STARTUP AND ENTERPRENEURSHIP LAW

Module 1
1. Sole proprietorship as a business structure
Registration requirement and procedure
2. Family business
Issues in family business
Taxation issues
Partition and family settlement: https://aiftponline.org/journal/2019/august-
2019/family-settlement/
Appointment of professional management for running a business
3. Structuring a partnership / LLP
Partnership Deed, LLP Agreement, registration requirement and procedure, number of
partners, designated partners, sharing of profits, dissolution of partnership, default rules
under Partnership Act and LLP Act.
https://icsi.edu/media/filer_public/dc/6e/dc6e8d54-a865-4b44-a7ac-
51c59f213126/limited_liability_partnership_llp.pdf
https://www.taxmann.com/post/blog/all-about-limited-liability-partnerships-
llp/#Name-of-LLP
4. Structuring a company
Formation and incorporation- private company, one person company: Reservation of
Name, Director Identification Number and Digital Signature, Forms to be submitted to
Registrar of companies for incorporation, Memorandum and Articles of Association,
Types of Share Capital, Annual and periodic compliances.
5. Incentives and relaxations for startups and early stage businesses
MSMED Act (Micro, Small And Medium Enterprises DevlopmentAct,2006):
Advantages of registration, Registration process, money recovery procedures for
startups, effective payment-related , dispute resolution mechanisms, Sample disclosure
to be made under MSMED Act
6. Non-profit businesses and hybrid models
Procedure and key issues for incorporation of a trust / society / non-profit company
Tax benefits for a non-profit
Hybrid structures and their relevance

What is sole proprietorship? Highlight the registration requirements and procedures for sole
proprietorship.

Ms. Sneha wants to convert her Insurance Intermediaries Business into a Startup. She has plans
to expand her business pan India. She consulted AMN Law Firm to know about the process
required for Limited Liability Partnership. Explain her Partnership Deed, LLP Agreement and
registration procedure Limited Liability Partnership Act, 2008.

Discuss in detail LLP Agreement, registration requirement and procedure as prescribed in the
LLP Act, 2000.
For a decade, mr. deepak and mr. aakash have been running a successful proprietorship. They
are in the fruit and vegetable business. They came across ms. ayesha who is in business
development. She suggested both of them establish a startup by registering LLP and take your
guidance. With reference to the given facts, you need to guide mr. deepak and mr. aakash on
the significance of LLP, benefits available and compliance required to establish a start-up
through a LLP.

SOLE PROPRIETORSHIP

Meaning:
Sole proprietorship is a common form of organization in retail trade, professional firms,
household and personal services. This form of organization is quite popular in India. This sector
contributes significantly to the manufacturing output, employment and export also.
Advantages of a Sole Proprietorship:
a. Easy and inexpensive process: Establishing a sole proprietorship is generally and easy
and inexpensive process unlike forming a partnership or a corporation. Compared to
other business forms, there is very little paperwork a proprietor needs to file with their
local authorities. As a result, proprietors do not have to wait long before they have
permission to carry on a business. The startup fees are also low, in line with many govt
policies that encourage entrepreneurs to take risks and grow the economy.
b. Few governments regulations: There are very few government rules and regulations
that are specific to proprietors. Sole proprietors need to keep proper records, files and
pay taxes on the business income and other personal income sources. Record keeping
and tax filing obligations are generally no more complicated than maintaining records
for individual tax filings. Due to the time and the effort, proprietors can opt for
specialized software and advisors to streamline the time spent on administration. Govt.
rules for larger enterprises and public companies require far more administration and
do not apply to sole proprietors.
c. Tax advantages: Unlike the shareholders of corporations, the owner of a sole
proprietorship is taxed only once. The sole proprietor pays only the personal income
tax on the profits earned by the entity. The entity itself does not have to pay income tax.
Disadvantages of a Sole Proprietorship:
a. Unlimited liability of the owner: There is no legal separation between the owner and
the business. Similar to how all profits flow to the owner, all debts and obligations rest
with the proprietor. If the business cannot satisfy its obligations, creditors may pursue
the proprietor’s personal assets in order to be repaid. This accountability is outlined
within the legal documents signed with lenders called as a promissory note. A proprietor
does not need to provide a personal guarantee to their sole proprietorship as the two are
same legal entity in the eyes of the law.
b. Limitations on capital: When starting their own businesses, owners invest their own
money and time into the enterprise. There are limits to their money and the amount of
credit they can get when they look for banking relationships. It is not possible for
business owners to raise capital by selling shares or other interests in their company.
Registration of Sole Proprietorship
The procedure for incorporating a sole proprietorship firm is-
 Applying for PAN card.
 After obtaining a PAN card, or if the proprietor already has a PAN card, the next step
is to keep a name for the sole proprietorship business.
 The next step is to open a bank account in the name of the business. All the transactions
of the business will be through this bank account.
 Though no specific registration is required for starting a sole proprietorship firm, certain
basic registrations are required to be obtained by a sole proprietorship firm for doing
business. The basic registrations required by a sole proprietorship are-
o The proprietor needs to obtain the Registration Certificate under the Shops and
Establishment Act of the state in which the business is located.
o The sole proprietorship should also register for GST if the business turnover
exceeds Rs.20 lakh.
o The sole proprietorship can also register as a Small and Medium Enterprise
(SME) under MSME Act, though it is not mandatory, it is beneficial to be
registered under the same.

Documents Required for Sole Proprietorship

The documents required for registration of Sole Proprietorship are-
 Aadhaar card: One needs Aadhaar card, which is a unique identification number issued
by the Indian Govt., for the registration of a sole proprietorship.
 PAN card: A PAN card is required for filing income tax returns and conducting financial
transactions. One needs to provide the PAN Card details for the registration process.
 Registered office proof: You must submit proof of your registered office address, which
can be either a rent agreement and a No Objection Certificate (NOC) from the landlord
for a rented property or an electricity bill, utility bill, or sale deed for a self-owned
property.
 Bank account: You need to open a bank account for your sole proprietorship. Along
with the above documents, you will be required to provide additional identity proof and
address proof to open the account.

FAMILY BUSINESS
Meaning:
Family business is a business that is owned, operated and handled by two or more members of
a family. These members should be blood-related, related by marriage or adoption. A family-
owned business has to have the following qualities:
a. A sole family has to own the majority percentage of the ownership
b. Has to have control over the voting system
c. Possess power in strategic decision-making
d. Multiple generations of that single-family have to be involved in that business
e. The same family has to draw the senior management of that firm
A family business is of utter significance in the economy of a country. It is one of the oldest
economic systems with a substantial contribution to the GNP or Gross National Product of a
country, total export and total employment.
Issues in family business
 a. Succession Planning: Succession planning is one of the most critical issues in family
businesses in India. In many cases, the business owner does not have a clear plan for
who will take over the business when they retire or pass away. This can lead to conflicts
and disagreements within the family, which can ultimately affect the business's
operations.
b. Lack of Professionalism: In many family businesses, there is a lack of separation
between family and business matters. Family members may be hired without proper
qualifications or experience, leading to poor decision-making and operational
inefficiencies. There may also be a lack of formal policies and procedures, leading to a
lack of accountability and transparency.
c. Resistance to Change: Family businesses in India may be resistant to change, which
can make it difficult for them to adapt to new market trends or technological advances.
This can lead to a decline in the business’s competitiveness and overall success.
d. Unequal Distribution of Responsibility: Family businesses may have unequal
distribution of responsibility among family members, leading to conflicts and
resentment. This can affect the business’s performance and lead to a lack of innovation
and growth.
e. Lack of Trust: In some cases, there may be a lack of trust among family members in a
family business. This can lead to disputes over decision-making, financial matters, and
other issues, ultimately affecting the business's operations and success.
Partition and family settlement
When a dispute over property arises in a family, the most common course of action adopted by
the family members can be the recourse to courts for settlement of the dispute. However, going
to a court of law has the risk of souring the relations even more. Thus, to preserve the sanctity
of family relations, one way to address issues in family businesses in India is through partition
and family settlement.
This involves the division of assets and liabilities among family members, and the
establishment of clear boundaries and responsibilities for each member. This can help to reduce
conflicts and ensure that each family member is clear on their role within the business. Partition
and family settlement can be done through legal means, such as through a family settlement
agreement or a partition deed.
Appointment of professional management for running a business
Another way to address issues in family businesses is through the appointment of professionals.
This can include hiring outside experts, such as accountants, lawyers, or business consultants,
to help with specific aspects of the business, such as financial management, legal compliance,
or strategy development. It can also involve bringing in non-family members to assume
leadership roles within the business, such as a CEO or board member. This can help to ensure
that the business is run professionally and effectively, and that decisions are made based on
objective criteria rather than personal biases or family dynamics. However, it is important to
balance the involvement of professionals with the need to maintain family harmony and ensure
that family members are still involved in the business to an appropriate degree.

PARTNERSHIP/LLP
Meaning:
An LLP is a type of body corporate, introduced in 2001 by the LLP Act, 2000. An LLP is not
a company, it is a different type of body corporate. However, like a company it is a separate
legal entity from its stakeholders which are known as members of the LLP.
LLP Act, 2008
As per the Section 3 of LLP Act, 2008, the LLP is recognised as a body corporate as per the
following:
a. The formation and incorporation of an LLP under the relevant legislation results in the
establishment of a distinct legal entity that is independent of its constituent partners.
b. Perpetual succession is a characteristic that an LLP possesses.
c. The alteration of the members of an LLP shall not impact the survival, entitlements, or
obligations of the LLP.
LLP Agreement
 LLP Agreement is a written contract between the partners of the LLP or between the
LLP and its designated partners.
 It establishes the rights and a duty of the designated partners toward each other as well
toward the LLP.
 It is compulsory to execute and file the LLP agreement with MCA within 30 days of
the incorporation of LLP.
 It creates the foundation for the smooth running of LLP.
Partnership Deed
 It is a written legal document that contains on agreement made between two individuals
who have the intention of doing business with each other and share profits and losses.
Registration of LLP
1. User Registration: The process of registration of an LLP is to be carried out on the
Ministry of Corporate Affairs website.
2. Obtain Designated Partners Identification Number (DPIN): Individual needs to apply
for DIN of all the designated partners or those intending to be designated partner of the
proposed LLP. The application for allotment of DIN has to be made in Form DIR-3.
The scanned copy of documents like Aadhaar or PAN is to be attached in the form. The
form is to be signed by a company secretary in full-time employment of the company
or by the Managing Director/Director/CEO/ CFO of the existing company in which the
applicant shall be appointed as a director.
3. Digital Signature Certificate: Individual needs to apply for the digital signature of the
designated partners of the proposed LLP. This is done because all the documents for
LLP are filed online and are required to be digitally signed
4. Reservation of name: For reserving the name of the LLP, Form-1 has to be filed and
up to 6 choices can be selected which is to be accompanied by fees as per Annexure
‘A’ which may be either approved/rejected by the registrar. A re-submission of the form
shall be allowed to be made within 15 days for rectifying the defects. Details of
minimum 2 designated partners is to be filled in out of which one must be a resident of
India.
5. Incorporation of LLP: Once the name is reserved by the Registrar, Form-2
“Incorporation Document and Statement” is to be filled. The prescribed registration fee
 as per the slab given in Annexure A of the LLP Rules, 2009 based on the total monetary
value of contribution of partners in the proposed LLP is to be paid. The statement in
the e-form is be digitally signed by a person named in the incorporation document as a
designated partner having permanent DPIN and also to be signed by an
advocate/company secretary/ CA/ cost accountant in practice engaged in the formation
of LLP. Once the documents are submitted and the Registrar is satisfied about
compliance with relevant provisions of the LLP Act will register the LLP within 14
days of filing of Form-2 and will issue a certificate of incorporation in Form-16.
6. Filing of LLP agreement (Form-3) and Partners’ details (Form-4): As per Section
23, LLP Agreement governs the mutual rights and duties amongst the partners and also
between the LLP and its partners. Form 3 and Form 4 are to be filed with the prescribed
fee simultaneously at the time of filing Form 2 or within 30 days of the date of
incorporation or within 30 days of such subsequent changes.
Liabilities of the Partners
1. All partners, are agents of the LLP, but not of other partners.
2. LLP shall not be liable for the omissions/mistakes of its partners if that partner is not
properly authorized to carry on that activity.
3. Liabilities of the LLP shall be met only with the properties of the LLP.

INCENTIVES AND RELAXATIONS FOR STARTUPS AND EARLY-STAGE

BUSINESS
1. MSMED Act (Micro, Small and Medium Enterprises Development Act, 2006): The
MSMED Act provides various benefits and support to micro, small and medium
enterprises (MSMEs), including start-ups and early-stage businesses. This includes
financial assistance, credit facilities, and protection against delayed payments.
2. Advantages of registration: Registering your start-up or early-stage business as an
MSME can provide several benefits such as access to credit, subsidies, and tax benefits.
It can also help in availing various schemes and programs launched by the government
to support MSMEs.
3. Money recovery procedures for startups: The government has introduced various
measures to simplify the process of recovering money for startups and MSMEs. For
instance, the Insolvency and Bankruptcy Code (IBC) has been amended to include a
pre-packaged insolvency resolution process for MSMEs with a default limit of up to
Rs. 1 crore.
4. Effective payment related: Delayed payments can be a major challenge for startups and
MSMEs. To address this issue, the government has implemented a mechanism for
timely payment to MSMEs. Under this, all companies with a turnover of more than Rs.
500 crore are required to mandatorily register on the Trade Receivables Discounting
System (TReDS) platform to facilitate the smooth flow of credit to MSMEs.
5. Dispute resolution mechanisms: Disputes can be a major hurdle for startups and early-
stage businesses. To address this, the government has set up various platforms such as
the National Company Law Tribunal (NCLT) and the Commercial Courts to expedite
dispute resolution and provide a cost-effective alternative to traditional courts.
 NON-PROFIT BUSINESSES AND HYBRID MODELS
Non-profit businesses and hybrid models are legal structures that are used by organizations to
achieve social or public objectives without seeking profits. Let's discuss the key points related
to non-profit businesses and hybrid models in detail:
1. Procedure and key issues for incorporation of a trust / society / non-profit company:
To incorporate a trust, society or non-profit company, the founders need to follow the
registration process prescribed under the relevant laws such as the Indian Trusts Act,
1882, Societies Registration Act, 1860, and Companies Act, 2013 respectively. The key
issues that need to be considered while incorporating a non-profit organization include
drafting of the memorandum and articles of association, appointment of trustees or
office bearers, registration with relevant authorities, compliance with legal and
regulatory requirements, and maintaining proper records.
2. Tax benefits for a non-profit: Non-profit organizations can enjoy various tax benefits
under the Income Tax Act, 1961. These include exemption from income tax on the
surplus generated from activities that are aligned with the objectives of the organization,
tax deduction on donations made to the organization, and exemption from taxes on
income generated from property held by the organization for charitable purposes.
3. Hybrid structures and their relevance: Hybrid structures refer to combining two or
more legal structures to achieve social objectives. For example, a non-profit
organization can be registered as a trust and a society to leverage the benefits of both
structures. Hybrid structures can help organizations to address the limitations of a single
legal structure, access additional resources, and better achieve their social objectives.
In conclusion, non-profit businesses and hybrid models are legal structures that are used by
organizations to achieve social or public objectives without seeking profits. The incorporation
process for trusts, societies, and non-profit companies involves compliance with legal and
regulatory requirements. Non-profit organizations can enjoy tax benefits under the Income Tax
Act, 1961. Hybrid structures can help organizations to address the limitations of a single legal
structure and better achieve their social objectives.
 Module 2

MODULE II: Taxation, basic accounting, import-export and customs duty

1. Accounts for business: Elementary accounting and record keeping for various forms
of business entities (for
2. person who is not trained in finance), Accounting and the Law, Financial planning for
a business.
3. Corporate taxation
4. Corporate income tax, Minimum Alternate Tax (MAT), taxation of software product
and SAAS companies, tax on issue of capital (e.g. equity, bonus shares and
convertible instruments)to different entities, transfer pricing
5. How TDS works – including forms, modes and timelines of for payment double
taxation avoidance provisions and agreements, tax on software
6. Indirect Taxes: How and when to obtain registration for Central Sales Tax, VAT,
Service Tax, Excise Duty
7. Tax strategy, regulatory proceedings and litigation
8. Export and import: Import and Export duties, Process of import-export, incentives for
exporters.

ACCOUNTS AND AUDITS

Accountancy
Meaning: It encompasses the recording, classification and summarizing of transactions and
events in a manner that helps its users to assess the financial performance and position of the
entity.

Financial Statement
Meaning: Represents a formal record of the financial activities of an entity. These are written
reports that quantify the financial strength, performance and liquidity of a company. The types
of financial statements are:
 Balance Sheet: includes assets, liabilities and equity
 Profit and Loss Statement: includes income and expenses
 Change in equity statement
Provisions:
 Chapter IX – Section 128 and Section 138 along with Schedule II and II deals with the
accounts and accounting standards.
 Section 128: As per this section, book of account should be maintained and kept at a
registered office of the company with all relevant papers and financial statements. It is
done to give a true and fair view of the company. It is done on an accrual basis according
to double entry system. It can be kept at other place in India as well as the Board of
Directors may decide. The notice is to be filed with the RoC giving the full address of
that other place within seven days.
 The book of account and other relevant papers may be kept in electronic mode as per
the Rule 3 of Companies (Accounts) Rules, 2014. This is known as Principle Rule.

Double Entry
 It has two effects of transaction.
 Example: Purchase of coke
Buyer’s:
 Effect 1: buyers cash balance would decrease by the amount of the cost of purchase.
Effect 2: he will acquire a bottle of drink.
Sellers:
Effect 1: seller will be one drink short
Effect 2: seller will increase by purchase of the drink.
 This is known as a double effect. Without this the accounting record will reflect partial
view of the companies’ affairs.

Accrual Basis
 Accrual basis can be of two types: Accrual Income and Accrual Expenditure.
 Accrual Income: It is an income occurred but not received. Example: Interest on bank
deposit. Example: Debit – Interest income receivable amount. Credit: Interest on bank
deposit amount.
 Accrual Expenditure: It is an expenditure occurred but not yet paid. Example: Loan
interest. Example: Debit – Interest payable amount. Credit: Interest payable amount.

Manner of books of account to be kept in electronic mode

The Companies (Account) Rules, 2014, under Rule 3, provides the manner in which the books
of account should be kept in electronic mode. As per the rules, the books of account must
remain accessible in India on a server physically located in India, even for backups. The books
should be retained completely in the format in which they were originally generated, sent, or
received, and the information received in electronic form should be complete and unaltered.
Furthermore, the books of account should be capable of being displayed in a legible form, and
there should be a proper system of storage, retrieval, and display approved by the Audit
Committee or Board of Directors. This provision ensures that the books of account are being
maintained securely and that the necessary information is available for regulatory authorities
for inspection and verification.
Moreover, the electronic records cannot be disposed of or rendered unusable unless permitted
by law. This provision ensures that the records are being maintained in compliance with the
law and that the necessary information is available for inspection and verification at any time.

Intimation to RoC with respect to electronic mode

As per the Companies Act, 2013, companies can maintain their books of account in electronic
mode. However, it is necessary for them to intimate certain information to the Registrar of
Companies (RoC) on an annual basis, at the time of filing their Financial Statements.
The information that needs to be intimated to the RoC includes the name of the server where
the electronic mode is being used to maintain the books of account, the internet protocol (IP)
of the service provider, and the location of the server provider. This information is required to
ensure that the electronic records are being maintained in a secure and reliable manner.
Furthermore, if the company is maintaining its books of account in the cloud, it needs to provide
information on the location of the server where the cloud service provider is based. This
provision is in place to ensure that the books of account are being maintained in compliance
with the law and that the necessary information is available to regulatory authorities for
inspection and verification.

Who can inspect accounts of a Company – Section 128

Section 128 of the Companies Act, 2013, outlines the rules regarding who can inspect the
accounts of a company. According to the section, the inspection should take place at the
registered office of the company. Any director of the company has the right to inspect the
accounts during business hours, and the inspection cannot be carried out through an agent,
power of attorney, or representative. This provision is in place to ensure that the inspection is
carried out by a person who has a direct interest in the company's affairs and is authorized to
do so.
Furthermore, in cases where the financial statements are maintained outside the country, the
director shall furnish a request for full details of the financial statements for whatever period
required. The company is obligated to provide the financial statement within 15 days of the
request. This provision ensures that directors have access to all the necessary financial
information, regardless of where it is maintained, to carry out their duties effectively.
Overall, Section 128 of the Companies Act, 2013, ensures that the accounts of a company are
open for inspection by authorized persons and that the necessary information is available to
carry out the company's affairs in compliance with the law.

