In this article, Alka Singh discusses how to use contract management and software for legal risk mitigation.

What is contract management? Which companies need contract management and why?

Any business entity will enter into a large number of contracts as it grows. From the company’s side (if the business entity is a company), contracts could be drafted by the in-house department or external lawyers or law firms, and signed by the directors.

While directors may lead the project, day to day operations and implementation lie in the hands of company officers. Thousands of employees, managers and external consultants may be involved in the execution of the project.

Under any contract, there will be a connection between the business deliverables and legal obligations. As contracts not only take care of present obligations, but impact the company’s future planning, having an effective contract management process reduces risk and is a tool for planning and management of resources.

Contract management involves managing this translation of business deliverables into legal obligations and ensuring continuity of the relationship.

Efficient contract management processes can increase the likelihood of success of business outcomes, reduce risks and disputes.

Contract management ensures that legal documentation is up to date, which is a huge benefit in case due diligence is undertaken for an investment or other transaction.

Why does a company need contract management system?

For any large company, contract management can be a burden. Companies having a huge set of contracts will struggle with managing them, so they need to start creating a contract management system. It starts with identifying the framework and processes that need to be executed – these can be undertaken manually or through software (accuracy improves drastically with software, and any errors can have huge losses).

Standardization and Risk Uniformity

As companies grow, business models evolve, new verticals and product lines emerge, and the nature of the commercial arrangements differentiate. As a result, most companies deal with the huge volume of contacts having a disparate set of obligations. It makes mapping the quantum and sources of legal risk unclear. A manager or owner wants to identify specific situations in which there can be a risk, and it’s best if this set of situations is uniform across the same type of contracts and not inconsistent.

Thus, a company needs an ongoing effort to classify and bucket different relationships into categories and ensure risks within a contract category are consistent or uniform.

For a company, having different sets of obligations makes it difficult to plan and manage legal risk, which is why companies prepare standardized templates for contracts that are regularly executed and have narrow room for negotiation. Of course, some element of fairness or accommodation of the other party’s interest also needs to be undertaken. Otherwise, the risk of the deal falling apart is very high.

Historical Record for Reference to Past Incidents

Contract management software enables companies to create a centralized legal database which acts as a repository of contracts and documents. Apart from that, you can have a log of all actions taken pursuant to the contract (and even of exceptions that were approved by the other party) in one place, through a contract management system.

Software can be used to implement many features, such as ensuring confidentiality of contracts/documents by imposing access controls and limiting access to appropriate people within the company. For example, confidentiality clauses have standards such as a ‘need to know’ basis standard, as per which only people who ‘need to know’ certain information to perform their function will have access to it. This can be implemented through a form which is filled in by the person requesting the information, and which form can be approved on the merit of the request, by the relevant manager who has authority to grant access to others.

Evidentiary benefits of such a system are significant. If a case goes to court, you will be able to rely on the information contained in the printout of the logged events on the software (after certification by the person who manages data on the computer).

Smooth functioning of services

As legal validity and performance milestones are essential in many contracts, contract management softwares are made in a manner that they provide prior notice and automated alerts to appropriate people in the company in case of expiry, renewal or any other dates when intimation about achievement of milestones mentioned in the contract is to be made. Thus, contract management tools make it easy for smooth functioning of business as no important dates will be missed out.

Financial and Business Optimization

Contract management software act as a repository of agreements. Once the contract/documents are uploaded, the appropriate person who is responsible for making payment must be given access to the software which helps him to make timely and correct payment to the service providers. It ensures that all payments made have legal backing and that there are no defaults in payment when there is a legal obligation to pay. For example, if you need to make an annual payment for software, an intimation about when the payment is due will be valuable. In the absence of such intimation, if there is a default in payment, an automatic termination could terminate the license, disrupt the functioning of the software. If the software stops working, the business is impacted. While you can make the payment later, but additional effort and time will get wasted in contacting support teams in getting your software back up. This protects the company in case of any default in payment.

Ease of Various Internal Audits

Having contract management software in place, it helps in retrieving and sharing contract information quickly and effectively with the relevant parties.

Dynamic contract management software eases up audit of companies by having practical features such as organizing and storing approvals from different stakeholders (including authorized by the company) within the company.

Actions necessary to set up a contract management team in your company

Identify the objective sought to be achieved through contract management

Contract management can serve various business objectives. You will need to define for what purpose you want to use it. Questions to be answered for determining your objective are:

1. Will it be a repository of contracts or have more intelligent outcomes from it?
2. Which verticals will it be applicable to or used by? For example, merely for record-keeping by legal and compliance team or will they be relevant to operations (administration, purchase department, finance, marketing, product and IT) as well?
3. Do you want partial or complete automation of contracts? For example, will it just be for expiry and renewals or for all purposes of a contract, such as pointing out red flags (preliminary to a dispute), modalities of signing and negotiation, aspects of implementation (such as issuing new statements of work, tracking costs, internal approvals to take action under the contract, etc.).

Build a process to fulfill that objective

Processes will be based on the objective sought to be accomplished. Typical questions to be answered at this stage to frame a process are ‘who does what,’ ‘whose consent needs to be obtained for which action,’ ‘who has access to which information’ and rules for communication between different sets of people. Each set of people can have powers to view, comment or modify based on their permission level. Communication pursuant to these rules can be logged inside the contract management software itself.

Prepare standardized templates

In case a company has its templates and intends to execute these agreements as it is, then such templates can be uploaded on the contract management software with a brief explanation of the ‘key commercial features’ for the business teams, and placeholders where they can feed transaction-specific data (e.g., a specific expiry date) into the software. You may set a rule on what clauses can be modified and which ones cannot. Based on this, the software then allows people to fill in relevant data and upon completion, it stores executed the agreement.

Specify the features that must be tracked

Contract management software is made in a manner that it provides an automated alert in case of any agreement is about to expire of pending for renewal. The company has to keep the record of these intimations and act accordingly.

Select or commission a software to fulfill the above needs

Contract management software (“Software”) keeps the log of activity as to the people who accessed Software. This provided safety and security to the valuable company data and protected any data breach. Not every person in a company needs to be aware of every contract detail. Contract management software ensures that only the correct people in their organization have visibility into contracts, providing a secure central repository.

Internal contract creation cycle

To perform contract management effectively, you will need to be familiar with the internal life cycle of a contract in a company. Contract management is a process used to effectively manage and control contract lifecycle. While lawyers may be familiar with how to draft, negotiate, sign contracts and how to initiate disputes, when you are working in a company you will need to understand how a contract is initiated internally within the company. It is a long process. In smaller organizations the promoters or directors may simply sign the contract after going through it without much complexity. If necessary they may obtain their CA or lawyer’s approval. However, within a larger organization, the contract lifecycle is as follows (in this discussion, we are assuming here that a template for that type of contract already exists, otherwise legal will have to prepare one):

Contract Request (in case there is draft agreement is in place)

At times parties share their agreements which are already in place. In such scenarios, the contracts are reviewed by highlighting red flags. After marking of red flags, the negotiation process with the other party starts. There are software tools available which highlighted risk clauses and make the process quick for the author reviewing the contract. It is necessary to mention here that for the process of highlighting risk may differ from scope and purpose contract.

If a new type of contract is to be executed, which will frequently happen in an expanding business, a Contract Request (in case of fresh contact) is a first step in the life cycle of contract, upon receipt of request with scope, nature and obligations of the parties along with other relevant details drafting process starts.

This request is issued by the concerned business team who has a requirement. Once the Head of Legal and Compliance function (or someone else authorized by him), the finance controller (or its authorized person) and the concerned business head will approve the request, then the legal team will draft a standard template in consultation with law firms (if needed).

Approval from the Stakeholders

Every agreement constitutes operational (business) clauses and legal clauses. Operational clauses cover the scope of the agreement, purpose, and obligations of both the parties. The legal clauses in the agreement are not limited to disputes settlement and liabilities of the parties alone but extend to other clauses as well.

At the approval stage, in case of any clause found to be onerous for the company highlighted to concerned stakeholder for evaluation. Once the concerned stakeholder approves the agreement proceeds further for execution. The stakeholder will be Legal and compliance head (or it’s authorized person), finance controller (or its authorized person) and the concerned business head as the case may be.

Variables for which approvals are required

• Financial clauses of an agreement, including tax implications, are to be approved by finance team – example, payment cycle (e.g. payment date being 7th or weekly or fortnightly, tax (TDS, GST or other implications)
• Business risk clauses are to be approved by the senior business team which has initiated the request for creation of the contract (Marketing/Strategic Partnerships).

Example 1:

ABC and XYZ enter into an Application Programming Interface (“API”) Agreement, wherein ABC’s API is to be integrated with XYZ. Now, assume that there is a clause in the Agreement wherein it says that ABC will not be responsible to XYZ in case of any violation of intellectual property due to the use of ABC’s API. Now, it is ABC’s responsibility to prepare the API and XYZ is only to use it. It has not the ability to verify whether this is created by ABC or not (that is ABC’s responsibility). Therefore, ABC breaches another entity’s IP rights (say, by providing copied codes), consequences of the violation should not be on XYZ. However, since the agreement still says so, XYZ legal team will need to point out this as a ‘business risk’ to the business team (Marketing/Strategy Team’s appropriate person for their approval), else they will suggest an exclusion. They will not be lawyers and may not infer this risk by reading the agreement on their own. These clauses are often neatly tucked away or glossed over or even hard to interpret.

Example 2:

ABC and XYZ enter into a Marketing Agreement, wherein XYZ agrees to promote ABC products on its platform, and customers of XYZ will get benefits from the purchase of product. For this activity, ABC will pay to XYZ. If XYZ includes a clause mentioning that it will decide as to which customer should get the benefit, then this clause is onerous for ABC (because ABC has no way of choosing who is its customer through these benefits, even though it is paying for the cost of the marketing activity).

