This article is written by Aditya Srivastava of team iPleaders.

The newspapers of May, 2012 shocked the entire legal and financial world when international law firm Dewey and LeBoeuf with 2500 employees all over the world filed for bankruptcy, terminating its operations. On a closer study of this story, it was found out that Dewey was about in $245 million international debt and $315 million worth liabilities sufficient to overshadow its assets worth $193 million.

Dewey and LeBoeuf is a classic, but very notable example of what happens to law firms when financial planning is done badly. If the reports are to be believed, Dewey went on a lateral hiring spree by luring the experts on the promise of high pay and extended contracts, leading to huge mismanagement of about $300 million debt. Even in 2008-09, when the business of the firm was on a downhill, they doubled the hiring of highly priced partners, which they could not manage later, leading to its ultimate failure.

Even though your size may be very different, every law firm is always balancing the hunger for growth and the need for not rocking the boat too much. Should you hire another partner laterally? How much should you offer? Should you hire a bunch of junior lawyers? Should you open another office in another metro? Should you pay a hefty amount to a management consultant or just go with the flow? Should you organize or sponsor some big ticket events, when acquisition of clients through such activity in uncertain? There are tons of things vying for more budget in every growing practice, and where you channel the mullah is probably going to decide the future of your firm.

Also, you need to keep in mind the vagaries of the market. Practice areas are always rising or falling in relative importance or profitability. If venture capital practices grew like multiplying rabbits in 2015-16, 2017-18 has not been very rosy on that front. How aggressive or risk averse should you be, and in which areas, is to be carefully planned, debated, finalized and then fine tuned as more information becomes available. However, this plan cannot be in terms of vague hypothesis written in terms of broad principles like mission and vision. This plan has to be a financial plan to be effective.

Growing a law firm is a painful process, a constant struggle to correctly predict which way the economy and markets will move, to prepare for it and execute to take advantage of the opportunities and give a miss to the sinkholes, retaining old clients and luring in new ones, meeting hectic deadlines, retaining the best talent and firing some, keeping the partnership intact and dealing in an extremely competitive market and a lot more predictable and unpredictable things. What has to be done cannot be dictated by moment-to-moment decisions. Those who run a law firm need a compass and a map. They need a financial plan. They should be able to measure performance against the projections, and adjust the sails and manpower according to how rough the sea is, which way the wind is blowing and how far they have to travel.

A law firm is lost at the sea unless it has a good financial plan to map its progress against (but the captains and mates may not know how lost it is yet, except that they may have an overpowering sense of uncertainty that the people at helm often experience).

We must not blame lawyers for not knowing the basics of financial projects and not doing enough planning for growth. It is not something that most lawyers ever get to learn formally, though they are expected to run big and successful law firms.

What are financial projections?

Financial projections are essentially the quantification of a business plan which is aimed at predicting the organization’s expenditures and income in future timeline. They are the forecast of incomes and expenses, which a company expects to undertake during a specified term. It is a part of business planning, which typically takes into account various internal and external factors such as the financial history of the firm, cost data analysis, examination of factors of external market, estimated forecast of financial figures, thereby leading to estimated projections of the financial well-being of the company.

Simply put, financial projection is the prediction of the financial health of the company.

A classic financial projection includes forecasting of income statement, balance sheets and cash flow statements. A long term financial projection is for 3 years and projected over year to year basis and a short term financial projection is spread over 1 year, with projections outlined over every month. An ideal planning would require both the projections with key focus on short term projection which should determine the strategic goal of the company.

One might argue that financial projections can be just used by the law firms which have been running for at least one year to at least compile internal and external accounting data and last year review which most of the law firms entering the market won’t have, however that is not true.  Financial projections can be called envisioning your business plan or setting up your goals in numbers on the basis of your potential. This becomes an excellent source of guidance and ensure that the law firm is moving in a planned direction.

Importance of Financial Projections

Financial projections are not only an important planning stage of your law practice/ law firm, but also a critical tool to bring other competent people on board. When the financial future of the firm has a powerful representation through numbers, there is a great chance that other legal experts, senior employees, potential partners etc will be more interested in joining you an making your vision come true. Even if you intend to raise any loans or line of credit to expand your firm, credible financial projections will go a long way to get the interest of banks and institutional financiers.

When things are not going well at your firm, and you consistently miss projected figures by large margins, it is also an important red flag that helps in course correction before it is too late.

Types of Financial Projections

Consolidated monthly balance sheet forecast

This document would put your assets and liabilities on a weighing scale and give you a holistic view of your business. This would include capital expenditure, which are usually the investments that you might want to undertake which would not be a part of your day to day transactions. You would be able to predict the capital expenditures you want to make throughout the year on this document. The balances from your profit and loss account would also be brought down here, to give you an estimate of what maybe the due receivables/payables you have estimated throughout the year. In such case, a balance sheet forecast helps to realise what assets are available with the law firm and what could be the possible liabilities which they could afford to add to their books for chasing more growth and what would be too much risk.

Client/Sales Forecast

A successful law firm is the one who knows what market it can serve best and who are the ideal clients. A client forecast is essentially prediction of monthly revenue generation from various clients, and could be an exercise that is done for every team or departmentwise, and even for each partner separately. For regular clients, this may be easy to do. This is very useful as it helps in better resource/team and budget allocation. For instance, if you have a large client who brings enough work every month so that you know that every month you can bill them for approximately 70 hours or more, this really helps to decide whether you need to hire a new person or stretch existing bandwidth to serve this client.

Here is another example. If you have been approached by a certain client regarding a certain M&A which may take about 6 months to be accomplished, and most of the work will happen between the 4th and 5th month, and the total requirement is likely to be of 200-300 hours, you can plan your resource allocation very well. You can plan the allocation of team members for this project, you can calculate the net profit that this project will bring and whether you will need more hands on board, and whether you need to invest more time and effort to make your associates more efficient.

Are you going to need dozens of new associates to handle the work that is coming in, or got lined up over next few months? Great, can your office accommodate them or you need to lease more space? Do you need an HR manage if your headcounts are increasing? Do you need to keep paying outside recruiters or should you hire an in-house recruiter? There are a lot of strategic decisions to make at this stage.

Cash flow prediction

Whatever you bill every month is not going to hit your account. Indian lawyers often say that they recover about one third of their total billables every month. This is why cash flow forecast is one of the most crucial yet critical aspect of financial projection. All the expected cash transactions are broken down on weekly and monthly basis, and sometimes divided into daily expenses record. This projection acts as an immunity against any financial hazards, as a regular check on it can help the law firm to identify the potential issues and take timely action.

For example, you might have a regular client who in the past have brought in immense business but have suddenly started delaying the payments. That may put some stress on your cash flow as income is uncertain while expenses remain the same. Do you need to find some additional clients at this point? Knowing where you stand helps to make quick decisions. A constant update about the cash flow could help you understand this difference of pattern and might save you from a future loss.

Consolidated Monthly Budget

This is a consolidation of all your costs to meet the targets that you have set in the 12 months. This acts more or less like the domestic budget and includes all the expenses that you can undertake in the coming fiscal year. Further, it will also keep a check on whether your spending is concentrated on a certain area or spread across alike in order to ensure that your money is flowing in the right direction. For example, you might have a current case on real estate with heavy expenses. However, it is the M&A team which generally is the biggest revenue generator during the rest of the year. In such circumstances you need to ensure justifiable budget allocation between the real estate and M&A team. Even bonuses may vary depending on who works on which team. This would also help you distinguish between fixed and variable costs involved and how and where you can cut costs for effective management.

Why is Financial Projection Needed?

While I can think of a lot of reasons, the three biggest reasons why you need to get a competent person to prepare a financial projection for you are as follows:

Financial plan breaks down the law firm’s goals into small achievable targets

A financial projection is not merely a prediction, it is essentially assigning yourself with smaller, manageable tasks and committing yourself to achieve them. The financial projection is the definition of what “being successful” which you are getting to define. Once defined, it can be communicated with a larger team and the entire team can rally behind you with these clear targets on mind. It is essentially setting up milestones for your law firm so that you can later ensure that those milestones are duly achieved.

Red-flagging problems and mitigating risks.

Any deviation from the projection can be a warning of some impending problem that would need immediate attention. Projections act as a guide in determining such deviations through their well designed framework and can help you implement risk mitigation tools at the right time. For example, if your hiring projection is being met while your revenue targets are missed, it’s alarming. You have to now decide whether to continue hiring or let go of some people since you were not able to increase revenue as originally planned.

Anticipation of problems and solutions beforehand

You might lose a client, your partner might back out at the last hour, there could be rapid cash shortage in the market – your projections should be flexible and stringent enough to cover up all these aspects and prepare you for the worst. It thus gives you the a very good idea as to where you stand or what could go wrong and provide you contingency plan to be sustainable in the darkest of hours.

How to perform Financial Projection

Nipun Bhatia, AVP at Legal League Consulting has been doing financial projections for quite some time now. He simply explains the process in one line, “Keep your targets conservative and revenues stringently constant. Realistic expectation setting is the only key to perfect financial projection.”

Following is a step by step procedure to make a perfect financial projection.

1) Envision your business – Set up a goal

You could be a leading law firm, with diversified area or a firm which is just entering the legal market. You need to decide how exactly your business needs to look like. You need to establish your core practice areas and recognize your clients even before entering the market, and strategize to reach out to more. You also need to set up an expectation for yourself as to how much time would you need to reach that goal and what will be the steps you would take to achieve it.

2) Identify the variables

Variables are those factors that keep changing, and may or may not get affected by your business strategies. Essentially all the values that come in your profit and loss accounts are your variables. For example, income sources, regular expenditure, salaries etc. You need to identify them and mention them in the forecast so that at the time of them taking effect, they do not disturb your projections.

3) Study the past trend

You need to study the past trends of your business and plan accordingly. You should know exactly when the market for you goes up and when would you need more resources or when would you want to let go of redundant resources.

For example, you might be considering whether you should expand your team of 10 lawyers to 13 in April. If as per the past trend your work is at its lowest in May and at its peak in August,  you might want to hire in the month of July so that revenues in August can monetarily accommodate and provide them with adequate workload.

4) Estimate your income and costs  

It is a common practice for law firms to recognize the clients and predict the revenue generation on a quarterly basis. For example each partner or associate is assigned with a target to ensure X amount of client billing. This estimation would set target for rest of your team and help you assess their performances individually as well.

You now need to reach a point that you identify what are the fixed costs that you need to incur irrespective of any up and down and how will you manage that. For example factors like rent, electricity, wages, etc are all a part of this estimation which would be a part of your expenses.

This proforma would form your estimated profit and loss statement. You can find a sample profit and loss account here.

5) Create your budget

After all of this, you will need to create a budget, to understand how much it is going to cost you to actually meet the targets you have set in the goals. Include everything right from the variable (promotions, incentives, client entertainment etc.) to fixed costs (rent, salaries etc.). Things like interests and taxes should be a part of this projection too. Remember to go by simple mathematics and be realistic in your approach. An established rule says that lower the fixed costs, lower the risks. Thus, make sure that your fixed costs are effective and utilized and your variable costs do not go overboard.

6) Break-even analysis

The breakeven point is that point in your business when the expenses incurred are sufficient to match your gains, with no profitability. “This projection should be your worst case scenario and your sole aim should be to not come down this level.” says, Ranjeet Kulkarni, Partner and CA at G D Apte & Co., Chartered Accountants. This analysis is required for you to figure out at what point your investments/ expenses would equate your earnings, and how do you need to trigger from that point to reach profits. You could call break even as your half way goal in a month, which needs to double up by the end of the month.

7) Assess your assets and liabilities

This would be in form of a projected balance sheet. Assets and liabilities are those which do not go into the profit and loss accounts and are contributors to the net value of your law firm by the end of a fiscal year. These are necessary to analyse whether there needs to be any new investment or not or how far has the firm managed to discharge the liabilities, if any. You can find sample balance sheet for your financial projection here.

These steps cover financial projection for law firms and law practices in general. However, these steps are taken by all professional firms. Partners at various law firms these days spend a significant amount of time in projecting the finances and failing massively at it or hiring external experts who often are not able to understand the real business dynamics of that particular law firm. It is advisable to get a thorough knowledge of financial planning for at least one or two partners in a law firm who can then guide the rest of the partners to arrive at a reliable financial projection. A good way to do it is through taking up this course, by National University of Juridical Sciences which will not just help you with financial projections but also give you a good insight to develop your business plan.

In this article, Akanksha Mathur of National Law University, Delhi discusses the impact of a past or ongoing civil or criminal case on your job.

The process of applying for a job is becoming more difficult by the day. Employers have become far more stringent in choosing employees from a large pool of applicants, conducting background checks to ensure that they employ the “right” kind of people, and to preserve the ‘culture’ in their offices.

The hiring process thus becomes disadvantageous for someone against whom a civil or a criminal case has been filed. This article aims at taking an exhaustive look at what to do at various stages of employment if a civil or a criminal case has been filed against you.

Charges Resulting In A Conviction Or Civil Judgement

When being accused of a crime, a person may be arrested and criminal proceedings may be instituted against them in a court of law. It is only when the person is held guilty by the decision of the judge that the criminal charge results in a conviction.

