Mondaq.com: Doing Business In India - A Legal Overview - Part 2

Mondaq.com - Monday, January 21, 2008
TAXATION DIRECT TAXATION

INCOME TAX

Charge Of Income Tax :

Income tax is charged on the "total income" of every person (Resident or Non-Resident) received by him/it in the previous year. The term 'Previous Year' means the financial year immediately preceding the assessment year. The assessment year is the year beginning on the 1st day of April of a year and ending on the 31st day of March of the next year. This tax is levied under the Income Tax Act, 1961.

Categories Of Taxpayers:

The Income Tax Act recognizes seven categories of taxpayers (assessees), namely:

An individual

A Hindu undivided family

A company

A firm

An association of persons or a body of individuals, whether incorporated or not

A local authority, and

An artificial juridical person.

For purposes of computation of total income, all income is classified under the following heads:

Salaries

Income from house property

Profits and games of business or profession

Capital gains and

Income from other sources.

Relevance Of Resident Or Non-Resident Status:

In case of resident individuals and companies, their global income is taxable in India. However, in the case of non-residents, tax has to be paid only on the income earned in India or from a source or activity in India.

Criteria For Determining Resident Status:

Individual Assessee

Resident:

The Income Tax Act provides that an individual is considered to be and treated as a 'Resident' in any previous year if such person fulfils either of the two following conditions:

if he is in India for a period or periods amounting to 182 days or more, or

has within the preceding four years been in India for a period or periods amounting to 365 days or more and has been in India during the relevant previous year for a period or periods amounting to 60 days or more.

Not Ordinarily Resident:

An individual is said to be "not ordinarily resident" in India in any previous year if such individual has been a non-resident in India in 9 out of the 10 previous years preceding the year in question, or has during the 7 previous years, preceding the year in question, been in India for a period or periods amounting to 729 days or less.

Non-individual assessee (comprising of, inter alia, Firms, Companies, Trusts, Association of persons):

Resident:

A Firm or an Association of persons is considered to be a resident in any previous year, unless during the relevant previous year the control and management of its affairs was situated wholly outside India.

A Company is considered to be a resident in any previous year, if-

it is an Indian company, or

during the relevant previous year the control and management of the company was situated wholly within India.

Fringe Benefit Tax :

In addition to the levy of income tax , the Income Tax Act also prescribes for the levy of income tax on 'Fringe Benefits' provided or deemed to have been provided by an employer to its employees. The term 'Fringe Benefit', inter alia, includes any privilege, service, facility or amenity, directly or indirectly, provided by an employer to his employees. The tax on 'Fringe Benefits' is payable by an employer. The rate of tax is 30% of the value of the fringe benefit.

Double Taxation Avoidance Agreements:

The Union Government has entered into Double Taxation Avoidance Agreements with about 70 countries. The provisions of these Agreements take precedence over the provisions of the Income Tax Act, except insofar as the provisions of the Income Tax Act are more beneficial to the assessee. The Agreements also provide for concessional rates of tax in respect of royalties, dividend, fees for technical services and interest.

INDIRECT TAXATION CENTRAL EXCISE:

A tax , known as the Central Excise Value Added Tax (CENVAT), commonly referred to as excise duty, is levied on the manufacture and production of goods in India. This tax is levied by the Central Government under the Central Excise Act, 1944.

Excise duty may either be at a rate specified, i.e., a specific amount fixed by the government in respect of particular products, or ad valorem, i.e., a specified rate as a percentage of the value of the goods.

There are three concepts applicable where Excise duty is levied ad valorem:-

Where the government fixes the tariff value of the goods and duty is charged thereon dependent on the rate fixed.

Transaction value - the price actually paid or payable for the goods, when sold and includes any amount charged as price.

Maximum retail price affixed on the package containing the goods.

The rates of Excise duty are specified in the First Schedule to the Central Excise Tariff Act, 1985 (Central Excise Tariff). The First Schedule is in line with the Harmonised System of Nomenclature (HSN), which is an international nomenclature adopted by more than 130 countries for international trade between member countries. The Central Excise Tariff classifies goods under different headings and subheadings. Against each heading and subheading the rates of excise duty are specified.