ABC legal team will need to point out this as a ‘business risk’ to the team (Marketing/Strategy Team’s appropriate person) for their approval, or suggest an alteration to this clause which enables ABC to incorporate its commercial objective as well. Since the business team does not comprise of lawyers, they may not become aware of this risk merely by reading the agreement on their own.

Legal risk clauses to be approved by the legal team in consultation with the business team.

Example:

In case of any agreement in between ABC and XYZ, there is a clause in the agreement that in case of default or breach of the agreement by ABC which causes a loss to XYZ, ABC will indemnify XYZ. However, nothing is stated about indemnity for a loss caused by XYZ’s conduct to ABC. As this clause is of a legal nature, it will be highlighted by the ABC legal team. The legal team may also give suggestions, such as altering it to a ‘mutual indemnity’ clause, where both parties indemnify each other in case of any loss caused by one party’s breach, to the other. Business team of ABC will then evaluate and give suggestions or negotiate the agreement. For example, Once business team approves the clause, legal team take it forward.

Execution of Agreements: Post negotiation and approvals from the relevant stakeholder the agreement proceeds for execution by the parties. This process may be done either manually or using online process. In India manual execution of agreements is prevalent. However, after commencement of Information Technology Act, 2000 and Information Technology (Amendment) Act, 2009 companies are inclined towards the execution of online agreements.

Database for Contracts: Once the agreements are executed, the contracts are stored. The storing of contracts made with incorporating relevant details of the contracts. The contract management software tools can be modified keeping in mind scope and nature of the contract. Once the contract is uploaded, appropriate people involved in implementation can use the contract.

How to select a contract management tool

Companies typically use 3 kinds of software for contract management:

• Standard ERP software
• Off-the-shelf software, e.g. Complinity, Demacq, Zycus, Practice league, etc
• Customized contract management software developed as per their need

Before you identify which method to deploy, you need to identify the functions which your software must be able to perform. After that, you can select any software which meets your needs. Irrespective of the type of software, functions of any contract management tool can be reduced to the following categories:

• Email communication and alerts for key events and actions (e.g. renewal, expiry, termination)
• Record-keeping and logging of events and approvals
• Grant or limit access
• Automatic red-lining to compare different documents

Software is useful or unnecessary depending on whether it performs the above functions on the metrics that matter to you. Results get enhanced further if:

• Analytics are provided for essential aspects to facilitate decision-making (e.g., X number of contracts expire and require to be renewed next quarter).
• Artificial intelligence and other techniques (OCR, programming, etc.) can be used such that the above functions are improved. For example, the software could automatically scan contract pages and detect dates for relevant clauses, or it could depend on the manual feeding of the same information. Some software tools scan and pull out specific clauses that will have the risk, such as indemnity, confidentiality, limitation of liability, applicable laws and applicable jurisdiction in case of disputes.

You may not be able to get the ideal outcomes from the beginning. Plus, what you expect from the software will alter your own experience and with business growth.

Thus, you will need to have an ongoing initiative to add more automation and reduce manual process through periodic upgrades. You can objectively substantiate your initiative by obtaining regular reviews of its working from stakeholders. Possible questions could be:

Indicative questions for working with the software

1. Is the software addressing the problems? How can it be improved?
2. Which functions are not being used?
3. Which functions need to be developed or improved?
4. Is it missing on tracking any material aspect of the contract? Can that be incorporated through an upgrade?

Indicative questions for improving business outcomes

1. Are contracts being renewed? Is data on the same being presented?
2. Do we need to send an additional communication to facilitate renewal?
3. Are payments being made on time?
4. What percentage of payments are being delayed and by how much? What is the financial cost to the company (e.g., cost at market interest rate for that much money)

This is relevant to you if you are connected with operations, finance, legal and compliance and in any other function where you deal with contracts regularly.

Don’t leave this alone to the tech team or the compliance team. If you are an in-house lawyer, you can consider this to be a part of your job. Engage with all potential stakeholders in an open way that enhances transparency and avoids risks that come from lack of communication and misunderstanding of contract terms.

It will improve company-wide results and thus indicate superior performance.

Indian competition law regime has grown considerably ever since the Competition Act became operational in 2009. In this article, Sarang Khanna, Researcher and Analyst at iPleaders, writes about the current trends and increasing opportunities in Competition Law in India.

The Monopolies and Restrictive Trade Practices (MRTP) Act was introduced in India in 1969 to combat unfair trade practices and to promote a competitive and fair business environment in the country. It was the first competition related legislation in the country, and laid down rules and regulation and reformatory practices in the business world.

Although, due to some limitations in the legislation, the Act was replaced by a more comprehensive Competition Act of 2002. This new Act penalizes corporations for offences, keeps public interest at the forefront, and ensures that freedom and fairness of business is maintained in the Indian  economy.

However, according to a report by Ernst & Young India, more than 80% of Indian enterprises are unaware of competition law and its practice in the country. Although most multinational corporations are aware and have undertaken measures to comply with the competition law infrastructure. In another analysis by Nishith Desai Associates, it was revealed by the Competition Commission’s official website, that as of 2015, there were approximately 590 cases pending with the CCI, 83% of which were cases where someone approached the CCI themselves to notify wrongdoings, while in almost 5% cases the commission took cognizance on its own.

It is clear from the above statistics,  that the awareness and practice of competition laws is increasing swiftly, and that there is also a vigilantism in the community to curb all non competitive practices in the country. Of course, competition law also has extra-territorial application. The conduct of overseas players can distort the competition practices in the domestic market as well, and for this reason, in a fairly short span of time, the practice of competition law has swiftly become the most coveted practice among the various different fields of law.

The involvement of big conglomerates generates big money at stake, and also naturally generates interest from the legal field. This comparatively new area of practice has seen the mushrooming of various work around it, and it is certainly a field that every lawyer and law student wishes to explore. It takes specific practice and complete in-depth knowledge to establish a footing in this industry, and with not much literature in law colleges concerning competition law, online courses like this are known to help young lawyers and students carve a path for themselves here.

To understand more about the nature of work that the practice of competition  law involves, we must first look at the firms and organizations that are mainly involved in the sector. When it comes to working in this field, one can choose from various options based on their interest and more importantly experience. The following are the options one must keep in consideration to establish a footing in this area of work.

Tier 1 Law Firms –

Mainly all top tier law firms have a dedicated competition law team that looks after important  issues that are vital in the workings of any business. Extensive projects related to Mergers and Acquisitions and other crucial competition aspects for multi-billion dollar companies are  all handled by one of the few Tier 1 law firms in the country. Some notable names being, of course, Cyril Amarchand Mangaldas, AZB, Trilegal and Shardul Amarchand who have established a robust competition law practice in the recent times.

These firms have highly experienced and specialized teams and hence it is understandably extremely tough for a fresher in the field to start their competition law journey with them. Relevant experience of a few years and an LLM in the field are a bare minimum to be a part of these teams. Once there, the salaries are unquestionably higher than the usual standard.

Boutique Firms and Individual Practitioners –

While the high end tasks involving M&A etc are mostly handled by the top tier firms, there are many other equally significant works that boutique firms and individual lawyers handle for their clients. This ranges from all the compliance work, to policy framing, to handling allegations related to competition breaches like abuse of dominance, cartelization, etc.

These issues involve the litigation aspect of competition law and are a great start for all lawyers looking to understand the practice and establish their own. Since India has borrowed her competition jurisprudence from various other jurisdictions like the USA, EU, etc., its practice is still new and constantly evolving.

This makes it a must for everyone to gain an insight in the litigation end of this field of law, and boutique firms can be the appropriate start for them. Freshers as well as lawyers trying to make a transition should definitely consider starting here, for a much required and clear understanding of this niche area of law.

Think Tanks and Research Institutes –

Doing some credible work behind the scenes are also some think tanks and research institutes in the country that work to make competition laws more accessible and understandable. With the growing emphasis on specialization in this field of work, they can prove to be a great start for any budding lawyer.

CUTS Institute of Regulation and Competition (CIRC) is a well known think tank that indulges in meaningful research pertaining to consumer and corporate interest both. These think tanks work at an interesting intersection of competition and IP laws which is an added advantage in understanding the working with a different perspective. Another big research institute is the Jindal Institute on IP and Competition (JIRICO) established at the OP Jindal Global University. Doing some noteworthy work in the field, they also operate on the cusp of IP and competition. Use and distribution of patents has tricky implications in competition law and JIRICO is known to do some plausible research in the same.

Think tanks have regular vacancies for people willing to indulge in research in the area, and are the perfect place for in-depth understanding. Experience in these renowned institutes is also beneficial for Post Graduation, LL.M, and better job prospects in the field. This will provide one with professional as well academic edge. Starting salaries are also commensurate with the standard.

Government Bodies –

Competition Commission of India (CCI) is the regulatory authority of competition law field in India and has regular vacancies for people with different degrees of experience. Jobs at CCI include both research related and litigation related positions and the salary and working hours are both extremely comfortable. Working here is sure to give a strong understanding of all aspects of competition laws such as antitrust, anti-competitive, etc. along with on the ground practice.

Experience at CCI is obviously one of its kind and goes a long way in establishing anyone’s career in this field. Also, after the Competition Appellate Tribunal (COMPAT) was dissolved in 2017, the appeals of all competition matter are now directed to the National Company Law Appellate Tribunal (NCLAT), which is another body that has vacancies of law graduates with diverse experiences. An opportunity to work at either of these government bodies is sure to give a good foundation to anyone’s law career in this field.

Amidst these various options to work in the competition law sector in India, there is an evident lack of good courses tailored for this field, in our country. There are no specialized LLMs for competition lawyers in India yet, and hence people have to look abroad to gain a degree. For the same reasons, online education for competition law has gained immense importance and respect, and is filling the gap in the country with respect to competition law literature.