Past Cases and Convictions

While seeking employment, either in a private company or the public sector, certain steps have to be taken in terms of past or pending charges in a court of law.

Background Checks

All employers, whether belonging to the public sector or the private, perform background checks to verify the antecedents of their applicants.

• What Is An Employee Background Verification?

An Employee Background Verification is a thorough screening of a candidate’s educational and academic qualifications, work history, legal and criminal records, address and credit scores.

This process usually takes anywhere from 3 to 10 days.

• What Are The Details That Can Come Up In A Background Check?

Companies look for the following information while conducting a background check-

• Legal Records- Through these, an employer can check up on an applicant’s court records and criminal history.

• Employment History- Employers can contact past employers to verify the period of employment, the role played in each company, the salary, performance, conduct and so on.

• Educational Qualifications- Potential employers almost definitely will reach out to universities to verify the educational credentials.

• Background Checks In India

Different companies collect the above-mentioned details in different ways-

• Large private companies- They hire external agencies to conduct background checks and verify the details of the applicants.

• Small and medium employers- They conduct employee background checks internally, through their own Human Resource departments.

• Government and Public Sector Undertakings- These usually have an extensive verification process for potential employees.

• • • They first request proof of residence where the applicant has lived for more than 6 months in the past 4 years, along with proof of current local address and permanent address.
    • They also request the record of the applicant from District Magistrates or Police Commissioners of the area on the basis of the information provided on the residence.
    • The police stations are then asked to run a check.

• Government Initiatives

To aid employers in conducting background checks, the government has also introduced various initiatives-

• Aadhar verification – Companies can access the information stored in Aadhar, which includes residence, bank accounts and biometrics, among others.

• National Academics Depository- The NAD was launched by the government to digitally store education records, and can also issue reliable certificates to verified users. All education boards and institutions are planned to be introduced on this platform.

• National Skills Registry- The NSR, introduced by the government, is the largest database or working professionals. It currently lists more than 200 companies; 21,87,635 registered professionals and contains 14,77,518 submitted biometrics.

• Social Media

Employers most commonly resort to social media to map the affiliation, activities and interests of their potential employees. Since employers look to maintain the ‘culture’ of the workplace, they often reject applicants on the basis of their social media feeds.

• Are Background Checks Legal In India?

The amount of information potential employers can gather about their potential employees raises concerns about the violation of an applicant’s right to privacy, which has been held to be a fundamental right by a 9-judge bench of the Supreme Court. Thus, the consent of an applicant is mandatory for potential employers to be able to conduct a background check.

While background checks are legal in India, there is no law regulating them.

• • Background screening for employment is mandatory for Indian companies having an ISO 27001 certification.
  • Employers cannot access an applicant’s medical information, financial background or biometric data without permission. However, practically speaking, there are no laws limiting the extent of a background check.

What Are You Required To Disclose?

The requirements for disclosure for applying for a job change according to the nature of the job. A non-disclosure of a trivial crime might not be seen as a big deal in certain kinds of jobs, but will be regarded with extreme disfavour in a job which requires transparency and the trust of the employer.

At times, it is also not required to disclose a past case that did not result in a conviction or a court judgement, while it might be necessary in other instances.

In any case, the best option would be to inform any potential employer about any pending case or past convictions, though such a voluntary declaration is not required or mandated.

Consequences Of Non-Disclosure Or Suppression Of Information

An employer can legally take action against someone who actively discloses incorrect or misleading information on their verification form.

A three-judge bench of the Supreme Court enumerated the principles to be followed by employers when dealing with the suppression of information or submission of false information by potential employees in the verification form with respect to prosecution, arrest or pendency of a criminal case in the case of Avtar Singh vs. Union of India. The following guidelines were laid down-

• Information given to the employer by a candidate as to conviction, acquittal or arrest, or pendency of a criminal case, whether before or after entering into service must be true and there should be no suppression or false mention of required information.
• While passing an order of termination of services or cancellation of candidature for giving false information, the employer may take notice of special circumstances of the case, if any, while giving such information.
• The employer shall take into consideration the Government orders/instructions/rules, applicable to the employee, at the time of taking the decision.
• In case there is suppression or false information of involvement in a criminal case where conviction or acquittal had already been recorded before filling of the application/verification form and such fact later comes to the knowledge of the employer, any of the following recourse appropriate to the case may be adopted :
  • In a case trivial in nature in which conviction had been recorded, such as shouting slogans at young age or for a petty offence which if disclosed would not have rendered an incumbent unfit for post in question, the employer may, in its discretion, ignore such suppression of fact or false information by condoning the lapse.
  • Where a conviction has been recorded in a case which is not trivial in nature, the employer may cancel candidature or terminate services of the employee.
  • If acquittal had already been recorded in a case involving moral turpitude or offence of heinous/serious nature, on technical ground and it is not a case of clean acquittal, or benefit of reasonable doubt has been given, the employer may consider all relevant facts available as to antecedents, and may take appropriate decision as to the continuance of the employee.
• In a case where the employee has made declaration truthfully of a concluded criminal case, the employer still has the right to consider antecedents, and cannot be compelled to appoint the candidate.
• In the case when a fact has been truthfully declared in character verification form regarding pendency of a criminal case of trivial nature, employer, in facts and circumstances of the case, in its discretion may appoint the candidate subject to the decision of such case.
• In a case of deliberate suppression of fact with respect to multiple pending cases, such false information by itself will assume significance and an employer may pass an appropriate order cancelling candidature or terminating services as the appointment of a person against whom multiple criminal cases were pending may not be proper.
• If a criminal case was pending but not known to the candidate at the time of filling the form, still it may have adverse impact and the appointing authority would take a decision after considering the seriousness of the crime.
• In case the employee is confirmed in service, holding Departmental enquiry would be necessary before passing an order of termination/removal or dismissal on the ground of suppression or submitting false information in verification form.
• For determining suppression or false information attestation/verification form has to be specific, not vague. Only such information which was required to be specifically mentioned has to be disclosed. If information not asked for but is relevant comes to knowledge of the employer the same can be considered in an objective manner while addressing the question of fitness. However, in such cases, action cannot be taken on basis of suppression or submitting false information as to a fact which was not even asked for.

Effect Of A Past Civil Or Criminal Case On Your Job

Public Sector

At the time of applying for a government job, a background check is conducted.

• In the case of State Of West Bengal & Ors. Vs. Nazrul Islam, the Supreme Court ruled that any person facing or convicted of a criminal offence cannot be considered suitable for a government appointment. To be considered eligible, a person should either have no charges pending against them, or have been acquitted of these charges by the court. However, this acquittal must not be out of a compromise between the accused and the victim, or due to the witnesses in the case turning hostile.
• Moreover, as per government regulations, any person who has spent more than 48 hours in police custody is barred from government employment.
• A government employee can only be terminated on the basis of unnecessary absence from work or on the grounds of proven misconduct under the Constitution of India.
• Generally, a civil case cannot form a basis for termination in the public sector until the case is one involving moral turpitude.

Private Sector

The effect of a criminal case on employment varies according to the kind of offence and job. Most employers have their own policies regarding employment of people with criminal records. However, jobs of a sensitive nature may refuse employment to a person convicted of an offence of moral turpitude.

A civil case generally has no effect on employment in the private sector, but it may result in a financial burden and affect a person’s credit score.

Ability to Work Abroad

Under Section 6(2) of the Passports Act, 1967, the passport authority can refuse a foreign visa to any applicant if-

• In the preceding 5 years, they have been convicted of an offence of moral turpitude and been sentenced to more than two years’ imprisonment
• Criminal proceedings are pending against them in India
• A summons to the court, warrant for arrest or order prohibiting departure from India has been issued against them.

Effect of FIR on Employment

Mere registration of an FIR will not result in any adverse effect on employment. Proceedings must have been started in a court, or the person must be convicted of the offence for any adverse effect on their job.

In case of a registered FIR, the best option is to institute proceedings to quash it in court under Section 482 of the Code of Criminal Procedure.

Termination Of Employment

Due Process In Termination

Asper Section 2(s) of the Industrial Disputes Act, 1947, a workman is defined as any person employed in an industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward. This does not include an employee employed in the managerial, administrative or supervisory capacity.

Section 25F further defines the conditions that must be fulfilled before the termination of a workman. An employer must-

• Provide a 30-90 day notice in writing, giving the reason for termination or wages in lieu of the period of notice.
• Fifteen days’ average pay for every completed year of continuous service.
• Notice to be served to the appropriate governmental authority.

The dismissal must follow the “last in, first out” principle wherein the person last to be employed is the first to be dismissed, in absence of any contract to the contrary.

Grounds For Termination

Under the Constitution of India, a government servant can only be terminated on the grounds for unnecessary absenteeism or for proven misconduct.

The grounds for termination of employment in the private sector are generally-

• Inefficiency or poor performance
• Disclosing confidential information of the company such as its trade secrets
• Breach of employment contract
• Proven misconduct of the employee, or acting outside the scope of authority
• Unnecessary absenteeism.

Rights Of Terminated Employees

• Under Section 79 of the Factories Act, 1948, a workman is entitled to the payment of all dues before the expiry of the second working day after the termination of employment.
• Under Sections 4 and 7(3) of the Payment of Gratuity Act, 1972, gratuity is payable to an employee who has served for 5 years or more within 30 days.

A terminated employee also has the right to appeal the termination on statutory or contractual grounds in front of the jurisdictional labour authorities. This may be done if the employer has failed to provide a reason for termination, the dismissal is unfair or if misconduct has not been established.

This was all about the impact of a past or ongoing civil or criminal case on your job. What are your views on the impact of a past or ongoing civil or criminal case on your job? Comment below and let us know.

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

References

1. https://blog.instahyre.com/how-background-verification-process-works-in-india/
2. http://passportindia.gov.in/AppOnlineProject/pdf/passports_act.pdf
3. https://www.lawfarm.in/blogs/legal-provisions-regarding-termination-of-an-employee

In this article, Akanksha Mathur, a student of National Law University, Delhi, discusses the legal framework for environmental clearances for industries.

The early years of industrialisation led to production and economic growth at the cost of the environment. Throughout the years, a growing environmental consciousness has led to the conclusion that economic growth and environmental preservation are not mutually exclusive. To this end, the Indian Constitution laid down the responsibility of the State to protect the environment as a Directive Principle of State Policy under Article 48A and as a Fundamental Duty for citizens under Article 51A(g). Moreover, the Indian government has also passed laws regulating industries in order to preserve the environment and has passed some landmark legislation since the 1970’s.

Which Industries Are Subjected To Regulation?

Currently, environmental clearances are required for 29 types of projects specified in Schedule 1 of the Environment Impact Assessment Notification, 2006.

Moreover, the Central Pollution Control Board introduced a colour codification for industries depending on their impact on the environment. Industries were classified on a pollution potential index as red, orange, green and white industries. Only ‘white’ industries can function without seeking environmental clearances.

Environmental clearances are also required regardless of the type of project in areas which are ecologically fragile, such as-

• Religious and historic places
• Archaeological monuments
• Scenic areas
• Hill resorts
• Beach resorts
• Coastal areas rich in mangroves, corals, breeding grounds of specific species
• Estuaries
• Gulf areas
• Biosphere reserves
• National parks and sanctuaries
• National lakes and swamps
• Seismic zones
• Tribal settlements
• Areas of scientific and geological interest
• Defence installations, especially those of security importance and sensitive to pollution
• Border areas (international)
• Airports.

Early Legislation

Pre-Independence

Environmental regulations in India received a began during British times, with the coming of the Industrial Revolution. These laws, however, were less protective of the environment and more oppressive for the native Indians. The Forest Acts of 1865 and 1927, for example, were the first laws protecting the forests, but focussed more on curtailing the customary rights of the local forest communities.

Criminal sanctions for water and atmospheric pollution were also introduced under the Indian Penal Code, 1860, along with a number of legislations in different Presidencies. Again, the aim of these laws was not to conserve the environment, but to restrict their use by the natives and allow their exploitation by the British.

Post-Independence

After Independence and before the 1970’s, the only environmental regulation in India was done by a few scattered regulations, a few Central and various State Acts.

• Factories Act, 1948

The Factories Act, 1948 required factories to effectively manage waste disposal and gave State governments the ability to make rules under it.

• River Boards Act, 1956

Under the River Boards Act, 1956, river boards were established to deal with the problem of pollution of rivers spanning multiple states.

• State Acts

Some states also took steps to remedy environmental degradation by enacting their own legislation, such as the Orissa River Pollution Prevention Act, 1953 and the Maharashtra Prevention of Water Pollution Act, 1969.

Regulatory Framework

The 1970’s saw, for the first time. The formulation of comprehensive policies and legislation for the preservation of the environment.

Legislations

Wildlife Protection Act, 1972

The Wildlife Protection Act, 1972 was aimed at a modern and rational management of wildlife.

The Act established a network of ecologically-important protected areas where industrial activity was absolutely banned and provided protection to listed species of flora and fauna. The government was given the power to-

• Declare any area as a wildlife sanctuary, national park or closed area
• Regulate the hunting of wild animals. This led to a prohibition on the hunting of animals except with prior permission when an animal has become dangerous to human life or property or disabled beyond recovery.
• Restrict trade in animals and animal artifacts.

