Laws pertaining to the film industry differ from other legal subjects, mainly due to the special economic considerations and business practices that influence their development. An important feature of entertainment law is the drafting of diverse entertainment contracts, which primarily deal with artistic control, credit or billing, compensation of artists and the protection and conveyance of intellectual property rights, such as copyrights, performer's rights, trademarks and right to publicity. This Chapter provides a broad overview of the Indian and American legal issues of the two film industries.

Overview of Indian Law

The Ministry of Information and Broadcasting ("MIB") is the apex Indian body that formulates and administers rules, regulations and laws regarding Indian films. The import and export of films along with the development and promotion of the film industry falls within the MIB's mandate. The Film Wing of the MIB consists of, amongst others, the Central Board of Film Certification ("CBFC"), the National Film Development Corporation ("NFDC"), Films Division, and the National Films Archives of India ("NFAI").

Over the years, there have been several pieces of legislation aimed at providing a regulatory framework for the Indian film industry, both at the Central and State government levels. While some of the most important legal provisions affecting this industry are covered under the Cinematograph Act, 1952 and the Copyright Act, (1957), there is a diverse set of other laws that play a great role in the effective functioning of the industry.

(a) Film Certification

The Cinematograph Act, 1952 ("Act")¹⁴⁶ lays down provisions for the certification of cinematograph¹⁴⁷ films for exhibition and for regulating exhibition by means of cinematograph.

(i) Censor Board
For the purposes of sanctioning a certificate to a film for public exhibition, the Central Government has set up the CBFC¹⁴⁸ (commonly known as the Censor Board). Any person who wants to obtain a certificate for a film must make an application to the Censor Board. The Censor Board, upon examination of the application, may sanction the film in a restricted or unrestricted manner, or may not sanction the film at all.¹⁴⁹

Furthermore, the Censor Board may also not certify the film if in its opinion, the film or any part of the film, does not comply with the rules set out in the Act.¹⁵⁰

However, a film may be certified subject to the removal of certain objectionable portions of the film. In such a case, the applicant would need to make a written declaration to the Censor Board stating that the objected portion or portions have been excised from the negative of the film and from all copies thereof.151 The applicant can file an appeal within 30 days of the order of the Censor Board granting or refusing the certificate.152 Once the film is certified, any changes in the film by means of excision, addition, coloring or otherwise have to be notified to the Censor Board, and a fresh certificate needs to be obtained if necessary.153

(ii) Suspension of Film Certificate
The Central Government may also suspend or revoke a certificate granted to the film if it feels that the film is being exhibited in a form other than the one in which it was certified or that the film is being exhibited in contravention of the provisions of the Act or rules framed thereunder.154

(iii) Penalty Provisions
Provisions are also made under the Act for punishments in cases of violation.155 Exhibition of films in violation of the certificate by the Censor Board is an offense, and the concerned person is liable to be punished.156 Additionally, the Act also regulates the exhibition of films on video-cassettes. Any video copy of a cinematograph film or otherwise which is not certified by the Censor Board cannot be exhibited for public viewing. Such exhibition becomes an offense and the concerned party can be penalized under this Act.157

Issue 1: Whether censorship of films is required in this era of globalization.

The reason for censorship probably lies in India's colonial roots, when the British colonizers wanted cinema to further their colonial policies and preserve their prestige.158 Constance Bromley, former secretary and manager of the Opera House, a premier film theater in Calcutta, even wrote an inflammatory newspaper article in England about Indian films imperiling the prestige of white women. After independence, British restrictions were replaced by the popularity of communism and socialism and the desire to maintain a nationalistic distinction between Western and Indian film art.

The Supreme Court in a judgment had said that film censorship becomes necessary because a film motivates thought and action and assures a high degree of attention and retention of the sight and sound in the semi-darkness of the theatre with elimination of all distracting ideas. This would have a strong impact on the minds of the viewers and can affect emotions.159 The Supreme Court has also held that censorship of films, including prior restraint, is justified under the Constitution of India.160

However, the issue that needs to be addressed is whether a Censor Board is required at all. World over, the censors are relaxing restrictions. Hollywood's production code was abandoned in 1968 when films were granted free speech and expression under the First Amendment. The code was replaced by the age-based rating that still exists today. Similarly, the British Board of Film Classification recently relaxed its restrictions on 18-rated films.161 Critics suggest that censorship is inherently coercive and limits artistic and political expression in Indian cinema.162 Thus, imposing stringent restrictions on film content could pose issues for globalization of the Indian film industry.

