February - March 2016

an analysis by Advaita Legal

Sameeksha – general laws

© 2016 Advaita Legal. All rights reserved.

As we emerge from the colorful festivities of ‘Holi’ to our more mundanedaily lives and laws that govern them, it gives us immense pleasure to present to you this edition of 'Sameeksha'.

From a corporate law point of view, we have a topical article which introduces the reader with the finer nuances of the ‘Start-up Action Plan’ and allied subsequent developments. In another article under this head, we have an article providing an overview of the key M&A trends of 2015-16 including the highlight legal reforms in this space - this article had recently been published in the American Bar Association SIL M&A and Joint Ventures Committee Newsletter (issue 1/2016) as the ‘India update’.

From a labour law perspective, we have an article analysing in-depth the concept of ‘overtime’ under the various state legislations on Shops and Establishments and key legal issues emerging therefrom.

Last but not the least, from an infrastructure law perspective, we have a pertinent article which discusses the aspect of setting up of a ‘regulator’ for the Railway sector with specific reference to the recent concept paper issued by Ministry of Railways which has inter alia proposed setting up a regulator, 'the Rail Development Authority' (RDA) that will, amongst others, undertake the function of fixing tariff; and ensuring fair play and level playing field for private investment in Railways.

We sincerely hope that you will find these articles interesting. Thank you for your time.

Sujit GhoshPartner and National HeadAdvaita Legal

Contents ForewordCorporate law article: start-up reforms

Start-up action plan: Transformation of start-up ecosystem in India’

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Sudipta Bhattacharjee Principal, Advaita LegalEditor, Sameeksha

Corporate law article: MA developments in India 2015

M&A trends in 2015: focus on 'Ease Of Doing Business'

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Labour law: Overtime

Overtime Laws: Its far reaching ambit and impact

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Infrastructure law article: RAIL regulator

A regulator for the railways sector 09

© 2016 Advaita Legal. All rights reserved.

Start-up action plan: Transformation of start-up ecosystem in India- By Satyajit Gupta (Principal, M&A/Corporate) and

Saurabh Sharma (Associate, M&A/Corporate).

“It is time to hope, believe and do; the days of disappointments are over.. The government wants to play the supporting role and that of an enabler” – Prime Minister Narendra Modi, at the launch of Start-up Action Plan, 16 January 2016.

'Start-up India, stand up India'‘Start-up India’ and ‘Ease of Doing Business’ - these have been the buzzwords in the last year and more. India has seen a host of reforms in the start-up and foreign investment space and the Government has taken up a series of measures to improve Ease of Doing Business. The emphasis has been on simplification and rationalisation of the existing rules and introduction of information technology to make governance more efficient and effective.

The Prime Minister of India, Mr. Narendra Modi, announced the ‘Start-Up India’ initiative in his Independence Day speech on 15 August 2015 with an aim to create an optimal and enabling environment for both existing and prospective entrepreneurs. This was followed by launch of an action plan on 16 January 2016 highlighting initiatives and schemes being undertaken by the government to develop a conducive start-up ecosystem in the country.

Ease of Doing Business in India is an attempt to simplify the processes involved in conducting business in India. It measures and tracks changes in regulations affecting 11 areas of a business life cycle i.e., starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and labour market regulation. Currently India ranks at 130 (out of 189 countries) in World Bank’s Global Ease of Doing Business index. The Government has set an ambitious target to reach in top 50 countries in next three years and is streamlining the regulatory structures and creating an investor-friendly business climate by cutting through red tape.

In this article, we have tracked key regulatory changes and initiatives taken by the Indian Government towards both of these interlinked spheres in the past year.

Corporate law article: start-up reforms

Start-up action planThe action plan has laid down a road map for wide ranging reforms to give a boost to the Indian start-up culture and has received a positive response from the start-up community and the investors. Some of the key reforms proposed under the action plan include:

• Allowing start-ups to self-certify compliance with nine labour and environment laws

• Creating a start-up India hub as a single point of contact for the entire startup ecosystem and enable knowledge exchange and access to funding

• Rolling out mobile application and website for e-registration, tracking status, filing compliances, information on clearances/approvals/registration etc.

• Legal support and fast-track patent examination at lower costs

• Relaxed norms of public procurement for start-ups (without any relaxation in quality standards or technical parameters)

• Faster exit for start-ups under the proposed Insolvency and Bankruptcy Bill 2015

• Funding support through a ’fund of funds’ with a corpus of INR10,000 crore

• Credit guarantee mechanism through the National Credit Guarantee Trust Company/Small Industries Development Bank of India is being envisaged with a budgetary corpus of INR500 crore per year for the next four years;

• Tax exemption on capital gains if the individuals have invested such capital gains in the ‘fund of funds’

• Profits of the start-ups shall be exempted from income tax for three years

• Initiatives and schemes for industry academia partnership and incubation.

