In this blogpost, Inayat Dhanda, Advocate and a graduate from ILS Pune, writes a letter to her mother on the occasion of mother’s day. 

Happy Mother’s Day.
I love you. And you know that.

As I start to write this, tears roll down my eyes and cheeks, already.

I firstly thank you for giving me birth.
For bearing the excruciating labour pain and giving me life.

For cleaning my shit and puke.
For loving me more than anything else  in this world.

I have a dream. And I can’t do this without you, just like any of my other dreams.

You were my best friend during school days. I have shared every single detail with you. Everything. The studies. The gossip. The boys. The teachers. Everything I did.
What you said was bible to me. I have very diligently followed to each and every advise you gave. And I never needed a friend, because you were there.

Then all of a sudden I shifted base to an extremely modern city wherein I was under a cultural shock for an year.
I had never seen students kissing in college. Smoking openly or hurling abuses.

I was very scared. Like a cub. As I started to tell you this, you got scared too and wanted me to come back.
But I wanted to experience a new place and learn things on my own. I wanted to work hard and make a name for myself.
So I decided to stay.

I was naive. Once during my photography classes I saw two dogs doing something funny and clicked them. I was later stopped by a friend because they were actually having an intercourse.

I knew nothing at all.
Never dated anyone.Never stayed at a friends place for a night out. Never went out for a movies with friends.

While I was trying to adjust in a new place away from you, I also became extremely low on self esteem because of my weight. I saw how the cute looking men never gave me a second glance. Though,the ones I didn’t like , we’re all over me.

I was betrayed by my friends on several occasions. I was made fun of and ridiculed a number of times for various reasons.
College was a difficult time for me and I grew apart from you further and further.

I couldn’t share things with you. Unfortunately we belong to two different generations and I could not explain you well.
I never smoked, did hookah or any kind of drugs. Till date I’m proud of this.

But how could I tell you about my first kiss ? How could I tell you about the first time I touched a guy ?

I couldn’t. We live in a city and society where a girl is supposed to do to everything only after marriage. And yes I was convinced too.

But my first boy friend whom I thought I would marry, was a complete retard.

I cried for days after the break up.
Why did I kiss him? Why did I let him hug me ?
Funnily I dated him for an year and met him just once and thought that was love.

But a dream was shattered here. The dream to marry the first guy, you fall in love with.
I was ashamed of myself. But couldn’t tell you this. I failed as a daughter here.

I became busy with my never ending assignments and you with your work.
I started lying about going to parties and other small stuff because you’d say no to my request invariably.

I knew I was responsible for my own.

But this hiding and lying didn’t do any good.

Now when I realised all this and have grown a little wiser I want us to rekindle that old bond.

– I plead you,to not think about the society and accept me the way I am.
– I request you to allow me to live my life, the way i want to. I will make you proud of me. I promise.
– I beg you to stop worrying about what society says about my thoughts, likes and habits.
– I humbly request you to stop worrying about my marriage. I will marry, when I get “the one” . I want to experience a lot many things before that. I take responsibility for my life partner. I will look for him on my own. Relax.
– Please stop thinking about what your society says about me being so called “bindaas”. If living a happy life means “bindaas and characterless”, I don’t mind that tag.
– Having guy friends, going out on vacations with them or putting pictures with them on social media, doesn’t make me a slut. They are my friends who’ve been with me through every thick and thin when you weren’t here. I love them to bits and they are like my siblings.
–
Mom, all I want to tell you is that you’re the only person that means to me.

We don’t know for how long we’re alive.
Life changes in a moment.

I have nothing to do with people who bring others down, out of insecurity, jealousy and frustration.
They have no right in our lives.
We are our world. Let’s just end it there.

Let’s just love each other like maniacs.
Unconditionally.

Will you promise this ?

In this blogpost, Tanvi Amlani, Student, GGSIP University and the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about structuring a business, annual compliances and requirements, types of business structure in India and Africa. 

Structuring a Business

Like anything else, business to requires a solid foundation on which it can then build a worldwide network of alliances and connections. And for any entrepreneur, deciding the structure of his or her business is the first step towards building that strong foundation.

Essentially, a business structure can be defined as a framework legally recognized in a particular jurisdiction, whether national or international. Considering that there are many kinds of businesses, there exist many forms of business structures that can be applied to these businesses. And the suitability of these structures also depends on your business type – the structure suitable for a startup might be entirely different from that for a firm that is expanding into the international market.

And one of the most important factors for any firm that is planning to expand internationally is to understand the risk factors associated with the various business structures. And in this, a major role is played by the current financial position of your business and the structure it is employing at present.

 Annual Compliance Requirements

Before an Indian firm can plan to expand abroad, it must fulfill and meet certain compliance requirements.

The company should maintain proper records and registers annually for the complete overview of its financial status and other necessities. There are different forms for this purpose under the Companies Act 1956.   Also, financial statements, Balance Sheet with prescribed annexure and schedules, auditor’s report and Board’s report of companies whose financial years commenced before 1 April 2014, need to file the report according to the rules and provisions of the Companies Act, 1956.

There must also be a confirmation with respect to the compliance of the Act and the Rules, secretarial standards thereunder with respect to calling, convening and conducting the meeting.

Let us start by understanding the kinds of business structures that exist in India and Africa at present.