While there are solely competition law specific LLMs in various universities aboard, one can also opt to do a specialization in trade laws or IP laws and still have a flourishing career in competition, if one so desires. We hope that the limited knowledge of competition law in the country, does not restrict you from establishing yourself in this highly coveted field of work.

All the best!

In this article, K.S. Aswin Seshadri pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses the Benefits of setting up a Non-Profit Educational Institution in India.

Introduction

A business structure is an organizational framework which is recognized in a particular country’s jurisdiction for conducting commercial activities like Partnership, Sole Proprietor, Company, Hindu Undivided Family etc. in India.[1]
Since Education should not be considered as business, people who want to start an educational institution should consider a not-for-profit business model rather than a for-profit business model because it satisfies the owner’s interests and would act in the public interest. It is very hard for these not-for-profit organizations to raise funds unless it is sponsored by a rich person who wants to put money in a trust for the benefit of the society. Not-for-profit institutions will also face difficulties to raise funds when there is an economic downturn or when unemployment rates are high. However, the benefits that these Non-Profit Organizations receive are far more in number than the restrictions that they face.

What is Non-Profit Organization?

Non-Profit Organizations include trusts, cooperative societies or associations, and Companies which come under Section 8 of the Companies Act 2013[2]. These organizations are created either for a charitable purpose or for the public good and they are usually exempted from paying taxes to the government. The surplus profits of these organizations are not distributed to the owners but to achieve the goals of the organization.

Types of Non-Profit Organization

Trusts

A public trust is a form of non-profit business which is created for the purposes of education, relief of poverty, medical relief among other examples. Indian public trusts, in general, cannot be dissolved and are irrevocable in nature. However, no national law governs public trusts in India but different states have created their own state laws.[3]

Societies

Societies are an organization of people created for charitable purposes. They are governed by a managing committee or a governing council. Societies are governed by the Societies Registration Act 1860 which has been adopted by various states. Unlike trusts, these societies can be dissolved.[4]

Section 8 Companies

Section 8 of the Companies Act, 2013 provides for registration of an association of persons as a limited company where such association is formed for promoting commerce, art, science, education, religion, charity or any other useful object and the company intends to apply its profits or other income to promote its objects. The payment of dividend to its members is prohibited.[5]

Since an educational institution provides a service for the betterment of the society, it would stand in good stead if it is incorporated as a Non-Profit Organization under one of these three business structures. Each of these three business structures has their own advantages and disadvantages but they all have one thing in common.[6]

Comparison between Trust, Societies and Section 8 Companies

Public Benefit Status

One of the main advantages of having a Non-Profit Organization is trust, society or a Section 8 company. They are exempted from paying taxes i.e. they do not have to pay taxes on their income. Thus, the only option available to them is to use the profits to improve the organization. Also, the people who contribute to the organization are also eligible for tax exemptions for the contribution made by them to these organizations.
Public Trusts have to be created for the purpose of serving the needs of the public. Section 8 companies are incorporated for the limited purposes of promoting commerce, art, science, religion, charity or any other useful object. Education institutions come under the heading of charity and thus they can also avail tax benefits if they are created under one of these three business structures.[7]

Remuneration

Public Charitable trusts are for the benefit of a large class of beneficiaries and must be for the benefit of the public. Since public trusts have a charitable intent, they usually prevent private remuneration. Even the Societies Registration Act of 1860 does not prohibit the remuneration of any earnings of the society to any private shareholder or individual. However the Indian Companies Act, 2013 specifically provides that no profits or earnings of the company will be distributed as dividend among its members.[8]
So if the owner of the educational institution wants to see some profit from running the institution, he can either choose a trust or society as the business structure because both these forms of business do not prohibit the taking of earnings from them. However, even if the educational institution is incorporated as a Section 8 company, though the profits cannot be distributed the owners as directors of the company can take remuneration from the company for their services. Thus, remuneration in Section 8 companies are not completely prohibited.

Proprietary Interest

A person’s proprietary interest in a Non-Profit Organization is related to the issue of remuneration. The trustees of a trust hold the assets of the trust in a fiduciary manner on behalf of the trust. Even though they have a legal right to the assets of the trust, they cannot use the assets in contravention of the interests of the beneficiaries. The members of the managing committee or governing council of the society or Section 8 Company hold the assets on behalf of the other members and contributors respectively.[9]

Dissolution

Usually, trusts are irrevocable in nature. The trustees utilize the assets of the trust on behalf of the trustees. However, due to the negligence of the trustees, if the trust becomes inactive, then the Charity Commissioner can take steps to revive the trust. Also if the object for which the trust is created ceases to exist, then the Doctrine of Cypres will be applied wherein the funds will be applied to the nearest possible object. Thus, the trustees do not have to worry about the usage of the assets of the trust because even if the trust was to be wound up due to changing circumstances, then the trust’s assets would be used for a similar kind of object for which the trust was created.
However, unlike trusts, the Section 8 Companies and societies formed with the intention of serving the public can be dissolved. Also, the property and funds of these societies and companies will not be distributed to the members but they will be given off to some other society or company which has the same objectives.[10]
Therefore, if the donors do not want their assets to go waste, they can create the educational institution as a trust so that the assets are used only for educational purposes and even if the trust has to be dissolved, the assets would be used for the same purpose. Thus, a trust would be a better option than Section 8 Companies and Societies if the donors do not want any dissolution to take place.

Maintaining of Accounts

Since these organizations are granted certain privileges by the Government. All the Non-Profit Organization is a trust, society or a Section 8 Company should maintain separate books of accounts for their economic and commercial activities, failure of which will lead to loss of income tax exemption.
Also, the Non-Profit Organization is prohibited from investing their funds or profits in any political activities or shares of public and private limited companies. This is prohibited mainly because such activities promote things which are not in consonance with the objects of these Organizations.
Therefore, if the educational institution is to be constituted as a Non-Profit Organization, it has to maintain a separate book of accounts and it will also be prohibited from investing funds in companies and political activities.

Benefits of Structuring Educational Institution as a Non-Profit Organization

• The Income Tax Act of 1961 provides an exemption to organizations which are created for any charitable purposes. Since an educational institution falls under the category of charitable purposes, the organization will be exempted from paying taxes.
• However, if the income of the organization is used for any charitable purposes outside the geographical boundaries of India, then it will only be exempted from paying taxes only if it comes under the general or specific orders of the Central Board of Direct Taxes.[11]
• Also, these organizations are allowed to maintain the income which is begotten through the trust if they satisfy the criteria given under Section 11(2)[12] read with Rule 17 of the Income Tax Rules 1962[13] and Form No.10. Also, the income derived from the trust can be maintained only under the modes specified in Section 11(5).[14]
• Also under the amendments to Section 11(4A) of the Income Tax Act 1961, a trust, society or Section 8 Company is also exempted from paying taxes on income from businesses which are in consonance with the attainment of the objects of the organization.[15]
• As mentioned earlier, the donors of these trusts and societies and shareholders of the Section 8 Companies are exempted from paying taxes for the contributions made by them to the organization. This is provided for under Section 80G of the Income Tax Act of 1961.[16]

These are the main benefits of creating an Educational Institution as a Non-Profit Organization.

Management and Control

• Since the benefits given to these three types of organizations are relatively the same. The choice of business structure for the educational institution will mainly depend on the amount of control and management.
• Societies are considered to be the most democratic of three business structures available in hand. Founders can exercise control only if they have lifelong posts in the managing committees of the society and if they grant themselves special powers during the constitution of the society. However, trusts on other hand can be held by a single person even though a board of trustees might be present. This is because of the presence of trust deeds which grants all effective decision making power to a single person. Therefore, if the founder of the educational institution wants to maintain high level of control on decision making and economic matter of the organization, trust is the preferred form of business structure.
• Section 8 Companies function like any other company incorporated under the Indian Companies Act, 2013. Even though the Board of Directors takes care of the day-to-day activities of the Company, the shareholders have the ultimate power to elect and fire the directors.

Conclusion

Therefore, setting up an educational institution as a Non-Profit Organisation is the most suitable providing education to the public is less of a business activity and it should be considered as service to the society. Since most of the characteristics of these three forms of business structures are relatively similar in nature as it all depends on the amount of control that the founders wants to have over the educational institution. Also since the educational institution will be created as a Not-for Profit Organization, it can avail all the benefits provided to it by the government. Thus, the founder of the educational institution must concentrate more providing top quality educational services rather than focusing on achieving profit goals.

References

[1] http://www.businessdictionary.com/definition/business-structure.html
[2] Companies Act, 2013 Bare Act
[3] https://www.investopedia.com/terms/t/trustcompany.asp
[4] http://www.encyclopedia.com/social-sciences-and-law/sociology-and-social-reform/sociology-general-terms-and-concepts/corporate
[5] Section 8, The Indian Companies Act 2013
[6] http://www.mca.gov.in/SearchableActs/Section8.htm
[7] https://www.legalraasta.com/can-section-8-company-make-a-difference
[8] https://groups.google.com/forum/#!topic/csmysore/qZfHouOLwSc
[9] https://www.legalraasta.com/can-section-8-company-make-a-difference/ [10] http://www.ngosindia.com/resources/ngo_registration1.php
[11] http://shodhganga.inflibnet.ac.in/bitstream/10603/53204/7/chapter%203%20income%20tax%20act%20and%20its%20provisions.pdf
[12] Section 11(2) of Income Tax Act 1961
[13] Rule 17 of Income Tax Rules 1962
[14] Section 11(5) of Income Tax Act 1961
[15] Amendments to Section 11(4A) of the Income Tax Act 1961
[16] Section 80G of Income Tax Act 1961

While I was pursuing my B.A. LL.B (Hons.) from one of the lesser known National Law Universities in India, I was surrounded by confusion, doubts, fear, and anxiety. Every internship, every debate, every research paper, just added to the misery. It wasn’t because it was not producing results but because every area that explored was equally interesting or uninteresting. I didn’t know what to pick next.