Period for which books to be preserved

Period for which books to be preserved is an essential aspect of maintaining accurate financial
records. It is imperative that the books are in good order to ensure that the information
contained within them is accurate and reliable. In India, the books should be preserved for eight
years preceding the relevant year as per the law. However, in cases where an investigation has
been ordered with pursuance to chapter XIV of the Act, the Central Government may direct
that the books of account may be kept for a longer period than eight years. This is done to
ensure that all necessary information is available to the investigating authorities to carry out
their duties effectively. It is crucial to adhere to these guidelines to ensure that financial records
are maintained accurately and in compliance with the law.

Persons responsible to maintain the books

As per Section 128 of the Companies Act, 2013, every company is required to maintain its
books of account and other relevant documents in an orderly manner. The responsibility for
maintaining the books of account in compliance with the law lies with certain designated
persons within the company.
The persons responsible for maintaining the books of account include the Managing Director,
the Whole Time Director in charge of finance, the Chief Financial Officer, and any other person
of the company who has been charged by the board with the duty of complying with the
provisions of Section 128.
These individuals are responsible for ensuring that the books of account are maintained
accurately, up-to-date, and in compliance with the provisions of the Companies Act, 2013. They
must also ensure that the books of account are kept in an orderly manner, are easily accessible
for inspection by the authorities, and are retained for the prescribed period.

Penalty
if a company fails to maintain its books of account in compliance with the provisions of the
Act, it may face penalties. The penalties for non-compliance include fines and imprisonment
for a term that may extend up to one year, or with a fine that shall not be less than fifty thousand
rupees and may extend up to five lakh rupees, or both. If a company is found to have
contravened the provisions of Section 128, the concerned person or persons responsible for the
compliance may be held liable for the non-compliance and may face penalties.

Section 129 – Financial Statement

Section 129 of the Companies Act, 2013 lays down provisions for the preparation and
presentation of the financial statements (FS) of a company. The key points related to this section
are:
  The financial statements of a company should provide a true and fair view of the state
of affairs of the company at the end of the financial year. True and fair value means that
the financial statements should comply with the accounting standards notified under
Section 133 of the Act. These standards are prescribed by the Central Government in
consultation with the Institute of Chartered Accountants of India (ICAI).
 Certain companies, such as insurance or banking companies or those engaged in the
production or supply of electricity, are not treated as disclosing a true and fair view of
the state of affairs of the company.
 The financial statements should be discussed in the Annual General Meeting (AGM)
by the Board of Directors (BOD).
 The Central Government has the power to prescribe the financial statements and may
exempt any class or classes of companies from complying with any of the requirements
of this section.
 The persons responsible for compliance under Section 129 include the Managing
Director, Whole Time Director, CFO, and any person charged by the Board of Directors.

Section 130
Section 130 of the Companies Act, 2013 deals with the re-opening or recasting of accounts
once they have been closed. Here are the key points related to this section:
 A company cannot re-open or recast its accounts unless an application is made by the
Central Government, Income-Tax authority, SEBI, or any other statutory body.
 Accounts can be re-opened or recast only if they were prepared in a fraudulent manner
or if there is mismanagement that creates a doubt on the reliability of the financial
statements.
 An application to re-open or recast accounts must be made to the National Company
Law Tribunal (NCLT), which has the power to permit such an action.
 Directors can voluntarily revise financial statements or board reports, but only for any
of the three preceding years.
 A director cannot revise financial statements or board reports by himself, and he needs
to obtain permission from the Tribunal before doing so.

National Financial Reporting Authority (NFRA)

The National Financial Reporting Authority (NFRA) is a regulatory authority established by
the Central Government. The primary objective of NFRA is to recommend, enforce and
monitor compliance with accounting standards. NFRA is a quasi-judicial body that regulates
matters related to accounting and auditing in India.
Objectives of NFRA
 NFRA provides recommendations for the formulation of accounting and auditing
policies and standards that companies need to adopt.
 It is responsible for monitoring and enforcing compliance with accounting standards.
 NFRA is responsible for ensuring that the quality of service provided by professionals
is up to the mark.
Jurisdiction of NFRA
The jurisdiction of NFRA extends to:
 Chartered accountants
 Cost accountants
 Company secretaries
 Audit committee members
 Management accountants
  Independent directors
Constitution of NFRA
 The NFRA is constituted by a Chairperson, not exceeding 15 members, who are experts
in accounting, auditing, finance, business law, business administration, or similar
disciplines, and are nominated by the Central Government.
 The Chairperson is required to make a declaration that there will be no conflict of
interest, no lack of independence, and they should not be associated with the audit firm
during the course of their appointment and two years after ceasing to hold such
appointment.
 The constitution of the NFRA ensures that the members are qualified and competent to
carry out their functions effectively and without any bias.
Powers on matters related to
NFRA has extensive powers on matters related to accounting and auditing. They have the
power to:
 order the production of books
 summon individuals for examination under oath
 inspect books, registers and other documents of any person, a
 examine witnesses or documents
These powers are crucial in ensuring that companies and professionals are complying with the
accounting standards and regulations set by the government.
The authority has the power to impose penalties on individuals and firms for non-compliance.
The penalties can range from one lakh rupees to five times the amount in case of an individual
and ten lakh to ten times the amount in case of a firm. Additionally, the authority can debar a
member or a firm for a period of six months to ten years

AUDIT
Meaning: It is a systematic process of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain the degree of correspondence
between those assertions and established criteria and communicating the results to interested
users.
OR
An audit is a process that involves gathering and evaluating evidence to determine whether an
organization's financial statements are presented fairly and accurately. The auditor uses
established criteria, such as accounting standards and legal requirements, to assess the
organization's financial information and provide an objective opinion about its accuracy and
reliability. This information is then communicated to stakeholders, such as investors, creditors,
and regulators, who rely on it to make informed decisions.
Importance:

Taxation on Startups

Meaning of Startup
As per Section 2(40) of Companies Act, 2013, startup means:
 A private company registered under companies act, 2013 or any previous act
 Recognised as a startup in accordance wih the Department of Industrial Policy and
Promotions (DIPP)

Startup India Initiative – Background

  The initiative of Startup India Campaign was announced in 2016 to provide a nurturing
ecosystem for innovation, technology and entrepreneurship. The DPIIT formulated the
startup scheme.
 The key features of the action plan were:
o Easy registration with lesser compliances
o Tax holidays for a period of 3 consecutive years out of the block 10 initial years
o Exempted from previous experience/ turnover in getting govt tenders
o GOI has set up Rs. 10000 crores to provide funds to startup as venture capital

Eligible Startups
 Startups must be registered as a private company or a partnership firm or a LLP
 Turnover should be less than 100 cr in any of the previous years
 An entity should be contined as a startup for ten 10 years from its date of
incorporation/registration
 The startup should be working towards innovation/improvement of existing products,
services and processes
 The startup should have the potential to generate employment/create wealth
 An entity formed by splitting up or reconstruction of an existing business shall not be
considered a startup

Income Tax on Startups

 Once he income is computed, the next step is to compute the tax liability.
 Schedule of income tax rates:

TYPE OF BUSINESS ENTITY INCOME TAX APPLICABLE

Partnership/Individual As per Income Tax slab rates
Partnership/LLP firm 30% of Income
Indian Company 25% of Income

Tax Incentives
 The Govt has announed 100% Tax Deduction under Section 80-IAC for eligible startups
from payment of IT.
 Eligible startups formed on or after 1 April 2016 and before 1 april 2019 can claim
100% tax exemption from payment of any IT for any 3 consecutive years
 The 3 consecutive years for which 100% tax exemption is allowed can be chosen by
the startup at its own discretion from any of the first 10 years as per the Amendment
introduced vide Finance Act, 2020.
 The decution would be available to the eligible startup if the total turnover of its
business does not exceed 100 cr in any of the years beginning from the year of its
incorporation.

All eligible start-ups who intent to claim the benefits of such tax incentives would be required
to:-
 Maintain Separate Books of Accounts for Eligible Business
 Get their Accounts audited by a Chartered Accountant
 Furnish Audit Report in Form 10CCB along with ITR.
Income Tax benefits for eligible startups
1. Waiver from income tax at initial stage – Section 80IAC
An eligible start-up (incorporated between 1st April, 2016 to 1st April, 2021 can avail
deduction of 100% of profits for a block of 3 years in the first seven years of its
incorporation. Such deduction would be available upon filing an application with DPIIT
and satisfying certain condition.
2. Waiver from Angel Tax – Section 56
Domestic companies are required to issue their shares at fair market value (FMV)
determined on net assets values basis or discounted cash flow basis determined by
merchant banker. Any amount received by the company from the residents in India in
excess of FMV is liable to tax in the hands of the company (popularly known as ange
tax). Upon filing the requisite declaration with DPIIT and subject to certain conditions
eligible startups are exempted from angel tax.
3. Relaxations for set-off and carry forward of loses – Section 79
The income tax law provides for carry forward and set-o ff business losses. However,
set off is denied for a private company if there is 50% or more change in the
shareholding pattern of such company from that of the year of loss. An eligible startup
is not hit by this condition for the losses incurred in first 7 years, provided the
shareholders holding shares in the year of loss continue to hold shares in the year of set
off.
4. Exemption from long term capital gains tax to investors of startups – Section 54GB
Long term capital gain from transfer of a residential property arising to an individual/
HUF is exempted from tax where the net consideration is invested in the equity shares
of Eligible Startups, subject to the provisions of section 54GB of the Income Tax Act
1961
5. Relaxation in taxation of employee stock options (ESOP) for startup employees –
Section 192
Where an eligible startup issues ESOPs to its employees (on or after the 1 st April 2020),
such startup is given certain relaxations on deducting tax on such ESOPs.

ESOP Benefits -
Where an eligible startup issues ESOPs to its employees (on or after the 1st April 2020), such
startup is given certain relaxations on deducting tax on such ESOPs.

When a start-up is issuing ESOPs, the discount (i.e., the difference between the market price
of the shares as at the date of grant of the options and the allotment price) is allowed as
deductible business expense for the start-up. While the start-up is allowed to take deduction of
the ESOP expense, the same is taxable in the hands of the employees at 2 instances –
a. At the time of exercise – as a perquisite.
b. At the time of sale by an employee – as a capital gain

As discussed above, ESOP exercised by the employee is treated as perquisite and included in
the salary for tax purposes. In order to ease the burden of payment of taxes by the employees
of the eligible start-ups (under Section 80-IAC) or TDS by the start-up employer, Government
amended section 192 of the Income Tax Act, 1961 deferring the payment of income tax on
ESOPs, from the time of exercise of ESOPS
 MODULE 3
MODULE III: Corporate Governance

 Introduction to corporate governance: how does a company manages its activities?

 Models of corporate governance: Indian and international practices
 Regulation of listed companies
 Regulation of foreign companies doing business in India
 Corporate governance related compliances
 Corporate communications and reporting systems
 Corporate Social Responsibility

Write a detailed note on models of corporate governance with a special focus on Indian and
international practices.

Explain the mandatory corporate governance practices to be followed by a company. Support

your answer with help of relevant provisions, cases and examples.

India has adopted a blend of various models of corporate governance. Elaborate the statement
in light of the various international models of corporate governance.

SHORT NOTES:
Anglo-Sexon Model of Corporate Governance
CSR - provisions under companies act 2013

Corporate Governance

Meaning
 The interaction between the company's management, board of directors, shareholders,
and other stakeholders is known as corporate governance.
 Governing corporations is a process, not a one-time action. In this framework, the
company's objectives are set, and the means of achieving and monitoring those
objectives are established.

There are two fundamental methods to define good corporate governance

 As a first step, it looks at how corporations behave, including how they function, grow,
and how they treat shareholders and other stakeholders.
 The second step focuses on the normative framework in which they operate: that is,
how they are governed.

In order to meet its goals in relation to its stakeholders, corporations use a combination of
corporate policies and best practises known as corporate governance. Transparency is at the
heart of corporate governance improvements because it promotes accountability. Increasing
the level of trust among the key participants in a governance framework is commonly
acknowledged as a result of increased openness. To maintain consistency in corporate
governance, a number of definitions and concepts have been proposed.

Objectives of Corporate Governance

Corporate governance has the following primary goals:
1. To aim to maximise enterprises' overall economic contribution;
 2. To improve the interactions between shareholders, creditors and businesses; between
financial markets and institutions; among businesses and their workers;
3. To work on factors such as the firm's dealings with culture and the environment in the
discussion of corporate social responsibility.

Characteristics of Good Corporate Governance

 Accountability: Institutions in the public and corporate sectors, as well as civil society
groups, must answer to the people and the institutions they serve. Organizations are
held to account by people who will be affected by their decisions or actions. With no
accountability, there is no rule of law or openness
 Interest of other Shareholders: Organizations must acknowledge that they have legal
and other responsibilities to all genuine stakeholders
 Roles & Responsibilities of the Board: The board must possess a variety of skills and
knowledge to be able to address a variety of business challenges and examine and
question management performance. It must be of sufficient size and have sufficient
dedication to fulfil its tasks and obligations.
 Integrity & Ethical Behaviour: Organizations should adopt a code of conduct that
supports ethical and responsible decision making among their directors and executives.
However, it is essential to recognise that systemic reliance on integrity and ethics is
doomed to final failure. Due to this, numerous firms implement compliance and ethics
programmes to reduce the likelihood of ethical and legal transgressions.
 Disclosure & Transparency: In order to provide shareholders with a measure of
accountability, organisations must clarify and make public the duties and obligations of
board and management. They should also create methods to independently check and
protect the financial reporting integrity of the organisation. Disclosure of important
matters relating to the organisation should be timely and balanced to ensure that all
investors have access to factual information that is clear and unambiguous.

Models of Corporate Governance

1. The Anglo-American Model Of Corporate Governance
 The Anglo-American Model of Corporate Governance, also known as the
shareholder model, is commonly used in the USA and the UK. In this model,
shareholders own a small percentage of the publicly traded shares, while most
of the shares are held by financial institutions.
 Unlike in Europe, there is limited personal contact between companies and their
shareholders in the USA and the UK. Owners of large blocks of company shares,
known as block holders, are less common in the USA, resulting in smaller
voting power for shareholders. As a result, companies don't give as much
importance to considering their opinions.
 In this model, individuals have more power to hold shares and make investments
in the capital markets. This leads to a wider dispersion of capital and a lack of a
structured shareholder map. In companies following this governance structure,
where there may be numerous shareholders, you often hear about the agency or
stewardship theory, which focuses on the relationship between shareholders and
company management.
2. The German Model
 also known as the European or Continental model, focuses on giving workers a
say in the management of the company. This model uses a two-tier board system
for corporate governance.
  Supervisory Board: The shareholders elect members to the supervisory board.
Additionally, the employees also elect representatives who make up a
significant portion, around one-third or half, of the board.
 Executive Board: The executive board is appointed by the supervisory board
and is accountable to them. The supervisory board has the authority to dismiss
or reinstate the executive board as needed.
3. The Japanese Model: involves companies raising a significant portion of their capital
from banks and financial institutions. This leads to close collaboration between these
institutions and company management due to their high stakes in the business.
However, this concentration of power among corporations and banks often results in a
lack of transparency. Individual investors are not given as much importance as business
entities, union groups, and the government.
4. Social Control Model: The social control model focuses on including all stakeholders
in decision-making. A stakeholders' board is formed, comprising representatives from
shareholders, employees, major consumers, major suppliers, and lenders. This helps
improve internal control systems and promotes good management practices.
5. Indian Model: The Indian model combines elements from both the Anglo-US and
German models of corporate governance. This is necessary because India has various
types of companies, including private companies, public companies, and public sector
undertakings (PSUs), each with distinct shareholding patterns. The framework aims to
uphold principles of fair representation, transparency, and integrity.

Examples of corporate governance

 Spelling out ethical expectations for the management as well as the employees and
investors to abide by.
 The powers of the board members to interfere in public matters, their authority over the
Chief Executive Officer (CEO), and their rights while making major decisions.
 Prescribing the manner in which the company distributes its financial reports.
 Framing policies regarding finance, leadership and legal issues that are upheld by all.
 Allocating funding and resources efficiently towards achieving the overall objectives.

Theories of Corporate Governance

Agency Theory
 An agent is a person who works for, or on behalf of, another. Thus, an employee is an
agent of a company. But agency extends beyond employee relationships. Independent
contractors are also agents.
 Agency theories arise from the distinction between the owners (shareholders) of a
company or an organization designated as “the principals” and the executives hired to
manage the organization called “the agent.”
 Agency theory argues that the goal of the agent is different from that of the principals,
and they are conflicting. Agency theory holds that there will be some friction and
mistrust between these two groups. The basic structure of the corporation, therefore, is
the web of contractual relations among different interest groups with a stake in the
company.
 The purpose of agency theory is to identify points of conflict among corporate interest
groups and guide agents to represent the best interests of the principal without regard
for self-interest.
Shareholders Theory
 The shareholder theory was originally proposed by Milton Friedman and it states that
the sole responsibility of business is to increase profits. It is based on the premise that
management are hired as the agent of the shareholders to run the company for their
benefit, and therefore they are legally and morally obligated to serve their interests.
 The role of shareholder theory can be seen in the demise of corporations such as Enron
and Worldcom where continuous pressure on managers to increase returns to
shareholders led them to manipulate the company accounts.

The Agency or Stewardship Theory

 The theory is about the relationship between two parties: the owner (principal) and the
manager (agent) of a company. It looks at this relationship from both a behavioral and
structural perspective.
 In agency theory, it is recognized that managers and shareholders have different
interests, and their relationship is described as contractual. The theory highlights the
potential conflicts that can arise between managers and shareholders.
 On the other hand, stewardship theory describes a collaborative relationship between
managers and shareholders. It emphasizes that managers act as stewards and work
together with shareholders toward shared goals.
 Simply put, this theory suggests that what is best for the shareholders, who own the
company, may not always align with the interests of the board of directors managing it.

5 main ways to mitigate shareholders’ collective action problems:

 Electing a board of directors: Shareholders can choose representatives on the board
who will prioritize their interests. The CEO is accountable to this board, ensuring that
decisions are made in the shareholders' best interest.
 Takeovers or proxy fights: In certain situations, a corporate raider may acquire a large
portion of voting power or ownership temporarily to address a crisis, make important
decisions, or remove an inefficient manager. This helps resolve issues that may be
harming shareholders.
 Active monitoring by a large blockholder: A wealthy investor or financial institution,
such as a bank, holding company, or pension fund, can continuously monitor the
company's performance. This ensures that actions taken align with the shareholders'
interests.
 Aligning managerial interests: Executive compensation contracts can be designed to
align the interests of managers with those of the shareholders. This helps ensure that
managers are motivated to make decisions that benefit the investors.
 Fiduciary duties and class-action suits: Clearly defined responsibilities and
obligations, known as fiduciary duties, are set for CEOs. If corporate decisions go
against investors' interests or harm their interests, shareholders can take legal action
through class-action suits to block such decisions or seek compensation.

By implementing these measures, shareholders can address collective action problems and
protect their interests in the company.

Mandatory Corporate Governance practices to be followed

Key mandatory corporate governance practices under the Companies Act:
Constitution and Roles of Board of Directors:
 Composition: The Companies Act specifies the minimum number of directors for
different types of companies, as well as the requirement for at least one woman director
on the board for certain classes of companies.
 Independent Directors: The Act mandates the appointment of independent directors
based on the size and nature of the company. Independent directors play a critical role
in ensuring the independence and impartiality of the board.
 Duties and Responsibilities: The Act outlines the fiduciary duties of directors,
including the duty to act in good faith, exercise due diligence, and act in the best
interests of the company and its stakeholders.
 Meetings and Disclosures: The Act requires the board to meet at regular intervals,
maintain minutes of meetings, and disclose certain information to shareholders and
regulators.
 Relevant provisions: Sections 149, 166, 177 of the Companies Act, 2013.

Shareholder Rights and Protection:

 Annual General Meeting (AGM): The Act mandates that companies hold AGMs
within a specified timeframe, providing an opportunity for shareholders to participate,
vote on resolutions, and raise concerns.
 Voting and Proxies: The Act provides shareholders with the right to vote on various
matters and appoint proxies to vote on their behalf.
 Related Party Transactions: The Act includes provisions to regulate and monitor
transactions between the company and related parties to prevent potential conflicts of
interest.
 Relevant provisions: Sections 96, 101, 110, 173, 188 of the Companies Act, 2013.

