Indian Business Law - Assignment Example

Indian Business Law Customer Inserts His/Her Name Customer Inserts Grade Course Customer Inserts Tutor’s Name Insert Date Here (Day, Month, Year) Part A 1. Suggest a Model for investment by discussing the two major modes of investment i.e. Foreign Direct Investment and offshore companies. Is there a scope for joint venture in the Republic of Khazakistan with the Indian State owned oil exploration entity Ind Oil? What would the legal implications be? While recognizing role of Foreign Direct Investment in accelerating economic growth of the country, developing nations are feeling the necessity of financial reforms. In this third world, developing nations are showing themselves the growing economic power especially India with the liberalization policy opening doors for the companies all over the world to either invest in India directly or through collaboration with the other nations. (Secretariat for Industrial Assistance 2003: 9) In the era of globalizing world marked by increase in the multinational and activities of the firms across borders, both the foreign direct investment and offshore companies have been playing virtually considerable role. Foreign Direct Investment has become the most important form of trade as it has been found that the aggregate sales by foreign affiliates have become more than the world exports. These new facts have enabled the study of the theory of the multinational firm. There are two types of Foreign Direct Investments as envisaged by many writers: the one is horizontal FDI as suggested by the Markusen (1984), Horstmann and Markusen (1992), Markusen and Venables (1998, 2000), De Santis and St¨ahler (2004) and is followed with a main purpose to undergo production nearer to foreign markets and second is vertical FDI markets undertaken with the main aim to make use of the production costs which are generally found to be cheaper in the developing nations for serving both the domestic and foreign markets. (Stahler 2005: 1) The most important reason for setting of FDI and the establishment of multinational enterprises is to provide incentives for preventing positive spillovers towards rival firms. This shows the incompleteness of contracts with the independent suppliers. To study the impact of the FDI, John Dunning formulated an OLI or eclectic approach proving to be the most fruitful. It itself does not constitute a theory that could be based on the scientific evidence or truth but it has created a framework to categorize on the analytical and empirical research on FDI. (Neary 2008: 1) A full form of OLI means Ownership, Location, and Internalization, three sources making the process advantageous on the questions about how some firms and not the others should invest abroad and suggested on the fact that MNE has some advantages that allows the firm to overcome operations in a foreign country. Ownership advantages focus on the question about the reasons on the firms to invest abroad and say that any successful MNE has on its anvil some solid specific advantages allowing it to overcome the costs of operating in a foreign country. Secondly location advantage focuses on the question of where MNE should be set up and finally advantages being provided to the firm show how the way firm should operate in a foreign country, basically it focuses on the several incentives being faced by the individual firms. (Neary 2008: 2-3) While international trade theory has all been focusing on the advantages of ownership yet more attention has been devoted on the alternate ways to locate multinational enterprises abroad. The most important issue that needs much attention is the way FDI should be located abroad. This is studied through the horizontal motive of FDI and vertical motive of the same. Vertical FDI does not mean there is any motive for the firm to invest in the foreign lands but aims for lower production costs. The horizontal motive for FDI aims at what Brainard called ‘proximity concentration trade-off’, in other words if investment on the plant is done locally then local plant would save the costs on trade but it would be disadvantageous if it is concentrated on the firm’s home plant. (Neary 2008: 3) Several studies of FDI formulated the view on favoring the horizontal and vertical motive. For e.g. many case studies have formulated the view that tariff jumping has remained the most important and most of the Foreign Direct Investment is between high income and low-income countries. To attract investments in their lands, there is also the vast scope for offshore investments. It deals with wide range of investment strategies that could be capitalized on the advantages, which are outside the home country. There are many advantages of offshore investments as many countries provide tax reduction schemes to boost investments therefore the favourable tax rates in an offshore country are designed for promotion of healthy investment that attracts outside wealth. The offshore centers are also best for restructuring the process of ownership of assets. Many individuals concerned about the lawsuits, or facing foreclosures on outstanding debts transfer portion of their assets from their personal estates towards an entity