New Legislation Modifies U.S. Tax Withholding Regime

On March 18, 2010, President Obama signed into law the Hiring Incentives to Restore Employment Act (the “HIRE Act” or “Act”). The Act incorporated the provisions of the Foreign Account Tax Compliance Act of 2009 (“FATCA”). The FATCA provisions of the Act impose significant reporting and information gathering obligations on individuals and third parties, and will expand the current U.S. withholding regime. The Act will have a substantial impact on foreign investment in the U.S..

Foreign persons are generally subject to a flat tax rate of 30% on their U.S. source fixed, determinable annual or periodic (FDAP) income. In brief, income is fixed when it is paid in amounts known ahead of time and determinable whenever there is a basis for calculating the amount to be paid. Common examples of FDAP income include compensation for personal services, dividends, interest, pensions, alimony, real property income (such as rents other than gains from the sale of real property), royalties and commissions.

The current 30% withholding regulations, set forth in Chapter 3 of the U.S. Internal Revenue Code, have been in place for many years and impose a withholding requirement on payments to foreign persons of U.S. source FDAP income, unless the FDAP income is effectively connected with a U.S. trade or business, or the withholding is reduced or eliminated by operation of a tax treaty. As a result, taxes on FDAP income to foreign persons must generally be withheld by the U.S. payer (otherwise known as withholding agent) and remitted to the IRS.

The Act creates a new withholding tax, added as Chapter 4 of the U.S. Internal Revenue Code, that expands the current U.S. withholding regime by imposing a 30% withholding tax on any withholdable payments made to foreign financial institutions (regardless of whether such institutions have U.S. account holders), unless the foreign financial institution enters into a reporting agreement with the IRS. A withholdable payment is defined as any U.S. source FDAP income, and gross proceeds from the sale or disposition of any property which produces U.S. source interest or dividends. The Act’s withholding provisions will greatly expand existing law because gross proceeds from the sale of stock or debt instruments are currently not taxable to foreign persons and are not subject to withholding. Furthermore, the Act defines foreign financial institutions (“FFI”) so broadly that it includes virtually every type of foreign bank and foreign investment vehicle, including foreign private equity funds and foreign mutual funds. The reporting agreement requires FFIs to disclose the full details of non-exempt accountholders to the IRS in order to avoid the 30% withholding tax. For these reasons, foreign investors should not be surprised if their local investment bank or brokerage firm soon refuses to invest, directly or indirectly, in U.S. securities in order to avoid a withholding tax on FDAP income or, alternatively, enter into the reporting agreement with the IRS.

Additionally, an FFI that has entered into a reporting agreement with the IRS will be required to deduct and withhold a 30% tax on any pass-through payment made by the institution to an FFI that fails to enter into an agreement with the IRS. For this reason, foreign persons that receive FDAP income may potentially face a “double” withholding. As mentioned above, the current tax regime already requires that U.S. payers withhold 30% of U.S. source FDAP income to foreign recipients. Because of the provisions set forth in the Act, a foreign recipient may be subject to a prohibitive additional withholding on the same payment stream if one or more of its banks has not entered into the proscribed information agreement with the IRS. Although the Act authorizes the Secretary of the Treasury to provide rules to prevent double withholding on the same payment stream, there is no explicit provision within the bill that would limit withholding to one level. This is important because prior versions of the bill contained explicit provisions that would seemingly have prevented a double withholding scenario.

To illustrate, suppose the following set of circumstances: USCO, a U.S. firm, makes a royalty payment for the use of certain intellectual property to IndiaCo, an Indian software firm. Assume that the payment qualifies as U.S. source FDAP which is not effectively connected with IndiaCo’s U.S. trade or business, and therefore subject to a 30% withholding. USCO withholds 30% of the royalty payment and remits the remainder to IndiaCo’s foreign account. However the payment does not travel directly from USCO’s local bank account to IndiaCo’s local Indian bank. Instead, the funds are routed through a network of correspondent and intermediary banks, one of which has failed to enter into a reporting agreement with the IRS as required by the Act. Without additional clarification from the Secretary of the Treasury, it would appear that the royalty payment would be subject to an additional Chapter 4 withholding of 30%. While beneficial owners of withholdable payments will be eligible to claim a refund or credit for any withholding in excess of their tax liabilities, this will require the beneficial owner to file a U.S. tax return.

Significantly, the payment of foreign source FDAP income is not a withholdable payment under Chapter 3 or Chapter 4 of the Internal Revenue Code. The payment of foreign source income to a foreign person is not subject to U.S. withholding or reporting requirements. Except for certain limitations, wages and any other compensation for services performed by a non-resident outside the U.S. are considered to be foreign source income. The place where the services are performed determines the source of the income, regardless of where the contract was formed, the place of payment, or the residence of the payer. Other examples of foreign sourced FDAP payments include: interest payments by a foreign debtor is foreign, royalty payments for property used abroad, and rental payments for property located outside the U.S. Consequently, US firms may continue to make payments to foreign companies for services performed abroad without withholding taxes.

The withholding rules are not just relevant to the foreign recipient but the U.S. payer as well. The IRS has designated the obligation of a U.S. withholding agent to report and withhold on U.S. source FDAP income as a Tier 1 compliance issue. Tier 1 compliance issues are generally considered the highest compliance priorities within the IRS. A withholding agent is defined as any person, U.S. or foreign, that has control, receipt, or custody of, or the ability to dispose or pay, any item of income of a foreign person that is subject to withholding. The withholding agent is required to remit the withheld amount to the IRS, generally, on Form 1042 called, Annual Withholding Tax Return for US Source Income of Foreign Persons, and Form 1042-S, called Foreign Person’s US Source Income Subject to Withholding. The withholding agent is personally liable for any tax required to be withheld. If the withholding agent fails to withhold and the foreign taxpayers fails to pay its tax liability, both the withholding agent and taxpayer will be liable for the tax, interest, and penalty on the outstanding balances due.

Since its recent passage, the Act has generated a great deal of commentary within the legal and financial communities. The withholding provisions set forth in the Act are scheduled to apply to payments made after December 31, 2012. However, many observers believe that this date will be pushed back to account for the significant issues involved with the Act’s implementation, and for the Treasury to provide sufficient guidance to financial institutions to properly implement the new reporting procedures.

In conclusion, U.S. payers of FDAP income to foreign recipients should keep in mind the IRS’s increased scrutiny of FDAP reporting and withholding requirements. While payments to foreign persons for services performed abroad (and other payments of foreign source FDAP income) should not be affected by the new law, we recommend that U.S. payers nonetheless keep a watchful eye on the changing landscape of the U.S. withholding regime and maintain careful records of their transactions. Likewise, foreign recipients should note that their payments will soon be subject to an expanded withholding tax, which may make potential future investments in U.S. securities markets less attractive.Timothy D. Richards is the managing partner and founder of The Richards Group, in Miami, Florida. He specializes in domestic and international tax, estate planning and corporate law. He may be contacted by email at trichards@richards-law.com

Alonso Sanchez is an associate in The Richards Group’s tax department. He may be contacted by email at asanchez@richards-law.com

 

 

by Timothy D. Richards and Alonso E. Sanchez

 

Regulation Of The Import, Cultivation, And Sale Of Genetically Modified Food Crops In India

Modern biotechnology, involving the use of recombinant DNA (“rDNA”) technologies, has emerged as a powerful tool with applications in healthcare and agriculture. New plant varieties developed using rDNA techniques, commonly referred to as genetically engineered (“GE”), genetically modified (“GM”) or transgenic plants, have and are being developed to enhance productivity, reduce dependence on agricultural chemicals, modify the inherent properties of crops, and enhance the nutritional value of foods and livestock feeds.

Genetically modified food crops are key to increasing agricultural production and enhancing food security in India. Such crops are not new to India. Genetically modified cotton is commercially cultivated in India, and according to currently available information, twelve crops (of which eleven are food crops) are under various stages of development. While genetically modified crops have been successfully used in India — accounting for about 85% of the cotton grown — their use for food crops is controversial. This article describes the governmental approval requirements in India for the introduction of genetically modified food crops; how the process is expected to unfold in practice, based on experiences in other recent cases; and suggests strategic steps that an applicant should consider in applying for regulatory approval.

Regulatory Requirements and Approval Process

Several governmental authorities regulate the manufacture, import, use, research, and release of genetically modified organisms (“GMOs”) in India. These authorities operate at the central (federal), state, and local (district) level. The approvals required from these authorities often are interdependent and one approval may be a pre-requisite for others.

