The Office of Principal Scientific Advisor to the Government of India published the Draft National Deep Tech Startup Policy (NDTSP) for public recommendations. According to Startup India’s database, as of May 2023, more than 10,000 startups in India can be classified within the deep tech space and it is imperative to address the complex problems in the ecosystem.

Deep tech Definition

Deep tech refers to technologies which are based on pioneering scientific breakthroughs, which help providing solutions to complex problems. Deep tech conceptually includes the segment of Artificial Intelligence, Big data and analytics, Robotics, Internet of Things, Blockchain, etc., however, it is seldom difficult to make that identification.

The NDTSP recognizes that in order to understand the issues in the ecosystem, it is important to focus on identifying what qualifies as ‘deep tech’. While doing so may be challenging, the NDTSP aims to establish a framework of a working group that would be responsible in identifying the techno-commercially viable startups, which would further enable the creation of a definitive criterion for determining whether a startup can be qualified as ‘deep tech’.

Objective of the NDTSP

The NDTSP seeks to address the needs, complex challenges and strengthen the deep tech startup ecosystem by complimenting the current Start-up India policies and initiatives. The NDTSP aims to thematically prioritize the areas that require intervention and propose policy level changes in order to create a conducive ecosystem for the deep tech startups in the following manner:

Nurturing Research, Development & Innovation

The NDTSP aims to bolster research, development and innovation by incentivizing researchers, facilitate seamless dissemination of knowledge and set up platforms for protection and commercialization of IP. The primary priority of the policy is to increase gross expenditure on research and development by encouraging public and private investment through patient capital.

Strengthening Intellectual Property Regime

The NDTSP recognizes that the deep tech ecosystem lacks specialized support in obtaining patents required for such cutting-edge technology. In order to streamline the process of obtaining IP registrations, the NDTSP focuses on building framework for obtaining and managing the IP specifically in the deep tech space, capacity building for patent landscaping, monetary incentive for developing technologies with the government and other amendments in the current IPR Policy, 2016.

Facilitating Access to Funding

The NDTSP aims to enhance the already existing policies and programs of the government in order to tailor them for the requirements of the deep tech space by various initiatives such as setting up a centralized window to capture the lifecycle of government grant payments, assessment of the current CSR laws in order to facilitate CSR funding into the deep tech sector, building a dedicated deep tech guidance fund with longer tenure to match the gestation period of the deep tech startups, to mobilise the government, private and foreign funding in the ecosystem, reducing the compliance burden and onerous taxation in order to curb the relocation of startups to other countries with better taxation regimes, among others.

Enabling Infrastructure Access and Resource Sharing

The NDTSP recognizes the high cost required for the primary R&D in the frontier technology space and hence, it endeavours to provide access to shared infrastructure to deep tech startups at nominal fees. The NDTSP also aims to build other resource sharing mechanisms for dissemination of data to such startups, as well as dissemination of data expertise.

Creating Conducive Regulations, Standards and Certifications

The NDTSP encourages establishment of mechanisms such as regulatory sandboxes that would help startups, end-users, industry, and regulatory experts to test the technology in a controlled environment while gathering evidence on functionality and potential risks of the technology. The NDTSP also focuses on providing subsidies and exemption in certification and accreditation costs for deep tech startups. This enables experimentation of frontier technology to comply with existing regulatory frameworks.

Attracting Human Resource & Initiate Capacity Building

The NDTSP places great impetus on capacity building vis-à-vis encourages establishment of knowledge dissemination mechanisms in different segments of frontier technology, creation of accessibility to the educational resources and building inclusive framework for encouraging involvement of women and people from tier II and tier III cities in augmenting the deep tech ecosystem.

Promoting Procurement & Adoption

The NDTSP advocates for public procurement as a market for deep tech startups and aims to enhance the current programs and initiatives by implementing targeted interventions. The NDTSP urges the government to take a higher risk on such deep tech startups and enable public procurement to be the first market for such startups.

Enhancing Policy & Program Interlinkages

While many policies to encourage the deep tech segment are already established, the NDTSP encourages enhancing the policies and creating interlinkages in already existing initiatives in order to create a larger impact.

Sustenance of Deep Tech Startups

Lastly, considering the gestation period of deep tech startups, the policy aims to set mechanisms and provide a roadmap to the startups engaged in building frontier technology to ensure sustainable growth by implementation of funding sensitization programs, facilitation of meaningful partnerships, among many other initiatives.

While the initiative of formulating a policy for the deep tech ecosystem is meritorious, it would be interesting to witness how the policy shapes up. Considering the nascent stage of the deep tech ecosystem in India and the multitudes of benefits that the deep tech actually offers, it is pertinent to encourage experimentation and high-risk investments in this ecosystem.

The Draft National Deep Tech Startup Policy is open for public recommendation until September 15, 2023.

Meaning

A fast-track merger is a streamlined process for combining two or more companies. It is typically designed to expedite the merger process, reduce administrative burdens, and facilitate efficient integration of the merging entities. It involves simplifying certain procedural steps and regulatory approvals, allowing the merger to be completed quickly.

Eligibility Criteria

A scheme of merger or amalgamation under section 233 of the Companies Act, 2013 may be entered into between any of the following classes of companies, namely:-

1. A holding company and its wholly-owned subsidiary company or such other class or classes of companies;
2. Two or more start-up companies; or
3. One or more start-up companies with one or more small companies*.

*Small Company means a company  whose  paid up capital is maximum Rs 4 crore and turnover is maximum Rs 40 crore

Highlights of Recent Amendment

The Ministry of Corporate Affairs (“MCA”) made amendments to Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, on 15th May, 2023 which states that the Central Government (CG) now has a specific timeframe to approve merger and amalgamation schemes, addressing the previous absence of a defined time frame for approval from the Registrar of Companies (“ROC”) or Official Liquidator (“OL”).

The purpose of these amendments is to streamline and expedite the merger and amalgamation process specifically for start-up companies and small companies under section 233 of the Companies Act, 2013.

Step Plan for a Fast-track Merger

Amendments are as follows

Note: The Scheme in each of the aforementioned situations shall be approved or deemed to be approved only if the same is in the public interest or in the interest of the creditors

Pre-requisites for incorporation

Incorporation process

Step 1 – Obtain DSC of directors & shareholders

Approx TAT: 2 Days Key documents/information required to be filed: Aadhar/PAN card, contact no. & email address and photo of individual

Step 2 – File for name application

Approx TAT: 3 Days Form: Spice+ Part-A Key documents/information required to be filed:

a. 2 proposed names of company b. NIC code along with 2-3 sentences about proposed business of company

Step 3 – File incorporation documents

Approx TAT: 1 Days Form: Spice+ Part-B Key documents/information required to be filed:

A. Shareholder and director details + KYC proofs

• KYC documents of foreign director and shareholder need to be apostilled and notarized in home country

B. Company details – Share capital (authorized and paid up), registered office address, email address and contact no.

Note: TAT is subject to MCA website

• On approval of spice forms, company incorporation is complete
• Certificate of incorporation, PAN, and TAN are issued to the company
• Company can open bank account

Post – incorporation process

STEP 1 – Post incorporation filings

A. FORM ADT 1 Approx TAT: 2 Days Key documents and information required to be filed:

– Auditor details – Name of auditor/auditor’s firm along with partner’s name, PAN, Membership no., registered address, email address, written consent & certificate stating he/she is not disqualified for appointment

– Company’s board resolution appointing such auditor B. FORM INC 20A Approx TAT: 2 Days Key documents/information required to be file: Bank statement of company showing inward receipt of subscription money from subscribers

• Company can issue share certificates to its shareholders

STEP 2 – RBI filing in case of foreign investor

Form: FC-GPR Approx TAT: 2 Days* (*2 days from receipt of FIRC and KYC from AD bank) Key documents/information required to be filed: FIRC and KYC for the fund transfer in foreign exchange entity master registration and business user registration to be obtained on FIRMS portal

Obtain initial registrations:

• Shops & establishment registration
• Profession tax registration
• GST registration
• Udyog Aadhar/MSME registration
• Startup India registration
• Angel tax exemption

For further details on licenses and registrations, refer to the document attached here.

Introduction

The Constitution of India explicitly prohibits discrimination based on sex, race, religion, or on any other ground, but it has taken some time for this protection to be extended to LGBTQ+ individuals. The landmark judgment in NALSA v. Union of India case in 2014 marked a progressive interpretation by the Supreme Court, which recognized that discrimination based on sexual orientation and gender identity falls within the ambit of “discrimination on the grounds of sex.” The court emphasized that such discrimination violates the fundamental right to equality enshrined in the Constitution.

In a subsequent case, Navtej Singh Johar v. Union of India, the Supreme Court took one step forward by acknowledging that the freedom to choose one’s sexual orientation and express one’s gender identity, including through dress, speech, and mannerisms, is at the core of an individual’s identity.

