Nishith Desai : Issue 8

LEGAL UPDATE: INDIA
Issue 8 ... October-December 1995

Published by:
Nishith Desai International Legal Research Center,
201-A Milton, Juhu Tara Road, Juhu Beach, Mumbai 400 049, INDIA.
E-mail: desai.nishith@gems.vsnl.net.in

The contents of the "Legal Update: India" should not be construed as legal opinion or professional advice. Since the sources are varied, at times it is difficult to verify the correctness of the information mentioned herein.

Content

Supreme Court Brings Doctors under the CPA.
Sweeping Changes Recommended For Infrastructure.
Thai Board To Sign Pact With FIPB To Boost Ties.
ECB Rules For 100% EOUs Relaxed.
Revival Of Enron's Dabhol Power Project.
IPR: District Court Rejects Application Against Tiger Balm Maker.
Government To Protect "Basmati" Trademark.
Japanese Corporation, Sharp, Restrained From Using "Sharp" Trade mark.
Privatisation Of Ports.
Incentives For NRIs.
Widows, Daughters Get Equal Ancestral Property Rights.
Government Finalises Fresh Set Of Guidelines For VCFs.
Depositories Ordinance.
Carryforward Is Finally Back.
Treaty Update: Indo-Seychelles Tax Treaty Likely.

Supreme Court Brings Doctors under the CPA:

Professionals may now have increased accountability in common with their Western counterparts.

In a landmark ruling, the Supreme Court (SC) recently brought doctors under the purview of the Consumer Protection Act (CPA).

Although the ruling does not single out any other professionals, it is widely believed that the SC's observations on doctors may be soon extended to all professionals, including lawyers, accountants and architects.

The SC seems to be increasingly in favour of a more consumer-friendly climate. "Professionals" are expected to possess a certain minimum degree of competence and exercise reasonable care in the discharge of their duties.

Interestingly, the whole controversy can be attributed to what may appear at be petty semantics for laymen: the distinction between the expressions "of" and "for". The CPA precludes the expression "contract of service" and refers only to "contract for service".

Sweeping Changes Recommended For Infrastructure:

The Finance Ministry (FM) has set up a legal sub-committee, chaired by the Securities and Exchange Board of India's (SEBI's) executive director, Mr. Pratip Kar, to suggest ways to commercialise infrastructure in India.

The sub-committee has recommended sweeping changes in the existing legislations and the creation of an independent regulatory authority, before opening up infrastructure to the private sector.

It has also recommended that the regulatory authority should be sector specific and should not have the dual role of regulator and operator. It has proposed that a legislation patterned on the Philippines Act authorising the financing, construction, operation and maintenance of infrastructure projects by the private sector be adopted.

The FM has also prioritised all External Commercial Borrowings (ECBs) to meet the infrastructure requirements of the country. However, ECBs would be permitted only within the existing guidelines in force and within the target of bringing down the existing debt service burden to 20% by the year 2000. Although the FM was receiving several applications for ECBs, it was allocating them with a high weightage in favour of infrastructure projects.

Thai Board To Sign Pact With FIPB To Boost Ties:

By the end of 1995, India's Foreign Investment Promotion Board (FIPB) will be signing an agreement with the Thai Board of Investment in order to bridge the information gap which held back Thai business men from investing more extensively in India.

Another heartening trend is the fact that the prosperous Indo-Thai business community in Thailand is also taking considerable interest in investing in real estate and other sectors in India.

ECB Rules For 100% EOUs Relaxed:

The government has relaxed the guidelines for External Commercial Borrowings (ECBs) for 100% Export Oriented Units (EOUs) permitting them to avail ECBs with an average tenure of 3 years instead of seven years.

This is applicable for large value proposals involving ECBs of over $15 million equivalent.

However, for small and medium value proposals involving ECBs of up to and including $15 million equivalent, the average maturity of the loan must be at least 3 years and the existing requirements must be adhered to.

Revival Of Enron's Dabhol Power Project:

On October 31, 1995, the Maharashtra government cleared the decks for reviving the US multi-national Enron's, "repudiated" $2.8 billion controversial gas-based Dabhol power project.

A committee of experts whose members are opposing the decision to scrap the project, have been nominated to commence talks with the Enron officials.

The conditions that will be considered for reviving the project are lower capital cost of the project, lower tariff rates and the protection of the environment and ecology.

In another development, a team of scientists from the International Institute of Sustainable Future, Bombay, will be visiting Dabhol and the adjoining areas to conduct an ecological survey of the area.

The team will study the effect of the proposed project on the surrounding areas and also on fisheries.