who is holding it outside their home country. Further many of the offshore jurisdictions provide benefits for secrecy legislations. These countries have established laws to bring strict corporate and banking confidentiality. Since 2002-2003, Kazakhstan has been witness to the increase in the economic development from all fronts providing the growth in investment in fixed capital, strengthening of the financial position, decline in employment and increase in the real income. European Union and USA have been according Kazakhstan the status of ‘market economy’; it is especially these factors that have become a source of guarantee for foreign entrepreneurs, who are currently in the process of investing heavily in the market place of Kazakhstan. It has been estimated that since the last ten years, foreign direct investment to the nation has seen a growth of approximately 21 billion dollars. (Inc NetLibrary 2004: xi) Then Erian Idrissov, Ambassador of Republic of Kazakhstan, said that its social and political stability, along with the commitment to formulate further reforms along with the vast natural resources has made this place one of the most attractive places for the capital investment. (Inc NetLibrary 2004: xii) Joint ventures and foreign investments into Kazakhstan are not only allowed but motivated too. Since 90’s it has opened its doors for foreign investments, which account for average “$966 million, or $63 per capita, in 1998 and 1999.” (Saudabayev 2001: 4) All sectors of the economy are opened for the foreign investments in all the sectors. Laws for foreign investments, the Agency of the Republic of Kazakhstan for Investment (ARKI), and the Foreign Investors’ Council all give full support to foreigners who so ever would like to make investments. The Law gives whole protection to the foreign investors from “nationalization/expropriation, changes in legislation, and illegal action by state agencies or officials and guarantees the unrestricted use of income and “State Support of Direct Investment” grants state assets, grants, concessions in income, land and property concessions, land and property tax holidays for five years with additional periods at reduced rates, plus duty and VAT exemption for imported machinery and inputs for varying periods. Furthermore, foreign investors can also own and lease land according to the Law “On Land”” (Saudabayev 2001: 5) The financial and banking system of Kazakhstan is the most reformed but decision of Narbaeva’s for amendments which were passed several months back have since been causing a deep concern among the Western observers if Kazakhstan might follow Russia’s policy of making stringent laws while framing its dealings with the foreign energy companies. His action was a threatening call to reduce the confidence of the foreign investors. But it is also true that the price of oil along with the past track record itself is evidence that no investor would leave the nation. There is also strong evidence that Western energy companies were able to win against the fines and penalties within the domain of Kazakhstani judicial system. The previous laws have no doubt changed and given rise to many differences of views and challenges but for Kazakhstan it is to ensure level playing field. Still new amendments do not appear to have been adopted as a part of the complete program. Therefore there is every scope for joint venture in the Republic of Khazakistan with the Indian State owned oil exploration entity Ind Oil. 2. Ind Biotech (a private Indian start up) is on the threshold of developing a revolutionary pill, which will impact mankind's health and postpone the onset of old age. Ind. Biotech is looking for venture Capital. How would you advise AusCorp. Is there sufficient Intellectual property protection for this new pill in India? According to the analysis of the experts till now, the Indian patent laws have failed to protect United States and European drug makers and biotechs making it easy for Indian generic drug makers to give cheap knock-offs. But even though various drug companies from the West have been scared of getting intellectual property rights siphoned off by Indian biotechs but these fears have not been able to decrease the investment rates up till the day today. Indian patent laws is making difficult for outside companies to get their products patented in India on the same hand it also becomes easy for the Indian companies to violate the same. For e.g. Indian government rejected an application from the Swiss drug giant in 2006 to patent its cancer blockbuster. Indian government did despite of the fact that Novartis had patented on Gleevec (also known as Glivec) since 1993 and had launched its drug across the globe in 2001. Analyst of drug industry for investment research firm Miller Tabak, Les Funtleyder said, “Indian government’s tweaking of patent laws in 2005 was a step in the right direction, but failed to make any tangible changes”. (Smith 2007: Online) But this is also a fact that despite not having strict patent laws, International companies are investing in India in large numbers. 