To be honest, until my second year I was sure that if I get done with my law degree I would pursue journalism. A career in law was not on my cards. However, as in the alchemy, I unknowingly started developing a taste for law. From interning at NGOs, and district courts, I progressed to interning at multinational companies and fell in love with the work and the work environment instantly. As an obvious choice as is with most law students, I started interning at law firms. I happened to love that too.

In this entire process, I was constantly confused about what is it next? Or do I finally need to make up my mind and make a conscious choice?! I was an ardent debater, wrote decently and a number of people were of the opinion that I would make a good litigator. The question was: Was I ready for the struggle? I wasn’t.

I loved the corporate culture but I thought it would eventually become monotonous, and somehow, I wasn’t ready for the struggles of working in a law firm. It would probably give me good money, but a major deciding factor was whether I was ready to give up on my social life. To top it all, my parents wanted me to prepare for civil services, the judiciary and work for PSUs (because who doesn’t want a risk free career for their children).

These were just some early thoughts. The reality started dawning on me later when I figured that MNCs weren’t ready to take an intern without 2 years of experience – because of policies. Law firms wanted me to intern multiple times till they were sure – because of the college (and your rank in the college) apparently mattered to them. Litigation meant struggling and compromising for at least 5 years which a spoiled brat like me could never be ready for. I considered going for an LLM abroad because I was under the opinion that at the very least it would shut a lot of people up with a constant question, “What are you doing after your graduation?”

As life had its way, before I graduated, I managed a PPO in the litigation team of one of the leading firms in India and eventually, cracked an interview at an MNC. The doubts remained and I chose a monotonous, non-challenging role over giving up my social life. It wasn’t too long before I quit the high-end compliance role at the flashy MNC and decided to get back to my first love – writing. Life never seemed better.

The last few days of my life were enlightening. I started doing a webcast on LawSikho’s YouTube channel called “An Hour With LawSikho,” chatting with some of the leading legal experts in the country and throughout these two weeks, I was wondering, “Why on earth didn’t I think of this before?”

The format of the show was live and enabled hundreds of students to put across their doubts and queries. Each session managed to give me insights. This made me feel that I have the potential to learn everything that interests me. To make this ‘choice’ (or struggle, as you’d like to put it), I thought I’d share my experience and insights I’ve gained over the past couple of weeks hosting the webcast on YouTube!

Here are the top four career options we have discussed in the past 2 weeks for you to get some deep insights into the profession of your choice:

Associate in an M&A Team

Jerry Della Femina once said, “Today’s merger makers are not ad people, they are building communication companies.”

A merger and acquisition lawyer is often looked upon as the one person who makes the most amount of money in the entire legal industry. We had 2011 NUJS graduate, and an ex-M&A lawyer at one of the biggest law firms in the country to talk about his experience. Currently, a Co-Founder and COO of one of the leading online legal education platforms and an author of a book called, “Not A Startup Anymore,” Abhyuday Agarwal, had a lot to share!

He spoke about what the job description is like, what the first year associate needs to do and how to prepare for the interview round. In a very insightful session, he said how the first year associates are required to do thorough research and perform due diligence which is a major chunk of the job profile. “You need to be prepared for the challenges, and there are going to be many. You need to know the laws, research and be extremely patient while you are at work.”

He emphasized the value of specialized learning and knowledge which can be easily sought through this online course. His insights can be found in detail here.

LLM in India and Abroad

On Day 3 and 4, we had two talented students currently pursuing their LLMs. One was Ms. Nisha Raman, who completed her LLM from University of Cambridge and is now pursuing her Graduate Diploma in Law from the University of Manchester in order to start working on a training contract at White and Chase, London. Right from how to make a CV, to bagging recommendations and working on a Statement of Purpose (SOP), she had insights which could immensely help a student make it to a foreign university of their choice.

We also had Ms. Sushmita Patel, who is currently pursuing her LLM from Azim Premji University on why she let go of the offer she received from the University of Vermont in order to pursue an LLM in India, and how to make it through the first round of Rhodes Scholarship. She was easy on the ears and ensured that all the queries were amicably answered.

Both the speakers collectively addressed the question of how channelized your CV should be, and how should your SOP be extremely personal and an insight in to your passion for the subject. It is true that if you want to crack a university of your choice, start working now. Take up courses like these, to suit your specialization and stay ahead of your contemporaries.

Judiciary

Judiciary is one of the most sought-after choices after law school. Parents of law graduates are always in the hope that their child must eventually become a judge. As golden as this dream sounds, it is equally true that to make the cut is difficult. A judge is an embodiment of the law, justice, truth, and unbiased opinions. These are the qualities found in few and precisely why making it such a noble position to hold.

Patrick Leahy once said, “Judiciary is where my passion is!”

Madhurima Dutta who graduated in 2015 from Dr. Ram Manohar Lohiya National Law University has cleared various State Judicial Service Examinations including West Bengal Judicial Service (WBJS) and Himachal Pradesh Judicial Service (HPJS). She was recently selected as a Civil Judge, Junior Division in WBJS. She spoke about the tricks and hacks to crack various judicial exams. Right from the studying pattern to writing theoretical answers in mains she had it all covered.

Litigation

Litigation is said to be a life full of struggles. However, if you enjoy it, it turns out to be addictive and then there is no looking back. Mohona Thakur, an alumnus of ILS Pune, worked with Parekh & Co. and had some really interesting insights to offer. She spoke about various challenges of a first-year litigant and how to go about it. She also emphasized the importance of the knowledge and skill set which can be acquired through this course. She did mention that litigation is indeed a challenging role but every lawyer must give it a shot for the experience and exposure that it provides! You can watch the webcast here.

A question big or small can be life-altering. All you need to do it is ask it at the right time from the right people.

All the luck!

In this article, Siddhartha Sain, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses on tax avoidance strategies used by big business houses in India                                                 

Introduction

Tax is a source of revenue for a government of a country, through which it endeavours to provide better infrastructure, standard of living and security to its inhabitants. However, these taxes can at times come in the way of subjective development of individuals or a company and further push these individuals and large business houses to contemplate a way to avoid the same by using loopholes in the laws and guidelines that govern the taxes.

Indian government has always been proactive in closing and fixing loopholes in the tax laws and its structure through budget, amendments, guidelines and treaties with various countries. However, government in this regard is always two steps behind the large business houses in India, which are well equipped with up to date intellectuals, who know how to manipulate tax rates, loopholes in laws, deductions and sometimes trade relations with other countries, in order to decrease the burden of tax that is levied on their company without breaking any law. These large business houses are able to structure the most complex and elaborate tax avoidance strategies, thereby causing great deal of loss to government revenue worldwide.

According to a paper by Alex Cobham & Petr Janský, (Cobham, 2018) each year globally, around INR 50,000 crores worth of government revenue is lost due to tax avoidance by big business houses. Reliance India Limited, Tata Industries, Vodafone, Google, etc. are some of the examples of large business houses that function in India and who have successfully mastered the art of tax avoidance.

How tax avoidance is different from tax planning and tax evasion?

There is a thin line of distinction between tax avoidance and tax planning, both of them are completely legal in the eyes of law. Tax planning is something which is expected from a taxpayer and tax avoidance is something which is beyond the expectation of the government (Batra, 2014). For example, there are certain provisions of Income Tax Act 1961, which a taxpayer can optimally utilize and reduce his/her tax liability through deductions under Section 10, Section 80C, and Section 80U, Section 37 etc., in order to effectively conduct tax planning. On the other hand a company shifting its Intellectual property to a country with reduced tax rates than India is one of the examples of effective tax avoidance. (Chawla, 2017).

On the other hand, tax evasion is completely illegal and is not at all encouraged by any government, unlike tax planning and avoidance. Tax evasion is outright stealing and involves breaking of law. The common example of tax evasion is undisclosed income in cash which was found stashed in many houses in India during the demonetization drive in November, 2016. Cash that was rendered not legal and was undisclosed wealth which was accumulated by individuals by evading taxes. (PTI., 2016)

How is it done?

Big business houses in India utilize many strategies in order to avoid tax. There is a huge role of tax havens and subsidiaries in these strategies.

The term ‘tax haven’ is a country that offers foreign individuals and businesses a minimal tax liability in a politically and economically stable environment, with little or no financial information shared with foreign tax authorities.

The term ‘subsidiary’ is a company with stock that is more than 50% controlled by another company, which is usually referred to as the parent company or the holding company.

Movement of assets, shares, deals and money from India to these tax havens through subsidiaries is the most favored and advantageous strategy amongst big business houses in India. Since 2005, many Indian and foreign companies that are set up in India have been using tax havens and subsidiaries in order to avoid tax. We will discuss the strategies used by these large corporations in order to avoid tax, in depth below.

Vodafone

In 2007, Vodafone International Holdings B.V. based in Netherlands, purchased Hutch Essar in India through a complex tax avoidance strategy. The idea of this strategy was to avoid paying capital gains tax in India through non-resident companies in the deal. The non-resident companies were their own subsidiaries operating outside India. Vodafone International Holding B.V. purchased 67% controlling shares of CGP International based in Cayman Islands, which was a subsidiary company of Hutchison Telecommunication International Limited (HTIL). CGP already had a controlling share in Hutch Essar in India before the deal and by the transfer of 67% controlling share of CGP, Vodafone International Holdings B.V., acquired the controlling stake in Hutch Essar India.