A permit is required for any activity such as mining, industry or infrastructure that is likely to destroy or harm any wildlife or their habitat in a Protected Area, or divert, stop or enhance the flow of water in a Protected Area.

Water (Prevention & Control of Pollution) Act, 1974

The Water (Prevention & Control) Act, 1974 was enacted in order to prevent water pollution. A landmark legislation, it introduced pollution control boards at the Central and State level to prevent and control pollution of water bodies under the provisions of the Act. It also set up standards for the discharge of sewage and effluents into water bodies.

• Before establishing any industry or conducting any operation or process that may discharge effluents in water bodies, a Consent to Establish (CTE) is required to be acquired for the State Pollution Control Board. This regulates the nature composition temperature, volume and rate of discharge permitted into water bodies.
• After the establishment, a Consent to Operate (CTO) must be obtained before the commencement of operations.

Forest Conservation Act, 1980

The Forest Conservation Act of 1980 aimed to promote social forestry and place checks on deforestation and the use of forest land for non-forestry purposes. The powers of the State to de-reserve forests and use them for non-forestry purposes were restricted.

• Permission is required to be obtained from the Central government by both governmental and non-governmental bodies for de-reservation or diversion of forestland for non-forest use and the felling of trees.
• A Forest Clearance is required to be obtained containing specific conditions for compensatory afforestation and rehabilitation of affected people.

Air (Prevention And Control Of Pollution) Act, 1981

The Air (Prevention And Control Of Pollution) Act, 1981 was enacted in order to combat air and noise pollution. It allowed for the establishment of air pollution control standards and Air Pollution Control Areas, where industries could not be set up without the requisite permissions.

• Before the establishment of any industry, a CTE is required to be obtained from the SPCB specifying the specifications, installation and operation of control equipment for air pollution.
• Before the operation is supposed to begin, a CTO must be obtained as well.

Environment (Protection Act), 1986

The Environment (Protection) Act, 1986 was introduced as a comprehensive umbrella legislation to preserve the air, water and land. The framework provided by the Act allowed for coordination between the central and state authorities established under the Water (Prevention and Control) Act, 1974 and Air (Prevention and Control) Act, 1981. To control pollution and protect the environment, central government could-

• Set standards for emissions and discharges
• Regulate the locations of industries
• Close any factory or stop any of its activities or cut any supply, including water and electricity to it under Section 5.
• Regulate the management of hazardous waste

The Act also contained punitive provisions under Section 15.

To fulfil its obligations under the Environment (Protection Act), 1986, the government periodically issues notification such as the-

• Doon Valley Notification (1989)

This notification prohibited the setting up of an industry in which the daily consumption of coal/fuel is more than 24 MT (million tonnes) per day in the Doon Valley.

• Coastal Regulation Zone Notification (1991)

It regulated activities along coastal stretches. As per this notification, dumping ash or any other waste in the CRZ is prohibited. The thermal power plants (only foreshore facilities for transport of raw materials, facilities for intake of cooling water and outfall for the discharge of treated wastewater/cooling water) require clearance from the MoEF.

• Revdanda Creek Notification (1989)

It prohibited the setting up industries in the belt around the Revdanda Creek as per the rules laid down in the notification.

• Taj Trapezium Notification (1998)

It provided that no power plant could be set up within the geographical limit of the Taj Trapezium assigned by the Taj Trapezium Zone Pollution (Prevention and Control) Authority.

• Disposal of Fly Ash Notification (1999)

Its main objective is to conserve the topsoil, protect the environment and prevent the dumping and disposal of fly ash discharged from lignite-based power plants.

• Environment Impact Assessment Notification (2006)

The Environment Impact Assessment Notification, 2006 was notified under the Environment (Protection) Act of 1986 and was meant to supercede the Environment Impact Assessment Notification of 1994. It lay down a comprehensive procedure for obtaining Prior Environmental Clearance for the establishment, or expansion of a project. Under this notification, approval for environmental clearance from the Ministry of Environment and Forests (MoEF) is required for-

• • All projects listed under Schedule 1
  • All developmental projects in fragile areas
  • Industrial projects with more than a Rs. 500 million investment. They must also obtain a Letter of Intent from the Ministry of Industry, and NOCs from the State Pollution Control Board and the State Forest Department if the project involves forestland.
  • Site clearance and final environmental clearance for the establishment and operation of any new power plant.
  • Depending on their size and capacity, industries are divided into the A and B categories. Category A projects are given clearances from the MoEF while those in B are given clearances by the State Environment Impact Assessment Authority (SEIAA).
  • Applications are screened by various Expert Appraisal Groups constituted at the Central and State levels.

Biological Diversity Act, 2002

The Biodiversity Act of 2002 was enacted by the MoEF as a part of India’s international obligations under the United Nations Convention on Biological Diversity to ensure the conservation of biological diversity, the sustainable use of its various components, and fair and equitable sharing of the benefits arising from biological resources and knowledge.

Under the Act, areas that are ecologically and biologically diverse were to be identified and designated as biosphere reserves to enable conservation.

Government Rules

Ozone Depleting Substances (Regulation And Control) Rules, 2000

These rules were notified by the MoEF under Sections 6,8 and 25 of the Environment (Protection) Act, 1986 to fulfill India’s commitments under the Montreal Protocol. To regulate Ozone Depleting Substances, restrictions have been placed on their trade, manufacture and use.

Hazardous Wastes (Management And Handling) Amendment Rules, 2003

The Hazardous Wastes (Management And Handling) Amendment Rules, 2003 were enacted for the proper disposal and handling of hazardous waste. Authorization is required to be sought from the relevant SPCB for the disposal.  

Hazardous And Other Wastes (Management and Transboundary Movement) Rules, 2016

The Hazardous And Other Wastes (Management and Transboundary Movement) Rules, 2016 lay down approval processes for the management and transportation of hazardous wastes.

• An authorization is required from the SCPB for the handling, generation, storage and treatment of hazardous wastes.
• It also provided for the establishment of a Treatment, Storage and Disposal Facility for the treatment, storage and disposal of hazardous waste.

Solid Waste Management Rules, 2016

Superseding the Municipal Solid Wastes (Management and Handling) Rules, 2010, the Solid Waste Management Rules, 2016 lay down regulations for handling solid waste. They allowed for the setting up facilities for the processing and disposal of solid waste with the approval and authorization of the SPCB.

Groundwater Extraction Regulations

The Groundwater Extraction Regulations were issued by the Central Groundwater Authority and allowed for permission to be sought for abstracting groundwater for any industrial of infrastructural operation.

Under them, areas were to be identified as Notified and Non-Notified Areas. In Notified Areas, permission to use groundwater is only given for drinking and domestic use. The conditions for permission are dependent on the area and kind of industry sought to be established.

• In case of Notified Areas, a No Objection Certificate is required to be obtained from the Authorized Officer such as the District Magistrate / Deputy Commissioner / District Collector in an Administrative Block or Taluka or Head of a Municipality in a Municipal Area.
• NOCs are also required for Non-Notified Areas, but are only issued for two years, with the ability to be renewed for another 3 years.

Moreover, some States too have their own legislations for the use and management of groundwater, such as the Karnataka Groundwater (Regulation and Control of Development and Management) Act, 2011 in Karnataka and the Maharashtra Groundwater (Development and Management) Act, 2009 in Maharashtra.

Regulatory Authorities

National Environment Tribunals

The National Environment Tribunals Act, 1995 allowed for the setting up of 4 National Environment Tribunals benches at Delhi, Calcutta, Madras and Bombay for the speedy disposal of environment-related cases.

The Act also made entities absolutely liable for any damage arising from any accident occurring from the mishandling of hazardous wastes.

National Environment Appellate Authority

The National Environment Appellate Authority Act of 1997 provided for a National Environment Appellate Authority (NEAA) to hear any appeals regarding the safeguards or restrictions placed on industries, activities or processes

International Obligations

India is also a signatory to a number of international multilateral international agreements, such as the-

• Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), 1973
• Montreal Protocol on Substances that Deplete the Ozone Layer (to the Vienna Convention for the Protection of the Ozone Layer), 1987
• Basel Convention on Transboundary Movement of Hazardous Wastes, 1989
• UN Framework Convention on Climate Change (UNFCCC), 1992
• Convention on Biological Diversity, 1992
• UN Convention on Desertification, 1994
• International Tropical Timber Agreement and The International Tropical Timber Organisation (ITTO), 1983, 1994

How To Submit Proposals for Environmental Clearances

An online application for environmental clearances can be made by registering at the MoEFCC website here.

References

1. http://shodhganga.inflibnet.ac.in/bitstream/10603/6565/9/09_chapter%204.pdf
2. https://in.boell.org/sites/default/files/how_effective_are_environmental_regulations_to_address_impacts_of_industrial_and_infrastructure_projects_in_india.pdf
3. http://www.moef.nic.in/divisions/ic/wssd/doc2/ch2.pdf
4. http://www.caretrust.in/Environmental%20laws.pdf

In this article, Ramanuj Mukherjee, CEO and Co-Founder at iPleaders discusses how to perform a due diligence.

Due diligence is a necessary part of deals – M&A, private equity or venture capital investments, even term loans from banks – due diligence in the step that always comes before the deal is closed.

What happens when you don’t do due diligence? Many of you may have seen a brilliant fictional example of this in Silicon Valley Season 4, Episode 2. If you are a lawyer and never watched this, please do. Silicon Valley is full of amazing legal anecdotes and maneuvers.

This episode is named Terms of Service. Without going into juicy details, lets just put it this way: a greedy tech giant desperately looking for a new breakthrough forces a hostile takeover on a popular chat service that seems to be growing virally. In a hurry, the owner of the tech giant Huli, Gavin Belson, strikes the deal over a dinner forcing the CEO Dinesh Chughtai to sell PiperChat right there on the spot. Dinesh knows that there is a potential 21 billion USD fine for violation of an important law, about which he has been really scared since he discovered the screw up. So Dinesh appears to cave in to Gavin’s pressure and signs the papers given to him. Thus Huli acquires PiperChat and all the liabilities of future fine along with it. As a result, Gavin Belson soon gets fired by his board. This is exactly what can happen if you buy a company, or invest into it without due diligence.

Let’s say you invest into a garment factory. Later it turns out that there has been serious labour law violations in the factory, or that there was massive environmental damages caused by the factory, because of which factory licenses are revoked. Your investment can become worthless overnight. Hence, due diligence is a critical part of all deals. Even before giving big loans, banks conduct due diligence.

Who has to learn how to do due diligence?

Investment bankers, corporate lawyers, CAs, analysts working in PE and VC firms, loan officers in banks – these are the people who must learn how to conduct due diligence, or how to make sense of it. There are often also other people involved who assist in the due diligence process, such as company secretaries, HR managers, operations managers, accountants etc.

Different types of Due Diligence

Technology due diligence –  This is critical for technology companies. If you are claiming that you have created a breakthrough technology and investors are putting in money on that basis, or a competitor is buying you out to get their hands on that technology, technology due diligence is a critical part of that. This is conducted by expert technology engineers and lawyers, bankers, CAs etc have no role to play.

Tax and financial due diligence – This looks into the financial aspects of the due diligence. Do the number in the books add up? Does the company really have the profit margins that it is claiming? Are there any hidden liabilities in the books? Has all taxes been paid appropriately or some sudden tax claim may come up in the future? These things can impact the price of a company or its shares in a very big way.

Legal Due Diligence – This is the more extensive part of the due diligence. The checklist changes from one due diligence exercise to another, but following things must be checked out in any case.

• Incorporation documents and MCA filings
• Loan agreements and financing documents
• Business Licenses
• Labour & Employment Law compliances
• Intellectual Property Portfolio
• Business Contracts
• Real estate – lease agreements, rent agreements and land ownership
• Tax
• Environmental compliances
• Disputes and litigation

What is the difference in due diligence in different kinds of deals?

The scrutiny level in due diligence exercises changes significantly depending on what kind of deal it is and how much risk the investor/buyer is getting exposed to. For instance, in case a company is buying 5% stake in a public company, the level of scrutiny will be very less. On the other hand, an acquirer acquiring a company 100% will want to exercise very high level of scrutiny because any pending issues, or risks that may materialise in the future, will all come upon the acquirer once acquisition is completed.

Similarly, when an angel investor or VC is acquiring a 10% or 15% stake in a startup, the due diligence is not as detailed as when there is a strategic acquisition of 51% or 80% stake by a big company in a startup.

It depends on the size of the deal, and therefore how much risk the acquirer/buyer/creditor is taking and whether a part of the risk is also being borne by the promoter of the company.

As a general rule of thumb, in case of investment due diligence is usually less extensive than in M&A. Small term loans come with smaller due diligence exercise while loans of large amounts require more extensive due diligence.

Other kinds of due-diligences:

There can be many other types of due diligences, where an asset is being acquired though there is no acquisition of a company or investment being made in any entity. For example, there may be IP due diligence before a highly valued IP is acquired. Land due diligences are commonplace before land is purchased. Naturally, these due diligences are different in scope. The principle, however remains the same: determining the true value of an asset and risks associated with it before buying it/ acquiring an interest in it.

How to begin the due diligence exercise?

