsory licensing for commercial and nonemergency situations
  • Limited participation in international IP treaties

There are some references to the pharmaceutical sector in the report but significantly it bears no reference to the defence sector. It is not known if the US companies operating in India have articulated and conveyed their concerns to the Indian government. On the contrary, the recent tie-up between the Lockheed Martin and the Tata Advanced Systems Limited (TASL) for manufacture of F16 fighter aircraft in India seems to indicate that the US companies are not averse to the idea of working around the real or perceived limitations of the Indian IPR regime.

Even so, it will do no harm if the Government of India looks into some of the weakness pointed out in the US Chamber of Commerce report. For example, the report assigns a zero score to India on membership and ratification of the International Treaties, which is surprising because the government’s makeinindia website claims that India is a member of the World Trade Organisation and committed to the Agreement on Trade Related Aspects of Intellectual Property (TRIPS), apart from being a member of World Intellectual Property Organization, a body responsible for the promotion of the protection of intellectual property rights throughout the world. The website also mentions at least ten international treaties of which India is a signatory.

While the US and other countries that may have similar concerns about India’s IPR regime need to accept that being a sovereign country it is India’s prerogative to sign or not to sign a particular international treaty, India also needs to make its position clear as regards the treaties it has not signed or does not intend to sign.

Third, while further review of the national IPR Policy is bound to take time, the Ministry of Defence owes it to the world as much as it owes it to itself to have a re-look at the provision related to IPR in the standard contract document used for capital and revenue procurement. Take, for example, Article 28 of the Defence Procurement Procedure 2016 which deals with patents and other industrial property rights, which is reproduced below:

  • 28.1 The prices stated in the present Contract shall be deemed to include all amounts payable for the use of patents, copyrights, registered charges, trademarks and payments for any other industrial property rights.
  • 28.2 SELLER shall indemnify the BUYER against all claims from a third party at any time on account of the infringement of any or all the rights mentioned in the previous paragraphs, whether such claims arise in respect of manufacture or use. The SELLER shall be responsible for the completion of the supplies including spares, SMTs/STEs, technical literature and training aggregates irrespective of the fact of infringement of the supplies, irrespective of the fact of infringement of any or all the rights mentioned above.

This is a fairly unilateral provision which covers the risk of the buyer against any third party claim concerning IPR infringement by the seller. Inclusion of a reciprocal provision in this article and an assurance against any IPR infringement by the buyer could a go a long way in mitigating any concerns that the sellers may have without having to bring about a large scale change in the overall IPR regime.

What is Intellectual Property?

Intellectual property (IP) is a set of laws that protect creative and innovative products through legal rights called patents, copyrights, and trademarks. It is sometimes described as property that is a product of the mind or a product of intellectual capital. While the source, goals, and forms of IP are different, they can all be seen as protecting and encouraging creative efforts.

In short, copyright protects creative expression, a parent protects a new invention, and a trademark identifies and distinguishes the source of goods of one party from another. IP encourages new works and new products by protecting the ability of creators and innovators to make a living from those new works and products. IP is the promise that those who combine the spark of imagination with the grit and determination to see their vision become reality in books, technology, medicines, designs, sculpture, services, and more will have opportunities to reap the benefits of the innovation.

Source: Global Intellectual Property Centre (http://www.theglobalipcenter.com/)

New Avenues for Discharging Offset Obligations

13 Aug, 2018 | Legal

The Defence Offset Policy introduced in 2005 has been revised in bits and pieces over the years. The only time it was completely revamped was in August 2012 when new Defence Offset Guidelines were promulgated by the Ministry of Defence (MoD). What started as a simple policy intended to leverage the huge expenditure India was incurring on buying equipment from abroad by making the foreign companies channelize a certain percentage of the contract value into India’s defence sector has grown into a highly complex policy whose implementation is continuously throwing up new challenges.

In March this year, the Ministry of Defence (MoD) informed the Standing Committee on Defence (SCoD) that a total of 42 Defence offset contracts have been signed out of which 27 cases pertain to Indian Air Force, 04 cases of Indian Navy and 11 to the Indian Army. The committee was also informed that the total offset obligations are estimated to be around US $ 11.20 billion over a period from 2008, when the first offset contract was signed, till 2024, when apparently the last of these 42 contracts would get fully executed.