Financial Reporting and Disclosure:

 Financial Statements: Companies are required to prepare and present audited financial
statements in accordance with applicable accounting standards.
 Auditor Appointment and Rotation: The Act mandates the appointment, rotation, and
independence of auditors to ensure impartiality and reliability of financial reporting.
 Annual Reports: Companies are required to prepare and disclose annual reports,
including the director's report, auditor's report, and other relevant information.
 Relevant provisions: Sections 129, 134, 135, 139, 143 of the Companies Act, 2013.
Corporate Social Responsibility (CSR):
 CSR Expenditure: The Act mandates certain classes of companies to spend a prescribed
percentage of their profits on CSR activities and disclose details of such spending.
 CSR Committee: Companies meeting specified criteria are required to constitute a CSR
committee to oversee and monitor CSR activities.
 Relevant provisions: Section 135 of the Companies Act, 2013.

Cases

The Enron case

The case is a significant example of corporate governance failure and serves as a cautionary
tale for companies worldwide. It exposed serious deficiencies in corporate governance
practices and highlighted the importance of effective oversight and accountability. Let's explore
the Enron case from the perspective of corporate governance:
  Board of Directors: One of the key failures in the Enron case was the lack of
independent and vigilant oversight by the board of directors. The board failed to
adequately monitor the company's activities and challenge questionable practices. The
board was dominated by insiders, including Enron's CEO, who had significant conflicts
of interest.
 Audit Committee: The audit committee of Enron's board of directors failed to fulfill its
responsibilities effectively. It did not exercise proper oversight of the company's
financial reporting and auditing practices. There were conflicts of interest within the
committee, as some members had ties to the company or its management.
 Financial Reporting and Transparency: Enron engaged in complex accounting
schemes and off-balance sheet transactions to manipulate its financial statements and
inflate its reported profits. These practices were facilitated by inadequate financial
reporting standards and weak regulatory oversight. The company failed to provide
transparent and accurate information to shareholders and other stakeholders.
 External Auditors: Enron's external auditors, were complicit in the corporate
governance failures. They did not exercise professional skepticism and independence
in their audit of Enron's financial statements. Instead, they colluded with the company's
management to hide the true financial condition of the company.
 Conflicts of Interest: Enron's senior executives had significant conflicts of interest, as
they were involved in both Enron's management and its related entities. This led to self-
dealing and the manipulation of transactions to benefit insiders at the expense of
shareholders.
 Regulatory and Legal Oversight: The Enron case also exposed weaknesses in
regulatory and legal oversight. Regulatory bodies, such as the Securities and Exchange
Commission (SEC), failed to detect or prevent Enron's fraudulent practices. The case
resulted in significant regulatory reforms, including the Sarbanes-Oxley Act, aimed at
strengthening corporate governance and financial reporting standards.
The Enron case underscores the importance of robust corporate governance practices to prevent
fraud, protect shareholder interests, and ensure ethical conduct. It led to increased scrutiny and
the implementation of stricter regulations and practices to enhance transparency,
accountability, and integrity in corporate governance. The case serves as a reminder that
corporate governance should prioritize the interests of all stakeholders and maintain effective
checks and balances to prevent abuses of power and unethical behaviorTop of Form
Bottom of Form

The Satyam Case

The Satyam case, is one of the most prominent corporate governance scandals in India. It
revealed significant corporate governance failures and highlighted the importance of
transparency, accountability, and effective oversight. Let's examine the Satyam case from the
perspective of corporate governance:
 Board of Directors: One of the key failures in the Satyam case was the lack of
independent and competent directors on the board. The board was largely comprised of
individuals with close ties to the company's founder and chairman, Ramalinga Raju.
Independent directors were unable to provide effective oversight and challenge the
fraudulent activities.
 Audit Committee: The audit committee of Satyam's board failed to fulfill its
responsibilities of overseeing financial reporting and ensuring accuracy and
transparency. The committee members were unable to identify the fraudulent activities
and raise concerns about the integrity of the financial statements.
  Financial Reporting and Transparency: Satyam engaged in significant financial
misstatements, including inflated revenues, fictitious assets, and manipulation of
financial statements. These practices were aimed at portraying a stronger financial
position than what actually existed. The lack of transparency and accurate financial
reporting deceived investors, shareholders, and other stakeholders.
 External Auditors: The external auditors, Price Waterhouse (PwC), failed to exercise
due diligence and professional skepticism in their audit of Satyam's financial
statements. They overlooked and did not raise concerns about the fraudulent activities,
which further contributed to the governance failure.
 Related Party Transactions: The Satyam case involved significant related party
transactions that were not adequately disclosed. The company's management used these
transactions to divert funds and inflate revenues, bypassing proper governance and
accountability.
 Regulatory Oversight: The Satyam case exposed weaknesses in regulatory oversight.
The regulatory bodies, such as the Securities and Exchange Board of India (SEBI), were
unable to detect the fraudulent activities and prevent the governance failure. This
highlighted the need for stronger regulatory enforcement and mechanisms to ensure
compliance with corporate governance norms.
 Repercussions and Reforms: The Satyam scandal had far-reaching consequences,
including a significant decline in investor confidence, job losses, and legal proceedings
against the perpetrators. It led to reforms in corporate governance practices in India,
such as the strengthening of independent director qualifications, enhanced reporting
requirements, and stricter oversight by regulatory bodies.
The Satyam case serves as a stark reminder of the importance of robust corporate governance
practices, independent oversight, and ethical conduct. It highlights the need for a strong board
of directors, independent audit committees, transparent financial reporting, and effective
regulatory oversight. The case has played a significant role in shaping corporate governance
reforms in India, with a focus on enhancing transparency, accountability, and protecting the
interests of stakeholders.
 MODULE 4
MODULE IV: Raising investment

 Introduction to raising investment – financial and strategic investment

 Business structuring and investment
 Steps in an investment transaction – negotiation, drafting and legal strategy
 How to conduct due diligence?
 Understanding non-disclosure agreements (NDAs)
 Understanding capitalisation table and term sheets
 Transfer of shares
 Dealing with multiple investors
 Shareholders Agreements and how to negotiate them
 Advanced issues – Private equity, PIPES transactions, Strategic investment and Joint
ventures

Mr. Anand is a founder of Fincorp, a fintech startup getting a good investment from Skyone
Limited, a giant home appliance company in India. Skyone Limited BOD is taking legal advice
from their legal team on due diligence on a target business after successfully completing
preliminary negotiations with Mr. Anand. Advise them on the process of due diligence to be
followed by the investor before making any investment.

Due diligence is a detailed investigation carried out by a potential investor on a target business
after successfully completing preliminary negotiations with the owner of business. Explain the
process of due diligence to be followed by the investor before making any investment.
 MODULE 6
MODULE VI: Foreign direct investment and regulatory issues

 FDI restrictions on foreign investors

 FDI in different business structures Companies, Trust, LLP
 Sectoral regulations – FDI in e-commerce
 Entry-related issues – approval route, conditionalities and sectoral regulations
 Pricing restrictions
 Exit related issues
 Valuation, compliance and filing requirements
 Relaxations for foreign venture capital investors
 Negotiating exits with foreign investors

FDI Process, Procedure and Approvals

Discuss in detail the regulations regarding foreign investment in an Indian Start-up. Support
your answer with relevant examples and provisions.

Skyone retail start up got rs 20 cr. funding from xyz inc of germany a giant multi-brand retail
organization. To formalize the process, skyone retail start-up consulted acb legal consultants.
Imagine that you are a partner in ACB legal consultants. Briefly explain skyone retail on the
compliance relating to approval routed, conditionality and entry-related issued if any of
allowing FDI in India.

 Foreign Direct Investment (FDI) in India is subject to specific regulations outlined by

the government.
 Non-residents who want to establish operations or invest in India must comply with
India's foreign exchange regulations.
 The Foreign Exchange Management Act (FEMA) and related legislations govern most
aspects of foreign currency transactions with India.
 Investments and acquisitions of Indian companies by non-resident individuals and
entities are regulated by the Foreign Exchange Management (Non-Debt Instruments)
Rules, 2019.
 These rules have replaced the previous regulations known as the Foreign Exchange
Management (Transfer or Issue of Security by a Person Resident outside India)
Regulations, 2017.
 The Department for Promotion of Industry and Internal Trade (DPIIT) in the Ministry
of Commerce and Industry, Government of India issues the annual Consolidated
Foreign Direct Investment Policy Circular (FDI Policy), which outlines the guidelines
for FDI.
 Under the new rules, the Ministry of Finance now has the authority to regulate equity
investments in India, taking over from the Reserve Bank of India (RBI).
 However, the RBI still retains the power to regulate payment methods and monitor the
reporting of these transactions.
 Setting up operations or investing in India by non-residents requires compliance with
India’s foreign exchange regulations, specifically the regulations governing the FDI.
 Investments and acquisitions of Indian companies
Categories of FDI Limits
 100% through Automatic Route –
 100% through Government Route -
 Upto 100% through Government + Automatic Route -
 Upto 100% though Government/Automatic Route -
 Prohibited Sector -

Routing FDI in India

Government Route
Meaning: Under the Government Route, prior to investment, approval from the Government
of India is required. Proposals for foreign direct investment under Government route, are
considered by respective Administrative Ministry/ Department.
Procedure:
 Foreign Investment Facilitation Portal (FIFP) is an inter-ministerial body that holds the
responsibility to process and make recommendations to Foreign Direct Investment
(FDI) policies, FEMA regulations and to 11 notified sectors for Government approval.
 FIFP approval is requikred for companies that do not qualify for automatic approval.
 FIFP was initially termed as Foreign Investment Promotion Board and later changed to
FIFP to increase transparency and to introduce a Standard Operating Procedure (SOP)
to administer the application process.
 To submit the application online with FIFP, the enterprise must register with FIFP.
 On the FIFP portal IL-FC form is to be filled by providing necessary details.
 DPIIT will identify the concerned Ministry/ Department and thereafter, circulate the
proposal within 2 days. In addition, once the proposal is received, the same would also
be circulated online to the RBI within 2 days for comments from FEMA perspective.
 Proposed investments from Pakistan and Bangladesh would also require clearance from
the Ministry of Home Affairs.
 DPIIT would be required to provide its comments within 4 weeks from receipt of an
online application, & Ministry of Home Affairs (if applicable) to provide comments
within 6 weeks.
o Pursuant to the above, additional information/ clarifications may be asked from
the applicant which is to be provided within 1 week.
o Proposals involving FDI exceeding INR 50 bn (approx. $775 Mn) shall be
placed before the Cabinet Committee of Economic Affairs
o Once the proposal is complete in all respects, the same gets approved within 8-
10 weeks.

Automatic Route
Meaning: Under the Automatic Route, the non-resident investor or the Indian company does
not require any approval from Government of India for the investment
Procedure:
 The foreign investors must ensure they meet the eligibility criteria for investing under
the automatic route.
 Indetify the sector in which investment is to be made understand sector-specific
regulation.
 If not already inccrporated in India, the foreign investor may need to incorporate an
Indian entity such as a Private Limited Company or a Limited Liability Partnership.
  Subsequently an investment can be made thoughvaious channels such as equity share,
fully and compuslorily convertible debentures and rpeference shares.

Conditions for FDI

Eligible Investors -
 Any non-resident entity / Individual
 NRI resident & citizens of Nepal & Bhutan
 Erstwhile Overseas Corpoate Bodies incorporated outside India & not under adverse
notice of RBI with Govt./RBI approva
 Company, trust or partnership firm incorporated outside India & owned and control by
NRI
Types of Instruments for FDI -
 Capital instruments - Equity, Compulsory Covertible Preference Shares, Compulsory
Covertible Debentures
 Depository Receipts & Foreign Currency Covertible Bonds
 OthersWarrants & Paid up shares
 Sponsored American Depository Receipts/ Global Depository Receipts
Eligible Investee Entities -
 Indian companies can issue capital against FDI
 Startup companies can issue equity/ equity linked instruments or debt instruments or
convertible notes
 LLPs are eligible investees in sectors wherein FDI is 100% allowed through automatic
route & no FDI linked performance condition
 Venture Capital Fund registered as Trusts and regulated by SEBI
 ‘Investment Vehicle’ (REIT/INVIT/AIF) are eligible investees
 MODULE 7
MODULE VII: Employee Management Labour Law and Business licenses

 Employment agreement
 Labour law compliances
 Legal forms of incentives and perquisites
 Non-disclosure agreements
 Attrition management
 Trade licenses
 Industrial licensing and environmental compliance

Permtech Pvt Ltd is a Ed-tech start-up based in Bengaluru, India and has been consistently
bringing new innovative projects to the growing Edtech market in the last five years. They have
a team of 48 people at the mid-level management. A thorough company analysis showed that
they are losing business projects to competitor firms because their attrition rate is as high as
12% when the local market average is only 5-6%. Prem Aggarwal, the CEO is worried and
realizes that he will have to re-look employee agreements and undertake a program on attrition
management to keep Permtech healthy and growing. Help devise a robsust strategy for
Employee Agreements and Attrition management for Permtech Pvt Ltd.

Employment Agreement
Drafting of an Employment Agreement
1. Importance of an Employment Agreement:
 An Employment Agreement is a legal document between the Employer and
Employee.
 It outlines the rights, duties, and obligations of both parties during the employment
period.
 It is crucial for effectively managing employees and establishing clear expectations.
2. Comprehensive Coverage:
 The Employment Agreement covers all levels of employees, from junior to senior
positions.
 It ensures that the rights and obligations of both the Employer and Employee are
clearly defined.
3. Rights and Obligations:
 The Agreement specifies the rights and benefits that employees are entitled to, such
as compensation, working hours, leave policies, and benefits.
 It also outlines the obligations of employees, including job responsibilities,
confidentiality, and code of conduct.
4. Clarity and Protection:
 The Agreement provides clarity on the terms and conditions of employment,
reducing potential misunderstandings or disputes.
 It helps protect the rights of both the Employer and Employee by establishing a
legal framework.

Drafting an Employment Agreement is essential for managing employees effectively, ensuring

clear communication of rights and obligations, and establishing a legal framework for the
employment relationship.

Elements of Employment Agreement

  Job Description: Clearly outlines the employee's role, responsibilities, and tasks within
the organization.
 Term of Employment: Specifies the duration of the employment, whether it is for a
fixed term or an ongoing basis.
 Employee Benefits: Details the benefits and perks provided to the employee, such as
healthcare, retirement plans, vacation, and other entitlements.
 Remuneration/Compensation: Clearly defines the employee's salary or wage structure,
including any bonuses, commissions, or other forms of compensation.
 Leave Policy: Describes the employee's entitlement to various types of leave, such as
annual leave, sick leave, maternity/paternity leave, and other applicable policies.
 Grounds for Termination: Outlines the conditions under which the employment may
be terminated, including reasons for termination and any required notice periods.
 Protection of Confidential Information: Establishes measures to protect confidential
information or trade secrets of the employer, including non-disclosure agreements.
 Ownership of Intellectual Property: Clarifies the ownership and rights to any
intellectual property or inventions created by the employee during the course of
employment.
 Dispute Resolution: Specifies the process for resolving any disputes or conflicts that
may arise between the employer and employee, such as through mediation, arbitration,
or legal action.
 Governing Laws and Jurisdiction: Determines the laws and jurisdiction that govern
the interpretation and enforcement of the employment agreement.
 Other Relevant Provisions: Includes any additional clauses or provisions that are
deemed relevant to the employer, such as non-compete agreements, confidentiality
clauses, or specific requirements related to the nature of the employment.
For individuals hired on a contractual basis for a limited period, such as project-based
candidates, a Service Agreement is typically drafted instead of an Employment Agreement.
These elements ensure that the terms and conditions of employment are clearly defined,
protecting the rights and responsibilities of both the employer and the employee.

Position in Law
1. Employment Agreement and the Contracts Act: The Indian Contracts Act, 1972, does
not explicitly mention the term "Employment Agreement." However, under Section 27
of the Act, any agreement that restricts an individual from pursuing a lawful profession,
trade, or business is void to the extent of the restriction. To be enforceable, the restraint
imposed must be reasonable in nature.
2. Employment Policies: Employment policies concerning aspects such as leaves,
maternity leaves, working hours, etc., are governed by the relevant state-level Shops
and Establishment Act. These acts provide regulations and guidelines for the
employment practices of businesses and establishments.
3. Relevant Laws: Various other laws exist that govern specific aspects of employment in
India. Some examples include:
 Factories Act, 1948: This act lays down regulations related to health, safety, and
working conditions in factories.
 The Maternity Benefit Act, 1961: It establishes provisions for maternity leave,
benefits, and related matters for women employees.
 The Payment of Gratuity Act, 1972: This act governs the payment of gratuity to
employees upon the termination of their employment after completing a certain
period of service.
These laws and acts, along with others specific to different areas, provide legal frameworks
and protections for employees in various aspects of their employment. It is important for
employers and employees to be aware of these laws and ensure compliance with their
provisions.

Significance of Employment Agreement

1. Clarity upon terms of employment: An Employment Agreement is a vital document
that outlines the terms and conditions of employment between an employer and an
employee. It provides clarity and ensures that both parties are aware of their rights,
duties, and obligations during the employment period. The agreement covers aspects
such as job responsibilities, working hours, compensation, benefits, leaves, and other
relevant terms.
2. Dispute Resolution: The Employment Agreement includes provisions for resolving
disputes that may arise during the employment relationship. It outlines the agreed-upon
procedure for handling conflicts, such as mediation or arbitration, before resorting to
legal action. Having a clear dispute resolution mechanism in the agreement helps in
avoiding unnecessary conflicts and promotes a harmonious working environment.
3. Protection of trade secrets: Employment Agreements often include clauses that protect
the employer's confidential information and trade secrets. These clauses ensure that
employees understand their responsibility to maintain the confidentiality of sensitive
information they may come across during their employment. This helps safeguard the
employer's intellectual property, proprietary knowledge, and competitive advantage.
4. Restrictive Covenants: Employment Agreements may include restrictive covenants,
such as non-compete agreements, non-disclosure agreements, and non-solicitation
agreements. These provisions restrict employees from engaging in certain activities that
could harm the employer's business interests, such as joining a competitor, disclosing
confidential information to third parties, or poaching clients or employees. Restrictive
covenants are intended to protect the employer's legitimate business interests and
maintain a level playing field.
Overall, an Employment Agreement plays a crucial role in establishing a clear and mutually
beneficial relationship between the employer and the employee. It sets expectations, provides
legal protection, and promotes a fair and productive work environment for both parties.

Key clauses of employment contracts

1. Confidentiality Clause / Non-Disclosure Obligations:
 Protection of sensitive information: An Employment Agreement should include a
confidentiality clause to safeguard the company's trade secrets and client data. It
requires the employee to keep such information confidential and prohibits
disclosure to the public or unauthorized parties.
 Legal consequences of breach: Breach of confidentiality and disclosure provisions
can have serious consequences under Indian laws such as the Indian Penal Code
and the Information Technology Act, 2000. Criminal prosecution, imprisonment,
and fines may be imposed for violating confidentiality obligations.
2. Restrictive Clauses:
 Protecting business interests: Restrictive clauses are designed to safeguard the
legitimate interests of the employer and prevent unfair competition. These clauses
restrict an ex-employee from using integral information, such as business strategies
and customer details, related to their prior employment.
 Types of restrictions: The most common types of restrictions used by employers
include non-compete covenants and non-solicitation covenants. Non-compete
 covenants prohibit employees from entering or starting a similar trade or profession
in competition with their former employer. Non-solicitation covenants prevent
employees from soliciting clients or colleagues after leaving the organization.
3. Termination:
 Termination clause: An essential part of an Employment Agreement is the
termination clause, which specifies the employment period and the conditions for
terminating the employment relationship. The clause typically includes the
requirement of serving a notice period before termination.
 Legal provisions: In India, the Industrial Disputes Act, 1947 governs the
termination of employment and prescribes rules and compensation for termination
or retrenchment of employees.
4. Compensation and Benefits:
 Defining compensation: An Employment Agreement should clearly define the
compensation and benefits provided to the employee. It includes the base salary,
bonuses, incentives, and any other forms of compensation. Details about payment
terms, bonuses, and additional compensation should be stated in the agreement.
5. Jurisdiction and Governing Laws:
 Specifying jurisdiction: Parties may include a jurisdiction clause in the contract to
specify the court or forum that will have the authority to resolve legal disputes
arising from the employment contract. It can be exclusive or non-exclusive,
depending on the parties' preferences.
6. Resolution of Disputes and Grievances / Arbitration Clause:
 Dealing with grievances: Employment relationships can give rise to grievances
between employers and employees. An arbitration clause may be included in the
Employment Agreement to specify that any disputes or grievances will be resolved
through arbitration, a form of alternative dispute resolution, rather than approaching
a judicial court.
 Including these key clauses in an Employment Agreement ensures clarity,
protection, and fairness for both employers and employees, and helps establish a
mutually beneficial employment relationship.