Following this deal, Income tax authorities issued show cause notice to Vodafone International Holdings B.V. and in turn VIH filed a writ in High court challenging the same, which was dismissed by high court with a view that Vodafone International Holdings B.V. must pay capital gains tax, as the sale of shares from CGP to VIH B.V. qualifies as capital transfer and attracts capital gains tax of nearly Rs.12000 crores. Pursuant to High Court’s dismissal, VIH filed a Special Leave Petition in Supreme Court of India challenging the High Court’s order. In 2012, Supreme Court of India held that the High Court’s view lacked authority of law and was quashed, as the transaction took place between two non-resident Companies of India. Hence, Vodafone acquired Hutch Essar India without paying capital gains tax.

Reliance India Limited

Before 1995, Reliance was infamously known as zero tax company in India, as it used to pay zero or close to zero tax each year.

A zero tax company is “a business that shows a book profit and pays dividends to investors but does not pay taxes.”

It continued to exploit the loopholes in taxation system in India in order to avoid tax through subsidiaries, which used to make raw materials and other components in countries with low tax rates and Indian parent company purchased these raw materials at prices more than the tangible cost thereby reducing their net income and subsidiaries escaped from paying taxes in India.

Reliance enjoyed its successful strategies of Tax Avoidance only till 1996-1997, when in order to combat the menace of “Zero Tax Companies”, “Minimum Alternative Tax” was introduced in India and concept of Corporate Income Tax was added. However, that did not deter the Reliance India Limited in their ventures of Tax Avoidance. In order to check the efficiency of Income Tax department in assessing big business houses, in March, 2018, Central Auditor General of India conducted an integrated audit of Reliance India Limited along with its other group entities.

According to the news report (see here), during audit it was found that RIL used many methods to avoid taxation including “the merger and demerger of group entities, transactions with related parties, layering of transactions with subsidiary companies”, in order to lower the tax burden.

Google India

Google is the world’s favourite search engine and has plethora of companies functioning under it. There is one extremely clever and elaborate tax avoidance strategy, which is used by many large corporations including Google, which is called the “Double Irish with a Dutch Sandwich”.

It is a dubious trick used by Google to avoid taxes through subsidiaries in Netherland and Ireland. In this technique large corporations use a combination of Irish and Dutch subsidiary companies to shift profits to low or no tax jurisdictions. It further involves sending profits first through one Irish company, then to a Dutch company and finally to second Irish company, headquartered in a tax haven. This particular technique allows many corporations to reduce their overall corporate tax rates dramatically. Using this technique, Google has successfully saved billions of dollars.

Similarly, Google India which is a subsidiary of Google International LLC and is an authorised distributor of Google Ireland’s ‘AdWords’ programme to Indian advertisers. Google AdWords is Google’s advertising system in which advertisers bid on certain keywords in order for their clickable ads to appear in Google’s search results. Google Ireland owns the ‘AdWords’ technology and as it merely authorized Google India to use it, the revenue will come back to Google Ireland, where google has to pay tax way less than India.

However, for the same transaction, Income Tax Appellate Tribunal, India, ordered Google India to pay tax close to Rs.1457 crores which were avoided in tax by Google India for the assessment years 2007-2006 to 2012-2013.

After losing six years long battle, Google India spokesperson in an interview (see here) said that Google India complies with all tax laws in India and pays all applicable taxes and they will file an appeal, as the ITAT ruling, according to Google, “is a clear departure from previous judgments on the issue and is not in line with India’s double taxation avoidance agreements”.

Tata Industries

Tata Industries sold their shareholding in Idea cellular in 2007 to Birla TMT Holdings through its subsidiary called Apex situated in Mauritius and through this, avoided to pay tax in India. Income Tax officials flagged this deal and determined the capital gains tax in this deal to the tune of INR 1,00,000 crore under Section 93 of Income Tax Act. However, Income Tax Appellate Tribunal held that as there was no transfer of assets by a tax resident of India to a non-resident, and they cannot be taxed on the capital gains that arose on sale of Idea shares by its Mauritius subsidiary.

Tata Industries under its umbrella, has several charitable trusts formed for charitable purposes called Tata Trusts. These charitable trust such as, Jamshedji Tata Trust and Navajbhai Ratan Tata Trust, enjoy tax exemptions under the Income Tax Act. According to Controller and Auditor General’s report of 2013, Tata trust was earning huge profits instead of utilizing it for charitable purposes and accumulating surplus funds. These surplus funds were then used for creating fixed assets for earning more profits or were transferred to other trusts, rather than for charitable purposes in order to avoid tax.

Proactive steps by Indian Government in order to curb tax avoidance

Tax avoidance strategies used by big business houses around the world cause a great deal of loss to the revenue of many governments around the world, including India. In India, many cases of tax avoidances arose in the last two decades, some of which have been discussed in detail above, which forced the government to work out its laws and treaties with foreign countries in order to curb tax avoidance. Indian Government framed certain rules and guidelines in order to regulate and restrain tax avoidance through Income Tax Act, 1961 and Finance Act, 2015.

General Anti-Avoidance Rule (GAAR) was included in Chapter X-A of Income Tax Act, 1961. GAAR was introduced in Income Tax Act, by the Finance Act, 2012, yet came into effect from 1st day of April, 2017. The sole purpose of introducing GAAR was to curb tax avoidance strategies through a provision “Section 96. Impermissible avoidance arrangement”, which was imbedded in Income Tax Act. According to the provision, arrangements or deals made in order to obtain a tax benefit were impermissible.

Amendment of section 6(3) of Finance Act, 2015 was done in order to replace a new test of corporate residence, which provided that if place of effective management (POEM) is found to be situated in India, then a foreign company will be a tax resident of India. Before this amendment, for tax purposes, a company that was not a resident of India was only considered resident, if it was controlled and managed in India.

Indian government in 2017 took various steps in order to align the rules and guidelines as per the Base erosion and profit shifting (BEPS) suggested by The Organisation for Economic Co-operation and Development (OECD), which could curb the menace of tax avoidance, which includes BEPS action plan 13, 1 and 5.

Conclusion

Tax avoidance strategies used by these large corporations indeed help them save billions of dollars each year, however tax avoidance causes great deal of loss to the government and creates an unfair market, as a person working for a salary or a small business, has very little knowledge or intellect for building up strategies in order to avoid taxes and end up paying taxes in full. Whereas, big business houses continue to lower their burden on tax through tax avoidance.  It is difficult to prove that these corporate giants did actually evade tax as they somehow do it in within the four walls of law. In reality, the business model of these big business houses are actually based on how effectively they can avoid tax and make huge profits for their investors. The idea behind tax avoidance still remains that, apart from the transaction/deal, the company must make a good amount of profit and not lose huge percentage of the profit in taxes. In this regard many countries have lowered tax rates in order to cater the needs of these companies who in return help these countries to develop. Therefore this particular nexus gives effective assistance in avoiding billions worth of Rupees in taxes, thereby making tax avoidance advantageous to big business houses.  

In this article, Ishita Raghav pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses the Joint Venture and Strategic Investment.

What is Joint Venture?

Joint Venture can be defined as a partnership between two or more parties (companies or individuals) coming together to form a separate legal entity with an intention to carry out certain commercial objectives. The parties coming together to form Joint Venture take an active role in all the decision making.
In the Joint Venture, ‘joint’ literally means coming together and ‘venture’ means a project or an investment. In Joint Venture, each party contributes finance, technology, marketing techniques or physical assets as required for the project. What makes Joint Venture different and beneficial from other modes of investment is that when Joint Ventures are created between two or more parties, the Joint business in no manner interferes or affects the individual business of the respective parties. Therefore, they are free and independent to maintain their respective businesses whilst handling Joint Venture.

Joint Venture can be formed for a specific purpose or for the continued business relationship. There are many business forms in which Joint Venture can be created such as, company, partnership firm or limited liability partnership. Agreement forming the Joint Venture is called Joint Venture Agreement which provides for the manner in which shareholders of the respective companies decide the ratio of the distribution of shares among them. This agreement is also called as Shareholders Agreement (SHA).

What are the Kinds of Joint Venture?

Joint Ventures are namely of two kinds:

1. Equity Joint Venture
2. Contractual Joint venture

Equity Joint Venture

In Equity Joint Venture, a separate legal entity is created under which various parties provide for the required resources to fulfill their objectives. This type of venture is usually suited for long-term broad projects.

Contractual Joint Venture

Contractual Joint Venture, on the other hand, doesn’t necessarily require for creating a separate entity, thus projects involved in it are of temporary in nature, formed only for limited period.

Formation of Joint Venture Agreement

Formation of Joint Venture agreement (or shareholders agreement) is very important and should not be overlooked as something trivial. This document is not executed for filing any procedural law or for any government use but is formed to create an understanding between the parties through clauses which are binding in nature. Such an agreement should be created with precision. The important aspects covering this agreement are:

1. Who will bring the required resources like finance, manpower, technology into the business?
2. The business to be formed should be in the form of a company, limited liability partnership or partnership.
3. How will Board of Directors be constituted and who shall be its members?
4. How the decisions will be finalized i.e. via consent or majority and in what ratio?
5. Who shall be the chairman of the company?
6. How will expenditures be decided? Who will sign the checks?
7. How will marketing and advertising techniques be used?
8. What will be the implications of non-commitment of clauses mentioned in the agreement?
9. How will the disputes be addressed? What will be the formation of an arbitration agreement, mentioning the place, applicability of laws?
10. The Manner of exit route and how to value equity shares and properties at the time of winding up of the company?

As an investment decision, Joint Ventures are being considered better by most businessmen today. Joint Venture gives an edge over other investment methods because one can easily access new markets and new customers.

Sharing technology or finance with other parties bring greater and better efficiency in the work. A huge amount of risk is shared with other participating parties, thus risky decisions can be made with confidence. There is greater access to specialized resources like efficient staff and better technology. The participating companies can continue doing their respective business without any interference from outside. Winding up of Joint Ventures will not affect the businesses of the participating parties.
Though being attributed to many such advantages, Joint Venture also contain certain disadvantages which should be well understood. If party’s objectives are not clearly communicated with each other it can lead to a lot of chaos, which can be harmful for the business. When Partners bring in different kinds of resources and expertise, management of both the companies are mixed together due to which co-operation might suffer. Exclusive business deals with other parties might be restricted by participating parties due to competition issues.