Cenvat Credit:

In order to avoid the cascading effect of tax , there is in place a scheme known as the Cenvat Credit Scheme. Under the Scheme a manufacturer or producer of goods is entitled in law to take credit of excise duty (Cenvat Credit) paid on capital goods (goods required for the setting up of plants or factories) and inputs used by it in the manufacture or production of final products manufactured or produced and utilise such credit for discharging its excise duty liability on goods produced or manufactured by it.

CUSTOMS DUTY:

Duties of customs are liable to be imposed on goods imported into or exported from India, under the Customs Act, 1962. India is an active member of the World Customs Organisation and has adopted various international Customs conventions and procedures including the Harmonised Classification System and the GATT-based valuation system.

Normally such duties are ad valorem in nature and therefore in most cases goods have to be valued for determining the quantum of duty payable. The rates of duty are specified in the Customs Tariff Act, 1975 (Tariff Act). The First Schedule to the Tariff Act contains the classification of goods and the rates of duty applicable on the goods imported into India. The Second Schedule sets out the rates of export duty on certain specified goods.

Import duties are levied under different heads:-

Basic Duty of Customs - the rates of duty are specified under the First Schedule to the Tariff Act.

Additional Duty of Customs - this duty is equivalent to the excise duty leviable for the time being on like goods manufactured or produced in India. This duty is levied to protect the domestic industry.

Further Additional Duty of Customs - a duty may be imposed by the Union Government to counterbalance excise duty leviable on raw materials, components and ingredients of the same nature as, or similar to those, used in the production or manufacture of such articles as the Union Government may by notification specify.

A further Additional Duty of Customs - a duty may be imposed by the Union Government to counterbalance sales tax , value-added tax , local tax or any other charges for the time being leviable on a like article on its sale, purchase or transportation in India.

Cenvat Credit:

An importer of capital goods or raw materials, who utilises the imported goods in setting up a factory or in the manufacture of goods in India, is allowed to take additional duty of customs (equivalent to the excise duty for the time being leviable) as credit under the Cenvat Credit Scheme and utilize it for payment of duty on the final goods manufactured in its factory.

Project Imports:

A special facility has been granted under the Tariff Act to persons importing goods for the initial setting up or substantial expansion of industrial plants, irrigation projects, power projects, mining projects, projects for exploration of oil and other minerals and such other projects as are notified by the Union Government having regard to the economic development of India. In such cases all items of machinery, including prime movers, instruments, apparatus and appliances, control gear and transmission equipment, auxiliary treatment, as well as components or raw materials for the manufacture of the aforesaid items and their components are classified under a single heading of the Tarriff Act and are entitled to be imported at a concessional rate of duty- 10% ad valorem.

SERVICE TAX :

A tax , known as Service tax , has been imposed by the Union Government under the Finance Act, 1994 on various services. Initially the tax was imposed only on three services. However, the number of services has increased over the years and now includes over 100 services. Some instances of services brought under the Act are: General Insurance; Telephone Services; Consulting Engineers; Banking; Business Auxiliary Services.

The tax is normally payable by the service provider. At present the rate of service tax is 12% of the value of the services provided.

Cenvat Credit:

A service receiver can take and utilise the amount of service tax paid on the service received by him as Cenvat credit and utilise the same of purposes of payment of excise duty on goods manufactured by him or, in case he provides further services, while paying service tax on the services rendered by him to another service receiver.

CENTRAL SALES TAX :

Under the Central Sales Tax Act, the Union Government has the power to impose a tax on the sale of goods from one State to another State of India (i.e. inter-state sales). A sales tax at the rate of 3% is charged when the transactions is between 2 registered dealers and at the rate of 10% in other cases.

VALUE-ADDED TAX :

The State Governments impose a tax on the sale of goods within their respective States. This is known as the Value Added Tax . This tax is payable at each point of sale by the seller. The seller of goods is entitled to take credit of the tax paid at the point of earlier sale and utilise that for paying the tax imposed on him. The rate of tax varies from commodity to commodity.