3. Meanwhile the Anti India Investment lobby (including the Seniors superceded by you) have circulated an anonymous paper quoting news reports and statements of eminent Indian Advocates. The thrust of this unknown paper is the derailing device known as the Public Interest Litigation (PIL) which is very popular with spoilsports in India (to interfere with Government decisions). The paper further belittles the Indian Dispute resolution system as archaic. The management of AusCorp at a hurriedly conveyed meeting asks you to make a presentation. Give your opinion on PILs, the court system and Indian Law generally. Public interest litigation is a coordinating effort on the part of the petitioner, the court and public officials from government enabling human beings to meet the basic human rights, which could become most meaningful for large number of people. Through Public Interest Litigation, we can bring notice to the authorities any infringement on their constitutional and legal rights and enabling every one irrespective of caste or creed, rich or poor to get justice. Even Government of India has accepted it as most essential component of the judicial process. Though Public Interest Litigation has made it possible to secure a better life yet it has not prevented human rights violations altogether or take remedial actions whatsoever. In India, all the laws have been framed to provide justice to all, yet many are devoid of it on account of several hurdles like prolonged court proceedings. The delays in providing justice may hamper the court proceedings. Part B Question 1 Disinvestment has been a continuous process despite severe criticism, reservations, apprehensions and oppositions. Though Society for Preserving Government Assets had filed Public Interest Litigation in the State High Court challenging decisions of the disinvestment by Public Sector undertaking Indian Power Project, the PIL will not get its due share. Supreme Court depended on the law that the scope of judicial review is very limited in cases where the Government has formulated the policy decisions. Since this disinvestment is a policy decision of the Government of India as in case appeared during the disinvestment process of the ITDC hotel at Agra in 2006, policy decisions should have very less interference in the judicial review. (Ananthakrishan 2006: Online) In the above case as AusCorp has won over the bid as investor as response to the Global Tender by Government of India, there is very limited scope for PIL by the opposition parties to get victory. This project is very attractive providing 16 per cent rate of interest; it wouldn’t be in the interest of the Government of India to recede back from the investment only because of opposite political party in India has opposed it. In similar case in 2001, Supreme Court rejected PIL against the disinvestment process of the Government in the aluminum sector. The challenge was based on the ground that government would lose its control and workmen would lose its constitutional protection of the rights they had been holding under the government undertaking. Protestors were asserting that rights of workmen were being violated and this whole decision of disinvestment process would have an adverse impact on the interests of the general public. “The court rejects the challenge principally on the reasoning that the process of disinvestment was a policy decision involving complex economic factors and it was not for the court to examine whether such policy was desirable or not”. (Ghai & Cottrell 2004: 28). In these circumstances and due to decisions of Supreme Court, PIL would not be heard or will be given very less consideration by the State High Court. Question 2 Article 226 of the Constitution of India authorizes High Court to assign “writs, directions or orders in the nature of “habeas corpus”, “mandamus”, “prohibition”, “quo warranto” and “certiorari” for (a) the enforcement of any of the rights conferred by Part III of the Constitution and (b) for any other purposes.” (Manual Law Book: Online) Under the first content, it is prima facie clear that the aggrieved party has a fundamental right and this right has been infringed. Any decision can be levied if under the second component of the act it was found that aggrieved party has the legal right entitled him to the aforesaid writs and this right therefore has been infringed. Statutory Law states that the contracts should be put in writing and executed and it is compulsory for the business contract laws to make all the contracts legally binding. In this contract, there should be commitment between each other to consider each other points. To make this contract legally enforceable both the parties should consent to the points like their meeting of minds or mutual consent, offer and acceptance, mutual consideration for each other and meeting of performance criteria or delivery. As in this particular case, it is clearly mentioned that IPP has cancelled the business with the company with due diligence and on the other hand Fast Buck India had filed the writ petition under Article 226 of the Constitution of India, that its fundamental rights have been infringed. Under this act, the aggrieved party has legal right to move ahead with the written petition. And as conditions state and IPP has withdrawn the business, we can say that it is a statutory law. Under these acts, the law will take its course and contract will be scrutinized and if it is mentioned in the contract if Fast India Buck will fail to meet the supply deadlines then IPP will cancel all business contracts with the above company but if it is found that there is no such agreement in the contract then litigation will be passed in the favour of the Fast Buck India. But here we can assume that there was such contract so Fast Buck India has to face the consequences. Question 3 1. Action has to be taken against the procurement in charge who has manipulated the design specifications. 