Although there is an absence of standalone anti-discrimination legislations in India, certain laws such as the Rights of Persons with Disabilities Act, 2016, the Equal Remuneration Act, 1976 (along with the Code on Wages, 2019), the Human Immunodeficiency Virus and Acquired Immune Deficiency Syndrome (Prevention and Control) Act, 2017, and the Transgender Persons (Protection of Rights) Act, 2019, do contain provisions addressing discrimination against individuals falling under the ambit of the aforementioned laws.

A major drawback of the Equal Remuneration Act, 1976 is that while it encourages pay parity at workplaces, however its scope is restricted to merely two genders, i.e., men and women thereby alienating an individual with a different sexual orientation from obtaining the benefits under this legislation.

This piece highlights the various workplace policies in India and the need to make them more inclusive for the disabled persons and those belonging to LGBTQ+ communities.

Equal Opportunity Policy under Rights of Persons with Disabilities Act, 2016

The Rights of Persons with Disabilities Act (“Act”) requires all establishments to have an equal opportunity policy (EOP) specifically for individuals with disabilities. This policy must be made publicly available, preferably on the establishment’s website or in conspicuous locations within the premises. The EOP should outline the facilities and services that will be provided to enable individuals with disabilities to fulfill their responsibilities effectively in the establishment.

Furthermore, if the organization employs 20 or more individuals, the EOP must include the following details:

• A comprehensive list of positions within the establishment that are deemed suitable for individuals with disabilities;
• The procedure for selecting individuals with disabilities for different positions, as well as providing post-recruitment and pre-promotion training, prioritizing them in transfers and job assignments, granting special leave, allocating residential accommodation if available, and offering other necessary facilities.
• Provisions for assistive devices, ensuring barrier-free accessibility, and implementing other necessary measures to accommodate individuals with disabilities.
• Information about the designated liaison officer. It is mandatory for every establishment with 20 or more employees to appoint a liaison officer responsible for overseeing the recruitment of individuals with disabilities and ensuring the provision of necessary facilities and amenities.
• A copy of the EOP must be registered with the relevant authority (whether a Chief Commissioner or State Commissioner, as the case may be) specified by the law.

Can POSH Policy be Gender Neutral?

The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (“POSH Act”) is an Indian legislation designed to address workplace sexual harassment and ensure a safe working environment for women. Although the law primarily aims to protect women due to the widespread gender-based discrimination they face, it does not exclude or expressly/impliedly prohibit inclusion of men or individuals of other gender identities from receiving protection. It is important to recognize and address the experiences of all individuals who may encounter sexual harassment, regardless of their gender identity.

It is important to note that in the POSH Act, there is no bar on gender for the respondent, i.e., although the victim can only be a woman, but there is no specific gender mentioned for the respondent. Therefore, the term “respondent” encompasses all genders.

During the legislative process, the idea of enacting a gender-neutral law was discussed. However, this discussion primarily centered around men’s rights groups advocating for equal treatment and was framed as a debate between men and women. In response to this, the Parliamentary Standing Committee in 2011 proposed that the law should remain specific to one gender, citing the historical disadvantages, discrimination, abuse, and harassment faced by women. The committee based its recommendation on the belief that women are particularly vulnerable to workplace harassment, which hinders their ability to work. The primary objective of maintaining a gender-specific law was to increase female participation in the workforce and establish a robust mechanism to safeguard women’s employment rights.

In Anamika v Union of India, the Delhi High Court ruled that transgender individuals can utilize the protection under provisions related to sexual harassment, (which are commonly resorted to in cases of harassment by men against women), to file complaints. It is pertinent to note that in this case, although the aggrieved person was a transgender, however she identified herself as a woman and possessed a legally sanctioned identity document as evidence.

Provisions under Transgender Persons (Protection of Rights) Act, 2019

In 2014, the Supreme Court of India made a significant ruling in the case of National Legal Services Authority v. Union of India. This ruling played a crucial role in establishing the rights of transgender individuals in India. The court recognized the category of “transgender” as the “third gender” and introduced various measures to prevent discrimination against transgender individuals and protect their rights. The judgment also suggested that reservations should be made for transgender individuals in employment and educational institutions. Additionally, it affirmed the right of transgender individuals to identify their gender based on their self-perception, without the requirement of undergoing a sex reassignment surgery.

The Transgender Persons Act requires all establishments, including private employers, to adhere to certain regulations:

• Prohibition of discrimination: Ensure a safe working environment and prevent any form of discrimination against transgender individuals in all aspects of employment, such as recruitment, promotions, infrastructure adjustments, employment benefits, and related matters.
• Equal opportunity policy: Develop and publish an equal opportunity policy specifically for transgender persons. Display this policy on the company website, and if there is no website, post it at a conspicuous place within the premises.
• Infrastructural facilities: Provide necessary infrastructure adjustments, including unisex toilets, to cater to the needs of transgender employees. Take measures to ensure their safety and security, such as transportation arrangements and security guards. Additionally, ensure the availability of amenities like hygiene products for transgender employees.
• Confidentiality of identity of the transgender employees to be ensured at workplaces.
• Appointment of Complaint Officers: Establishments are obligated to assign a complaint officer who will handle any grievances concerning the infringement of the regulations stated in the Transgender Persons Act. The designated complaint officer is entrusted with the responsibility of investigating the complaints, and it is mandatory for the head of the establishment to act upon the report produced by the complaint officer within the specified timeframes.

Got a question? Call us on 9930156000

  References

Constitution of India, Article 14

Rights of Persons with Disabilities Act, 2016, Section 21

Rights of Persons with Disabilities Rules, 2017

Supriyo @ Supriya Chaktraborty & Anr. v. Union of India

For a presentation view, click here!

Factual Matrix

• The nature of the subject matter of the case at hand has been weighed and adjudicated upon around the world across various jurisdictions. In order to observe the case at hand more objectively and illuminate the grounds and discussions which have been placed before the Honourable Supreme Court thus far, we have laid out a summary of the facts of the case:

• The Petitioners identify themselves as gay men and are Indian citizens. Both petitioners, presently aged about 32 and 35 years respectively, have been in a committed relationship for almost a decade.

• On 17.08.2021, the Petitioners held a ceremony in the presence of their families, friends and colleagues.

• However, despite a decade long committed relationship, the Petitioners are unmarried in the eyes of law as the legal regime around recognition and solemnization of marriages excludes marriage between a same-sex couple.

• Despite the ceremony, the Petitioners realized that they are legally incapable of exercising the rights of married individuals and strangers in the eyes of the law, such as securing health insurance which would include their partner, nominating each other for life insurance, mutual funds, PPF, pension scheme, or any other financial instruments. Legally, they do not have the right to inheritance, property, to take medical or end-of-life decisions pertaining to each other.

• In light of the same, the Petitioners filed their PIL before the Hon’ble Supreme Court seeking recognition and solemnization of same-sex marriage.

Questions In Point

The Hon’ble Supreme Court is hearing the matter based involving the following issues:

• Recognition of Same-Sex Marriage: Whether same-sex marriage or non-heterosexual marriage can be recognized and solemnized under the Special Marriage Act, 1954?

• Constitutionality of the Special Marriage Act: Whether the Special Marriage Act, 1954 can be declared to be unconstitutional and violative of Articles 14, 15, 19 and 21 of the Constitution of India to the extent that it does not provide for solemnization of marriage between a same sex couple?

Recognition of same-sex marriage

Recognition of same-sex marriage

Constitutionality of the Special Marriage Act

Constitutionality of the Special Marriage Act

Observations by the Hon’ble Supreme Court

Observations by the Hon’ble Supreme Court

Key Takeaways, pending the Supreme Court’s judgment

• Public opinion on various LGBTQ+ rights in India has evolved over the years and verdicts passed by the Judiciary. The progress of laws relating to LGBTQ+ marriage in India has been a complex and evolving journey. While the decriminalization of homosexuality and the recognition of civil partnerships have marked significant milestones, marriage equality remains unrealized. However, the recognition of same-sex marriages has seen progress in certain states.

• The LGBTQIA+ community has averred that it needs an anti-discrimination law that gives them the freedom to forge fulfilling relationships and lives regardless of their gender identity or sexual orientation and places the responsibility for change on the state and society rather than the person. The assertion is that when individuals belonging to the LGBTQ community are granted their complete set of constitutional rights, it is imperative to acknowledge their right to marry the person (and not only a man or a woman) of their choosing.

• However, while there is growing acceptance and support for equality, there is continued opposition to same-sex marriages.

• The arguments made against the petition were on both technical grounds (the jurisdiction of the Supreme Court qua the Parliament to confer rights of a socio-legal status, and the non-joinder of the States for an issue on the concurrent list of the Constitution), and on the grounds of maintainability (considering the provisions of the Transgender Act which already prohibit discrimination, and on the impact on personal laws and their amendment).