Various forms of employee incentives

Meaning of Incentives
Incentives are rewards or benefits provided to employees to motivate and encourage them to
perform better in their work. These incentives serve as effective tools for increasing
productivity and showing appreciation to employees. Here are some key points about employee
incentives:
1. Boost employee satisfaction: By offering incentives, employers can enhance employee
satisfaction and create a positive work environment. When employees feel valued and
rewarded for their efforts, they are more likely to be satisfied with their job and remain
engaged in their work.
2. Show recognition for individual performance: Incentives allow employers to recognize
and reward employees for their individual achievements and contributions. This can be in
the form of monetary bonuses, gift cards, or other tangible rewards that acknowledge the
employee's exceptional performance.
3. Encourage collaborative teamwork: Incentives can also be designed to promote teamwork
and collaboration among employees. By linking incentives to team-based goals or projects,
 employers can foster a sense of cooperation and unity among team members, leading to
improved communication and problem-solving within the team.
4. Motivate staff to achieve company objectives: Incentives serve as powerful motivators to
align employee efforts with company objectives. By tying incentives to specific targets or
goals, employers can inspire employees to work towards achieving those objectives. This
helps to drive overall organizational success and growth.
5. Variety of incentives: Incentives can take various forms, depending on the organization and
the specific goals being pursued. They can include financial rewards like bonuses or profit-
sharing schemes, recognition programs such as Employee of the Month awards, career
development opportunities, flexible work arrangements, or even non-monetary perks like
extra vacation days or company-sponsored events.

Financial Incentive Types

 Bonuses: Bonuses are given to employees as a reward for their exceptional
performance, meeting or exceeding project expectations, achieving goals outside their
regular responsibilities, celebrating work anniversaries, or attracting potential hires. It's
an extra amount of money on top of their regular salary.
 Referral programs: Employees are encouraged to refer potential candidates for job
openings in their organization. If the referred candidate is hired, the referring employee
receives a monetary reward as an incentive.
 Extra allowances: Some organizations provide additional allowances to employees for
specific purposes such as travel expenses, transportation costs, research expenses,
technology purchases, sales-related expenses, and more.
 Commissions: Common in sales roles, commissions are a percentage of the profit
earned from a sale. Sales professionals receive a commission in addition to their regular
wages, motivating them to achieve sales targets.
 Employee stock options: Stock options give employees the opportunity to purchase
company stocks at a discounted price, providing them with a financial benefit if the
company's stock value increases.
 Profit sharing: Employees receive a share of the company's profits based on a
predetermined formula. This allows them to directly benefit from the company's
success.
 Co-partnerships: In co-partnerships, employees not only receive a percentage of
company profits but also have the opportunity to participate in management decisions
and gain insights into company practices.
 Wage incentives: Some employers offer additional pay or wage incentives for
employees who complete short-term projects or work outside regular working hours.
 Salary raises: Periodic salary increases are given to employees as a recognition of their
growth, contribution, and increased responsibilities.
 Retirement and fringe benefits: Retirement benefits provide employees with long-term
financial security for their post-retirement life. Fringe benefits include additional
financial coverage for childcare, living expenses, college tuition, and other related
expenses.

These financial incentives serve as motivation for employees, recognizing their efforts,
encouraging desired behaviors, and providing them with additional financial rewards and
benefits beyond their regular salary.

Other types of Incentives

  Status or Job Title: Providing employees with a higher job title or status can be a
powerful incentive. It recognizes their expertise, skills, and contribution to the
organization, boosting their sense of achievement and pride.
 Public Recognition: Acknowledging and appreciating employees' accomplishments
publicly can be a great non-monetary incentive. It can be in the form of employee
spotlights, appreciation emails, mentions in company newsletters, or recognition during
team meetings. Public recognition makes employees feel valued and encourages them
to continue performing at their best.
 Flexibility: Offering flexible work arrangements, such as flexible working hours,
remote work options, or compressed workweeks, can be a valuable incentive.
Flexibility enables employees to maintain a healthy work-life balance, accommodate
personal commitments, and have greater control over their schedules, leading to
increased job satisfaction.
 Autonomy: Granting employees autonomy in their work is a powerful motivator.
Allowing them to make decisions, take ownership of projects, and have a say in how
they accomplish their tasks fosters a sense of empowerment and trust. Autonomy gives
employees the freedom to utilize their skills and creativity, resulting in higher job
satisfaction and performance.

Extrinsic v. Intrinsic Incentives

Extrinsic Incentives:
 Extrinsic incentives are external rewards or punishments that motivate individuals to
perform certain actions or achieve specific goals.
 These incentives come from outside the person and are often tangible or material in
nature.
 Examples of extrinsic incentives include bonuses, salary raises, promotions,
recognition awards, or other forms of tangible rewards.
 Negative extrinsic incentives can also be used, such as disciplinary actions or the threat
of job loss.
 Extrinsic incentives are typically focused on outcomes and provide a clear link between
effort and reward.

Intrinsic Incentives:
 Intrinsic incentives are motivations that arise from within an individual, based on their
internal thoughts, feelings, and personal satisfaction.
 These incentives are driven by an individual's sense of purpose, enjoyment, or
fulfillment derived from the activity itself.
 Examples of intrinsic incentives include a sense of accomplishment, personal growth,
pride in one's work, autonomy, and the enjoyment of the task itself.
 Intrinsic incentives focus on the internal satisfaction and fulfillment individuals
experience when engaging in meaningful or challenging work.
 They are often associated with long-term motivation, employee engagement, and job
satisfaction.

Industrial Licenses including Regulatory Licenses

Industrial licensing in India is governed by the Industrial Development and Regulation Act
(IDRA), 1951. The licensing process is overseen by the Secretariat of Industrial Assistance
(SIA) based on the recommendations of the licensing committee. Here are some key points
about industrial licensing norms and policies in India:
  Purpose of Industrial Licensing: Industrial licensing is a regulatory mechanism aimed
at controlling and monitoring the establishment, expansion, and operation of certain
industries in India.
 Applicability of Industrial Licensing: Industrial licensing is required for two types of
industries in India:
o Industries under Compulsory Licensing: Certain industries, as listed in the
Industrial Policy Resolution, require a mandatory industrial license to
manufacture goods. This is to ensure regulation, control, and compliance with
specific policies and regulations.
o Industries with Location Restrictions: Some industries are subject to location-
specific restrictions, such as areas near defense installations, wildlife
sanctuaries, or environmentally sensitive regions. These industries also require
industrial licensing.
 Expansion of Existing Industrial Units: Industrial licensing provisions also apply to
the expansion or diversification of existing industrial units. If an existing unit plans to
manufacture a new article or expand its production capacity, it must obtain a new
license or renew the existing license accordingly.

Removal of manufacturing curbs on products previously reserved for MSMEs

 Earlier, large industries that produced products exclusively reserved for Micro, Small,
and Medium Enterprises (MSMEs) had to obtain an industrial license.
 MSMEs were previously known as Small Scale Industries (SSI). This provision aimed
to protect small-scale indigenous manufacturers from facing unfair competition from
large industries.
 In April 2015, the government decided to remove these manufacturing restrictions on
certain products. The goal was to encourage increased foreign investment, introduce
advanced technologies, and promote competition in both the Indian and global markets
for these products.
 As a result, large industries are now allowed to manufacture various items without
needing an industrial license. These products include bread, pickles and chutneys,
mustard oil, groundnut oil, wooden furniture, fireworks, steel chairs and tables,
padlocks, stainless steel and aluminum utensils, glass bangles, exercise books and
registers, wax candles, laundry soap, safety matches, agarbattis (incense sticks), and
more.
 By lifting these manufacturing curbs, the government aimed to foster growth,
innovation, and healthy competition in the manufacturing sector, benefitting both large
industries and the overall economy.

Industries subject to compulsory licensing in India

 Previously, businesses planning to establish industries in India had to obtain a
compulsory license for certain products. These products included tobacco items,
defense aerospace and warships, hazardous chemicals, and industrial explosives.
 Compulsory licensing was required for these industries due to various reasons such as
environmental concerns, safety considerations, and strategic importance.
 However, the Industries (Development and Regulation) Amendment Act of 2016 made
an important change. It excluded the production of alcohol for potable purposes
(domestic consumption) from the scope of the Act.
  The production of alcohol for industrial use is regulated by the central government,
while the production of alcohol for domestic consumption is regulated by the state
governments. This distinction was established by a Supreme Court judgment in 1997.
By removing the manufacturing curbs on alcohol for domestic consumption, the central
government allowed the state governments to regulate its production, while focusing on other
industries that require compulsory licensing.

Industries subject to compulsory licensing in India

 Manufacturers of parts or accessories in the defense sector do not require an industrial
or arms license, unless they are specifically listed as items that need licenses from the
Department for Promotion of Industry and Internal Trade (DPIIT).
 The DPIIT is the licensing authority for certain defense products, such as defense
aircraft, warships, body armor, and specialized equipment for military training.
 In May 2017, the DPIIT was given the authority to process and grant licenses for the
manufacturing of defense items. Previously, this authority rested with the Ministry of
Home Affairs.

Location restrictions for Industries in India

 Industries located within 25 kilometers of cities with a population of at least one million
need to obtain an industrial license from the federal government.
 However, this location restriction does not apply to industries involved in
manufacturing electronics, computer software, printing, or other industries classified as
'non-polluting industries'.
 It also does not apply to industries located in areas designated as 'industrial areas' before
July 25, 1991.
 The location of industrial units must comply with local zoning and land use regulations,
as well as environmental regulations, to ensure ecological discipline and protect the
environment.

License registration for industries

 The Department for Promotion of Industry and Internal Trade (DPIIT) has created the
G2B Portal, which serves as a single window platform for industries to obtain various
clearances from government agencies.
 The G2B Portal allows businesses to access government services online, including
filing applications for Industrial Entrepreneurs Memorandum (IEM) and Industrial
License (IL).
 The online portal ensures the required authentication mechanisms are in place for
submitting IEM and IL applications.
 Previously, applications for registration were made to the Secretariat of Industrial
Assistance (SIA), Department of Industrial Policy & Promotion (DIPP), along with the
payment of a fee.
 Once an industrial license is obtained, the undertaking is eligible for the allocation of
controlled commodities and can also obtain an import license for goods needed for
construction and operation.
 MODULE 8
MODULE VIII: Arbitration and Dispute Resolution

 Arbitration, negotiation, arbitration clauses in contracts

 Structuring arbitration for speedy and fair resolution
 How to develop a dispute settlement strategy
 How to use anti-suit injunctions in international transactions
 Introduction to commercial mediation proceedings

Critically analyse the various ways of resolving a dispute in a business enterprise. Also,
elaborate essentials of dispute resolution clause in employment contracts

Dispute Resolution

Definition of Dispute Resolution Clause

 Dispute resolution clauses are contract terms that help resolve disputes between parties.
 These clauses can provide non-binding or binding solutions for resolving disputes.
 They may include rules that require parties to try alternative methods of dispute
resolution, such as mediation or arbitration.
 The purpose of these clauses is to avoid going to civil court for dispute resolution.
 Important conditions in dispute resolution clauses include specifying the governing law
that will apply and the use of arbitration agreements.

Purpose of a Dispute Resolution Clause

 A dispute resolution clause explains how parties will resolve any conflicts that may
arise from their contract.
 It applies to both contractual and non-contractual disputes.
 The clause may outline different methods of resolving disputes.
 It ensures that parties have a clear process in place for handling disagreements.
 The purpose is to avoid unnecessary legal action and find a mutually agreeable solution.

Importance of right dispute resolution clause

 Having the right dispute resolution clause is crucial for ensuring clarity and
effectiveness.
 Courts and tribunals prioritize upholding the agreements made by parties, including the
chosen method of resolving disputes.
 If the clause is unclear, ambiguous, or complicated, it can lead to uncertainty and
potential additional disputes about its interpretation.
 This can result in wasted time and expenses.
 A clear, concise, and workable dispute resolution clause helps prevent such issues and
promotes smoother and more efficient dispute resolution.

Points to be covered under the Dispute Resolution Clause

 A dispute resolution clause should address important considerations related to resolving
disputes.
 It should specify the governing law that will be applied to the contract and any disputes
that may arise from it.
  The clause should indicate who will apply the governing law and make a final decision
in case of a dispute. This can be done through a jurisdiction clause for litigation or an
arbitration agreement for arbitration.
 It may include requirements or steps that the parties must take before resorting to a
binding decision, such as attempting negotiation or mediation.
 The specific details of the dispute resolution clause will depend on the chosen form of
dispute resolution, but these key aspects should be covered to provide clarity and
guidance.

Methods of Dispute Resolution

 Dispute resolution methods can be classified into two categories: non-binding and
binding.
 Non-binding methods focus on reaching a consensual resolution and include:
1. Negotiation: Parties engage in discussions to resolve the dispute.
2. Mediation: An independent third party assists in facilitating negotiations and
finding a potential compromise.
3. Early Neutral Evaluation: An impartial evaluator provides an assessment of
the strengths and weaknesses of each party's case to inform negotiations or
subsequent proceedings.
 Binding methods involve submitting the dispute to a third party decision maker, whose
decision is legally binding. The common options are:
1. Litigation: Dispute resolution through the court system, where a judge makes
the final decision. Appeals may prolong the process.
2. Arbitration: Parties agree to have their dispute resolved by one or more
arbitrators in a private process. It is often used for cross-border disputes due to
enforceability advantages and flexibility.
3. Expert Determination / Adjudication: A neutral third party, typically an
industry expert, makes a binding decision that can be enforced through the
courts. These methods are quicker and suitable for discrete issues.
 The choice of dispute resolution method depends on factors such as the nature of the
dispute, enforceability considerations, desired speed, and the preferences of the parties
involved.

Alternative Dispute Resolution

Alternative Dispute Resolution (ADR) is a way to resolve disputes without going to court, and
it is usually non-binding. Here are the key points about ADR:
 Non-binding Resolution: ADR methods focus on finding a resolution that both parties
agree on, but the decision is not legally binding.
 Advantages of ADR:
1. Quick Resolution: ADR can provide a faster way to resolve disputes compared to
traditional court processes.
2. Cost Savings: ADR can be more cost-effective because it avoids the expenses
associated with lengthy court proceedings.
 Fresh Perspective: A neutral third party in ADR can offer an unbiased view, helping
parties see the dispute from a new angle. This can be helpful in breaking deadlocks and
resolving conflicts.

Dispute Resolution Process

When it comes to following the agreed dispute resolution process, here are the key points to
understand:
 Agreement Wording: Whether parties are bound to follow all the steps of the agreed
dispute resolution process or can go straight to litigation/arbitration depends on how
the clause is written in the contract.
 Optional Process: Parties can choose to make a specific dispute resolution process
optional. This means they have the flexibility to skip certain steps and proceed directly
to litigation or arbitration if they prefer.
 Importance of Clause: It is crucial for parties to carefully review and understand the
wording of the dispute resolution clause in their contract. The clause will outline the
required steps and indicate whether they are mandatory or optional.

Negotiation
Meaning
 Negotiation is a form of communication between parties with conflicting interests.
 It involves discussing and finding a mutually acceptable solution to manage and
resolve disputes.
 Negotiations can be used to address existing problems or establish a foundation for
future relationships.
 It is considered the primary method for resolving conflicts.
 The goal of negotiation is to reach an agreement that satisfies all parties involved.

Characteristics of Negotiation
 Voluntary: Negotiation is a voluntary process where parties choose to engage in
discussions to resolve their differences.
 Bilateral/Multilateral: Negotiations can involve two or more parties, ranging from
individuals to large groups or organizations. Example: WTO
 Non-adjudicative: It is a process solely between the involved parties, without involving
a third-party neutral to make decisions.
 Informal: There are no strict rules governing negotiations, allowing the parties to
decide on the rules and procedures they want to follow.
 Confidential: Parties have the option to keep negotiations private or make them public,
with certain limitations on disclosure in government contexts.
 Flexible: The parties have control over the scope and topics of negotiation, as well as
the choice of bargaining approaches (position-based or interest-based).

Advantages of Negotiation
 Flexibility: Negotiation allows for flexibility in finding solutions that meet the needs
and interests of the parties involved.
 Greater possibility of a successful outcome: When parties adopt an interest-based
approach, focusing on mutual needs and using objective standards, there is a higher
chance of reaching a mutually beneficial agreement.
 Voluntary process: Participation in negotiation is voluntary, and parties are not
obligated to engage in the process if they choose not to.
 No need for a third-party neutral: In certain situations, parties may prefer to handle
the negotiation themselves without involving outside parties, especially when the
matter is sensitive in nature.
  Binding only on involved parties: The outcome of a negotiation only binds the parties
who were directly involved, as long as the agreement aligns with applicable laws.
 Opportunity to design a customized agreement: Negotiation allows parties to shape an
agreement that reflects their specific interests and priorities.
 Preserving and enhancing relationships: Negotiation can help maintain or even
improve relationships between parties after reaching an agreement.
 Cost and time efficiency: Opting for negotiation instead of litigation can often be less
expensive and result in fewer delays.

Disadvantages of Negotiation
 Power imbalances: Parties with unequal power may result in the weaker party being at
a disadvantage during the negotiation process.
 Exclusion or inadequate representation: If certain stakeholders with a vested interest
in the matter are excluded or not properly represented, the value and fairness of the
agreement may be compromised.
 Unclear negotiating mandates: When parties are uncertain about their limits of
negotiating authority, it can hinder effective participation in the negotiation and lead to
difficulties in reaching an agreement.
 Lack of a neutral third party: The absence of a neutral third party can make it
challenging for parties to define the issues and make progress towards a solution. It may
also create an environment where one party tries to take advantage of the other.
 Voluntary nature of negotiations: Any party has the right to terminate the negotiation
process at any time, regardless of the investments made by the other party, which can
result in wasted time, effort, and resources.
 Intractable issues: Some issues may be so deeply rooted in opposing ideologies or
beliefs that finding a mutually acceptable solution through negotiation becomes nearly
impossible.
 Lack of guarantee for good faith and trustworthiness: Negotiation cannot ensure that
all parties will act in good faith or be trustworthy throughout the process.
 Use as a stalling tactic: Negotiation may be exploited as a delaying strategy to prevent
another party from asserting their rights through alternative methods like litigation or
arbitration.

Objective of Negotiation
 Reach a mutual agreement: Negotiation aims to help parties find a solution that both
sides are happy with. It allows them to agree on an outcome that satisfies their needs
and interests.
 Determine the terms: The parties involved decide on the specific details of the
agreement. They can make the agreement broad or specific, depending on what they
want to include.
 Create a written agreement: Once the parties reach a settlement, it is important to put
the terms in writing. This agreement acts like a contract between the parties and is
legally binding.
 Ensure legal validity: If the negotiation is related to a legal dispute, the parties may
choose to register the settlement with the court according to the applicable rules. This
makes the agreement enforceable by law.

Negotiating Styles
1. Competitive/Positional-Based Negotiation:
  Parties focus on maximizing their own gains, even if it means sacrificing the other
party's interests.
 Various tactics are used to achieve personal goals.
 The opposing party's interests are seen as irrelevant, except when they benefit one's
own objectives.
 This approach is criticized for prioritizing specific positions rather than
understanding the true interests of all parties.
 It can promote confrontational tactics and undermine trust, which is important for
mutually beneficial outcomes.
2. Cooperative/Interest-Based Negotiation:
 Parties approach negotiations as a problem-solving process, rather than a win-lose
situation.
 The goal is to find a solution that benefits all parties involved.
 Emphasis is placed on common interests and values shared by both sides.
 An objective approach is used to explore options and reach a fair and mutually
agreeable agreement.
 This style recognizes that one party's gains do not necessarily come at the expense
of the other party.