ADVANCE RULING:

The Government has set up Authorities for obtaining Advance Ruling. Two Authorities have been set up - one under the Income Tax Act, in relation to income tax liability and the other under the Customs Act in relation to excise, customs and service tax liability.

The Authority can pre-adjudicate or pre-determine inter alia the tax liability of the applicant or determine issues relating to classification of goods; principles for valuation; interpretation or applicability of notifications etc. Any determination by the Authority is statutorily binding on the judicial or assessing authorities, though only with reference to the applicant. This is a great boon for assessees as it takes away the uncertainties or vagaries of taxing statutes. However only non - residents or companies or individuals in joint venture with non - residents can avail of this facility and approach the Authority for an advance ruling.

TRADE AND INVESTMENT TREATIES

India has entered into several bilateral trade and investment treaties. Given below is a brief description of some of the significant ones:

India US Investment Incentive Agreement:

This Agreement seeks to promote and protect US investments into India by affording support to the US investor through the Overseas Private Investment Corporation (OPIC) - a US Government agency. OPIC investment support includes any debt or equity investment, any investment guarantee and any investment insurance or reinsurance provided in connection with a project in India. Investment insurance includes insurance against risks relating to inability to convert either currencies into US dollars, loss of investment due to expropriation or confiscation, losses due to war, revolution , insurrection, civil strife etc.

The Agreement provides for dispute resolution for inter - Government disputes relating to the interpretation of the Agreement or in relation to claims arising out of acts attributable to the Government of India involving questions of liability under public international law.

India U.K. Agreement For Promotion And Protection Of Investments:

This Agreement was entered into in January 1995 and seeks to encourage, promote and foster mutual investment. Both Countries are committed to create favourable conditions by according Most Favoured Nation (MFN) treatment to investors in their operation, management, maintenance, use, enjoyment and disposal of business.

As per the Agreement the investments by investors are not to be nationalized or expropriated except for a genuine public purpose. The Agreement also envisages compensation for the losses suffered by the investors owing to war/armed conflict, national emergency or civil disturbance.

The Agreement envisages settlement of disputes between the investor and the host State. This is firstly through negotiation, followed by International Conciliation under the UNCITRAL Conciliation Rules and finally through ad hoc arbitration under the UNCITRAL Rules.

India - Japan Trade Agreement:

India and Japan entered into a trade agreement in the year 1958. The Agreement provides for MFN treatment in respect of customs duties, charges on international transfer of payments for imports or exports, levy of other duties and charges, rules and formalities in connection with imported goods etc. Merchant Vessels have also been accorded MFN status.

India and Japan have also set up four working groups in goods, services, investment and bilateral cooperation to take forward negotiations on the proposed bilateral Comprehensive Economic Partnership Agreement (CEPA). This was initiated in September 2007. The CEPA proposes to make about 90% of trade duty free.

India and Japan have agreed to conclude talks on the CEPA by the end of 2007 and to increase bilateral trade to US$ 20 billion by 2010. Last year, India's export to Japan stood at around US$ 2.4 billion and imports stood at US$ 3.5 billion.

India - China Trade Agreement:

In 1984 India and China signed a trade agreement in order to promote and develop trade relations between the two countries. The Agreement provides for MFN treatment; cooperation on health and medical science, simplifying the procedure for visa application and banking cooperation. Certain goods and commodities have been specified which would be entitled to concessional import duties in the two countries.

India and China have formed a Joint Task Force to study the feasibility and benefits of a Regional trade agreement between the two countries. During the visit of the Chinese Premier in November, 2006, it was agreed that India and China will endeavour to raise the volume of bilateral trade to US$ 40 billion by 2010. It was also agreed that the JTF will finalise its report by the end of year 2007.

India - Singapore Comprehensive Economic Co-operation Agreement:

India and Singapore entered into a landmark economic co-operation agreement in August 2005. This is an integrated package and covers various fields.

