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About bhumesh

Bhumesh Verma is Managing Partner of Corp Comm Legal, a Delhi-headquartered Law firm. He is a senior corporate lawyer and author. A law graduate from Campus Law Centre, Delhi University (1994), he started his career at Ajay Bahl & Co. (now part of AZB & Partners) and went on to become partner at some of the leading Indian law firms.

He was selected as a Chevening Scholar in 2000 by the UK government. During this scholarship, he studied at the College of Law at York and worked with a big London law firm.


Currently, he is ranked among Top 100 Indian Lawyers by Indian Business Law Journal (“IBLJ”).


He has advised clients from more than 50 countries on M&A, inbound and outbound FDI, incorporation of companies, regulatory approvals and compliances, joint ventures, financial and technical collaborations, private equity, venture capital, corporate and securities laws, commercial agreements, exchange control laws, structuring cross-border transactions and strategy on legal and business issues.


He is a keen reader, prolific speaker and writer. He has contributed to in-house journals of many international law firms on India law


He is guest faculty with law colleges and online legal education portals too and conduct workshops on corporate laws and drafting skills. 

ROAR

Some relief to start-ups…

Facing sustained pressure from start-ups and venture capital funds over the so-called angel tax, the government has relaxed norms for seeking exemptions from the controversial levy.

The regime was too harsh, arbitrary and a lot of documentation was required, so not many start-ups would or could apply for exemptions. The manifested intent behind these measures was to curtail black money, bribing and money laundering. However, start-ups were even scared of applying, fearing opening of the proverbial pandora’s box of government questions and investigations. The system, therefore and quite expectedly actually never took off.

A couple of days back, facing flak from all quarters over the arbitrary notices being served in this regard, the government issued a notification. The existing mechanism to approve start-ups applying for tax exemption under the Income-Tax Act, 1961 has been done away with.

However, the government hasn’t given in completely to abolish the tax completely and has offered only partial relief. Under the new regime, start-ups seeking exemption need not approach the inter-ministerial board. This board was set up about 3 years back with members from different Ministries, Reserve Bank of India, SEBI, etc. but didn’t have much work to do.

Henceforth, applicants have to file their applications through the Department of Industrial Policy and Promotion (DIPP) website, which will forward them to Central Board of Direct Taxes (CBDT). CBDT has to directly examine these applications and respond within 45 days of receipt of such applications.

However, only the start-ups which are approved by DIPP are eligible for these exemptions.

The requirement of submitting a valuation report from a merchant banker specifying the fair market value of securities is also being done with. Earlier Angel investors were supposed to share their income documents for last 3 years – this stipulation is also being taken off.

Some norms pertaining eligibility of investors and start-ups have been tweaked a little bit and many continue to be the same. Therefore, the ecosystem is still sceptical about the success of the new norms and the response from the affected quarter is quite mixed.

However, any change with an intent to bring about clarity and certainty in the system and promote entrepreneurship is a welcome step. Only time will tell the success and glitches in the new system.

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End of Indian e-commerce…

India has been the favourite playground or battlefield, howsoever you may like to call it for e-commerce companies over the last few years. Amazon, Walmart and you name it, everyone has been eyeing a big slice of online business. We saw few Indian e-commerce promoters becoming billionaires and part of the folklore.

Now, however, it seems the Indian government has put a spanner in foreign investors’ plans in the sector and the party is over. The underlying idea may be to buy peace with the local brick and mortar traders’ lobby which had been complaining loss of business due to deep and predatory discounts offered by online e-commerce platforms.

Last month, the government issued a Press note clarifying / amending some provisions of the FDI policy in e-commerce segment barring online marketplaces with foreign investments from selling goods of the vendors and brands in which they have stakes and putting restrictions on exclusive partnership with brands or offering favourable services to selected vendors.

This has sent shockwaves in the e-commerce industry. Apparently, Flipkart and Amazon have more than half of their revenue through sales through group companies (a major chunk being electronics and apparels, which is likely to be impacted the most by the new guidelines).

The new norms are to be effective from February 1, 2019 so there is a big rush to clear the stocks lying with group companies. This is why one could see a flurry of discounts and sales in the last two weeks of January 2019.

It may take some time for e-commerce companies to tweak their business model and make alternate strategies. Some sanity may also settle in e-commerce discounts when the biggies struggle with the new guidelines.

