Indian Legal System & Major Commercial Laws of India
India is a common law country with a written constitution which guarantees individual and property rights. There is a single hierarchy of courts. Indian courts provide adequate safeguards for the enforcement of property and contractual rights. However, case backlogs often result in procedural delays. Most of the laws are codified. Regulations and policies fill in the details.
Major bodies of law in India affecting foreign investment are the Foreign Exchange management Act of 1999 ("FEMA"), the Companies Act of 1956, the Industries Act of 1951, the Monopolies and Restrictive Trade Practices Act of 1969 and the New Industrial Policy of 1991. Foreign collaboration and equity participation in India is regulated by the Foreign Exchange management Act of 1999. The Industries (Development Regulation) Act of 1951 governs industrial regulation. The Companies Act of 1956 regulates corporations and their management in India. The Monopolies and Restrictive Trade Practices Act of 1969 ("MRTP") governs restrictive and fair trade practices. The New Industrial Policy of 1991 ("NIP") which lays down the policy and procedure for foreign investment has liberalized and simplified the investment procedures.
The major changes introduced by NIP are as follow:
NIP brings about a streamlining of procedures, deregulation, de-licensing, a vastly expanded role for the private sector and an open policy towards foreign investment and technology.
Foreign investors are allowed to hold more than 50% equity ownership in most of the sectors, and 100% percent equity ownership in some sectors.
Foreign Institutional Investors ("FII's) from reputable institutions (like pension funds, mutual funds) may participate in the Indian capital markets.
Joint ventures with trading companies and imports of secondhand plants and machinery are allowed.
Monopoly and restrictive trade practice restraints (i.e., antitrust laws) have been eased.
Customs duties have been slashed considerably; duty-free imports are allowed in some cases.
The rupee is completely convertible; 100% of foreign exchange earnings can be converted at free market rates.
Export policies have been liberalized.
The Foreign Exchange Regulation Act has been amended to encourage foreign investments in India.
A tax holiday is available for a period of 5 continuous years in the first 8 years of establishing exporting units.
A tax holiday for up to 5 to 8 years is available and 100% equity participation is allowed for the power projects in India.
Concessions in tax regime are available for foreign investors in high-tech areas.