Types of Business Structures (India)

 At present, according to Companies Act 2013, these are the business structures that exist in India:

• Sole Proprietorship
• Partnership
• One Person Company
• Limited Liability Partnership
• Company

Types of Business Structures (Africa)

And the types of business structures that prevail in Africa are:

• Sole Proprietorship
• Partnership
• Public or Private Company
• Business Trust
• Personal Liability Company

Establishing a Business in Africa

First and foremost, anyone who is planning to establish a business in Africa must apply for a business permit. Like India, Companies Act governs all aspects of companies from formation to liquidation in Africa.

While, as explained above, there exist many ways in which a business entity may get formed, tax and other considerations from a major crux in deciding which route one takes. Private companies are, in practice, the most adopted forms of doing business.

One of the major reasons for choosing private company structure is that they require the least amount of annual formalities. Another advantage for a firm investing from abroad is that the Director (one being mandatory) need not be a national of the local country.

At the same time, the option of public company exists as well, but it is one which is used by firms only in the case when they would like to raise money from the public and open their books and business to public and shareholder scrutiny and pressure.

Foreign companies that plan to do business in Africa are known as External Companies. For them to function, they must register with the Companies and Intellectual Properties Commission within 20 business days after it first begins to conduct business.

Conclusion

Thus, while investing and expanding into Africa might not be a hassle, it still requires a lot of paperwork and understanding the business structures that prevail in the country. At the same time, a deeper understanding of the Companies Act of the country allows one to grasp the best business structure that would be compatible with the existing business model in India and also allow them to take their expansion further to their interests and orientations in Africa.

In this blogpost, Neil Lopez, Student, O.P. Jindal Law School and the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about,what is an OPC, its background and disadvantages. 

The introduction of One Person Company (OPC) in India is a move that will encourage micro businesses and entrepreneurship with simpler legal compliances that will enable individuals to generate economic growth as well as employment opportunities.

The concept of OPC was introduced in the Companies Act, 2013 as an alternative to the ‘sole-proprietorship’ form of business. Under the Act, a single national person can constitute a Company. An OPC model can operate with a minimum of one shareholder and one director as against the general minimum requirement of two shareholders and directors for a private limited company. The Sole Shareholder can himself be the Sole Director.

 In a May newsletter, the ministry said of OPCs, “It is expected this model will encourage small and medium enterprises…in the unorganized sector with the concept of limited liability and open avenues for more favourable banking facilities.“[1]

A One Person Company is a perfect combination of the characteristics of a company and the freedom of a sole proprietorship. The concept opens up an avenue of possibilities for entrepreneurs who can now take the advantages of limited liability and corporatization. OPC will give the young entrepreneurs the benefits of a private limited company such as access to credits, bank loans, limited liability, legal protection for business, access to market etc.

An OPC as an option for start-ups might seem very appealing, but it does come with its share of disadvantages which this article seeks to explore.

Background

The concept of One Person Company has been prevalent in the international corporate regimes of U.S.A, U.K, Singapore, China, Australia and other European countries and is based on the recommendations of the “Expert Committee on Company Law” headed by Dr. J.J.Irani in 2005 .

The Committee expressed the view that the law should recognize the potential for diversity in the forms of companies and rather than seeking to regulate specific aspects of each form, seek to provide for principles that enable economic interaction for wealth creation on the basis of clear and widely accepted principles.[2]

Disadvantages of an OPC

• Requirement to appoint a nominee for incorporating a One Person Company

The very purpose of an OPC is so that an individual by him/herself can start a business with limited liability without the need of having a partner.  Though the provision of appointing a nominee was introduced with the objective of perpetual succession, this creates a lot of procedural hassle for selecting a suitable nominee, obtaining his consent etc.

Further, the nominee also has a choice to withdraw their consent to their nominations thus creating even more complications in the form of requiring the founder to nominate another person within fifteen days from such withdrawal, intimating it to the company, amending the memorandum of the company and further communicating such fact to the registrar of the company.

• Ownership limitations:

As per Rule 2.1 (1) of the Draft Rules under Companies Act, 2013 only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company.

Thus, the person incorporating the OPC must be a natural person implying that it cannot be formed by a juristic person or an artificial person e.g. any type of company incorporated under Companies Act 2013.  This restricts the ownership of only individuals and not corporations.

This provision also discourages foreign direct investment by disallowing foreign companies and multinational companies to incorporate their subsidiaries in India as a One Person Company. Hence, an OPC will have to change their legal status to a private limited company to bring in investors. Foreigners and NRIs are allowed to invest in a Private Limited Company under the Automatic Approval route where 100% FDI is available in most sectors.

• Restrictions on conversion

An OPC cannot be incorporated under Section 8 (Formation of companies with charitable objects etc) of Companies Act 2013. An OPC is also not allowed to carry out Non-Banking Financial Investment activities. This includes investing in securities of any body corporate.

An OPC can only convert into either a private or public company once the following conditions are met:

1. The OPC must have been in existence for a minimum of two years; or
2. It must have a paid up share capital which has increased beyond Rs. 50,00,000/- (rupees fifty lakh); or
3. Its average turnover must have exceeded Rs. 2,00,00,000/- (rupees two crore).

Such restrictions stifle an entrepreneur’s desire for diversity and expansion.