Even though the ‘start-up culture’ is a fairly new phenomena, entrepreneurship has been integral part of Indian history. However, it has not been an easy task to starting and running a business, given the complex regulatory and compliance regime of India. India has been victim of ‘red tapism’ which implies excessive regulation or rigid conformity to formal rules that hinders or prevents action or decision-making. Filling out paperwork, obtaining licenses, having multiple people or committees approve a decision and various low-level rules have made it difficult to run a successful business in India. The Government has paid attention to and recognised the challenges a person faces when starting a new business in India and with the proposed measures, it has set the tone for laying the foundation of a new chapter in India’s economic growth.

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Defining 'Start-up' In order to bring uniformity in the identified enterprises, the Department of Industrial Policy and Promotion (DIPP) notified the definition of 'start-up' on 17 February 2016 and laid down a process for recognition and eligibility for obtaining tax benefits. The definition specifies that an entity (i.e. a private limited company/limited liability partnership/registered partnership firm) incorporated/registered in India shall be considered as a ‘start-up’ for a period up to five years from the date of its incorporation/registration, if its turnover for any of the financial years has not exceeded INR25 crore, and it is working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property. However, any such entity formed by splitting up or reconstruction of a business already in existence shall not be considered a ‘start-up’ and an entity shall cease to be a start-up once it completes five years from the date of its incorporation/registration or if its turnover for any previous year exceeds INR25 crores (whichever is earlier).

A business would be covered under the definition of start-up only if it aims to develop and commercialise a new product or service or significantly improves an existing product, service or process that will create and add value for customers or the workflow. Further, a start-up will be eligible for tax benefits only after it has obtained certification from an inter-ministerial board setup by the DIPP, which shall consist of the joint Secretary of DIPP and representatives of Department of Science and Technology and Department of Biotechnology.

The definition seeks to bring a uniformity in recognition of an entity as a start-up so that the benefits and relaxations can flow to them. However, the definition lacks clarity on a few fronts. It is not clear whether this definition would apply to existing entities or only to such entities which are incorporated/registered after the notification becomes effective. Further, since being 'innovative' is an important test, it is unclear if in case of multiple start-ups working on similar idea and bringing similar improvement of existing product, the benefit would be available to all such start-ups or to the one who files the first application to DIPP. Also, if an Indian start-up is bringing the same idea or innovation to the Indian market which is already been used by companies abroad, will such venture be still considered innovative? Moreover, the requirement of certification from the board may cause an impediment to the Government’s efforts of making operation of a business in India easier. This brings red-tape and bureaucracy in what is intended to be an otherwise simple and automated process. Therefore, the definition and the process requires fine-tuning from DIPP to make it truly workable.

Easier incorporation processIn order to further augment the efforts of the Government to streamline the processes and regulations for the start-up ecosystem, the Ministry of Corporate Affairs (MCA), vide its notification dated 26 May 2015, amended certain provisions of the Companies Act, 2013 and relaxed some of the provisions for the private limited company which is a preferred vehicle for start-ups. The MCA further amended the existing Companies (Incorporation) Rules, 2014 by introducing Companies (Incorporation) Amendment Rules, 2016.

Through these amendments, MCA has sought to simplify the process for setting up of a legal entity and remove the inadequacies in the existing system causing delays in incorporation process. The MCA has introduced an integrated process for incorporation of a company. Now the application for allotment of DIN, reservation of name, incorporation of company and appointment of directors of the proposed company can be filed in an integrated form. The promoter will have an additional opportunity to rectify defects and to re-submit the form. The Government has also established a 'Central Registration Centre' under the administrative control of Registrar of Companies, Delhi for processing name reservation applications. Furthermore, amendments have been passed removing the requirement of prescribed limit of Rupees one lakh and Rupees five lakh for private and public companies respectively as minimum share capital and the requirement of common seal has also been made optional. As a substitute, authorisation by two directors and Company Secretary can be accepted.

The Finance Minister of India, Mr. Arun Jaitley, claimed in his 2016 budget speech that further changes to the Companies Act, 2013 are in offing (in light of the report of the Companies Law Committee) and the Government is also working towards enabling incorporation of a company in one day. Though it seems like an ambitious claim, we can expect further simplification of the process in the coming year.

Reforms in the labour law regimeRecognising the potential of start-ups to create employment opportunities, the Ministry of Labour and Employment issued directions to various regulatory organisations responsible for compliance with various labour laws including the Contract Labour (Regulation and Abolition) Act, 1970, Employees' Provident Funds and Miscellaneous & Provisions Act, 1952, Employees' State Insurance Act, 1948, Industrial Disputes Act, 1947, Payment of Gratuity Act, 1972 and the Trade Unions Act, 1926. The proposal aims to provide the relaxations to start-up as proposed in the action plan and has suggested submission of an online self-declaration instead of the provisions of inspection of establishments under labourlaws by regulatory bodies in the first year of incorporation and filing of self-certified returns under the EPF Act.