At one level this indicates the slow pace at which big acquisition contracts are being concluded. The threshold above which offsets kick in used to be Rs 300 crore till it was raised to Rs 2,000 crore in 2016. Assuming that the requirement of offsets was not waived in any acquisition programme where offsets were applicable, it is evident that only 42 such big-ticket contracts have been signed over a period of 10 years between 2008 and 2018. This translates into an annual average of just about 4 contracts.

This is worrisome but so is the fact that implementation of whatever offset contracts have been signed has also not been smooth. According to the information furnished by MoD to SCoD earlier this year, in eleven of the 42 offset contracts interim/final penalty has been imposed on account of shortfalls in offset discharge targets by the vendors and the total amount of such penalties works out to approximately US $ 38.19 million. This indicates in no uncertain terms that the vendors have been facing serious difficulty in discharging the offset obligation, otherwise there is no reason why renowned international companies would have ended up paying penalties.

The problems faced by the vendors in discharging the offset obligations are not new. They have been raising their concerns for a long time but MoD has been slow in addressing those concerns. In 2015 some relief was given by making it easier for the vendors to change their Indian Offset Partners (IOPs) or revise the offset implementation schedule. Option was also given to the vendors to submit details of the IOPs and the offset implementation plan, one year prior to claiming the credit or even at the time of claiming the credit instead of submitting all these details at the time of signing the offset contract.

These changes have helped but only to a limited extent as the problems in discharging the offset obligations are more fundamental and deep rooted. The foreign vendors who are responsible for discharging the offset obligation have been urging the MoD for a long time to widen the scope of offsets and make other policy changes so as to make it easier for them to discharge their obligation. In response to this, MoD now proposes to modify the offset guidelines to include additional avenues for discharging the offset obligations. Apparently, the ministry will finalise the changes in the offset policy based on the feedback from the stakeholders, which was to be furnished by 15 May 2018.

Additional avenues proposed to be included in the policy

It may be recalled that presently, in accordance with the Defence Procurement Procedure 2016 (DPP 2016), vendors can discharge offset obligation through one or more of the following six avenues, subject to certain conditions:

  1. Direct purchase of eligible defence products and services
  2. Foreign Direct Investment (FDI) for manufacture and/or maintenance of eligible products or provision of eligible services
  3. Investment in kind through transfer of technology (ToT) to the private sector IOP(s) for manufacture and/or maintenance of eligible products or provision of eligible services
  4. Investment in kind through transfer of equipment to the private sector IOP(s) for manufacture and/or maintenance of eligible products or provision of eligible services
  5. Transfer of technology or provision of equipment to government entities engaged in manufacture and/or maintenance of eligible products or provision of eligible services
  6. Transfer of critical technologies to the Defence Research and Development Organisations in certain high technology areas

The eligible products and services are classified into four categories: defence products, products for inland/coastal security, civil aerospace products, and services related to the eligible products. These products and services, as well as the critical technologies, are listed in the DPP 2016.

The proposed changes in the offset policy, if finally approved, will result in addition of three more avenues for discharging the offset obligation, in addition to the existing six. These are:

  1. Investment in specified projects.
  2. Investment in defence manufacturing: equity investment on a business enterprise
  3. Investment in specified Funds for Defence, Aerospace and Internal Security that are regulated by the Securities and Exchange Board of India (SEBI)

These investments are expected to foster development of internationally competitive defence, aerospace and internal security related enterprises in India.

Investment in specified projects

This category will cover defence related infrastructure projects like testing laboratories, testing ranges, skill centres, etc. (only the capital cost will qualify for offset credit); technology acquisition projects; or critical technology projects. All such projects will be identified by a collegium of representatives from the DRDO, Defence Public Sector Undertakings (DPSUs) and the Ordnance Factory Board (OFB), or by a Special Purpose Vehicle (SPV) to be set up with or without industry participation. The list of projects would be updated periodically.

This introduces an element of uncertainty as activation of this avenue will depend on setting up of the collegiums or the SPV and identification of projects by them. However, what should be music to the ears of the foreign vendors is that the investment will be permitted to be made not just by the vendor who has to discharge the offset obligation but also by any of the sister companies or affiliates of that vendor. It addresses a long-standing demand that the offset obligation be permitted to be discharged by the group companies of the vendor.

Investment on defence manufacturing: equity investment in a business enterprise

Discharge of offsets under this category will entail equity investment by the foreign vendor for setting up a manufacturing unit in defence, aerospace or internal security sector. However, there is some ambiguity about whether the group companies will be permitted to make the investment, as in the case of investment in the specified projects. This ambiguity arises from the way the text of the relevant provision in the draft circulated by the MoD is worded which says that the ‘investment should be made by the vendor having offset obligation as per the contract or by such other vendors specified in the contract’.