• ESOPs

Since an OPC can have only one shareholder, there can be no sweat equity shares or ESOPs to incentivize employees. ESOPs can only be implemented if OPC converts into a private or public limited company. A private or public limited company can easily expand by an increase of authorized capital and further allotment of shares to even third parties.

Hence, a private company is a preferable option for start-ups who want to encourage their employees by way of stock options.

Recommendation

The following suggestions could help in the ease of doing business via the OPC route

1. The restrictions regarding the distinction between natural and legal person should be done away with. A body corporate should be allowed to incorporate an OPC as a wholly owned subsidiary. An OPC should also be allowed to be incorporated by foreign individuals as well as NRIs to promote foreign investment.
2. The Income Tax Act, 1961 should tax OPCs differently than include them in the same slab as private companies. An OPC has to comply with the rates of corporate tax as well as dividend distribution tax. A differential taxation method would encourage more people to adopt this mode of entrepreneurship.
3. The compliance requirements should be more relaxed than before as the individual acting in his own capacity might find it hard to manage a business as well as comply with the various requirements of the MCA (statutory audit, submit annual and IT returns, etc)

Conclusion

The concept of OPC is still novel in India and an unfamiliar concept for Indian entrepreneurs. It will take some time for such a new concept to catch on. OPC’s help in providing a new platform to small and mid-level entrepreneurs. It gives them the security of limited liability which will help in providing legal protection to the unorganized Indian businesses.

However, it does have limitations such as promoter participation, mandatory conversion to the private limited company, etc. According to the experts, management of OPCs will create problems as the single person will be responsible for all the compliance and management. This concept has also been criticized on grounds of excessive incorporation formalities and tax burdens.
But OPC does have an edge over Limited Liability Partnership Act, 2008 as they not only limit the liability of the owner but extends various immunities and access to various credit and loan facilities. OPC will be a step ahead in transformation of the unorganized sector into an organized version of private limited company thus helping in the regulation of the unorganized sector of trade

 OPCs are doing well in United States, U.K, Australia etc. The Government should observe the workings of such foreign businesses and try to implement the same successive values in our Indian realm. Moreover, the ‘Make in India’ and ‘Ease of Business’ policies of the new government seems promising but One Person Company is still in its infancy and only time will tell.

1. Deepak Patel2014, “Why One-Person Firms Are Popular” [2016] Business Standard<http://www.business-standard.com/article/opinion/why-one-person-firms-are-popular-114102600651_1.html> accessed 30 January 2016.

[2].    ONE PERSON COMPANY (OPC) ( 2014) <https://www.icsi.edu/Docs/Webmodules/ONE%20PERSON%20COMPANY.pdf> accessed 30 January 2016.

In this blogpost, Sreeraj.K.V, Student, Government Law College, Kerala writes an article on Analysis of medical negligence in the field of law. This article covers areas like definition of the term ‘medical negligence’, liability inflicted upon the medical practitioner, analysis of certain important cases as well as certain guidelines provided by the various courts in this matter.

Medical negligence is one of the major areas covered both under the medical laws as well as  other major statutes of India. A simple definition given for the term ‘medical negligence’ is that it is simply but a failure to exercise due care. There are three major ingredients to constitute a medical negligence

1. The defendant has a duty of care to the plaintiff
2. The defendant has breached that duty in one way or other
3. The plaintiff has suffered damages due to the breach.[1]

Recently, Indian people are much aware of their rights as patients. This is mainly due to certain facts that lead to the exploitation of the patients by the hospital authorities by charging a huge amount for treatments and lack of care from the part of doctors concerned. The situation can be traced out from certain cases which dealt with seeking of redressal by the patients for damages suffered by them due to the negligence of doctor and also cases involving a breach of confidentiality arising from doctor-patient relationship. In the case of medical negligence, the doctor will be held liable for certain medical malpractices. Claim arising out of medical negligence will be both civil and criminal in nature

Civil liability

Medical negligence can be termed as a breach of duty to care. This breach of duty makes a doctor liable for the act done by him, and the patient has a right to sue him on the ground of negligence. There is an underlying fact that there must be an exercise of ordinary skill by the doctor, and the act must lead to any kind of omission or commission on his part, and it must cause harm or injury to the patient. The complaint must also be cited with best possible evidence from medical science along with an opinion of an expert in the field.

Criminal liability

Criminal liability can also be imposed upon a medical practitioner under particular situations wherein patient dies during the time of anaesthesia in an operation or any time of treatment; the death must also be due to the malicious intention or gross negligence. The doctor must be ensured with certain precautions before the administration of anaesthesia. The liability of the doctor arises when the patient or his representatives must be able to prove burden of negligence upon him. But in certain cases, the principle of “res ipsa liquitor” (things speaks for it) may come into force. In the majority of the cases, the doctor will be responsible only for his own acts, but in certain other cases, doctors will be vicariously liable for the acts done by others. Sections 52,80,81,83,88,90,91,92,304 A, 337 and 338 deals with various provisions dealing with law of medical malpractice in India.

Grounds for filing a complaint on medical negligence

• Damage to organ due to negligence
• Wrong treatment due to the wrong diagnosis
• Patient is not provided with proper papers like reports, prescription and discharge summary
• When any treatment is done not according to the established laws of medical science.
• Any instrument left in the body, any wrong part taken from the body, a homeopathic doctor doing allopathic treatment
• Any hospital authority failed to make the availability of oxygen cylinders.

