Setting Up A Business in India For Chinese Corporations.

Sector	Apr 2015-Mar 2016 (In US$ million)
Services Sector	6,889
Construction Development: Townships, Housing, Built-Up Infrastructure	113
Computer Software & Hardware	5,904
Telecommunications (Radio Paging, Cellular Mobile, Basic Telephone Services)	1,324
Automobile Industry	2,527
Drugs & Pharmaceuticals	754
Chemicals (Other Than Fertilizers)	1,470
Trading	3,845
Power	869
Hotel & Tourism	1,333

 

 

FDI Policy of Government of India

 

The Foreign Direct Investment Policy (FDI Policy) of the Government of India prescribes the foreign investment cap in specified industrial sectors. Broadly, the industrial sectors are categorized as:

 

• Unrestricted  Restricted  Prohibited
• Unrestricted Sectors (Up to 100% foreign ownership)

 

All the sectors other than those mentioned below subject to terms and conditions in the FDI policy come under unrestricted sectors for example:

 

• Mining ( except Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities)
• Manufacturing
• Information Technology
• E-commerce (permitted in marketplace model and not the inventory based model. Also, it applies only to Business to Business e-commerce and not business to consumer e-commerce)

 

Restricted Sectors 

 

 

Companies

 

Air India
Adani Global
Apollo Tyres
Aptech Worldwide Inc.

Aurobindo (Datong) Bio-Pharma Co. Ltd. Bank of Baroda
Bank of India
Bharat Forge (Changchun) Co. Ltd. Canara Bank

Dr. Reddy’s Laboratories Essar
ICICI BANK
igate Global Solutions Limited India Grasim Industries Ltd Infosys Technologies Ltd Jindal Steel and Power Limited

JSW Steel Limited
Jubilant Organosys Ltd
Larsen & Toubro Limited Mahindra (China) Tractor Co. Ltd Punjab National Bank

Reliance Industries Limited

Shipping Corporation Of India
State Bank of India
Steel Authority of India Limited
Suzlon Energy (Tianjin) Limited
Tata Autocomp Systems Limited (Taco) Tata Sons Limited

TVS Motors Co. Ltd
Wipro (Shanghai) Limited Cognizant Technology Solutions

 

Sectors

 

Aviation
Energy, logistics, resources, agricultural, real estate Tyres

Information Technology

Pharmaceuticals
Banking
Banking
Automobile
Banking
Pharmaceutical
Energy, Metals and Mining, Infrastructure and Services Banking

Information Technology Chemicals
Information Technology
Steel, Power, Mining, Oil and Gas

Steel

Pharmaceuticals & Drugs

Engineering & Construction

Automotive & Farm Equipment

Banking

Energy, Petrochemicals, Textiles, Natural Resources, Retail and Telecommunications

Shipping Banking
Steel
Wind Energy Automobile Manufacturing Automobile
IT Infrastructure IT Infrastructure 

 

Details of Top FDI Inflows Received from China (Apr 2000- Sep 2015) 

 

 

4. INDIA ENTRY STRATEGY

 

Depending upon its business needs, a foreign company can choose between setting up a liaison office, a branch office or a project office or incorporating an Indian company, either it’s wholly owned subsidiary or joint venture with an Indian/overseas partner.

 

INDIAN ENTRY OPTIONS FOR FOREIGN INVESTORS

 

A foreign investor can enter into Indian markets by:

 

1)  Incorporating a Company

 

2)  Incorporating a Limited Liability Partnership

 

3)  Setting up of Liaison Office/Branch Office/Project Office

Indian Company

 

  Foreign investor can commence its business operations by incorporating a company under the provisions of the Companies Act, 2013 as a –

 

a)  Wholly Owned Subsidiary; Or

 

b)  Joint Venture Company.

 

  The said Wholly Owned Subsidiary or Joint Venture Company can be in the form of a private company or a public company. In a private company, at least two directors and two promoters are required for incorporation vis-à-vis a public company, where at least three directors and seven promoters are required for incorporation.

 

  Foreign investor can invest in Indian company up to 100% foreign direct investment (‘FDI’) depending upon the sectoral caps provided under the FDI Policy issued by Government of India.

 

  Wholly owned subsidiaries can be set up only in the sectors where 100% FDI is allowed under the FDI Policy.