Investment in SEBI-regulated Funds for Defence, Aerospace and Internal Security

The funds eligible for investment would be dedicated for development of start-ups and the Micro, Small and Medium Enterprises (MSMEs) in the defence, aerospace and internal security sector. These funds will be registered by the MoD but professionally managed by SEBI. Detailed terms and conditions and other guidelines for registration of these funds will be issued by the MoD in due course. Investment in any such fund would be subject to a ceiling of 30 per cent of the fund’s corpus. Unlike the other two avenues, it is not mentioned in the draft circulated by the MoD whether the group companies will be permitted to make investment in such funds.


To make these avenues more attractive, MoD also proposes to provide for multipliers. This essentially means that the vendor will be able to claim offset credit equalling the value of the offsets discharged multiplied by the applicable multiplier factor. The proposed multipliers are as follows:



Defence Industry Corridor

Other areas

Investment in specified projects:

Defence related

Specified technology related

Specified critical technology related









Investment in defence manufacturing: equity investment in a business enterprise



Investment in specified SEBI-regulated Fund for Defence, Aerospace and Internal Security



Methodology for offset discharge

In the case of investment in specified projects, offset discharge will be subject to physical completion of the project and verification of the audited accounts of the implementing agency which should clearly indicate that the investment has been made. However, procurement of products/services arising out of the investment made in the project shall not be eligible for offset discharge.

In the case of investment in defence manufacturing (equity investment in a business enterprise), offset discharge shall be subject to physical completion of the project and verification of the audited accounts of the company setting up a manufacturing unit in defence, aerospace or internal security sector. In this case also, procurement of products/services arising out of the investment made in the project shall not be eligible for offset discharge.

In so far as investment in SEBI-regulated funds is concerned, offset discharge shall be based on verification of transfer of funds from the vendor to the specified fund. The vendor will, of course, only be entitled to the usual returns on the investment as per the applicable law.


The proposed changes will come into effect from the date of issue of the amendment to the existing guidelines. Other terms and conditions regarding discharge of the offset obligation will continue to be applicable mutatis mutandis. All existing vendors who carry the offset obligation as on the date on which the existing guidelines are amended will be permitted to avail of the new avenues with the approval of the government.

Looking forward

While expanding the list of avenues through which offset obligation can be discharged provides more options to the vendors and, therefore, should be welcomed by them, the actual usefulness of the proposed move will depend on how soon and how efficiently action is taken to identify the projects in which the investments can be made. Setting up of an implementing agency or the SPV will also be a challenge.

The utility of the proposed changes will also depend on how soon funds are set up in which investment could be made by the vendors. Working out the modality of their registration by MoD and regulation by SEBI will decide the future of the funds and, consequently, their ability to attract investment.

The condition that the existing vendors will require the government’s permission to opt for one or more of the proposed avenues creates avoidable opaqueness about the circumstances in which such permission may be granted or denied. This could be a big dampener and can further add to the unnecessary delays.

Looking at the larger picture, incorporating the proposed changes in a seamless manner with the existing guidelines and improving the system of monitoring the discharge of offset obligation by the vendors will hold the ultimate key to successful implementation of the proposed changes.

Rationalization and Liberalization of ECB Policy by the Reserve Bank of India

07 May, 2018 | Legal

The Reserve Bank of India (RBI) after receiving suggestions from the corporates and other entities on relaxing the existing External Commercial Borrowings (ECB) framework has decided, in consultation with the Government of India, to further rationalize and liberalize the ECB guidelines. The following amendments have been made with effect from 27th April, 2018:

(i) Rationalization of all-in-cost for ECB under all tracks and Rupee Denominated Bonds (RDBs):

RBI has stipulated a uniform all-in cost ceiling of 450 basis points over 6 month USD LIBOR (or applicable benchmark for respective currency) for Track I and Track II. For Track III and RDBs all-in cost will be the prevailing yield of the Government securities subject to the maturity period.

(ii) Revisiting ECB Liability to Equity Ratio provisions:

For ECB raised from direct foreign equity holders under the automatic route, the ECB Liability to Equity Ratio has been increased from 4:1 to 7:1. However, this ratio will not be applicable if the total of all ECBs raised by an entity is up to USD 5 million or equivalent.