There are certain landmark judgments in cases dealing with medical negligence.  One among them were V.Kishan Rao v. Nikhil super speciality hospital[2] in which Supreme Court held that in certain cases, principle of “res ipsa liquitor” will be applicable and in the said case, the plaintiff was awarded an amount of Rs. 2 lakh from the defendant as there was a pure case of negligence on the part of defendant.

But in certain other cases such as Jacob Mathew v. State of Punjab, [3]the court was of the opinion that in some particular situations, the doctors will be in the middle of the devil and the deep sea. There will be a situation of greater risk than the higher chance of success. In such situations, the decision of the court must be purely based on certain facts and circumstances of the cases. In cases like Anuradha Saha’s case[4], Supreme Court made certain directions that

• Treatment with dignity is not only a fundamental right but also a human right
• Medical authorities must deal strictly with the negligence caused by doctors and hospitals
• Medical council of India should strictly scrutinise the conduct of doctors
• Hospitals should be updated with new forms of medical disciplines and diseases
• Doctors must act with much awareness and wisdom so that valuable lives can be saved.

Bolam test

Bolam test, in the field of medical science as well as medical law, plays a pivotal role in deciding the gravity of negligence from the part of a doctor who himself represents to be an expert in his area of operation, but due to some certain circumstances, committed an act involving medical negligence. In such circumstances, medical law is of the opinion that Bolam test states that if a doctor reaches the standards of a responsible body of medical opinion, then he is not negligent.[5] In such instances, an expert in this field is appointed, and he must undergo reasonable examination towards the act done by the accused doctor, and if his observation comes to be in favour of the doctor, then he will be free from his liabilities. This principle was derived from an English case of Bolam v. Friern Hospital Management Committee[6]. It is also mentioned by the experts that Bolam test is just one of the test in dealing with negligence, the test gains relevance only when there is a situation which leads to the breach of duty from the part of the medical practitioner.

Conclusion

Medical negligence arises out of two situations mainly from the part of the doctor and from the part of the hospital staff. In certain special instances, the doctor may act under a criminal intention of purposefully undergoing medical negligence upon certain vengeance to the patient directly or indirectly. There are certain cases dealing with such matters. Hospital management plays a very crucial role in appointment as well as a code of conduct of the doctors. Various medical council of the State as well as Indian Medical Association can implement strict guidelines regarding the attitude of medical practitioners to the patients. There are certain reports which state that majority of the doctors practising at Government Hospitals are undergoing private consultations on very high fees and even without coming to their hospitals regularly. In one sense or the other, these acts also lead to medical negligence and also the right of reasonable health care facilities for the people mainly who are not so financially sound. The government can implement various rules and regulations for making strict control against certain acts by the medical practitioner under the notion that Government doctors are meant to serve the public under reasonable rates or even free of cost rather than practicing in private and infringing the rights of the people. Medical practitioners must also take great conscious during the time of diagnosis as well as prescribe proper treatment at the proper time.

[1] Retrieved on: http://www.vakilno1.com/legal-advice/law-medical-negligence-india.html

[2] V.Kishan Rao v. Nikhil super speciality hospital (2010) 5 SCC 513

Retrieved on: https://indiankanoon.org/doc/1920027/

[3] Jacob Mathew v. State of Punjab (2005) 6 SCC 1

[4] Advance Medicare and Research institute v. Dr. Kunal Saha and ors CIVIL APPEAL NO. 692 of 2012

Retrieved on: http://judis.nic.in/supremecourt/imgs1.aspx?filename=40897

[5] Retrieved on : https://en.wikipedia.org/wiki/Bolam_v_Friern_Hospital_Management_Committee

[6] Bolam v. Frierrn Hospital Management Committee [1957] 1 WLR 582

In this blogpost, Surbhi Agarwal, UPES, Dehradun, and the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about private placement, right issue and bonus shares.

Introduction

In a company, the share is not any sum of money, but an interest measured by a sum of money and made up of diverse rights conferred on its holders by the articles of the company, which constitute a contract between him and the company.[1] There are two ways through which shares can be sold in the market: Public and Private Market. In Public market, shares can be sold easily through brokers or inviting prospectus, but in the private market, the shares cannot be easily traded as private shares represent a stake in a company that is not listed on any exchange, and it may lead to some difficulty to the buyer. The private market can also be referred as an Exempt market. As in this market, the already traded securities are traded among the shareholders or investors. It is unlike the public market, in which the shares are offered for the first time to investors through the prospectus.[2] Private market transactions are directly between two parties and can take any form the parties agree to. Therefore, Private Market is an umbrella term, encapsulating a variety of illiquid investments, i.e., investments that cannot be sold at short notice and require a long-term investment horizon and patient capital.

In the private market, qualified investors can buy and sell in exempt market securities. In this market, they are generally exempted from most prospective requirements; they don’t have to meet the requirements of the prospectus offerings or provide continuing disclosures to the investors. Only certain qualified investors such as creditor or investor can purchase these securities. The shares which have been already issued to existing shareholders or pre-issued securities are traded amongst investors. There are a number of ways through which shares can be offered to existing shareholders. Hence, once the Initial Public Offer (IPO) is done and listed in the stock market, they are traded in the secondary market i.e., Private market. It exactly means that in the primary market, investors can get the securities directly from the company through IPOs, while in the secondary market, willing to sell the same securities which have been purchased from other investors. Secondary Market allows investors to adjust their holdings in response to change in their assessment of risk and return. It also provides liquidity to the investors.