The apex authority is the Genetic Engineering Approval Committee (“GEAC”), a multi-ministerial body located in the Ministry of Environment and Forests (“MOEF”). The GEAC has the authority to permit the use of GMOs and its byproducts for commercial application, including their large-scale production and release into the environment. GEAC approval is based in part on the clearance given by the Review Committee on Genetic Manipulation (“RCGM”) in the Department of Bio-Technology (“DBT”). In addition, a new regulatory body, the Food Safety and Standards Authority of India (“FSSAI”), has been empowered to regulate the safety aspects and approval process for GM foods and is in the process of framing rules for this purpose.

The regulatory requirements for cultivation of GM crops are set forth in the Rules for the Manufacture, Use, Import, Export and Storage of Hazardous Micro-Organisms, Genetically Engineered Organisms or Cells, notified on December 5, 1989 (“1989 Rules”). The 1989 Rules define the competent authorities (and their composition) charged with administering the 1989 Rules.

Besides the 1989 Rules, the regulatory framework is supplemented by guidelines and notifications issued by the other governmental authorities having jurisdiction over activities addressed under the 1989 Rules. These effectively add another layer of regulation. The steps in the regulatory approval process are as follows:

  • Import of GMOs and/or GM seeds
  • Testing and research in contained conditions, depending on the following risk categories:
  • Category-I Risk (routine rDNA laboratory experiments in a contained environment)
  • Category-II Risk (laboratory and green house or net house experiments in a contained environment)
  • Category-III Risk (green house or net house and limited field trials in open field conditions)
  • Confined field trials (controlled introduction) at bio-safety research level-I (BRL-I) and BRL-II, as defined in bio-safety guidelines for field trials issued by the RCGM
  • Food safety assessment
  • Commercial cultivation of GM crops
  • Production and sale of GMOs

Regulatory Process in Practice

Despite the guidelines provided in the 1989 Rules and related regulations, in practice, there is significant risk and uncertainty. Key risk areas are outlined below. These are based largely on the challenges faced since 2000 for the introduction of a genetically modified egg plant called Bt Brinjal.

Proceedings continue in the Supreme Court in the Public Interest Litigation (“PIL”) filed in early 2005 seeking to establish a comprehensive, stringent, scientifically rigorous, and transparent bio-safety protocol in the public domain for GMOs, and for every GMO before it is released into the environment. Aruna Rodrigues v. Union of India, Writ Petition (Civil) No. 260 of 2005 (“Bt Brinjal Case”). So far the Court has issued six orders addressing the role and function of the GEAC. The PIL is yet to be ultimately determined, with the most recent order of January 19, 2010 requiring the government to respond in four weeks to the question of what steps the government has taken to protect traditional crops. Details of the government’s reply are not available as of this writing.

Such litigation is primarily brought by non-governmental organizations. Often they are brought ex parte, as a matter of urgency and without notifying the other concerned parties. The obvious immediate consequence of such litigation is delay and uncertainty. Typically, the court initially issues an interim order to maintain the status quo while the parties can be heard. For example, in the Bt Brinjal Case, the Supreme Court initially ordered that the GEAC “withhold approvals until further instructions to be issued by this court on hearing of all concerned.” Bt Brinjal Case, Order dated 22 September 2006. This order had the effect of suspending the grant by GEAC of approvals on all applications pending before it, not just the Bt Brinjal application. The Order was subsequently modified by the court (on an application filed by the government) to allow the continuation of field trials subject to conditions stipulated by the court. Bt Brinjal Case, Order dated 8 May 2007.

The other consequence of such litigation could be the imposition by the court of additional conditions on confined trials in response to concerns expressed by the petitioner and other concerned parties. These additional conditions could adversely affect the overall economics of the GM crop and the timing for its introduction.

Although the GEAC is the designated permitting authority, its decision can be suspended or held in abeyance by the government. Given the past controversy surrounding GM crops, the GEAC is expected as a matter of practice to refer its recommendation to the government (Ministry of Environment and Forests) for a final decision. The outcome of this may be to confirm, suspend or modify the GEAC approval. See MOEF, Report of Minister Shri Jairam Ramesh, 9 February 2010 (“Report of Environment Minister”) (declaring an indefinite moratorium on the release of Bt Brinjal). In view of the public nature of the controversy, the government’s stand in this matter is likely to be dictated by politics as much as scientific considerations.

The regulatory framework for GM crops is evolving. Recent developments are expected to alter existing regulatory requirements. These will most certainly apply to pending applications, but may also affect existing approvals.

  • First, the GEAC has been directed by the MOEF to draft a new protocol for the specific tests that will be conducted on GMOs in order to generate public confidence in GM food crops. The Environment Minister has directed that “under no circumstances should there be any hurry or rush” to complete the aforesaid. Report of Environment Minister, paragraph 30. Therefore until such new protocols are issued, there is substantial uncertainty as to the regulatory requirements.
  • Second, the Food Safety and Standards Authority of India, a regulatory body constituted under the Food Safety and Standards Act, 2006 will hence forth regulate the safety assessment and approval process for GM foods. The FSSAI will regulate “food stuff, ingredients in food stuffs and additives including processing aids derived from living modified organisms where the end product is not a living modified organism.” MOEF, Notification No. S.O. 1519(E) dated 23 August 2007. The FSSAI has released for public comment draft rules on “Operationalizing the Regulation of Genetically Modified Foods in India.” The comment period ended on July 14, 2010. The draft clarifies that the research and development, environmental release, and commercialization of GMOs will continue to be governed by the 1989 Rules, and thus will continue to be regulated by the GEAC at MOEF and RCGM in the DBT.

Suggested Strategic Approach

Given the risks described above, an applicant should consider including the following elements in its strategic approach to complying with the regulatory requirements in India. First, due to the uncertainty in the regulatory process and questions as to finality of the GEAC approval, it would be prudent to enter into an “implementation agreement” with the MOEF. Because the financial investment and effort required to commercialize GM crops is substantial, an up-front understanding with the government will help reduce the degree of arbitrariness involved in the application of the regulatory requirements. Implementation agreements are the norm in sectors where a long gestation period is involved and where successful implementation depends on governmental actions and support, such as hydropower projects.

Second, the applicant should consider applying for “in-principle” approval from the GEAC as early in the process as possible. Such approval, although not final or binding, would typically set forth the conditions to be met by the applicant for grant of final approval. MOEF approvals for infrastructure projects are structured in the foregoing manner.

Third, because most public interest litigation is filed by non-governmental organizations (“NGO”), it is prudent for the applicant to be pro-active and manage its relationships with the concerned NGOs.

Navigating the regulatory process for commercialization of GM food crops in India is not for the faint hearted. The road to commercialization has had, and will likely continue to have, many twists and turns. While the government has decided to embrace food produced through bio-technology to feed its citizens, the regulatory decision making process is often influenced more by political pressure from these opposed to bio-technology than by critical and balanced scientific and technological judgment. To help mitigate the resulting delay and uncertainty, it is helpful for businesses entering this sector to approach the government early on and develop a high-level road map for tackling the approval process.

Anand S. Dayal is a partner with Koura & Company, Advocates and Barrister, based in New Delhi, India. Anand received his J.D. cum laude (1992) from Cornell Law School, and is admitted to the bar both in India and the US (NY and DC). He was previously Of Counsel with White & Case and an associate with Chadbourne & Parke and Pillsbury Madison & Sutro. Anand is chairman of the Anti-Corruption Committee of the American Chamber of Commerce in India. He can be contacted at dayala@vsnl.com or adayal@kouraco.com.

 

 

by Anand S. Dayal

 

 

Towards A Global Financial Recoup—The Taxing Path

“The repose of nations cannot be secure without arms. Armies cannot be maintained without pay, nor can the pay be produced without taxes.” – Publius Cornelius Tacitus, a Roman historian

The word “tax” draws its earliest reference in a decree by Caesar Augustus, the first ruler of the Roman Empire, nearly 2000 years ago mandating taxation in all spheres of the world. The origin of the word “tax” stems from the Latin expression, “taxo” meaning, imposition of a financial charge or other levy upon a taxpayer.  India has had a system of taxation since ancient times, as is evident from references in early treatises such as Manusmriti (between 200 BCE and 200 CE) and Arthasastra (4th Century BCE). The conventional criteria of economic neutrality, equity, simplicity, and transparency have been regarded as the foundations of most tax systems. However, with the power of taxation in modern times shifting from the domain of a monarch to that of every sovereign, the regime of taxation has come to be associated with the four “R”s — revenue, redistribution, repricing, and representation. Moreover, for every benefit that mankind receives today, a tax is imposed thereby, redistributing the underlying burden.