 

  Joint Venture Company is preferred option where 100% FDI is not allowed and/or where foreign investor intends to take benefit of the resources, established contacts and distribution/ marketing set up of the Indian joint venture partner. Joint Venture Company can be set up with foreign joint venture partner or Indian joint venture partner depending upon the sectoral caps.

 

Limited Liability Partnership (LLP)

 

  Foreign investor can commence its business operations by incorporating a limited liability partnership under the provisions of the Limited Liability Partnership Act, 2008, in sectors where 100% FDI is allowed under the automatic route and there are no FDI-linked performance related conditions.

 

  Minimum two designated partners are required to incorporate a LLP, one of whom shall be resident in India i.e. a person who has stayed in India for a period of not less than one hundred and eighty-two days during the immediately preceding one year. Only individuals can be appointed as a designated partners. Thus, in case where foreign investors wish to incorporate the LLPin India, they can appoint their nominees as the designated partners. However, one of the nominee should have aforementioned Indian residential status. 

 

 The designated partners will be responsible for compliance with the provisions of the Limited Liability Partnership Act, 2008.

Liaison Office/Branch Office/Project Office

 

Foreign Investor can set up liaison office in India subject to approval of the Reserve Bank of India (RBI) to-

 

a)  Represent parent/group companies in India

 

b)  Promote import/export in India

 

c)  Promote technical/financial collaborations on parent company/group’s behalf

 

d)  Coordinate communications between parent/group companies and Indian companies.

 

  Foreign Investor can set up branch office in India subject to approval of the RBI for-

 

a)  Import & export of goods

 

b)  Rendering professional or consultancy services

 

c)  Carrying out research work in area which its parent company is engaged

 

d)  Promoting technical/financial collaborations on behalf of parent company/ overseas group company

 

e)  Representing parent/group companies in India and acting as buying/selling agent in India

 

f)  Providing IT services and developing software in India

 

g)  Providing technical support for products supplied by parent company/group

 

  Foreign Investor can set up project office in India without obtaining approval of the RBI, if it is engaged by an Indian company to execute a project in India. However, the project office has to carry out the prescribed reporting compliances. A project office is taxed at the rate applicable to foreign companies. 

 

5. COMMON AREAS OF INTEREST

 

Intellectual Property (IP)

 

Industry in India is becoming increasingly conscious of the value of intellectual property rights. Improved Indian policies, laws and resourcing for IP have had a significant impact in India.

 

India’s strategy in the area of Intellectual Property has been:

 

•   to meet international obligations;
•   to safeguard public interest;
•   to modernize her Intellectual Property Rights administration; and
•   to create awareness about Intellectual Property Rights.

 

In India, the DIPP is concerned with legislation relating to Patents, Trade Marks, Designs and Geographical Indications.

 

These are administered through the Office of the Controller General of Patents, Designs and Trade Marks (CGPDTM), subordinate office, in accordance with:

 

•   The Patents Act, 1970 (through the Patents offices);
•   The Designs Act, 2000 (through the Patents offices);
•   The Trade Marks Act, 1999 (through the Trade Marks Registry ); and
•   The Geographical Indications of Goods (Registration & Protection) Act, 1999 (through the Geographical Indications Registry).

 

An Intellectual Property Appellate Board (IPAB) has been set up to hear appeals against the decisions of Registrar of Trademarks, Geographical Indications and the Controller of Patents.

 

Other IP Legislation includes Copyright Act, 1957, Semi-conductor Integrated Circuits Layout-Design Act, 2000; and Protection of Plant Varieties and Farmers’ Rights Act, 2001.

 

India’s IP administration has been improved and modernised in a number of ways. The Indian Patents Act was amended in 2005 in order to make it compatible with India’s international obligations. E-filing facility for patent and trademark applications was introduced in July 2007. Enforcement of Intellectual Property has been improved — civil and criminal provisions exist in various laws for dealing with counterfeiting and piracy. DIPP has also set up an inter-ministerial Committee to coordinate IP enforcement issues.

 

Both countries understand the effective protection and enforcement of IP rights as a key element in fostering creativity, innovation and technological reform, which facilitates trade and investment.