The agreement provides for preferential import duty. Singapore will allow all imports from India at zero duty. India will initially reduce its duties on imports from Singapore by 80% and over a period of five years to zero duty.

The Agreement provides for liberalization of service sector and mutual recognition of educational degrees. India has allowed two FIIs - Temasek and Singapore Government Investment Company - to hold a total of 20 per cent stake in any Indian company as against the normal cap of 10 per cent put by the market regulator, SEBI. Following the treaty Indian exports to Singapore have more than doubled to US$ 3.6 billion.

Indian - Korean Trade Agreement:

India and Korea have entered into a trade agreement in the year 1978 to further economic and trade relations between the countries. The Agreement provides for MFN treatment in matters relating to trade between the countries. It also envisages preferential treatment in matters of taxes , custom duties, international transfer of payment for exports and imports, application of internal taxes for imported/exported goods etc.

The Agreement lists out several items which can be imported or exported on payment of preferential import duties.

In October 2004, the two countries established a Joint Study Group to come out with a comprehensive economic agreement. It is expected that the same will be arrived by the end of 2007.

INFRASTRUCTURE

While the Indian economy is seen as taking rapid strides, its physical infrastructure is several decades behind. It is considered to be not even at par with many underdeveloped countries. It is estimated that had it not been for the infrastructure gap, India would have generated about 2% more GDP year upon year. The Government has of late, single mindedly dedicated itself to the task of infrastructure upgradation. As per Government's current five year Plan, between now and 2012 India would need an investment of almost US$ 500 billion in its infrastructure, simply in order to sustain its current 9% GDP growth.

Among the happening sectors here are Roads which would need about US$ 55 billion investment; Airports which would need about US$ 10 billion and Ports US$ 12.5 billion (all within less than five years). In this Chapter we outline the scenario for four sectors viz. Road, Ports, Airports and Real Estate development. In all these sectors 100% Foreign Direct Investment is provided for under Government policy.

Roads:

This sector was the first to get Government's attention and the privatisation efforts here are well underway. Broadly, there are three types of privatization schemes here - the first is through the classic BOT model. Within BOT there are two variations. The One; where the bidder bids to pay to the State a certain sum of money in return for the privilege to toll the road. The second variation is the reverse - where the income from the toll is not expected to be lucrative and the State promises to give a monetary grant to the contractor (in addition to the tolling right). Two other models are the Annuity Model where the road is not to be tolled by the contractor but he is entitled to a pre-determined annuity. This is typically for rural or remote areas. The other model in vogue is called "shadow tolling". This is again where the road is not tolled but the contractor is paid depending upon the volume of traffic using the road.

The Government has in place Model Concession Agreements on the basis of which the various types of concession agreements are entered into.

Private players are entitled a 10 year income tax holiday and duty free or subsidized import of road construction equipment.

Airports:

The pressure on airports has increased dramatically in recent years. This sector has witnessed a 35% average growth, year upon year, for the past about six years, as against the global average growth of 9% per annum. The Government has so far signed two brownfield airport concession agreements (for Delhi and Mumbai) and two greenfield agreements (for Bangalore and Hyderabad). However many more are in the pipeline. The Government has not yet come out with a Model Concession Agreement here.

In order to make the projects bankable the Government allows a large chunk of land to be handed over to the concessionaire at a notional cost for free development. The concessionaire can develop in this area a Special Economic Zone, townships; golf courses; power plants or even industries (so long as the permitted land user is adhered to). For instance, the concessionaire for Bangalore airport got about 300 acres of land and the New Delhi airport concessionaire got 250 acres of land, virtually free for commercial exploitation.

The Government's approach between the brownfield and the greenfield airports has been significantly different. In the greenfield airport the concessionaire is required to share 4% of its gross revenue (pre- tax ) with the Government. There is no other fees payable. For the brownfield airport however (presumably because the airport is already up and running) the income sharing is far greater. For instance, for the New Delhi airport the successful bidder made a bid for sharing 45.99% (pre- tax ) of its gross revenue and additionally paid a one time lump sum fee of US$ 37.5 million. Besides, in the greenfield sector, the concession agreements are far more liberal and leave it largely to the concessionaire to develop the airport with very little Government intervention; whereas in the brownfield sector the Government is far more hands on and aggressive in its regulation and monitoring.

