Tag Archives: ease of doing business

National Policy on Software Products, 2019

The Ministry of Electronics and Information Technology released the National Policy on Software Products, 2019 (“the Policy”) aimed at stimulating the software products ecosystem in India. The Policy acknowledges that the Indian IT/ITeS industry is primarily service oriented. The Policy cites NASSCOM’s Strategic Review, 2017 which claimed that the global software products industry was valued at 413 billion USD, while the Indian software products industry’s contribution stood at just 7.1 billion USD.  The Policy aims to develop India as a global software product hub which is driven by innovation. The Policy aims to help start-ups related to software products in conducting their business in India while dealing with regulations and compliances in a hassle-free manner. MeitY had introduced the draft of the Policy back in 2016, which was commended by the industry bigwigs. The salient features of the Policy are summarised below.

The Policy defines a software product as “a programme used or produced by a computer or network which can be stored or transmitted through an electronic medium and offers some form of utility. In addition, such a product can be protected in India through permissible Intellectual Property Right laws and can be commercialized for use through licensing”. In order to determine which companies would be able to avail the benefits under the Policy, an Indian Software Product Company (“ISPC”) is defined as “an Indian company in which 51% or more share-holding is with Indian citizen or person of Indian origin and is engaged in the development, commercialisation, licensing and sale /service of Software products and has IP rights over the Software product(s).

Some key missions of the Policy include:

(a) Achieving a ten-fold increase in India’s contribution towards the global software product industry by 2025.

(b) Nurturing 10,000 tech startups including 1000 such startups in lower tier cities and towns leading to employment of 3.5 million people by 2025.

(c) “Upskilling” a million IT professionals, motivating 100,000 students and producing 10,000 leaders for the Indian industry.

(d) Developing 20 strategically located clusters to support software product companies with ICT infrastructure, R&D and mentorship.

For achieving the goals envisaged in the Policy a National Software Product Mission (“NSPM”) would be established under the aegis of MeitY. The NSPM would be responsible for designing strategies for the development of the industry, monitoring of the special funds created under the Policy and facilitating Government agencies in the promotion of Software Products.

Ecosystem Development

The Policy envisages the creation of an Indian software product registry to provide a trusted trade environment and conception of an environment that allows software product companies to participate in the capital market. A single window platform would be established to allow the industry to deal with regulatory issues pertaining to imports/exports and incorporation/dissolution of ISPCs. ISPCs would also be able to set off any taxes payable with respect to R&D. For the classification of software products in a logical fashion, a model Harmonised System Code would be created.

Promotion of Entrepreneurship, innovation and Employment

A “fund of funds” called Software Product Development Fund (“SPDF”) with a corpus of Rs. 1,000 crore would be created for participation in venture fund to promote the scaling up of market ready products, with the ultimate goal of having at least 100 ISPCs with a valuation of Rs 500 crore or employing more than 200 employees. An incubation program would be initiated to provide startups with adequate mentoring, seed fund, R&D and testing facilities and marketing support. Rs. 500 crore would be set aside by the Government to support innovation and research in institutes of higher learning, with the objective to support industry-academia research. 20 dedicated challenge grants would be initiated to encourage the industry to tackle issues related to pressing societal needs such as sanitation and healthcare. A centre of excellence would be set up to specifically promote design and development of software products. The Policy envisions the creation of an “upgradable” infrastructure to help software product startups to identify and tackle cyber vulnerabilities.

Human Resource Development

Considering the pace with which technology is changing, the Policy wishes to enable Indian students and professionals to have future-ready skills. The Policy acknowledges that the existing course curriculum needs to be revised. Further, short term skill development programs and national level competency tests would be developed.

Promotion of Trade

The software product registry (discussed earlier) would be integrated with Government e-market[i]. The Policy states that the industry would be encouraged to create and use open APIs for improving interoperability of Indian software products and enable incremental innovation. Indian software products would be given preference vis-à-vis Government procurement in accordance with the Public Procurement (Preference to Make in India) Order, 2017. Indian software products would be showcased abroad through various events and specialised infrastructure to be set up in India and abroad. Further, Indian software products would be integrated in India’s foreign aid programs. The industry would be encouraged to develop products which would help people overcome language barriers, so that all sections of the Indian populace are included in this digital boom.