• After a hearing that ran for 10 days, the Honourable Supreme Court reserved its verdict on the batch of petitions seeking legal recognition of same-sex marriages.

Overview

What are ECB?

External Commercial Borrowings (“ECB”) are commercial loans raised by eligible resident entities from recognized non- resident entities and should conform to parameters such as minimum maturity, permitted and non permitted end-uses, maximum all-in-cost ceiling, etc. Transactions on account of ECBs are governed by the provisions of Foreign Exchange Management Act, 1999 and the Master Direction – External Commercial Borrowings, Trade Credits and Structured Obligations (2018-19) issued by the RBI and as amended from time to time (“ECB Master Directions”)

External Commercial Borrowings (“ECB”) are commercial loans raised by eligible resident entities from recognized non- resident entities and should conform to parameters such as minimum maturity, permitted and non permitted end-uses, maximum all-in-cost ceiling, etc. Transactions on account of ECBs are governed by the provisions of Foreign Exchange Management Act, 1999 and the Master Direction – External Commercial Borrowings, Trade Credits and Structured Obligations (2018-19) issued by the RBI and as amended from time to time (“ECB Master Directions”)

RBI permitted Startups to raise ECB with the introduction of new guidelines vide its circular dated 16th January, 2019. Pursuant to the said guidelines, AD Category-I Banks are permitted to allow recognized Startups to raise ECB under the automatic route as per the prescribed framework

Recognized Lenders

•Lender/Investor, who is a resident of a Financial Action Task Force compliant country

•The recognized lenders do not include the following:

• Indian banks’ foreign branches or their Indian subsidiaries; and
• Overseas entity in which Indian entity has made overseas direct investment

Key Considerations

Notes : *   MAMP: Minimum Average Maturity Period *   All-in-cost: It includes rate of interest, other fees, expenses, charges, guarantee fees, Export Credit Agency charges, whether paid in foreign currency or INR but will not    include commitment fees and withholding tax payable in INR.

Other Provisions

Other provisions summarised in short

Process Flow

The Startup India initiative was announced by Hon’ble Prime Minister of India on 15th August, 2015. The Department for Promotion of Industry and Internal Trade (DPIIT), previously known as the Department of Industrial Policy and Promotion (DIPP), is the nodal agency for dealing with matters related to startups in India. To obtain the benefits of “startups” under the Startup India initiative, as outlined above, recognition from DPIIT is necessary. DPIIT is the monitoring authority for registering all Startups under the scheme.

1. One of the key issues that an entity, being a startup, faces is not having adequate knowledge about what qualifies as a “Startup” under the Department for Promotion of Industry and Internal Trade (“DPIIT”).  Due to lack of unawareness, many entities fail to avail the benefits applicable and attracted to them under the Startup India Action Plan prescribed vide notification No. G.S.R. 34 (E) dated January 16, 2019 issued by the Ministry of Commerce and Industry.

Under the DPIIT Scheme, an entity shall be considered as a startup:

●     Upto a period of ten years from the date of incorporation/ registration, if it is incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India.

●  Turnover of the entity for any of the financial years since incorporation/ registration has not exceeded INR 100 crore

●     Entity is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of “employment generation” or “wealth creation”.

Provided that an entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘Startup’

2. The other major concern is lack of information about the registration process, the documents required for making registrations, collating the information and documents and uploading the same on the portal. The company will need the Charter documents of the Company i.e. MOA and AOA, Certificate of Incorporation, Pitch deck of the Company, Link of the company website(optional), Intellectual Property Registration Certificates (if applicable), Proof of any funding received by the company (MCA records, capital structure of the company, bank statements etc), Aadhar card of the authorized signatory making application on behalf of the Company, Director details (DIN, PAN, Address, contact details), Company details (CIN, Address, authorized signatory details for the Company).

In order to help ease the process, here are a few things one needs to bear in mind while initiating the registration process.

3. Preliminary process for registration:

● The Company needs to make a profile on the Startup India Portal. The registered email id will then receive an OTP and once that is confirmed the profile can be operated using the login credentials entered for registration.

● The User will have to complete the profile by adding the company specific details i.e. name of the company, CIN, the industry that the company operates, area of operation, stage of development the startup is currently at (ideation, validation early traction, scaling) etc

● The User will have to provide company specific responses to the questions basis which, at the discretion of the DPIIT, the application will be accepted/rejected or asked for clarification in case of any deficiency.

Questions on the portal:

a. Details of the innovation product/service or improvement in any existing product/service the Startup aims to create/provide

b. What is the problem that the startup aims to solve

c. How does your startup propose to solve this problem

d. What is the uniqueness of the solution provided by the startup.

e. How does startup generate revenue. Etc.

The authorized signatory signing and making application on behalf of the Company needs to be authorized by the other director/s of the Company and the same needs to be authenticated by signing a Letter of Authorisation (in the format provided on the startup India portal).

Once the application is submitted, the department will, at its discretion, approve the application of the Company.

Currently in India there are 29 labour laws which needs to be followed by all the entities. To make it more streamlined and hassle free the Ministry of Labour is under the process of consolidating all the labour laws under 4 new labour law codes (“Labour Codes”)

•Code on Wages

•Occupational Safety, Health and Working Conditions Code

•Social Security Code

•Industrial Relations Code

These Labour Codes are yet to be notified.

In India, the labour laws can be divided into compliance under central laws and the specific state laws.

We have compiled a list of central laws and examples of specific state laws herein.

List of Central Labour Laws applicable to Start-ups

State Specific Labour Laws applicable to Start-ups

Types Of Applicable Legislations For Specific States:

•State-specific shops and establishment acts

•State-specific labour welfare acts

•State-specific professional tax acts

STATE OF MAHARASHTRA AND KARNATAKA COVERED HEREIN

State Specific Labour Laws applicable to Start-ups

A. For Maharashtra

Maharashtra Labour Laws applicable to Start-ups

B. For Karnataka

Karnataka Labour Laws applicable to Start-ups

1. Key Takeaways

The Ministry of Electronics and Information Technology (“MeiTY”), vide notification dated April 6, 2023 released the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023 (“Amended Rules”), whereby the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2021 were amended in order to provide for certain regulations with respect to online gaming industry. View complete Amended Rules

• The following new terms have been defined:

a) online game (Rule 2(1)(qa))

b) online gaming intermediary(Rule 2(1)(qb))

c) online gaming self-regulatory body(Rule 2(1)(qc))

d) online real money game (Rule 2(1)(qd))

e) permissible online game (Rule 2(1)(qe))

f) permissible online real money game (Rule 2(1)(qf))

• Online self-regulatory body (SRO) shall verify an online real money game as a permissible online real money game. Main criteria would be to satisfy that (Rule 4A (3)):

(a) the online game doesn’t involve wagering on any outcome

(b) the users are at least 18 years of age

• Obligations on online gaming intermediaries to ensure compliance under IT act and also to not show, distribute or host any data that can cause harm to the users.

• Obligations on permissible online real money game providers:

(a) displaying a visible mark verification by such online self-regulatory body on such games

(b) informing users about withdrawal or refund of deposit policies

(c) the manner in which the determination of distribution of winnings, fees and other charges is done

2. New Concepts Introduced

Online games (Rule 2(1)(qa)) – A game that is offered on the Internet and is accessible by a user through a computer resource or an intermediary.

Online real money game (Rule 2(1)(qb)) – Online games where users make deposits in cash or kind with the expectation of earning winnings on that deposit. Examples of online real money games shall be: Dream 11, My Premier League and My11Circle.

Permissible online real money game (Rule 2(1)(qc)) – Online real money game verified by an online gaming self-regulatory body.

Permissible online games (Rule 2(1)(qd)) – (a) Permissible online real money game; or (b) any other online game that is not an online real money game.

Online self governing Body (Rule 2(1)(qe)) – MeitY may designate as many online gaming self-regulatory bodies as it may consider necessary for the purposes of verifying an online real money game as a permissible online real money game.

Online gaming intermediary (Rule 2(1)(qf)) – Any intermediary that enables the users of its computer resource to access one or more online games.