The concessionaire is entitled to a 10 year tax holiday and concessional or duty free imports of requisite equipment.

Ports:

Despite a 7517 k.m. coastline, India is short of modern efficient ports. Major Ports i.e. Centrally administered Ports - (there are 12 Major Ports in India) handled a total of 500 million tonnes cargo last year. The Government has ambitious plans and has formulated a National Maritime Development Programme. This envisages a total of 387 projects relating to ports, shipping and inland water-works, having a total of outlay of over US$ 25 billion. The Government has put in place Model Concession Agreements for both Major and Minor Ports. However the same are currently in the process of review and therefore are not strictly followed.

Private player in ports too are entitled to a 10 year tax holiday and concessional or duty free imports of requisite equipment.

Real Estate Development:

A 2006 study by the Federation of Indian Chambers of Commerce shows that revenue from commercial and urban properties sales through out India has grown 30% per annum in the previous three years. The land price have tripled in the recent past in some areas since 2004. Office rents in Mumbai and New Delhi now exceed Hong Kong or mid town Manhattan. According to the industry analysts, India has less urban modern office space than a single large American city. Merrill Lynch states that the industry would grow to US$ 90 billion by 2015, as against US$ 12 billion in 2005.

Salient features of the Government policy for Foreign Direct Investment are as follows:

Minimum land area for development to be 10 hectares for serviced housing plots and 5 hectares for other construction projects.

Minimum capitalisation of US$ 10 million for 100-percent subsidiaries incorporated in India and US$ 5 million for joint ventures with Indian partners. Funds are to be brought in within six months of commencing business.

Original investment not repatriable before a period of three years from the date of completion of minimum capitalization amount. However, the investor may be permitted to exit earlier with prior approval of the government.

Undeveloped plots cannot be sold and at least 50% of the project must be developed within a period of five years. "Undeveloped plots" mean where roads, water supply, street lighting, drainage, sewerage, and other conveniences, have not been made available.

INTELLECTUAL PROPERTY RIGHTS

Indian courts vigorously protect intellectual property rights (IPRs). Following the GATT Agreement India has made its IPR laws TRIPS compliant. In this Chapter, we deal with the three major IPR laws viz. Trademarks, Copyrights and Patents.

TRADEMARKS:

Registration of a trademark is not mandatory as the law also recognizes and enforces the Common Law right of passing off. However for passing off, the plaintiff has to establish its reputation in relation to the mark and the fact that the offending mark is likely to confuse the public. On the other hand once the mark is registered it automatically confers on the proprietor an exclusive right to use the same in relation to the goods or services in respect of which the mark is registered. The remedy in relation to infringement of a mark (whether registered or not) lies in injunction and damages coupled with an order for delivery of the infringing marks or labels etc. and for destruction of the same. Further, in relation to registered trademarks a criminal action may also be initiated and the offence carries a minimum of six months imprisonment which may extend to three years. The police has been given power to search and seize goods or other instruments involved in committing the offence. However it is mandatory for the police to obtain and act as per the advice of the Registrar of Trademarks.

Where goods with an infringing mark are being imported into India, the proprietor can approach the customs authorities under the Customs Act, 1962 and ask for confiscation of the goods. The importer or his agent are also personally liable if they fail to furnish the details of the consignor or consignee.

Registration of a trademark is valid for 10 years and is renewable for further periods of ten years from time to time.

India is a party to the Paris Convention and has accordingly notified certain countries as Convention countries. A person from a Convention country, may within six months of making an application in his or her home country, apply for registration of the trademark in India. If the trademark is accepted for registration, the foreign national will be deemed to have registered the same in India, from the date of application in the home country.