(b) Protection Of Copyright

Copyright is an exclusive right that the owner of a work has with respect to his work. Copyright consists, not merely in the right to reproduction, but also in the right to work derived from the original works. In India, copyright in a film is recognized and protected under the Copyright Act, 1957 (the "Copyright Act"). The Copyright Act, inter alia, defines an author of a film, the different rights existing in the copyright of a film, the term of the copyright and mode of transfer of these rights. It also lays down the provisions regarding infringement of copyright in a film. The Copyright Act has been amended from time to time to make it more effective and to comply with international obligations.

(i) Works in which Copyrights subsist
The Copyright Act affords separate and exclusive copyright protection to original literary, dramatic, musical and artistic works, cinematograph films and sound recordings.163 In the film industry, copyright exists in the following works:164

• Script, as a literary work
• Lyrics of a song, as literary works
• Music in the film (either in the song, or the background music), as musical works;
• Photographs or any posters made with respect to the film, as artistic works;
• A recording of the songs and dialogues in the film, as sound recordings; and
• The entire film as a whole, as a cinematograph film.

Therefore, besides copyright in the cinematographic film itself, separate copyrights also exists in any musical works and literary works in the film and sound recordings of the film.

(ii) Author/Owner of the Film
The author and first owner of a film is its producer.166 The producer also needs the services of artists, performers, directors, lyricists, music composers, etc. during the course of production. Under the Act, there is a provision that if a work is made in the course of the author's employment under a contract of service or apprenticeship, the employer shall, in the absence of any agreement to the contrary, be the first owner of the copyright therein.167

Furthermore, if a cinematograph film is made for valuable consideration at the instance of any person, such person shall, in the absence of any agreement to the contrary, be the first owner of the copyright therein.168 Therefore, it is essential that the producer enters into appropriate employment or service agreements with the artists and the rest of the crew to ensure that all the intellectual property rights in the film belong to the producer.

(iii) Rights of the author/owner
The Copyright Act lays down the various rights given to each class of work.169 It provides the author/owner of the work, the exclusive right to do or authorize the doing of certain acts, such as reproduction, communication, publication, adaptation, translation etc. of the work or any substantial part thereof. For example., for cinematograph films, the owner of a cinematograph film is g ranted exclusive rights to:

• Make a copy of the film, including a photograph of any image forming part thereof;
• Sell or give on hire, or offer for sale or hire, any copy of the film; and
• Communicate the film to the public.

  (iv) Transfer of Copyright
  Transferring of copyright is a very crucial issue in the film industry as the process of transferring copyrights commences from the time of production of the film and continues until the time the film is communicated to the public through various mediums. Transfer of copyrights can take place either by way of an assignment170 or a license.171

  Assignment implies the transfer of ownership. The copyright may be assigned either wholly or partially and either generally or subject to limitations. The assignment may also be for the whole term of the copyright or for only a part of the entire term. If the period of assignment is not specified, it will be deemed to be five years from the date of assignment. The assignment of the copyright will be valid only if it is in writing and signed by the assignor or his duly authorized agent. The assignment must identify the work, the specific rights assigned and the duration and territorial extent of assignment. In the case of a cinematographic film, the producer has the exclusive rights to assign his copyright in the film to a third person. Assignment may be by the first owner of the copyright in all existing work or the prospective owner of copyright in a future work to a third person. In case of assignment of copyright in any future work, the assignment will take effect only once the work comes into existence.

  The owner of the copyright in any existing work or the prospective owner of the copyright in any future work may grant any interest in the right by license, in writing and signed by him or by his duly authorized agent. But in the case of a license relating to copyright in any future work, the license shall take effect only when the work comes into existence. In the case of a cinematographic film, the producer has the exclusive right to license his copyright in the film to a third person. The conditions regarding period, rights and territory in an assignment are also applicable to a license.

Issue 2: Whether the film producer has the right to assign the copyright in the sound recording to a music company

A sound recording is a derivative work, since it is derived from musical or literary works or a combination of both these works. One of the rights vested in the copyright of musical and literary works is the right to make a sound recording and cinematograph film with respect to these works.172 As mentioned earlier, the author of the literary work is the author/writer, and the author of a musical work is the music composer. If a producer wants to make a sound recording, which he wants to incorporate in his cinematograph film, he would either have to employ the author of the literary work and the music composer,173 or he would have to specifically get the copyright in the literary and musical work assigned or licensed to him.

As a matter of general practice in the film industry, it is found that there are no employment, assignment or licencing agreements between the producer of a film and the musical composer or author of the literary works. Therefore, in a situation where there are no agreements, a question arises as to whether the film producer has the rights in the sound recording embodied in his film. Based upon an interpretation of the law, it would seem that the producer may not have rights in the sound recording if he has not entered into agreements with the authors of the musical and literary works.