The adoption of a flat tax has been debated by various countries in Eastern Europe over the last decade. A flat tax regime is a tax system with a constant tax rate and is usually referred to as a tax in rem, meaning “against the thing.” In 1994, Estonia became the pioneer in instituting the flat tax regime, levying a tax rate of 26% on all personal and corporate income with no deductions or exemptions. The success of the Estonian example led to the adoption of a flat tax regime by various European countries, such as Latvia, Lithuania, Bulgaria, and many others. Nevertheless, the debate continues in Western Europe and the United States.

The dawn of the global financial crisis in 2008 diverted attention to new tax regimes around the world. Rising government debt levels, reduction in bank lending, and instability in the financial markets have cast a shadow over the nascent economic recovery. Though the experiences of different countries vary, as do their priorities as they emerge from the economic crisis, none can claim to be immune from the risk of a future, and inevitably, global financial crisis.

In this respect, a universal policy cannot be imposed across various jurisdictions and each nation’s response to the crisis must be fine tuned in accordance with the assessment of their respective challenges. For example, Sweden has introduced a levy on banks that goes into a ring-fenced fund, created to protect against future bailouts. Germany and Britain are also contemplating a similar measure, and the Obama administration has proposed a levy to recoup $90 billion of public money used so far to shore up banks. However, while there is support in Europe and the United States for some form of levy, other western economies are against the concept of imposing an additional burden on their banks because they did not require rescuing.

There seems to be global recognition of the need for new taxes. The International Monetary Fund has proposed two new taxes on banks—a Financial Stability Contribution (FSC), and a Financial Activities Tax (FAT). The FSC is essentially linked to a resolution mechanism to pay for the fiscal cost of any future government support to the banking sector. Any further contribution, if desired, will be facilitated via the FAT, which would be levied on the profits and remuneration of financial institutions.

However, during the June 2010 G-20 meeting of Finance Ministers in Seoul, the proposal for a global bank tax to protect the public and ensure economic stability was rejected. A bank tax was viewed as increasing costs to consumers and requiring strict consumer and competition regulations for effective enforcement.  Rather, emphasis was put on pressuring countries to adopt more passive economic measures to recoup public funds used to protect against bank failures. Individual countries still may impose the levy in their own jurisdictions, despite the G-20’s collective recommendation. The Indian stand on additional taxation of financial institutions is similar to the G-20’s recommendation. Instead of a fiscal stimulus or additional taxation, India places greater emphasis on financial sector regulation.

Though there seems to be little support for the imposition of new taxes on banks while the economies of countries are still recovering from the global financial crisis, other new taxes are being considered in certain jurisdictions. Australia, for example, has proposed a resource tax, i.e., a tax to be levied on the “additional” profits on account of the use of limited natural resources through 2012. Moreover, the United States has proposed to levy an “excise tax” on U.S. companies that use an offshore call centres.

The levy of new taxes, apart from being viewed as a reactive measure to the global meltdown, forces one to revisit the purpose of a taxation regime. The existing regime is premised on Adam Smith’s core canons of taxation—equity, certainty, economy, and convenience. Today’s economic realities necessitate the addition of two additional principles, restitution and avoidance of double taxation. In this regard, it may be argued that the evolution of novel axes embodies, to a certain extent, the manifestation of the principle of restitution. Ian T. G. Lambert’s treatise, Modern Principles of Taxation, is founded on the principle of restitution. He argues that one cannot take the benefits of government expenditure without taking the burden. That view would justify the imposition of a bank tax or resource tax, effectively widening the scope of the existing four “R”s associated with taxes to include the principle of restitution.

India has been debating the levy of a “Tobin” Tax. The Tobin Tax derives its origin from Nobel Prize-winning economist James Tobin’s proposal to levy a tax on short-term capital currency transactions. Chile, Colombia, Brazil, and Malaysia have experimented with variations of the Tobin Tax. Various jurisdictions view this tax as compensation for the billions of dollars spent by governments to bail out banks.

India, until now, has been silent on the question of additional taxation. As the governments of various countries impose new taxes, the question is whether India will follow the same course. However, before taking this kind of leap, India must exercise caution to ensure that it does not fall prey to the dangers of an evolving short-term tax, susceptible to rapid fluctuations, and ensure that any proposed levy serves long-term stability by avoiding significant wholesale economic restructuring and facilitating the growth of business.

The authors are Mr. Aseem Chawla, Partner, and Ms. Surabhi Singhi, Associate, Amarchand & Mangaldas & Suresh A. Shroff & Co., based out of Delhi. Mr. Chawla leads the tax practice group of the firm and can be contacted at aseem.chawla@amarchand.com. Ms. Singhi is an Associate with the tax practice group of the firm and can be contacted at surabhi.singhi@amarchand.com.

 

 

by Aseem Chawla and Surabhi Singhi

Navigating The India Defense Opportunity

India is embarking on an ambitious defense and homeland security expansion plan, expecting to spend $30 billion over the next five years and upwards of $100 billion over the next decade. Considered one of the world’s fastest-growing defense markets, recently India was ranked as the world’s fastest-growing homeland security market. This growth presents tremendous opportunities for U.S. defense and technology companies in aerospace, government contracting, and homeland security. But to meaningfully participate in the India defense opportunity, one must understand and be prepared to navigate through some nuanced and complex terrains.

Understanding Procurement

Categories

First, a prospective bidder needs to understand the different procurement categories. The defense procurement categories are established in the Defence Procurement Procedure (DPP), which governs procurement by the Indian Ministry of Defence (MOD). The DPP sets out the Government of India’s (GOI) policies for every step in the procurement process, from acquisition planning to preparing requests for proposal (RFPs). Compliance with the DPP is essential to competing effectively for Indian defense contracts.

Before it was revised in 2009, the DPP provided three categories of defense procurement:

  • Buy: Outright purchase of defense equipment from foreign or Indian vendors. Programs where the purchase is made from an Indian integrator of foreign equipment must include at least 30 percent Indian content.
  • Make: Purchase of equipment from Indian vendors using indigenous development and production.
  • Buy & Make: Purchase from a foreign vendor with provisions for Indian co-production or licensed manufacturing.

In November 2009, the MOD amended the DPP and added an important fourth procurement category called “Buy & Make (Indian).” Under Buy & Make (Indian), the RFP will be issued only to Indian vendors, who in turn can decide what foreign suppliers to involve. This is intended to more effectively incentivize technology transfer and co-development in India.

Specifically, under Buy & Make (Indian), Indian firms must submit the project proposal, outline the development and production roadmap, either alone or in a production arrangement with a foreign partner, and provide details of the transfer of technology to the Indian partner. There must be at least 50 percent local content, and the Defence Production Board is responsible for monitoring implementation of the production arrangement, including absorption of technology by the Indian partner.

Buy & Make (Indian) is aimed at helping promote indigenous capabilities by driving technology transfer, joint ventures, licensed production and in-country manufacture. The MOD has not yet publicly indicated which projects will be designated Buy & Make (Indian), but for those which are so designated, Indian bidders will be in control of the process. Thus, non-Indian companies that wish to participate in this category of procurement should think ahead about identifying prospective Indian partners and crafting collaborative arrangements that can satisfy these requirements.

Complying with Agency Restrictions

There are a variety of reasons why agents may be necessary in defense and homeland security bidding. Bidders without an institutional presence in-country may believe it is particularly necessary to have third parties acting on their behalf. But one needs to proceed with caution under the Indian defense procurement rules on agency. The Indian government is particularly sensitive to the role of agents in defense procurement given prior controversies, most notably the Bofors scandal, which is considered “India’s Watergate.” As a result, there are a variety of restrictions governing the use of third party agents. Penalties for non-compliance can include disqualification from the procurement, cancellation of the contract, and debarment from future bidding.