Where applications have been made for the registration of a mark in two or more Convention countries, the period of six months would be reckoned from the date on which the earlier or earliest of those applications was made.

COPYRIGHTS:

Registration of copyrights is also not mandatory. However, a certificate of registration and the entries made in the register of copyright serves as prima facie evidence in a court of law with reference to any dispute relating to ownership of copyright. The owner of the copyright is entitled to injunction and damages in addition to impounding and destruction of all infringing copies including masters etc. Besides criminal liability is also provided for in relation to a registered work and the minimum punishment provided for is six months imprisonment, which may extend upto three years.

Foreign Works: A work having copyright protection in a country mentioned in the International Copyright Order is also protected in India, as if the same is an Indian work.

India is a member of the following international conventions on copyright and related matters:

(i) Berne Convention for the Protection of Literary and Artistic works.

(ii) Universal Copyright Convention.

(iii) Convention for the Protection of Producers of Phonograms against Unauthorised Duplication of their Phonograms.

(iv) Multilateral Convention for the Avoidance of Double Taxation of Copyright Royalties.

PATENTS:

The Indian Patents Act, 1970 has undergone a thorough recast following various international treaties including the TRIPS Agreement. The life of a patent has now been increased to twenty years uniformly. Further product patent has been recognized.

India is a member of the following International Organisations and Treaties in respect of patents:

World Trade Organisation (WTO)

Convention establishing World Intellectual Property Organisation (WIPO)

Paris Convention for the Protection of Industrial Property

Patent Co-operation Treaty (PCT)

Budapest Treaty

India being a WTO member, provision has been made in the Patents Act for granting Exclusive Marketing Rights (EMRs). This is for a period of five years or till the patent is granted or rejected, whichever is earlier. However EMRs can only be in relation to medicines or drugs.

Further India being a party to the Patent Co-operation Treaty (PCT) an inventor/assignee can file an application for grant of patent via the PCT route in his own home country (called International Application) and after search and examination of his invention for novelty, patentability etc., file the application for grant of patent in India (known as an entry into National Phase PCT Patent Application). The National Phase PCT Patent application in India can be filed within 31 months of the priority date. The application would be examined by the Patent Office in India to determine its conformity with Indian Patent Laws and patent protection would be granted if found eligible. Alternatively, an inventor can file an application for grant of a patent in his home country and then file an application for grant of Patent in India within 12 months of filing in home country (provided the home country is also a member of the Paris Convention).

If the invention is patented in other countries, but not in India, then the invention falls in public domain in India and would have no protection.

Unlike trademarks or copyrights, an act of infringement of a patent entails only a civil remedy of injunction, damages, seizure and forfeiture of infringing material.

LABOUR AND EMPLOYMENT

The most common issues in labour and employment laws are termination, suspension, and procedures to be followed in misconduct under the relevant Standing Orders. Any punishment of suspension or dismissal of an employee can be imposed only after conducting a domestic inquiry. Principles of natural justice have to be followed.

Labour laws fall under "Concurrent List" under the Constitution of India which means that both the Centre and the State Legislature are competent to legislate on the subject. However any laws passed by the former would take precedence over the latter. Further, only the Centre can legislate in relation to mines and oil fields and industrial disputes concerning union employees. Some of the major workmen legislation are dealt with hereunder.

Laws Relating To Wages, Working Hours And Leave Of Workers:

These are governed inter alia under the Payment of Wages Act, Minimum Wages Act; the Factories Act and the Payment of Bonus Act. Besides, industries employing more than 100 workmen are required to issue Standing Orders as per a Model Standing Order which have to be approved by the Government and certified. Standing Orders govern issues like holidays, wages, leave, termination etc.

Laws Relating To Injury, Health And Maternity Benefit:

These are covered, inter alia, under Workmen Compensation Act, Maternity Benefit Act and the Employees State Insurance Act.

Laws Relating To Retirement Benefit:

These are covered inter alia by the Employees Provident Fund And Miscellaneous Provisions Act and the Payment of Gratuity Act.