If the producer does not have any right in the sound recording, another issue that then arises is whether the producer can assign the sound recordings in the film to music companies to re-record and sell. A basic principle of law enshrined in the Latin maxim, Nemo dat quod non habet, is that no one can pass a better title than he himself has. If the producer has no title in the sound recording in the film, he cannot assign / license it to the music company.

The Supreme Court has held that while a producer has the copyright in the entire film, a musical composer can have a separate copyright in the musical work embodied in the film, independent of the film. However, if a musical composer is hired by the film producer, then all the rights would vest in the producer.

Therefore, there still exists a gray area in this part of the law.

Issue 3: Whether future rights not included in an assignment agreement automatically vest in the assignee

An issue that often arises is whether any future rights that have not been assigned are automatically assigned once they come into existence. For example, if the producer has assigned the broadcasting rights in a film a decade ago, does the assignee also own broadcasting rights over the Internet (i.e. webcasting rights)?

In one case, the Madras High Court held that all rights assigned must be defined specifically. Merely because the agreement deals with assignment of all the negative rights in the film to one person does not mean that video and television rights cannot be assigned to another person. On the other hand, in another case concerning the film Chupke Chupke, rights in all forms of exploitation were assigned to one party. The Bombay High Court held that in such a case, satellite television rights could not be assigned to another party.

With the emergence of new technologies and media, salami slicing of the copyright in a film is possible. It is necessary that producers and distributors address these issues at the very outset.

(v) Infringement of Copyright
Any person who performs any of the exclusive rights that the owner of the copyright has without seeking his consent / permission would be said to have infringed the copyright in the work.174 Therefore, if any person performs any of the acts enumerated in the Copyright Act, which require prior permission of the copyright owner without obtaining such permission, such acts could constitute copyright infringement.

Issue 4: Whether making a remix of a song amounts to a violation of the copyrights in the original song

It is common practice in the film industry to make remixes of existing songs. An issue that arises is whether making a remix of an existing song violates the copyright in that song. The Act currently has no provisions specifically for remixes.

However, the Act does provide for cover versions.175 As per this provision, cover versions of a sound recording can be made two calendar years after the end of the year in which the first sound recording was made and after obtaining a license from the owner of the sound recording. Further, no alterations can be made to the original sound recording without obtaining the consent of the owner.

A remix of a song could violate the copyright in the original song, if, in the remix, a substantial part of the original song has been copied and the people listening to the remix can associate it with the original song. However, if the remix maker has taken a license from the owner of the original song to use the song or alter the song, he may be protected under the law.

Remixes are popular in India, and several Indian music producers are known to borrow heavily from old film songs, as well as western music, without obtaining the required licenses. Such activity could attract potential lawsuits claiming copyright infringement and it is important for music composers to take due care while creating new versions of old song. This is true in the case of Indian composers as well as those located overseas, who may use copyrighted works owned by Indian producers. A recent example is the lawsuit by Saregama India Ltd., the Mumbai-based film and music company in the U.S. seeking US $500 million in damages from Dr Dre and his label, Aftermath Records, its parent company Interscope Records, Universal Music and Vivendi Universal for using an unlicensed sample of a 20-year-old track, 'Thoda Resham Lagta Hai', originally performed by popular Indian artist Lata Mangeshkar. Not only was a snippet of Mangeshkar's soaring vocals borrowed, but the hook, melody and rhythm were also lifted in a song titled “Addictive.” Bappi Lahiri, the songwriter of the original track later filed a similar suit, charging the producers of the song “Addictive” with a form of "cultural imperialism" by not crediting Third World artists and seeking a halt to the further sales of the release "Truthfully Speaking" on Aftermath Records.176 Both the lawsuits are currently pending before courts in the US. However, with regards to the case filed by Bappi Lahiri, a Federal judge in LA recently prohibited further sales of the song "Addictive" until Lahiri is listed on the song's credits.177

(vi) Remedies
While the Copyright Act provides civil178 and criminal179 remedies for copyright infringement, most state governments have still not been successful in effectively enforcing these provisions. The real lacuna is in the implementation of the existing laws. In addition, the long-drawn litigation process in India also adds to the plight of the copyright owner. Further, several procedural and evidentiary hurdles deter effective enforcement. Due to these factors, copyright protection is one of the tardiest areas in the Indian legal and justice process.

(vii) Performer's Rights
Performer's rights were incorporated into the Copyright Act in 1994. This provides protection to various types of performers, like actors, dancers, musicians, jugglers, acrobats. A 'performance' means any visual or acoustic representation made live by one or more performers,180 and it need not be in front of an audience, nor carried out in a particular manner or fulfill any conditions. A performance covers rehearsals, and it does not have to be the final polished version. It may not even be planned. For example, if an actor does an impromptu street show, it could qualify as a performance. Similarly, the performance of an actor in front of a large audience in an auditorium, as well as the performance of the same actor rehearsing in his/her home could qualify as a performance that is entitled to protection.