Currently, the trades are being settled on T+2 rolling settlement. In rolling settlement, any trade that takes place on trading day ‘T’ is settled ‘X’ days later. This is known as ‘T+X’ rolling settlement. Presently, the rolling settlement in India is T+2, which means that any trade taking place on trading day ‘T’ is settled 2 days after the trade date.

The Stock Exchanges along with a host of other intermediaries provide the necessary platform for trading in the secondary market and also for clearing and settlement. The securities are traded, cleared and settled within the regulatory framework prescribed by the Exchanges and the Securities and Exchange Board of India (SEBI). Therefore, for issuing the shares in the private market, one can do so by Private Placement, right Issue or through Bonus Issue. Now, I will be discussing, how the existing shares are traded:

Private placement

“Private placement”[3] means any offer of securities or an invitation to subscribe securities to a selected group of persons by a company (other than by way of the public offer) through the issue of a private placement offer letter and which satisfies the conditions specified in section 42 of the Act.

According to Section 42 (2),[4] the offer of securities or invitation to subscribe securities should not be made to more than two hundred persons in the aggregate in a financial year. This restriction would be reckoned individually for each kind of security that is equity share, preference share or debenture under Rule 14 (2) (b).[5] However, while counting the aforesaid figure of 200 persons, the following shall not be taken into account:

1. Qualified Institutional Buyers;
2. Employees, who are offered securities under a scheme of employees stock option as per provisions of section 62(1) (b).[6]

As per the regulations issued by SEBI, private placement of shares should not be made by subscription of shares from unrelated investors through any kind of market intermediaries. This means promoters’ shares should not be contributed by subscription of those shares by unrelated investors through brokers, merchant bankers, etc. However, subscription of such shares by friends, relatives and associates is allowed.

The company is required to maintain a complete record of private placement offers in Form PAS-5 and also file private placement offer letter in Form PAS-4 with ROC within a period of thirty days of circulation of the private placement offer letter.

Right issue

Right Issue confers a privilege on the existing shareholders to have a claim on the shares offered after the first public issue. When there is a need for additional funds for expansion, diversification or modernization, further shares is issued, which is also known as ‘Right shares’ and the right of the members to be so offered is called the ‘right of pre-emption’.

Under section 62 of the Companies Act, 2013 provides that where at any time, a company having a share capital proposes to increase is subscribed capital by the issue of further shares, such shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares. This offer is made by sending a “letter of offer”.

Bonus shares

Bonus Shares are issued to the existing members free of charge.

Under section 63 of the Companies Act, 2013, a company can issue fully paid-up bonus shares to its members, out of:-

• its free reserve
• the securities premium account; or
• the capital redemption reserve account.

However, no issue of bonus shares can be made by capitalizing reserves created by the revaluation of assets.  Bonus shares are always fully paid.

Conclusion

Therefore, in the private market initial offer is not given to the investors, the already traded securities are offered in such market. The existing shares of the company are traded in the private market.

[1] Commissioner of Income-Tax v. Standard Vacuum Oil Co. [1996] Comp. LJ 187 (SC).

[2] Section 2(70) of companies Act, 2013 refers that: “Prospectus” means any document described or issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate.

[3] Section 42 of Companies Act, 2013

[4] Companies Act,2013.

[5] (Prospectus and Allotment of Securities) Rules,2014.

[6] Companies Act, 2013

In this blogpost,  Suraj Pattanaik, Student of KIIT school of law and the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about types of port, functions of ports and ports and international trade.  

Introduction

Economic liberalization has led to investments flowing from across the world. Investments to flow in from various parts of the globe primarily depends on the ease of doing trade and the infrastructural facility that can be availed. Development of infrastructures is one of the key factors in determining the economic development of a country.Along with standardization and trade liberalization, faster, reliable and cheaper transport services are contributing to the integration of production processes at the international level. Thus, ports can be deemed to be the gateway for foreign trades which facilitates a smooth export and import.

Looking back in time, it can be easily realized that port has contributed in the making of major cities around the world. Early port activities included both military as well as commercial reasons.

Gerhardt Muller defines a port as: “a harbor or haven where ships may anchor, or a harbor area with marine terminal facilities for transferring cargo/ passengers between ships and land transportation.”[1] In this definition, the word ‘marine’ may imply that port is a territorial unit established on a coastline.

Port facilities are termed as infrastructural facilities and are not directly productive. They assist various productive activities, though not directly used as economic goods. Moreover infrastructure is the lifeline of any business activity, proper infrastructure increases business activity manifold.

Presently the function of a port is not only limited but has expanded to a logistical platform. The efficiency of a port is important in international trade since a seaport is the nerve of foreign trade of a country.

Types of port

Ports can be classified in various ways based upon its ownership and control, the purpose it delivers, the volume of trade carried on and types of facilities it provides. But in this paper, we are going to distinguish ports on the basis of its capacity or volume of trade it carries on. Thus, it can be broadly be divided into ‘Major Ports/ Main ports’ and ‘Minor Ports’.