This could be a boon to the Indian brick and mortar retailers. Even if a third of online retail sales were to be impacted due to the tighter e-commerce FDI policy, brick and mortar sales are to see an unprecedented upswing in their business. This amount could be anywhere in the range of Rs. 100 billion to 400 billion, depending on how much of the business Indian offline retailers can capture.  

Further, it may signal an end to the predatory discounting on part of e-tailers since the compliance ecosystem and expenditure may expand now on and we can expect a more level playing field for Indian offline retailers.

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Don't kill the startup…

It seems the present Indian government, in its last lap now, is doing everything to wipe out the hopes and promises it had made in the run up to last general elections. It was voted to bring in economic reforms, make India more entrepreneur-friendly, create jobs, facilitate investment and so on. What

After dismally failing to bring back any black money into India or creating jobs, destroying financial institutions one after the other, the government is hell bent to kill whatever entrepreneurial ambitions that (mostly) young Indians are left with. To cover some of the lost ground, the government wants to spend on populist measures. Therefore, the government is desperately seeking funds from wherever – by raiding Reserve Bank of India or levying the so called ‘Angel Tax’.

One reason why the present government won the massive mandate in 2014 was that BJP had convinced India's young that he was going to help them fulfill their dreams of becoming entrepreneurs. His motto of 'minimum government, maximum governance' stood for those values of creating an atmosphere that would unleash private animal spirits.

But four years down the line, it's tougher for young people trying to start their own businesses. Hundreds of startups have been served notices under a section of the Income Tax Act, 1961 which has come to be known as the 'Angel Tax'. The tax, under section 56(2)(viib), was introduced by the UPA government in 2012 supposedly to curb the money laundering menace – implying that it was a device to pass on bribes and commissions in the garb of angel investments and escape taxes.

However, this section was rarely invoked for the fear of disturbing the startup ecosystem by harassing even genuine startups.

The subject section stipulates that if a company has issued shares to an angel investor at a price that's higher than its fair market value, the extra amount received by the company will be taxed at 30.9%.

The problem with this proposition is – the taxman are apt at and fixated with only tax collection, often unable to appreciate working of the startups ecosystem, valuation and dynamics of the game.

Depending on how a startup shapes progressively, subsequent angel investors enter at different valuations..

It is lucrative for tax officials to randomly or selectively the lowest valuation as 'fair market price' and tax the differential amount to their benefit. With limited resources, startups cannot spend time, energy and money in legal fights. Even to begin an appeals process, they have to deposit 20% of the demand, howsoever illogical, unreasonable or arbitrary the demand may be. This deposit itself has potential to stop the lifeline of a startup and pronouncing its premature death.

The government should start differentiating between economic offenders, money launderers and genuine angel investors.

The government has failed miserably on the job front and has lost assembly elections in the Hindi heartland for this reason among others. Squeezing more money from wherever possible is one such way to raise finances to dole out freebies. Targetting startups may be counterproductive. Pray the government does not kill the spirit of entrepreneurship among Indians for whatever it is worth, particularly so when actual employment numbers in India are shrinking.

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Bringing Transgenders…

The times are changing, and how.

There have been several attempts in recent past by state institutions to protect the rights of transgenders in India. In 2013, an expert committee was set up by the government to scrutinize the social problems faced by transgenders.

In 2014, Supreme Court recognized transgender persons’ right to self-identification as male, female or the third gender. Courts directed the government to bring legal recognition to transgenders and, enact provisions for their protection against discrimination.

In 2016, the government introduced Transgender Persons (Protection of Rights) Bill (“Bill”) with the objective of providing transgenders the benefits of welfare schemes and, granting them due legal recognition. This bill was later referred to the Standing Committee on Social Justice and Empowerment.

Key Features of the Bill

This Bill is aimed, inter alia, at prohibiting discrimination against transgender persons, giving a certificate of identity, granting them the right of residence, providing opportunities of education, employment, healthcare and other welfare measures of the government.

Key features of the Bill are:

Ø Definition of Transgender persons in the bill: Transgender who is (i) neither wholly female or male; (ii) a combination of female and male; or (iii) neither female nor male. Such a person’s gender does not match the gender assigned at birth, and includes trans-men and trans-women, persons with intersex variations and gender-queers.