Protection of performers' rights is granted for a period of fifty years from the calendar year following the year in which the performance is made.181 However, once a performer consents to the incorporation of his performance in a cinematograph film, his performer's rights have no further application.182 This is because when a performer authorizes a film producer to incorporate his performance in a cinematograph film, the producer on completion of the cinematograph film, acquires a copyright in the work as a whole, which gives him the exclusive privilege of communicating the work to the public.

The performer's consent is required for making sound or visual recordings of live performances and for broadcasting the performance or communicating it to the public. Persons carrying out such acts without the performer's consent would be guilty of infringement.183 In addition, if a sound or visual recording were made for purposes different from those for which the performer granted his consent, such an act also amounts to infringement of the performer's rights.184

However, the Copyright Act does not specify the form in which consent is to be obtained. Furthermore, the definitions of a performance and a performer under the Copyright Act are extremely wide, thereby making it necessary to obtain consent from all those who could fall under the category of performers, prior to making recordings of such performances. In Aneesh Pradhan V. Banyan Tree Events Pvt. Ltd., the Plaintiff (a tabla player) was one of the accompanying artistes in a concert held in April 1997.The defendant released tapes and CDs of the concert in 2000 and the Plaintiff alleged that his prior consent was not taken by Banyan Tree Events Pvt Ltd while recording the performance. The Bombay High Court passed an interim order restraining the defendants from manufacturing, marketing or selling the cassettes titled 'Nirala,' which contain an illegal and unauthorized recording of a music concert held in April 1997.

Hence, not obtaining the consent of performers in a film could expose a film maker to lawsuits for example, if a film includes the footage of various Indian classical dancers and singers at different festivals and cultural events around India and if the consent of such performers is not taken prior to making such recordings the producer could be liable for infringement. Not only is obtaining consent an important factor, but also the precise nature of consent is necessary. If a film producer obtains consent, but does not disclose the purpose for the recording and the how the recording would be used in the future, then he/she would be infringing on the rights of the performers.

Obtaining consent from every person whose performance is included in a film seems to be a daunting task. However, producers should ensure that they take the necessary precautions to minimize their risks and avoid being sued for damages for infringing upon the rights of performers. The current ambiguities with regards to the form of consent that is required can be overcome by entering into agreements with all artists whose performances are recorded. Such agreements should specify in clear and simple terms the scope of the rights involved and should include clauses relating to the assignment of such rights, the nature of the assignment (including the territory and the purpose) and lastly, the term for which such rights are granted. Such steps could go a long way in ensuring that the rights to performances incorporated in a film are legitimately obtained and protected.

(viii) Copyright Societies
The Copyright Act also provides for the formation of copyright societies that facilitate the granting and issuing of licenses for the use of copyrights in different works.185 Copyright owners may assign their rights to the respective copyright society, which in turn will administer, control and enforce the copyright on their behalf. Presently, in India, there are three copyright societies:

(i) The Indian Performing Rights Society Limited ("IPRS"): Indian composers, authors and music publishers whose works are publicly performed have the option to register with the IPRS. The IPRS administers and controls the performing rights, mechanical rights and synchronization rights186 in musical works on behalf of its members and those of its sister societies with which it has reciprocal agreements

(ii) The Phonographic Performance Ltd. ("PPL"): Music companies register themselves with the PPL, which in turn will administer the broadcasting, telecasting, and public performance rights in their sound recordings.

(iii) Society for Copyright Regulation of Indian Producers for Film and Television ("SCRIPT"): Producers are members of this society for protection of their films. However, the same is not in full force as yet.

Issue 5: Whether a person who wants to broadcast / webcast a sound recording needs to take a license from the IPRS and the PPL.

While addressing this issue, let us assume that the producer has the right to assign the sound recordings in the film to the music companies, as the producer has entered into appropriate agreements with the authors and music composers. Writers, composers and owners /publishers of musical works187 who are members of IPRS assign all the rights in their musical works to it. Similarly, music companies assign all their rights in sound recordings to PPL.

Let us assume a situation in which a person wants to broadcast or webcast a song of a Hindi film. Typically, there are three works in the song, namely the lyrics (literary works), the music (musical works) and the recording of the literary and musical works (the sound recording). As of today, one has to obtain two licenses: one from IPRS for the lyrics and the musical works, and from PPL for the sound recording.