Major Ports/ Main Ports– Within a region of several ports, it is usually noticed that a particular port is said to be the Main Port. This is so because the term ‘main’ is often used in relation to total cargo throughput volume. In this context, Main Port means usually the largest in volume, busiest and therefore the most important port. However, it is not always the trade of cargo or other goods which put a port in the class of Main Ports. Sometimes a port is recognized as a Main Port because of its importance to the hinterland rather than the trade volume.

The term Main Port and Major Port are usually used interchangeably but in some countries such as India, the term has an additional attribution. A major port belongs to the Central Government. Here the Major Ports are a part of the administration of Central Government. The local port authority of a major port does not report to Municipal or State Government, but to the Central Government.

Minor Ports– Minor ports are usually those ports which have a lesser trade volume or work to assist that of the Major Ports. They are administered from lower governmental levels, i.e. from the state level, like in India. It provides more flexibility in the administration. But, they can be perceived to be of any lesser economic importance.[2]

In India basically, the terms Minor and Major reflect the level at which they are governed.

In the case of a Main Port which is being assisted by several other ports, it can be termed as ‘Hub Port’. Hub port is a huge port to which many shipping lines direct their cargo from a remote port. The remote ports which are assisting are usually said to feed the Hub Port and hence, termed as ‘Feeder ports.’

Functions of ports

Trade plays a key role in an interconnected world and makes up a large part of the global economy. In terms of total volume of trade done through the ports, it can undoubtedly be termed as trade amplifiers.

Functions of ports can be divided into three categories: – 1) Core Function 2) Supportive Function 3) Complementary Function

1. Core Functions- The primary functions undertaken by the port are said to be the core functions. These can be said to be the object with which the port has been established. Ex- transportation of passengers and cargo, development and maintenance of port superstructure, towage, mooring etc.
2. Supportive Functions- Additional tasks support the core function of ports and by nature are relatively close to the core business. Ex- Bunkering for vessels, collecting cargo for trades, Ship Repairing Services, Port Traffic Management System etc.

     3.Complimentary functions- They are more distant than that of the supportive functions. These functions do not directly support the core business. Ex-                  Empty container for storage and supply, Hinterland operations like forwarding services etc.

Different ports provide different functions, and especially bigger ports provide a lot more offerings. It is important for that of a terminal operator to create additional offerings in the form of supportive and complimentary functions to boost its economic interest.

Port and international trade

Port performance and port economics are closely related with macroeconomics hence,any changes in port traffic or operation has an impact on national economy. As by means of water-carriage, a more extensive market is opened to every sort of industry than what land-carriage alone can afford it, so it is upon the sea-coast, and along the banks of navigable rivers, that industry of every kind naturally begins to subdivide and improve itself.[3]

From the past three decades, it has been observed that the port oriented industries are relocating closer to ports for economic viability. The service providers in the port areas also induce the industries to relocate in search of better value for money. Service providers of a port are those that provide services to the users of the port, i.e., to carriers, shippers, and passengers. The primary service provider of a port is the port operator. Other service providers include, for example, stevedores, ship agents, customs brokers, pilot and towage companies, and various government agencies providing maintenance of harbor channels, customs, and vessel traffic service systems.[4]

In the face of the global financial crisis and the economic downturn, infrastructure sector plays an important role to counterbalance against slowing economic activity and lower consumption. In India it has been seen that ports and logistics is the third most attractive sector of investment after Power and Roads and Highways.

The economic history of maritime powers such as England, Spain and Portugal clearly documents the significant and critical role which ports have played in the development of the global economy and have exponentially promoted international trade. Port development not only accelerates the rate of international trade but also acts as a catalyst to employment and revenue effects.The beehive of activities in seaports all over the world clearly shows that ports have  a significant economic impact regionally, nationally as well as internationally.

Conclusion

More than 90% of world merchandise trade is carried by sea, and over 50% of that volume is containerized. In today‘s era of globalization, international trade has evolved to the level where almost no nation can be self-sufficient and global trade has fostered an interdependency and inter-connectivity between countries. Shipping has always provided the most cost-effective means of transportation over long distances, and containerization has played a crucial role in world maritime transport.[5]

International trade is always interconnected with that of the transportation and port logistics is synonymous to the bulk and cheap transportation facilities. Thus, it can be safely concluded that if port efficiencies are taken care by that of the Nations, then it could lead to a booming economy.

[1] Muller, Gerhardt, International Freight Transportation, Washington 1999, p.471.

[2]JurgenSorgenfrei, Port Business, 1^st edition, Germany 2013, p. 78

[3] http://www.oecd.org/gov/regional-policy/49456330.pdf

[4] http://www.univpgri-palembang.ac.id/perpus-fkip/Perpustakaan/Geography/Geografi%20manusia/Ekonomi%20Pelabuhan.pdf

[5] http://shodhganga.inflibnet.ac.in/bitstream/10603/3984/8/08_chapter%201.pdf

In this blogpost, Krishnendra Joshi, Student of Renaissance Law college and the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about the provisions relating to CSR and tax deductibility of CSR expenditure.

Introduction

With the provision of section 135 of the Companies Act, 2013, India has turned into a leading country to stipulate expenditure on Corporate Social Responsibility (CSR) activities through a statutory compliance.

Many companies have been generally occupied with doing CSR initiatives deliberately; the new CSR stipulations put a formal and more noteworthy obligation on organizations in India to set out clear system and procedures to facilitate strict compliance. Nonetheless, what the Companies Act does is bring more corporate houses into the fold and expand the aggregate CSR expenditure.