Preparing for a negotiation

1. Initial Assessment:
 Determine if the other party is interested in negotiating.
 Consider factors such as the desire to resolve the dispute, the parties' interests,
credibility, relationship preservation, any disparities, alternative dispute resolution
options, and authority to negotiate and reach an agreement.
2. Contacting the Other Party:
 Outline the agenda and scope of the negotiations.
 Set the timetable, including the duration and frequency of the talks.
 Identify all relevant participants and ensure their consultation.
 Choose a neutral location for the negotiations and arrange necessary support
services.
 Decide on the official language(s) to be used and the need for translation or
interpretation services.
 Determine if the negotiations and resulting agreement will be kept confidential.
3. Consistency in these matters:
 Enhances the effectiveness of negotiations.
 Establishes credibility and fosters mutual confidence and trust.

Preparation of a Strategy and Interest Assessment

1. Study the Dispute:
 Gather relevant facts about the dispute.
 Learn about the other party/parties and their background.
 Understand their negotiating interests.
2. Harmonize and Reconcile Interests:
 Resolve any conflicting interests within your own side before negotiating.
 Internal disagreements can weaken your negotiating position and raise doubts about
your ability to implement agreements.
3. Consider BATNA:
  Best Alternative To a Negotiated Agreement (BATNA) is an important factor in
assessing interests.
 BATNA refers to the best possible outcome if no agreement is reached.
 It serves as a standard to measure the proposed agreement against.
By following these steps, you can better prepare your strategy and assess your interests before
entering a negotiation session.
 MODULE 9
MODULE IX: Information Technology and Law

 Legal structure governing the Internet, electronic contracts and digital signatures
 Data protection under Indian law
 Offences under Information Technology Act
 Intermediary liability and compliance
 Payment gateways and legal documentation
 Cloud computing agreements and End-User License Agreements (EULA), privacy issues on
the Internet.
 Essential Information Technology Contracts
 Outsourcing contracts
 Steps to deal with online intellectual property infringement

Critically comment on Data Protection under Indian Law and offences under IT Act, 2008.
Comment on its significance in startup business in India.

IT ACT, 2000
Objectives
1. Transactions through electronic commerce:
 Conducting business transactions using electronic means.
 Exchanging business documents in a standard electronic format.
 Benefits include reduced cost, faster processing, fewer errors, and improved
relationships with business partners.
2. Electronic communication means:
 Using electronic methods instead of paper-based communication and information
storage.
 Filing electronic documents with government agencies.
3. Amendments to existing laws:
 Modifying the Indian Penal Code, Indian Evidence Act 1872, Bankers Books
Evidence Act 1891, Reserve Bank of India Act 1934.
 Aligning laws with the resolution passed by the General Assembly of the United
Nations (Resolution A/RES/51/162, January 30, 1997).
 Considering the Model Law on Electronic Commerce adopted by the United
Nations Commission on International Trade Law as a recommendation for enacting
or revising laws.
4. Uniformity of law:
 Addressing the need for consistent laws applicable to alternatives to paper-based
communication and information storage.
 Promoting efficient delivery of government services through reliable electronic
records.
5. Enactment of IT ACT 2000:
 Providing legal recognition for transactions conducted through electronic data
interchange and other electronic communication methods.
 Referring to these transactions as "electronic commerce."
 Encouraging the use of alternative methods for communication and information
storage.
 Facilitating electronic filing of documents with government agencies.
Extent, Commencement and Application of the Act
1. Extent of the Act:
 The IT ACT 2000 applies to the entire country of India.
 It is applicable to all states and regions within India.
2. Application of the Act:
 The Act applies to offenses or violations committed both within and outside India.
 It covers any person, regardless of their nationality, who commits an offense or
contravention under the Act.
 The Act is applicable if the offense involves a computer, computer system, or
network located in India.
 It includes acts conducted through electronic means that may have an impact on
India's jurisdiction.
3. Offenses committed outside India:
 The Act has jurisdiction over offenses committed outside India by any person.
 It applies to actions that are considered offenses under the Act, even if they occur
in a foreign country.
 The nationality of the person committing the offense is not a determining factor for
the Act's applicability.

Authentication of Electronic Document

1. Electronic Signature:
 An electronic signature refers to data in electronic form that is attached to or
associated with a data message as per Article 2(a) of UNCITRAL Draft Uniform
Rules on Electronic Signatures.
 It is a method used to identify the signature holder in relation to the data message
and indicate their approval of the information in it.
2. Enhanced Electronic Signature [Article 2(b)]:
 An enhanced electronic signature is a type of electronic signature that meets certain
criteria.
 It is unique to the signature holder within the context it is used and is created and
affixed by the signature holder or using means under their sole control.
 It provides reliable assurance about the integrity of the message it is linked to.
3. Signature Holder:
 The signature holder is the person who can create and affix an enhanced electronic
signature to a data message.
 They may be referred to as a device holder, key holder, subscriber, signature device
holder, signer, or signatory.
4. Authentication of Electronic Record:
 According to Section 2(p) of the IT Act 2000, authentication of any electronic
record can be done by the subscriber using any electronic method or procedure
specified in the Act.
5. Purpose of Signatures:
 Signer authentication: Signatures help establish the identity of the person
responsible for the signature.
 Document authentication: Signatures ensure the integrity and authenticity of the
document.
 Affirmative act: A signature signifies the signer's intention and approval of the
contents of the document.
  Efficiency: Electronic signatures provide a convenient and efficient way to
authenticate documents.
6. Considerations for Electronic Signatures:
 When choosing a model of electronic signatures, it is important to consider the
purposes they serve, such as signer authentication, document authentication, the
requirement of an affirmative act, and efficiency.

Electronic Signatures
Electronic Signatures: Authentication Methods
1. Bio-metric Devices:
 Bio-metric devices are used for authentication through unique physical
characteristics of individuals, such as fingerprints, iris patterns, or facial
recognition.
 These devices provide a secure and reliable way to verify a person's identity and
can be used for electronic signature authentication.
2. Handwritten Signatures on Computer Screen or Digital Pads:
 Handwritten signatures can be captured directly on a computer screen or digital pad.
 This method requires the user to physically sign their name, similar to signing on
paper.
 The captured signature is then used as a sample for future comparisons to verify the
authenticity of subsequent signatures.

Authentication of Electronic Document (Section 3)

1. Authentication of Documents by "Signature":
 The process of authenticating electronic documents involves the use of a
"signature."
 A signature provides assurance that the document is genuine and has not been
tampered with.
2. Digital Signature:
 A digital signature is a specific type of signature used for electronic documents.
 It employs an asymmetric cryptographic system and a hash function to ensure
authenticity and integrity.
3. Asymmetric Cryptographic System and Hash Function:
 The digital signature process uses an asymmetric cryptographic system.
 This system involves two types of keys: public keys and private keys.
 A hash function is also employed, which converts electronic records into a smaller
result called a "hash result."
 Enveloping and Transforming Electronic Records:
 During the authentication process, the initial electronic record is transformed into
another form using specific algorithms.
 This transformation is referred to as "enveloping" and helps ensure the security and
integrity of the electronic document.
4. Hash Function:
 A hash function is an algorithm that maps one sequence of bits (electronic record)
into another (hash result).
 The resulting hash is a unique representation of the electronic record.
 It is practically infeasible to derive the original electronic record from the hash
result.
5. Public Key and Private Key:
  Public-key cryptography, also known as asymmetric key cryptography, is used in
the digital signature process.
 It involves the use of two keys: a public key and a private key.
 The public key is available to everyone, while the private key is kept secret by the
document signer.

Electronic Signature (Section 3A)

1. Signature Creation:
 When creating an electronic signature, it is specific to the context in which it will
be used.
 It can only be linked to the signatory or authenticator.
 The data used for signature creation or authentication is under the control of the
signatory or authenticator.
2. Detectable Alteration:
 Any alteration made to the electronic signature after it has been affixed can be
detected.
 Similarly, any alteration made to the information after its authentication by the
electronic signature is detectable.
3. Public-Key Cryptography / Asymmetric Key:
 Electronic signatures are based on public-key cryptography, also known as
asymmetric key cryptography.
 This involves the use of algorithmic functions to generate two mathematically
related "keys" (large numbers).
 One key is used for creating the electronic signature and transforming data into an
unintelligible form.
 The other key is used for verifying the electronic signature or returning the message
to its original form.
4. Electronic Signatures and Confidentiality:
 Some techniques provide optional message confidentiality in addition to electronic
signatures.
 Electronic signatures themselves may not ensure message confidentiality unless
combined with encryption methods.
5. Public-Private Key Pair:
 The signer uses a private key to append a hash result, which is an algorithmically
produced signature.
 The verifier uses the corresponding public key to authenticate the generated hash
result.

Authentication of Electronic Document

1. Encryption and Decryption:
 Cryptography involves the processes of encryption and decryption.
 Encryption transforms plain text into cipher text using an algorithm and a key.
 Decryption reverses the process, converting cipher text back into plain text using
the same algorithm and key.
2. Symmetric Cryptography:
 Symmetric cryptography relies on a single common key for both encryption and
decryption.
 The challenge arises when multiple recipients need access to the key, especially
when there are many parties involved.
  Managing the distribution and use of the secret key becomes critical and vulnerable
during transmission.
3. Asymmetric Cryptography (Public Key Cryptography):
 Asymmetric cryptography uses two different keys: a public key and a private key.
 The public key is freely available to anyone who wants to send a message to the
recipient.
 The private key is kept secret and known only by the recipient.
 Messages encrypted with the public key can only be decrypted with the
corresponding private key, and vice versa.
 The security of the public key is not required since it can be openly shared and
transmitted over the internet.
4. Usage and Applications:
 Asymmetric encryption is commonly used in everyday communication channels,
especially on the internet.
 Popular asymmetric key encryption algorithms include EIGamal, RSA, DSA,
Elliptic curve techniques, and PKCS.

Electronic Signatures
1. Asymmetric Encryption and Public Keys:
 Asymmetric encryption requires a way for people to discover each other's public
keys.
 Digital certificates are commonly used for this purpose.
 A certificate contains information about a user or a server, such as organization
name, issuer, email address, and country, along with the user's public key.
2. Secure Communication with Certificates:
 When a server and client need secure encrypted communication, they exchange
queries and receive certificates from each other.
 The certificate provides the other party's public key.
 This allows both parties to establish a secure communication channel.
3. Using Electronic Signatures:
 Jane wants to sell a timeshare and signs an agreement using her private key.
 The document, along with Jane's digital signature, is sent to the buyer.
 The buyer also receives a copy of Jane's public key.
 To verify the signature, the buyer uses the public key to decrypt it.
 If the signature cannot be decrypted or doesn't match the original, it is considered
invalid.
4. Cryptographic Token for Private Key Access:
 A cryptographic token is used to authenticate access to the private key.
 It ensures that only authorized individuals can use the private key for signing
documents.

Public Key Infrastructure – Certifying Authority

 In a PKI, it is important to protect the integrity of electronic signatures.
 This involves creating, managing, and storing keys securely.
 To ensure the reliability of this process, a trustworthy Certificate Authority (CA) is
often involved.
 Digital signature providers, such as DocuSign, meet the requirements of PKI for secure
digital signing.
Controller of Certifying Authorities
1. Role of CCA:
 The Controller of Certifying Authorities (CCA) has been appointed by the Central
Government under the IT Act.
 CCA's main responsibility is to license and regulate the functioning of Certifying
Authorities (CAs).
 CCA ensures that the provisions of the Act are followed and not violated.
2. Certifying Authorities (CAs):
 CAs are entities authorized by CCA to issue Digital Signature Certificates (DSC).
 These certificates are used for electronic authentication of users.
 CAs play a crucial role in establishing the authenticity and integrity of digital
signatures.
3. Purpose and Objectives:
 The Office of the CCA was established on November 1, 2000.
 Its primary aim is to promote the growth of E-Commerce and E-Governance
through the widespread use of digital signatures.
 CCA ensures that the use of digital signatures is secure, reliable, and complies with
the requirements of the IT Act.
4. Root Certifying Authority of India (RCA):
 The RCA is a trusted entity that forms the foundation of the digital certification
hierarchy in India.
 It establishes the trustworthiness of CAs and their issued digital certificates.
5. Certificate Practice Statement (CPS):
 CPS refers to a document that outlines the policies and practices followed by a
Certifying Authority.
 It provides details about the security measures, procedures, and guidelines
implemented by the CA.

Electronic Governance
1. Legal Recognition of Electronic Records (Section 4):
 Information in typewritten or printed form is considered lawful if it is made
available in electronic form and accessible for subsequent use.
2. Legal Recognition of Electronic Signature (Section 5):
 The requirement of affixing an electronic signature is deemed to be satisfied if the
signature is affixed using electronic means.
3. Use of Electronic Records and Signatures in Government (Section 6):
 Government agencies can use electronic records and electronic signatures for
various purposes such as filing forms, applications, and documents.
 They can issue licenses, permits, sanctions, or approvals in a specific manner using
electronic means.
 Receipt of payment can also be done electronically according to prescribed
methods.
4. Delivery of Services by Service Provider (Section 6A):
 Service providers are required to set up computerized facilities and can charge for
their services.
5. Retention of Electronic Records (Section 7):
 Electronic records should be retained in their original form and should not be altered
during transmission or receipt.
  Details such as origin, destination, date, and time of dispatch or receipt should be
available.
6. Audit of Documents Maintained in Electronic Form (Section 7A):
 The provisions of audit apply to all documents retained in electronic form under
Section 7.
7. Publication in Official Gazette or Official Gazette in Electronic Form (Section 8):
 Rules, regulations, orders, bye-laws, etc., can be published in the Official Gazette
or in electronic form.
8. Submission of Documents in Electronic Form (Section 9):
 Sections 6, 7, and 8 should not be interpreted as conferring the right to insist on the
submission of documents in electronic form by any Ministry or Department under
the Central or State Government.
9. Rules for Electronic Signatures (Section 10):
 The Central Government has the power to make rules regarding electronic
signatures, including their type, manner, and format of affixing, procedures for
identifying the person affixing the signature, and ensuring integrity, security, and
confidentiality of electronic records or payments.
10. Validity of Contracts Formed through Electronic Means (Section 10A):
 Proposals, acceptances, and revocations made in electronic form are enforceable
and not considered invalid solely because of their electronic format.

Attribution, Acknowledgement and Despatch of Electronic Records

1. Attribution of Electronic Records (Section 11):
 An electronic record is considered attributed to the originator if it was sent by the
originator themselves.
 It can also be attributed if it was sent by a person authorized to act on behalf of the
originator or by an information system programmed by or on behalf of the originator
to operate automatically.
2. Acknowledgment of Receipt (Section 12):
 If the originator has not specified a particular form or method for acknowledgment
of receipt, it can be given through any communication by the addressee, automated
or otherwise.
 It can also be indicated by any conduct of the addressee that sufficiently shows the
originator that the electronic record has been received.
 If the originator has stated that the electronic record is binding only upon receipt of
an acknowledgment, and no such acknowledgment is received, the record is deemed
to have never been sent.
 If the originator has not specified a binding requirement for acknowledgment, and
the acknowledgment is not received within the specified or agreed time (or within
a reasonable time if not specified), the originator can notify the addressee and
specify a reasonable time for acknowledgment.
 If no acknowledgment is received within the specified time, the originator can treat
the electronic record as if it was never sent after giving notice to the addressee.

Time and place of despatch and receipt of electronic record

1. Despatch of Electronic Record (Section 13):
  Unless agreed otherwise, the despatch of an electronic record occurs when it enters
a computer resource that is outside the control of the originator.
2. Receipt of Electronic Record (Section 13):
 Unless agreed otherwise, the time of receipt of an electronic record is determined
as follows:
o If the addressee has designated a specific computer resource for receiving
electronic records:
 Receipt occurs when the electronic record enters the designated
computer resource.
 If the electronic record is sent to a different computer resource of the
addressee, receipt occurs when the addressee retrieves the electronic
record.
o If the addressee has not designated a specific computer resource with
specified timings:
 Receipt occurs when the electronic record enters the computer
resource of the addressee.
3. Determination of Place:
 Unless agreed otherwise, an electronic record is deemed to be despatched at the
place where the originator has their principal place of business.
 It is deemed to be received at the place where the addressee has their principal place
of business.
 The location of the computer resource where the electronic record is stored does not
affect the determination of despatch or receipt under this section.
4. Definitions:
 If the originator or addressee has multiple places of business, their principal place of
business is considered for determining despatch or receipt.
 If the originator or addressee does not have a place of business, their usual place of
residence is deemed to be the place of business.
 "Usual place of residence" for a company refers to the place where it is registered.

Data Protection

Introduction
With the advent of various types of technology and availability of such technology life has
become dependent on two essential things – (i) smart phone; and (ii) internet access. However,
it is important to note that the success of such technology is inter-alia dependent on the
availability of data/information that it collects and/or collected for it. Thereby, data has
definitely become the ‘new oil’ since availability of data, processing it and utilizing it in
formulating a perfect algorithm for technology has become very expensive for companies
providing digital services. It has opened a Pandora’s Box of issues to discuss and worry about
misuse. Few very important aspects for us to understand are our rights over our data, how does
law protect our rights and what should companies do to safeguard our rights.

Legal Regime for Data Protection in India

Information Technology Act, 2000 as amended in the year 2008 introduced:

  Section 43A of the Information Technology Act provides that any body-corporate
that possesses, deals or handles any “sensitive personal data” or information should
maintain reasonable security practices and procedures relating to such data. It will be
liable to pay compensation to the affected person in case of any negligence.
 Section 72A provides for the punishment for intentionally or knowingly disclosing
personal information relating to a person that was acquired for providing services under
a lawful contract, without the consent of the person concerned or in breach of a lawful
contract.

Information Technology (Reasonable Security Practices and Procedures and Sensitive

Personal Data or Information) Rules, 2011

 IT Rules states that body corporates shall provide a privacy policy which should clearly
lay down the purpose of collection and usage of such information, the kind of data
collected (whether personal information or sensitive personal information).
 The Rules further state that a consent has to be obtained in writing or email from the
provider regarding the purpose of usage before collection of such information.
 Prior to collection of the information (both personal and sensitive personal), the
information provider has to give an option to opt out of providing such information and
at any time while availing the services or otherwise, also have an option to withdraw
its consent given earlier.
 Disclosure of sensitive personal data or personal information by body corporate to any
third party shall require prior permission from the provider of such information
 The body corporate has to designate a Grievance Officer and publish his name and
contact details on its website

Checklist for Startups

In recent years, India has witnessed a thriving startup culture, leading to the emergence of the
world’s third-largest startup ecosystem. As data becomes more valuable in the digital era,
issues about data privacy and security have become more prominent than ever. This is
especially true for startups, which frequently rely on customer data to fuel their business
models. To ensure the fair use and disposal of personal data, India passed the Information
Technology Act (ITA) of 2000 and its subsidiary IT Rules. Additionally, to align with global
best practices, India is currently in the process of finalising the Digital Personal Data Protection
(DPDP) Bill 2022.

Hence, the startups should ensure that they follow the following practices to ensure data
protection and growth of their businesses:

 Data Privacy Policy - Transparency in data collection and processing is essential, as is

presenting clients with a clear and transparent data protection policy. All businesses
must develop a data privacy policy that complies with Indian and other countries’
privacy rules.
 Consent of Customers - Companies should seek consent from consumers before
collecting their data, giving them the option to opt-out. For minors under 18, a stringent
age verification process and parental consent are mandatory. Companies must obtain
permission from the data provider before disclosing sensitive information to a third
 party. Data transfer should be done with the utmost confidentiality and using secure
technologies.
 Disclosures to Customers - Companies should offer all required information to their
customers about why they collect data, its usage, and how they will protect it.
According to Section 43A of the ITA, they should also implement adequate security
practices and procedures into their operations. Section 72A of the ITA penalises anyone
who unlawfully discloses personal data without the authorisation of the information
provider.
 Public Display of Policy - The IT Rules 2021 amendment requires intermediaries to
publicly display rules, regulations, and privacy policies and ensure compliance.
Startups with user bases exceeding 50 Lakh have additional due diligence obligations.
Non-compliance may result in the loss of intermediary protection
 Redressal Mechanism - Designate a grievance officer with contact details posted on
the website to establish a redressal mechanism and ensure accountability for
mishandling sensitive personal data.