Due diligence is all about getting access to data from the other side. It is sometimes like an investigation. You know that the company is supposed to have certain documents. If the give you those, you may find mention of more things. You also give them a questionnaire that they have to respond to. This questionnaire containing answers also becomes a part of the document given by the other side. As you get many clues about what may have happened in the company that needs to be investigated, you ask for more documents.

It all starts with a questionnaire that you make. Apart from questions that have to be answered, the questionnaire also requests certain documents. To make the right questionnaire, you have to research about the company, about its industry. If a colleague has already done a due diligence on a company from the same industry, you can get your hands on that questionnaire if possible, that may make your job far easier.

The Data Room

Due diligence data is sensitive and confidential. This is why, due diligence is usually conducted inside a data room with very restricted access. The people who are doing the due diligence of course get access, along with a few key employees of the organization on which due diligence is being conducted. All the information and documents are brought to this room, and then inspected, and then returned.

Let’s say you want to acquire a factory. Most likely, the data room maybe located at the factory, and lawyers are brought to the location. Then inside the data room, they get access to a bunch of documents, and they ask for more as they progress with the due diligence.

On the other hand, digital data rooms are quite in vogue these days. Instead of bringing lawyers, investment bankers etc to the venue, the target company uploads all the data into a digital version of the data room. This data room prevents unauthorised copying and gives access to a select few people. It saves a lot of time and expenses.

Due Diligence Report

Finally, after all the documents are expected, a due diligence report is made. A due diligence report of a large company can run into hundreds of pages but most modern law firms prefer to submit a shorter one with 30-50 pages. The rest of the data is often sent as annexure if necessary. There is also usually an executive summary so that one can easily get the headlines without having to go through a massive document.

What do you need to know to be good at due diligence?

To be good at due diligence, you need to be really good at extracting important information. Also, you need to know what information is relevant, and have some implication on the deal and what is irrelevant. Important data can hide in the plain sight, and you can’t afford to miss it.

People skills can be very important as sometimes the source of data are the employees who can tell you things about which there are no document trails. Can you make them feel comfortable to speak about it? What if they deny information or does not cooperate? What is they take ages to give you relevant information? Can you still get the work done within the deadline assigned to you?

Before doing due diligence, you need to acquire vast knowledge regarding compliances. India has hundreds of laws that can apply to a business and missing a major one could mislead your due diligence. Preparing the due diligence checklist can be quite a cumbersome task if you have never done it earlier.

Report writing after the investigation is done is also a very important skill. Most new lawyers are quite terrible at it as they have no idea how to write a good report.

How can you learn to be better at due diligence?

This is a practical skill and you get good at it only when you actually start conducting due diligence exercises. Learning from seniors is definitely a good idea. However, if you are completely clueless you might find out that you are being a burden on the entire process. Also, being good due to prior preparation will definitely earn you respect of peers and seniors. You can sign up for a course on due diligence towards that end. You can also conduct a mock due diligence once to get familiar with different steps.

Here is an exercise you can do at home: Make a due diligence checklist for an acquisition transaction of a fertilizer factory located in Haryana.

All the best with your due diligence skills! Hope you develop some serious prowess soon.

In this article, Akanksha Mathur of National Law University, Delhi discusses royalty payment outflows from India.

What are Royalty Payments?

A royalty is a payment made by one party, usually a licensee or franchisee, to the legal owner of a particular property, patent, copyrighted work, license or franchise for the right to use it for the purpose of ongoing use to generate revenue. It is essentially a payment made by a party who wishes to use the property of another for profit-generation for the use of this property.

Royalty is an ongoing fee that is usually paid monthly or quarterly. It is usually calculated as a percentage of gross sales.

Royalty payment outflows are payments made by domestic companies to their foreign parent firms or by Indian citizens to foreign entities for the use of a property, patent, copyrighted work, license or franchise.

Royalty payments are made for acquiring a valuable technique or knowledge which helps a person to nourish his sales.

Regulating Royalty Payments in India

Different provisions have been issued by the government of India regulating royalties.

• Trademark/Brand Names

  • Press Note 6 of 1992 issued by Ministry of Commerce and Industry allowed Indian residents to use and purchase a trademark/brand owned by a foreign resident.
  • Press Note 9 of 2000 issued by Ministry of Commerce and Industry allowed the use or purchase of a brand/trademark by an Indian Resident without the transfer of technology, through an assignment or otherwise from a foreign resident under the automatic route (i.e. without prior approval) on the condition that royalty may be paid only up to the extent of 2% of export and 1% of domestic sales.

These limits have now been lifted following the shift to liberalise the Indian economy in 2009.

• Intellectual Property Rights with Technology Transfer under the Technical Collaboration Agreement

  • Royalty is permitted on any IPR with technology transfer under the automatic route, provided the payment does not exceed 5% on domestic sales and 8% on exports and lump-sum payment does not exceed $2 million.
  • The procedure for calculating royalty was given by the government in Press Note 18 of 1997 issued by Ministry of Commerce and Industry as follows-
    • The royalty will be calculated on the basis of the net ex-factory sale price of the product exclusive of excise duties minus the cost of the standard bought-out components and landed cost of imported loaf components irrespective of the source of procurement, including ocean freight, insurance, custom duties etc The payment of royalty will be restricted to the licensed capacity plus 25% in excess thereof for such items requiring industrial licensed. In case of production in excess of the quantum, prior approval of Government will have to be obtained regarding the terms of payment of royalty in respect of such excess production.
    • The royalty would not be payable beyond the period of the agreement, if the orders had not been executed during the period of agreement. However, where the order has been booked during the period of agreement, but executed after the period of agreement, royalty would be payable only after the Chartered Accountant Certifies that the orders have been firmly booked and execution began during the period of agreement and the technical assistance was available on a continuing basis even after the period of agreement.
    • The lump sum shall be paid in three installments detailed below unless otherwise stipulated in the approval letter – First 1/3rd after the agreement is filed with Reserve Bank of India, Authorised Foreign Exchange Dealer; Second 1/3rd on delivery of technical documentation; Third and final 1/3rd on commencement of commercial production of four years after the agreement is filed with RBI/Authorised Foreign Exchange Dealer, whichever is earlier. The lump sum can be paid in more than three installments subject to completion of the activities as specified above.
  • The remittances for royalty for IPR now fall under Foreign Exchange Management (Current Account Transactions) Rules, 2000

Disclosure Norms for Royalty Payments Under Various Laws

The disclosure norms for royalty payments have evolved along with different regulations devised by the government-

• Foreign Exchange Management Act, 1999

Under FEMA, the royalty computation was required to be certified by a statutory auditor on a financial basis and be submitted to the RBI. If any remittance was required to be made otherwise than in accordance with standard computation, the prior approval of the government was necessary.

• Income Tax Act, 1961

A certificate is required under Form 15CB from a statutory auditor to authenticate that the correct rate of TDS has been applied and remitted to the government under the Double Taxation Avoidance Agreement (DTAA) framework.

The e-filing of an undertaking under Form 15CA is also mandatory.

• Indian GAAP

Indian Generally Accepted Accounting Principles require an AS-18 form to be filed of the payments are made to an associated enterprise, along with disclosure of any material transaction.

• Foreign Exchange Management (Current Account Transactions) Rules, 2000

Under Rule 4 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, prior approval of the ministry of commerce and industry was required for drawing foreign exchange for remittances under technical collaboration agreements where payment of royalty exceeds 5% on domestic sales and 8% on exports, and lump-sum payment exceeds $2 million.

However, this policy was changed with effect from December 2009 when the government permitted payments for royalty, lump sum fee for the transfer of technology and payments for use of trademark/brand name without prior approval, using the automatic route.

Various Ways in Which Royalties Can Be Calculated

Royalties are traditionally established as a percentage of the gross sales, but there are variations in how the royalties can be structured.

• Fixed Percentage

Taking a fixed percentage of the gross sales is the most common way of calculating royalties. The gross sales are adjusted for taxes, returns etc. and is reported. A fixed percentage of the adjusted gross sales is calculated as royalty. This is done on an ongoing basis, usually monthly or sooner, and is the easiest fee structure to administer.

• Variable Percentage

  In the variable percentage system, the percentage of sales is not kept fixed. Rather, it increases or decreases with increasing sales.

  • Increasing PercentageUnder this system, a higher royalty rate is demanded as sales increase. This is usually done to provide additional compensation to the owner of the property for granting a market which is expected to traditionally have superior performance.

    While this form of a royalty structure is rare, it provides a way for a franchise to charge more for a location with a higher sales rate.

  • Decreasing PercentageThis structure requires the payment of a lower percentage of gross sales as the total sales increase, with the belief that reducing the percentage of royalty charged is only fair as gross sales increase. Moreover, this also acts as an incentive for increased performance while providing an acceptable rate of return. It also encourages a more accurate report of sales.

• Minimum Fee Structures

  • Minimum RoyaltyThe minimum royalty structure is used by the owner in order to impose financial performance standards or earn a greater return. When this structure is used, the franchisee has to pay a higher fixed minimum or percentage royalty based on sales. The royalty sees periodic increases based on the Consumer Price Index, or otherwise.
  • Fixed RoyaltyUnder this structure, the royalty is fixed and is not affected by per unit sales. This system assured a fixed return to the franchisor while the franchisee is able to receive the full benefits of increased unit sales. The fixed fee is adjusted frequently on the basis of the Consumer Price Index, or may be done on any other basis.

    It is not very commonly used as it may require the franchisee to pay a higher cost than they can afford, and the owner may not get a proper return based on a higher volume of sales.

• Transaction-Based

Transaction-based fees are popular in certain industries, such as the hospitality industry. Under this, royalty is charged for every transaction made through a central system, such as a central reservation system or call centre.

Taxation on Royalty Payments and Outflows Under GST

The Goods and Services Tax was introduced to overhaul the tax regime in India and integrate it into one single regime in order to increase the ease and lower the cost of doing business in India.

It is a destination-based tax wherein the burden of payment falls on the end user who consumes the goods or services. The tax is received by the State where the good or service is consumed, rather than the one where it is produced.

• Generally, it is the supplier of goods or services who is liable for the payment of GST. However, in specified cases, the government can notify certain goods on which the liability to pay the tax is placed on the recipient of goods and services under the Reverse Charge Mechanism. This is done under Section 9(3) of the CGST/SGST Act and Section 5(3) of the GST Act.
• Under a notification issued by the government, GST is applicable on the supply of services by an author, music composer, photographer, artist or the like by way of
  transfer or permitting the use or enjoyment of a copyright covered under Section 13(1)(a) of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer or the like.

Essentially, royalty payments under GST are subjected to the Reverse Charge Mechanism.

Effect of Royalty Outflows from India on the Economy

Governments traditionally are sensitive to capital outflows from their countries. Prior to 16th December 2009, the government had been pursuing a protectionist agenda under which they had limited the amount of royalty payment that could have been made from India to foreign citizens and entities. These could not exceed 5% of the domestic sales and 8% of the exports, with any lump-sum payment not exceeding $2 million in the case of IPR without any technical transfer, and 2% of the exports and 1% of domestic sales in case of royalties for a trademark or brand.

These limits and caps were instituted by the Indian government in order to reduce its deficit, control inflation in the economy, inhibit currency depreciation and increase foreign direct investment.

It came to be recognised that some flexibility was required in capital outflows to encourage multinational companies to invest in India to create jobs, offer goods and services and increase socio-economic development. These caps thus came to be removed following a shift to liberalise the Indian economy, with effect from 16th December, 2009. Indian companies were allowed to pay royalties to their foreign technical collaborators without needing to seek prior government approval.

Following the removal of this cap, royalty outflows from India consistently increased as a percent of FDI flows, rising from 13% in 2009-10 to 18% in in 2012-13 and thus reducing the efficacy of FDI.

High royalty outflows end up negating the effect of FDI inflows on the economy. These are also required to fund the country’s current account deficit.

Impact of High Royalty Payments

Royalty payments reflect a lot about the internal structures of governance of corporates, revealing their arbitrary nature. Companies follow no uniform policies for the disclosure of royalties, every company putting them under different heads. They perform hikes, giving no reason for them beyond having done ‘due diligence’. To evade the new provisions under Companies Act in 2015, they rapidly passed resolutions increasing their share of royalties.

In taking these decisions, multinationals have time and time again disregarded minority stakeholders, not even bothering to seek their opinions on these matters or explain their decisions. By implementing hikes and increasing royalty payments to the parent, profits are reducing, thus decreasing the dividends for shareholders.

It is also important to consider the position of royalties as extortionate payments extracted by multinationals from underdeveloped and developing countries. They result in the outflow of foreign exchange and reduce the revenues from taxation. Ignoring the larger public interest, royalty payments act as a drain on the economy.

Royalties have thus increasingly been used by multinationals as a tool to insulate their profit margins from the financial performance of their local arms by securing a source of surplus and returns for themselves. This has been done in order to protect their revenues from falling sales and the uncertainties of the market.