Under the DPP 2005, parties bidding on procurements exceeding approximately $45 million are required to execute a “Pre-Contract Integrity Pact,” the express purpose of which is to ensure that, in competing for a defense contract, bidders take all measures necessary to “prevent corrupt practices, unfair means and illegal activities.” The Pre-Contract Integrity Pact requires bidders to agree to be bound by the “Agency Clause,” which provides:

Bidder confirms and declares that it… has not engaged any individual or firm, whether Indian or foreign whatsoever, to intercede, facilitate, or in any way to recommend to the Government of India or any of its functionaries, whether officially or unofficially, to the award of the Contract…

(emphasis added)

As indicated above, the Pre-Contract Integrity Pact essentially requires bidders to affirm that they have not engaged an agent. Although engaging an agent technically is not prohibited, it requires separate registration under rigorous requirements and the MOD reserves the right to reject any agent. As a result, no one has registered as an agent since the requirement was imposed in 2001. Thus, as a practical matter, for foreign companies interested in bidding for defense contracts in India, the prudent course is to ensure they do not engage any person or entity that performs any functions the nature of which require registration as an agent.

The exact meaning of the terms in the agency clause themselves are not entirely clear, and the Indian courts have not ruled on them. Nonetheless, there are some useful “do’s/dont’s” that may provide general guidance for foreign companies bidding on defense contracts in India. For example, rather than engage an entity to act as a consultant for any particular procurement program, consulting relationships should be for advice and assistance in connection with business opportunities in India generally.

Meeting Offset Requirements

Perhaps the most important issue in accessing Indian defense procurement opportunities is offsets, that is, the requirement to return to India a percentage of the value of the goods and services awarded in a defense procurement. Offsets are seen as a means to use foreign participation to foster and enhance an indigenous defense industrial base in India. It is important to know what offset requirement attaches to each procurement.

Under the DPP, procurements from foreign vendors over approximately $65 million must generally be offset by purchases or investments by the foreign vendor in Indian defense products, services, industries or research and development worth at least 30 percent of the procurement value. Offset requirements involve local purchasing, indigenous content, use of inputs, and co-production. This can be accomplished by (i) buying India defense items; (ii) buying India-defense related services; (iii) investing in an Indian defense joint venture; or (iv) investing in Indian defense research & development. Proposals are evaluated by the Defence Offset Facilitation Agency (DOFA).

Several policy issues are at the heart of the offsets discussion today. One concerns how closely offsets need to be related to the corresponding defense procurement. Currently, India’s system only credits “direct” offsets, i.e., those that are directly related to the product or service being sold. Some contend that India should also credit “indirect” offsets applied in industries outside defense, such as in commercial aerospace or homeland security. This approach would not only make it easier to meet offset requirements (and thus reduce the foreign bidder’s costs in India), but could also enable development in other areas of interest to India, such as infrastructure.

Another policy issue concerns the level of foreign direct investment, which currently is capped at 26%. Those who advocate foreign investment to at least 49% argue that providing foreign parties a greater ownership stake in Indian entities would stimulate offsets and collaboration. Specifically, in their view it would (i) incentivize foreign bidders to become more fully engaged in their India joint ventures and partnerships; (ii) spur investment as well as joint development and co-production; and (iii) motivate foreign bidders to locate strategic defense related R&D and manufacturing operations in India.

Other offset policy issues concern whether wholly-owned subsidiaries in India may qualify and whether transfer of technology can count. The India defense opportunity is not just a chance for foreign players to serve the Indian market, but is also an opportunity for Indian companies to become a key part of the global defense supply chain. So, as stakeholders focus on how to implement an effective framework for defense procurement and collaboration, both the GOI and domestic and foreign players are deliberating on what system of offsets can best serve the interests of both sides.

Managing Technology

Transfer Controls

Finally, perhaps no issue appears more vexing than U.S. export controls. If not managed effectively, it can be a deal-stopper that prevents transfer of sought after technologies. Upon arriving in Washington for their State visit and tour of duty, respectively, both Prime Minister Singh and Ambassador Shankar expressly mentioned U.S. export controls in their first remarks, underscoring the significance of this issue to U.S.-India defense trade.

India’s push for technology transfer raises significant export control compliance issues both for U.S. companies and foreign companies involved with U.S.-origin goods, software, technology and services. Specifically, the International Traffic in Arms Regulations (ITAR) restricts the transfer from the U.S. to foreign persons of defense-related technology, such as combat aircraft technology. The Export Administration Regulations (EAR) restrict the transfer of dual-use technology, i.e., that considered military useful, such as that for certain airport baggage screening systems. The ITAR and EAR often require export licenses before U.S.-origin technology may be shared with foreign persons. Those licenses can also impose ongoing export reporting and technology transfer compliance requirements. Even having meetings or making sales presentations where technical information is exchanged may constitute technology subject to U.S. export controls and require prior government approval.

In July 2009, the U.S. and India reached a milestone by agreeing on uniform language for End-Use Monitoring (EUM) arrangements that permits the United States Government to inspect on-site certain U.S. defense articles transferred to India, as required by U.S. law. The EUM expands the permissible range of defense-related trade with India, but it does not remove ITAR and EAR licensing requirements. Rather, prospective U.S. and Indian bidders and partners in defense trade need to be thinking about issues such as, what technologies will require licensing; what technologies are likely to receive licenses; what procedural safeguards are likely to be imposed on technology exports; and how should programs be structured to avoid export control problems.

Because compliance with U.S. export controls is critical to the process, early assessment of these issues is recommended, e.g., when companies identify prospective partners for bids. Certainly, U.S. companies cannot proceed without assurances that export control requirements will be met. Also, Indian companies need export counsel to help their U.S. partners deliver on their technology transfer proposals. These issues are complicated but can be managed.

Need for Advance Planning

The U.S. and India are natural allies because they are the oldest and largest democracies, respectively, and share a legal system based on common law. Now, the shared experiences of 9/11 and 26/11 underscore the great potential of the emerging U.S.-India strategic partnership. There are many issues to sort through as India embarks on high-stakes, big-ticket defense procurement, most importantly sensitive national security issues for both countries. By anticipating and addressing these issues in advance, however, private defense bidders can position themselves to participate in this important opportunity.

Mohit Saraf is a senior partner of Luthra & Luthra Law Offices and can be contacted at msaraf@luthra.com. Sanjay Mullick is a counsel in the International Trade practice of Pillsbury Winthrop Shaw Pittman LLP and can be contacted at sanjay.mullick@pillsburylaw.com.

 

 

by Mohit Saraf and Sanjay Mullick

The Paradox of Gender In the Human Rights Discourse

By Veena Poonacha

The language of human rights has the evocative power of initiating socio-political struggles and movements. Liberty and equality – the twin foundational principles of the discourse – have empowered people across geopolitical boundaries to overthrow tyrannical regimes and confront various forms of exploitations. This paper begins by acknowledging the power of human rights rhetoric to inspire the struggles for a more humane and just social order, but then pushes further by exploring some of the hidden tensions in the discourse, particularly when confronted with questions of gender rights.

These tensions within the discourse are not unique to gender rights, but also become apparent in articulations of other rights. They arise partly from the inevitable conflict of interests between various sets of rights and partly from the continued resistance to new ideas. For instance, the right to development demanded by developing countries may conflict with the land rights and entitlements of indigenous people. It may also conflict with environmental protections required for the survival of the planet. Contradictions also may be found in the theoretical underpinnings of the discourse when attempts are made to express, define, and extend the boundaries of these rights. The paradox of gender in the human rights discourse can be appreciated only within this broader understanding of contradictions in the discourse. Therefore, this gendered critique of “rights talk” is located within the broader critique of human rights that have grown out of the various struggles for a more inclusive framework of rights.

TENSIONS WITHIN THE
HUMAN RIGHTS DISCOURSE

The main criticism leveled on the human rights discourse refers to the fundamental question of who is the bearer of rights. Is it the individual, as articulated in the libertarian discourses of rights, or the community, as articulated in the communitarian notions of rights? The underlying concept of the individual in libertarian discourse is that the individual is an independent entity capable of and in a position to make rational choices. Such a conceptualization does not take into consideration the dynamic interrelationship between the individual and society. By defining the individual in opposition to society, it fails to acknowledge that individual choices are circumscribed by their lived experiences.

The discourse of rights also presupposes a non-existent equality of people’s conditions. It is difficult for those people on the fringes of society to realize their rights within a hierarchical social structure (based on class, race, and gender differences), a problem that is exacerbated by an elitist and conservative legal system. In the communitarian discourse, rights are defined by the notion of the community as a homogeneous unit. However, it fails to question the existing power inequalities in the community or even within a family. This power inequality within the community could mean that the rights of individuals are violated by the dominant group norms. Honor killings in India ordered by the caste/community elders against men and women who choose to marry against the dictates of family and community are indicative of this power inequality. The limitations of human rights discourse become apparent when examined through a gender lens.