The issue is that if the sound recording, which includes the musical and literary works, has already been assigned to PPL, the person should be able to obtain the license from PPL directly to broadcast the sound recording without approaching IPRS. PPL can internally have a mechanism to distribute the royalties to IPRS, if so required. An alternate and more effective approach, wherein the person approaches only IPRS for the rights in the musical and literary works may also hold good. The practice of obtaining two separate licenses to broadcast only one song is a burden on the broadcaster, which results in added expenses and needs to be amended.

(c) Trademark And Domain Name Protection

While typically copyright protection receives tremendous importance in the film industry, protection of trademarks associated with the film is often an ignored issue. However, with the globalization of the Indian film industry, this particular intellectual property right will be of immense significance in brand building.

A trademark is a visual symbol, which differentiates the goods manufactured or otherwise dealt with by the proprietor of the trademark from similar goods.188 In the film industry, trademarks may be relevant in the following instances:

(i) Name of the film, if it is used in merchandising and publicizing the film;

(ii) Logos of the production houses or companies which produce films;

(iii) Logos of the music companies, distributors and exhibitors which distribute films and film music; and

(iv) Logos and trademarks of sponsors and in-film advertising companies;

(v) Characters in films, whose names or visual images readily identify a single source of authorship, who have had significant continued exposure to the general public and function as a form of identification and commands public acceptance and recognition.

In India, trademarks are protected under the Trade and Merchandise Marks Act, 1958 ("Trademarks Act"). Only trademarks, which are registered under the Trademarks Act, are entitled to protection from infringement. Unregistered trademarks are protected under the common law of passing off i.e. if a third person uses such an unregistered trademark on similar goods so that the public can be confused or deceived, the owner of the unregistered trademark can bring an action against such third person.

An important distinction between copyright and trademark protection is that while copyrights are protected only for a particular term after which they can be used by any and everybody, trademarks can be protected in perpetuity or as long as the business exists. Moreover, registration of copyrights is not mandatory and registration does not provide any additional benefits to the owner of copyright in any work. On the other hand, the registration of the trademark gives the registered proprietor the exclusive right to use the trademark in relation to the goods for which it is registered. Violation of these rights can be prevented by an action for infringement. Registration acts as public notice to others that they should not use the trademarks which are registered or pending for registration. However, protection is also granted to trademarks that are not registered in India, in the event that marks, have acquired a substantial reputation in India, through advertising or other means. In such cases, then any person who attempts to use the same trademark on his goods so as to deceive the public into believing that the goods are manufactured by the proprietor of the trademark, can be prevented from do so, under the action of passing off. This common law recourse is intended to protect commercial goodwill and also ensure that business reputation is not exploited.

Moreover, in the Internet arena, domain names have acquired a significant position in brand-building and protecting goodwill. A domain name is the address of a particular website, such as www.bollywood.com. Over the last few years, several Indian films, as well as film companies and distribution companies, have established their presence on the Internet. For example, in order to promote Lagaan, a website www.lagaan.com was developed. Similarly Idream Production Pvt. Ltd., a well-known film production and distribution company, has established its own website www.idreamproduction.com. Protection of these domain names from being taken over by third persons must also be seriously considered and dealt with by the Indian film industry. The World Intellectual Property Organization has formulated a special arbitration center to decide upon disputes concerning domain names. This could be used as an effective medium to protect a domain name.

(d) Content Regulation

Apart from the Cinematograph Act and the Copyright Act, there are certain other prevailing laws that could affect the content of an Indian film.

(i) Constitutional Freedom
The most important and relevant underlying right to the film industry is the freedom of speech and expression guaranteed under the Indian Constitution.189 The freedom of speech and expression is granted to every citizen of India as a fundamental right. The freedom of expression essentially means the right to express one's opinion, inter alia, byword of mouth, writing, painting, picture and films.190 However, this fundamental right is subject to certain reasonable restrictions imposed in relation to public order, decency and morality, contempt of court, libel, slander, defamation in the interests of the sovereignty, integrity and security of the State.191

(ii) Defamation
The law of torts recognizes defamation as a civil wrong and imposes civil liability on any person who communicates a false and defamatory statement192 to the public. Defamation is of two kinds: libel and slander. Libel is the publication of a false and defamatory statement tending to injure the reputation of another person without lawful justification or excuse. Slander, on the other hand, is a false and defamatory statement using spoken words or gestures tending to injure the reputation of another.193 In order to remedy an action of defamation, an aggrieved person can file a suit for damages against the person who makes or publishes slander or libel respectively. The publication of defamatory statements may also be restrained by an injunction.

It is advisable that defamation issues be considered prior to producing a film. A defamatory statement in a film could make the producer liable to compensate the aggrieved party. Filmmakers can protect themselves from liability arising from defamation by:

• Changing the names and circumstances so that the people depicted are not identifiable;
• Obtaining an approval from those persons portrayed; or
• Excising any potential defamatory material.