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

References

1. http://webcache.googleusercontent.com/search?q=cache:http://www.lealte.com/articles/QUERYW~1.pdf&gws_rd=cr&dcr=0&ei=wyZLWvHSBI2UvQSXsK6wDA
2. https://www.caclubindia.com/articles/statutory-background-for-royalty-payment-in-india-6609.asp
3. http://www.cbec.gov.in/resources//htdocs-cbec/gst/reverse-charge-mechanism-08aug2017.pdf;jsessionid=E578AE31C8CCE18633F30156CA975B0E
4. https://rupeindia.wordpress.com/2014/03/09/royalty-payments-the-royal-treatment-of-foreign-companies-in-india/

In this article, Mansi Agnihotri discusses Choosing the right business structure for business ideas with low investment.

Business ideas with low investment

For all the entrepreneurs the biggest challenge is to accumulate the FUNDS. Well for all those who are looking forward to starting a business and are running short of money don’t lose hope, because today’s market provides a vast variety of opportunities to occupy a good market. Because it is proven that ideas are powerful so you can opt for those ventures which are more skill based rather finance. So here is a list of idea’s which you may use to tag yourself as an entrepreneur.

Most Common Business structure for business ideas with low investment

It would be ingenious to first determine the business structure before starting with an idea. So basically there are four types of business entities, one must select the type with due care and caution because based on your decision, you will be liable for the various taxation policies, liabilities etc. so be very diligent in opting one of it.

Note: Please refer to the business structure as aforesaid provided. You may take up any below-mentioned idea taking into the consideration the suitability in regard to the business structure and various other factors such as future prospects, consumer demand etc.

Fitness instructor

Looking at the severe healthcare problems, there is a huge requirement of boosting the health of the public. Apart from the public and private healthcare centers which are flooded with patients, people are rushing towards the preventive methods which are to keep yourself healthy. Therefore there is a huge need in the market for physical exercise

Yoga

Well if you are trained in yoga and have been practicing at home then why to keep such a knowledge within yourself, you have an option of facilitating such a service to the public. The best part is that you don’t need huge funds unlike the other areas of business.

 STATUTORY REQUIREMENT

• AYUSH ministry to certifies the institutes imparting training in ancient discipline for the physical and mental well being to ensure the quality check and control the mushrooming of the of centers which do not even meet the basic standards. That means you need a certificate.

• Apart from the certificate of incorporation, the yoga center would require a service tax registration i.e. if the turnover is above 10 lakh you need to pay service tax.
• Franchise: you can opt franchise of various organizations such as Arhanta yoga etc, which provides good opportunities. Here the advantage is that the business model is already tested and the goodwill of the well-established yoga studios will help you in gaining customer’s attention.

NOTE: It is recommended to start the yoga centers as the limited liability partnership or a company to ensure that the investment of rental deposit and the interior can be transferred to another person in future.

Gym

A gym is a good option, so if you can spend a bit more. Though the initial investment is bit high, looking at the accelerated demand you will very easily be able to regain the invested capital amount.

STATUTORY REQUIREMENT

• As per the Gymnasium and fitness center regulation bill, 2017 the appropriate government shall by the notification in the official gazette appoint a competent authority who shall after proper examination shall issue a certificate to the owner. The owner is required to renew the registration.
• Ensure that the trainers you hire possess the professional certificate from the renowned institute such as GOLD GYM FITNESS INSTITUTE, INDIAN INSTITUTE OF FITNESS TRAINING etc

Franchise

• You can also take up the franchise and work in accordance with the agreement. An Organisation such as Gold Gym, Universal gym, the great Khali gym provides franchise. There are various advantages of opting a franchise such as:
• The risk of business failure reduces because the business model is already tested and has recognition in the market.
• The customer is aware of the quality of the services provided.
• Since the brand name and trademark is already established there is not much requirement in investing in the advertisement.
• The franchisor imparts the training to the franchise to ensure quality check this helps the franchise in learning various technical tactics which generally comes with the experience.
• The banks tend to lend money easily to the franchisees.  
• However, sometimes, the franchise takes a high amount of franchise fees.
• Take insurance policy to reduce the effect of any contingency.

 Online fitness service

The internet is one thing which is common throughout the word, therefore you can use this service and make your business accessible to all. In this not only you will be able to expand the market share, in fact, the good part is that you don’t need much of the financial resources.

• For the purpose of data protection ensure the regulation of the cyber laws.
• Make sure the domain you select is not violating the trademark laws
• Copyright laws: A website is a combination of several copyrightable works like the design, graphic art, logo, program, and content, etc. In India, copyright office does not offer the website registration services, however at the time of domain name registration, the websites get automatically protected. However, the copyright doesn’t provide protection for the entire website rather only over the components which incorporate the skill and efforts of the individual.

Tuition centers

Another thriving pursuit is coaching centers. We all are aware how fruitful this is. So if you are interested in teaching and you think that you have good teaching skill then you can reward your skills by opening a coaching center. Rest lies with your skill, how smoothly can you impart knowledge to your student.

STATUTORY REQUIREMENT

• All businesses need to be registered under the Shop and Establishment act, this has to be done within a span of a month from setting up the business subsequently a statement has to be sent to the inspector enumerating various requisite details. The processing fees start from RS 125 to 12,500 depending upon the manpower the applicant is employing. Once the inspector is satisfied with the details he will issue the license. Obtain a trade license from the competent authority as provided by the government by fulfilling all the requisite formalities.
• You can register your coaching institute as a company/private limited company or a partnership firm.
• You need to open a current account in your name or in the name of your coaching in any nationalized bank.
• Indian government needs you to pay service tax if the turnover is more than 9 lakh, therefore you need to register for service tax.
• You may look into the details on registration of tuition center.

NOTE: it is recommended to opt for a sole proprietorship or for partnership.

Youtube channels

This seems to be the fascinating option. You can register your channel on youtube and thereafter you can convey your skills to the viewers. Now here no one can define the limits or ambit of the talent which you can capitalize it can be acting, comedy, singing, education, cooking etc. so if you think that you can attract the viewers you can make videos and upload it.

Statutory requirement

• Copyright laws: To deal with the copyright issues and to ensure the protection of rights of the content owner (composers and others, publishers in our case) Youtube has developed YOUTUBE CONTENT_ID which scans the uploaded videos against the database of audio and video submitted by the copyright owner to the youtube. The content_id matches the content with the database and sends a copyright notice communicating to the third party that the third party content has been identified in the video. In this event, Youtube further proceeds with :
• Blocking or removing the video
• Muting the audio
• By running a third party add over the video to monetize the content used in the video and compensate the content owners for the use of the content

However, if you obtain a license from the licensing company or directly from the content owner you can upload the video , but because the youtube Content_id is not advanced enough to automatically determine the licensor , otherwise learns that there lies a license agreement between the uploader and the content owner so there might receive the notice, nevertheless the channel can prove its legitimate use and wind up the dispute.

• Licensing: there is no statutory requirement for obtaining the trade license.

NOTE: sole proprietorship and partnership will suit the most.

Travel guide

For those who love travelling and are acknowledged with the details of the places, you may work as a guide and may do wonders in it.

STATUTORY REQUIREMENT

• For the purpose of the regional guides, the ministry of tourism, the government of India conducts the courses through Indian Institute of tourism and travel management.
• For the part-time guide, you need to go through 8-month special training.
• There is an acute shortage of guides acknowledging various languages such as French, Spanish so you can learn these languages in order to flourish the prosperity of your business.

NOTE: sole proprietorship and partnership will work best for this idea.

Blog

If you think that pen is your weapon then you may try your hand at writing. Here your imaginative skill will help you the most and because imagination has no end and therefore you can reach till infinity.

STATUTORY REQUIREMENT

• Though you do not need to furnish any legal framework revolving for the purpose of registration of the blogging site.
• You need to create a WordPress and register_the_domain_name. Make sure the domain name which you choose is not violating the trademark rights of the person.
• Copyright: Copyright act is applicable in regard to the literary work. Therefore the writer must take into consideration whether the write up is plagiarized or original. The law doesn’t grant the protection of the idea imbibed in it but one may claim the protection of the intellectual labor imposed by him. Therefore one may pick up an idea but he must not try to duplicate the existing content of which he is not the owner.

Note: sole proprietorship and partnership will be advantageous.

Event management

If you think that you have the amplitude of time management and multitasking then you can choose this as your career option. Here you don’t need funds because the capital is your skill. It is about how well you manage every requirement. You also need to be a good manipulator, because here you will have to convince a lot who may be your clients or the suppliers.

STATUTORY REQUIREMENT

• It is obligatory to get the entity registered as per the norms laid down by the legislation.
• You can register it under companies act if it is a company, or under a shop and establishment act if it is an establishment and under a partnership firm if it is a firm.
• In regard to the company one needs to obtain a PAN card for filling the income tax return and TAN card for filling the TDS return.

NOTE: partnership will prove to be advantageous. A Sole proprietorship may also be beneficial.

PROGRAMER

If you think that you can do programming that you can serve this as a product. programming is required for developing applications, website etc. it is in huge demand therefore if you have the caliber then you can start with it.

Statutory requirement

Copyright laws – The Copyright Act, 1957 grants protection to original expression and computer software is granted protection as a copyright unless it leads to a technical effect and is not a computer program per se. The computer software which has a technical effect is patentable under India Patent Act, 1970. However, if the computer program does not have the technical effect is protected under the copyright act. For the copyright protection, the computer software needs to be original and must have the element of one’s own skill and efforts.

NOTE: sole proprietorship or partnership will be profitable.

Stall

Well if you think that that you have the magic in your hands and you can cook mouth watering and finger licking food then you can commercialize this skill of yours by employing low finances. You can buy a stall and kick-start your business. Food stalls are one of the most amazing low investment business and truly have the valor of grabbing the market. You can buy food truck as well (a large vehicle equipped to cook and sell food).

You can open a tea stall or any food item which may be Indian, Chinese or Italian. Because here you aren’t required to employ huge fund in buying a building and making other exorbitant arrangements. You can provide the same food item at cheap rates which are very attractive in catching the customers. But make sure that you place your stall at the permitted place.

STATUTORY REQUIREMENT

• Obtaining a trade license is imperative under the shop and establishment act for running all eating establishment such as restaurants, hotels, canteen, food stall etc
• Different states have different norms if the vendor fails to comply with the norms as enunciated, then the competent authority has the power to cancel or revoke the license.
• One need to send all the required documents to the food inspector (chief inspector or any other inspector) along with the fees, who shall conduct the inspection.
• Once the application is accepted the registrar shall record the name in the register of establishment
• If the vendor shuts down the business he needs to inform it to the registrar within 15 days who shall further update the changes in the register of the establishment.

NOTE: Sole proprietorship and partnership will suit the best.

Consultant

Consultants job comes in every shapes and size. In general, the consultant provides a suggestive outlook to the individuals and organization. The job of consultant though remains the same however the field may change. One may provide service in different domains such as education, healthcare, business, IT sector etc.

Like we have

a) Investment consultants – They are expert in the field of finance. They suggest investors with investment products, planning, and advice.

b) Psychological consultant – They generally work with the organization, non-profit organization, in consulting firms or in private practice. They help these organization to bring them back on track.

c) Healthcare business consultant – They provide various advice to the healthcare administration, and management such as billing, accounting, financing, marketing, and insurance.

STATUTORY REQUIREMENT

• There are different standards for different types of the consultant, in some, it is required to obtain a special certificate and special license before you begin to operate as a consultant. Such as fundraising consultant do not any special certification, although they can get certified through the national society of fundraising executives.

NOTE: Sole proprietorship and partnership will be beneficial. As you can join hands with people who are a consultant in other fields.

Photography

We cannot neglect this profession when a business with low investment is in question. It seems to be one of the most exciting and remunerative vocations that one can opt. Anyone who can show his creativity by clicking the picture which would give it an extraordinary view.

STATUTORY REQUIREMENT

• Copyright: Photographs are protected under the law of Copyright as it has been included as an artistic work. Although, the quality is immaterial to qualify the work as an artistic work [so a bad photograph is still protected under the law]. The essential element to protecting the copyright in artistic work particularly a photograph requires that the photograph must be an original work where some degree of skill and effort must have been expended on it.
• It is pertinent to mention that the copyright in photographs is for 60 years, and after the period lapses the photograph falls in the public domain. Therefore one must pay attention to it.
• After staring up professionally one must ensure that he pays the income tax in accordance to the slabs as provided in the income tax act 1961

NOTE: Opt for a sole proprietorship or you can also form a partnership firm.

Graphic designer

Graphic designing is the profession where you assemble the images, typography or motion graphics to create a piece of design. In simple words, they aesthetically create a visual design with the aid of the computer to convey a message to the viewers. They generally create graphic designing for the purpose of publishing or printing electronically such as brochures or advertisements. You can work as a freelancer or you can open a firm where you can form an association and run it. It is a good money making arena where you can elevate yourself as an entrepreneur.    

• Graphical design is heavily in demand for the branding of the corporate entities, therefore one must be aware that the design is in no way hampering the trademark laws or copyright provisions. Trademark is about protecting things that identify a business in the marketplace and logos are among the most important means of identification. Therefore one must work diligently and must ensure that the design is not violating any legal provisions

NOTE: One may opt for limited liability partnership or sole proprietorship will also work.

Translatory services

If you are a polyglot then you may choose this as a career option. In this era of globalization where corporate entities are trading cross-border or where ministers are traveling across the territory, one needs a translator. Here you can make space for yourself as this profession doesn’t require huge funds. You only have to translate the sentences into another language.