2. Since the manufacturer has supplied the material as per the specifications (may be changed one), which were conveyed to them so the company becomes entitled to payments. Question 4 Obviously whenever there is a breach of contract, companies calculate damages according to terms of the contract. Here is it clearly mentioned in the contract that time is the essence of the contract that if delivery is not made according to the time then the aggrieved company which in this case is IPP can claim damages from C.C. The clause, which states that IPP has the power to extend the period of completion means that IPP has the power to give the extension but it is not binding for them. According to the clause in the contract, they can give the extension if they wish but here it is found that they have not given any extension of time period to the Construction Contractor. In this case IPP has all the chances to get the damages from C.C. under Section 73 of the Indian Contract Act that primarily deals with compensation for damage or loss caused due to the breach of the contract. (Tulsian 2006: 104) Question 5 India had converted eight of its now export processing zones into SEZs six years ago. The SEZ Act 2005 was passed giving the states the power to offer attractive incentive packages out of which there are incentives like a tax holiday where by it is clearly mentioned that states can provide duty free import/ domestic procurement of good for the development, operation and maintenance of SEZ and SEZ units. The SEZ developers can attain income tax benefits for a block of 10 years in 15 years, according to the choice of the developers. They have right to give 100 per cent tax exemption for SEZ units for the first five 5 years, 50 per cent for two years after the first five years, and “50 per cent of the ploughed back export profit for the next 3 years.” (Balasubramanya 2009: Online) Besides others, there is also exemption from service tax for SEZ units and developers. But any company established with FDI for operational undertaking should be incorporated under the Indian Companies Act with the registrar of Companies. According to the constitution, States derive their power to legislate on the levy of sales tax in pursuance of Entry 54 of List II under the VII Schedule appended to the Constitution. The said Entry 54 reads as – “Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92-A”. (Venkatesh: Online) Therefore in spite the Central Government has imposed service tax on the mobile phone service providers, the States have constitutional power for their economic interest to levy or not to levy the taxes on any investments in their economic zones. Reference List Ananthakrishan, G. 2006. NDA sale of ITDC’s Agra hotel passes SC scrutiny. [Online] Available: http://www.indianexpress.com/news/nda-sale-of-itdcs-agra-hotel-passes-sc-scrutiny/15771/ [14 March 2009] Balasubramanya. 2009. To SEZ or not SEZ. [Online] Available: http://www.caclubindia.com/forum/message_display.asp?group_id=24631&offset=1 [14 March 2009] Faiz, P.M. 2007. TAKING THE EXPERIENCE FROM PUBLIC INTEREST LITIGATION IN INDIA. [Online] Available:http://faizlawjournal.blogspot.com/2007/12/public-interest-litigation.html [14 March 2009] Ghai, Y.P. & Cottrell, J. 2004. Economic, social & cultural rights in practice: the role of judges in implementing economic, social & cultural rights. London: Interights. Inc NetLibrary. 2004. Doing Business with Kazakhstan. London: GMB Publishing Ltd. Manual Law Book. [Online] Available: http://www.manulawbooks.in/OnlineBook/OnlineBook/Image/SamplePage/SRPCh.%2062--(60)-SAMPLE%20PAGE.pdf [14 March 2009] Neary, J.P. 2008. World Economy FDI: The OLI Framework. [Online] Available: http://www.economics.ox.ac.uk/members/peter.neary/papers/pdf/fdiprinceton.pdf [14 March 2009] Saudabayev, K. 2001. FOREIGN DIRECT INVESTMENT IN KAZAKHSTAN. [Online] Available: http://www.oecd.org/dataoecd/24/16/2422618.pdf [14 March 2009] Secretariat for Industrial Assistance. 2003. Manual On Foreign Direct Investment In India. [Online] Available: http://dipp.nic.in/manual/manual_0403.pdf [14 March 2009] Smith, A. 2007. India's elephant in the room: Weak patent laws. [Online] Available: http://money.cnn.com/2007/05/04/news/companies/india_biotech/index.htm [14 March 2009] Stahler, F. 2005. A Model of Outsourcing and Foreign Direct Investment. [Online] Available: http://eprints.otago.ac.nz/207/1/DP_0516.pdf [14 March 2009] Tulsian, P.C. 2006. Business Law. Delhi: Tata McGraw-Hill Publishing Co. Venkatesh, D. Service Tax in India. [Online] Available: http://www.hg.org/article.asp?id=4850 [14 March 2009] Read More