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Acting on the directions issued by the labour department, the Employees Provident Fund Organisation on 21 January 2016 notified a circular exempting the start-up enterprises from compliance under the EPF Act in relation to inspection of establishments and permitting submission of self-certified compliance returns. The EPFO has further clarified that from the second year onwards up to three years from the setting up of the unit of such start-ups, the inspections may be permitted only on grounds of very credible and verifiable complaints of violations, filed before EPFO in writing and for which the approval has been obtained from central analysis and intelligence unit established by the EPFO.

There is no doubt that labour law compliances have been a persistent headache for Indian companies. They involve long and cumbersome process with multiple legislations and no single-window clearance system. These reforms can be seen as a step in the positive direction and in-line with Government of India’s move to facilitate ease of doing business for start-ups.

Policy changes by RBIThe Reserve Bank of India (RBI) functions as a watchdog for outbound and inbound investment in India and implementing policies for economic development. In the sixth Bi-monthly Monetary Policy Statement, 2015-16 of RBI, Mr. Raghuram Rajan, RBI Governor, had laid out that in line with Start-up India initiative, RBI will take steps to bring ease in doing business and contribute to an ecosystem that is encouraging for growth of start-ups. In furtherance of the monetary policy, RBI has permitted Indian companies to issue sweat equity, subject to conditions, inter alia, that the scheme has been drawn either in terms of regulations issued under the Securities Exchange Board of India (SEBI) Act, 1992 in respect of listed companies or the Companies (Share Capital and Debentures) Rules, 2014 notified by the Central Government under the Companies Act, 2013 in respect of other companies. Indian companies can now also issue equity shares against any other funds payable by the investee company (e.g. payments for use or acquisition of intellectual property rights, for import of goods, payment of dividends, interest payments, consultancy fees, etc.), remittance of which does not require prior permission of the Government of India or RBI under Foreign Exchange Management Act, 1999 subject to conditions relating to adherence to foreign direct investment policy including sectoral caps, pricing guidelines, etc. and applicable tax laws.

The said monetary policy has also proposed regulatory relaxations such as permitting FVCI to invest into start-ups regardless of the sector, transfer of shares or ownership with deferred considerations, allowing access to rupee denominated extra commercial borrowings, issuance of convertible loans, etc. The RBI has also simplified processes on FDI related filings (online facility) to make the life of start-ups easier and these reforms, when implemented, would definitely provide a further boost to the start-up ecosystem in India.

Platform for listing of start-upsIf entering in Indian business market is challenging and laced with regulatory hurdles, exiting from a business venture is equally complex. The investors who invest in a start-up expect returns of their investment and there could not be a better exit than listing of the start-up on Indian stock exchange.

Identifying the pitfalls in the present system, SEBI in its board meeting on 23 June 2015 undertook a review of the extant regulatory framework in the primary market and noted the suggestions of market participants on customising the existing Institutional Trading Platform (ITP) for start-up companies. Based on the same, SEBI introduced (Issue of Capital and Disclosure Requirements) (Fourth Amendment) Regulations, 2015 on 14 August 2015, amending the Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2009. ITP shall facilitate capital raising as well and will be made accessible to companies which are intensive in their use of technology, information technology, intellectual property, data analytics, bio-technology, nano-technology to provide products, services or business platforms with substantial value addition.

The present Indian government is cognizant of rise of start-ups and is keen to promote listing of such start-ups in India who otherwise explore the stock exchanges abroad citing relaxed regulatory regime. Opening the ITP for start-ups will provide a much needed platform for the Indian start-ups, however, it is too soon to predict if this would be as successful in real-life as it looks on paper.

ConclusionToday entrepreneurs are combining innovative ideas, cutting edge technology, huge customer base and the traditional Indian entrepreneurial skills to write new chapters in the history of Indian business. They are adamant on changing the rules of game and there is no doubt that efforts are being made to provide them much needed support. These interventions being planned are all part of a massive impetus to aid entrepreneurs embark on a less cumbersome journey, from the inception of ideas to starting and operationalising their businesses, thereby encouraging innovation and entrepreneurship among India’s thriving start-up generation. Easier regulatory norms and efficient business environment directly influence the inflow of foreign investment which is an important resource for development of an economy as it leads to employment generation, achievement of advanced technology and knowhow.

Whether India will achieve its target rating on Ease of Doing Business index and whether these reforms will bring realisable change in the Indian regulatory system are questions which will get answered with time. However, it has certainly brought positivity in the sector and may have brought ‘achche din’ (good days) for the Indian start-ups and entrepreneurs.

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M&A trends in 2015: focus on 'Ease Of Doing Business'- By Satyajit Gupta, Principal – Corporate/M&A, with

research inputs from Saurabh Sharma and Avichal Mathur, Associates.