IPR: District Court Rejects Application Against Tiger Balm Maker:

In a decision which would warm the cockles of international brand owners, the Surat District Court (SDC) recently, dismissed an application by a Surat based pharmaceutical company, Rangoon Chemical Works Ltd. (RCW), seeking to restrain the manufacturer of the well known Tiger Balm medication, Haw Par Brothers International (HPBI), a Chinese firm from using the trade mark of the leaping tiger.

In keeping with the recent example set by various high courts, the SDC also recognised the "transborder reputation" enjoyed by Tiger Balm, despite the fact that the familiar Tiger Balm device registered worldwide had not yet been registered in India.

In the instant case, RCW contended that the Tiger Balm package marketed in India by HPBI and their Indian collaborator, Elder Health Care Ltd., was deceptively similar to their own product, sold under the trade mark "Flying Tiger Balm".

RCW also pointed out that it had registered its own flying tiger device in India as long ago as 1965 while HPBI's registration of its own leaping tiger device in India is still pending.

The SDC however, found substance in the counsel for HPBI's submission that HPBI had been using the Tiger Balm trade mark world wide since 1900 and had also acquired a substantial reputation in India through advertisements.

The SDC also rejected RCW's contention that the use of a trade mark outside India would not entitle HPBI to use the same trade mark within India.

Incidentally, HPBI had also filed a suit aginst RCW in the Bangalore District Court and the court granted an ex-parte interim injunction restraining RCW from using its registered flying tiger device.

Government To Protect "Basmati" Trademark:

In its first ever policy on Basmati (rice), the Central government has decided to begin registration of all exporters and take an undertaking that they have procured the grain only form Punjab, Haryana, Rajasthan and Uttar Pradesh.

The exporters will have to meet a stipulated minimum quality standard and produce an audit trail of grain procurement.

The registration of exporters will be done through the Agricultural and Processed Food Products Export Development Authority (APEDA), under the Union commerce ministry.

The government is ensuring that India becomes a custodian of the breed "Basmati" as a trade mark in the international market of rice being grown in just four states of the country, apart from Pakistan. Presently, there is no law in India to regulate the sale and export of rice as "Basmati" world-wide.

Once the new regulations are enforced, the government would be empowered to protect the interests of Indian exporters against foreign companies who are planning to introduce trade marks like "Kasmati" and "Texmati" in the world markets.

Japanese Corporation, Sharp, Restrained From Using "Sharp" Trade mark:

The Japanese corporation, Sharp Kaibushi Kaisha (SKK), and its Indian partner, Kalyani Sharp India Ltd. (KSI), have been temporarily restrained from using the trade mark "Sharp" or any similar trade mark, through an injunction granted by the Bangalore additional city civil judge.

The injunction was granted following an application by the Bangalore based, Silver Audio Systems Ltd. (SAS), managed by the Budhrani family.

SKK had only recently begun using the "Sharp" trade mark for its electronic goods, after arriving at a settlement with Associated Electronic and Electric Industries Ltd. (AEE), a sister concern of SAS.

Earlier, KSI had been using the trade mark "Optonica Sharp" for its televisions and VCRs.

Under the settlement, AEE renounced its right to the "Sharp" trade mark. However, following a feud among the Budhrani family members, the managing partners of SAS are now contesting the settlement as fraudulent and motivated by personal gain.

In its application, SAS has claimed that it had registered the "Sharp" trade mark in India and has been using the trade mark since 1958, and claimed that SKK is deliberately infringing its trade mark rights.

It has also claimed that the use of the "Sharp" trade mark by KSI would mislead the public.

Privatisation Of Ports:

The Jawaharlal Nehru Port Trust (JNPT) is inviting global bids for the constuction of a new two berth container terminal and thereafter to license out the operation, management and maintenance of the terminal for a period of 20 years on Build, Operate and Transfer basis.

The bids are to be submitted in two parts. The Technical Proposal will have to be submitted first. Only those parties whose technical proposals are found acceptable will qualify for getting their financial bids opened.

The bid validity period shall be six months. The bid documents will be sold between December 26, 1995 to January 15, 1995.

The bid documents may be purhased on payment of Rs. 20,000 only, from the Bombay Office of JNPT, 1107, Raheja Centre, FPJ Marg, Nariman Point, Bombay 400 021.

Incentives For NRIs:

The Reserve Bank of India (RBI) has granted general permission to Non-Resident Indians (NRIs) to subscribe to memorandum and articles of association and to take up shares of Indian companies for its incorporation up to an amount of Rs. 10,000.

This permission applies if the proposed venture pertained to any activity except agriculture and plantation activities. Earlier, this general permission was available only for NRI investments in industrial activity.

Under the portfolio investment scheme, NRIs and Overseas Corporate Bodies (OCBs) predominantly owned by NRIs, are permitted to acquire shares of Indian companies through stock exchanges in India.