 

Sources:

  1. https://gem.gov.in/
  2. National Policy on Software Products (2019)- https://www.meity.gov.in/writereaddata/files/national_policy_on_software_products-2019.pdf

 

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Commercial Courts, Commercial Division and Commercial Appellate Division of the High Courts Act, 2015: Another Attempt by the Government to Reduce Overbearing Litigation Numbers

In order to take forward and accelerate the agenda of the “Ease of Doing Business” and “Make in India”, the Commercial Courts, Commercial Division and Commercial Appellate Division of the High Court’s Act, 2015 (the “Act”) has been promulgated, which provides for the constitution of Commercial Courts and the establishment of Commercial Divisions and Commercial Appellate Divisions in the High Courts to adjudicate Commercial Disputes for achieving the motive of swift and speedy enforcement of contracts, recovery of monetary claims and compensation for damages suffered to increase investment and economic activity in our country.

commercial-court

The key features of the Act are as follows:

    1. Wide meaning of “Commercial Dispute”: The term “Commercial Dispute” has been very broadly defined in the Act to encompass almost every kind of transaction that gives rise to a commercial relationship. The subject matter of disputes is very wide including but not limited to issues relating to maritime law, construction and infrastructure contracts, ordinary commercial transactions, intellectual property rights disputes, disputes involving exploitation of natural resources, insurance and re-insurance disputes. Such Commercial Disputes shall now be adjudicated upon by these Commercial Courts/Divisions.
    2. Commercial Courts/Divisions at various levels:
      • The Act provides for the constitution of “Commercial Courts” in every district in all states and union territories where the High Court of that state or union territory does not have/exercise ordinary original civil jurisdiction and “Commercial Divisions” within High Courts exercising ordinary original civil jurisdiction.
      • Further, Commercial Appellate Divisions are being set up in every High Court to hear appeals against, (i) orders of Commercial Division of High Court, (ii) orders of Commercial Courts and (iii) appeals arising from domestic and international arbitration matters that are filed before the High Courts.
    3. “Specified Value” of Commercial Disputes: The Act provides for the adjudication of Commercial Disputes of more than INR 1,00,00,000 (defined as “Specified Value” in the Act), by the Commercial Courts/Divisions. Further, it also prescribes the manner in which the Specified Value of a Commercial Dispute is to be determined.
    4. Transfer of Commercial Disputes: All suits and/or applications relating to a Commercial Dispute of a Specified Value pending before any civil court are required to be transferred to constituted Commercial Courts/Divisions for fast and speedy disposal of cases.
    5. Jurisdiction over arbitrations: In line with the Arbitration and Conciliation (Amendment) Act, 2015, all matters pertaining to international commercial arbitrations have been brought within the purview of the High Court, whether or not such High Court exercises original jurisdiction, except matters relating to the appointment of arbitrators in international commercial arbitrations. Applications and appeals arising out of domestic arbitrations involving purely local Indian parties, which would ordinarily lie before any principal civil court of original jurisdiction (not being a High Court), will now lie before a Commercial Court (where constituted) exercising territorial jurisdiction over such arbitration.
    6. Amendments to the Civil Procedure Code, 1908 (“CPC”): The provisions of the CPC, to the extent of its application to any suit in respect of a Commercial Dispute have been amended by the Act to streamline the conduct of Commercial Disputes. Key amendments to the CPC are as follows:
      • The Act has introduced a new provision in the CPC, which prescribes that a Commercial Court/Division shall hold a ‘case management hearing’ to frame issues and fix timelines to ensure that the case is concluded in an expeditious and efficient manner.
      • The amended provisions of the CPC allow parties to apply for summary judgement where the court could arrive at a decision solely on the basis of written pleadings.
      • The Act has also introduced comprehensive provisions in the CPC dealing with award of actual costs and interest. The amended provisions of the CPC also provide the issues that Commercial Courts/Divisions may consider while imposing costs on parties. The earlier provisions under the CPC dealing with costs and interest, provided for imposition of only nominal costs (which continue to apply to matters other than Commercial Disputes).
    7. Fixed Timelines: The Act has also introduced strict timelines to ensure prompt resolution of disputes including but not limited to all appeals to the Commercial Appellate Division must be filed within 60 days from the impugned judgement and the Commercial Appellate Division must endeavour to dispose of the case within a period of 6 months. But, there is nothing prescribed with regard to any penalty or punishment being imposed on the parties if they delay the disposal of the case.
    8. Appointment of judges: The Act recognizes that competent judges having experience in dealing with Commercial Disputes are important for expeditious disposal and therefore, requires appointment of persons having such experience to be judges of the Commercial Courts/Divisions.
    9. Measures to curb procedural delays: The Act acknowledges that piece by piece production of documents by parties at different stages tends to delay proceedings and therefore, requires filing of all documents relevant to the dispute at the time of filing of the suit itself or at the time of filing of the defense, as the case may be. Detailed procedures for discovery and inspection of documents of the opposite party and admission and denial of documents have been provided to shorten the scope of trial. The Act sets an outer limit of 120 days for filing defense beyond which the right to file the defense is forfeited and the Court would be bound to not take such a delayed submission on record.