This article has been published in the ABA SIL M&A and Joint Ventures Committee Newsletter (issue 1/2016) as the India update

With the National Democratic Alliance ('NDA') gaining a decisive majority in the 2014 general elections, the expectation was that India would experience dramatic growth in all sectors, as the Government and administration would leave behind the policy paralysis that had been the hallmark of the previous regime. In an unpredictable global economy where the Indian economy has shown resilience, the NDA government has set about making radical and positive reforms to boost foreign investment and create a business friendly climate in India. In 2015, the Indian economy saw an average growth of 7.5 per cent making it one of the fastest growing economies in 2015. In fact, OECD has also pegged India’s growth rate at a healthy 7.4 per cent for the next financial year in a report released recently.

However, in the reported M&A deals space, there appeared to be a slowdown with the total quantum dropping to USD20 Billion, a dip of 40 per cent compared to the deal volume of USD33 Billion in 2014. To combat this, the Government has proposed several regulatory relaxations and liberalisations in the FDI policy, exchange control norms, etc. and it is hoped that this forward looking outlook continues and drives the deal volume up. The Government’s focus is on ‘ease of doing business’ and its growth focused initiatives – ‘Start Up India’ and ‘Make in India’ are also enterprises to garner investor traction and contribute to the India growth story.

Company law reformCompliances under the Companies Act, 2013 have been sought to be relaxed especially in relation to private companies, through amendments and exemptions. Private companies have been provided various exemptions ranging from exemptions in relation to general meetings (exemption for provisions under notice of meetings, statement to be annexed to notice, quorum for meetings, chairman of meetings, etc.) to exemption from the requirement of a shareholders resolution (for exercising borrowing powers, disposing of an undertaking of the company, remitting any debt due from a director etc.). In terms of setting up of a company, the requirement of minimum paid-up capital has been removed, a consolidated form has been introduced to fast track the incorporation procedure and the requirement of a company seal and certificate of commencement of business have also been done away with.

Corporate law article: MA developments in India 2015

Developments in anti-trust laws The Competition Commission of India ('CCI') has clarified that communication of a combination to a statutory authority per se cannot be considered as a trigger to file a notice with the CCI, however, public announcements under SEBI Takeover Regulations, can be considered as a trigger to file. The CCI has also introduced e-filing facility on 1 December 2015 to help it handle submissions related to combinations promptly and also to simplify the process for entities to submit information. The CCI also clarified the ambit of acquisitions ‘solely for investment purposes’, while also fining certain Zuari entities a hefty INR30 Million for not notifying it in time for an acquisition which was strategic in nature (and which was picked up by the regulator due to a television interview).

Evolution in securities lawsIn the securities law space, the Securities and Exchange Board of India ('SEBI') overhauled the Insider Trading Regulations. Definitions of ‘insiders’, ‘connected persons’ and ‘unpublished price sensitive information’ have been widened under the new regulations. The new regulations have been made applicable to all securities as defined under Securities Contracts (Regulation) Act, 1956 except units of mutual funds. The regulations permit sharing of ‘unpublished price sensitive information’ in PE/M&A backed diligences, introduce certain valid defences for insiders as well as the concept of trading plans. Also, through amendments introduced in the SEBI Takeover Regulations and SEBI Delisting Regulations, acquirers have been allowed to delist the company pursuant to making an open offer provided he declares his intention of delisting at the time of making the detailed public statement of the proposed acquisition. SEBI has also granted exemption to certain transactions (e.g. conversion of debt into equity under a strategic debt restructuring scheme) from complying with the Takeover Regulations through amendments to the said regulations. Additionally, SEBI has notified new listing norms for start-ups on Institutional Trading Platform, thereby easing the norms for raising money for small enterprises.

FDI normsSignificant changes have been introduced in the year 2015-2016 by the Indian Government with regard to the foreign investment norms, to attract investment in sectors like defence, railways, insurance, etc. A few examples are set out below:

Insurance and PensionThe foreign investment cap of the sector has been increased from 26 per cent to 49 per cent, however investment above 26 per cent has been made subject to government approval. The Insurance Regulatory and Development Authority ('IRDA') has also provided clarity on the ‘Indian ownership and control’ test required to be met by all Indian insurance companies and insurance intermediaries. The IRDA has defined ‘control’ to mean the right to appoint a majority of the directors or control the management or policy decisions.

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Railway infrastructure The foreign investment limit in construction, operation and maintenance of specified infrastructure projects like suburban corridor projects through PPP and high speed train projects, have been raised to 100 per cent through automatic route.

Construction and development Relaxations in the conditions of foreign investment in the sector have been introduced. These include easing of exit norms, removal of requirement of minimum capitalisationand minimum land area.

DefenceForeign investment in the sector has now been permitted up to 49 per cent in the automatic route and investment above this level can be permitted on case to case basis where it provides the country access to modern state of the art technology.

Retail trading Various changes including removal of local sourcing norms for state of the art products has been brought in.

An interesting judgment to note was rendered by the Bombay High Court which evaluated a downstream FDI structure to rule that investment in the holding company was a ‘sham’ structured to invest downstream by way of redeemable instruments, which are not permitted by Indian FDI norms. The court held that it would not provide assistance to enforcement of transactions which are not compliant with the FDI norms.