 

Both the countries are parties to the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). In

addition to the TRIPS Agreement, China and India are common signatories to a number of other international conventions on IP protection and registration.

 

Competition Policy

 

The Competition Commission is now fully constituted in accordance with the provisions of the Competition Act. The Competition Act inter-alia provides that the Competition Commission of India set up under the Act may, for the purpose of discharging its duties or performing its functions under this Act, enter into any memorandum or arrangement with the prior approval of the Central Government, with any agency of any foreign country. 

 

6. DISPUTE RESOLUTION MECHANISM

 

The Prime Minister has been stressing on steps to promote ease of doing business in India especially in the light of Make in India campaign. Indian government is supporting the creation of a vibrant domestic manufacturing base. India has never offered so many tangible opportunities to pursue co-development and co-production projects in various sectors. Policy initiatives coupled with pro-industry dispute resolution mechanism present opportunities for Indian and foreign companies to collaborate.

 

At present there are various levels of judiciary in India—different types of courts, each with varying powers depending on the tier and jurisdiction bestowed upon them. They form a hierarchy of importance, in line with the order of courts in which they sit, with the Supreme Court of India at the top, followed by High Courts of respective states with District Judges sitting in District Courts and Magistrates of Second Class and Civil Judge (Junior Division) at the bottom. However, many organizations are resorting to arbitration for resolution of disputes and are including arbitration clause in their commercial contracts.

 

Arbitration in India 

 

Arbitration > Ad-Hoc

                  > Institutional

 

In India, arbitration proceedings are of two types: ad-hoc arbitration and institutional arbitration. The parties have the option to seek recourse to either of them depending on their choice and convenience.

 

Ad-hoc arbitration:

 

It refers to an arbitration where the procedure is either agreed upon by the parties or in the absence of an agreement, the procedure is laid down by the arbitral tribunal. Thus, it is an arbitration agreed to and arranged by the parties themselves without seeking the help of any arbitral institution.

 

In Ad-hoc arbitration, if the parties are not able to nominate arbitrator/arbitrators by consent, the appointment of arbitrator is made by the High Court (in case of domestic arbitration) and by the Supreme Court (in case of international commercial arbitration). In India, still most of the arbitrations are Ad-Hoc Arbitrations.

 

Institutional arbitration:

 

In an institutional arbitration, the arbitration agreement may stipulate that in case of dispute or differences arising between the parties, they will be referred to a particular institution such as: 

 

•   Indian Council of Arbitration(ICA)
•   International Chamber of Commerce(ICC)
•   Federation of Indian Chamber of Commerce & Industry(FICCI)
•   World Intellectual Property Organisation (WIPO)
•   The International Centre for Alternative Dispute Resolution(ICADR)
•   London Court of International Arbitration – India (LCIA-India)
•   Delhi International Arbitration Centre (DIAC) – New Delhi
•   Construction Industry Arbitration Council (CIAC)- New Delhi

 

All these institutions have framed their own rules of arbitration which would be applicable to arbitral proceedings conducted by these institutions. Such rules supplement provisions of the Arbitration Act in matters of procedure and other details as the Act permits. They may provide for domestic arbitration or for international commercial arbitration or both and the disputes

dealt with by them may be general or specific in nature.

 

Now, in line with the intent to evolve a pro arbitration and speedy dispute redressal mechanism, Parliament has passed the “Arbitration and Conciliation (Amendment) Act, 2015”. This act prohibits appointment of government nominated arbitrators. Also the said amendment to the Arbitration Act puts a stringent test on the independence and impartiality of the arbitrator.

 

Also, under the amendments to the Arbitration and Conciliation Act, 1996, an arbitrator will have to settle a case within 18 months. After the completion of 12 months, certain restrictions will be put in place to ensure that the arbitration case does not linger on.

 

Amendment to the Arbitration and Conciliation Act, which now replaces the ordinances which were promulgated in December 2014, has added additional grounds to set aside an award viz. those awards contravention with the fundamental policy of Indian Law or in conflict with the notions of morality or justice, in addition to the grounds already specified in the Act.

 

The amendment also limits the jurisdiction of Courts for passing interim orders when it says “the Court must not accept such an application, unless it thinks that the arbitral tribunal will not be able to provide a similar remedy”. In case of International Arbitration, the amendment says that the relevant court would only be the relevant high court.