Statutory Requirement

• Select the business structure based on your business model.
• Register it under the shops and establishment act or if you are establishing it as a company register it under the company act and if as a partnership firm then under the partnership act.

NOTE: Partnership firm, sole proprietorship and even the Limited Liability Partnership will work.

Astrologer

Yess..!! it is a highly profitable profession which one can follow. If you have a good command over the Vedic astrology norms then you may either open an office of yours or you may create a website to facilitate the services online and you may do it both ways as well. You can also make a team and work.

Statutory Requirement

• If you are establishing it as a company then register it under the companies act and if as a partnership firm then under a partnership act
• Choose the best business structure have advantageous over the tax and other liabilities.

NOTE: sole proprietorship or the partnership will be suitable.

Interior designer

Since home decoration is a lot in trend, one can strive to establish oneself as a professional in this field. If you want you can take up the professional courses to facilitate the resourcefulness. But it must not be confused with the interior decoration because it is its subdomain. You need to be good at technical drawing, space design, material knowledge, furniture design and familiarization with various interior design tools. Apart from this, you need to have the good interpersonal skill to communicate with your clients.  

STATUTORY REQUIREMENT

• If you are establishing a company then register it under the companies act and if a partnership firm then under a partnership firm.
• You do not need to accomplish any other legal obligations.

NOTE: sole proprietorship, partnership firm and even the limited liability Partnership will be suitable.

Content Writers/Copy Editors

Though the term seems quite horrific, in reality, it is quite interesting especially for the one who is looking for the low investment business. They are basically the writers who are hired to write literary, journalistic work, speeches and other text which are generally credited to others. Celebrities, executives, political leaders they generally hire ghostwriter to draft and write their autobiography magazine article or other writing material

Statutory requirement

Copyright laws: as per the legal provisions if any person does any literary work under the course of employment then in absence of any contract to the contrary the employer shall be the owner, therefore the ghostwriter shall not be tagged as a content owner unless any contract is agreed in contrary.

NOTE: it is recommended to have a sole proprietorship or the partnership firm.

Pet-friendly/pet day care services

When everyone is away from home because of their work or vacation who will take care of their pets? So for all those who are in love with pets can take up the profession of taking care of the pets. doesn’t seems an exciting career! You just need to take care of the pets, feed them, play with them and earn the money. You even have the opportunity to grow the business and establish a firm where you can hire a lot of people and occupy a good market. This domain is the result of the dynamic changes that have taken place in the Indian society, therefore, the market is almost vacant in proportionate to other fields.

Statutory requirement

Under the shops and establishment act, it is required to register all the commercial establishment within the period of 30 days. Each State Government has separate criteria for registration of the Shops and Establishment Act.

NOTE: it is beneficial to have a sole proprietorship.

Creche

Another need of this growing society is creche. Though it’s not so new there is a huge potential market. When mother and father nobody remains at home then who will they leave their children with so they need someplace where they can leave their children. So if think that you love babies and loves to take care of them then you have this option where you can change your interest in a business.

STATUTORY REQUIREMENT

• The government also has made it mandatory from 1st July 2017, to have a creche facility in all the establishment having 50 or more employees through the maternity benefit (amendment) act 2017 and soon the labor ministry will come out with various regulations of setting up a creche. Therefore the interested person may seek the opportunity of establishing in near the establishment.
• Apart from this, one must register the establishment under the shops and establishment act.

NOTE: Sole proprietorship will be the most suitable.

Suggestion:

• Choose business structure as per the investment, degree of risk involved etc eg. Where the degree of risk is high choose partnership firm.
• Where the investment is huge and so is the risk factor, one can opt for LLP.
• Where the business involves a lot of unsafety, take insurance policies.

The challenge to Aadhaar and its validity is being heard by the 5 judges constitutional bench in the supreme court.  The arguments on the behalf of the petitioner are slowly moving towards its last lap making the case extremely exciting and revealing a lot of apprehensions which were never addressed before. The bench assembled at 11:30 am today. Following are the highlights of the arguments presented by him in the apex court of the country.

Senior Advocate Shyam Divan on Section 59 of the Aadhaar Act

Mr. Divan started for the day by pointing out at S.59 of the Aadhaar Act which validates all acts of the UIDAI prior to the Act and states that it applies only to central government actions, at least as per its text. He stated that Section 59 does not control the acts the of private entities, like enrolment agencies and thus, their actions are not protected.

To this Justice Sikri questioned that under the pre-Act regime also, was UIDAI also appointed?

To which Mr. Divan replied, “No. There was no privity of the contract prior to the Act.”

“The central government appointed UIDAI, and all the acts thus flow from that.” Justice Sikri commented.

Mr. Divan replied that the notification establishing the UIDAI might protect the actions of the Central Government in entering into the MoU, however, it doesn’t cover the actions of the registrars.

Justice Chandrachud intervened to ask, aren’t the actions of the registrars traced back to MoU?

Mr. Divan replied that the enrolment agencies are not covered even under the MoUs. As far as the Registrars are considered, their actions are thus, not the actions of the central government.

Mr. Divan concluded this argument by stating that, “thus, enrollments prior to the act are not validated by S.59.”

Mr. Divan argued that the State cannot have a retrospective validation of a fundamental right violation, especially when the violation is complete.

Justice Chandrachud questioned whether Aadhaar was used by private players before the Aadhaar Act as that would not be validated under S.59. The privacy judgment says that there must be a basis in law. How do you deal with data breaches prior to the act will have to be considered.

Mr. Divan replied, “Informed consent is crucial, and retrospective validation cannot apply. Saying there was always a consent, prior to the act. Even if this provision is to be upheld, it must be given the narrowest of construction.”

Senior Advocate Shyam Divan specified the heads of a challenge to the Aadhaar act

1# Surveillance – The architecture of Aadhaar enabled surveillance.

2# Violation of privacy – Between 2010-2016 there was no law authorizing the violation of privacy. Post Aadhaar, citizens compelled to report her activities to the state through electronic footprint.

3# Limited Government – The constitution is not about the power of the state but about limits to that power. Aadhaar allows the state to dominate an individual through an architecture that enables profiling and by the power to cause civil death by deactivating Aadhaar.

4# Aadhaar was not a money bill.

5# The act also violated Article 14 and 21 of the Indian Constitution – no informed consent, no opt-out option.

A summary of Mr. Divan’s arguments

1# UIDAI has no direct relationship with collecting agencies.Data collected and stored lacks integrity.

2# Data is not verified. Now being taken as gospel. For eg. EKYC

3# Biometrics are untested and probabilistic. Use of Biometrics leads to exclusion of welfare schemes.

4# If Biometrics don’t work flesh and blood individual ceases to exist. If your biometrics don’t match, you become a ghost.

5# A citizen in a democratic society has the right and choice to identify herself in a reasonable manner. Mandating a single highly intrusive of identity is inconsistent with democracy.

6# Authentication records include the time of authentication and the requesting entity. This can be stored for 7 years. This enables real-time surveillance.

7# The notion of a central database where all data is stored at one place itself is indicative of authoritarianism.

Justice Chandrachud at this point questions as to who maintains the CIDR and whether the source code is with UIDAI?

Mr. Divan replies, “information about the specific details of CIDR is not available in public domain because of national security concerns. The source code is proprietary and not with UIDAI. “

Continuation of Mr. Divan’s arguments

1# Section 7 is unconstitutional. An individuals entitlement cannot be made subject to compelling her to give up her constitutional rights.

2# The individual has a right to remain free of monitoring as long as they have not violated any criminal law.

3# On cancellation of Aadhaar the services will be disabled personally. “You can just SWITCH OFF a person.”

Justice Sikri questioned, “why shouldn’t Aadhaar be canceled if it has been fraudulently obtained?”

Shyam Divan answered by saying that, “The point is that you are giving that power.”

Justice Sikri observed that this is only a case of abuse of power.

Circumstances where taking of biometrics is considered reasonable

Mr. Shyam Divan handed over a compilation to the court that deals with the issue of circumstances in various jurisdictions where the taking of biometrics is considered reasonable. He took the court through the census act of 1948. He pointed to section 15 of the census act to illustrate the nature of protection accorded to census data.

Mr. Divan took the court through the identification of prisoners act. He showed the court that Section 7 of the act provides for the destruction of data if the person is released with no charge.

He then pointed out Section 32(a) of the registration act. This is taken at one time and by one registry – an example of a legitimate purpose, done proportionately.

Mr. Shyam Divan on surveillance

Mr. Divan continued post lunch by stating how does the architecture of the Aadhaar act is designed in a way that it de-facto enables surveillance. He stated that the CIDR is responsible to retain the records which the state is entitled to collect over the duration of an individual’s lifetime. This leads to a state of surveillance, which cannot be permitted by the Constitution of India.

He went on to explain how every electronic device is linked to a unique number on the internet. The minute this device gets linked to CIDR, the devices inevitably exchange information, making the devices number assignment qua Aadhaar. This leads to recognition of the transmission emanating from that device. Every such transmission has a unique electronic path which attaches by itself. This path identifies the links through which transmission is done, making every link identifiable.

Thus, as per him, it is possible to track every transaction, location as well as the broad nature of transaction of every device in real time.

Mr. Divan then established the nexus with section 57, and says that this will only deepen the extent and scope of surveillance.

Affidavits of Mr. Samir Kelekar and Mr. J D’souza

Mr. Shyam Divan then moved ahead to submit the affidavits of two technical personnel Mr. Samir Kelekar and Mr. J D’souza to demonstrate the above-explained process.

Affidavit of Mr. Samir Keleker

Mr. Divan read apart from the first affidavit of Mr. Samir Keleker which reads as follows, “The project facilitates real time and non-real time tracking of UID holders. It is quite easy to know the place and type of transaction everytime authentication take place. This would allow UIDAI or any other party to track behavior. UIDAI recommends that each point of service device should register itself with UIDAI and get a unique ID. This method of surveillance will only make the task of tracking location easier. There are other ways as well. No security is perfect. However, biometrics is a bigger problem because you can’t change them once they are lost, stolen or hacked. Let’s say for example if army personnel are using Aadhaar to take the salary and the system is hacked there could be national security concerns. “

Affidavit of Mr. D’souza

Mr. Divan then moved on to Mr. D’souza’s affidavit which stated, “I have conducted demonstrations to show the unreliability of biometrics. One demonstration was before the UIDAI officials themselves. They were shown the ease with which the fingerprints can be replicated. There may or may not be a GPS on the fingerprint device, which in either case can track location. I have examined multiple fingerprint machines. These machines can be easily tampered with to capture biometric data before the point of encryption. This is called a skimmer. These machines that are not manufactured indigenously without the machine code and source code are unknown to UIDAI. There may be a backdoor or Trojan Horse feature which can mine the data without UIDAI knowing it. These are some national security concerns. Data collected over an individual’s lifetime can soon become a tool of political blackmail which can also compromise constitutional functionaries.” He then gives an example of Jan Chrysler recently cracked down the iPhone’s biometric system as well as iris recognition.

Justice Chandrachud and Mr. Shyam Divan

After taking the court through the affidavit a series of questions were posed at Mr. Shyam Divan by Justice Chandrachud. Following is the brief of it.

Justice Chandrachud questioned the extent of which the Court can get into the questions pertaining to technical evidence. He stated that there is a distinction between the existence of a mechanism and its abuse. He sought to know whether the distinction between fingerprint on iPhone and Aadhaar is of a mere degree? He stated that “should the court second guess the decision of the executive government, especially when no system in the world is secure.”

Mr. Divan again pointed out at the affidavits and states that there is a complete mapping of the electronic path which happens in real time, thus you can track the location.

Justice Chandrachud enquired, aren’t we accepting the Google Maps tracking us, and other private co-operations?

Mr. Divan said, “when you are tracked by a state in real time it is tantamount to a police state. This is not permissible by the constitution. Google is not a state. It might be powerful, but not as powerful qua me as the state. Moreover, it is a matter of consent.”

Justice Chandrachud exclaimed, “I should have no objections to the state knowing whether I am paying my taxes or not, so there should be a distinction between collecting data and using it. If he use of data is limited to its purpose, then what is the problem with the collection? We live in times of terrorism and money laundering and welfare expenditure and this has to be balanced. I reiterate surveillance is about how data is used and not how it is collected. “

Kapil Sibbal and the Big Brother argument.

At this point, Kapil Sibal stood up to say that the actual issue is of giving the state that kind of information. He stated, “Big brother will have the information. He may use it and you won’t know it. By the time you do, he will become a bigger brother.”

Mr. Divan consented and added by stating that the whole case is about preventing the situation that a big brother is watching.

Mr. Shyam Divan; “We are no more living in Police Raj!”

Mr. Divan then read the first articulation of the right to privacy in the Indian constitution, which is Justice Subba Rao’s dissenting judgment in Kharak Singh, which was endorsed in the privacy judgment as valid.

He mentioned how surveillance constricts life and liberty and how the “shadow of surveillance engenders inhibitions upon people.”

He then mentioned cases like District Collector Vs. Canara Bank and US vs. Jones and states “we are not living in Police Raj, which is exactly the point in this case.”