Arbitration law reformsIn end-2015, the Government introduced amendments to arbitration law by way of ordinances (replaced by an amendment act), intended to ease the process of arbitration, impose timelines and rationalise costs. Some key changes include: (a) a twelve-month timeline for completion of arbitrations seated in India; (b) flexibility for parties to approach Indian courts for interim reliefs in aid of foreign-seated arbitrations; and (c) introduction of ‘costs follow the event’ regime.

ConclusionThe medium to long term macro-economic outlook for India has remained mostly promising and after the general elections in 2014, the outlook has only improved exponentially. However, the euphoria on the macro-economic front has not resulted in any high value deals in 2015. It is difficult to pin down the issues/hurdles that are blocking large deals in India especially given the presence of large buyout firms as well as attractive (and perhaps, under-valued) targets. The large block of promoter holdings in Indian companies, non-availability of cheap and external credit and regulatory factors may be some factors impeding M&A deals in India.

Reforms in laws applicable to real estate sector, insolvency/bankruptcy norms are still stuck in the legislative process. These need to be expedited to bring much-needed clarity and predictability in Indian laws impacting M&A. Further relaxations to FDI norms, quicker statutory approvals are also key to attracting further foreign enterprises to explore India as a target destination.

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Overtime Laws: Its far reaching ambit and impact- By Sonali Singh (Associate).

IntroductionOwing to the history of grave exploitation and atrocities faced by the labour class, protective legislations paved way in India during the early 18th Century and also surfaced in the Constitution in the form of Directive Principles of State Policy. Statutes were enacted to deal with employment, lay-offs, minimum wages, working conditions, industrial relations, social security and welfare of personnel employed in industries.

With the development of the economy and society, there has been a change in the dynamics of employment conditions in some of the segments of workmen. The legislations however, continue to address the labour issues uniformly across the different sectors and levels of employment. One of the major and the oldest concerns for labour protective legislations is to regulate working hours of the workmen. Recognising its importance, the International Labour Organisation adopted the resolution forming the ILO convention of 1919, which limited hours of work to eight hours a day and 48 hours a week. Following suit, similar provisions were added in statutes of India to regulate working hours in India in compliance with the convention. Although the intent of the legislature, in stipulating strict provisions for labour protection is noble, the dynamism of the working conditions across various sectors/industry necessitates a relook into this aspect. This article therefore, attempts to shed light on the legal position of overtime laws, its applicability on different establishments and a few key points to be kept in mind.

Legal positionThe concept of overtime in commercial establishments, by workmen in India, is governed and calculated on the basis of the Shops and Establishments Act. Some of the other statutes which regulate overtime in different sectors are the Factories Act, 1948, Minimum Wages Act, 1948, Mines Act, 1952, Building and Other Construction Workers (Regulation of Employment Service) Act, 1996, Working Journalist (Conditions of Service) and Miscellaneous Provisions Act, 1955, etc. Overtime as defined in statutes, generally means and comprises of the hours worked on any day, in excess of the number of hours constituting a normal working day. The principle of law governing overtime is, that the employee working overtime must be compensated, by the employer for such work done in accordance with the mode and method of calculation of the overtime wage payable, stipulated in the relevant labour legislation.

Labour law: Overtime

Overtime wage under Shops and Establishments ActThe Shops and Establishments Act (Act) of various states, typically dictates that no adult shall be employed or allowed to work about the business of an establishment for more than a specified number of hours in a day, which varies generally from 9 to 12 hours, from state to state and the law applicable therein. Certain exceptions and exemptions have been carved out by the respective state governments on a case to case basis, by either providing an upper limit of the total working hours in a week or sometimes an absolute exemption from applicability of the Act in specific situations.

Overtime wage is generally payable keeping the ordinary remuneration as the benchmark, in the manner prescribed under law. The law in most states provide for different calculation methods to be used for calculating the overtime wage, which varies in accordance with the terms of employment/payment of wages, which can be either daily, weekly or monthly.

Whilst determining payment of overtime wages, two important aspects which needs to be considered are:i. Statutory Provisions; and

ii.The contract of employment.

Statutory provisionsAs has been discussed above, the statutory provisions governing overtime wages in establishments have been encapsulated in the Act, which put a limitation on the number of hours worked by an employee. It is pertinent to note that the words used in the statute with respect to the limitation on hours worked are absolute and do not provide any room for deviations. Such strict usage of words, even after accommodating the cushion of extension of a few hours provided in certain states, do not seem to support the trend of working beyond the hours stipulated, which sometimes are stretched overnight. Therefore, can it be said that the non-compliant work hour pattern would make the employer of the commercial establishment, liable to pay overtime wages, in addition to what the employees are already paid or in certain circumstances even bring the employer within the ambit of penal provisions of the statute?