Laws Relating to Industrial Disputes:

Industrial disputes are covered under a very significant Central Act called the "Industrial Disputes Act, 1947". The Act applies to workmen only but "workman" is defined very widely to cover anyone carrying out a skilled or unskilled or supervisory work. Basically, only managerial and administrative staff are excluded from the definition of "workman." The Industrial Disputes Act provides inter alia for lay off, retrenchment and closure.

Lay Off means the inability of the employer to provide work for any reason. Prior permission of Government is required for Lay Off where more than 100 workmen are employed in an industrial establishment during the preceding 12 months. The employer is required to pay compensation to the workers at the rate 50% of their wages for a maximum period of 45 days in a year.

Retrenchment requires a one month notice to the concerned employee along with compensation at the rate of 15 days wages for each completed year of service. Special provisions under the Act are applicable in relation to industrial establishments employing 100 or more workers. In this case, employers are required to give three months' written notice stating reasons for the retrenchment. In addition, the employer is required to seek prior permission from the Government.

Closure means the permanent closing down of a place of employment or part thereof. An employer intending to close down an undertaking is required to give 60 days notice to the workers in addition to compensation. Compensation is payable at the rate of 15 days wages for each completed year of service.

The Act requires prior permission of the Government before closing down an undertaking in case the establishment employs more than 100 workmen. The Government considers the genuineness and adequacy of the reasons before granting permission for closure. The period of notice is 90 days.

Shops & Establishment Act:

In so far as shops or commercial establishments are concerned, they are governed by the State laws which usually go under the name of Shops & Commercial Establishment Act. Establishments such as hotel, restaurant, theatre, cinemas etc. are also covered under such legislation. These enactments regulate the working hours, rest intervals, overtime, holidays, leave, termination of service, other rights and obligations of the employers and employees.

Proceedings And Jurisdiction:

Labour related disputes are brought before different forums having a subject-wise jurisdiction. These are constituted by the State Governments. The labour court has powers in respect of interpretation or violation of Standing Orders, withdrawal of any customary concession or privilege, discharge or dismissal of a workman, illegality or otherwise of a strike or lockout, and all other matters that are not under the Industrial Tribunal. The Industrial Tribunal has jurisdiction in relation to wages, compensatory and other allowances, hours of work and rest intervals, leave with wages and holidays, bonus, profit sharing, provident fund and gratuity, classification by grades, rules of discipline, and retrenchment of workmen. The National Tribunal formed by the Central Government adjudicates industrial disputes of national importance or where industrial establishments are situated in more than one State.

Managerial / Senior Administrative Staff:

These would usually not fall under the definition of workman and the employer - employee relationship can be regulated through Contract.

DISPUTE RESOLUTION

Due to the English traditions (which India imbibed) Indian courts follow the adversarial system in litigation. This involves the somewhat lengthy procedures of pleadings, filing of documents, interrogatories and discoveries, oral evidence with cross examination, followed by judgment. As a result of excessive workload, specially after independence coupled with the courts increasingly expanding jurisdiction, the legal system has got overworked and it takes years (and sometimes decades) for ordinary civil disputes to reach conclusion. Accordingly arbitrations in India have become necessary. It is relatively quick and efficient. Mediation and other forms of ADRs have not yet caught on. In this Chapter we outline the contours of the arbitration laws in India.

A New Arbitration Act:

India enacted a new Act in 1996 titled the Arbitration & Conciliation Act, 1996 (hereinafter Act - for full text of the Act please see www.kaplegal.com). The Act is based on the UNCITRAL Model Law, 1985 and the UNCITRAL Arbitration Rules of 1976.

Conduct Of Arbitration Proceedings:

The arbitrators are masters of their own procedure and subject to parties agreement, may conduct the proceedings in the manner they consider appropriate. This power includes the power to determine the admissibility, relevance, materiality and weight of any evidence. The only restraint on them is that they shall treat the parties with equality and fairness. Each party shall be given a full opportunity to present its case, which includes sufficient advance notice of any hearing or meeting. Neither the Code of Civil Procedure nor the Indian Evidence Act applies to arbitrations. Unless the parties agree otherwise, the tribunal shall decide whether to hold oral hearings for the presentation of evidence or for arguments or whether the proceedings shall be conducted on the basis of documents or other material alone. However the arbitral tribunal shall hold oral hearings if a party so requests (unless the parties have agreed before hand that no oral hearing shall be held).