Mr. Divan moved on to read Justice Sotomayor’s opinion that observes that their infringement of privacy no longer needs mere physical violations. He states how GPS data can reveal an entire profile of the individual by simply observing the places she visits. This is very future orientated and as it is surreptitious, it evades scrutiny.

He stated, “the very fact that the government is watching can chill speech and associated freedoms.” He then read the part which established that merely there is a consent to disclose some information, to some people for some time, does not necessarily mean that you have lost your privacy right over it.

Mr. Divan moved on to refer to the judgment of ECHR in Sakharov vs. Russia which involved interception of the communications.

Before he could complete, the bench rose for the day.

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Next hearing is scheduled for Tuesday, stay tuned.

Introduction

In spite of so many strict and stringent legislation for the safety of women to curb the vulnerable and deteriorating condition, the cases related to violence against women, outraging her modesty, sexual harassment, rape etc. are increasing day by day at a very high pace. This article deals with the five landmark cases of sexual harassment which bring any significant legal changes towards the delivery of justice to the victims of rape.

Landmark Judgments on Sexual Harassment by Supreme Court of India

1.Tuka Ram And Anr vs State of Maharashtra, AIR 1979 SC 185 (Mathura Case)

Facts of the case:

In Mathura rape case, a young tribal girl named Mathura was allegedly raped by two policemen while she was in custody. It was the incident of custodial rape, took place on March 26th, 1972, where the girl was raped in Desai Gunj Police Station in Maharashtra.

Issues raised:

This case raised so many issues in the context of Indian rape laws that were earlier existed in prevalent Criminal law like the issue of consent, the question of burden of proof, the reference to two-finger test and the reference to the girl’s sexual history.

What was held?

Sessions Court passed the judgment in favor of defendants and held them not guilty. It was held that Mathura gave her consent voluntary as she was habituated to sexual intercourse. Learned Sessions Judge found that there was a major difference between “sexual intercourse” and “rape” so, it was a case of sexual intercourse in which she had consented voluntary and not rape. Thus, Case was further appealed in the Bombay High Court which took note of all the findings arrived during the trial in Sessions Court. High Court appreciated the observation given by the learned Sessions Judge that there is a major difference between sexual intercourse and rape but they forgot to observe that there is a world of difference between “consent” and “passive submission”. On the ground of such observations, the court held that the defendants were guilty of rape and the consent given was not voluntary and it was due to serious threats by policemen. It was held that:

“Mere passive or helpless surrender of the body and its resignatess to the other’s lust induced by threats or fear cannot be equated with the desire or will, nor can furnish an answer by the mere fact that the sexual act was not in opposition to such desire or volition.”

Later, the case went to the Supreme Court, where court acquitted the accused and set aside the judgment passed by the Bombay High Court. The Court stated that no marks of injury were found on the person of the girl, there were no signs of any struggle, any resistance, also from the shreds of evidence it can be shown that the girl had not been put in fear of death or hurt so the consent would be considered as free or voluntary. Also, the girl was habituated to sex so, it may be possible that she might have incited the cops. So, it was concluded and held by the Supreme Court of India that the sexual intercourse which was in question in the given case is not proved to amount to rape.

Legal Changes brought in the Indian rape law:

Due to such rationale behind the judgment, so many protests and huge public outcry took place which ultimately led to the amendment in Indian rape law. At the time when Mathura rape case did take place, the rape laws in our country were heavily biased towards rapists. The main question which was raised after this judgment was regarding the concept of consent because earlier it was so difficult for women to prove that she had not consented to any sexual intercourse. So, after the judgment of this landmark case, the Criminal Law (Second Amendment) Act, 1983 came which brought so many changes in the Indian rape law like:

• Criminal Law (Second Amendment) Act, 1983 inserted section 114(A) in the Indian Evidence Act, 1872 which states that in a prosecution for rape where it has been already proved that the sexual intercourse by accused did take place, if the victim says that she had not consented to the sexual intercourse then Court shall presume that she did not consent as a rebuttable presumption of law.
• Section 376 of Indian Penal Code, 1860 underwent a change in which sections 376(A), 376(B), 376(C) and 376(D) were added which were further amended by Criminal Law Amendment Act, 2013.
• Act added the provision for “custodial rape” under section 376(2) of Indian Penal Code, 1860 for the offenses which take place when a victim is in the custody of the state.
• The Person liable under section 376(2) shall be punished with rigorous imprisonment for a term which shall not be less than ten years but which may be for life and shall also be liable to fine.
• Act amended the idea of burden of proof which always lies on the prosecution. After the amendment, in cases of rape where sexual intercourse was already established, the burden of proof will lie on the accused.
• The Act introduced section 228A in the Indian Penal Code, 1860 which prohibits any publication regarding the identity of rape victims and any matter through which victim’s identity could be known, subsequently amended by Criminal Law Amendment Act, 2013.

So, Mathura rape case was monumental in context of both social and legal perspective which sparked huge protests and public outcry for the very first time in India for the cases of rape at a very large level and which further led to so many reforms in the Indian rape law via the Criminal Law (Second Amendment) Act, 1983.

2. Vishaka vs. State of Rajasthan and Ors., JT 1997 (7) SC 384 (Bhanwari Devi Case)

Facts of the Case:

This was a landmark case regarding the protection of women against sexual harassment at workplace. It was the incident of 1992 where a lower caste social worker for the women’s development programme in Rajasthan named Bhanwari Devi who was trying to stop a child marriage in her village was allegedly gang-raped by five men of the upper-class community. She went to the police station to lodge a complaint against the offenders but no thorough investigation was launched.

Issue raised:

This landmark case raised so many questions in the context of sexual harassment which take place at a workplace. The Issue raised whether the employer has any responsibility in cases of sexual harassment by its employee or to its employees at a workplace?

What was held?

To get justice, she took her case to the Trial Court where Court acquitted the accused for the reason of lack of the medical shred of evidence and other reasons. Due to which so many women’s groups and organizations went for appeal against the judgment. The result of which, a public interest litigation was filed in the Supreme Court of India on the issue of sexual harassment at the workplace. This judgment had its basis in so many international treaties which had not been adopted in the municipal law.

Supreme Court held that the sexual harassment of a woman at a workplace would be violative of her fundamental rights of gender equality and right to life and liberty under Articles 14, 15, 19 and 21 of the Indian Constitution. The court concluded that such Act would be considered as a violation of women’s human rights.

Legal changes brought after the case:

After this verdict, a statutory vacuum was observed which proposed the route of judicial legislation in the context of sexual harassment at workplace. The case laid down so many guidelines and requirements which need to be fulfilled by the employer as well as other responsible persons or institutions:

• For preventing the acts of sexual harassment in the workplace, it should be the duty of the employer or any other responsible person to prescribe for procedures and settlements.
• Formation of a complaint committee at all workplaces.
• Such committee has to be headed by a woman employee only and should have NGO or third-party participation.
• Half of the members of a committee should be comprised of women only.
• All complaints regarding sexual harassment of a woman employee would be dealt by this committee only, appropriate action in this regard shall be initiated by the employers in accordance with the concerned law.
• The committee would advise and recommend to the victim for the further course of action.
• Provides for the definition of sexual harassment which includes any:

“Unwelcome sexually determined behaviour & demands from males employees at workplace, such as: any physical contacts and advances, sexually colored remarks, showing pornography, passing lewd comments or gestures, sexual demands by any means, any rumors/talk at workplace with sexually colored remarks about a working woman, or spreading rumours about a woman’s sexual relationship with anybody.”

So, these guidelines were the first of its type which created for the gender equality rights of women, which should be free from harassment in both public and private employment. This judgment led the Indian Government to enact the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013 which came into force from 9 December 2013. This Act superseded the Vishaka Guidelines for prevention of sexual harassment introduced by the Supreme Court of India.

3. Mukesh & Anr. vs. State for NCT of Delhi & Ors.,

Facts of the case:

A 23-year-old trainee physiotherapist woman was brutally got raped repeatedly by five adult men and a juvenile on the night of 16th December 2012 onto a moving bus in the capital of our country. She got attacked with an iron rod due to which she had her intestines pulled out. Later, in spite of receiving all the possible treatments, she died in the hospital in Singapore.

What was held?

One accused hanged himself in the jail while other four adults were sentenced to death. A Bench of Justices Dipak Mishra, R Banumathi, and Ashok Bhushan were unanimously passed the judgment of Death penalty to all the accused except juvenile. The juvenile who was equally involved in the incident and raped the woman was convicted and sentenced to three years in a reformation center. Such an incident where humanity is treated with irreverence, which created a shock in the collective conscience sparked nationwide revulsion and various legislative reforms in rape laws.

Aftermath:

After the incident, a panel was set up under the chairmanship of JS Verma (former Chief Justice of India) for analyzing criminal laws and to suggest all the possible amendments which can be made to enhance punishment in case of assault of extreme nature and brutality against women in criminal law. Within a month, the panel was ready with its report consisting of so many recommendations for changing India’s rape laws.

As per the recommendations of the Justice Verma Committee, Criminal Law (Amendment) Act, 2013 has passed which provides for the amendment of Indian Penal Code, 1860; Code of Criminal Procedure, 1973, Indian Evidence Act, 1872 and Protection of Children from Sexual Offences Act, 2012 in relation of sexual offences related laws. Act widened the scope of rape’s definition and provided for capital punishment in rape cases that cause the death of the victim or leave her in a permanent vegetative state. Act also provides for several new offenses to make laws more stringent.

One of the accused in this case was just a few months away from being 18. In spite of a heinous offense committed by him, he was sentenced to only 3 years in a reform home as per Juvenile Justice (Care and Protection of Children) Act, 2000. Such verdict could encourage other teenagers also to commit the similar type of crimes. So, a need of amendment has arisen in result of which new Juvenile Justice (Care and Protection of Children) Act, 2015 has come.

Changes brought in JUVENILE JUSTICE (CARE AND PROTECTION OF CHILDREN) ACT, 2000

• Section 4: The creation of one or more Juvenile Justice Boards for every district to examine children in conflict with the law.
• Section 15 (Preliminary assessment into heinous offences by Board)- A preliminary assessment of a child who is 16 or above 16 years, shall be done with regard to his mental and physical capacity to commit such offence, with regard to his ability to understand the consequences of the offence, if the Board is satisfied that he was capable enough to understand all the consequences then the Board shall follow the procedure same as the procedure of trial in summoning cases under CrPC, 1973.

So, Board will decide whether Juvenile is supposed to send for trial as an adult or to send him to the reform home.

• Section 19 – Children’s Court may decide that child should send for a trial as an adult or not and may pass appropriate orders after trial considering his special needs, the tenets of a fair trial and to maintain a child-friendly atmosphere.

The Court shall also ensure that such child should be sent to a safe place till he attains the age of 21 and thereafter, he shall be transferred to a jail.

• Section 21- Death or life imprisonment cannot be awarded to a juvenile.
• A minor who has committed any heinous crime then he would be treated as an adult.
• A minor who has committed any serious offense then he may be treated as an adult only if he is apprehended after he has attained 21 years of age.
• If the minor has committed any heinous offense and apprehended after the age of 21 years, in that case, he will be tried as an adult and imprisonment of 7 years and above is prescribed.

4. State of Maharashtra vs. Madhukar Narayan Mardikar, AIR 1991 SC 207

Facts of the case:

This is the case where a police inspector of Bhiwandi town police station alone in uniform in the night went to the hutment of a woman named Banubi. There, he tried to ravish her. The woman resisted but still, he managed to falsely made out with her as if he carried out a prohibition raid. Inspector advocated that he raided her hutment on the ground that she was engaging with the dealing of illicit liquor.

The departmental inquiry took place against the inspector, in course of which it came out that Banubi was a woman of easy virtue. She also had extramarital affairs.

What was held?

High Court of Bombay held that he cannot be removed from his service since Banubi was a woman of immoral character. Court held that, “she was an unchaste woman so, it would be unsafe to allow the career of that inspector to be put in jeopardy upon the uncorroborated version of such a woman who makes no secret of her illicit intimacy with another person.”

Supreme Court overruled the judgment and gave the order of removal of his service. Supreme Court opined that “even a woman of easy virtue is entitled to privacy and no one can invade her privacy as and when he likes. Therefore, merely because she is a woman of easy virtue, her evidence cannot be thrown overboard.” So, she is very much entitled to protect her in case of any attempt to violate her as a person. Also, while deciding the cases of rape, past history of victim’s sex life does not matter, she is very much entitled to the protection of the law.

* Note: Though this case has not brought any legal amendment in the context of protection of women against violence but by virtue of Article 141 of Indian Constitution it would be binding on all the courts within the territory of India.

5. Independent Thought vs. Union of India and Anr.,

Facts of the case:

Independent Thought, one of the leading NGOs which deals with the child rights, had filed a public interest litigation in the Supreme Court of India. It challenged the constitutional validity of exception 2 to section 375 (Sexual intercourse or sexual acts by a man with his own wife, the wife not being under fifteen years of age, is not rape) of the Indian Penal Code.

Issues raised:

• Whether sexual intercourse between a husband and wife, where she is between 15 and 18 years of age would amount to rape?
• Whether section 375, exception 2 is violative of fundamental rights of a girl child?