Although the exact terms used in the statute vary from state to state and have to be examined individually for each case, certain loopholes do exist which may enable the employer to avoid any additional liability in cases of overtime work.

Two aspects of the existing law, which are crucial to be observed before affixing liability and could be seen as plausible loopholes, have been discussed below, namely; i. The applicability of the Act; andii.The relevant premise for calculation of overtime.

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I. Applicability of the ActFor the responsibilities and duties to follow from the Act, it is important to check whether the Act would apply on the sector and arrangement of the employment/engagement of the workmen. The important things to bear in mind are, that whether the relevant organisation comes within the purview of a ‘shop’ or ‘commercial establishment’ as defined in the Act and further that whether the activity performed therein would attract applicability. It is pertinent to note that the language of the statutes which govern the scope of what all professions and businesses come within the Act vary from state to state and therefore must be examined from a fact specific approach. However, few general exemptions such as that for the legal profession has been carved out by the Supreme Court in the Sasidharans1 case for uniform non-application of Act across India.

Amendments introduced in a few states sought to enlarge the definition of 'Commercial establishment' under their state legislation by including the establishment of a legal practitioner, architect, engineer, accountant, tax consultant and certain other categories. The amendment was subjected to a legal challenge and it was held that there are no common properties or characteristics to be found in other commercial establishments and the establishment of a legal practitioner and that there is no rational basis for herding them together. It was concluded that the inclusion of the establishment of a legal practitioner in a commercial establishment does not answer the test of reasonableness and the inclusion would therefore, be violative of Art. 14 of the Constitution. Also, for an activity to attract applicability of the provisions of the Act, it should be commercial in nature. The very concept of commercial activity cannot be rightly equated to an advocate’s practice and discharge of duties performed in the administration of justice, which is a regal function of a State.

Furthermore, a reading of judicial views as expressed in various judgments show that there is always a distinction between a professional activity and a business or commercial activity. The Judiciary has kept this distinction clear and observed that in a case of professional activity, an individual has to apply his professional skill as against commercial or business activity where the transaction is done with the active cooperation of employer and his employees for sale of certain goods or with the profit motive. Keeping the judicial view in mind and the fact that an establishment must necessarily be commercial in nature for the Act to apply, it appears that certain professions may find a ground to oppose applicability of the Act.

II. The relevant premise for calculation of overtimeAnother aspect of the law which deserves a thought is that, generally the language of the statute for restricting the work hours makes reference to hours worked within, the shop or commercial establishment. Therefore, if the statute mandates that “no employee shall be required or allowed to work in any shop or commercial establishment

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1 V. Sasidharan vs. M/s. Peter and Karunakar and others AIR 1984 SCC 1700.

for more than nine hours in any day and forty-eight hours in any week”, can it be interpreted to mean that the employee is permitted to work from outside the shop or establishment beyond the stipulated hours?

Some of the Acts such as the one holding ground in Delhi has addressed this concern by tweaking the language to read, “No adult shall be employed or allowed to work about the business of an establishment for more than nine hours on any day or 48 hours in any week…” Similar amendments have not been made in many other states which are known to be hubs of employment opportunities.

This ambiguity assumes importance from the employer’s point of view, as this may be an important aspect while deciding his liability in paying overtime wages or even deciding a penalty, for allowing an activity, not permitted by law. The lack of clarity from the words used, appears to pave way towards a dispute between the employer and employee. Hence, it would be advisable that requisite clarity is brought in the statutory provisions.

The contract of employmentOvertime wages as stipulated under the Act are to be paid by the employer to the employee, in accordance with the mode and method provided in the state specific statutes. The benchmark to calculate the overtime wage is usually based on the amount of the normal remuneration which is payable to the employee. It is important to note that usually the employees who are paid a monthly salary amount, receive an amount which is above and beyond the minimum basic wage prescribed under law. This salary amount is seen to include many other allowances under various heads, payable to the employee. Therefore, in order to circumvent the liability to pay overtime wages, can the employer take the plea that the amount payable as overtime wage is subsumed in the total amount paid monthly, as a separate component? And that no additional amount remains payable even if the employees are required to work overtime.

An important concern moreover is, that for the employment arrangements to be entered into, would the employer be positioned to draft the agreement in such a way that his liability under the head of overtime wages is avoided? Even though, it is a principle of law that the contractual relationships between parties are governed by the terms of the contract binding the parties, the contract cannot have an enforceable term which goes against the statute. Therefore, the success of clauses inserted in the employment agreement to circumvent the liability of paying overtime wages in addition to the agreed consideration for employment, depends upon the language used in the state specific statute.

For example, the Delhi Shops and Commercial Establishments Act, 1954 (Delhi Act) keeps ‘normal remuneration’ as the benchmark for calculating the overtime wage and not the ordinary rate of wages. The term ‘normal remuneration’ however, continues to be undefined in the Delhi Act. In such a situation, the

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employer seems to be at an advantageous position to negotiate the terms to suit his requirements by bifurcating parts of the amount paid monthly under the heads of ‘normal remuneration’, overtime wage or any other head which the employer may deem appropriate.