In light of the key features stated above it is evident that the Act is a laudable piece of legislation and a step in the right direction but there are issues unaddressed/unclear in it, which are highlighted below:

      1. The definition of “Commercial Disputes” is very vague and wide. The list is not exhaustive and hence it can give rise to a number of litigations to just determine whether a dispute is a “Commercial Dispute” or not..
      2. It is extremely difficult to ascertain the value of an intellectual property right and this can give rise to a number of litigations. Also, breach of confidentiality disputes have not been included in the definition of “Commercial Disputes” which are really common in this era of competition. However, it may be difficult to determine the Specified Value of such disputes.
      3. As regards disputes arising out of agreements relating to immovable property, the qualification that the property must be used exclusively in trade or commerce could raise debates as to whether the property must have been in use for trade or commerce before an agreement is entered into or whether it would also cover agreements entered into for the purpose of using immovable property for the first time for commercial purposes.
      4. The present amendment to the CPC casts an onus on the parties by providing that all the documents in their power possession, control or custody relating to any matterin question in the proceedings, whether it is in support of or adverse to their claim, should be filed along with their pleadings, and further require the parties to make a declaration on oath at the time of filing of their pleadings that they do not have any other document with them pertaining to the facts and circumstances of the proceedings. No express exception has been made for such production either on the grounds of privilege or confidentiality etc. Just as has been the case in the US, it is likely that such broad requirement of discovery would become a tool for harassment by parties here and would become a factor in deciding whether to settle matters or face the pain of discovery.
      5. Having the same pecuniary value limit for all High Courts does not take into account the variable factor in such dispute cases. It is only reasonable to believe that the Himachal Pradesh High Court will have fewer commercial dispute cases than the Bombay High Court, and also of lesser commercial value. If the pecuniary value of these cases for every High Court or even the district court were to be decided based on the relevant data of the entire state, pendency would have been addressed more effectively.
      6. Keeping in mind the Act’s objective to reduce pendency, one must recognize the need for appointment of more judges. These Commercial Courts/Divisions are being assigned to the existing batch of judges, hence they will be hearing these cases apart from the matters that are already assigned to them. This may prove to be counter-productive.
      7. There is overlapping jurisdiction of the Commercial Divisions proposed for in the five High Courts exercising original jurisdiction and the Commercial Appellate Divisions within those High Courts in relation to the arbitration matters which can create issues.
      8. The transfer of pending cases in civil courts to these Commercial Court/Divisions may lead to practical and logistical difficulties initially as the Courts will have to deal with transferring of a substantial number of cases, which in turn may lead to cases being delayed until the correct courts receive the proceedings in suits that now would fall within the definitions of “CommercialDisputes’ being above the “Specified Value”. This may lead to a chaotic situation as was seen with the passing of a similar dicta for Section 138 Negotiable Instrument Act, 1881 cases in Dashrath Roopsingh Rathod v. State of Maharashtra & Anr.
      9. The Act also does not provide for a statutory right to appeal to the Supreme Court from an order of the Commercial Appellate Division. Accordingly, the Act limits the number of appeals allowed in Commercial Disputes to only one except in certain cases.
      10. The Act does not provide for any new or technologically advanced method of conducting the court procedures. The suggestions of e-filing, video conferencing of witness, and use of latest technology will go a long way in making these courts at par with the systems being followed in some countries.

“Justice delayed is justice denied” – The Act is inarguably a big step to curb this inefficiency of Indian judicial system. The Delhi High Court was the first off the blocks designating four of its benches as Commercial Divisions. It added two more benches to the Division followed by the High Court of Bombay designating judges for the Commercial Divisions. Despite the drawbacks, setting up of Commercial Courts/Divisions will accelerate economic growth, improve the image of the Indian justice system and enhance investors’ confidence in the country’s dispute resolution culture.

Authors: Saumya Kakar, Associate and Sohini Mandal, Junior Partner

Startup India – announcements of many initiatives

Action Plan on Startup India: A Brief Overview

Startup India Action Plan (“Action Plan”), launched by Prime Minister Narendra Modi on 16 January 2016, is part of a flagship initiative of the Government of India for boosting the startup ecosystem in India that will drive sustainable economic growth, generate large scale employment opportunities. It aims to accelerate spreading the startup movement in existing tier 1 cities to tier 2 / tier 3 cities, semi urban and rural areas, in a wide range of sectors, varying from digital/technology sector to agriculture, manufacturing, social sector, healthcare, education, etc. In the recent years, India has witnessed a dynamic trend of people with no or little business background emerging to be the new age entrepreneurs.  The upsurge has had a massive outreach and the impact has been the launch of the “Startup India: Stand up India” campaign, followed by the detailed 19 point Action Plan that interestingly is an unprecedented move even in comparison to other strong startup ecosystems of the world and as pointed out by Masayoshi Son, Chairman and CEO of Softbank, “this is the beginning of a Big Bang for India”.