TATA Starbucks Private Limited – Recent Successful Venture

Joint Venture has proved to be very successful in India and this can be understood from one of the recent successful venture – TATA Starbucks private limited. It was formerly known as, Tata Starbucks Limited. It is a joint venture between two major companies, Starbucks Corporation, which is a coffee house chain company with headquarters in Washington, US and TATA Global Beverages, an Indian company. Starbucks had intentions of accessing Indian markets in the early 2007 but it was only in 2012 that a 50-50 joint venture with TATA Global Beverages was formed. Today TATA Starbucks Private Limited owns and operates Starbucks outlets in various parts of India. The venture goes with a brand name called “Starbucks, A TATA Alliance”.

On 19th October 2012, the first Starbucks outlet was opened in Mumbai city of India. Apart from the usual products offered internationally, Starbucks in India has some Indian style product offerings such as Tandoori Paneer Roll, Elaichi Mewa Croissant, and Murg Tikka Panini to suit Indian customers. All espressos sold in Indian outlets are made from Indian roasted coffees supplied by Tata Coffee [1]. The Tata Group and Starbucks Corporation also collaborated on some ventures outside India. Starbucks Reserve Tata Nullore Estates became the first Indian coffee to be roasted and sold at Starbucks home city of Seattle in 2016 [2].

Strategic Investment

Strategic Investment is very similar to Joint Ventures in which an investing company makes an investment in a smaller company, usually a startup, with an aim not just for simple profit but for a bigger commercial goal. Usually, when an investor takes risk of investing funds into a new company or a project, their foremost aim is for better returns. In Strategic Investment, investments are made with much larger and broader aspects, which vary from company to company.
Strategic Investments are done to raise the credibility of the targeted smaller companies which are having difficulty in accessing markets. There are various reasons for large companies to strategically invest in smaller companies such as the small companies might be having better technology. Also, small companies might become a prospective client of investing companies sometime in future and many more

Smaller companies prefer acquiring funds from Strategic Investment and not forming any Joint Venture with them is that when investments are raised from the strategic alliance, the autonomous status and independence of these smaller companies are still intact, they are free to operate and work in the manner they prefer. Also, in this kind of investment, smaller companies can avail funds from more than one company, which is definitely not possible in the Joint Venture. Investing companies too prefer Strategic Investment over joint ventures as less risk is involved and profits are made to available only when smaller companies are doing well. It is rather easy and convenient to exit from such an investment as compared to joint ventures.
Strategic Investment as a mode of investment suits those companies which are looking forward to sharing technology with other companies. Thus, instead of spending time and efforts on building new technology, investors can simply provide funds to smaller companies and share technology with them. This method saves cost to the large extent. In Strategic Investment, investor’s money is also protected, as funds are invested in exchange of some ownership rights like the purchase of certain types of shares, this way investing company gains ownership right over small companies and safeguard their interest from time to time. This being said, such investments have their own downfalls because in reality the process of identifying such target companies and evaluating further procedures can be very expensive and there is no guarantee of such experiments to be accurate and profit worthy.

Key Differences Between Joint Venture And Strategic Investment

If investors are looking for better returns and to grow together with other companies, both Joint Ventures and Strategic Investment are valid options but the ideal choice should be made only after understanding and comparing the two. The summary of this comparison is given below:

Conclusion

Thus after analyzing both Joint Venture and Strategic Investment, it can be observed that while making the investment decision in profit worthy projects is important for every growing company, the final decision should be made only after considering all the aspects. The best method is the method which suits one’s situation and only after taking legal advice, measuring one’s risk capacity and analyzing the markets should one decide between the Joint Venture and Strategic Investment.

References

[1] https://en.wikipedia.org/wiki/Tata_Starbucks
[2] https://en.wikipedia.org/wiki/Tata_Starbucks

This article is written by Tushar Verma, Geeta Institute of Law, currently enrolled in the Ace your Internship course at Lawsikho.

Introduction

Startup India, initiated by the Government of India is a flagship initiative launched in January 2016. This initiative is taken by the government of India to boost the ecosystem for supporting innovation and startups in India. Through this scheme, the government is looking forward to driving sustainable economic development and enhance employment opportunities in India. The government of India recently announced Startup India action plan to meet the requirements of this initiative.

What are startups all about?

A startup is a small business started with the objective to solve a problem. These are the companies which are generally operated by the founders or a single person. These companies are generally offering those services which the founders think are not available or are available in an inferior quality. Startups provide jobs opportunities to the people which helps in the economic development of the society.

Recognition of a startup shall be up to 7 years starting from the date of incorporation. Secondly, a startup must not exceed the threshold of 25 crores. Remember once your startup ceases to be eligible, you should intimate this to DIPP within the period of 21 days.

Department of Industrial Policy and Promotion

Department of Industrial policy and promotion was set up in 1995. It is operational under Ministry of Commerce and Industry, Government of India. The department takes care policy formulation and implementation of the promotional and development measures for industrial sector growth.This department is also responsible for the intellectual property rights and other initiatives regarding their promotion and protection.

What is angel tax?

Companies which are closely held receive equity funds from outsiders.  These investments are held at a premium to the fair price and the amount raised which is in excess of fair value is taxable. The amount is taxable under the head “income from other sources” and taxable under section 56(ii) of income tax act. These provisions are applicable not only to the mature companies but also to the small scale startups which took their investments from the residents of India. As a mainstream source of investment for these startups are these investors government is thinking of removing these tax burden from them. Investment raised from the venture capitalists and non-residents are already out of the scope of these taxes. Now, so as to give more freedom to these startups government has removed taxes on the investment received from a resident of India.

Registration of a startup with DIPP

Most of the startups are focused on gaining revenues and maximizing their profits by using various methods which is a good thing. At the initial stage, most of the startups are bootstrapping their organizations out of their hard-earned money. One of the ways to enhance your earnings is to reduce the cost. Government retain 30% of our income in form of tax which leads to increased cost. We can save this cost for three years by simply registering our startup with the Startup India initiative.  

However, a rumour in the industry that all the startups can avail tax benefits is trending, which is a myth.  Not all startups will get tax benefits.There is a difference between startup recognition and startup recognition with tax. Some points to consider in this regard:

1. Startup recognition is granted by the department of industrial policy and promotion (DIPP) and approval in regards to tax benefits shall be provided by the inter-ministerial board of certification.
2. The tax benefit is available for both companies and LLP registered on or after 1st of April 2016 and with turnover not less than 25 crores. This provision is available under section 80 IAC of the Income Tax Act, 1961.
3. Registered partnerships are also considered under in normal startup scenario, but if you want to claim tax benefits registered partnerships are not eligible for the scheme.
4. Three years of tax benefits will be available and the startups have to choose in which lot of 7 years they want to avail the benefit. Tax benefit will remain consistent throughout the 3 years.

Steps to register your startup with DIPP

Most of the startups are focused on gaining revenues and maximizing their profits by using various methods which is a good thing. At the initial stage, most of the startups are bootstrapping their organizations out of their hard-earned money. One of the ways to enhance your earnings is to reduce the cost. Government retain 30% of our income in form of tax which leads to increased cost. We can save this cost for three years by simply registering our startup with the Startup India initiative.  

However, a rumour in the industry that all the startups can avail tax benefits is trending, which is a myth.  Not all startups will get tax benefits. Following are the steps for getting recognition:

Step 1: Incorporation of the business

Incorporating your business in Limited Liability Partnership or a Private Limited company or a Firm. You must follow the ordinary procedures as a certificate of incorporation, Pan card and other compliances related to the particular type of business. Registration must be after or in 1st April 2016.

Step 2: Registering business with the startup India scheme

Registering for a startup is a very easy process. All you need to do is upload a form online with all requisite forms startup India website. The entire process is simplified and made online by the government.

Step 3: Documents required to be upload online (upload only .pdf format)

Recommendation letter from the following:

• Any patent filed and published in patent journals available online or offline.
• Incubators who are established in post graduation colleges in India.
• Support letter from one of the startups who is funded through central or state Government authorities or any incubator which is duly recognized by the government of India.
• Letter of funding which should not be less than 20% in equity by angel or incubation fund.

Incorporation certificate of the business:

• You must upload your certificate of the incorporation of your business.

A brief description of your business:

• A description of the innovation you included in your product.

Step 4: Choose if you would like to have tax benefits

After getting all the work done you need to go through one more step of getting an approval from the inter-ministry board. It totally depends upon the ministry that they will approve your application or not. Once they approve your application then you will able to register your startup with tax benefits. Startups recognized by DIPP can avail IPR related benefits without requiring any further license.

Step 5: Self-certify your documentation

You must self-certify all your documents before filing for the recognition. Check your company is qualifying all the required conditions to avail the benefits i.e within first 7 years you can apply, 25 crore turnover must not exceed, innovation in the product is must, the idea must not be copied, your business must not result from any reconstruction or splitting.

Step 6: Getting recognition number

You are all set to apply for the recognition and on applying you will be allotted with one unique recognition number. Certificate of recognition will be issued after going through the documents submitted by you. Remember, always take much care while uploading the documents, if it is found that you have upload forged document or some documents were required but you forget to upload then you shall be liable for the fine of 50% of the paid-up capital of your startup with Rs.25000 minimum fine.

Step 7: Other areas to look over

• Patents, trademark, copyrights, design etc.

You need to pay only 80% of the fees on applying any of these i.e patent, trademark, copyright or design etc. Only some of the facilitators are qualified by the government of India to provide this discount.

• Funding

One of the major difficulty in front of these startups is that they lack in funding. The government of India with this initiative is providing them with funding so that they may not face any challenge in running their business effectively and efficiently.