Benefits of data protection for startups

 Data Ingreity for Automation: Data Integrity: Implementing strong data protection
measures ensures the integrity of the data used in business processes. By safeguarding
the accuracy, consistency, and reliability of data, businesses can confidently rely on
automated systems to process and analyze information without concerns about data
errors or discrepancies.
 Minimized Risk of Data Breaches: By implementing robust data protection practices,
such as encryption, access controls, and regular security assessments, businesses can
significantly reduce the risk of data breaches or unauthorized access to sensitive
information. This minimizes disruption to automated processes and protects the
confidentiality of data.
 Competitive Advantage: Prioritizing data protection gives businesses a competitive
edge in today's digital landscape. Customers are increasingly concerned about the
security and privacy of their data, and they are more likely to choose businesses that
demonstrate a commitment to protecting their information. By implementing strong
data protection practices, businesses can differentiate themselves from competitors and
attract customers who prioritize data privacy and security.
 MODULE 10
MODULE X: Intellectual Property Rights and IP monetisation

 Copyright: Copyright Act, Rights available to copyright owner, Originality and Idea-
Expression dichotomy, infringement of copyright, Exceptions to infringement (including fair
use), Copyright protection on internet, Digital Millennium Copyright Act, software piracy.
 Patents: Patent Act, components of a patent application, international patent registrations,
rights available to patent holders, requirements of novelty, inventive step and industrial
application, product and process patents, assignment and revocation, Patenting of
biotechnology inventions and pharmaceutical products.
 Trademark Act: Registration of trademark, steps for international registration of trademark,
rights available to trademark owner, Goodwill, different types of marks such as service marks
 Monetization of intellectual property – Licensing and franchising agreements

A Mumbai-based technology company ANeon had a business model based on providing

television broadcast on internet connected hand-held devices, using a unique technology. They
leased internet bandwidth access and cloud storage to users in order for them to view live
broadcast of television and also record these broadcasts to be viewed at a later time. Several
broadcast network companies argued that despite the use of a unique technology, the business
model is similar to that of a cable television provider. They argued that since ANeon had not
obtained any permission from copyright holders, and since it was re-distributing broadcasts
without paying the required fee, ANeon was infringing the copyrights. In light of this answer
the following:
What seems to be the problem in the above scenario?
Is there a copyright infringement? Elaborate.
Highlight and discuss the Rights available to Copyright owners in the event of an infringement.

What are the various schemes launched by Government of India towards protection of
Intellectual Property by Start-ups. Also explain the role of Open Innovations in SMEs with
help of suitable examples.

IPR Patentability Criteria

Patentability Criteria
 The Patents Act, 1970 of India specifies the provisions that are used by the Indian Patent
Officer and the courts to determine whether a product or a process is worthy of a patent
in India.
 As per Section 2(1)(m) of the Act, a patent may be granted for an “invention”.
 As per Section 2(1)(j) of the Act, the definition of “invention” is provided. It is a new
product or process involving an inventive step and capable of industrial application.
 Every invention has to pass various tests and fall under the category of inventions that
can be patented in India. The 3 main tests are novelty, non-obviousness and industrial
application.

Novelty
 A novel invention is one that has not been disclosed in the prior art, which includes any
published or publicly disclosed information.
  For an invention to be considered novel, the disclosed information should not be
available in any prior art before the date of the patent application.
 In order for an invention to be considered novel, all the features or elements of the
invention should be found within a single document of prior art. This means that each
individual aspect or component of the claimed invention must be disclosed or described
in that prior art document. The purpose of this requirement is to ensure that the
invention is truly novel and not an obvious combination of existing elements. By
examining a single prior art document, it becomes possible to determine whether each
element of the invention has been disclosed before and whether the claimed invention
is indeed novel.
 This principle is important in patent law because one of the criteria for obtaining a
patent is that the invention must be new and non-obvious. If an invention is found to
lack novelty, it means that the invention is not considered new or original, and therefore
may not meet the requirements for patentability.
 The concept of prior art is not defined in the Patents Act, 1970, but it is determined by
various sections, including Sections 13, 29 to 34.
 Different scenarios can affect novelty:
 If the invention has been disclosed in any specification filed in India after January
1, 1912, before the filing date, it is not novel.
 If the invention has been disclosed in any document in any country before the filing
date, it is not novel.
 If the invention has been claimed in another complete specification filed in India
before the application but published after the application, it is not novel.
 If the invention has been known within any local or indigenous community in India
or elsewhere, it is not novel.
 The case of Ganendro Nath Banerji v. Dhanpal Das Gupta established that the
criterion for an invention is whether it lies within the limits of development in an
existing trade without requiring inventive steps.
 In the case of Ram Narain Kher v. M/s Ambassador Industries, it was stated that when
claiming a patent, it is necessary to specify the distinguishing features of the device and
show the nature of the improvement that constitutes the invention.
 In the case of Gopal Glass Works Ltd. v. Assistant Controller of Patents (2015), it was
observed that for an invention to be patented it must be new and original.

Non-obviousness
 Non-obviousness is one of the requirements for obtaining a patent.
 To be considered non-obvious, an invention should not be something that would be
obvious to a person with ordinary skills in the field related to the invention.
 It means the invention should involve an inventive step beyond what is already known
in the field.
 Simply making minor improvements or rearranging existing components of an
invention would not be considered non-obvious.
 The test for non-obviousness is based on the perspective of an average-skilled person
in the field, not an expert.
 Assessing the inventive step is subjective, and the adjudicator must evaluate it based on
the understanding of an ordinary skilled person in that field.

The Delhi High Court examined the concept of "non-obviousness" or "inventive step" in a
patent in a case called Asian Electronics Ltd. vs. Havells India Limited.
The US Supreme Court, in a case called Graham et al. v. John Deere Co. of Kansas City,
identified three factors known as the Graham factors for determining obviousness:
 The scope and content of the prior art.
 The differences between the prior art and the claims being considered.
 The level of ordinary skill in the relevant field.
The US Supreme Court also mentioned secondary considerations, such as the commercial
success of the invention, unmet needs in the industry, and failures of others, which can provide
evidence of non-obviousness.

In the case of M/s. Bishwanath Prasad Radhey Shyam Appellant v. M/s. Hindustan Metal
Industries, the Supreme Court of India emphasized the importance of assessing inventive step,
stating that an improvement or combination of known things must go beyond a simple
workshop improvement.
 To be patentable, the improvement or combination should result in a new outcome, a
new article, or a better/cheaper article.
 The combination of known elements must work together in a unique way to produce a
new process or improved result.
 Simply gathering multiple known elements without any inventive effort does not
qualify for a patent.

Industrial Application
 An invention is considered industrially applicable if it meets three conditions together:
 It can be made.
 It can be used in at least one field of activity.
 It can be reproduced with the same characteristics as many times as needed.
 For an invention to be patentable, it must be useful. If the subject matter lacks utility, it
doesn't meet the requirement of invention.
 The commercial or financial success of an invention doesn't determine its utility in
patent law.
 The usefulness of an invention depends on whether it can produce the effects claimed
by the applicant or patent holder, regardless of commercial success.
 Utility is determined by the state of things at the time of filing the patent application. If
the invention was useful then, subsequent improvements or its commercial value
becoming obsolete doesn't invalidate the patent.
 Speculative or imaginary industrial uses do not fulfill the requirement of industrial
application.

State of Art
 The information appearing in magazines, technical journals, books, and similar sources
are considered part of the state of the art, as they contribute to the existing knowledge
in a particular field.
 The material already published in patent documents, including granted patents, forms
part of the state of the art and can affect the novelty and inventive step of a new
invention.
 Additionally, material from patent applications that were filed earlier but not yet
published at the time of filing the new invention also contribute to the state of the art
and are considered when assessing the novelty and inventive step of the new invention.
Whether invention is novel
 Whether the invention has been published? This refers to whether information about
the invention has been made available to the public through publications or any other
means.
 Whether the invention has been claimed? This considers whether the invention has
been included as a claimed invention in any patent application or specification.
 Whether the invention was in ‘Public Domain’ i.e in ‘public knowledge or public
use’? This examines whether the invention was already known or used by the public
before the filing date, which could affect its novelty.
 Whether the invention is anticipated? This refers to whether the invention has been
previously disclosed or described in prior art, which could undermine its novelty.

IPR Importance for Startup

Intellectual Property Rights (IP Rights) are rights that protect intangible assets, similar to how
property rights protect physical assets. These rights grant creators exclusive control over the
use of their creations for a certain period of time. In today's globalized world, intellectual
property has become a valuable source of wealth. Different countries have specific laws and
international treaties that govern IP rights.

Startups also have IP rights that they need to understand and protect in order to succeed. These
rights can include trade names, brands, logos, advertisements, inventions, designs, products,
and websites. It is important for startups to ensure they are not infringing on the IP rights of
others to avoid legal issues that could harm their business. Developing and protecting
intellectual property can have many benefits for startups, such as increasing business value,
building goodwill, protecting competitive advantage, using IP as a marketing advantage, and
generating revenue through licensing.

Enforcing IP rights involves taking legal action against those who infringe on these rights. This
can result in injunctions, damages, delivery of infringing goods, and legal costs. Infringement
of IP rights can also be a criminal offense in some cases.

Importance of IP for Startups

 Protecting innovation: Startups rely on their new and unique ideas, products, or
services to stand out from competitors and attract customers. Intellectual property (IP)
rights like patents, trademarks, and copyrights can legally protect these innovations,
stopping others from copying or using them without permission. This helps startups
keep their position in the market and make money from their ideas.
 Attracting investment: Investors are more likely to invest in startups that have a strong
portfolio of IP, as it shows that the company has an advantage over others and a solid
foundation for future growth. IP rights can also be used as collateral to secure funding
or as a bargaining tool in negotiations with potential partners or buyers.
 Building brand value: Startups need trademarks and other branding elements to
establish their identity in the market and increase their brand's worth. A strong brand
can help attract customers, foster loyalty, and make the company seem more valuable.
 Enforcing rights: Having registered IP rights allows startups to take legal action against
those who infringe on their rights, using cease-and-desist letters, lawsuits, or other
methods. This is particularly important for startups operating in crowded or competitive
markets where IP infringement is common.
 Licensing opportunities: Startups can earn money by licensing their IP assets to other
companies or individuals. This can be a significant source of revenue, especially if the
startup has developed valuable technologies or processes that others can use.
 International expansion: When startups want to expand globally, IP rights become
crucial for protecting their innovations and brands in foreign markets. Many countries
require local IP registration, so startups must navigate the complex world of
international IP laws to ensure their rights are safeguarded.
 MODULE 11
MODULE XI: Management Practices and Laws

 Legal risk management – identifying and minimizing risks

 Building processes and internal policies
 Internal company policies, security systems, allocation of responsibility amongst officers,
imposing contractual obligations, reporting structure
 Recruitment policy, compensation policy, performance management policy, leave policy,
medical policy, sexual harassment policy, data protection and confidentiality policy,
grievance redressal policy, whistleblower policy, emergency policies, media communications
policy, social media and blogging policy
 Key business agreements and risks – Distribution agreement, Marketing Agreement,
Commercial leases, Consultancy Agreement, Collaboration/Co-branding Agreement,
Advertising Agreement
 Mitigating risks of sexual harassment

Owing to COVID 19, there are many children who are not able to access schools and colleges.
You are an entrepreneur and you plan to develop a software based application wherein students
can be provided with elementary education through interactive videos and study materials at a
minimal subscription fee of Rs. 1,000 per month. In addition to this, on this App there will be
vocational courses for which government recognised certificates will be granted for the same.
Draft a detailed SWOT analysis for your EdTech business. Also explain various strategies of
risk management for an entrepreneur with help of relevant examples.

According to Mr B.O.Wheeler, “Risk is the chance of loss. It is the possibility of some adverse
occurrence”. Critically analyze this statement while explaining various types of internal and
external business risks involved at various stages of an entrepreneurship journey.

Short Notes: Mitgating Risks of Sexual Harassment

Sexual Harassment Policy

 "Company Name" promotes equality in employment and strives to create a safe
working environment where employees can work without facing discrimination, gender
bias, or sexual harassment.
 The company values the dignity of all its employees and believes that everyone
deserves to be treated respectfully.
 Sexual harassment, whether it occurs in the workplace or outside of work involving
employees, is considered a serious offense.
 The company takes strong action against those found guilty of sexual harassment, as it
is punishable.
 The policy aims to ensure a workplace free from any form of sexual harassment,
protecting the rights and well-being of all employees.

Definition
 Sexual Harassment is defined in Section 2 (n) of the Sexual Harassment of Women at
Workplace (Prevention, Prohibition and Redressal) Act, 2013.
  Sexual harassment is defined as unwelcome acts or behavior related to physical contact
or advances, demands or requests for sexual favors, making sexually colored remarks,
showing pornography, or any other unwelcome conduct of a sexual nature.
 Circumstances such as implied or explicit promises or threats related to employment,
interference with work, or creating a hostile work environment can amount to sexual
harassment.
 Sexual harassment includes various forms, such as unwelcome advances, sexual visuals
or audios, obscene messages, explicit or implicit demands for sexual favors in exchange
for employment benefits, sexually-oriented jokes or remarks, inappropriate physical
contact or staring, behavior that makes employees uncomfortable or humiliated based
on gender, and actual sexual assault.
 The company has a policy to prohibit and deter any form of sexual harassment among
employees, including superiors and subordinates as well as peers. Any complaint or
report of sexual harassment will be promptly investigated, and appropriate action will
be taken against the offending employee(s).
 Offenders will be prosecuted under the Sexual Harassment of Women at Workplace
(Prevention, Prohibition and Redressal) Act, 2013, and other relevant laws in India.

Internal Committee
 The company has established an Internal Complaints Committee (ICC) as mandated
under Section 4 of the Act.
 The ICC is responsible for handling cases of sexual harassment in a fair, sensitive, and
efficient manner.
 The ICC consists of a Presiding Officer, who is a senior woman employee, at least two
members from the company who are committed to women's welfare or possess legal
knowledge, and one external member familiar with sexual harassment issues.
 The committee receives complaints of sexual harassment at the workplace and initiates
inquiries according to the established procedure.
 After conducting the inquiry, the committee submits its findings and recommendations.
 The committee collaborates with the employer to implement appropriate actions based
on the investigation outcomes.
 Confidentiality is strictly maintained throughout the process, following established
guidelines.
 The ICC submits annual reports in the required format to track and monitor the progress
of addressing sexual harassment cases.

Process for dealing with incidents of sexual harassment

 Any employee who experiences sexual harassment can make a written complaint to the
Committee. If unable to write, the committee will provide support to help the employee
make the complaint.
 The complaint should include details of the incident and the name of the accused
employee.
 The complaint should be reported within three months of the last incident.
 The Committee may attempt conciliation between the aggrieved person and the
accused, but only in the form of non-monetary settlement. If a settlement is reached, it
will be recorded and shared with the employer and the parties involved.
 If conciliation fails, the Committee will conduct a thorough investigation, ensuring
confidentiality and giving the accused employee(s) a chance to present their side.
  The investigation result and a recommendation for appropriate action will be recorded
and communicated to the Director.
 The Committee aims to complete the process and make its first recommendation within
15 days, except in exceptional circumstances.
 In cases involving multiple locations, a committee member may travel to the relevant
location to gather information.
 Action will be taken against the offending employee(s) based on the seriousness of the
offense.
 If the incident is a criminal offense, the company will inform the relevant authority and
cooperate with their actions.
 The complainant's career interests will be protected, and false or frivolous complaints
unrelated to gender issues will be treated seriously.
 Anonymous references related to sexual harassment will be examined by senior
management, who will communicate their conclusions and action plans to the
Committee.
 Department heads and senior managers are expected to be vigilant and report any
instances that go against company policy to the Committee for appropriate action.

Labour and Employment Laws

Evolution of Labour Laws in India

Labour laws in India have evolved over time to protect the rights and working conditions of
employees. Here are the key points of this evolution:
 Early Regulations: Initially, Indian labour laws were influenced by the Masters and
Servants provisions of English law. Factory-type regulations were introduced between
the 1880s and 1930s to improve working conditions in Indian factories.
 First Period: During this period, labour law reforms were formal and had minimal
interference with working conditions and the employer-worker relationship.
 Second Period: From 1937 to 1947, there was a focus on workers' rights, trade unions,
and the right to strike. This period aimed for greater uniformity in workplace
regulations.
 Third Period: After India's independence, in the late 1940s and early 1950s, significant
progress was made in labour legislation. The Workmen's Breach of Contract Act 1859
played an important role in regulating employment contracts.
 Post-World War I: The nationalist movement and the emergence of trade unions
influenced labour policies. The International Labour Organization also had an impact
on labour policy in India.
 Pre-War Regulations: Regulations from the pre-war period focused on areas such as
working hours, rest periods, protections for women and children, health, and safety.
Acts like the Factories Act 1922, Mines Act 1922, and Workmen's Compensation Act
1923 provided protection.
 Modern Approach: The Trade Unions Act 1926 and the Trade Disputes Act 1929
introduced a modern approach to industrial relations. The Trade Unions Act allowed
for the registration of trade unions, while the Trade Disputes Act placed limitations on
the right to strike.
 1930s: This period was marked by the world economic depression, rising
unemployment, and the Indian independence movement. The British government
 established the Royal Commission on Labour, but it was boycotted by the Indian labour
movement.

Labour Regulations in India

1. Law of Welfare & Working Conditions
 Factories Act, 1948: This law ensures that workers in factories have safe and
healthy working conditions. It also provides for compensation in case of accidents
and sets standards for working hours, breaks, and welfare facilities.
 Sexual Harassment of Women at Workplace Act, 2013: This law aims to prevent
and address sexual harassment at workplaces. It establishes guidelines for
employers to create a safe and respectful work environment for women.
2. Law of Industrial Relations:
 Industrial Disputes Act, 1947: This law deals with disputes between employers and
workers. It regulates matters such as strikes, lockouts, and resolution of conflicts in
industrial establishments.
 Indian Trade Union Act, 1926: It governs the formation and functioning of trade
unions in India. It gives workers the right to form unions to protect their interests
and negotiate with employers.
 The Trade Unions (Amendments) Act, 2001: This act introduced amendments to
the Indian Trade Union Act to address emerging issues and strengthen workers'
rights.
3. Law of Wages:
 Payment of Wages Act, 1936: This law ensures timely and lawful payment of wages
to workers. It covers aspects such as wage periods, deductions, and penalties for
non-compliance.
 Minimum Wages Act, 1948: It establishes a minimum wage rate that employers
must pay to workers in different industries or occupations. This ensures fair
remuneration for their work.
4. Social Security Legislations:
 Employees' Compensation Act, 1923: This act provides compensation to workers
in case of employment-related injuries or accidents. It ensures that workers receive
financial support for medical expenses and loss of earnings.
 Employees' Compensation (Amendment) Act, 2017: It introduced amendments to
the Employees' Compensation Act to enhance coverage and benefits for workers.
 Industrial Employment (Standing Orders) Act, 1946: This law requires employers
to define and maintain standing orders that govern various employment conditions,
such as working hours, leave, and disciplinary procedures.

The Factories Act, 1948

Authorities:
 Inspecting Staff (Sections 8-9): The state government appoints inspectors to ensure
compliance with the law and inspect the health and safety of workers.
 Certifying Surgeons (Section 10): Qualified medical practitioners appointed by the
state government to conduct medical examinations of workers.
 Welfare Officers (Section 49): In factories with 500 or more workers, the occupier must
appoint welfare officers to supervise welfare schemes, address grievances, and prepare
reports.
  Safety Officers (Section 40-B): In factories with over 1,000 workers or involving risks
of injury, the state government may direct the appointment of safety officers to ensure
safety measures are implemented.

Welfare Provisions:
 Washing facilities (Section 42): Factories must provide adequate facilities for workers
to wash themselves.
 Facilities for storing and drying clothes (Section 43): Factories must provide suitable
spaces for workers to store and dry their clothes.
 Facilities for sitting (Section 44): Factories must provide suitable seating arrangements
for workers.
 First aid appliances (Section 45): Factories must provide first aid equipment and
facilities.
 Canteen (Section 46): Factories with more than 250 workers must have a canteen for
the benefit of workers.
 Restrooms, shelters, lunchrooms (Section 47): Factories with more than 150 workers
must provide restrooms, shelters, and lunchrooms for workers.

Working Hours:
 Weekly hours (Section 51): Workers should not be made to work more than 48 hours
in a week.
 Weekly holiday (Section 52): The first day of the week, usually Sunday, should be a
weekly holiday.
 Compensatory holiday (Section 53): If a worker's weekly holiday is denied, they
should be allowed to take a compensatory holiday within a month.
 Daily working hours (Section 54): Adult workers should not work for more than nine
hours in any day.
 Night shifts (Section 57): If a worker's shift extends beyond midnight, they should be
given a 24-hour holiday starting from the end of their shift.