The word ‘startup’ has been around for quite some time now and it comes as a relief that the Action Plan, for the first time, defines ‘startup’, albeit for the purpose of government schemes only. The definition reads as follows:-

“Startup means an entity, incorporated or registered in India not prior to five years, with annual turnover not exceeding INR 25 crore in any preceding financial year, working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

Provided that such entity is not formed by splitting up, or reconstruction, of a business already in existence.

Provided also that an entity shall cease to be a Startup if its turnover for the previous financial years has exceeded INR 25crore or it has completed 5 years from the date of incorporation/registration.

Provided further that a Startup shall be eligible for tax benefits only after it has obtained certification from the Inter-Ministerial Board, setup for such purposes.” (Emphasis supplied)

The definition is important in order to understand the eligibility criteria for the various benefits that the Action Plan talks about. However, what remains to be seen is how the definition gets formalized by way of a statute or notification and how the concerned authorities, for example the Inter-Ministerial Board, interprets “working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property” for the purposes of certification. Usage of words such as “new” may open up dialogues on what may be considered as new and what should be the criteria for determining “new”.

Broadly, the Action Plan talks about schemes and initiatives to be undertaken in four major categories:-

(a) Ease of doing business: For easing operational aspects of the workings of a newly incorporated company

  • compliance regime based on self-certification with labour laws and environment laws;
  • no suo motu inspection with respect to labour law compliances for the first 3 years
  • only random checks in ‘white category’ startups with respect to environmental law compliances;
  • mobile app to provide on-going accessibility for registering startups, tracking the status of the registration application, filing for compliances and obtaining information, etc.;
  • legal support and fast tracking patent examinations; 80% waiver of patent filing fees;
  • relaxed norms for public procurement;
  • faster exits,
  • income tax exemption for a period of 3 years,
  • extension of capital gains tax exemption to ‘computer or computer software’)

(b) Funding: For enhancing funding support through a Fund of Funds with an initial corpus of INR 2,500 crore and a total corpus of INR 10,000 crore and through credit guarantee fund via National Credit Guarantee Trust Company/SIDBI with a budgetary corpus of INR 500 crore per year for the next four years; extension of exemption from Section 56(2)(viib) of the Income Tax Act 1961 to investments made by incubators above fair market value; seed funding to potentially successful and high growth startups;

(c)  For promoting visibility through national and international fests and encouraging innovation through national and state level awards; and

(d) Programs and Centres: For structuring and enhancing the startup ecosystem through various programs such as Atal Innovation Mission (AIM), Self-Employment and Talent Utilization (SETU), Innovation core program in schools and establishment of Startup India Hub, 500 tinkering labs, incubators, innovation centers and Research Parks.

In the inaugural speech, the Prime Minister has also made special mention of the lack of patent experts/lawyers as the patent protection remains one of the biggest concern of newly incorporated companies working in the fields of innovation and technology. As such, the Action Plan talks about fast tracking mechanisms to exclusively cater to startup patent applications in order to protect the intellectual property rights of startups at an early stage. Another key highlight of the Action Plan is the panel of facilitators and lawyers to assist startups in filing and disposal of patent applications. Government shall bear the entire fees of the facilitators for any number of patents, trademarks or designs that a startup may file.

Overall, the Action Plan goes a long way in identifying the various problems persistent in the startup ecosystem today and aims to bring thousands of entrepreneurs from across India into this discourse and force the growth of a transformed, diversified and inclusive economy.

Introduction of the Insolvency and Bankruptcy Bill, 2015 (Read more at https://novojuris.com/2015/12/28/bankruptcy-bill-2015/) and recent announcements by the Reserve Bank of India of incentives to ease business norms and drive growth in the ecosystems, which inter alia include:

  • creation of a dedicated mailbox to provide assistance and guidance to the startup sector,
  • permitting receipt of deal value on a deferred basis in case of a transfer of ownership of a startup,
  • accessing rupee loans under the External Commercial Borrowing framework with relaxations, etc., indicate the Government’s existing and ongoing commitment to actualizing the Action Plan.

However, it leaves one wanting for more answers with respect to how the various actions points will be formalized and implemented by the concerned authorities and the timelines that we are looking at, amongst other things. The nuances that may be associated with ‘simple’ form for registering startups and the practical aspects of uploading documents for registration through a Mobile App; executing faster exits in 90 days; allocating funds for the announced rebates; effective management of the Fund of Funds and strategizing rollover of its profits are some of the questions that loom large. However, ambitious times call for ambitious ventures and the Action Plan certainly has opened up a whole new horizon.