3. Changes in the Gaming Ecosystem

Changes in the gaming ecosystem

4. Obligations of Online Gaming Intermediary

• Reasonable security practices and procedures as prescribed in the Information Technology (SPDI) Rules, 2011 (Rule 3(1)(i)).
• To retain information for a period of 180 days from cancellation or withdrawal of his registration in case information is collected from user for registration (Rule 3(1)(g)).
• To not deploy / install / modify technical configuration of computer resource or become party to any act that may change operations such computer resource thereby, circumventing any law (Rule 3(1)(g)).
• To publish the rules and regulations, privacy policy and user agreement on its website or mobile based application (Rule 3(1)(a)) :

a) To inform its users of its rules and regulations, privacy policy or user agreement (or any changes) at least once in a year (Rule 3(1)(f))

(Online real money game intermediary shall inform its users of such changes as soon as possible, not later than 24 hours after such change is effected)*

(b) To not display, upload, publish or share any information that (Rule 3 (1) (b) of Amended Rules)–

• related to online games that causes a user harm

• is not verified as a permissible online game

• is in the nature of advertisement of an online game that is not permissible

• violates any law

(c) To include provisions to inform the user not to host, display, upload or share any information that belongs to another person, is defamatory, obscene, pornographic, pedophiliac, invasive of another‘s privacy, including bodily privacy, racially or ethnically objectionable, relating or encouraging money laundering or gambling, is harmful to child, infringes any patent, trademark, copyright or other proprietary rights, violates any law for the time being in force; any deceiving or misleading information, impersonates another person; threatens the unity, integrity, defense, security or sovereignty of India, contains software virus or any other computer code (Rule 3(1)(b)).

5.Online Self Regulatory Body

Criteria to apply (Rule 4(A)) –

• Should be a company
• Membership is representative of gaming industry
• Members are offering & promoting online games in a responsible manner
• Board of directors –individuals with special knowledge or practical experience suitable for the performance of functions of self-regulatory body
• the MOA and AOA of such entity includes provisions regarding grievance redressals, framework for disclosure and accountability of the members of such body, etc.

Responsibilities (Rule 4(A)) –

• to designate an online real money game (ORMG) as permissible
• to prominently publish a framework for verifying an ORMG on its portal
• to publish and maintain an updated list of all permissible ORMG verified by it
• to ensure that ORMG so verified by it shall display a demonstrable and visible mark of such verification stating that ORMG is verified by the body as permissible
• publish framework for redressal of grievances and the contact details of the Grievance Officer on its portal. An applicant aggrieved by decision of such body with respect to verification may make a complaint which is acknowledged by the Grievance Officer within 24 hours and resolved within 15 days from the date of its receipt.

6. Conclusion

The new rules create an umbrella framework for the online gaming industry. While the distinction of game skill/ game of chance has not been dealt with in these rules, it lays down the basic stepping stone to crystallize the online gaming industry’s challenges and provides clarity on various concepts that were hitherto only industry parlance.

Liquidation is the process of closing a business and distributing its assets among stakeholders, creditors, and rightful claimants. In the event of a corporate liquidation, preferred shareholders recover their investments first, prior to all other shareholders, in the process known as Liquidation Preference. Liquidation preference is a form of protection for investors as it guarantees them a certain minimum payment, regardless of the company’s valuation at exit. Investors can choose between non-participating and participating liquidation preference.

Non-participating liquidation preference allows investors to receive predetermined returns without any share in the surplus. In contrast, participating liquidation preference allows investors to receive predetermined returns as well as a share of the surplus proceeds based on their shareholding.

Standard Seniority Liquidation Preference is followed by most early-stage companies, where liquidation preferences are honored in reverse order from the latest investment round to the earliest. Pari-Passu Seniority gives all preferred investors equal seniority status, meaning that all investors would share in at least some part of the proceeds. Tiered Seniority is a hybrid between standard and pari-passu seniority, with investors grouped into distinct seniority levels.

Investors ask for liquidation preference to protect themselves, particularly if a company fails to meet expectations and sells or liquidates at a lower valuation than anticipated. Liquidation preferences are expressed as a multiple of the initial investment and are most commonly set at 1X. In the event of liquidation, investors receive the full amount of their investment before any other equity holders or their share in the liquidation proceeds on a pro-rata basis, whichever is more. Understanding liquidation preference is important for founders to negotiate well with potential investors.

What is a Branch Office (“BO”)?

A BO is a suitable business model for foreign companies looking to establish a temporary presence in India. The BO serves as an extension of the head office business and carries on the same business and activity as that of its parent company. The foreign company can have any revenue from the Indian BO only from the activity allowed by the Reserve Bank of India (“RBI”). It has to meet all its expenses of Indian office through remittances from the head office or through the revenue generated from the Indian operation permitted by the RBI.

BO is suitable for a foreign company to test and understand the Indian market with a very strict control by the RBI, as it does allow the companies to do business but just to do the activity which are mentioned in the application of BO. The Master Direction on Establishment of Branch Office (BO)/ Liaison Office (LO)/ Project Office (PO) or any other place of business in India by foreign entities shall be relevant for setting up of the BO.

Permitted Activities

Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up BO in India and undertake the following activities in India;

i.         Export/import of goods.

ii.       Rendering professional or consultancy services (other than practice of legal profession in any matter).

iii.       Carrying out research work in which the parent company is engaged.

iv.       Promoting technical or financial collaborations between Indian companies and parent or any overseas group company.

v.        Representing the parent company in India and acting as buying/ selling agent in India.

vi.       Rendering services in information technology and development of software in India.

vii.      Rendering technical support to the products supplied by parent/group companies.

viii.    Representing a foreign airline/shipping company.

General Criteria

Applications from foreign companies (a body corporate incorporated outside India, including a firm or other association of individuals) for establishing BO in India shall be considered by the AD Category-I (“AD”) bank as per the guidelines given by RBI.

An application from a person resident outside India for opening of a BO in India shall require prior approval of Reserve Bank of India and shall be forwarded by the AD Category-I bank to the General Manager, Reserve Bank of India, Central Office Cell, Foreign Exchange Department, 6, Sansad Marg, New Delhi – 110 001 who shall process the applications in consultation with the Government of India, in the following cases:

a.    The applicant is a citizen of or is registered/incorporated in Pakistan;

b.  The applicant is a citizen of or is registered/incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and the application is for opening a BO in Jammu and Kashmir, North East region and Andaman and Nicobar Islands;

c.    The principal business of the applicant falls in the four sectors namely Defence, Telecom, Private Security and Information and Broadcasting. However, prior approval of RBI shall not be required in cases where Government approval or license/permission by the concerned Ministry/Regulator has already been granted.

d.    The applicant is a Non-Government Organisation (NGO), Non-Profit Organisation, Body/ Agency/ Department of a foreign government. However, if such entity is engaged, partly or wholly, in any of the activities covered under Foreign Contribution (Regulation) Act, 2010 (FCRA), they shall obtain a certificate of registration under the said Act and shall not seek permission under FEMA 22.

The non-resident entity applying for a BO in India should have a financially sound track record of a profit making track record during the immediately preceding five financial years in the home country and net worth of not less than USD 100,000 or its equivalent.

Net Worth [total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name called].

An applicant that is not financially sound and is a subsidiary of another company may submit a Letter of Comfort (“LOC”) from its parent/ group company, subject to the condition that the parent/ group company satisfies the prescribed criteria for net worth and profit.

Procedure for setting up a BO

i.       The application for establishing BO in India may be submitted by the non-resident entity in Form FNC to a designated AD Category – I bank (i.e. an AD Category – I bank identified by the applicant with whom they intend to pursue banking relations) along with the prescribed documents mentioned in the Form and the LOC, wherever applicable. The AD Category-I bank shall after exercising due diligence in respect of the applicant’s background, and satisfying itself as regards adherence to the eligibility criteria for establishing BO, antecedents of the promoter, nature and location of activity of the applicant, sources of funds, etc., and compliance with the extant KYC norms grant approval to the foreign entity for establishing BO in India.

ii.         However, before issuing the approval letter to the applicant, the AD Category-I bank shall forward a copy of the Form FNC along with the details of the approval proposed to be granted by it to the General Manager, Reserve Bank of India, CO Cell, New Delhi, for allotment of Unique Identification Number (UIN) to each BO. After receipt of the UIN from RBI, the AD Category-I bank shall issue the approval letter to the non-resident entity for establishing BO in India.

iii.       An applicant that has received a permission for setting up of a BO shall inform the designated AD Category I bank as to the date on which the BO has been set up. The AD Category I bank in turn shall inform RBI accordingly. The approval granted by the AD Category I bank should include a proviso to the effect that in case the BO for which approval has been granted is not opened within six months from the date of the approval letter, the approval shall lapse.

iv.   All applications for establishing a BO in India by foreign banks and insurance companies will be directly received and examined by the Department of Banking Regulation (DBR), Reserve Bank of India, Central Office and the Insurance Regulatory and Development Authority (IRDA),

v.      There is a general permission to non-resident companies for establishing BO in the Special Economic Zones (SEZs) to undertake manufacturing and service activities subject to the conditions that:

o   such BOs are functioning in those sectors where 100% FDI is permitted;

o   such BOs comply with Chapter XXII of the Companies Act, 2013; and

o   such BOs function on a stand-alone basis.

vi.    A BO may approach any AD Category-I bank in India to open an account for its operations in India. Credits to the account should represent the funds received from Head Office through normal banking channels for meeting the expenses of the office and any legitimate receivables arising in the process of its business operations. Debits to this account shall be for the expenses incurred by the BO and towards remittance of profit/winding up proceeds.  Any foreign entity except an entity from Pakistan who has been awarded a contract for a project by the Government authority/Public Sector Undertakings or are permitted by the AD to operate in India may open a bank account without any prior approval of the Reserve Bank.