How to avail tax benefits under this scheme

Now after getting knowledge about what startups with tax benefits are, we should move on to what ingredients are required to avail Tax benefits under this scheme:

• Bad news for E-commerce startups

If you are planning to start an E-commerce startup than you are not covered under this scheme. Please note this that if you want to get benefits of this scheme than your startup must have some innovative part in it.

For Example, in 2016, Oyo rooms come up with a new idea that is totally unique and with the use of technology. At that time another firm named ZO rooms came up with a similar idea just the names were differentiated. Thus they were using the same technique as of used by OYO rooms and applied for the startup India scheme. The idea did not work because only one startup can be recognized with uniqueness. If after going through the application the government officials are satisfied that the startup is having some differentiating factor than only it will get benefits.

• Your startup must be problem-solving

Your startup should focus on solving some problems that our society is facing. Your product must have that capability to solve a problem which makes our lives more comfortable.

• Incorporation of your startup

Make sure that your startup i.e Limited liability partnership or a company must be registered on or after 1st April 2016.

• Selecting “with Tax benefits” while registering

You must click on “registration with Tax benefits” while registering with startupindia.org.

• The business model must be working

Your business model must be working at the time of application. There may be chances of rejection by the incubators if your business model is not working.

• Recommendation letter from the following authorities

• Any patent filed and published in patent journals available online or offline.
• Incubators who are established in post graduation colleges in India.
• Support letter from one of the startups who is funded through central or state Government authorities or any incubator which is duly recognized by the government of India.
• Letter of funding which should not be less than 20% in equity by angel or incubation fund.

• Approval from the inter-ministerial board

After getting all the work done you need to go through one more step of getting an approval from the inter-ministry board. It totally depends upon the ministry that they will approve your application or not. Once they approve your application then you will able to register your startup with tax benefits.

Key announcements made during the startup India action plan

1. Startups shall be exempt from the payment of the income tax for three years.
2. 80% shall be rebate availed by the startups on the filing of the patent application.
3. A fast-track mechanism is also set up for patent applications.
4. Up to 3 years there will be no compliance in regards to the environmental law compliance, labour post self-certification
5. A hub for the startup India will be started with a single point of contact which can be available after site launch.
6. Total corpus of 2500 crore will be the initial fund input by the government and up to 10000 crores in next 4 years shall be poured in.
7. A mobile app shall be launched which will help the startups to register via that app within one day.
8. Exemption from the taxation of capital gain.

Conclusion

Indian government id providing enough help to the startups to cope up with the economy. Moreover, many startups have registered themselves under this startup India regime so as to get maximum benefits from the government. As the result of this scheme more and more entrepreneurs are getting motivation and they are starting up their companies and contributing towards making society more efficient and comfortable. Generating more and more jobs for the country is the reward we are getting from the startup India scheme. Startup India is one of its kind schemes.

LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join:

https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

This article is written by Rounak Biswas. Here he discuss the important developments in IPR laws applicable to fashion industry in India.

Introduction

Have you ever come across a woman who does not like a GUCCI bag or a lehenga designed by Sabyasachi Mukherjee or Manish Malhotra? Have you seen any man not getting amazed by an uber cool Rolex wrist-watch or a chic loafer? The answer is a big yes. People in today’s world have a general affinity toward fashion and they tend to showcase their fashion sense by buying the products belonging to different brand names. But money becomes a constraint to such an effort and that is where contrabands and copies of the original creations come to the rescue.

As and when a design becomes famous, others start copying it shamelessly resulting in a huge loss for the makers of the original products. Even though copying is generally being done by shady companies, sometimes branded ones take refuge of the fault in the laws to copy and create products belonging to some other brand. One may find counterfeit products of famous brands plaguing the fashion industry, and quite frequently we come across newspaper reports of complaints dealing with and selling counterfeit products through various trade channels including the online portals.

Counterfeit products pose a huge threat to the economy too (due to government’s loss of revenue), apart from posing huge challenges to the profits and brand values of the popular brands.  In the fashion industry, counterfeiting is known as wilful counterfeiting as the buyers while being aware of the counterfeit products buy the same, which can be attributed largely to the huge gap in the price between the original and counterfeit product.

Unlike countries like France, where the buyers are criminally liable for buying a counterfeit product, India, currently does not have any law for the same. In India, the owners of the original products have the right of moving to a court of law of appropriate jurisdiction seeking permanent injunctions and thereby preventing the counterfeiters from selling counterfeit products. The owners of the original product(s) may also move to the court seeking compensation for their losses.

How is IPR relevant to the fashion industry?

One may be curious to know how are all these relevant to the overall concept of intellectual property rights. The truth is that IPR and fashion are wedded to each other. The creations of the designs which are being accepted as fashions are the intellectual creations of an individual and the law of our land seeks to protect those creations by giving a right to those creators an exclusive right to use such creations and exploiting them to reap monetary benefits.

By following the same principle, the legal system seeks to promote creativity by encouraging more people to come up with innovations that may ultimately fuel the growth of an economy. If the said laws fail to protect creativity effectively, the same will result in profound loss to the nation, since no one will come forward to innovate, and no new creations will be created. Thus one may notice the huge correlation between the fashion on one hand and IPR on the other. The plethora of laws namely the Trademark Act, Copyright Act, Designs Act and Geographical Indication of Goods Act seeks to protect the intellectual property rights related to creations of the fashion industry.

Recent Trends in the fashion industry – Contentious Issues

Creativity comprises a very important component of the fashion industry. While abundance of creativity, help brands reach places, on the other hand, counterfeit fashion products pose threat to the fashion industry. Fashion industry, in particular, is plagued with such controversies of counterfeiting, or lifting of designs from popular works and putting them in some other product and thereby causing violation of the rights of the original rightful owners.

If one follows the news regularly, one may notice at least two important development of intellectual property rights infringement in India. The first one is the case of Christian Louboutin, whereby the ones selling counterfeit products were held accountable and were made to pay exorbitant penalties so as to compensate Christian Louboutin’s loss due to selling of counterfeit shoes resembling his original creations. One may have also come across the People Tree – Dior Controversy whereby Dior, the famous French fashion house was accused of lifting and reproducing the exact block prints of People Tree. The same act by Dior created huge furore due to blatant copying, without giving credit and the same would have gone undetected if the same dress was not chosen by actress Sonam Kapoor whose photo on the same dress was featured in the cover page of January edition of Elle India magazine.

The case of Ritika Apparels v BIBA is another case of significance, whereby one fashion brand lifted designs belonging to another fashion house and reproduced the same design in their product thereby causing loss to the original owner of the said design, Ms Ritu Kumar. However in this case, the defendants, BIBA went scot-free using a lacunae of the copyright law (Section 15(2) of the Copyright Act which says if a creation which is eligible to be protected under the design law has not been registered with the design authorities and has been reproduced more than fifty number of times by industrial process, it will be considered that the copyright in the same product has been lost forever).

Ritika Apparels v BIBA

The case of Ritika Apparels as already discussed has been a unique one. One party copied, rather lifted design from other party’s creation, reproduced and sold it in their own name. The party from whom the design was lifted moved to the court alleging copyright infringement. However the defendants, who lifted the same design took defence of Section 15(2) of the Copyright Act, 1957 and submitted that the act does not amount to infringement as the original right owners, Ritika Apparels has lost the copyright owing to the production of more than fifty numbers of products by industrial production.

Since the same design was not registered under Designs Act, Ritika Apparels did not have any means of protecting the said design other than producing products having the same design less than fifty numbers of times. Thus using the loophole existing in the IPR laws, BIBA escaped from any liability. The same case can be said to be a landmark one due to designer’s lack of knowledge of the IPR laws of India. Had the said design be registered under the Designs Act, 2000 the same design would have been protected for a total period of 10 + 5 years. But perhaps the designer wanted to keep a monopoly on the same design for a longer period of time and thus used the copyright law which later on was turned against her thus leading to the BIBA becoming free of any liabilities.

Christian Louboutin v Mr Pawan Kumar & Ors

The case of Christian Louboutin is a very important one, whereby a big brand famous for its highly stylized designer shoes dealt with the selling of counterfeited products at a lesser price causing loss both to the brand name and to the financial coffers of the company. Christian Louboutin’s Red Sole shoes are quite popular among the celebrities and the red coloured high heeled shoes are quite a rage among the customers who intend to copy their favourite celebrity’s fashion sense and style.

However as mentioned before too, the original products are quite highly priced, thereby keeping the products out of the reach of most of the customers. Louboutin’s brand has established itself as a famous brand and a world leader by means of usage of media and television. Louboutin’s shoes are known by their distinctive and characteristic red coloured soles which are common in all his creations and are marketed through specific channels and stores (Louboutin has 120 such stores all across the world and two such stores are there in India, one in Mumbai and other being in Delhi).

Louboutin’s products are protected under the trademark laws and the goodwill and reputation of the brand existed even before the brand’s formal entry into the Indian market. The defendants started marketing counterfeits of the much celebrated red sole shoe, however, with different colour schemes where the soles were red but the other parts came in different colour schemes.

The plaintiff, Christian Louboutin moved to the court seeking a permanent injunction and compensation claims from the two stores (Kamal Footwear and Adara Steps) selling counterfeit products of Red Sole Shoes. The court in its judgment held the defendants liable to pay a total sum of Rs. 10.72 Lakhs, while they were injuncted permanently from selling the counterfeits again. The Judge in its judgment declared Christian Louboutin as a well-known mark, a much sought after tag for any brand owner. The infringement of Louboutin’s mark and successful prosecution of the defendant shoe store owners are the best examples of how a designer or a brand owner needs to protect his or her trademark.

People Tree

The case of People Tree brewed a lot of controversies quite recently. Dior, a famous French fashion brand lifted certain designs from the People Tree’s collection which certainly violated the exclusive ownership rights of IP of the People Tree’s. In this paragraph I will dissect the issue and will try to bring out the contentious issues and what all IP rights can be said to have been violated by Dior or what all IP rights could have protected the said creation.