ConclusionThe overtime laws have been prescribed in many labourprotective legislations with the intent to ensure comfortable working conditions. Its impact and approach is far reaching and has been working towards the cause it aimed to uphold. However, some of the ambiguities, which have been discussed above, pose a threat to effective implementation and on-ground success of the legislations.

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The overtime laws governed by the Act vary minutely from state to state but minor variations have the potential of causing significant changes in the law as may be understood to be applicable. Keeping in mind the ambiguities discussed above, the initiative of the Government towards rolling out a model Shops and Commercial Establishments Act, as announced in the budget speech of 2016 is laudable as it would bring in certainty as regards application of law and also give the legislature an opportunity to suggest requisite amendments to safeguard the interests it vowed to protect.

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A regulator for the railways sector - By Amrita Roychoudhury (Associate) with inputs from

Shailendra Singh (Managing Associate).

Introduction Unlike other infrastructure sectors such as electricity, airports and telecommunications, private participation and investments in the railway sector has been almost negligible. While an attempt has been made to involve the private sector in areas such as wagon procurement and leasing, freight trains and container operations, terminals and warehousing facilities, catering services, and other rail infrastructure through various policy instruments/schemes framed by the Ministry of Railways (MoR), Myriad issues of policy uncertainty, lack of a regulator to create a level playing field, the lack of incentives for investors, and procedural/operational issues have significantly restricted private sector participation.

One of the important policy tools to manage industries characterised by either too little or imperfect competition such as 'railways' is by setting a regulator that sets the rules of the game and administers these rules as a neutral referee to enable long term development, by harmoniously balancing the interests of the consumers and the providers of services. Institutional separation amongst government, regulators and the industry enables independent decision-making duly addressing the concerns of different stakeholders. Against this backdrop it is indeed commendable that the MoR has issued a concept paper and proposed setting up a regulator 'the Rail Development Authority' (RDA) that will, amongst others, undertake the function of fixing tariff; and ensuring fair play and level playing field for private investment in railways.

The background The need for establishing a 'Rail Regulator' has been felt and advocated several times in the past. The Rail Tariff Enquiry Committee 1977 emphasised requirements of a regulatory body entrusted with the task of expert examination (not a judicial examination) of tariff revision matters. Similarly, the Railway Convention Committee (2000) in its report endorsed the recommendation of Planning Commission for setting up of such an authority on the lines of Telecom Regulatory Authority. Dr. Rakesh Mohan Committee which was set up to examine the revamping of Indian Railways also reiterated the need for such an authority. The 10th Five Year Plan1 of Government of India while doing detailed appraisal of the 9th Five Year Plan highlighted the need for a Rail Regulator for fixation of rail tariffs and regulation of the activities of Indian Railways. The Ministry of Railways itself proposed to set up a Rail Tariff Authority through a Cabinet note in January 2014. The National Transport Development Policy Committee (NTDPC) report of 2014 had recommended that a Rail Tariff Authority should be set up which should finally become the

Infrastructure law article: Rail regulator

Overall Rail Regulator encompassing other regulatory functions in addition to tariff. Further the NTDPC report recommended that an institutional mechanism to gather, analyse and use cost data and market intelligence needs to be established. The Bibek Debroy Committee Report (2015) has also gone into the detailed rationale and role for a rail regulatory authority and suggested a regulator with over-arching functions. Briefly, while various earlier reports have recommended setting up a 'rail regulator', the debate largely has been on the exact role of the regulator- whether it be restricted to a tariff setting role or should it play a much greater role in the working of the sector.

It is this aspect of the matter that merits a closer examination, i.e. what is the role that RDA should have in the context of the legislative framework mandated under the Indian Railways Act, 1980.

The concept paper The concept paper issued by the MoR proposes that the RDA would not be involved with:

i. policy making on the grounds that it is prerogative of the legislature and MoR and should remain so;

ii. financial/expenditure management of Indian Railways-though the Authority can suggest benchmarks that can guide decision making;

iii. setting technical standards on the grounds that the expertise developed by Research Design and Standards Organisation (RDSO) - the authority that currently is responsible for setting technical standards would be difficult to replicate in a short time frame with the regulator; and

iv. compliance of safety standards and practices on the reasoning that the present arrangement wherein the safety/technical standards are laid down by Indian Railways, while clearances/permissions are obtained from the Commissioner of Railway Safety, an independent body under the Ministry of Civil Aviation is robust enough to ensure independence.

Some views on the negative list While it may acceptable (arguably though) to not involve the RDA in policy formulation directly, it is important to understand the context of the regulatory dynamics as prevalent in India today. Under the Electricity Act, 2003, the sectoral regulator(s) for the electricity sector, i.e. the Central Electricity Regulatory Commission and the State Electricity Regulatory Commission are both required to advise the Central and the State Government, respectively on various policy related matters.1 Similarly, under the Telecom Regulatory Authority of India Act, 1997, one of the function of TRAI is to make recommendations to the Central Government on various policy matters.2 There appears to be a precedent to engage with a sectoralregulator for formulation of policies by the Central Government, at least indirectly. A similar role for RDA may also be considered.