Annual Activity Certificate by BO

The Annual Activity Certificate (“AAC”) as at the end of March 31 each year along with the required documents needs to be submitted by the following:

a.          In case of a sole BO, by the BO concerned;

b.         In case of multiple BOs, a combined AAC in respect of all the offices in India by the nodal office of the BOs.

The BO needs to submit the AAC to the designated AD Category -I bank as well as Director General of Income Tax (International Taxation), New Delhi.

The designated AD Category – I bank shall scrutinize the AACs and ensure that the activities undertaken by the BO are being carried out in accordance with the terms and conditions of the approval given. In the event of any adverse findings reported by the auditor or noticed by the designated AD Category -I bank, the same should immediately be reported to the General Manager, Reserve Bank of India, CO Cell, New Delhi, along with the copy of the AAC and their comments thereon.

Registration with police authorities 

Applicants from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau or Pakistan desirous of opening BO in India shall have to register with the state police authorities. Copy of approval letter for ‘persons’ from these countries shall be marked by the AD Category-I bank to the Ministry of Home Affairs, Internal Security Division-I, Government of India, New Delhi for necessary action and record.

Remittance of profit/surplus 

BOs are permitted to remit outside India profit of the branch net of applicable Indian taxes, on production of the following documents to the satisfaction of the AD Category-I bank through whom the remittance is effected:

a.       A certified copy of the audited balance sheet and profit and loss account for the relevant year.

b.       A Chartered Accountant’s certificate certifying –

i. the manner of arriving at the remittable profit;

ii. that the entire remittable profit has been earned by undertaking the permitted activities; and

iii. that the profit does not include any profit on revaluation of the assets of the branch.

General Conditions

·           BO is allowed to open non-interest-bearing current accounts in India. Such Offices are required to approach their AD for opening the accounts.

·           A BO is required to register with the Registrar of Companies (ROCs) once it establishes a place of business in India under the Companies Act, 2013.

·           The BOs shall obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up of their office in India and report the same in the AACs.

·           Each BO is required to transact through one designated AD Category-I bank only who shall be responsible for the due diligence and KYC norms of the BO. BO, present in multiple locations, are required to transact through their designated AD.

·           Acquisition of property by BO shall be governed by the guidelines issued under Foreign Exchange Management (Acquisition and transfer of immovable property outside India) Regulations.

·           AD Category-I bank can allow term deposit account for a period not exceeding 6 months in favour of a BO provided the bank is satisfied that the term deposit is out of temporary surplus funds and the BO furnishes an undertaking that the maturity proceeds of the term deposit will be utilised for their business in India within 3 months of maturity.

Steps in brief There are two routes available under the FEMA 1999 for setting up the BO in India:

• Reserve Bank Approval Route
• Automatic Route

i.           Designate a Bank and branch where the account will be opened (post approval of RBI) who will be an Authorized Dealer Bank (AD Bank) for BO in India.

ii.         File an application for BO, with all necessary documents to the RBI through the AD Bank.

iii.       Obtain approval of RBI.

iv.        Apply to ROC to obtain a “Certificate of Establishment of Place of Business in India” within 30 days of approval by RBI.

v.         Apply for Permanent Account Number with Income Tax Authority.

vi.        Apply for TAN with Income Tax Authority.

vii.      Open account with Bank and to obtain bank account number.

viii.    Registration with police authorities if required.

FAQ’s

Q: Who can open a branch office in India?

A: Any foreign company can open a branch office in India provided it complies with Reserve Bank of India (RBI) guidelines.

Q: What is a branch office in India?

A: A branch office is an extension of a foreign company that carries out similar business activities as the parent company.

Q: What is branch office and examples?

A: The branch office is the extension of a parent company located outside India operating in India with similar business activities as that of the parent company. Examples of foreign companies having branch offices in India include Google India Private Limited, Microsoft India Private Limited, etc.

Q: How do you start a branch office?

A: To start a branch office, foreign companies need to apply to the RBI through an Authorized Dealer bank in Form FNC along with the required documents as mentioned in the RBI guidelines.

Q: What is the legal status of branch office?

A: The branch office does not have a separate legal status and is an extension of the foreign entity headquartered outside India.

Q: What is a branch office under Companies Act 2013?

A: Under Companies Act 2013, a branch office is considered as an establishment of a foreign company in India, and it requires registration with the Registrar of Companies (ROC).

Q: Is branch office a separate legal entity?

A: No, a branch office does not have a separate legal entity.

Q: How to open a branch office in another state?

A: The procedure for opening a branch in another state in India is the same as opening a branch office in India, and foreign companies must comply with RBI guidelines.

Q: Can a foreign company open a branch office in India?

A: Yes, foreign companies can open a branch office in India after getting permission from the RBI.

Q: What is the difference between head office and branch office?

A: The head office is the main administrative center and the place where major decisions are made, while a branch office is an extension of a head office located in another location, carrying out similar business activities as the parent company.

Q: What to consider when opening a new branch?

A: Before opening a new branch, companies should consider factors such as market demand, the location of the branch, competition, availability of talent, legal and regulatory compliance, and financial feasibility, among other things.

An indemnity clause is a contractual transfer of risk between two parties that prevent or compensate for financial loss resulting from a specific event in a particular agreement. It is a legal exemption that protects one party for any course of action resulting in losses or liabilities.

Indemnity clauses find their basis in common law and can be classified as a subclass of compensation and contract of indemnity as a category of contracts. A contract of indemnity is a promise that one party will protect the other party from financial loss.

Section 124 of the Indian Contract Act, 1872, defines a contract of indemnity as “a contract by which one party promises to save the other from loss caused by the conduct of the promisor himself or by the conduct of any other person.” This clause is required to allocate the risk or expense from one party to another and to avoid any future discrepancies.

To ensure that the indemnification clause is ideal, the clause must be capped to a certain amount or limit in an agreement, which would otherwise make the indemnifier onerous for circumstances that would otherwise not form part of any indemnity. An important aspect to be kept in mind while drafting an indemnity clause is to avoid any ambiguity in the clause. An indemnity clause must be based on the type of contract one is dealing under.

The amount of indemnity granted when entering into a contract must be limited by the indemnifier. To reduce the loss, an unambiguous requirement must be made, and the duration of time in which a claim may be made must be restricted.

In conclusion, indemnification clauses play an important role in protecting one party from financial loss. Ambiguities in drafting an indemnification clause should be avoided to prevent future discrepancies and legal disputes. Furthermore, it is essential to limit the amount of indemnity granted to reduce the loss, and the duration of time in which a claim may be made must be restricted. By following these guidelines, a contract can be well-structured, and the parties to the contract can benefit from the mutual agreement.

FAQs about Indemnity Clauses

Q. What is an indemnity clause in a contract? 

An indemnity clause is a contractual provision that establishes the transfer of risk between two parties. It is designed to prevent or compensate for any losses resulting from a specific event in a particular agreement.

Q. What is the legal framework for indemnification contracts? 

The legal framework for indemnification contracts is established under the Indian Contract Act, 1872. Section 124 of the Act defines a contract of indemnity and provides a basis for the promisor to promise indemnification against loss or damage to the promisee.

Q. What are the types of losses that can be claimed under an indemnity clause?

Consequential, remote, indirect, and third-party losses can be claimed under an indemnity clause unless specifically excluded in the clause.

Q. How to draft an effective indemnification clause in a contract? 

An effective indemnification clause should be unambiguous, clearly defined, and realistic. The amount of indemnity granted when entering into a contract should be limited, and the duration of time in which a claim may be made must be restricted.

Q. What is the significance of the indemnification clause for a contract? 

An indemnification clause is significant because it can allocate the risk or expense from one party to another, prevent future discrepancies and legal disputes, and protect one party from financial loss. It can clearly define the mutual agreement between the parties and ensure that their interests are protected.

Notification Coverage

The Ministry of Finance has notified an amendment in Prevention of Money-Laundering Act, 2002 (“Act”) by way of Notification No. S.O. 1072(E) dated 07.03.2023 (“Notification”).  The Act has been amended to include cryptocurrency or virtual digital assets (“VDA”) transactions within its scope. This means that certain transactions are now subject to the provisions of the Act.

The amendment shall be applicable to the following entities:

(a) exchange between virtual digital assets and fiat currencies;

(b) exchange between one or more forms of virtual digital assets;

(c) transfer of virtual digital assets;

(d) safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets; and

(e) participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset.