The arbitrators have power to proceed exparte if the respondent, without sufficient cause fails to communicate his statement of defence or appear for an oral hearing or produce evidence. However in such situation the tribunal shall not treat the failure as an admission of the allegations by the respondent and shall decide the matter on the evidence, if any, before it.

Position Of International Commercial Arbitration:

The Arbitration Act applies to both domestic and international arbitrations conducted in India (an international arbitration is one where at least one of the parties is a foreigner or has its management and control in a foreign country). The Act has two significant parts. Part I contains provisions governing both domestic and international arbitration and Part II provides for enforcement of foreign awards. Any arbitration conducted in India (international or domestic) would be governed by Part I. So long as the arbitration is conducted in India, the same sets of provisions (provided for in Part I of the Act) apply. There are however two special provisions governing international arbitrations. The first is if the court is called upon to appoint an arbitrator. Here, in the case of an international commercial arbitration, the appointment is made by the Chief justice of India whereas in the case of arbitration between Indian parties, the appointment is made by the Chief Justice of the High Court where the dispute arises. The second difference is with regard to governing law. In the case of international arbitrations, the arbitrators may apply a governing law other than Indian law. In the case of domestic arbitration, the arbitrators can apply only Indian law.

Approach Of The Court:

One of the fundamental features of the Act is to minimise the supervisory role of courts in the arbitral process. Indeed the Act contemplates of only three situations where courts may intervene in the arbitral process. These are - (i) appointment of arbitrators - i.e. where the parties envisaged method for the same fails; (ii) ruling on whether the mandate of the arbitrator stands terminated due to inability to perform his functions or failure to proceed without undue delay; and (iii) render assistance in taking evidence.

Position Of Foreign Awards:

India is the signatory to the New York Convention. However every foreign award would not be enforceable in India. In order for an award to be enforceable in India, it must have been passed in a territory which the Government of India has notified to be a territory to which the New York Convention applies. This is a significant feature to be borne in mind while selecting the venue for off-shore arbitrations. As on date only 43 countries have been notified by the Government of India and an award rendered in these countries alone would be recognized as a foreign award and enforceable as such in India. The countries which have been notified by India are:

Austria, Belgium, Botswana, Bulgaria, Central African Republic, Chile, Cuba, Czechoslovak Socialist Republic, Denmark , Ecuador, Arab Republic of Egypt, Finland, France, German Democratic Republic, Federal Republic of Germany, Ghana, Greece, Hungary, Italy, Japan, Kuwait, Republic of Korea, Malagasy Republic, Mexico, Morocco, Nigeria, The Netherlands, Norway, Philippines, Poland, Romania, San Marino, Spain, Sweden, Switzerland, Syrian Arab Republic, Thailand, Trinidad and Tobago, Tunisia, Union of Soviet Socialist Republics, United Kingdom, United Republic of Tanzania, and United States of America.

Recourse Against Awards:

The grounds for challenge to an award (domestic or foreign) are very limited. In short, an award can be set aside if:

the party making the application was under some incapacity; or

the arbitration agreement was not valid under the law agreed to by the parties (or applicable law); or

the party making the application was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

the award deals with a dispute not contemplated by or falling within the terms of submissions to arbitration or it contains decisions beyond the scope of the submissions to arbitration; or

the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties; or

the subject matter of the dispute was not capable of settlement by arbitration.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Sumeet Kachwaha Kachwaha & Partners 1/6 Shanti Niketan New Delhi 110 021 INDIA E-mail: skachwaha@kaplegal.com. URL: www.kaplegal.com Click Here for related articles (c) Mondaq Ltd, 2008 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com