Critical legal scholars also question the supposed neutrality of the law. They maintain that the law’s alleged neutral principles are driven by the exclusionary politics of the affluent and their attempts to maintain the status quo, creating tensions between the four main pillars of the rights discourse — namely liberty and freedom on one side and equality and justice on the other. For instance, the question of what sets the limits of individual freedom of speech and expression becomes important from the standpoint of protecting the rights of women and minorities. What if a person’s right to free speech and expression creates conditions that have a negative impact on another individual’s sense of self-worth? This obviously sets a limit to the freedom of speech held sacrosanct within the rights discourse. Civil libertarians believe that only acts, not beliefs or speech, should be punished and that penal sentences should not be increased because the person perpetrating the act was motivated by or held unpopular beliefs, including racist or sexist attitudes. The civil rights position maintains that the government can punish some criminal acts more severely than others, particularly if the motives are racist or sexist and therefore harmful to society.

WOMEN’S STRUGGLES FOR GENDER JUSTICE
A historical look at the struggles for women’s rights makes it apparent that the language of human rights as articulated in the age of enlightenment fueled women’s claims for civil and political liberties. Nineteenth century feminist discourse recognized the prevailing socio-political impediments to women’s rights. It did not, however, question either the class/race bias encoded in the libertarian discourse on rights, or the underlying assumption that rationality was a necessary pre-condition for any claim for rights. These omissions tended to perpetrate a certain exclusionary world-view on women’s rights. This is because it did not question the prevailing social order that made it possible for upper class women to gain freedom from household drudgery through the labor of working class women. It also did not criticize the prevailing libertarian view that rationality was the basis for assigning rights, but rather assumed that through access to education, women would be able to claim their right to equality.

In India, because the women’s empowerment movement was closely allied with the nationalist movement the parameters of the debate on women’s rights were different. Embedded in early-twentieth century Indian feminist articulations were ideas of nationalism and social transformation. Thus, influenced by the existing political philosophical discourses of nationalism and social justice, the first wave of the Indian women’s movement sought to include in the rights discourse not only formal political rights, but also ideas about socio-economic justice.

The feminist movement that developed in the 1960’s has pointed to the socio-political impediments to the realization of women’s rights. It has critiqued the overwhelming misogyny in society that denies a woman her basic right to survival — a point made amply evident from the declining sex ratio in India. It also points out that while formal equality is granted in the Constitution, attempts to realize gender rights inevitably meets with resistance. This resistance to women’s equality is evident from the long struggle to pass the Protection of Women from Domestic Violence Act (2005), as well as the 14-year long struggle to ensure one-third representation of women in the state legislatures and parliament. The struggle is not yet over. It continues to face male resistance to power sharing with women.

Contradicting these arguments on the gendering of rights, it is worth observing that the denial of rights is not necessarily gendered. Men, particularly from the marginalized sections of society, are also unable to access their rights. Therefore, any analysis of rights from a gender perspective could well detract attention from issues that affect the whole community. Undoubtedly, the non-realization of even basic rights to food, clothing, and shelter affect both men and women. But what cannot be overlooked is that as long as men and women play gender roles, the culturally constructed notions of entitlements that are embedded within them deny women even their claims to humanity. Consequently they are seen as carriers of lesser rights.

GENDERING OF “RIGHTS TALK”

There is today clearly documented evidence to substantiate the claim that women are discriminated against and denied their fundamental right to survival, access to resources, and reproductive control. In the final analysis, the process of gender socialization itself is a violation of basic human rights as it attempts to control women’s autonomy, thought, and action. When such a mind-set is enmeshed within other blatant forms of denials, the stage is set whereby the realization of women’s rights remains only a remote possibility. The prevailing ideology disparages the woman and defines her as the “other.” Such misogynist ideologies often justify gendered violence. The effects of such crime against women are two-fold: a) it enforces their subordination by creating a climate of fear making it difficult for women to pursue their right to education and better employment opportunities; and b) it justifies their subordination through the portrayal of their victim-hood. Crimes against women therefore cannot be considered isolated aberrations, but go directly to define power relations between men and women.

Feminist critics of the prevailing socio-political order also criticize the “rights talk” theories as prejudicial to women. Research has enabled them to identify the gender blindness within dominant theories and shift the focus of enquiry from the vantage point of men to women. As a result, the overarching generalizations that characterize dominant discourses have been abandoned in favour of emphasizing the experiential basis of knowledge. The process has had specific implications for the rights discourse. The discourse (which strictly speaking, straddles liberal political philosophy, ethics, and legal theories) is premised on the assumption of the objectivity of knowledge – the “knower” is seen as existing outside the “knowable.” Consequently, the rights discourse in its classical formulation did not necessarily take into account the socio-economic and political circumstances of people’s lives; rather, it assumes that individuals are able to actualize their rights through rational choice. Pointing to the constraints in women’s lives, feminist theories have challenged the claims of neutrality within the epistemology of rights.

IMPLICATIONS FOR GENDER RIGHTS

The ensuing debates have thrown up several corollary questions on the assumed neutrality of the law and its ability to deliver justice to those who do not have equal access to the legal system. It also asks if gender equity may be achieved only if social policies recognize the special circumstances of women’s lives and the ways in which the prevailing social order denies women their entitlements to education, economic independence, etc. Because, for instance, if a woman’s reproductive role as it is defined today is an obstacle to her right to work and economic participation, then is there not a need for special provisions in social policy to establish gender equity? By stressing the differences in the conditions of men and women, feminists have asked for special concessions so as to make equality a reality. However, claims for special protections or even affirmative action through reservations, etc., also have their own limitations as they can inadvertently force women into clearly demarcated areas defined as feminine without changing the gender ideology.

Feminists also critique the semantics of “rights talk” as grounded in the artificial dichotomy in the discourse between the public and the private spheres. Human rights discourse tends to focus on the relationship between the individual and the state in the public arena. Insofar as women’s lives remain circumscribed within the private area of family, the protection of their rights remains outside the purview of state protection. Violence within the home, for instance, gets ignored; attempts to intervene in cases of family violence is seen as an intrusion of the state apparatus in the private space of the home and a violation of individual rights (read “man’s rights”). Male resistance to any laws protecting women from domestic violence becomes apparent in the media representation of its misuse. The difficulty of realizing gender rights is apparent also in the current human rights discourses that focus on community rights. To be sure, women are rarely community leaders and their voices therefore remain unheard.

Additionally, there is a growing disillusionment on the capacity of the existing legal structure to promote gender justice. Insofar as the legal system operates on established precedents, it tends to uphold a conservative social order. The legal system is relatively powerless when compared to other ideological mechanisms in society to initiate social change.

Feminist articulations pointed to the politics of the human rights discourse and the ways in which the language of rights is used to justify control over women. The right to life, for example, is the most intrinsic to the entire discourse. A minimum definition of this right has, so far, been formulated within law as negative sanctions against murder and the unlawful deprivation of the life of the individual by the state. The attendant polemics generally have been concerned with the rationale for capital punishment as well as the right to life of the unborn. And yet, as feminists have argued, in a society that glorifies war and sees capital punishment as legitimate, the sanctity of life cannot be seen as an absolute value. In the absence of safe contraceptives and women’s control over their bodies, the denial of choices for women is merely an attempt to impinge on their reproductive rights. The parameters of the debate are different in India, as the discussion on abortion rights is also located within policies for population control. The dilemma of the feminist position on abortion rights is colored by the declining sex ratio as well as the absence of sexual/reproductive rights for women. Therefore, there is within the Indian women’s movement a call for the better implementation of the Pre-Natal Diagnostic Techniques (Regulation and Prevention of Misuse) Act of 2003, in ways that does not further victimize women. This demand, however, is not the final feminist position on the Act. Feminists struggling for disability rights question the implicit notion in the Act that the possibility of genetic defect is a justifiable ground for abortion.

CONCLUSION

This article has attempted to illustrate the difficulty of using the human rights discourse to realize gender equality. On one hand, feminist politics is caught in a struggle to protect rights which we take for granted; on the other hand, it is also used to extend the boundaries of such rights. This accounts for the rich diversity of feminist political responses. There can be no quick-fix solutions or a single response. Gender identities are intersected with other sets of class, race and religious identities. The question becomes who speaks for whom. How does one, for instance, view the struggle by Muslim women in France to be veiled in public? Is the purdha observed by Muslim women a symbol of their subordination, or an assertion of their cultural rights, in which case is the state justified is banning it? Similarly, how does one respond to cultural practices of female genital mutilation in certain parts of Africa through the human rights discourse? Should it be condoned as a cultural right of a community or should it be banned as a human rights violation? These questions do not lend themselves to easy answers.