If a company falls under the above mentioned categories they are considered to be Virtual Assets Service Providers (“VASPs”) and are required to follow various reporting requirements.

Reporting Requirements

1. Verifying Identity: Under section 11A of the Act, every reporting entity shall verify the identity of its clients and the beneficial owner, by:
   • authentication under section 2(c) of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016, if the reporting entity is a banking company;
   • offline verification under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016;
   • use of passport issued under section 4 of the Passports Act, 1967; and
   • use of any other officially valid document or modes of identification as may be notified by the Central Government on this behalf.
2. Records Maintenance: Under section 12 of the Act,
   • Every reporting entity shall:
     • maintain a record of all transactions as to enable it to reconstruct individual transactions (for 5 years from the date of the transaction);
     • furnish to the Director, information relating to such transactions, whether attempted or executed, the nature and value of which may be prescribed; and
     • (iii) maintain record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients (for 5 years after the business relationship between a client and the reporting entity has ended).
   • Every information maintained, furnished or verified, shall be kept confidential.

Conclusion

It can be therefore concluded that, the activities of any company who is just a marketplace or an aggregator of VDAs would not fall within the purview of this amendment. However, if a company engages in activities related to the buying and selling of VDAs, such as processing transactions, offering VDAs for sale, making purchase offers, or providing financial services related to them, it will be considered a reporting entity. In our view, advisory services or other non-financial services which do not include any actual facilitation of payments/ sale would not be covered under the ambit of the amendment. However, if a reporting entity engages in such activities, it must comply with the above mentioned requirements.

Starting a business involves risks, and it is important to take precautionary steps to safeguard your investment. One of these steps includes drafting a Co-Founders Agreement, especially if your startup is co-founded by more than one person. This agreement lays down the terms and conditions between co-founders and helps navigate their day-to-day operations, resolve any disputes that may arise, and clarify profit-sharing and intellectual property rights. Here are some key clauses that should be part of your Co-Founders Agreement to ensure smooth operation of your business:

1. Capital Contribution: Clearly state the contribution that each co-founder will make to the company, the percentage of total capital held by each of them, and the form and manner of the contribution.
2. Roles and Responsibilities: Describe each co-founder’s roles and responsibilities in the company and assign specific decision-making responsibilities.
3. Transfer of Shares: Clearly state any restrictions on the transferability of shares held by the founders, including lock-in of shares, vesting of shares, and right of first refusal.
4. Non-Compete: Incorporate a non-compete clause to protect the business and the interests of other founders. The clause should clearly state that founders are not eligible to engage in activities that conflict with the objectives of the business while they are part of the company and for a certain number of years post-exit.
5. Confidentiality: Incorporate a confidentiality clause to protect the business’s know-how, client information, pricing, and future strategies, among other things.
6. Intellectual Property: Ensure that all intellectual property developed during the course of the business is owned by the business and not by any individual co-founder.
7. Exit Process: Clearly state the manner to be adopted and the exit mechanism in case any co-founder is removed from the company or wants to exit voluntarily.
8. Dispute Resolution: Provide a clear mechanism for the resolution of deadlocks or conflicts that may arise between the co-founders, such as arbitration.
9. Compensation: Determine the compensation to be paid to each co-founder and state the profit-sharing mechanism.
10. Voting Matters and Governance: Address any voting matters and governance issues to ensure smoother decision-making in the long run.

Incorporating these clauses into your Co-Founders Agreement can help build a long-lasting and successful relationship between co-founders and lead to the ultimate success of your business.

Strategic investments are made by parties who are not looking for an immediate financial return but instead want to influence the company so they can reap future benefits. These investors are typically called “strategic investors.” They can be individuals, families, venture capitalists,  or other companies which can derive strategic value.

What they have in common is that they’re not after a quick buck; they’re interested in the company’s long-term success and are willing to invest time and resources to help it grow.

This investment model requires a well-thought-out strategy and a solid legal understanding by both parties. That said, here are five elementary things founders and investors must be mindful of during strategic investments.

1. Founder Veto Rights

As a founder, it’s crucial to retain the right to veto any significant decisions regarding the startup. This should include decisions such as major hiring and firing, altering the company’s vision, and changes in the corporate structure.

As hinted earlier, these investors only chip in for a say in the startup and not total control. This is where founder veto rights come into play. These policies allow the founder(s) to maintain ultimate control of the startup while still enjoying investments from the investor.

Having such policies in place before signing any agreement protects the founders’ vision for the company.

2. Any Business Arrangements Apart From Investments by the Investor

Apart from financial assistance, the investor and the startup can agree to other business arrangements. For example, many investors may offer more than just money to startups by bringing new expertise and connections. But what does this mean for founders?

Founders must first determine if these arrangements can benefit the startup or potentially damage it. A clause that clearly defines the agreement and the investor’s role (and capacity) can help startups avoid problems.

3. Tag-Along Rights in Case the Investor is Exiting

‘Tag-along rights’ refer to a contractual agreement between the investor and the startup, which states that if the major investor decides to exit the investment, the other shareholders can leave alongside the investor on similar terms.

This prevents them from being obliged to stay on in a company that may not be profitable anymore. Founders and investors need to negotiate this before entering a deal, as it protects the latter against any unwanted outcomes.

4. Additional Investment Requirement Protocols

It takes time and multiple funding rounds to get a startup on its feet. Thus, in addition to the initial investment, founders and investors should discuss any additional investments that the startup may require going forward.

This prepares both parties as it sets out each party’s obligation regarding further investment in the company upfront. Doing this eliminates any miscommunication or surprises later on and gives existing investors a say in ongoing growth decisions.

It also ensures that the existing investors have some say over any future dilution of their equity due to additional investments. This step is crucial to keep everyone on the same page and maintain lasting investor relationships.

5. If Buy-Out Conditions Need to Be Discussed

Strategic investors must factor in buy-out conditions when investing in a startup. This means discussing with the investor what happens if the startup is acquired by another company.

Founders also need to outline when and how to execute such a transaction. Most importantly, they must determine who will manage such a transaction and agree on specific triggers to meet before this process kicks off.

Further, these details must remain confidential and not be disclosed outside of the transaction. Preferably, seeking legal assistance to ensure that all details are legally binding while remaining fair for both parties is advisable.

These steps will ensure a smooth transition if a buy-out happens during the investment journey.

Wrapping Up

Taking strategic investment can be a boon for startups and VCs, but keeping a few things in mind is important.

Founders should focus on veto rights and consider any other business arrangement an investor offers in addition to the investment itself. They also need to lay down the terms and conditions for future additional investment needs. In the same vein, investors need their ‘tag-long rights’ to protect their bottom line if things go south and clear buy-out conditions if the startup lists for sale.

In a nutshell, strategic investments built on these five pillars will favor both parties and lead to long-lasting relationships.

On September 02, 2022, the Reserve Bank of India (RBI) issued guidelines on digital lending to protect the interests of borrowers and to bring transparency and accountability in the digital lending space. Further, on February 13, 2023, The Reserve Bank of India (RBI) published a set of frequently asked questions (FAQs) on digital lending, which provides guidelines and clarifications on various aspects of digital lending in India. The FAQs cover topics such as the regulatory framework for digital lending platforms, the rights and obligations of borrowers and lenders, data privacy and security, fair practices code, and grievance redressal mechanisms.

Some of the key points covered in the FAQs include that the REs may carry out a portion of the lending process physically. Further, it has been stated that only if a lending transaction qualifies under the definition of ‘Digital Lending’, will a service provider facilitating such lending be designated as LSP. It specifies that insurance charges shall be included in the computation of APR only for the insurance which is linked/integrated with loan products as these charges are intrinsic to the nature of such digital loans. It clarifies that while Payment Aggregators (PA) that do not handle funds flowing from the lender to the borrower are not subject to the Guidelines on Digital Lending, any PA that acts as a Loan Service Provider (LSP) must comply with the Digital Lending Guidelines. In cases of delinquent loans, recovery agents can collect cash from borrowers, and these transactions are exempted from the requirement of direct repayment of the loan in the RE’s bank account.  It provides clarity on the fact that confirms that repayment can be allowed from a corporate employer who deducts the EMI amount from the borrower’s salary, but it must be ensured that the repayment is directly from the bank account of the employer to the RE. It notes that exemptions from direct disbursal to the bank account of the borrower can be extended to co-lending arrangements between REs for non-PSL loans subject to the condition that no third party other than the REs in a co-lending transaction should have direct or indirect control over the flow of funds at any point of time.

The Guidelines on Digital Lending apply to all transactions meeting the definition of ‘Digital Lending’ and to digital loans offered over any digital platform that meets the definition of ‘Digital Lending Apps/ Platforms’ (DLAs). The penal interest/charges levied should be based on the outstanding amount of the loan, and the amount under default should act as the ceiling on which the penal charges can be levied. Any cheque bounce or mandate failure charges, which are levied on a per instance basis, need not be annualized but must be disclosed separately in the KFS under ‘Details about Contingent Charges.’