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1 Refer section 79 (2) and 86 (2) of the Electricity Act, 2003.2 Refer section 11 (1) of the Telecom Regulatory Authority of India Act, 1997.

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Similarly, suggesting benchmarks that can guide decision making on financial/expenditure management of Indian Railways does not appear to be aligning with the overall goal of setting a regulator. On the setting of technical standards, again, there appears to be a reluctance to have a clearly defined role for the regulator, given that the reasoning adopted of expertise of RDSO being difficult to replicate in a short time with the regulator looks implausible. Also, the setting of safety/technical standards being taken out from the function of RDA especially on the grounds that RDSO which is an 'independent body' under the Ministry of Civil Aviation is well equipped and robust enough to ensure that independence appears to negate the very objective of the concept paper seeks to achieve-institutional separation amongst government, regulators and the industry.

The role of RDA Having set out the proposed negative list of dont’s, the concept paper then goes on to set out that the RDA would recommend passenger and freight tariffs, considering the cost structure. In cases where the Government does not accept the suggested tariffs, Indian Railways would be compensated appropriately perhaps through increased allocations in the Gross Budgetary Support or through a suitable mechanism. This, the concept paper states, would bring in transparency and consistency in tariff setting. However, the concept paper then goes on to add that in the event the projected revenues do not materialise as considered by the RDA at the time of tariff determination, the MoR reserves the right to approach the RDA for revision of tariffs.

A couple of concerns arise, basis the provisions above. One, it needs to be clarified whether the tariff is to be determined by RDA or suggested by it. This assumes significance as tariff determination exercises by a regulator are typically quasi-judicial function, even in terms of the regulatory landscape that DOT India under various statutes. It pre-supposes an adjudication mechanism on the basis of the materials available on record and are generally governed by the regulations framed by the regulator- a power conferred on it by the parent statute or by the principles of tariff determination laid down in the parent statute. Therefore, one has to be amply clear of whether the function of RDA, in so far as the tariff setting is concerned, is to be determinative/adjudicatory or is merely suggestive- in which it may be possible to qualify it as an expert body making a recommendation which holds no binding value. If the latter were to be the case, then it needs to be thought through whether RDA would qualify as a 'regulator' as understood in legal or common industry parlance.

Second, after the determination of tariff, the right to revisethe tariff does not vest with the regulator, except in cases where 'review' is sought. 'Review' is a specific power that must be conferred on the regulator by the statute and in the absence of an express provision in the statute, there is no inherent power of review. It is pertinent to mention here that a regulator is a creature of statute and must act

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within the four corners of a statute. Ordinarily, an appellate mechanism under such regulatory dispensation are provided for to test the legality, proprietary or validity of an order passed by a regulator. The rights of MoR therefore, to approach the RDA for revision of tariffs needs some clarity.

Interestingly, the concept paper also acknowledges that an important pre-requisite for determination of tariffs is the availability of an efficient accounting system and a transparent costing mechanism, yet as mentioned earlier, puts the financial/expenditure management of Indian Railways, in the negative list, out of the purview of RDA severely curtailing the role of RDA on this aspect to suggesting benchmarks that can guide decision making on financial/expenditure management of Indian Railways.

Conclusion While it needs to be appreciated that it is only a 'concept paper' that MoR has come out with on the RDA and it is possible that all or most of the concerns gets ironed out when the structure is further deliberated, what is of utmost concern is that the structure, role, power and function of the RDA must be thought through-lest we end up adding one more to the list of many 'autonomous bodies' that the MoR currently houses.

Notes

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Some recent assignments

AirportsProviding legal assistance in relation to development of a Greenfield airport in Madhya Pradesh.

MiningAdvising various clients on the myriad legal and regulatory issues arising in relation to the coal auctions under the Coal Mines (Special Provisions) Act, 2015 and the Ordinance that preceded the legislation.

Healthcare Advising on one of its kind pilot project proposed to be rolled out in Uttar Pradesh in relation to development, operation and maintenance of Primary and Community Health Care Centres.

RailwaysAdvising on various regulatory issues on private participation in the railways sector.

Energy Advising on setting up a green field mega petrochemical complex together with a captive power plant.

Litigation Obtaining a stay from the High Court of Delhi on financial bidding for the Chitarpur Coal Block in Jharkhand.

Media Advised educational television channel Da Vinci on forming a joint venture with Indian digital magazine Quint’.

Thought Leadership

Ideation on the legal and regulatory framework for the proposed Sagarmala Project of Government of India and on ‘Smart Cities’.

Representation before the Rajya Sabha Committee on the Real Estate Bill

Article analyzing the National Civil Aviation Policy.

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