Veena Poonacha is the Director of the Research Centre for Women’s Studies at Mumbai’s SNDT Women’s University. This article builds on her earlier article, On the Fringes of Human Rights Discourse: Violence Against Women in Intimate Relations, Family Violence in India (Swati Shirwadkar, editor, 2009). She may be contacted at veena_poonacha@yahoo.co.uk.

The State of Civil and Human Rights in India

The condition of civil and human rights in India depends on who you ask. Many non-government organizations (NGOs) I know will say that it is appalling; but the Government – particularly in many states of India – will say that it has never been better! The reality is somewhere in between. Violations of civil and human rights in a vast continent like India are legion, but the silver lining is that they are often exposed by a free press, and where possible, remedied by judicial activism.

The Chapter on fundamental rights (Part-III) of the Indian Constitution is directed to the States and their agencies. Courts may and do grant relief where the executive or legislative branches of government infringe on fundamental rights. But no provisions of the Constitution prohibit individual citizens from violating the civil and human rights of other citizens, nor do laws impose any penalty, nor provide a remedy, for violations by citizens of human rights of other citizens. As a result, a large number of people in India are deprived of a life of peace and justice. This was pointed out to me some years ago, when high-profile American judges visited India to participate in an Indo-US Legal Forum, a Supreme Court of India program. Justice Antonin Scalia, a man known not to mince words, said that the rights granted to U.S. citizens under the Civil Rights Act of 1964, enacted in response to the pressures of the civil rights movement, were not granted to Indians under India’s laws or Constitutional framework. He was right. We do have a Civil Rights Act, but that only prohibits the practice of “untouchability” in all its forms. The Constitution and the laws guarantee rights against the State and its agencies, but do not protect the rights of a group of citizens against another – a crying need in these fractious times.

The Inhuman Practice of “Untouchability” Continues

A few months ago, the Supreme Court of India sentenced five persons to life imprisonment for brutally killing seven Dalits, those belonging to the lowest caste in Hindu society, in Uttar Pradesh, India’s largest State. And this is what the Judges said:

Unfortunately the centuries old Indian caste system still takes its toll from time to time. This case unfolds the worst kind of atrocities committed by a so called upper caste (Kashtriyas or Thakurs) against the so called lower castes in a civilised country.

This “civilised country” has abolished “untouchability” and social backwardness in its Constitution. But alas, many of its inhabitants have not yet eliminated it from their hearts.

Restrictions Against Residing and Working Anywhere in the Nation?

While old forms of discrimination continue, new forms of discrimination – discrimination despite law – have surfaced. Articles 19(1)(d) and 19(1)(e) of the Indian Constitution confer on all citizens a fundamental right to move freely throughout the territory of India and also to settle in any part of India. Permanent restrictions on such freedom of movement are suspect. There are many Court decisions that establish this. But politics trumps law, even constitutional law, perhaps best exemplified by the growing phenomenon called “preference-for-sons-of-the-soil”: it seeks to reserve for locals jobs and places in educational institutions: “Maharashtra only for the Maharashtrians,” “Punjab only for the Punjabis,” is the clarion call. But, in this “land of a thousand mutinies,” as V.S. Naipaul has pertinently called it, we cannot truthfully say Bihar only for the Biharis, because what would Maharashtra and Punjab and the rest of the country do without the hardworking Biharis, who earn their living in states outside Bihar? This new ogre of discrimination that has raised its ugly head needs to be eradicated; it can only be done with astute political will, and by firmness of judicial diktat. Political parties who indulge in it must be disenfranchised by the Election Commission. But unfortunately popular Governments hate to lose votes thus perpetuating “preference-for-sons-of-the-soil” policies: this is one of the great dilemmas of modern Indian Democracy.

A change in attitudes will not occur through laws and edicts, but only by meaningful education, education that alters settled habits of the mind. We will have to go through many more difficulties before it dawns on the mass of the voting populace of India (about 700 million) that when we achieved independence we failed to attain standards of education that would enable WE THE PEOPLE of India to live up to the ideals of a truly free, and independent nation. The sons-of-the-soil agitation is not good for India. The strength of this great country lies in its vastness and in its being home to a pluralist society in which diverse and varied ethnic, social, and cultural interests co-exist, sometimes peaceably, sometimes not. Ending discrimination is very important for this country, but we cannot end discrimination without tolerance and a spirit of accommodation: qualities which are at present in short supply.

Growing Intolerance – A Violation of Personal Rights

Article 25 of our Constitution guarantees, subject to public order, morality and health, that all persons be equally entitled to freedom of conscience and the right to freely profess, practice and propagate their religion. But what use is this Article if it is not enforced or observed in its true spirit? I recall the case of a minuscule sect in this country, numbering only a few thousands, called Jehovah’s Witnesses. They live mostly in Kerala. They are Christians, although with a particular belief not shared by other Christians. Their belief revolves around three short passages in the Book of Exodus in the Bible, which they believe are the words of God. This is what an angry God says in the fiery Old Testament.

20:3 Thou shalt have no other gods before me.

20:4 Thou shalt not make unto thee any graven image, or any likeness of anything that is in heaven above, or that is in the earth beneath, or that is in the water under the earth.

20:5 Thou shalt not bow down thyself to them, nor serve them . . .

Jehovah’s Witnesses interpret these words literally and will not bow down to graven images, salute the national flag, or sing the national anthem. In Nazi Germany, they gladly went to the concentration camps for refusing to raise their hands in the Nazi salute because of these words of God found in the Old Testament.

Until 1985, children of this faith in Kerala regularly attended the public schools. In one such school, the Indian National Anthem – “Jana Gana Mana” was sung at the beginning of each day. Children belonging to the Jehovah’s Witnesses stood at attention but refused to sing, not because they were opposed to the words or thoughts expressed in the National Anthem, but because of the tenets of their religious faith. No one considered this disrespectful. Besides, there was no law compelling any one to sing, or to play, the National Anthem.

But in July, 1985, a member of the Legislative Assembly of Kerala on a visit to the school noticed that three children whose parents were Jehovah’s Witnesses did not sing the National Anthem at the morning assembly. He considered this unpatriotic and raised a question in the Kerala Legislative Assembly. The Assembly appointed a Commission of Inquiry, which reported that, although the children did not sing, they were law-abiding, and showed no disrespect to the national anthem, they stood in respectful silence when it was sung. On the instructions of the Inspector of Schools, the three children were expelled from the school.

A writ petition was filed in the High Court of Kerala seeking a writ of prohibition against the authorities preventing the children from attending the school. The High Court rejected the plea. I was consulted. We decided to file an appeal to the Supreme Court of India invoking Article 25 of the Constitution and we succeeded. The Supreme Court of India reversed the verdict of the High Court. The Supreme Court held that the children did not join the singing of the National Anthem in the morning assembly because of their conscientiously-held religious faith, which did not permit them to join in any rituals, except prayers to Jehovah.

The Court noted “Jehovah’s Witnesses wherever they are, do hold religious beliefs which may appear strange, even bizarre to us, but the sincerity of their beliefs is beyond question.” The Court held that the childrens’ expulsion from school violated the fundamental right of “freedom of conscience” guaranteed in Article 25(1) of the Constitution of India. At the end of their judgment, the Justices encapsulated the consistent attitude of the highest court in matters of genuine religious faith, in eloquent words that need to be remembered:

We only wish to add: (said the Judges) that our tradition teaches tolerance; our philosophy preaches tolerance; our Constitution practices tolerance; let us not dilute it.

The Justices directed the authorities to readmit the children to the school and to permit them to pursue their studies without insisting they sing the National Anthem in the morning assembly.   But they were not admitted – Tolerance in the face of unpatriotic behaviour? Never!

The Judge, who delivered the judgment of the Court was castigated by a high ranking leader of the then ruling Congress party as having forfeited his right to be called “either an Indian or a Judge”! When this party leader was hauled up before a Bench of three Judges for “scandalising the Court,” the Judges pusillanimously refused to issue even a notice of contempt on the Congress leader on the specious ground that the Attorney General had not given his consent to the initiation of contempt proceedings! In short, the judgment, though correct in law, and enforceable was simply unacceptable to a large majority of what was then characterised as “right thinking people.” Despite the verdict of the Highest Court in the land the children would not be admitted to any school in Kerala. They are still not admitted: they get their tuition only at home.