The FAQs also emphasize the importance of transparency and disclosure of terms and conditions, interest rates, and charges, and the need to obtain explicit consent from borrowers before sharing their data with third parties. Additionally, the FAQs guide responsible lending practices, such as assessing the borrower’s creditworthiness and ensuring that the loan amount and repayment terms are reasonable and aligned with the borrower’s income and expenses.

As of December 2022, 52 Indian firms, including startups, have laid off over 18,000 employees. The unicorns on this list include prominent startups like BYJU’S, Unacademy, MPL, Chargebee, Cars24, LEAD, Ola, OYO, Meesho, Innovaccer, Udaan, and Vedantu. Further, this list includes 15 EdTech startups, which collectively saw 7,868 employee layoffs.

Amidst the news of layoffs, Labour and Employment Minister Bhupender Yadav stated that retrenchment and layoffs will not be deemed legal if they are carried out outside the provisions of the Industrial Disputes Act of 1947.

What is the Industrial Disputes (ID) Act?

The Industrial Disputes Act, constituted on March 11, 1947, is legislation that governs industrial dispute resolution in India.

The Act aims to prevent illegal lockouts and strikes and offer relief to employees who are illegally laid off without following due process. It provides guidelines for various processes, such as conciliation, arbitration, and adjudication, with the aim of promoting mutually beneficial relations between employers and employees.

Relevance of the ID Act to Layoffs

Here’s a snapshot of the provisions of the Act:

• In the context of the ID act, a layoff is defined as a condition where the company has no option but to deny its employees further work opportunities due to circumstances that make it unable to continue operations. Some examples include a shortage of raw materials, a breakdown of machinery, or a natural calamity.
• Firms employing more than 100 persons are required to seek the nod of the appropriate government before conducting mass layoffs. However, if there is no response from the government for over 60 days, the permission will be deemed to have been granted.
• According to Yadav, the jurisdictional authority for mass layoffs in sectors such as EdTech, social media, information technology (IT), and related sectors resides with state governments.
• The ID Act has certain provisions under which layoffs are deemed legal. For instance, a worker is entitled to compensation equivalent to 50 percent of the total basic wages and dearness allowance for the layoff period, provided they have been in service for over a year.
• The ID Act also has provisions for the reemployment need of professionals. If a company aims to rehire people in the future, it must prioritize the rehiring of retrenched employees first.

What Companies Must Keep in Mind

Companies need to keep in mind the various laws that govern incidents such as retrenchment and mass layoffs. Besides having an in-depth understanding from a legal standpoint, they must also plan such pivotal events strategically.

The aim is to reduce the negative impact on employees while also keeping the business’ sustainability and profitability in mind. Completely circumventing the law can result in a loss of reputation, reduce employee branding, and lead to financial losses in the event of employee lawsuits.

What Employees Must Keep in Mind

It is important for employees to understand the terms and conditions of their employment contract. They must go through it in great detail.

If they feel they are being treated unfairly without adequate financial compensation, they can seek legal support or appeal to the consumer court to seek a fair outcome.

In Conclusion

In 2022, tech-enabled businesses have seen the most number of layoffs. Of these, EdTech leads with over 8000 layoffs across content, HR, sales, and tech teams. Around five EdTech companies have shut shop altogether.

The social media industry has also seen a large number of layoffs, with Twitter and Meta leading the way. As tech-enabled businesses continue to face new challenges, layoffs will continue to be a part of the cycle.

Companies should seek timely interventions to navigate the legal and financial hurdles of these times. By partnering with legal finance specialists such as  Treelife early on, companies can build resilience and emerge stronger. 

References:

https://inc42.com/features/indian-startup-layoffs-tracker

https://labour.gov.in/sites/default/files/THEINDUSTRIALDISPUTES_ACT1947_0.pdf

https://www.business-standard.com/article/economy-policy/layoffs-deemed-illegal-if-not-carried-as-per-industrial-disputes-act-yadav-122120800970_1.html

Introduction

You’re working on a lovely website for your company when the developer requests your Terms & Conditions (“T&C”) and Privacy Policy (“PP”) page. You’ve spent hours honing the messaging on your landing page, your bio, and other material. You haven’t even considered an uninteresting project like this. Isn’t that legal jargon at the bottom of websites? Is it even read by anyone? Do you really need a T&C and PP page for your website if you’re a small business? That’s an excellent question. The quick answer is no, technically, but you should. Read this article to know more about why your business should have a T & C and PP page.

If you collect or use any personal information from your clients, you must have a PP in place. For instance, email addresses, first and last names, and so on. The goal of this knowledge is to enlighten clients about your collection and use of personal information about them. A T&C understanding presents terms, conditions, prerequisites, and provisions associated with the use of your website or mobile/workplace application, for example, copyright security, account termination in cases of maltreatment, and so on.

Important Elements

In T&C:

1. Governing law: what nation and/or state law governs your company?
2. Users’ rights and responsibilities: the rules that govern how your website is used.
3. Confidentiality: a provision stating that information gathered via the relationship via the website is not to be divulged to any third parties unless expressly authorized.
4. Security: what types of security do you use on your website?
5. Copyright notice: All text pertaining to the whole content of the website is protected by copyright and other relevant intellectual property rights.
6. Refund policy: the company’s refund policy, if any.
7. Termination: a set of criteria specifying the terms of the agreement’s termination by both parties.
8. And a lot more

In PP:

1. Data Collection: Describe how data is gathered and processed.
2. Security: How is personal information safeguarded?
3. Personal Information: the sorts of personal information collected and processed by your website.
4. Cookies: an explanation of cookies and how they are used by your website
5. Data Protection Rights: the rights of data subjects
6. Contact information for your firm, as well as the Data Processing Officer and Data Controller, if relevant.
7. as well as others

Why are they needed?

1. Terms and Conditions

In contrast with PP, the T&C are not legally required under law. However, it is highly recommended to have one so that the business can anticipate misuses of their website or mobile application, as well as to limit your own danger as the proprietor of the internet business. Without this type of agreement in place, and without it being properly permitted, there is no way for the business to legally limit or restrict how someone may or cannot use their site or app. Copyright infringement issues might arise if clients use the business’ content without their permission or if there is abuse. It is recommended that any online business (even if it is just a simple website or a basic, mobile application) that allows or requires a client to enroll for a record have this agreement set up and present it to clients.

2. Privacy Policy

The Information Technology Act was amended in 2009 to provide basic privacy and data protection protections. In India, the privacy legislation currently compels companies and websites to use caution while collecting and handling sensitive personal data or information. A civil provision is now available that specifies damages for a business that fails to use “reasonable security methods and procedures” while managing “sensitive personal data or information,” resulting in unlawful loss or benefit to any individual. Hence it is legally mandated to have a PP for businesses whether small or large.

Small firms stand to suffer the most as a result of improper data practices. The business can manage data in accordance with local laws and internal procedures, but if a customer views it as mistreatment, the business may face liability or, at the very least, a costly and time-consuming legal battle to contest the allegation. A Privacy Policy defines the business’ principles for managing information and separates forbidden behaviors from permissible ones. Also, if a consumer authorizes the operations of the business by agreeing/consenting to your Privacy Policy, they are less likely to sue the business.

Conclusion

Irrespective of the size of your business, having T&C and PP helps increase transparency and the trust your customers have in you. It also helps save the business from future liability that might arise due to the use of the website, the contents of the website, the data collected and how the data is utilized.

WHAT IS A CELEBRITY ENDORSEMENT AGREEMENT?

A celebrity endorsement agreement is a legally binding agreement between a company owning a brand or a product under a brand name and a celebrity or influencer who acts as a brand ambassador, in which such company engages the brand ambassador to provide his services as an influencer of the consumers to promote the company’s product and services on various platforms and media depending on the targeted consumer base of the company. The brand ambassadors and the company have to work together to actively promote the brand before its potential customers or audience and such agreements formalize and define the relationship between the company’s brand and the brand ambassador engaged by such company. Celebrity endorsement agreements are used by the companies to appoint the brand ambassador to legalize their relationship in connection with the promotion of the brand’s products and services. Such agreements can be labelled interchangeably as brand ambassador agreements, celebrity endorsement agreement, endorsement agreement, etc.

IMPORTANCE OF MARKETING AND CELEBRITY ENDORSEMENT AGREEMENTS

In order to grow, flourish and keep up with the ever updating market conditions, marketing plays an important role for every brand existing in the market. An ever growing focus on brand development, awareness, and authority by deploying various marketing tactics has become one growing concern for any and every brand planning on having a celebrated product in the market. To survive competition from all corners, influencers and brand ambassadors are being hired by such brands for a particular period until their marketing targets are achieved.