What was held?

In the judgment, Supreme Court has criminalized the sexual intercourse with a minor wife whose age lies between 15 and 18 years. The Court opined that the exception 2 in section 375 is violative of Articles 14, 15 and 21 of the Indian Constitution which allows intrusive sexual intercourse with a girl who is below 18 and above 15 years on the ground of marriage. Such exception clause in Indian rape laws negates the very purpose of Prohibition of Child Marriage Act, it violates the provisions of Protection of Children from Sexual Offences Act (POCSO) in context of the age of consent and some other international conventions to which India is a signatory. In this landmark verdict, Supreme Court has struck down section 375, exception 2 of the Indian Penal Code. Now, the law cannot protect a man who is engaged in sexual relations with his wife where she is between 15 and 18 years because irrespective of the status of a child whether married or not, she will always remain a child.

This was all on Landmark Judgments on Sexual Harassment. What are your views on these Landmark Judgments on Sexual Harassment by the apex court? Comment below and let us know.

This article is written by team LegalWiz.in. The article discusses how to incorporate company with proposed changes in India.

The Ministry governing the operations and administration of companies and LLPs in India (Ministry of Corporate Affairs) is proactively participating to facilitate the changes in procedure of online registration of Private Limited Company. The changes are proposed to be deployed from 26^th of January, 2018, whereas in order to facilitate such changes, the ministry has deprived the e-form for application of Name Reservation. Under the current status and proposed changes, the procedure of Pvt Ltd Company registration will differ from that of present.

What are the proposed changes?

The Ministry of Corporate Affairs has currently shown its participation and interest in designing the Front Office Services. The Ministry has proposed changes that will lead to substantial change in the procedure of incorporation of companies. In order to facilitate said changes, MCA currently suspended certain e-forms that were essential for completion of present incorporation procedure.

Ministry has proposed to change the current Form for Name Approval from e-form to web form. In order to facilitate the changes, the e-form INC – 1 is suspended by MCA for a period ending on 25^th of January. The web-form is proposed to be on board since 26.01.2018.

Further, the process to procure DIN (Director Identification Number) by the Directors of the company will be changed from 26.01.2018. The proposed Director or individual will not be allowed to make an application for procurement himself/herself. The company concerned only will be filing the application to procure DIN of the individual.

What are the effects of proposed changes?

Due to abovementioned changes, the procedures are also changed where INC – 1 is currently suspended and therefore promoters are required to file an application of name approval along with SPICe forms only. Hereby, the stated form allows only one name to be filed for approval by the applicant. Hence, the task for promoters has become tedious for this limited period. The re-submission or rejection of the form can lead to preparation of documents from scratch as of now.

SPICe forms for application of incorporation are also depreciated for fresh filing since midnight of 18^th January, 2018. New forms in this regards are proposed to be implemented since 26^th of Jan, therefore the stakeholders cannot make any application for incorporation of the companies. The promoters can temporarily make application for allotment of the DIN only. The name approval and incorporation can only be proceeded with after implementation after deployment of new forms.

With respect to application of DIN and proposed changes, currently used e-form DIR – 3 will be suspended since 26^th of January, 2018. Resulting to which, unlike present scenario, the individual himself cannot make an application for allotment of DIN. The company in which individual is proposed to be appointed shall will be required to make application while filing form of appointment.

In case of companies to be formed, application of DIN for the first directors will require to be made in the e-form for application incorporation i.e. SPICe forms. Further, the SPICe forms will allow application of maximum 3 new DINs. Producer companies require appointment of minimum 5 first directors, hence, proposal is made that form DIR – 3 will be modified for this purpose only.

When the company needs to appoint another new director, who does not hold DIN on date; the company is required to make an application to allot DIN along with filing the form of director’s appointment.

The case is different in case of Limited Liability Partnership as no declaration is made for the procedure of DIN allotment to the designated partner of the LLP. The Ministry has declared to depreciate form DIR – 3 from 26^th January to 31^st of March, when the issuance of DIN will be suspended. Hence, until the Ministry declares any further process, the application and allotment of DIN will not be possible in case of Limited Liability Partnerships.

The incorporation of the Limited Liability Partnership will get effected due to this depreciation of DIN issuance. The promoters and partners may be required to halt the planning to commence business as Limited Liability Partnership. We expect declaration of specific resolution of the same to start the procedure of LLP incorporation.

What will be the procedure of incorporation?

Hereby we are discussing the procedure of private limited company registration for two different situations:

Up to 26^th January 2018

Due to depreciation of forms relating to incorporation, the promoters will not be able to make incorporate a Private Limited Company for a temporary period. Till then application for procurement of DSC and application for Allotment of DIN. It would be recommended to procure the DIN on prioritynoting  the form for DIN will not be available on end of this period to avoid hassle due to change of forms.

After 26^th January 2018

ON 26^th January 2018, Ministry will deploy new web form for Name Reservation as well as incorporation. Following will be the steps for Pvt Ltd company registration.

1. Procurement of Digital Signature Certificate

Foremost step will be to procure Digital Signature Certificate that is issued by the certifying authority to the applicant. The Digital Signature Certificates (DSCs) are required to be procured by proposed first directors and the subscribers to Memorandum of Association (MoA).

2. Application for Name Approval

The promoters will be able to make a separate application to reserve the names for a proposed company. Application can be made by providing maximum 6 names in preference as made in earlier forms. The ministry proposes to capture minimal information that is essential for the reservation of the name. However, the proper information can only be known after deployment of form by Ministry.

3. Drafting of documents

At present, the promoters are required to make an application directly for certificate of incorporation. Hence, requisite documents are first prepared to accompany the application for successful registration of private limited company.

• The proposed directors of the company shall provide their consent to act as director of the company after its incorporation in form DIR – 2.
• An affidavit by the proposed directors and the subscribers is to be filed in form INC – 9 declaring that the documents provided are correct and true to their knowledge and the person making affidavit has not been convicted for any offence in relation to company incorporation in last five years.
• The Memorandum and Article of Association are required that shall accompany the application of incorporation. The memorandum shall draw the boundary of company’s operations and Articles provide how the company will carry on the operations within the boundary drawn by the MoA.

4. Filing of SPICe Forms

The next step is to make an application of incorporation of the company by submission of prescribed documents. This step will include two processes, one being application for allotment of DIN and other being application to incorporate a company. The SPICe forms will be modified accordingly to subsume both applications. DIN allotment process is included in these forms, however, the ceiling limit of 3 DIN in one form is provided in the forms.

The application shall be accompanied with following documents:

• Form DIR – 2;
• Form INC – 9;
• Self-attested and certified copy of following:
  • PAN Card of directors and subscribers;
  • Identity Proof of directors and subscribers;
  • Residence Proof of directors and subscribers
• Passport size photograph for allotment of DIN to proposed directors;
• Utility Bill and NOC from the owner for the Registered Office address of the Company;
• Rental Agreement with the owner of registered office & Rent receipts, if premises is rented

In addition to these documents, e-MoA and e-AoA will be filed on by payment of requisite fees and stamp duty as applicable for filing of such form. If the application filed is found appropriate to the satisfaction of the Registrar, he may issue the Certificate of Incorporation under his signature and seal with the date of incorporation and PAN of the company. The DIN will also be issued to the proposed directors. The company will be in existence since the date of incorporation mentioned in the Certificate of Incorporation.

Conclusion:

The procedure of company incorporation are proposed to made simplified and assuring to get accurate information by provision of DIN application by companies. Under SPICe forms, the DIN allotment will be approval based instead of Straight Through Processing (STP) of applications. Hence, caution in that regards is required on part of applicants. Further, Incorporation procedure of LLP will be affected due to depreciation of DIN application till end of March. Make sure to comply with all provisions under reformed provisions by hiring professionals LegalWiz.in as your assistant for private limited company online registration in India. Incorporation of Private Limited Companies in India is made simple for you by our professionals that assure you hassle-free and transparent procedure with nominal prices.

About Author

LegalWiz.in Private Limited is a premier online service provider engaged in serving to pan India basis for incorporation of companies and matters related thereto. You may directly reach the author and the team, on call at 89806 85509 or on e-mail at [email protected]. Read about other services at http://www.legalwiz.in.

No startup owner is thinking much about the legal needs of the business. But this is something every business has to face the legal issues at some point. The law has a major impact on the businesses.

You must have seen the plenty of legal mistakes made by the startup owners. Even after having the basic understanding of the law, there are many unforeseen pitfalls when it comes to the legally sound business.

From incorporating your business to compliances to protecting the intellectual property, considered as an important aspect of the business’s success.

Broadly, we have divided the legal issues into two categories- legal issues every business has to face before incorporation and after incorporation.

Business legal issues before incorporation

1. Business structure

Most of the startups don’t survive for long, and the reason being isn’t selecting the proper business structure. There is not one specific best business entity. Selecting the most effective sort of business is essential.

Choosing the most effective legal structure for your business is one amongst the foremost vital legal problems within the startup method. Every basic type of business entity having its own pros and cons, you’ll be able to opt for the kind of entity which supplies your business the foremost blessings.

The following factors can help you to choose the ideal legal structure:

• The level of control you want over your business is one of the factor. If you want to operate the enterprise single handedly then One Person Company will be the most appropriate.
• Complexity of Formation. Every legal structure has differing set up procedures and complexities Like private limited company is easy to set up and a trust involves complex requirements.
• Tax Implications. Each legal structure will have an impact on the taxes you pay. For instance, a sole trader can claim the tax benefits on personal tax return but not in a trust.
• Liability Limit. When choosing a legal structure, you need to check the extent at which you need to be protected from personal legal liabilities.

2. Written agreements

Startups often face the problems when they do not have an adequate written agreement. To bloom your business in the world, you should formalise the agreements with everyone who engages in the business.

It’s important to regulate the relationships inside the company to clarify the rights and obligations of the engaged persons in the business. It can be a partnership agreement, employment agreement, shareholder agreement.

Make sure you clearly define the ownership, duration, rights and liabilities to avoid an unnecessary headache, time and money wastage in the long run. Without the proper legal agreement, you will surely face some legal issues in future.

3. Company Relationships

For the lasting success of the business, a defined relationship with the company is essential. Clearly define the company’s relationship in the context of ownership, partnership, employment etc. These blurred relationships may cause the enormous problems later.

Proper documentation and agreement ensure the hassle-free growth of the business.

Think of the agreements as a form of pre-nuptial agreement in order to deal the terms in various relationships with the company.

4. Business licensing

Don’t get confused the business license with the business registration. Both the terms are different altogether. Startups need to register with the authority as well as take the license to get the right to operate the business in the particular city.

Are you confused about whether you need a business license or not? Generally, every business required a different business license. However, knowing which license you need, can be complicated but essential business requirement.

Many startups either overlook the legal requirement or not aware of the legal requirements. The type of business license you need depends on the activity your business performing.

Business legal issues after incorporation

5. Employment

Hiring the employees and the contractors is the initial step once your business starts growing. You need to be careful while considering the regulations for employment contracts. Startups often face the consequences of not maintaining the adequate employment documentation.

If you are not outlined employer-employee relationship properly, you will definitely encounter the claims of discrimination, breach of contracts etc. According to a survey, more than 8% of companies faced employment issues that are making the employment as a most common legal issue for the businesses.

6. Compliances

After business incorporation, you need to face the numerous legal issues; compliance is one of them. If you are running a business in India, then you would require keen ability to understand the complex compliance requirements.

Broadly, compliances highlight one such facet of realities concerning statutory compliance and regulatory compliance which includes the legal obligation of meetings, paying taxes, obtaining business license etc.

When you meet the compliance requirements, consequently, it will reduce the risk, penalties, lawsuits or stoppages.

The compliance required to do business in India:

• Appointment of statutory auditor
• Allotment of securities
• Conducting the meetings
• Filing of financial statements
• Filing of annual return
• Income tax return
• Business license

7. Tax

Tax issue is the most common legal issues for startups because most of the small businesses facing the legal issues related to taxes. Business taxes are not just about the income tax filing. Every business entity has to pay different kinds of taxes along with the income tax.

Business taxes also rely on the business activities. If you are running a business, then you must know that what taxes associated with which activity.

Depending on your business structure, you are responsible for incurring some of the taxes:

• Income tax
• Corporate tax
• Self-employment tax
• Sales tax
• Property tax
• Payroll tax

8. IPR

The imitation is the sincerest form of flattery, whoever said that surely didn’t have a startup. The reality is when you have a good idea the copycats will come out of the woodwork to steal it.

Every business is different, IP protection creates the unique identity of every business. Investing in business brand involves the name of the company to innovative process or design of the product which gives you a competitive advantage.

If your startup is having something new and innovative, to keep the copycats on their toes and for protecting fostering innovation, there are the ways to protect your startup’s intellectual property:

• Trademark
• Copyright
• Patent
• Design registration

About the author

Kapila Tanwar

Limiting her to few words would be a herculean task. She Likes to add some zing to the story. When not writing, she loves to watch movies. She especially enjoys being a fashionholic. Affiliated with QuickCompany which deals in Company Registration, Trademark Registration, Service Tax Registration, MSME and Other Legal Activities.

Linkedin: https://www.linkedin.com/in/kapila-tanwar-83a45828/