Safety Measures:
 Fencing of Machinery (Section 21): Dangerous parts of machinery must be securely
fenced, and further precautions may be prescribed by the state government.
 Machines in motion (Section 22): Only specially trained adult male workers wearing
proper clothing are allowed to examine machinery in motion. Women and children
should not be allowed to work in such areas.
 Employment of young persons on dangerous machines (Section 23): Young persons
should not be allowed to work on dangerous machines unless they have been trained
and are under supervision.
 Self-acting machines (Section 25): No person should enter a space within 45 cm of a
fixed structure that is not part of the machine.
 Casing of new machines (Section 26): All machinery driven by power and installed in
factories should be properly sunk, encased, or guarded to prevent danger.

These laws and provisions aim to ensure the safety, welfare, and fair treatment of workers in
factories across India.

The Industrial Disputes Act, 1947

Objective:
  To ensure peace and harmony in industries.
 To establish a process for investigating and settling disputes through negotiations.
Definitions:
 Industry: Any organized activity between an employer and workers for producing,
supplying, or distributing goods and services to satisfy human needs.
 Strike: When a group of workers collectively stops working or refuses to accept
employment as a way of protest or negotiation.
Types of Disputes:
 Interest Disputes: Arise from negotiation deadlocks for collective bargaining.
 Grievance Disputes: Relate to issues like discipline, wages, working hours, promotions,
and supervisor rights.
 Unfair Labor Practices: Actions violating workers' rights, such as preventing
organization, violent acts, failure to implement awards, discrimination, and illegal
strikes or lockouts.
Works Committee (Section 3):
 Consists of representatives from employers and workers.
 Serves as a platform for discussing and resolving day-to-day issues in the workplace.
Conciliation Officer (Section 4):
 Appointed to create a positive atmosphere within the industry.
 Conducts conciliation proceedings and investigates disputes. Their role is
administrative rather than judicial.
Boards of Conciliation (Section 5):
 Composed of a chairman and members representing the disputing parties.
 The chairman is an independent person.
 Aims to facilitate conciliation and resolution of disputes.
Labour Court (Section 7):
 State governments can establish one or more labor courts.
 These courts adjudicate industrial disputes related to matters specified in the Second
Schedule of the Act.
Procedure of Strikes:
 Employees in public utility services must follow certain rules before going on strike:
 Provide notice of the strike to the employer at least six weeks in advance.
 Avoid striking within fourteen days of giving the notice.
 Not strike before the specified strike date or during conciliation proceedings.
 Wait for seven days after the conclusion of conciliation proceedings before striking.

These provisions aim to promote negotiation, conciliation, and fair resolution of industrial
disputes, while ensuring essential public services are not disrupted.

The Minimum Wages Act, 1948

Labour Law Challenges

Issues Addressed:
 Underemployment and low wages are prevalent problems.
 Industrial upgrading is necessary.
 There are distributive conflicts and imbalances in bargaining power among different
social groups.
 Collective freedom and skill development are limited.
Employment Agreement:
  Agreement between employer and worker with specific conditions.
 The agreement's purpose must be legitimate and clearly specified.
 Termination of the employment agreement is regulated.
Working Conditions:
 Duration of work is fixed by law.
 Special considerations for working conditions of women.
 Forums for resolving disputes between employers and workers.
 Focus on safety and hygiene in the workplace.
Informal Sector:
 Informal employment relations in formal enterprises provide opportunities but offer
less protection to workers.
 Small and microenterprises often do not comply with laws or face enforcement.
 Job quality within the informal economy and small businesses.
 Formal application of labour laws to small and microenterprises (seen in developed
countries).
 Informal economies may have instances of forced labour.
 Instability and insecurity in terms of social protection, such as health, disability, and
unemployment insurance, pension schemes, childcare, and maternity leave.
 Absence of collective agreements in the informal sector.
The Way Ahead:
 Economic development through industrial upgrading.
 Private actors should align with state policy objectives.
 Economic and social protection measures should be implemented.
 Micro and small enterprises should formalize their operations.
 These measures aim to address issues related to wages, working conditions, and
protection in the labor market, while also promoting economic development and
ensuring the well-being of workers in the informal sector.

New Labour Laws

 Four Codes: There are four new laws called codes in India that aim to simplify and
modernize labor laws. These codes cover wages, industrial relations, social security
conditions, and occupational safety, health, and working conditions.
 Objective: The main objective of these codes is to make labor laws easier to understand
and implement, and to promote a better environment for doing business.
 The Occupational Safety, Health And Working Conditions Code, 2020: This code
focuses on the safety, health, and working conditions of workers in various sectors and
aims to ensure their well-being.
 The Industrial Relations Code, 2020: This code deals with the relationship between
employers and workers, including disputes and resolution mechanisms.
 The Code of Wages, 2020: This code regulates wages and aims to ensure fair and timely
payment to workers.
 The Code on Social Security, 2020: This code focuses on providing social security
benefits to workers, such as pension, healthcare, and insurance.
These codes have been introduced to simplify labor laws, promote business ease, and address
specific aspects related to safety, health, working conditions, industrial relations, wages, and
social security.

The Occupational Safety, health and Working Conditions Code, 2020

 1. Code Consolidation: The Code combines 13 major labor laws into a single Code with
143 provisions. The laws being subsumed include those related to factories, contract
labor, mines, dock workers, construction workers, journalists, cinema workers, and
more.
2. Scope: The Code applies to factories with 20 or more workers (or 40 or more workers
without power) and various sectors such as industry, trade, manufacturing, transport,
construction, media, plantations, mines, docks, and services.
3. Emphasis on Health, Safety, and Welfare: The Code focuses on ensuring the well-
being of workers in terms of their health, safety, and welfare in different sectors and
establishments.
4. Coverage of Contract Labor: The Code includes provisions for contract labor
employed through contractors.
5. Occupational Safety Boards: The Code establishes national and state-level
occupational safety boards to advise the central and state governments on framing
standards, rules, and regulations under the Code.
6. Special Provisions: The Code provides specific provisions for certain establishments
like factories, mines, docks, and construction workers, including requirements for
licenses, safety regulations, and employer responsibilities.
7. Simplified Procedures: The Code introduces simplified procedures compared to the
previous labor laws. It replaces separate registrations with a single electronic
registration for all covered establishments, requires one consolidated return instead of
various returns, and adjusts thresholds for appointing welfare officers and providing
canteen facilities.
8. National Occupational Safety and Health Advisory Board: The Code establishes the
National Occupational Safety and Health Advisory Board, which advises the central
government on occupational safety and health matters.

Welfare Facilities, Working Hours and Annual Leave

1. Welfare Facilities (Chapter VI, Section 24):
 Washing facilities: Adequate separate facilities for men and women to wash up.
 Bathrooms and locker rooms: Separate facilities for men, women, and transgender
employees.
 Storage space: Room to keep clothes during work hours.
 Seating arrangements: Chairs for employees who need to stand while working.
 Canteen: Required in establishments employing 100 or more workers, including
contract laborers.
 Medical examination: Mines must provide health check-ups to new and existing
employees.
 First aid: Easily accessible first aid boxes available throughout working hours.
2. Working Hours and Leave (Chapter VII):
 Daily working hours (Section 24): No worker should work more than 8 hours in a
day.
 Weekly rest day (Section 26): Workers should have at least one day off in a week.
 Annual leave: Workers are entitled to a certain amount of paid leave each year.
 Overtime wages (Section 27): Extra wages to be paid at twice the regular rate for
overtime work.
 Night shift regulations (Section 28): Specific rules apply to workers whose shift
extends beyond midnight.
 3. Authorities
 National Occupational Safety and Health Advisory Board [Section 16 (1)]:
Constituted by the Central Government to advise on occupational safety and health
matters.
 State Board: State-level boards may be established to assist in implementing the
provisions of the code.
4. Special Provisions Relating to Employment of Women (Chapter X):
 Employment of Women: Women have the right to work in all establishments and
for all types of work under this Code.
 Working Hours (Section 43): Women can also be employed before 6 a.m. and
beyond 7 p.m., but certain conditions need to be followed for their safety and well-
being.
 Safety Measures (Section 44): If the appropriate Government believes that the
employment of women can be dangerous to their health and safety in specific
establishments or processes, they can require the employer to provide necessary
safeguards before employing women for such operations.
5. Penalty Provisions:
 Non-Maintenance of Register and Records: If someone fails to maintain the
required register, records, or fails to file returns as mandated, they will be liable to
pay a penalty. The penalty amount will be at least fifty thousand rupees but may go
up to one lakh rupees.
 Falsification of Records: If someone falsifies records, they can face punishment.
They may be sentenced to imprisonment for up to three months, or they may be
fined up to one lakh rupees, or they may face both imprisonment and a fine.

The Industrial Relations Code, 2020

1. Consolidation of Acts: The Industrial Relations Code, 2020 brings together and
consolidates three existing acts: The Industrial Disputes Act, 1947; The Trade Unions
Act, 1926; and The Industrial Employment (Standing Orders) Act, 1946.
2. Change in Terminology:
 The term "worker" is used instead of "workman" as per the Industrial Disputes Act.
 The definition of a worker is broad and includes employees engaged in various
types of work, whether manual, unskilled, skilled, technical, operational, clerical,
or supervisory.
 However, certain employees in managerial or administrative roles or with
supervisory roles and earning wages exceeding Rs. 10,000 per month are not
considered workers.
3. Definition of Industrial Dispute:
 An industrial dispute refers to any disagreement or conflict between employers and
employers, employers and workers, or workers and workers.
 It relates to matters concerning employment, non-employment, terms of
employment, or labor conditions of any individual.
 This also covers disputes between an individual worker and an employer arising
from issues such as discharge, dismissal, retrenchment, or termination.
The Industrial Relations Code, 2020 consolidates multiple existing acts and provides a
definition of a worker that includes various types of employees. It recognizes industrial
disputes as conflicts between employers and workers or among workers themselves, covering
various employment-related issues.
Mechanism for Resolution of Industrial Dispute
1. Works Committee (Section 3):
 For workplaces with 100 or more workers.
 Consists of representatives from the employer and workers.
 Aims to promote harmony and good relations between the employer and workers.
 Discusses common issues and tries to resolve differences.
2. Grievance Redressal Committee (Section 4):
 For workplaces with 20 or more workers.
 Equal representation from the employer and workers.
 Workers can file a complaint within one year of the dispute arising.
 Aims to address individual grievances and resolve them.
3. Conciliation Officers (Section 43):
 Appointed by the government to mediate and promote settlement of industrial
disputes.
 Can be appointed for specific areas or industries.
 Facilitates negotiations between parties to reach a resolution.
4. Industrial Tribunal (Section 44, 46):
 Constituted by the government to adjudicate industrial disputes.
 Consists of members appointed by the government, including a Judicial Member
and an Administrative Member.
 Deals with various matters, including interpretation of standing orders, dismissal or
reinstatement of workers, strikes or lockouts, retrenchment, closure of
establishments, and trade union disputes.
 National Industrial Tribunals are established for disputes of national importance or
involving multiple states.
5. Powers (Section 49):
 Conciliation officers, Tribunals, and National Industrial Tribunals have powers
similar to civil courts.
 They can summon people, examine them under oath, request documents, and issue
commissions for witness examination.
 They have additional powers as prescribed.
The mechanism for resolving industrial disputes involves the establishment of Works
Committees and Grievance Redressal Committees at the workplace level. Conciliation
Officers, Industrial Tribunals, and National Industrial Tribunals are appointed by the
government to mediate and adjudicate disputes. These bodies have the power to summon
individuals, request documents, and make decisions similar to civil courts.

Risk
Definitions
 Risk: Risk refers to an uncertain event or situation that can have a positive or negative
impact on one or more project goals, such as time, cost, scope, or quality. A risk can be
caused by various factors and can lead to specific consequences if it occurs.
 Risk Management: Risk management is a process that involves several steps to
effectively handle and mitigate risks. It includes identifying, categorizing, analyzing,
and evaluating risks in a systematic manner. The goal of risk management is to
 minimize the negative impacts of risks and maximize the positive outcomes for project
objectives.

Process
 Identify Risks: Identify potential sources of risk that may affect the project.
 Assess Impact: Evaluate the individual impact of each risk and focus on those with
significant impact for further analysis.
 Evaluate Overall Impact: Assess the overall impact of the significant risks on the
project.
 Reduce Likelihood/Impact: Determine strategies to decrease the likelihood or impact
of the identified risks.
 Control Risks: Develop and implement a plan to control the risks and achieve the
desired reductions in likelihood or impact.

Stages in Risk Management

 Risk Identification: Identify and recognize potential sources of risks that may arise
during the project or business operations.
 Risk Classification: Categorize the identified risks based on their nature,
characteristics, and potential impact on project objectives.
 Risk Analysis: Evaluate and analyze each identified risk in detail, considering its
likelihood of occurrence and potential consequences.
 Risk Response: Develop appropriate strategies and plans to address and manage the
identified risks, including risk mitigation, risk avoidance, risk transfer, or risk
acceptance.

Risk
 Infrastructure projects are exposed to two classes of risks: country risk and special
project risk, which encompass various factors that can impact the project's success.
 Risks in infrastructure projects can include delays in project approval, changes in laws
and regulations, constraints in dispatching resources, cost overruns, challenges in land
acquisition and compensation, disruptions to construction schedules, contract
enforceability issues, tariff adjustments, financial closure difficulties, environmental
risks, rate and currency exchange risks.
 Major risks in infrastructure projects include financial risk, legal risk, management risk,
market risk, policy and political risk, technical risk, environmental risk, and social risk.
These risks pose potential challenges and uncertainties that need to be addressed in
order to ensure project success.

Risk in Construction Projects

 Time: Delays in project completion can arise due to unforeseen circumstances, such as
inclement weather, labor shortages, or design changes, impacting the project schedule.
 Cost: Construction projects can face cost overruns due to factors like material price
fluctuations, labor cost increases, or unexpected site conditions, affecting the project
budget.
 Quality: Risks related to quality involve deviations from specified standards,
inadequate workmanship, or insufficient quality control measures, which can impact
the overall quality and durability of the project.
 Resources: Challenges may arise in managing and allocating resources effectively,
including labor, equipment, and materials, affecting project productivity and progress.
  Safety: Construction sites involve inherent safety risks, such as accidents, injuries, or
health hazards, which need to be mitigated through proper safety protocols and training.
 Environment: Compliance with environmental regulations, managing waste disposal,
and minimizing environmental impact are crucial factors in construction projects.
 Company image or reputation: Poor project performance, conflicts, or negative
publicity can harm a construction company's reputation and affect its future prospects.
 Business strategy: Risks associated with business strategy include market fluctuations,
changing client demands, competitive pressures, and unforeseen economic conditions
that can impact project viability and profitability.

External Risks – Unpredictable:

 Government regulations (on imports, tax, interest): Changes in government
regulations or policies regarding imports, taxation, or interest rates can impact business
operations and financial viability.
 Third parties (sabotage or war): Unforeseen events like acts of sabotage or war can
disrupt supply chains, infrastructure, and overall business operations, leading to
significant losses.
 Acts of God (earthquake, flood, inclement weather): Natural disasters and extreme
weather conditions, such as earthquakes, floods, hurricanes, or severe storms, can cause
property damage, project delays, and safety risks.

External Risks – Predictable but Uncertain:

 Beyond control of management: Risks that are beyond the control of management,
such as changes in market conditions, economic fluctuations, or technological
advancements, can impact business performance.
 Activity of the market (raw materials): Fluctuations in raw material prices, supply
availability, or market demand can affect project costs, profitability, and resource
planning.
 Policies affecting currency, inflation, and taxation: Government policies related to
currency exchange rates, inflation rates, and taxation can have a significant impact on
business operations, financial planning, and profitability.
 Weather: Although weather conditions can be predicted to some extent, they still pose
uncertainties and can impact various industries, such as agriculture, tourism, and
construction.
 Social impact: Societal changes, cultural shifts, public opinion, or social movements
can influence market demand, consumer preferences, and business reputation, affecting
business outcomes.

Internal Risks – Technical:

 Arise directly from the technology, design, construction method, or operation: Risks
associated with technical aspects of a project can include design flaws, technological
limitations, construction difficulties, or operational inefficiencies that can lead to
project delays, increased costs, or compromised performance.
 Arise from changes or from a failure to achieve the desired level of performance:
Changes in project requirements, specifications, or performance criteria can introduce
risks related to compatibility issues, performance gaps, or system failures if the desired
level of performance is not achieved.
  Inappropriate project design: Inadequate project design, including incorrect sizing,
insufficient planning, or flawed engineering decisions, can result in project
inefficiencies, functionality issues, or operational challenges.

Internal Risks – Non-Technical:

 Within the control of management: Risks that arise from internal factors and are under
the control of management, such as organizational processes, decision-making,
resource allocation, or project management practices.
 Failure of organizing resources effectively: Inefficient allocation or utilization of
resources, including human resources, financial resources, equipment, or materials, can
lead to time and cost overruns, interruptions in operations, negative cash flows, and
even bankruptcy.

Legal Risks:
 Coming under civil or criminal law: Legal risks in construction projects involve
potential violations of civil or criminal laws, including breaches of contractual
obligations, negligence claims, regulatory non-compliance, or legal disputes arising
from project activities.
 Contractual arrangements with clients, contractors, or third parties – contractual
failure: Risks can arise from contractual agreements that may not be fulfilled or result
in disputes, such as failure to meet project milestones, non-payment, breach of contract
terms, or disagreements over project specifications.
 Illegal act by employees (criminal law) and negligence by staff (harming to others):
Legal risks can stem from illegal actions committed by employees, such as theft, fraud,
or other criminal activities, as well as negligence by staff members that cause harm or
damage to individuals, property, or the environment.

Employer's Risks:
 Employer's risks in construction projects refer to the potential risks faced by the project
owner or the entity responsible for initiating and overseeing the project.
 These risks can include financial risks, project delays, cost overruns, regulatory
compliance, changes in project requirements, contractual disputes, or reputational risks.

Contractor’s Risks:
 Contractor’s risks pertain to the risks faced by the construction contractor or the entity
responsible for executing the construction work.
 These risks may include project performance risks, subcontractor non-performance,
labor issues, equipment failure, safety hazards, project scheduling challenges, quality
control issues, or contractual liabilities.

Potential Factors with related causes

 People: The skills, knowledge, experience, and motivation of individuals involved in
the project can significantly impact its success. Factors such as inadequate training, lack
of expertise, low motivation, or insufficient resources can contribute to project risks.
 Plans: The effectiveness of project plans is crucial for successful execution. Inaccurate
estimates, incomplete documentation, dependencies not properly identified or
managed, or gaps in project planning can introduce risks and hinder project progress.
 Products: The specifications and quality of the products or deliverables produced
during the project play a vital role. Poorly defined specifications, substandard quality
 control measures, or deviations from required standards can lead to risks and
compromise project outcomes.
 Process: The adherence to standards, procedures, guidelines, and the overall activity
and measurement processes can impact project performance. Inadequate process
controls, inconsistent application of procedures, or insufficient monitoring and
measurement practices can introduce uncertainties and risks.
 Equipment: The availability, reliability, and proper functioning of equipment and tools
used in the project are essential. Factors such as lack of equipment calibration,
unreliable machinery, unavailability of necessary tools, or inadequate maintenance can
create risks and disrupt project activities.
 Management: Effective project management is critical for mitigating risks. Inadequate
scheduling, inadequate documentation and communication, lack of leadership, or
insufficient oversight can contribute to project risks and result in delays, conflicts, or
resource mismanagement.
 Materials: The quality, quantity, availability, timely delivery, and proper removal of
materials are important considerations. Issues such as poor material quality, inadequate
quantity, delays in procurement, or improper waste management can impact project
progress and introduce risks.
 Environment: The project environment, including factors like temperature, cleanliness,
and comfort, can influence productivity and worker well-being. Unsuitable working
conditions, inadequate temperature control, lack of cleanliness, or discomfort can affect
performance and introduce risks to the project.

Identifying and addressing these potential factors and their related causes is essential for
effective risk management in construction projects.