(iii) Expansion of Eligible Borrowers’ list for the purpose of ECB:

The following has been added to the list of eligible borrowers:

  •  Housing Finance Companies (HFC) regulated by National Housing Bank (NHB) under all the three Tracks;
  • Port Trusts constituted under Major Port Trust Act, 1963 or Indian Ports Act, 1908 to avail ECBs under all Tracks;
  • Companies engaged in the business of maintenance, repair and overhaul and freight forwarding for ECBs denominated in INR only.

(iv) Rationalisation of end-use provisions for ECBs:

A positive end-use list was being prescribed for Track I and specified category of borrowers and a negative end-use list for Track II and III. It has now been decided to have only a negative list will be prescribed for all Tracks. The negative list for all Tracks would include the following:

a) Investment in real estate or purchase of land except when used for affordable housing as defined in Harmonised Master List of Infrastructure Sub-sectors notified by Government of India, construction
and development of SEZ and industrial parks/integrated townships.

b) Investment in capital market.

c) Equity investment.

Additionally, for Track I and III, the following negative end users will also apply except when raised from Direct and Indirect equity holders or from a Group company, and provided the loan is for a minimum average maturity of 5 years:

d) Working capital purposes.

e) General corporate purposes.

f) Repayment of Rupee loans.

Finally, for all Tracks, the following negative end use will also apply:

On-lending to entities for the above activities from (a) to (f).


Supreme Court Says Foreign Law Firms Cannot Practice Full-Time In India

15 Mar, 2018 | Legal

The Supreme Court today ruled that foreign law firms cannot practice in India, but allowed international lawyers to “fly in and fly out” to provide legal advice to their clients in India. The Apex Court also held that the foreign lawyers can appear in International Commercial Arbitration (ICA) subject to relevant institutional framework and rules. The Court through this judgment, partially upheld the 2012 judgment of the Madras High Court holding that foreign lawyers could visit India for a temporary period for the purpose of giving legal advice.

While hearing the matter, Justice Adarsh Kumar Goel opined that, “Fly in and fly out would cover a casual visit and not amount to practice.” This implies that foreign lawyers may fly in and out to advise on international law aspects in cases where they are involved, but they cannot practice full-time. Along with this, the judges also observed that foreign lawyers could not be barred from coming to India for conducting arbitration proceedings in disputes involving international commercial arbitration but they would be subject to the code of conduct applicable to the legal profession in India. The court has additionally added that, the Bar Council of India has the powers to frame rules and regulate the conduct of foreign lawyers in this regard and rules may be framed keeping these directions in mind. This ruling directly affects the current position of foreign law firms operating in India.

The written copy of the judgement is still to be released.

Cabinet Approves The Arbitration And Conciliation (Amendment) Bill, 2018

10 Mar, 2018 | Legal

In an attempt to make the Indian arbitration stronger and more regularized, the Cabinet has approved the Arbitration and Conciliation (Amendment) Bill, 2018 for introduction in the Parliament. The Bill proposes to make the arbitration process user-friendly, cost-effective and to expedite speedy disposal.

One of the main objectives of the Bill is to facilitate speedy appointment of arbitrators through arbitral institutions designated by the Supreme Court or the High Court. Accordingly, the parties may directly approach the designated arbitral institutions for International Commercial Arbitration.

Salient Features

* The Bill provides to establish an independent body namely the Arbitration Council of India (“ACI”) which intends to make India a pivot of “independent and autonomous regime for institutionalized arbitration.” The ACI will grade arbitral institutions and accredit arbitrators by laying norms to promote and encourage arbitrations, conciliation, mediation and other dispute resolution mechanisms. The ACI is also required to maintain an electronic depository of all arbitral awards.

* It exclude International arbitration from all bounds of timelines and stipulates that the time limit for arbitral award in other arbitrations shall be 12 months from the completion of the pleadings by the parties.

* The arbitrator and the arbitral institutions are required to keep confidentiality of all the arbitral proceedings except the award. Further, an Arbitrator is also protected from suits or other legal proceedings for any action or omission done by him/her in good faith during the course of arbitration.

The Bill addresses problems like systemic delays, high costs, confidentiality issue, ineffective resolution and ensures quick enforcement of contracts along with minimizing hurdles of delay. It also aims at catalyzing cross-border business environment and to make India an attractive destination for the arbitration of international commercial disputes.