There are certain precautions that one might consider taking while scripting and making the film that might avoid and at least protect the filmmaker if there is a case for defamation filed against the filmmaker.

The most important thing that has to be done is that while writing the script, every potential defamatory point has to be verified and revalidated for its factuality and accuracy. If relying on people, then each person's accounts have to be reduced to writing and that person should sign such an account. Secondly, an important thing to remember is that merely because one might have relied on a published account (like newspapers, books, journals, etc.) to revalidate the script, would not debar a suit from being filed against the filmmaker. Also simply because a suit for defamation was not filed against such a published account also would not debar a fresh suit being filed against the filmmaker.

(iii) Criminal Acts
The Indian Penal Code, 1860 ("IPC") codifies the general penal law of India. The offenses of obscenity and defamation under the IPC would be relevant in the context of films. As per the IPC, a person could be punished if he sells, distributes, publicly exhibits or in any manner puts into circulation, imports, exports, receives profits from any business involved in circulating, importing or exporting of any obscene film.194 Further, if a film contains any scenes that intend or may cause harm to the reputation of any person, the producer could be punished for defamation.195 Similarly, if a person sells a film with the knowledge that it contains defamatory matter, he could also be punished under the IPC.196

(iv) Indecent Representation of Women
The Indecent Representation of Women (Prohibition) Act, 1986 and the Indecent Representation of Women (Prohibition) Rules, 1987 aim at prohibiting the indecent representation of women in publications. The term "indecent representation of women" means the depiction in any manner of the figure of a woman, her form or body or any part thereof in such a way as to have the effect of being indecent or derogatory to or denigrating women, or is likely to deprave, corrupt or injure the public morality or morals.197 Therefore, any film that portrays women in an "indecent" fashion is prohibited198 and the producer of the film could be punished for such representation.199

(e) Corporatization

Corporatization of the film industry has been one of the most contested issues. With the Indian film industry attempting to go global, the haphazard manner in which film industry functions is a major drawback. However, it is believed that Corporatization can systematize this hitherto disorganized sector.

The Indian Companies Act, 1956 ("Companies Act") broadly provides for two types of companies: private and public companies.

(i) In order to form a company, the promoters need to subscribe to the memorandum and articles of association of the company. These documents are the by-laws of the company that lay down the parameters for the functioning of the company. The minimum number of subscribers for a private company is two and for a public company, it is seven. These documents are submitted to the Registrar of Companies ("RoC").

(ii) The promoters must also make an application for reservation of the name of the proposed company.

(iii) Once the documents are scrutinized and approved, the RoC grants the company a certificate of incorporation. A private company can commence business operations after receiving this certificate.

(iv) In order to form a public company, the company issues a prospectus and collects a minimum amount of capital required by the company.

(v) Thereafter, it receives a certificate of commencement of business, after which it can start its business operations.

(f) Film Financing

Indian banks have evinced a growing interest in financing films, especially after "industry" status was granted to the film industry. However, considering that investing in films is a risky proposition, banks require adequate documentation to guarantee that the film will be successfully completed. Discussed below is a brief summary of some of the guidelines concerning film financing.

(i) NFDC Guidelines
The National Film Development Corporation ("NFDC") undertakes co-production and co-financing of domestic as well as international films. The manner in which the NFDC provides loans is briefly outlined below:

• The applicant must submit a loan application form in duplicate to the NFDC, along with nine copies of the script for feature films, or two copies for documentaries or short films and the prescribed processing fees.
• Once the project is sanctioned, the applicant must pay a deposit amount, which is adjusted towards repayment of the loan. In case the application is withdrawn or the applicant fails to commence production within one year of the sanction, the deposit is forfeited.
• A committee of persons distinguished in the fields of Art, Culture and Education and/ or who have the background of Film Production/ Direction /Appreciation has been constituted by the NFDC. The committee recommends a script which is put before the NFDC Board along with duly filled informs.
• The quantum of loan does not exceed 75% of the budget of the film. The maximum loan give for producing feature films is Rs. 2 million.
• The loans are given at simple interest of 17% and are secured against certain collaterals.
• If an application for loan is submitted together with all the information required, a decision on it will normally be taken within a period of three months after its receipt.

