WORKING WITH INDIA
The Law Firm’s Role in Facilitating Full and Effective Participation- Part 1: Overview of Existing Framework for Investment in India and Regulatory Challenges

June 1, 2017

Hirokazu Amemiya
Attorney-at-Law
Kojima Law Offices
amemiya@kojimalaw.jp©Kojima Law Offices 20172

Why India?
• 1.32 billion people, 65% of population under 35 years• Annual GDP growth rate – 7~8%
• Number of Japanese Companies registered in IndiaYear2008

2009

2010

2011

2012

2013

2014

2015

2016

Number550627

725

812

926

1038

1156

1229

1305

By Embassy of Japan in Indiahttp://www.in.emb-japan.go.jp/Japan-India-Relations/Japanese_Business_Establishments.html©Kojima Law Offices 2017

1

3

Our India Practice 1• History:• In 1984, Kojima Law Offices was founded• In 1994, Our India practice was launched, and an India seminar
was organized• Clients:• Mainly Japanese manufacturers (automobile parts, medicalequipment, office equipment, chemical), advertising companies,cosmetic retailers, etc.

©Kojima Law Offices 2017

4

Our India Practice 2• Strategic advice:• M&A, Negotiation with JV partners, etc.
• Access to reliable Indian counsels:• Receiving young Indian lawyers and sending our lawyers to India• Having developed connections with Indian law firms for more than2 decades• For more details (only in Japanese):• Outbound investment: http://www.kojimalaw.jp/inquiries/index.html• Investment to India: http://www.kojimalaw.jp/inquiries/india.html©Kojima Law Offices 20172

5Lawyers in India• More than 1 million lawyers in India (40,000 lawyers in Japan)• Good corporate/business lawyers emerged after economic

liberalization in 1991
• Large law firms in India
Firm

Total No. of lawyers

Partners

1

Cyril Amarchand Mangaldas

601

88

2

Khaitan & Co

485

104

3

Shardul Amarchand Mangaldas & Co

430

84

4

AZB & Partners

375

65

5

Luthra & Luthra

336

61

6J. Sagar Associates

302

84

2016 25 biggest Indian law firms (Legally India)
http://www.legallyindia.com/law-firms/india-25-largest-law-firms-by-headcount-00011130-8166©Kojima Law Offices 2017

6Challenges• Too many laws, sometimes not so clear• Liberalized, but still peculiar regulations are remaining• Time-consuming governmental process• Strict labor law, Anti-corruption, Slow dispute resolution,etc.

©Kojima Law Offices 201737

Existing Framework for Investment• Foreign Exchange Management Act, 1999 (FEMA) andpress notes/circulars issued under FEMA
• Consolidated FDI Policy• Consolidated FDI Policy has been updated every year since 2010
• Capture and keep pace with the regulatory changes• Consolidated FDI Policy, 2016 (effective from June 7,2016)• Captures regulatory changes brought by press notes/circulars up toJune 7, 2016
http://dipp.nic.in/English/Policies/FDI_Circular_2016.pdf©Kojima Law Offices 2017

8Consolidated FDI Policy, 2016
• Prohibited Sectors (Section 5.1)
• Lottery Business, Real Estate Business, etc.
• Permitted Sectors (Section 5.2)
• Automatic Route – a notice (Form FC-GPR/FC-TRS) to Reserve Bank of India(RBI) after the investment• Government Route – a prior approval from Indian government• Government Route• On May 24, 2017, Indian government decided to abolish the Foreign
Investment Promotion Board (FIPB), a 25-year-old inter-ministerial body
• FIPB stopped considering FDI applications• Department/Ministry relevant to each sector will now handle FDI applications• Features• Negative list (Section 5.2 (a))• Sectoral caps

©Kojima Law Offices 20174

9Consolidated FDI Policy, 2016
• Resolved Issues• No Objection Certificate (abolished in 2011)• Regulations on technical assistance agreement (abolished in 2009)• Unresolved Issues• Retail Trading: Single Brand (Section 5.2.15.3) & Multi Brand(Section 5.15.4)©Kojima Law Offices 201710

Retail Trading• Single Brand Retail Trading (Section 5.2.15.3)• ~49%: Automatic Route• 49%~: Government Route• Conditions:• In respect of foreign investment beyond 51%, sourcing of 30% of goods

purchased will be done from Indian, preferably from micro, small, or medium
enterprises• Multi Brand Retail Trading (Section 5.2.15.4)• ~51%: Government Route• 51%~: Not permitted• Conditions:• Minimum amount to be brought by the foreign investor would be USD 100million• At least 50% of the first tranche of USD 100 million shall be invested in‘back-end infrastructure’ (manufacturing, distribution, design improvement,etc.)©Kojima Law Offices 2017511Forms of Entering into India• Representative Office• Channel of communication• Cannot undertake any commercial activity• Project Office• Temporary office to execute specific projects• Branch• Subsidiary (limited liability company)• Private Company• Public Company©Kojima Law Offices 201712Private Company or Public Company• Private Company: by its articles restricts the right totransfer its shares (Section 2.68 of the Companies Act)
• Public Company: not a private company (Section 2.71 ofthe Companies Act)• Private Company is more popular• More flexible organization and procedures• Independent directors, audit committee, and nomination andremuneration committee are not required©Kojima Law Offices 2017

613

Pricing Guidelines• Non-resident (outside) sells to Non-resident (outside)• No regulation• Non-resident (outside) sells to Resident (inside)• Fair value or below• Resident (inside) sells to Non-resident (outside)• Fair value or above©Kojima Law Offices 201714

ECB Regulation• The government regulates the minimum average maturity,

eligible borrowers, recognized lenders, and permitted end
use of external commercial borrowing (ECB)• General Corporate Purpose• Originally not allowed• “ECB proceeds can be used for general corporate purpose(including working capital) provided the ECB is raised from thedirect/indirect equity holder or from a group company for aminimum average maturity of 5 years”• Master Direction by Reserve Bank of India (updated as ofFebruary, 2017)https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10204#C10©Kojima Law Offices 2017

7

15

Labor and Employment• Workman/Non-workman• Section 2(s) of the Industrial Disputes Act defines “workman” as anyperson (including an apprentice) employed in any industry to do any
manual, unskilled, skilled, technical, operational, clerical or supervisory
work, for hire or rewardS• It excludes a person working in purely managerial and/or supervisory
capacity from the definition of “workman”• Workman• Protected by the labor laws
• Disputes before labor tribunal• Non-workman• Employment contract controls• Disputes before civil court

16

Corruption• Corruption Perception Index 2016 ranks India as 79th outof 176 countries• Brazil and China are also ranked as 79th in the same researchhttps://www.transparency.org/news/feature/corruption_perceptions_index_2016• Some local enterprises do not have sufficient measures toprevent corruption, while India is in transition to introduce
and develop anti-corruption legislations• Conduct a through due diligence and implement necessarymeasures©Kojima Law Offices 2017

817

Disputes• Avoid litigation in Indian courts• Still time consuming process, although commercial courts/divisions
are being introduced• Have a clear arbitration clause that provides a neutral

venue for arbitrations©Kojima Law Offices 201718

Recent Developments• Goods and Services Tax (GST)• The government intends to unify various indirect taxes to GST, asingle indirect tax• The government intends to roll out GST in July, 2017
• Insolvency and Bankruptcy Code, 2016
• The government intends to consolidate the framework by creating asingle bankruptcy law to speed up the bankruptcy proceeding• Expects to be enforced in 2017 or later©Kojima Law Offices 20179