People Tree was started as a platform for expressing creative minds, which ultimately snowballed into a socio-economic organization which for the purpose of doing business, engaged with the Self Help Groups of different places and a certain amount from the sale proceeds goes to the people working with them. The issue at hand revolves around certain block prints which were developed by People Tree in collaboration with artisans from a specific area in Rajasthan (the artists at People Tree made the design, who were helped by those artisans who are highly specialized in making such blocks which ultimately were used in the clothes manufactured under the brand of People Tree).

The question which deserves a discussion is that how to protect the IP rights related to such work? The same creations cannot be protected under the Trademark law since the very requirement of the trademark is not satisfied. Section 2(zb) of the Trademark Act 1999 defines trademark as ‘a mark capable of being represented graphically and which is capable of distinguishing the goods or services of one person from those of others and may include shape of goods, their packaging and combination of colours; and—

(i) in relation to Chapter XII (other than section 107), a registered trade mark or a mark used in relation to goods or services for the purpose of indicating or so as to indicate a connection in the course of trade between the goods or services, as the case may be, and some person having the right as proprietor to use the mark; and

(ii) in relation to other provisions of this Act, a mark used or proposed to be used in relation to goods or services for the purpose of indicating or so to indicate a connection in the course of trade between the goods or services, as the case may be, and some person having the right, either as proprietor or by way of permitted user, to use the mark whether with or without any indication of the identity of that person, and includes a certification trade mark or collective mark’

The Copyright Act vests exclusive rights on the owner of the creation of a particular author. Here in this case, since the block has been developed by a group of people, it is difficult to ascertain authorship of the said block prints. Although the period of protection can be determined using the same work as an Anonymous work, the ownership cannot be determined. However, if the block prints (blocks used for printing) are made by a group of people or people contracted by People Tree to develop such blocks, the People Tree will be considered as a rightful owner of such copyright originating from such creation. A contractual agreement between the two parties can help in proving the ownership and protection under Copyright Act can be granted based on the same, subject to the exception carved out in Section 15 of the Copyright Act.

Geographical Indication of Goods Act is perhaps one such legislation that may be able to protect such creation. The block prints which were developed by the artisans of different villages of Rajasthan have been granted GI tags by the Government of India. A GI tag means goods originating from a specific geographical area has the right to protect such IP originating from such region. Other companies like Fab India, have used different other techniques (which are protected by the GI Act) from artisans of different areas of Rajasthan have successfully commercialized such creations. However the ‘dabu’ technique used by the People Tree does not have any GI protection, a flaw perhaps utilized successfully by Dior in lifting the same block prints from People Tree’s creations.

The Designs Act, 2000, in my opinion, is a very potent weapon that could have been used for protecting People Tree’s work, has the same design been protected under the Designs Act with the Authority. But if the designs are not being registered with the design authority, and the design is applied on a product reproduced for more than 50 number of times, another situation like that of Ritika Apparels v Biba will be repeated, and such a situation will definitely not be useful for People Tree.

Thus one may easily understand that for protecting the IP in the fashion world, the designers need to be conscious of their rights and should form an IP protection strategy before commercializing their creation so as to get the cover of the IPR protection of their creations in India.

Ways of combating the problem

Taking into consideration the issues involved, one may be able to understand that even though there are legal protections available, most of the time it’s the designers who are at fault. It is no doubt true that the legal protection with respect to the fashion industry is little feeble, nevertheless, the designers also need to be cautious about their creations and they need to strategize accordingly. Following are the few ways of combating the problem, which are as follows –

1. Increasing the threshold limit of the commodities produced by industrial application from 50 to more number under the Copyright Act – a number commensurate with the consideration of the rising population and the fact that the machine production is in vogue nowadays.
2. Amending the laws to make the purchaser liable too, apart from the seller of the counterfeits. The laws must be made in consonance with the international standards like that of France.
3. Making a fixed percentage of profit of the infringer company to be paid as compensation or penalty, much like the EU GDPR penalty provisions.
4. Enforcing IPR laws in a more stringent way perhaps by imposing criminal charges too on the counterfeiters apart from the compensation which is already in vogue today, so that lifting of designs are controlled largely if not totally prevented.
5. Sensitizing the Designers about the need of protecting their IP in a correct way so that future troubles can be averted.
6. Sensitizing and making the public aware of the counterfeit goods prevalent in the market and the bad sides of using them.

Conclusion

The fashion industry has significantly evolved in the recent years, powered by the liberalisation further bolstered by effective implementation and application of laws. However, it has been noticed that the designers most of the time fail to protect their IP using the legal route. We have noticed such trend in Ritika Apparels case and also the People Tree case where due to the lack of the proper protection the defendants went scot-free.

At the same time, Christian Louboutin won permanent injunction against the counterfeiters and got compensated for the loss. The difference is because of the proper IP strategies and prior registration of the mark which gave the brand an added advantage in the legal proceedings. While it is true that it is almost impossible to totally eradicate counterfeiting and preventing others from copying, if the creation is protected in a right way it reduces the chances of the loss by reducing the damage. Thus it is of high importance that the creators of IP should always remain alert and should try to get the right protection for their creation. Also, the government needs to take into consideration the recent trend of the counterfeiting and pass a sui generis law specifically applicable to the fashion industry, in order to protect the IP of the country and overall to strengthen the country’s economy.

In this article, Aditya Shrivastava, Manager Content Marketing at iPleaders discusses some of the most important compliances and their repercussions of Real Estate Regulation Act, 2016 (RERA).

In the year 2016, real estate developers faced a massive change in the way things were functioning. If you look at any newspaper before 2016, it was possible to find at least one report which would talk about the way the real estate developers have been functioning and their constant failure to keep up with the promises relating to possession of the developed property or amenities or returning a buyer his money in case of cancellation.

With a view to regulating real estate under one regime, and aim to establish the Real Estate Regulatory Authority (RERA) for regulation and promotion of the real estate sector and to ensure the sale of the plot, apartment or building, in an efficient and transparent manner the Real Estate Regulation Act, 2016 was enacted.

The initial aim of the act is to protect the interest of consumers in the real estate sector and to establish an adjudicating mechanism for speedy dispute redressal in order to establish the Appellate Tribunal to hear appeals from the decisions, directions or orders of the Real Estate Regulatory Authority and the adjudicating officer for matters connected therewith or incidental thereto.

What are some of the important definitions under the Real Estate Regulation Act?

RERA is one of its kind attempt to ensure that every ambiguity is taken care of. For the first time, it brought in a number of definitions which the real estate owners were unaware of:

Section 2(f) “Appellate Tribunal” means the Real Estate Appellate Tribunal established under section 43

Section 2(I)”Authority” means the Real Estate Regulatory Authority established under sub-section (1) of section 20;

Section 2 (g) “appropriate Government” means in respect of matters relating to,— (i) the Union territory without Legislature, the Central Government; (ii) the Union territory of Puducherry, the Union Territory Government; (iii) the Union territory of Delhi, the Central Ministry of Urban Development; (iv) the State, the State Government.

What are the main duties or compliances mentioned in the Act for a real estate developer?

The Act has brought in a number of compliances which the real estate developers are required to comply with. Here are the most required compliances along with compliances which a real estate developer cannot ignore:

What are the list of documents to be enclosed?

1. List of Documents to be enclosed under Section 4.

• a brief details of his enterprise
• a brief detail of the projects launched by him, in the past five years
• an authenticated copy of the approvals and commencement certificate from the competent authority, for each of such phases.
• the sanctioned plan, layout plan and specifications of the proposed project or the phase thereof
• the sanctioned plan, layout plan and specifications of the proposed project or the phase thereof including fire fighting facilities, drinking water facilities, emergency evacuation services, use of renewable energy.
• the location details of the project, with clear demarcation of land dedicated for the project including the latitude and longitude of the end points of the project.
• proforma of the allotment letter, an agreement for sale, and the conveyance deed proposed to be signed with the allottees.
• the number, type and the carpet area of apartments for sale
• the number and areas of a garage for sale in the project
• The names and addresses of his real estate agents, if any
• The names and addresses of the contractors, architect, structural engineer, and other persons concerned with the project.
• A declaration, supported by an affidavit, which shall be signed by the promoter, stating his:

(A) The legal title along with documents validating such authentication

(B) No declaration or details of encumbrances, if any,

(C) time period estimate

(D) 70% amounts deposited by allottees, from time to time be deposited in a separate account to cover the cost of construction/land.

2. List of Disclosures to be made under Section 11

• Details of the registration granted by the Authority
• Quarterly up-to-date the list of number and types of apartments or plots, as the case may be booked
• Quarterly up-to-date the list of the number of garages booked
• Quarterly up-to-date the list of approvals taken and the approvals which are pending subsequent to commencement certificate
• Quarterly up-to-date status of the project; and
• Such other information and documents as may be specified by the regulations made by the Authority.

3. List of enclosures to be made by the promoter, at the time of booking/issue of allotment letter:

• Sanctioned plans, layout plans, along with specifications, approved by the competent authority, by the display at the site or such other place as may be specified by the regulations made by the Authority
• The stage-wise time schedule of completion of the project, including the provisions for civic infrastructure like water, sanitation, and electricity.

Be it big or small, Real Estate Regulation Act, 2016 has impacted real estate developers across the country. While 15 states have already notified the Act, others are still in the process of doing it. At a very novice stage, even lawyers are struggling very hard to come up with a list of do’s and don’ts. In such a scenario, if you are a property lawyer or a real estate developer, it is important that you gear up for it. Keep a track of all the current affairs or take up courses like these which can help you grow a long way.

It is not that difficult to be in compliance of the laws as long as you know them!

Good luck!