(ii) IDBI Guidelines
The Government of India has approved the financing of films as an eligible activity under the Industrial Development Board of India Act, 1964.200 The conditions of this IDBI Scheme are summarized below:

• IDBI is permitted to finance the production of feature films as defined under the Cinematograph (Certification) Rules, 1983. Advertisement films, short films, documentaries etc. are not eligible for financing.
• The applicant must be a corporate entity with a good track record
• The loan offered is not less than Rs. 20 million and not more than 50% of the film budget.
• The debt-equity ratio of the film must not exceed 1:1
• The promoter must contribute atleast 30% of the budget and may raise up to 20% from distributors.
• The period of the loan would not normally exceed two years
• Interest would be the cap rate in the prevailing interest rate band (subject to availability of tax shield under Section 36(1)(viii) of the IT Act). IDBI has the discretion to charge a higher rate in case the tax shield is not available.
• An upfront fee of 1 % of the loan amount is to be paid Profit sharing of the overflow shall be decided by IDBI
• As security for the loan amount, the borrower must provide the following:

  (i) Letter from film processing laboratory conveying rights on the negatives of the film in favor of IDBI.

  (ii) Assignment of all agreements and Intellectual Property Rights ("IPRs") in favour of IDBI. IDBI shall have rights in the negotiation of valuation of all IPRs.

  (iii) A Trust & Retention Account ("TRA") has to be maintained for all capital as well as revenue inflows and outflows. The receivables on sale of all IPRs shall be credited to TRA. The modalities of TRA will be worked out to the satisfaction of IDBI. A No Objection Certificate (NOC) from all concerned parties for the TRA arrangement will be required. IDBI shall have the first charge on the TRA.

  (iv) First hypothecation charge on all the tangible movable assets under the project,

  (v) Personal guarantee(s) of the producer(s)

  (vi) Assignment of existing rights like music, video, Internet, CD, DVD rights, library of old hit films etc. to IDBI.

• The film has to be comprehensively insured
• The borrower has to obtain a completion bond guarantee and until the guarantee is made available, the risk in this regard would need to be mitigated suitably, to the satisfaction of IDBI.
• The complete application is processed by the Advisory Committee and once the amount is sanctioned, the borrower enters into an agreement with IDBI
• Pre-shooting expenses are disbursed through the promoter's contribution
• Borrowers must submit progress reports, cash flow statements, audit reports and other reports in specified formats to IDBI at periodic intervals.
• IDBI may also appoint specialized agencies to monitor the progress of the film.

As of April 2002, IDBI had invested approximately Rs 72.85 crores towards the film financing of 12 projects.

(iii) RBI Guidelines
Based on the IDBI guidelines, the RBI formulated guidelines for film financing that allows commercial banks to finance film producers (corporate as well as non-corporate) with a good track record and also entities that produce films in participation with the NFDC. While the RBI guidelines are quite similar to the IDBI guidelines, there are certain distinguishing features, which are enlisted below:

• Banks may provide finance to corporate as well as non-corporate film producers with good track record in the relative field
• Banks may also provide finance to these entities for production of films in participation with the NFDC.
• Banks may invest in films where the budget does not exceed Rs. 100 million. However, the maximum investment by the Bank is limited to 50% of the budget of such films.
• The period of the loan may be based on the bank's assessment of the cash generation of the project.

However, the restriction on financing films where the budget does not exceed Rs. 100 million is not viewed as a very practical approach since most films nowadays exceed this limit. For instance, Gadar, the Bollywood blockbuster film, cost Rs. 180 million ($3.82 million) to make201 whereas films like Devdas and Kaante cost Rs. 500 million and Rs. 250 million, respectively.

(g) Foreign Investment

Until recently, the foreign investment regime in India was not very favorable for the film industry and therefore, Hollywood and overseas media players had no incentive to invest in Bollywood. The Government of India has considerably liberalized foreign investment in the film sector. Foreign investment is permitted up to 100 % of the paid-up capital in an Indian company that is involved in film financing, production, distribution, exhibition, marketing and associated activities relating to film industry.202 Until April 2002, such foreign investments were permitted under the automatic route of the RBI, subject to fulfillment of the following conditions:

(i) The foreign company investing in an Indian company should have an established track record in films, television, music, finance and/or insurance.

(ii) The foreign company investing in an Indian company should have a minimum paid up capital of US $10 million if it is the single largest equity shareholder in such an Indian company, and at least US $5 million in other cases.

(iii) The minimum level of foreign equity investment in such an Indian company should be US $2.5 million for the single largest equity shareholder and US $1 million in other cases.

(iv) The debt to equity ratio of the Indian company should not be more than 1:1. That is, the domestic borrowings should not exceed the equity contribution.

(v) The provisions of dividend balancing may be applicable to such investments. However, the Indian Government has further liberalized foreign investment in this sector and in April 2002, it announced that foreign investment in film companies shall not be subject to conditions (i) through (v) mentioned above.203

Issue 6: Whether foreign investment is permitted in an individual film project and not in a film company per se.