Ø Prohibition of discrimination: Discrimination in the form of denial of services to transgenders is prohibited. No individual can be discriminated for one’s identity. Any form of biased treatment in the field of education, employment or healthcare is prohibited. A transgender should have the right to move, reside, rent, own or occupy property. Opportunities to hold public or private office shouldn’t be curtailed for the reason of one’s identity.

Ø Employment, education, healthcare and government welfare measures: Originally, this bill mandated establishments with more than 100 employers to designate a complaint officer to look into problems faced by transgender persons. Essential features of this bill include instituting and providing recreational activities without discrimination, providing health facilities including HIV surveillance centres and sex reassignment surgeries, providing medical insurance schemes, ensuring inclusion and participation of transgenders, formulating steps for their rehabilitation and training.

Ø Certification: For obtaining a certificate of identity, a transgender can apply to the District Magistrate who after recommendations of a District Screening Committee can give a certificate of identity. The Committee will comprise: (i) the Chief Medical Officer; (ii) District Social Welfare Officer; (iii) a psychologist or psychiatrist; (iv) a representative of the transgender community; and (v) an officer of the relevant government.

Ø Penalising Provision: Offences of (i) begging, forced or bonded labour (excluding compulsory government service for public purposes); (ii) denial of use of a public place; (iii) denial of residence in household, village, etc.; (iv) physical, sexual, verbal, emotional and economic abuse will attract imprisonment between six months and two years, and a fine.

Ø Composition of NCT: A National Council for transgender persons has been envisaged by this bill. This commission will act as the umbrella body of transgender community. It would comprise Union Ministers, representatives from different ministries and government bodies, members from the transgender community and NGOs.

Critical Analysis of the Bill

The Standing Committee on Social Justice and Empowerment published a report on the provisions of the bill. Multiple issues were identified by the committee.

Ø Definition of Transgenders: The bill is silent on the fact as to whether ‘male’ and ‘female’ refer to biological sex or psychological sense of gender. The latter depends on the way an individual sees oneself. There are no definitions provided to terms like ‘trans-men’, ‘trans-women’, persons with ‘intersex variations’ and ‘gender-queers’ in the bill.

Ø Certification: In this process, a transgender person is given a certificate of identity. This identity is of a ‘transgender’. However, Supreme court had recognized the right of self-identification through which transgenders are empowered to determine their self-identified gender as a man, woman or a third gender.

Ø Status under existing statutes: The bill recognizes transgender as ‘a third gender’. But, the bill does not elucidate on the application of laws to these people. On one hand, the bill prescribes a maximum punishment of two years for sexual abuse of transgenders and on the other, IPC prescribes a maximum punishment of life imprisonment for sexual offences against women.

Ø Other Issues: In cases where a transgender, originally possessing a certificate of identification, undergoes a surgery to change his or her gender may wish to re-apply. However, one may feel reluctant to appear before the district screening committee for physical examination.

Ø Other Recommendations: Standing Committee recommended for removing the cap of minimum 100 employees (required for designating a complaint officer). All establishments should have complaint officers with prescribed duties and responsibilities. The committee recommended granting reservations to transgenders under the category of socially and educationally backward classes and also, giving legal recognition to marriage and partnership rights of transgender persons.

Modifications by the current government

Recently, the government made 27 changes to the bill. These include modification of the definition of transgender (as recommended by the committee) and removal of the requirement of a minimum number of employees for an establishment to appoint a complaint officer. A transgender person, originally holding a certificate, may not go to the district screening committee for filing an application once again. Obtaining a certificate from Chief Medical Officer, and subsequent approval from the District Magistrate would satisfy. 

However, it is important to note that government did not indulge in the matter of providing recognition to marriage and partnership rights of transgenders and, ignored their inclusion under the category of socially and educationally backward classes. On the apprehension of facing reluctance from the public, government found it safer to stay silent on these matters.

Conclusion

Application of the provisions mentioned in this bill are wide ranging. It would be important to see how these provisions work in the practical life. This bill, in particular, is of great significance to the transgenders. Recognition of their rights is one of the most contentious topics. This is a small step towards a state where there is complete recognition of transgenders’ rights. With the progress of society, the government should strive hard to make instrumental changes in lives of these people. 

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New Delhi, Delhi, India

Call us : 9811336533

E-mail : bhumesh.verma@corpcommlegal.com

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