 The provision

According to Section 135 of the Act, companies with a yearly turnover of at any rate Rs.1, 000 crore, or total assets of least Rs.500 crore, or a net benefit of Rs 5 crore or more might constitute a CSR board. Reporting will be done on a yearly premise, initiating from April 2015. Such organizations (counting foreign companies in India) are required to compulsorily burn through 2% of their normal net profit towards indicated CSR activities during the year.
Schedule VII of the Companies Act prescribes activities towards which CSR expenditure should be incurred like slum development, eradicating poverty, promoting health care, gender equality ,taking education initiatives, One of the main things that come to fore is what is the effect of CSR commitments from tax deductibility perspective.

The general norm has been to allow a tax deduction for donations, contributions, etc., made for charitable purposes under Section 80G of the Income-tax Act, 1961. The corporate houses were expecting relief under section 37 (1) of the Income-tax Act, 1961. It is a residuary section in the Act to allow business expenditure which is done in the normal course of business and profession. The requirement is that it should have a nexus with business objectives and should not be of a personal nature. These companies contended that CSR expenditure should be allowed as a deduction under section 37 of the Income-tax Act, 1961 as the expenditure is relating to advancing the purposes of business and profession

The view of the legislature is that CSR expenditure is in the nature of appropriation of income. For claiming deduction under this section, it should be a charge on net profits. The predicament is if any use on CSR is considered by the taxman as not used entirely or solely for the reasons of the business, on the setting that the CSR rules bars activities attempted incompatibility of the ordinary course of business of the organization, will this commitment be considered as allowable CSR spending. The required-to-spend sum is seen by the lawmaking body to be compulsory in nature. The expression “might guarantee” utilized as a part of area 135(5) of the Act suggests that there is an order to spend 2% of normal net profits of the former three years on CSR initiatives. Actually, notwithstanding when Companies Act, 1956, did not recommend any statutory necessity for CSR, there have been court rulings that analyzed the way of CSR costs and managed them as deductible, however on a case-to-case premise.

The lawmakers have further clarified that tax deduction on CSR activities can be claimed under section 30 to section 36 of the Income-tax Act, 1961.

Where CSR expenditure results in the production of capital resources such as a school or a doctor’s facility building, or emergency vehicle, or planting of trees, and so on—would the same be considered as income or capital cost? Segment 37(1) of the INCOME TAX Act awards derivation for consumption which is not of capital nature. On the flip side that the way of CSR use is such that no capital resource of citizen’s possession is made, (for example, use brought about on the conveyance of garments or medications, consumption on free wellbeing camps, and so forth.) this condition won’t be an obstacle. According to legal translations, if the benefits don’t fit in with the citizen, the expenditure can’t be viewed as capital use for the citizen.

The CSR Rules contain direction on how the organizations can embrace CSR exercises. For instance, CSR activities can be undertaken through trusts or a Section 8 organization set up for this reason. The organization might itself set up such elements or might utilize substances set up by others for its CSR programs. This prompts the third issue—whether for money charge purposes, expenditure to the trust would be permitted completely or limited to half under Section 80G of the Income Tax Act. Under Section 80G of the Act donations to certain trusts are given 100% deduction. Suitable revisions should be made to expenditure identifying with trusts and 80G of the Income-tax Act to accommodate full remittance of commitment to such trusts.

There are provisions in the Companies Act which give ordinary or weighted reasoning for commitments made to prescribed establishments for determined purposes and/or use caused for indicated purposes. There does not seem, by all accounts, to be any bar on a company on applying CSR cost to connect with some other philanthropy or relationship to realize its CSR obligation cast under the Companies Act.

For instance, an organization chooses to take up an affiliation which is secured by Section 35AC of Income-tax Act and makes a commitment to the said relationship for undertaking development of the school or contamination control which is one of the activities recorded in Schedule VII to the Act. Along these lines, the organization will get a 100% deduction of the expenditure made and might have more noteworthy solace in guaranteeing conclusion paying little heed to whether the deductibility under section 37 of Income-tax Act is tested by the Tax Authority in connection to use acquired by the organization.

Thus, it might be possible to investigate whether the corporates might consider working through specific elements, for example, altruistic trust or organizations which are establishments secured directly under the important exception or concession of CSR expenditure under Income tax Act.

With Companies prepared to confront the following period of debates, the effect to bottom line  profits by 2% on CSR spend might represent the moment of truth the financial specialist observations. It now should be perceived how the investors see the expenditure for CSR. Suitable alterations to the Income-tax Act are important as interpretation of tax law especially section 37 is being twisted to serve self-interests.

References for this article include:

http://www.ey.com/IN/en/Newsroom/News-releases/EY-PE-tax-twists-in-csr-spends

In this blog post, Aashish Ahuja writes about white collar crimes in India.

In this blogpost, Mohammed Azharuddin, legal counsel at Borderless Access Panels Pvt. Ltd and a student of Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about, the case study of how did vodafone avoid capital gains tax through clever structuring. 

In order to recognize the concept highlighted in this topic, one must first understand as to what exactly constitutes “capital gains tax” and how it is levied under the Indian legal and taxation parlance. Capital Gains Tax as defined by the Income Tax Act, 1961 constitutes “Any profits or gains arising from the transfer of a capital asset” hence any income derived from a capital asset which can be either moveable or immovable is liable to be taxed as per Indian Tax laws.