Jehovah’s Witnesses had won their constitutional case, but lost their constitutional right which the decision in the case had affirmed. Discrimination against this small miniscule sect of Christians continues — despite law.

Fali S. Nariman is a distinguished Indian constitutional jurist and senior advocate in the Supreme Court since 1971. He may be contacted at falinariman@yahoo.com.

 

 

 

by Fali S. Nariman

Case Notes – Spring 2010

By B.C. Thiruvengadam

Does an email exchange evidencing the parties’ agreement to arbitrate a dispute regarding a contract create a binding arbitration agreement?

Yes, according to the Supreme Court of India. In Trimex International FZE Ltd. Dubai v. Vedanta Aluminium Ltd., India, 2010 (1) SCALE 574, the petitioner, Trimex International, a Dubai-based company, placed an order for mineral ores from the respondent, Vedanta Aluminium. According to the petitioner, it made a commercial offer by email and, following an exchange of several more emails, the respondent accepted its offer via email. Based on this acceptance, the petitioner sent a formal contract containing a detailed arbitration clause to the respondent by email, which the respondent accepted and returned to the petitioner on the same day. A dispute arose with respect to the performance of the contract and the petitioner sought to invoke the arbitration clause. The respondent objected, arguing that there was no written contract containing an arbitration clause.

The Supreme Court examined each of the emails exchanged between the parties. Relying upon its earlier judgment in Great Offshore Ltd. v. Iranian Offshore Engg. and Construction Co., 2008 14 SCC 240, the Supreme Court stated: “Technicalities like stamps, seals and even signatures are red tape that have to be removed before the parties can get what they really want – an efficient, effective and potentially cheap resolution of their dispute.” The Supreme Court held that the parties entered into a binding contract, which included the arbitration clause, by the exchange of emails, even though no formal contract was signed by the parties.

May a complaint be lodged under the Protection of Women from Domestic Violence Act, 2005, against a person who does not reside in the complainant’s household?

In K. Narasimhan v. Smt. Rohini Devanathan, ILR 2010 Kar 669, the High Court of Karnataka has held that an action may not be brought under Section 12 of the Act if the accused does not reside in the same household as the complainant. The petitioner, K. Narasimhan, challenged a complaint filed against him under the Act by his brother’s wife. The petitioner contended that he was a resident of Canada who visited Chennai occasionally. The complainant was living with the petitioner’s brother in Bangalore. The relationship between petitioner’s brother and the complainant had strained and the complainant lodged a complaint against her husband as well as the petitioner alleging that, when she and her husband went to Chennai to meet the petitioner, she was subjected to emotional abuse.

The Court quashed the complaint against the petitioner because the petitioner did not reside in the same household as the complainant. In fact, the complainant went to Chennai to meet the petitioner who had traveled from Canada for a brief visit. According to the Court, the basic ingredient for a complaint under Section 12 of the Act is that the complainant and the accused live together and share a household by marriage or through a relationship in the nature of marriage. An allegation of abuse alone is not enough to bring a claim under the Act.

Is a preemption clause (right of first refusal) regarding shares held in a public limited company enforceable?

The Bombay High Court, in Western Maharashtra Development Corpn. Ltd. vs. Bajaj Auto Ltd., [2010] 154 Comp Cas 593 (Bom), has held that a preemption clause in an agreement between two groups of shareholders is contrary to Section 111A of the Companies Act, 1956, and, therefore, unenforceable. Western Maharashtra Development Corpn. Ltd., an undertaking of the Government of Maharashtra, entered into a protocol agreement with Bajaj Auto Ltd., leading to the creation of Maharashtra Scooters Ltd. (“MSL”). Western Maharashtra held 27% of the shares in MSL and Bajaj Auto, the respondent, held 24%. The agreement had a preemption clause requiring a party who is willing to sell its shares to give the first option to the other party. The agreement further provided that should a dispute arise in the price demanded or offered, the same should be resolved by arbitration.

Western Maharashtra offered to sell its shares to Bajaj Auto, but a dispute arose regarding the valuation and a joint reference was made to the arbitrator. Western Maharashtra, however, argued that the protocol agreement was null and void because it violates Section 111A of the Companies Act, 1956 and Section 9 of the Companies Act. The arbitrator ignored Western Maharashtra’s objection and determined the value of the shares.

Section 111A of the Companies Act, 1956, provides that the shares or debentures of a public limited company, and any interest therein, shall be freely transferable. Section 9 of the Companies Act, 1956, provides that the provisions of the Act shall have effect notwithstanding anything to the contrary contained in the company’s charter documents, such as its articles of association and memorandum of association. The Court held that the preemption rights, provided for in the company’s articles of association, may not override Section 111 A of the Companies Act, 1956.

May a conviction under Section 302 of the India Penal Code be set aside by the High Court if the lower court did not conduct the trial fairly?

In a landmark judgment, the Delhi High Court set aside a murder conviction in the Sessions Court where there “has not been a fair trial to the appellant and the blame has to be principally on the shoulders of his counsel, with the learned Trial Judge partly sharing the blame for the reason he did not just bother to ensure that the defence raises the standard to meet the requirements of a fair adversarial trial.”

In Salamat Ali v. State of Delhi, Criminal Appeal No.242/2010 (unreported), the Delhi High Court relied on the decisions of the United States Supreme Court in Strickland vs. Washington, 466 U.S. 668 (1984), and the Ninth Circuit Court of Appeals in Turner v. Duncan, 158 F.3d 449 (9th Cir. 1998). The High Court criticized the conduct of the defence counsel in the trial proceedings. Quoting the U.S Supreme Court in Strickland v. Washington, the Court stated:

No doubt, counsel’s assistance and performance at a trial has to be highly deferential but as observed by the US Supreme Court in the decision reported as Strickland vs. Washington 466 US 668 (1984), with regard to the required showing of prejudice, the proper standard requires the defendant to show that there is a reasonable probability that, but for counsel’s unprofessional efforts, the result of the proceeding would have been different. A reasonable probability is a probability sufficient to undermine confidence in the outcome. A Court hearing an ineffectiveness claim must consider the totality of the evidence before the Jury or the Judge.
The Delhi High Court set aside the judgment of conviction of the lower court and remanded the case for a new trial, with directions to the trial judge to ensure that effective counsel is made available to the appellant and that another opportunity be given to him to produce defence witnesses.

Compiled by B.C. Thiruvengadam, of Thiru and Thiru, Bangalore, with input from Mr. Ajay Verma, Advocate, New Delhi.

Historic First Delegation From India Opens New Doors

By Jaipat S. Jain

April 11 is the last day of the annual, two-week, Cherry Blossom Festival in Washington, D.C. The festival, held amidst blossoming cherry trees that line some of the beautiful, sun-drenched, boulevards of the capital, celebrates the gift by Japan to the United States of the cherry tree in 1912. April 11th this year was also a day to celebrate for lawyers from India and the United States for a different reason: the visit to Washington, D.C. of a delegation of lawyers from India at the invitation of the International Law Section of the American Bar Association (ABA).

The International Law Section of the ABA invited the Society of Indian Law Firms (SILF) to join its annual Spring Meeting. The Indian delegation, led by SILF president Lalit Bhasin, and accompanied by 21 lawyers, was the first such delegation from India to an ABA meeting. Excellent weather, combined with an abundance of warmth and hospitality from the host India Committee Steering Group led by Erik Wulff (DLA Piper; co-chair), Aaron Schildhaus (Law Offices of Aaron Schildhaus; immediate past chair, ABA International Law Section), Gene Theroux (Baker & McKenzie), Doug Adler (Vedder Price) and Shikhil Suri (Crowell & Moring), made April 11th a perfect day for the SILF delegation to arrive in Washington, D.C.

Lawyers have to be lawyers. No sooner had they arrived, they got together to discuss and analyze their busy schedule for the next two days in Washington, D.C. and the balance of the week in New York City. The highlight of the day was an evening reception hosted Crowell & Moring led by Shikhil Suri and Morris DeFeo. In his address, Lalit Bhasin (co-chair, ABA International, India Committee) expressed his appreciation to the Steering Group for making it possible for lawyers from India and the United States (and beyond) to forge a relationship based on common values and a shared desire to bring the fruits of economic progress to their respective peoples. He introduced the delegation, observing that the lawyers represented the best firms from India.