As discussed above, the foreign investment regime in India permits foreign investment into the equity of a film company. However, the provisions are silent as to the investment in an individual film project. Though corporatization has set into the film industry, it is the individual producers and partnership firms who make a vast majority of the films in India. Therefore, in the event a foreigner desires to fund an individual film, the existent foreign exchange regime does not permit this on an automatic basis. In such a case, the foreign investor would need to get a case-by-case approval from the Reserve Bank of India ("RBI") for investing money in a film project and repatriating the proceeds out of India. This may prove to be a tedious and cumbersome process.

(h) Shooting of Foreign Films in India

The proposals regarding shooting of feature films are processed by the MIB. These may be sent either directly or through Indian Missions abroad. It is only on the recommendation of the MIB that other Ministries provide facilities to the film units. Proposals regarding shooting of documentary films however are to be sent to the Ministry of External Affairs (External Publicity Division). The detailed guidelines for shooting foreign films in India are listed below:

(i) Four copies of the script have to be submitted for approval of the MIB, along with a "No Objection" Certificate of a living personality portrayed in the film, if any, and a detailed co-production agreement between the Indian and foreign party, if any.

(ii) Detailed particulars of the members of the filming team, including the number and validity dates of their passports, country of issuance of passport, nationality and permanent and temporary addresses. The team's itinerary in India on temporary basis should be furnished to the MIB for specific clearance at least one month in advance.

(iii) Upon receiving the approval, it takes nearly 10-12 weeks to convey to give a formal undertaking from the producer about adhering to these requirements.

(iv) The film must be shot according to the approved script and in the presence of a Liason Officer.

(v) The shooting will be on locations in India, subject to requisite permissions from the controlling authorities.

(vi) In case assistance is required from the Ministry of Defense, Education, etc., separate agreements, as stipulated by these Ministries are required to be signed with these entities. Requests for such assistance may be routed through the Ministry of Information and Broadcasting. The completed film wherein assistance by the Armed Forces has been rendered should be shown to the Ministry of Defense for clearance before its release for public exhibition.

(vii) The producer will have to observe all rules and regulations relating to Import/Export and Foreign Exchange in connection with the shooting of the film.

(viii) The exposed film/rushes will be dispatched out of the country as cargo and not as part of the baggage.

(ix) The completed film should be shown to a representative of the Government of India in India or in an Indian Mission abroad before its release anywhere in the world. In case it is proposed to show the film to any Indian Mission abroad, the Mission should be specified in advance in the undertaking to be given by the producer.

(x) In case of a co-production with an Indian producer, if the Indian producer has to incur expenditure in foreign exchange, he has to provide a bank guarantee for repatriation of at least double the foreign exchange to be released and equal to the amount involved in foreign collaborators, technicians/artists, etc. in India.

(xi) The Indian co-producer has to seek requisite permission from the MIB.

(xii) The foreign collaborator is not allowed any remittance of commission related to box-office receipts or exhibition of the film in India.

Issue 7: What constitutes a foreign film?

Since these guidelines apply to the shooting of a foreign film, an important issue for consideration is: What amounts to a foreign film? The guidelines are ambiguous and could therefore, give rise to some interpretational issues.

For example, if there is a co-production agreement between an Indian and foreign producer, in which the Indian producer invests a majority of the money, is the film a foreign film? Does the foreign element in the film depend upon the nationality of the producer or the crew? Does the foreign film have to be released in India? If only a small part of a film is shot in India, does it become a foreign film and would it have to comply with all these regulations ?

The guidelines should be modified to stipulate the parameters that characterize a film as foreign. Unless this uncertainty is clarified, it will continue to create confusion and may even discourage foreigners from shooting films in India.

(i) Importing of Films
An importer204 of foreign films and video films (including video rights of foreign feature films) into India would have to follow certain guidelines of the MIB as set out below.

(i) The film that is to be imported has to be certified by the Censor Board that it has

• won an award at an International film festival, or
• participated in the Official Section of International Festivals, or
• has received favourable (i.e. two stars or more) reviews in film journals.

(ii) It has to obtain a certificate for public exhibition from the Censor Board as prescribed under the Cinematograph Act, 1952.

(iii) Foreign reprints also require prior permission from the MIB.

(iv) In order to set this process rolling, firstly, an application has to be made to the Censor Board to obtain a 'No Objection Certificate'. The application must be accompanied by a 'Deal Memo' or copy of any contract with foreign suppliers, a synopsis or booklet of the film and a review from recognized trade magazines as per import policy.

(v) Moreover a letter of credit can be initiated with a bank for amount of royalty and cost of material, although no tax is deductible for theatrical rights for a broadcasting component such as television.

(vi) However, the MIB may waive or relax some of the above, if it is satisfied that it is necessary and expedient in public interest to do so.