Earlier, the RBI granted permission to NRIs to transfer shares, bonds or debentures of Indian companies, acquired by them under the scheme with repatriation benefits, provided such transfers were made through a stock exchange in India.

The RBI has now simplified the procedure for OCBs also. OCBs, will henceforth, not be required to obtain prior approval from the RBI to sell or transfer shares, bonds or debentures of Indian companies that have been acquired by them under the Portfolio Investment Scheme.

Furthermore, under the direct investment scheme, the RBI will grant general permission to NRIs/OCBs for sale of shares acquired by them on repatriation basis.

The RBI is also simplifying the procedure for giving final permission to Indian companies for issue/export of shares to NRIs.

Widows, Daughters Get Equal Ancestral Property Rights:

In a recent judgment, the Supreme Court has ruled that the widow and the daughter of a deceased coparcener in a family are entitled to equal rights in the property left behind him.

A coparcener is a person who, on the death of the other, becomes heir to the ancestral property left behind by its owner.

This means that if in a joint family there are two male members, father and son, the property left behind by the one on his death would not exclusively go to the other. The deceased's widow or daughters would also be entitled to half of the share in such a property.

Government Finalises Fresh Set Of Guidelines For VCFs:

Recently, the Indian Government finalised a fresh set of guidelines for overseas and domestic Venture Capital Funds (VCFs).

There will be a minimum lock-in period of three years on all investments by VCFs and Venture Capital Companies (VCCs).

VCFs will be allowed to invest only in unlisted companies and their investment shall be limited to 40 percent of the paid-up capital of the company.

Further, VCFs and VCCs cannot invest more than 5 percent of their paid-up corpus in a single company.

The Government has also decided to allow overseas venture capital funds to invest up to 100 percent in approved domestic VCFs or VCCs set up under the new policy, after obtaining approval from the Foreign Investment Promotion Board (FIPB).

Offshore VCCs may also set up domestic asset management companies to manage the fund.

Offshore investors may also invest directly in the equity of unlisted Indian companies without going through the route of a domestic VCF or VCC. However, such investments will need separate approval as required under the general policy of foreign investment proposals.

Income earned by offshore investors from domestic VCFs or VCCs will be subject to tax as per the normal rates applicable to foreign investors.

Depositories Ordinance, 1995:

The Securities and Exchange Board of India (SEBI), is giving the finishing touched to the depositories regulations issued recently.

The new system will get operational in six months. The draft regulations stipulate a minimum compulsory holding of 51% for banks, stock exchanges, and financial institutions who will act as promoters of the depositories.

The SEBI will most probably reintroduce a clause it was earlier considering, to ensure there is no concentration of shareholding in depositories.

A decision will also be taken shortly on who will set up the central depository as both Stock Holding Corporation of India (SHCIL) and the depository to be set up jointly by the National Stock Exchange (NSE), the Industrial and Development Bank of India (IDBI) and the Unit Trust of India (UTI) are strong contenders.

Carryforward Is Finally Back:

The Securities and Exchange Board of India (SEBI) finally accepted the G. S. Patel Committee recommendations on the carryforward system of trading in securities. The salient features are mentioned below:

The earlier imposed 25% artificial volume limit on outstanding broker-wise position on any given day now removed, leaving the market intermediaries to trade freely subject to the limit of their capital adequacy.

A flat margin of 15% will now be implemented and recovered marked to market on a weekly basis. This means that if the value of scrips increases, higher margins are charged and vice versa.

A capital adequacy norm of 3% for individual brokers and 6% for corporates has been stipulated. Thus, this removes the earlier stipulation on graded margin on carryforward position and the limit on carryforward position.

Brokers need not produce the monthly auditor's certificate of their carryforward transactions, but may instead self-certify their accounts with the stock exchange authorities. However, SEBI and stock exchanges would be free to run a re-check on the certification.

Mandatory squaring up of transactions within 90 days.

Brokers no longer required to publish their scrip-wise carryforward position before the start of each carryforward session.

However, only exchanges with computerised trading will be allowed to resume carryforward trading. The Bombay Stock Exchange ("BSE") authorities have accepted SEBI's revised proposals on carryforward and are confident that forward trading would be implemented in a month's time. Markets have reacted favourably to SEBI's decision.

Treaty Update: Indo-Seychelles Tax Treaty Likely:

The Republic of Seychelles has proposed a double taxation avoidance treaty with India as part of its plan to seek Indian investments in tourism, infrastructure, oil exploration and exploitation of marine resource.

Published by:
Nishith Desai International Legal Research Center,
201-A Milton, Juhu Tara Road, Juhu Beach, Mumbai 400 049, INDIA.