The next day started early at the George Washington University School of Law, where Dean Greg Maggs kicked off an informative lecture and Q & A session by Lyle Denniston, veteran journalist and historian of the Court. The lecture was followed by a lively and informative panel discussion on the U.S. Supreme Court moderated by Hon. Sanjay Tailor, Associate Judge, Circuit Court of Cook County, Illinois. Panelists Linda Dreeben, Deputy General Counsel, National Labor Relations Board, Philippa Scarlett, Partner, Kirkland & Ellis and former Law Clerk to Justice Stephen Breyer, and Robert Brauneis, Associate Professor, George Washington University and former Law Clerk to Justice David Souter, each shared their experiences and knowledge of the inside workings of the Court. Of course, with Justice John Paul Steven’s retirement announcement just days earlier, the subject of Supreme Court appointments drew much discussion.

Next, a panel discussion followed on U.S.-India commercial relations, led by Douglas Adler. Doug has had a long-standing relationship with India, both in private practice and as part of the Federal government. He was joined by Jeffrey Shane (Partner, Hogan & Hartson), a former Undersecretary, U.S. Department of Transportation, who was closely involved with the negotiations of the U.S.-India Open Skies Aviation Agreement, and Jessica Farmer, Senior Loan Officer, U.S. Exim Bank. The panelists shared their first-hand experiences of doing negotiations with Indian agencies, peppered with interesting anecdotes and insights.

The discussion was followed by a luncheon at the Metropolitan Club hosted by Arnall Golden & Gregory, Hogan & Hartson, and Vedder Price, and chaired by Doug Adler. The Honorable William S. Cohen, former United States Senator from Maine and Secretary of Defense, and current Director of the U.S India Business Council, delivered the keynote address. Secretary Cohen shared his personal experiences as a lawyer, legislator and member of the executive branch of the government, as well as his enthusiasm for the U.S. – Indo relationship. In their remarks, each of Doug Adler, Erik Wulff and Lalit Bhasin recognized that the visit by lawyers from India to the ABA meeting was a historic first step in further deepening the economic and other ties that bind the United States and India.

The lunch meeting was followed by a panel discussion and Q & A on U.S.-India commercial relations. Speakers and commentators included David Fagan (Covington & Burling), Mark Riedy (Mintz Levin), Robert Shanks (Raytheon International), Gene Theroux (Baker & McKenzie), Ajay Verma (Ajay Verma & Associates), Aseem Chawla (Amarchand & Managaldas & Suresh A. Shroff & Co.), H. Jayesh (Juris Corp), and Marcia Wiss (Hogan & Hartson).

An evening reception was held at the offices of Baker & McKenzie. A highlight of the reception was the unobstructed and spectacular view of the White House from the terraces of Baker & McKenzie, giving the delegation members and their host memorable photo opportunities. Gene Theroux and Elizabeth Stern welcomed the delegation on behalf of Baker & McKenzie and spoke of the possibilities of greater U.S.-India relations in the area of practice of law. Lalit Bhasin, speaking on behalf of the delegation, thanked the host and said that the delegation came here to learn and build bridges between the lawyers of the two countries.

The delegation arrived in New York City on April 13th, and began the day with a luncheon meeting at the offices of DLA Piper. Erik Wulff and Lalit Bhasin chaired the meeting. Each member of the delegation addressed the audience on the area of law that was the focus of his or her practice and fielded questions in those areas. The Spring Meeting of ABA International in New York City was formally opened later that evening with a reception at the Grand Hyatt, where ABA President-elect Stephen Zack set the tone for the next four days of meetings, continuing legal education programs, international practice boot camp, discussions on emerging trends in the practice of law, networking and social events. The meeting included seventy programs and was attended by over 1,500 lawyers from nearly 50 countries.

The next day, the first major session of direct interest to the India delegation was on Legal Process Outsourcing. Chaired by Mohammad Syed (King & Ballow), speakers and commentator included Anil Chaddha (GE Transportation), Jonathan Goldstein (Pangea3), Mark Heaphy (Wiggins and Dana), Madhu Khatri (Wipro), Lalit Bhasin, and James Duffy (New York State Bar Association). Later that day, the Honorable Hardeep Puri, India’s Permanent Representative to the United Nations, hosted a luncheon in honor of the Indian delegation at his residence. Mr. Puri expressed hope that lawyers would increasingly play a more active role in the negotiation of bilateral and multilateral governmental agreements on a pro bono basis.

The India Committee formally met the next morning for breakfast to discuss committee business. The gathering was addressed by Glenn Hendrix, chair of the International Section, among others. The India Committee was addressed by Erik Wulff, Lalit Bhasin, and Aaron Schildhaus, among others. The Committee discussed publishing books or pamphlets on matters of interest to the membership through the ABA, as well as topics for future Web-based seminars. Mr. Bhasin presented souvenirs to Sanjay Tailor, Rita Roy, Aaron Schildhaus, Erik Wulff and Gene Theroux, among others, for their contribution to the Committee.

Later that day, ABA President Carolyn Lamm, addressing a luncheon of the International Law Section, welcomed the India delegation. Lalit Bhasin addressed the attendees on behalf of the delegation and expressed his hope that this first visit by a delegation from India at the invitation of the ABA will pave the way for annual exchanges between the two countries. His sentiments were warmly reciprocated. The India delegation then presented souvenirs to Carolyn Lamm and Glen Hendrix.

A highlight of the day was an hour-and-a-half-long meeting of the members of the SILF delegation, led by Lalit Bhasin, and the ABA, led by Carolyn Lamm, on the issue of foreign lawyers doing work in India. The meeting involved an exchange of information and views. Lalit Bhasin advocated strengthening of existing relationships between the two professions and seeking avenues of permissible cooperation between Indian and the U.S. law firms, such as participating in international arbitration proceedings in India or visits to India on specific client transactions or assignments, and vice versa for Indian lawyers in the U.S. Others advocated that the Indian legal markets should be opened up to foreign law firms.

The meeting was followed by a separate, continuing legal education program entitled “Hot Transborder Law Practice and Legal Ethics Issues: India-U.S.” It was chaired by Robert Lutz, II (past chair, ABA International, and professor, Southwestern University School of Law) and Erik Wulff. The panelists were Lalit Bhasin (SILF), Priti Suri (PSA Legal Consultants), Eugene Theroux (Baker & McKenzie) and Daniel Watson (Office of U.S. Trade Representative). The well-attended, lively program presented divergent views on the current state of openness of India’s legal services sector.

Over four days, members of the delegation attended and participated in various on-going continuing legal education programs and discussions and networking receptions, including a special hearing of the ABA International Section’s Outsourcing Task Force. On April 17th, the Indo-American Lawyers’ Association of New York hosted a farewell dinner reception, marked with warmth and bonhomie, in honor of the Indian delegation. It was addressed by, among others, its President, Sanjay Chaubey, President of the New York State Bar Association, Stephen Younger, and Lalit Bhasin.

The delegation consisted of the following persons: Jatin Aneja, Partner, Amarchand & Mangaldas & Suresh A. Shroff & Co.; Kewal Bajaj, Esquire; Rajesh Bhardwaj, International Investment Law Consultants; Maj. Guneet Chaudhary, Advocate, Supreme Court of India; Aseem Chawla, Partner, Amarchand & Mangaldas & Suresh Shroff & Co.; Manjula Chawla, Partner, Phoenix Legal; Manoj K. Chhabra, Partner, Astra Law Offices; Vishal Gandhi, Gandhi & Associates, Solicitor and Advocates; Dinkar Goswami, Goswami Associates; Nusrat Hassan, D.H. Law Associates, Advocates and Solicitors; Jaipat S. Jain, Partner, Lazare Potter & Giacovas LLP; H. Jayesh, Juris Corp, Advocates and Solicitors; Rajiv Luthra, Luthra & Luthra Law Offices; Suhail Nathani, Economic Laws Practice; Badri Nath, International Investment Law Consultants; Balraj Palli, Esquire; Ashok Sancheti, IC Sancheti & Co.; Ajesh Kumar Shankar, Chief, AKS Law Associates; Cyril and Vandana Shroff, Managing Partners, Amarchand & Mangaldas & Suresh Shroff & Co.; Priti Suri, Priti Suri and Associates/PSA Legal Counsellors; Dorothy Thomas, Partner, Kochhar & Co. LLC; and Ajay Verma, Founding Partner, Ajay Verma & Associates.

Jaipat Jain is a partner at Lazare Potter & Giacovas LLP in New York and is engaged in the practice of corporate and securities law. He may be contacted at jjain@lpgllp.com.