Corporate Law & Environment in Indian Context

There are several positive developments and improvements in India's corporate environment and sentiments. India has shown a positive improvement in the World Bank's ‘Ease of Doing Business’ (EDB) rankings for 2017, moving up one place to 130th rank (out of 190 countries), compared with the preceding two years (131st rank in 2016 and 134th rank in 2015 – both among 189 countries). India improved its rank in four categories: ‘Getting Electricity’ (a jump of 25 places from 51 to 26); ‘Registering Property’ (a jump of two places from 140 to 138); ‘Trading Across Borders’ (a jump of one place from 144 to 143); and ‘Enforcing Contracts’ (a jump of 6 places from 178 to 172).

According to the EDB 2017 report, the time required in India to get a new electricity connection was reduced from the earlier 87 days to just 46 days, while the cost during the same period was reduced from 442% of income per capita to 133%. The Indian government is working diligently and closely with state governments and industry to restructure its working processes and reduce the timelines and costs for each procedure to make India world’s potential business investment destination. 

Indian companies are now governed by the new company law, the Companies Act, 2013. Limited Liability Partnerships (LLPs) are governed by a separate legislation, the Limited Liability Partnership Act, 2008. The government also passed the Insolvency and Bankruptcy Code (IBC) in May 2016. The government plans to introduce new rules for company liquidation – by restructuring the six-decade-old earlier one – when the code comes into force. In May 2015, the Indian government published Companies (Amendment) Act, which immediately came into force upon notification by the Ministry of Corporate Affairs. As a result, the minimum capital requirement for incorporation of new companies was removed. Moreover, to start a new business, the requirement of a ‘Certificate of Commencement of Business’ was also waived. 

To address commercial cases effectively and to enhance the efficiency of courts, the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, has been passed. 

Foreign investments into India are regulated by an extensive foreign direct investment (FDI) policy, issued annually by the Department of Industrial Policy and Promotion, which works under the supervision of the Ministry of Commerce and Industry, Government of India. 

Income tax in India is regulated by a central legislation, the (Indian) Income-tax Act, 1961, while indirect taxes – such as value added tax, customs and excise duty – are subject to both central and state laws. At present, the corporate tax rate stands at 30% (exclusive of surcharge and cess), which the government hopes to gradually reduce to 25% over the subsequent four years. India also has transfer pricing rules, applicable to related party transactions. With regard to indirect taxes front, a comprehensive Goods and Services Tax (GST) is expected to come into force in India from June 1 this year, which will reduce the complexity and eliminate multiple taxations. 

In its endeavor to further improve the ease of doing business, India has now set a goal to reach the 90th rank in EDB rankings for 2017-18 and 30th by 2020. To break into the top-50 in the EDB ranking, India should establish fast-track commercial courts, dispose of cases at the earliest with minimum adjournments, and set-up e-courts for electronic filing of complaints, summons and payments.

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