Mitigation strategies for controlling risks

Mitigation strategies for controlling risks:
 Avoidance or elimination: This involves modifying the project plan or approach to
avoid or eliminate the identified risks. It may include changing the project scope,
redefining objectives, or adopting alternative methods to minimize potential risks.
 Transfer: Risk transfer involves transferring the responsibility for managing certain
risks to third parties. This can be done through subcontracting or outsourcing specific
tasks or activities to specialized contractors who have the expertise to handle those
risks.
 Loss prevention techniques: Implementing safety precautions and measures to prevent
or minimize the occurrence of risks. This can include training employees on safety
protocols, implementing safety guidelines and procedures, and utilizing protective
equipment to reduce the likelihood of accidents or incidents.
 Loss reduction techniques: Implementing measures to reduce the impact of risks that
cannot be completely prevented. For example, installing seat belts in vehicles,
implementing sprinkler systems in buildings to mitigate fire risks, or implementing
alarming systems for early detection of potential hazards.
 Segregation technique: Employing strategies to reduce risks by diversifying or
distributing critical components or resources. This can involve having multiple copies
of important documents, maintaining backup facilities or systems, designing projects
to use standard components, and having multiple suppliers to avoid over-reliance on a
single source.
  Contingency planning: Developing plans to address low probability but high impact
exposures. This includes conducting risk assessments, developing alternative courses
of action, and providing management training to ensure preparedness for unforeseen
events or crises.
Implementing these mitigation strategies can help control and minimize risks in construction
projects, enhancing overall project success and reducing the potential for negative impacts.

Startup HR Employee Policy

Sexual Harassment Policies

 Sexual harassment policies aim to address and prevent unwelcome sexual conduct
that is hostile, humiliating, or intimidating.
 Sexual harassment includes unwelcome sexual advances, requests for sexual favors,
and other verbal or physical behaviors of a sexual nature.
 It is considered sexual harassment if such conduct affects employment decisions,
terms or conditions of employment, or creates a hostile work environment.
 Sexual harassment can occur through verbal, written, or physical means, and it can
happen in person or online.
 Victims of sexual harassment can be of any gender.

Objectives
 The objectives of a workplace sexual harassment policy are to outline the process of
filing complaints, conducting investigations, and implementing appropriate
disciplinary measures.
 The policy aims to provide a safe environment for all employees, with a particular focus
on protecting women's rights and addressing and remedying instances of sexual
harassment.
 It seeks to create an environment that promotes awareness of sexual harassment issues
and discourages such behavior.

Scope
 The scope of the Sexual Harassment policy should encompass all members of the
company, including employees, investors, clients, and executives.
 The policy should address sexual harassment both within and outside the company
premises, ensuring comprehensive coverage.
 It should apply to everyone regardless of their gender, caste, or religion, promoting a
safe and inclusive work environment.
 Additionally, the policy should extend its protection to customers, clients, and any
guests visiting the office premises.

Overview of the POSH Act, 2013

 The Protection of Women from Sexual Harassment at Workplace Act, 2013 (POSH Act
2013) is a significant legislation in India aimed at safeguarding women from sexual
harassment.
 Its purpose is to maintain harassment-free workplaces and ensure a secure environment
for women.
 The act emphasizes raising awareness about sexual harassment and offers legal
remedies for victims.
  It mandates the establishment of Internal Complaints Committees (ICCs) in
organizations to handle complaints and foster a safe working atmosphere for female
employees.
 The POSH Act is a crucial stride towards providing women in India with a workplace
that is both safe and respectful.

Key Provisions of the POSH Act, 2013

 The POSH Act, 2013 was established to safeguard women from sexual harassment in
workplaces.
 Employers are obligated to create a safe and secure work environment for female
employees.
 Internal Complaints Committees (ICC) must be set up by employers to handle
complaints related to sexual harassment.
 Key provisions include displaying a notice informing employees about protection
against sexual harassment, having a woman as the head of the ICC, and ensuring at
least half of the committee members are women.
 Employers must take preventive measures against sexual harassment and ensure
victims are not subjected to further victimization or discrimination.
 Support and assistance should be provided to complainants, and necessary work
arrangements should be made if they require a transfer.

Challenges in implementing the POSH Act, 2013

 Despite the introduction of the POSH Act 2013, there are challenges in its
implementation.
 Low awareness about the Act in certain areas makes it difficult for victims to come
forward and report cases of sexual harassment.
 Many organizations lack proper grievance redressal mechanisms or have not made
sufficient efforts to educate employees about their rights under the Act.
 Addressing workplace culture is crucial as it plays a significant role in the prevalence
of sexual harassment.
 By focusing on education and raising awareness, the POSH Act 2013 can be more
effective in protecting women from sexual harassment and creating a safe working
environment.

Strategies for enforcing the POSH Act, 2013

 Develop and prominently display a comprehensive policy on sexual harassment in the
workplace.
 Educate all employees about the policy and provide training on recognizing and
addressing sexual harassment.
 Establish a formal complaint procedure and ensure that all complaints are promptly and
fairly addressed.
 Treat all complaints seriously and conduct thorough investigations.
 Take appropriate disciplinary action against individuals found guilty of sexual
harassment.
 Provide counseling services for both the complainant and the accused.
 Enforce the POSH Act of 2013 to create safe and harassment-free workplaces.
 By implementing these strategies, employers can ensure compliance with the POSH
Act and promote a respectful and secure work environment.
 Key business agreements and risks
Distribution Agreement
 A distribution agreement, also known as a wholesale distribution agreement, regulates
the distribution of products made by a supplier and sold by a distributor.
 The agreement consists of two main parts. Firstly, the supplier agrees to provide and
sell its products to the distributor under specific conditions, while the distributor agrees
to regularly purchase and accept delivery of the supplier's products throughout the
agreement's duration.
 The economic objective of both parties is to promote the supplier's products within a
designated region.
 The distribution agreement is outlined in a contract that specifies details such as product
costs or commission rates, contract duration, the distributor's territory of operation, and
other relevant information.

Contents of a basic distribution agreement

 Territory: The distribution agreement should clearly define the territory in which the
distributor is authorized to sell and promote the goods. It may also allow for adjustments
to the territory in consultation with the supplier.
 Duties and obligations: This section outlines the responsibilities of both parties to
fulfill their obligations under the agreement. For the manufacturer, it includes
delivering the agreed-upon goods, providing product information and technical
assistance, adhering to delivery schedules, contributing to advertising or promotional
expenses, and supplying additional requested information.
 On-time payments: The distributor is responsible for maintaining an adequate
inventory, meeting minimum purchase expectations, setting sales goals, ensuring
accountability, and providing customer service. Other responsibilities may include
meeting sales quotas, conducting sales campaigns, handling paperwork, and providing
post-sale customer service.

Marketing Rights
 Marketing rights: The distribution agreement should address the marketing rights
associated with the product.
 If the distributor is responsible for marketing the goods, the agreement should specify
the resources and channels they can utilize for marketing purposes.
 The agreement may outline the activities and strategies the distributor can engage in to
promote the product.
 The supplier may also set guidelines or rules that the distributor must follow in their
marketing efforts.

Reporting Obligations
 The distribution agreement should include provisions for reporting obligations.
 The supplier may require the distributor to provide reports on various aspects of the
agreement, such as sales, inventory, and advertising.
 These reports are typically provided by the distributor at agreed-upon intervals.
 Reporting is particularly important if the distributor receives a commission based on
sales or if the supplier has a buy-back arrangement for unsold goods.

Trademark Licensing
  It is important to clearly define the distributor's rights regarding the use of intellectual
property, including brand names and trademarks.
 The distribution agreement should address specific actions related to trademark usage,
such as displaying the trademark on signage, applying for the trademark on printed
materials, or using the trademark in the distributor's name.
 Without explicit permission from the trademark owner, the distributor should refrain
from using the trademark to avoid legal liabilities.
 The manufacturer should exercise caution when granting trademark rights to the
distributor, ensuring that it does not compromise their own ownership rights.
 It is crucial to establish clear guidelines and restrictions to protect the unique trademark
ownership of the manufacturer while allowing limited usage rights for the distributor.

Competition
 The distribution agreement may include provisions that restrict the distributor from
selling identical products from rival suppliers, selling similar items from the same
supplier, or engaging in competition with the supplier.
 These restrictions are typically applicable to unique products rather than those with
numerous variations in the market.
 If there is a disagreement between the parties regarding the definition of "competition"
and the matter is taken to court, the judge will consider factors such as the duration of
the prohibition, the geographical scope of the restriction, the specific actions that are
prohibited, the level of difficulty imposed on the distributor, and any public concerns
that may arise.
 Restrictions on competition may not apply to all products and are more commonly
imposed when dealing with unique products or when the distributor holds significant
negotiating power.

Types of distribution agreements

The choice of distribution agreement depends on the nature of the transaction being conducted,
and it is important to select the appropriate agreement to protect the rights of both parties.
 Exclusive distribution agreement: This type of agreement grants the distributor
exclusive rights to distribute the products within a specified territory or market segment.
 Non-exclusive distribution agreement: In this agreement, the supplier can appoint
multiple distributors to sell the products without granting exclusivity to any particular
distributor.
 Wholesale distribution agreement: This agreement governs the distribution of products
from the supplier to retailers or other intermediaries who then sell the products to end
customers.
 Commission-based distribution agreement: This agreement involves the distributor
receiving a commission based on the sales they generate for the supplier.
 Developer distribution agreement: This type of agreement is specific to the distribution
of software or other digital products developed by the supplier, outlining the terms for
their distribution and use.
 Choosing the appropriate type of distribution agreement is crucial to ensure that the
contractual objectives are met and the rights of both parties are protected.

Agreement on exclusive distribution

 An exclusive distribution agreement serves various purposes for both parties involved.
  In some cases, the distributor is granted exclusive rights to distribute the supplier's
goods within a specific geographic area.
 Other exclusive agreements may grant the distributor exclusive permission to distribute
the goods to specific clients, preventing other distributors from doing so.
 Exclusive agreements are commonly used when the product is expensive, unique, or
technologically advanced, requiring specialized knowledge of the product and the
market.

Agreement on non-exclusive distribution

 A non-exclusive distribution agreement allows for the involvement of multiple
distributors, and the seller is not bound to grant exclusive rights to any one distributor.
 Under this arrangement, the provider has the flexibility to enter into multiple
distribution agreements with different distributors.
 Non-exclusive agreements are beneficial when the seller wants to expand their market
reach and ensure a wider distribution of their products.

Wholesale distribution agreement

 A wholesale distribution agreement involves a distributor contracting with a wholesale
company to distribute products in bulk.
 The distributor purchases the products from the wholesale company at a lower price
and then sells them either to retail stores for consumer purchase or directly to customers.
 In this type of agreement, the distributor becomes the owner of the products and can
sell them to other businesses or customers for a profit.
 The wholesale distribution agreement enables the distribution of products on a larger
scale, allowing for cost savings and efficient distribution channels.

Distribution agreements for commission

 These agreements include provisions for the distributor to receive compensation based
on the sales of the products.
 The distributor is typically paid a fixed amount for each product sold, as well as a
commission based on a percentage of the total sales.
 Commissions serve as an additional incentive for the distributor to actively promote
and sell the supplier's products.
 The more products the distributor sells, the more money both parties earn, creating a
mutually beneficial arrangement.
 This type of distribution agreement aligns the interests of the distributor and the
supplier, encouraging increased sales and distribution efforts.

Developer distribution agreements

 These agreements are specifically designed for software and application developers to
define the distribution of their products.
 The agreements outline the terms and conditions of the distribution, as well as the
relationship between the developer and the distributor.
 It is crucial to establish a formal agreement from the beginning to avoid any potential
conflicts or disputes in the future.
 The agreement ensures that both the developer and the distributor have a clear
understanding of their roles and responsibilities.
  By formalizing the distribution process, the developer can protect their intellectual
property rights and maintain control over how their products are distributed.

Distribution agreements: exclusive or non-exclusive

 When establishing distribution arrangements, business owners have the option to
choose between exclusive or non-exclusive distribution.
 An exclusive distribution arrangement grants sole selling rights to a specific distributor
within a defined geographic area, restricting other distributors from selling the same
products in that region.
 In contrast, a non-exclusive distribution arrangement allows for multiple distributors to
operate within the same geographic region, providing the supplier or vendor with the
flexibility to engage other distributors as well.
 The decision to opt for exclusivity or non-exclusivity depends on the business's specific
goals and strategies.
 Exclusive distribution can be beneficial for establishing strong market presence and
maintaining control over distribution channels.
 Non-exclusive distribution allows for broader market reach and potential increased
sales through multiple distributors.
 Business owners should carefully consider their distribution objectives and market
conditions before selecting the most suitable arrangement for their products or services.

Difference between agency and distribution agreement

 In an agency agreement, an agent is appointed to act on behalf of the provider to
negotiate or conclude contracts. The contracts are directly formed between the
distributor and the customer, and the distributor effectively becomes the principal
(provider).
 An agent typically receives a commission based on a percentage of the sales made.
 On the other hand, in a distribution agreement, the distributor sells the products to
customers, usually with a profit margin to cover expenses and generate profit. The
distributor owns the products and assumes the risk that they may not sell.
 In an agency agreement, the products are not owned by the agent. They act as an
intermediary between the provider and the customer.
 In a distribution agreement, the distributor takes ownership of the products and is
responsible for their sale and distribution.
 The choice between an agency agreement and a distribution agreement depends on the
specific circumstances and objectives of the provider, considering factors such as
control over sales, ownership of products, and risk allocation.

Difference between a distribution agreements and a dealer agreement

 Dealers, such as retailers or value-added resellers, purchase products from distributors
and resell them to their consumers.
 In a distribution agreement, the distributor acts as an intermediary between the supplier
and dealers. The distributor is responsible for sourcing products from the supplier and
distributing them to dealers.
 A dealer agreement, on the other hand, specifically outlines the terms and conditions of
sales for products acquired from the distributor by the dealer.
  The dealer agreement defines the dealer's obligations, responsibilities, and expected
performance standards, as well as the circumstances under which the agreement can be
terminated.
 The dealer agreement may include details such as payment terms, delivery dates, and
the territory or geographical rights granted to the dealer.
 While the distribution agreement focuses on the relationship between the supplier and
the distributor, the dealer agreement governs the relationship between the distributor
and the dealer.
 Both agreements play a crucial role in establishing the roles, responsibilities, and rights
of the parties involved in the distribution and resale of products.

Difference between a distribution agreement and a franchise agreement

 In a franchise agreement, the franchisee is granted the right to use the franchisor's
trademarks and brand name in their business operations, while a distributor is not
allowed to use the company's trademarked name.
 The franchise agreement includes provisions for advertising and training support
provided by the franchisor to help the franchisee succeed, while a distribution
agreement does not typically involve such assistance.
 A franchisee must adhere to specific criteria and guidelines set by the franchisor to
maintain the brand identity, whereas a distributor operates under its own identity and
does not conduct business on behalf of the manufacturer.
 A franchisee pays an initial fee and ongoing royalties to the franchisor for the right to
operate under the franchisor's trademark name, while a distributor only pays for the
products it purchases from the manufacturer.
 The franchise agreement establishes a closer relationship between the franchisor and
franchisee, with the franchisor exerting more control over the operations and
branding, while a distribution agreement is generally focused on the sale and
distribution of products without the same level of control or branding requirements.
 Franchise agreements often involve a comprehensive business model and support
system provided by the franchisor, while distribution agreements primarily focus on
the supply and resale of products.
 Both franchise agreements and distribution agreements provide specific rights and
obligations to the parties involved, but they differ in terms of brand usage, support
provided, payment structure, and level of control exerted by the franchisor.
 MODULE 12

MODULE XII: Overview of major sectoral and industry-specific legislations

 SEZs: Law relating to SEZs (includes tax sops available to SEZs), types of SEZs, comparison
of SEZs with Export Oriented Units (EOUs) and Software Technology Parks (STP)
 Banking and financial laws
 Insurance: Regulation of insurance sector
 How mutual funds work and introductory fund structuring

What is a Special Economic Zone (SEZ)? Enlist the types of SEZs. Compare SEZs with
Export Oriented Units (EOUs) and Software Technology Parks (STP).

A special economic zone (SEZ) is an area in which the business and trade laws are different
from the rest of the country. What is the role played by SEZ in Indian economy?

SEZ
Special Economic Zones (SEZs) in India have been operational since 2005. These zones are
established with the aim of achieving several objectives related to economic growth and
development.

The key objectives of SEZs in India include:

 Generation of Additional Economic Activity: One of the primary goals of SEZs is to
stimulate and promote additional economic activity in the country. By creating
designated zones with special incentives and facilities, SEZs aim to attract businesses,
both domestic and foreign, to set up their operations within these zones. This, in turn,
leads to the establishment of new industries, increased production, and job creation,
thus contributing to overall economic growth.
 Promotion of Export of Goods and Services: SEZs play a crucial role in promoting
exports from India. These zones provide a favorable environment and various
incentives to businesses engaged in manufacturing and services sectors to boost their
export activities. By offering tax benefits, streamlined procedures, and infrastructure
support, SEZs encourage companies to focus on producing goods and services for
international markets, thereby increasing India's export potential.
 Promotion of Investment from Domestic and Foreign Sources: SEZs aim to attract
investments from both domestic and foreign sources. The establishment of SEZs
provides a conducive environment for businesses, offering benefits such as tax
exemptions, simplified regulatory procedures, and infrastructure support. These
incentives serve as a significant incentive for domestic companies to invest in the SEZs,
while foreign investors are also lured by the prospects of access to a large consumer
base, skilled labor, and a competitive business ecosystem.

Provisions under SEZ

 The SEZ framework allows 100% foreign direct investment (FDI) in the manufacturing
sector, attracting global investors.
 There are no restrictions on foreign investments for small-scale industry (SSI) reserved
items, encouraging international participation.
  SEZs provide income tax benefits to businesses operating within these zones, reducing
their tax burden.
 Duty-free import of domestic goods allows businesses to procure necessary inputs
without additional customs duties.
 SEZs exempt businesses from Central Sales Tax (CST), reducing operational costs.
Investments made within SEZs are exempt from income tax, incentivizing both
domestic and foreign investments.
 The enhanced limit of 2.4 crore for managerial remuneration enables businesses to
attract top talent.
 Despite these benefits, labor laws are applicable within SEZs, ensuring worker rights
and protection.

Operative SEZs in India

 Kandla SEZ in Gujarat is a prominent operational zone
 SEEPZ-SEZ in Mumbai serves as a key hub for industries
 Noida-SEZ in Uttar Pradesh attracts investments in various sectors,
 Madras-SEZ in Chennai is a significant economic zone
 Cochin-SEZ in Kerala contributes to the state's development
 Falta-SEZ in West Bengal supports industrial growth
 Vishapatnam-SEZ in Andhra Pradesh facilitates trade and investments,
 Surat-SEZ promotes industries in Gujarat
 Manikanchan-SEZ is a notable special economic zone in Kolkata, West Bengal.

These operative SEZs across different states play a crucial role in driving economic growth,
attracting investments, and promoting exports.

Advantages of SEZ
 Growth and Development: SEZs act as catalysts for growth and development by
creating a conducive environment for businesses to thrive, leading to increased
industrial activity, infrastructure development, and overall economic progress.
 Attracts FDI: These zones are designed to attract FDI by offering attractive incentives
and a business-friendly ecosystem, which helps in boosting investment inflows and
stimulating economic growth.
 Exposure to technology and global markets: SEZs provide companies with exposure
to advanced technologies, best practices, and global markets, enabling them to enhance
their competitiveness and expand their reach beyond domestic boundaries.
 Increase in GDP and economic model: By promoting economic activities within the
zones, SEZs contribute to an increase in the country's GDP.
 Employment opportunities created: They generate employment opportunities through
the establishment of new industries, attracting skilled labour and reducing
unemployment rates. The presence of SEZs helps in the development of ancillary
industries, supply chains, and service sectors, creating a multiplier effect on job creation
and income generation.

Disadvantages of SEZ
 Exploitation of Laborers: SEZs may expose workers to exploitation due to inadequate
labor regulations and oversight, leading to issues such as low wages, long working
hours, and poor working conditions. Protecting the rights and well-being of laborers
becomes crucial in mitigating this disadvantage.
  Fertile lands being used for establishing industrial units: The establishment of SEZs
often involves the conversion of fertile lands, including agricultural areas, for industrial
purposes. This can lead to a loss of productive land, impacting food production,
environmental sustainability, and local communities dependent on agriculture.
 Loss of revenue for government: SEZs, with their tax incentives and exemptions, can
result in reduced revenue for the government. The government may face a decline in
tax revenue from businesses operating within the zones, potentially affecting public
services and infrastructure development.

In Bombay Dyeing and Manufacturing Co. Ltd v. Bombay Environmental Action Group, the
case dealt with issues related to environmental concerns raised by the Action Group against the
operations of Bombay Dyeing. The Supreme Court observed that with major threats to
environment such as climate change, global warming etc.; the need to protect the
environment has become priority, at the same time it is also necessary to promote
development, so much so that it has become the most significant and local point of
environment legislation and judicial decision relating to the same. The case highlighted the
importance of balancing economic activities with environmental sustainability and the role of
legal mechanisms in addressing such conflicts.