 

The amendment also adds that the provisions under part 1 of the Act would now also apply to international commercial arbitrations even if the place of arbitration is outside India. Another feature of this amendment is that, it says that challenge to an arbitral award that is made before a Court, must be disposed of within a period of one year. It also permits parties to choose to conduct arbitration proceedings in a fast track manner. The award, in that case, would be granted within six months.

 

The amendments to the law come amid keenness of the government to attract the greater foreign investment.

 

Commercial Courts

 

Government has been continuously taking steps to ensure an efficient and effective dispute resolution mechanism for a stable legal and business environment. The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 is a step in this direction. Commercial Courts are a courts equivalent to District Courts and will adjudicate commercial disputes.

 

Commercial Courts have been made equivalent to the Commercial Division of a High Court as an appeal from the order of such Commercial Court is directed to Commercial Appellate Division of the concerned High Court.

 

Appellate Division in High Courts would hear the appeals from orders and judgments from the Commercial courts.

Suits of a value of US$ 0.15million (Rs. 1 Crore) or more that are pending in the High Court/ District courts will now be transferred to the commercial division/would be transferred to the commercial court. Commercial divisions may be set up in those High Courts which exercise ordinary original civil jurisdiction, that is, the High Courts of Delhi, Bombay, Calcutta and Madras.

 

The Act also says that appeals to High Court from the orders passed by tribunals like Competition Appellate Tribunal, Debt Recovery Appellate Tribunal, Intellectual Property Appellate Board, Company Law Board or the National Company Law Tribunal, Securities Appellate Tribunal and Telecom Dispute Settlement and Appellate tribunal may be heard by the commercial appellate division of the high court if it relates to a commercial dispute.

 

The Delhi High Court has already set up six commercial division courts and four commercial appellate division courts for adjudicating commercial disputes of a specified value of which is above US$ 0.15million.

 

Commercial Courts Vis- À-Vis Arbitration

 

Arbitration matters, involving a Commercial Dispute of subject matter of value of more than US$ 0.15 million including applications or appeals arising out of such arbitration is to be heard and disposed by the – (i) Commercial Court, in case of matter, which would ordinarily lie before any principal civil court; or (ii) Commercial Division of the High Court, in case of matter which would ordinarily lie before the original jurisdiction of the concerned High Court.

 

In view of the Arbitration and Conciliation Act, 1996, (as amended), all matters pertaining to international commercial arbitrations involving disputes of subject matter of value of more than Rs.1 Crore have been brought within the ambit of the High Courts and thus such matters pertaining to international commercial arbitrations are to be heard and disposed by the Commercial Division.

 

Highlights of the Act are summarized here in a simplified manner:

 

•   Wide definition of Commercial Dispute.
•   Judges of the Commercial Courts, Commercial Division and Commercial Appellate Division to be presided by Judges having experience in dealing Commercial Dispute.
•   Applications and appeals related to international commercial arbitration to be heard by the Commercial Division of the concerned High Court.
•   Determination of specified value of the subject matter of Commercial Dispute.
•   Timely disposal of Commercial Disputes and appeals.
•   Amendments to the Civil Procedure Code, 1908, as applicable to Commercial Disputes.
•   Application for summary judgment in respect of certain claim of Commercial Disputes. 

 

1 Source: Department of Industrial Policy & Promotion, Govt. of India Quaterly Fact Sheet On Foreign Direct Investment (FDI) available at http://dipp.nic.in/English/Publications/FDI_Statistics/FDI_Statistics.aspx 

2 Vide Circular No. 32 dated November 30, 2015 

3 Date of publication of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) (Amendment) Regulations, 2015 in the Official Gazette of Government of India – Extraordinary – Part-II, Section 3, Sub-Section (i) dated 02.12.2015- G.S.R.No.920(E).
4 Master Direction – External Commercial Borrowings, Trade Credit , Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers dated January 01, 2016

5 Liberalisation of definition of Infrastructure Sector under A.P. (DIR Series) Circular No. 48 dated September 18, 2013
6 Ibid. 

7 Source: A DIPP report on FDI Synopsis on Country China available at

http://www.dipp.nic.in/English/Investor/China_Desk/FDI_

Synopsis_China.pdf