Celebrities and notable personalities have lately become an integral part and parcel of the brands they endorse. Certainly, they are the face of the brand they endorse and the consumers relate to the celebrity endorser and the product as a package in many scenarios. Such developments have led to the origination of the term brand ambassador, who is a person who markets the product to the consumers and is the face of the product and/or the brand. In the persisting marketing conditions and scenarios, the celebrity endorsement agreement is a pertinent agreement to be executed in between the Company/person owning the brand and the celebrity brand ambassador. If the cut-throat competition around every popular product category if considered, the brands which are doing well in the market and have been on the receiving end of consumer appreciation and subsequent high profits are often noted to engage a notable celebrity to endorse their brand so as to capture a larger market share using the visibility of the celebrity, while paying a fair amount of consideration to the celebrity for his services. Hence, as the brands are ready to spend humongous amount of money and resources on marketing and celebrity endorsements forms a imperative part of every modern day marketing strategy, it becomes very pertinent for all parties involved in an endorsement arrangement to execute a celebrity endorsement agreement to capture the rights and obligations of all such parties involved.

It is very important to have an executed agreement which serves as a legal record and a valid proof of agreements in between the parties in the event of any possible disputes or differences that may arise in future relating to the agreement and protect the legal rights and interests of both the contracting parties and for this very reason it becomes absolutely necessary for the parties to execute a celebrity endorsement agreement. Like any other agreement, it helps in reassuring the parties that their contractual relationship will be carried out as agreed by them. Apart from being enforceable in a court of law it also adds to building the credibility and legitimacy of both parties.

PROVISIONS TO BE CAPTURED IN A CELEBRITY ENDORSEMENT AGREEMENT

A celebrity endorsement agreement includes the rights and obligations required by the company to be fulfilled by the brand ambassador in a certain period stipulated in the agreement. Typically, the celebrity endorsement contact may include:

• Exhaustive details of the company and the brand ambassador entering into the agreement.
• Details of rights and limitations pertaining to the services or duties exchanged in connection with sales and promotion to be provided by the brand ambassador to the company.
• Detailed guidelines and timelines that are to be adhered to by the brand ambassadors while performing their contractual duties.
• Actions that brand ambassadors should restrain themselves from performing during the time period that they are representing the brand (restrictions). Such restrictions may include endorsement of competing products, engaging in illegal activities, non-disparagement, performing any acts which may prove to be detrimental to the reputation of the company.
• Compensation and/or commission details of the agreement (Consideration), which is to be provided by the company to the brand ambassadors in return of their services.
• Exhaustively capture the details of the particular products or services of the company which brand ambassador has to endorse while providing his services.
• The obligation of the company or brand to perform in assisting brand ambassador performing his part of the agreement.
• Standard terms and conditions like mode of payment, details and number of promotional events or activities to perform, confidentiality and intellectual property terms (if any), etc.
• Legal responsibilities and disclosures of parties to ensure proper compliance required by law.
• Other miscellaneous but pertinent terms and conditions are required to be fulfilled by the parties in the form of requisite clauses such as:
  • Dispute resolution mechanism between the parties;
  • Provision for protection of intellectual property rights;
  • Provision for protection of unauthorised disclosure of confidential information;
  • Provision relating to indemnity to be provided by parties in the event a loss is suffered by either party due to an action/inaction of the other party;
  • Term and termination agreements between the parties; and
  • The representations and warranties provided by each party to the other party.

The above points can also be used as checkboxes while drafting the brand ambassadorship agreement.

IMPORTANCE OF PROFESSIONAL DRAFTING OF CELEBRITY ENDORSEMENT AGREEMENT

There are a plethora of templates available for such agreements on the internet, but they are not specifically designed to cater to the needs of the brand and in the case of a brand ambassador, for the nitty-gritties of their job. Therefore, hiring a team of lawyers who are seasoned at such agreements is very important to capture each and every detail and requirement that each parties desire.

On October 28, 2022, the Ministry of Electronics and IT (“MeitY”) notified amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“IT Rules”), categorically sending a warning to the social media intermediaries (“SMI”). This move comes five months after MeitY, in the month of June, proposed a draft of the aforementioned amendments and invited comments from the stakeholders, which garnered considerable reactions and discussions surrounding the regulation of social media in India.

The amendments to the IT Rules provide a boost to MeitY’s objective to make internet a safe place for its users while imposing accountability on SMI.

The amendments aim at inter alia improving the efficacy of the grievance redressal mechanism provided for in the IT Rules by providing for the establishment of appellate bodies, and proposing certain changes in the grievance redressal mechanism. Furthermore, there was a need felt to ensure better compliance by SMI of the IT Rules. In this light, we have highlighted in brief, the key amendments to the IT Rules below:

1. Introduction of Grievance Appellate Committee

Prior to the present amendment, the IT Rules prescribed appointment of grievance officers (“GCs”) by all SMI, to dispose of the complaints made by the users expeditiously and the only recourse available to users / stakeholders against the order of the grievance order was to contest the same before the High Courts or Supreme Court.

To remedy the concerns of social media platform users, the amendments have envisaged establishment of one or more Grievance Appellate Committee(s) (“GAC”), each composed of a three-person panel appointment by the government. The GAC would comprise a chairperson and 2 whole time members, of which one would be a government official and the others would be autonomous representatives.

Aggrieved users of social media platforms, would have the opportunity to, within 30 days, appeal against orders of the GCs to the GAC and the GAC shall make endeavours to resolve such appeals within 30 days from the date of receipt of such appeal. Furthermore, the GAC has been commissioned to adopt an online mode for the process of resolution of disputes, from the stage of filing an application, till decision thereof.

While establishment of GACs is a remarkable step towards strengthening the grievance redressal framework in the SMI world, the amendments fall short in conferring express powers to the GAC, in the enforcement of its decisions.

• Obligations of SMIs

Previously, SMI were responsible to intimate its users of their rules, regulations, privacy policy and user agreement and the categories of content which they are prohibited from sharing or uploading on platforms.

The amendments require SMI to make available these rules, regulations, privacy policy and user agreement in all regional languages. In addition, SMI now have the additional obligation to ensure that their users abide by the rules of the platform. This has considerably increased the responsibility of SMIs to supervise and regulate content on their websites and has attracted mixed reactions from both, the social media platforms and its users.

Furthermore, according to the amendment, SMI must now address any complaint regarding removal of content from a platform, within 72 hours.

While both SaaS-based and License-based models deal with provision of software, there are certain key distinguishing points between them, viz:

1. In a SaaS-based model, the software is made available in an intangible form on a hosted platform. On the other hand, in a software license model, the software is made available in a physical form i.e. by way of CD-Roms or electronic download from a website, whereby such software is later used on a piece of hardware.
2. In a SaaS model, the users’ information is stored with the software company, and such a company is required to provide reasonable data protection safeguards to the users. However, in a software license model, all information is stored on the user’s hardware, and the user himself manages the security aspects.
3. In a SaaS model, the fees are usually paid on a recurring basis by way of a ‘subscription’ model and for a specific term. The price for such software is usually paid upfront and in full, in a software license model.
4. In a SaaS model, there is no separate maintenance service provided because the same is included as part of the hosted platform service package, along with the requisite hosting and technical support. In contrast, the licensing model does require maintenance services, bug fixes, and updates to be specifically addressed.
5. A SaaS-based model helps the software company in reducing the up-front costs since most SaaS solutions are provided on a monthly or annual subscription basis. In a software licensing model, a larger up-front investment is usually required. This is typically categorized as a capital expenditure whereas SaaS is categorized as an operating expenditure.
6. In a SaaS-based model, software usually includes one set of features and functionality. This means that one has the option to choose a particular solution that is specifically tailored to his industry and/ or required functionality. In a SaaS based model, one can find a solution that only has the features he wants, and not pay for extras he will never use. In a software licensing model, such software might be custom-made to meet very specific needs of a particular industry or even an individual customer. This is usually applicable to those operating in niche industries and markets or organizations that require a highly specialized product that has customizable features.
7. A SaaS-based model allows for easier file sharing, document collaboration, shared calendars, and sharing of data as most of the software data is hosted in the cloud. On the other hand, in a software licensing based model, a software license may only be installed on a limited number of devices and may pose a problem as far as sharing of files and documents may be concerned.

Conclusion:

As a user, opting for a SaaS-based model or a software license based model depends completely on your needs and on the mode of availability of such software. There may be certain software offerings which may be available only on the SaaS-based model and vice-versa. On the other hand, as a user you might be using a software which has features of both SaaS as well as that of a software license based model. A software company may provide its main offering online and at the same time also provide an application for users’ devices, such that the software license installed on a particular device helps the hardware communicate to the online service. However, software companies, both new and old, are jumping on the SaaS bandwagon and are moving towards a completely SaaS-based model owing to its operational flexibility and lower costs.