Dealing with technology and foreign companies is a big challenge for Indian government. Whether it is taxation aspects or applicability of Indian laws to such companies, India has not been able to achieve a success in this regard so far. There is also a lack of legal framework to govern such technology and foreign companies in India as on date. At Perry4Law Organisation (P4LO) and Perry4Law’s Techno Legal Base (PTLB) we have been suggesting techno legal frameworks in this regard from time to time.
For instance, in 2012 we suggested that Google and Facebook must comply with Indian laws. Our suggestions were widely endorsed by then Congress Government and Delhi High Court. Similarly, we also opined that foreign companies and e-commerce players have been avoiding compliance with Indian laws for long by hiding behind the conflict of laws in cyberspace.
We suggested that India must take urgent steps so that companies and websites like Google, Facebook, etc comply with legal demands as per Indian laws as well. We suggested the following techno legal framework in this regard in the year 2012 itself:
(1) All subsidiary/Joint ventures companies operating in India that deal in information technology and online environment, must mandatorily establish a server in India. Otherwise, such companies and their websites should not be allowed to operate in India.
(2) A stringent liability for Indian subsidiaries dealing in information technology and online environment must be established by laws of India.
(3) More stringent online advertisement and e-commerce provisions must be formulated for Indian subsidiary companies and their websites.
(4) In any case, companies and websites that have Indian existence and are deriving financial gains from India must adhere to India’s laws that they are currently flouting.
Again these recommendations of P4LO and PTLB were widely accepted and endorsed by industry bodies like ASSOCHAM and Department of Legal Affairs, Ministry of Law and Justice, Government of India.
Even the crux of these recommendations was included in the new Indian Companies Act, 2013 (PDF). The net result is that foreign companies and e-commerce portals selling their products in India may be required to register in India and comply with Indian laws. Similarly, companies outsourcing work to Indian back-offices, information technology (IT) companies, and analytics hotshops may also have to follow suit.
According to section 2(42) of the new Companies Act of 2013, “Any company or body corporate incorporated outside India which has a place of business in India whether by itself or through an agent, physically or through electronic mode or which conducts any business activity in India in any other manner, is classified as a foreign company”. Section 380 of the Companies Act 2013 provides that every such foreign company must register in India.
Further, Rule 2 (1) (c) of the Companies (Registration of Foreign Companies) Rules 2014 provides that for the purposes of clause (42) of section 2 of the Act, ”electronic mode” means carrying out electronically based, whether main server is installed in India or not, including, but not limited to –
(i) Business to business and business to consumer transactions, data interchange and other digital supply transactions;
(ii) Offering to accept deposits or inviting deposits or accepting deposits or subscriptions in securities, in India or from citizens of India;
(iii) Financial settlements, web based marketing, advisory and transactional services, database services and products, supply chain management;
(iv) Online services such as telemarketing, telecommuting, telemedicine, education and information research; and
(v) All related data communication services,
whether conducted by e-mail, mobile devices, social media, cloud computing, document management, voice or data transmission or otherwise;
These provisions have been incorporated as foreign companies, especially the technology companies, have been avoiding payment of taxes as per Indian laws. They have been making tremendous profits out of Indian transactions but still they contend that they are not regulated under Indian laws. Thus, these provisions were required to be formulated to covers such foreign technology companies and there is nothing wrong with their incorporation.
We at P4LO and PTLB welcome this support of Indian Government and various stakeholders to our suggestions and recommendations from time to time. However, we strongly recommend that we need a comprehensive techno legal framework in this regard especially if we have to make the “Made in India” and “Digital India” projects successful.
We are already working in this regard and would be glad to help Indian Government to formulate a comprehensive and holistic techno legal framework that is need of the hour in the present technology driven times.