Supreme Court Directs to Constitute Expert Committee Against Defaulting Accounting Firms

02 Mar, 2018 | Legal

The Supreme Court of India has recently observed that Multi-National Accounting Firms (MAFs) are engaging in fraudulent ways while conducting business, totally against the prescribed code of conduct of accounting standards. In order to stop such prima facie violations of law, the center has been directed by the Supreme Court to constitute an Expert Committee to look into the irregularities. The matter was brought to the Apex Court through a Public Interest Litigation (PIL) highlighting the question of whether the MAFs having arrangement with Indian Chartered Accountancy Firms (ICAF’s) are operating in violation of law in force in a secretive manner to evade legal requisites.

The PIL was filed against the alleged malpractices of PricewaterhouseCoopers, which has been accused of violating various provisions of the Foreign Direct Investment (FDI) Policy, Reserve Bank of India (RBI) Act, the Foreign Exchange Management Act (FEMA) and the Code of Professional Conduct under the Chartered Accountants Act, 1949 (CA Act) by infusing foreign money in violation of the FDI norms, engaging in illegal accounting insurance policies and acquiring another auditing firm irregularly.

The Court considered various statutory provisions and inter alia noted that there have been violations under FEMA which lays down that no person resident outside India can make investment by way of contribution to the capital of a firm or a proprietary concern or any association of persons in India without permission of the RBI. Violations of provisions of the Companies Act were also observed, including payments of the insurance premium by three firms of PwC for benefit of other member firms, which is illegal. Further, Code of Conduct of the Chartered Accountants has also been said to be violated as the Code prohibit fee sharing and advertisements. MAFs violate the Code by using International brands and mixing other services with CA services. The court also opined that MAFs seem to be complying with these codes only “in form and not in substances” to defy the laid law.

After analyzing the malpractices being carried out, the Supreme Court held that accounting firms “could not be left to self-regulate themselves” and their regulatory aspect must therefore be looked into by experts in the Government. In wake of such resolution, the Apex Court directed the Central Government to constitute a three-member Committee for the better enforcement of the laws being violated, to consider the need for an appropriate new legislation and mechanism for oversight of profession of the auditors and the Enforcement Directorate and the Institute of Chartered Accountant of India (ICAI) has been directed to examine related issues for effective enforcement of the provisions of the FDI policy and the FEMA Regulations.

Such directions are bound to have repercussions on various players involved in the Accounting business with more stringent and stricter laws coming into effect in the near foreseeable future.

New definitions under the Companies Amendment Act, 2017

10 Jan, 2018 | Legal

With the rising concerns over misuse of black money in financing illegal activities and with an objective to tackle the issue of benami properties, the recently enacted Companies Amendment Act, 2017 (Amendment Act) has introduced new definitions of terms beneficial interest, significant beneficial owner and significant influence.

The definition of Beneficial Interest has been inserted through an amendment brought in Section 89 of the Companies Act, 2013:
Beneficial interest in a share includes, directly or indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person alone or together with any other person to—
(i) exercise or cause to be exercised any or all of the rights attached to such share; or
(ii) receive or participate in any dividend or other distribution in respect of such share.

Another addition that has been made is with respect to associate company wherein the definition of ‘significant influence’ has been added. As per the new definition, Significant Influence means control of at least twenty per cent. of total voting power, or control of or participation in business decisions under an agreement.

Further, Significant Beneficial Owner has been defined as every individual, who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India, holds beneficial interests, of not less than twenty-five per cent, in shares of a company or the right to exercise, or the actual exercising of significant influence or control as, over the company.
The law now prescribes that significant beneficial owner shall make a declaration to the company, specifying the nature of his interest and other particulars.

Cabinet approves 100% FDI in single brand retail via automatic route

03 Jan, 2018 | Legal

The Union Cabinet has approved a proposal to allow 100 percent Foreign Direct Investment (“FDI”) through automatic route in single brand retail. Currently, FDI up to 49 per cent is permitted under automatic route in single brand retail but beyond that limit, government’s approval is required. This move will envisage a more investor friendly environment to foreign players and will further boost and attract more FDI to boost economic growth.

After opening of 100 per cent FDI in single brand retail in 2014 (through government’s approval), many global players have already entered the Indian market. The approval through automatic route will further quicken the FDI clearance process and many foreign players may now enter the Indian market due to less clearance process.

It is also expected that the government will ease the FDI norms in the aviation and the construction sectors. A formal notification in this regard is expected today.

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