Bearing relevance to this topic is whether if the shares of a company also fall under the ambit of Capital Gains Tax, the IT Act in this regard specifies that there are mainly two types of Capital Gains Tax.

The first would be Short-term capital gains tax, which is applicable if a person or an entity which owns shares of a company for a period of less than 12 months before selling them and the second would be long term capital gains which is applicable if the shares of a company are owned for more than 12 months before selling the shares.

This information would help us in assessing and analysing the case of Vodafone’s Capital Gains Tax.

Brief Facts

Parties Involved

• Vodafone International Holdings BV (VIH)
• CGP Investments (Holdings) Ltd
• Hutchison Telecommunications International Ltd (HTIL)
• Hutchison Essar Limited (HEL)

Overview of the Transaction

Vodafone International Holdings BV, which forms a part of the Vodafone Group, incorporated in Netherlands intended to buy the entire share capital of CGP investments Holdings Ltd, which in turn had its base in the Cayman Islands. Now, Hutchinson Telecommunications International Ltd being a Hong Kong-based entity was the owner of CGP Investments Holdings Ltd and controlled its affairs. CGP Holding Ltd through various contractual agreements happened to own 67% in its Indian subsidiary namely Hutchinson Essar, which was a joint venture between Hutch and Essar.

After the completion of the instant transaction, Vodafone attracted a Capital Gains Tax of nearly INR 12,000 Crore in a deal which was worth over $11 billion (INR55,000 Crore).

• Note: Since Hutch was the seller and the Indian tax convention mandates that the buyer shall pay the capital gains tax to the authorities on behalf of the seller hence, Vodafone was expected to pay the tax and not hutch.

Legalities of the Transaction

Since the concept of Capital Gains Tax has already been explained earlier, it becomes pertinent to note that Vodafone structured the entire deal in such a manner that it gave room for Vodafone to avoid payment of Capital gains taxes to the Income Tax Authorities. The acquisition being a billion dollar transaction was based on such a model that it refrained from showcasing any record of it having taken place in the Indian soil. Tax haven’s such as the Caymen islands were chosen to structure the deal so that the capital gains tax could be avoided in the Indian Territory.  Vodafone’s main stand against the contention of the Income Tax authorities of “Vodafone being liable to pay the taxes since the intention of Vodafone was to purchase the 67% shareholding under Hutchinson Essar, which was a company based out of India and also that the gains were liable to be taxed since as the transfer of controlling stake had taken place in India” was that neither Vodafone nor Hutch was liable to pay the taxes as the entire transaction was carried out outside Indian Jurisdiction hence making the deal a jurisdictional issue rather than a transactional issue.

Some of the main viewpoints noticed and conveyed by the Bombay High Court in its verdict after Vodafone filed a writ petition challenging the jurisdiction of IT Authorities are as follows:

• Since the matter concerned itself with jurisdictional and territorial issues, sec 9 (1) of the IT Act 1961 was widely interpreted to mean that the fundamental assets and business of Hutchinson Essar is in India and the Capital Gains from the transfer should be subjected to Capital gain tax in India.
• The crux of the entire transaction was to have a controlling interest in Hutch Essar India, and the structuring of the share purchase agreement between the parties was the evidence of this fact.
• The Hon’ble High Court of Bombay further noticed that “The commercial and business understanding between the parties postulated that what was being transferred from Hutchinson Telecommunications International Limited to Vodafone International Limited was the controlling interest in Hutchinson Essar Limited. Hutchinson Essar Limited was at all times intended to be the target company and a transfer of the controlling interest in Hutchinson Essar Limited was the purpose which was achieved by the ”

The Bombay High Court in its verdict upheld the matter in favour of the Income Tax Authorities. The issue was later brought up before the Hon’ble Supreme Court by way of Vodafone International Limited filing a petition before the apex court.

The Hon’ble Supreme Court in its verdict overturned the Judgement passed by the Bombay High Court and made the following observations.

• In its broad interpretation of section 9 of the IT Act 1961, the Supreme Court held that the presence of three elements is required to conclude that Income is deemed to accrue in India which are i) “Transfer”; ii) the existence of capital; iii) location of such assets in India.

The Supreme Court held that in the instant scenario neither the capital asset exists in India, not the capital asset is situated in India.

• It was also observed that the transaction was held between two entities belonging to the foreign jurisdiction on a principle to principle basis and the same is outside the territorial tax jurisdiction of India.

• The Apex court opined that “look at” approach needs to be adopted rather than a “look through” approach. Further held that the word underlying asset ‟ is not covered anywhere in section 9 of Act.

Conclusion

Based on the careful study of the entire transaction and as per the findings of Supreme Court, it can be concluded that:

• Contrary to the popular belief that Vodafone was expected to pay the Capital Gains tax, the Supreme Court highlighted the legalities for the IT Authorities to have enabled to collect the taxes.

• As per the existing state of affairs the apex court has held that section 9 of the IT Act can be invoked only when a capital asset is located in India.

• Vodafone through its careful structuring pattern could avoid payment of taxes worth INR 11,000 Crore.

• The court also held that any transactions should not be arranged in such a manner which would entail any entity to avoid the payment of taxes.