SECURITIES AND EXCHANGE BOARD OF INDIA {KYC (Know Your Client) REGISTRATION AGENCY} REGULATIONS, 2011

SEBI on December 2^nd , 2011 issued guidelines for KYC Registration Agencies and said wholly-owned subsidiaries of stock exchanges and depositories would be eligible able to act in such a role.

The Securities and Exchange Board of India (SEBI) has asked know your customer, or KYC, registration agencies (KRAs) to ensure interoperability amongst themselves. This is aimed to avoid duplication of KYC process with every intermediary, a mechanism for centralisation of KYC records in the securities market. An intermediary has to perform the initial KYC of its clients and upload the details on the system of the KRA (KYC Registration Agency). When the client approaches another intermediary, the intermediary can verify and download the client’s details from the system of the KRA.

Besides, wholly-owned subsidiaries of depositories, other market intermediaries and Self Regulatory Organisations would also be able to secure certificate for initial registration as KRA. The KRAs can, in co-ordination with each other, prepare operating instructions for implementing requirements under the guidelines and share data on KYC documents. KRA will be responsible for storing, safeguarding and retrieving the KYC documents and submit to the board or any other statutory authority as and when required. Such agencies will also have to a compliance officer who shall be responsible for monitoring the compliance of rules and regulations issued by SEBI and the central government for redressal of client’s grievances.

Market intermediaries have been directed to upload KYC information of clients on the KRA system and send the original data to them. An applicant for KRA status must also have a net worth of Rs 25 crore and have expertise for technology and systems and safeguards for maintaining data privacy and preventing unauthorised sharing of data.

KRAs would be eligible for applying for permanent registration three months before the expiry of the period of certificate of initial registration. SEBI has also made provisions for inspections of KRA regarding books of accounts, records, infrastructure, documents and procedures.

The Securities and Exchange Board of India (KYC (Know Your Customer) Registration Agency) Regulations, 2011, came into effect from 2 December 2011.

Click here to view the regulation

Draft Public Procurement Bill, 2011

Pursuant to the Prime Minister's Independence Day address regarding the introduction of a Public Procurement Bill, the Department of Expenditure has prepared a draft Bill called 'The Public Procurement Bill, 2011'.

The Bill is intended to regulate public procurement by all Ministries and Departments of the Central Government, Central Public Sector Enterprises (CPSEs), autonomous and statutory bodies controlled by the Central Government and other procuring entities. The objectives of the Bill are to ensure transparency, fair and equitable treatment of bidders, promote competition and enhance efficiency and economy in the procurement process. The Bill contains broad principles and will be supplemented by rules. The Bill also provides for a grievance redressal mechanism and for penalties for offences under the Bill.

Currently there is no overarching legislation governing public procurement by the Central Government and Central Public Sector Enterprises (CPSEs). The General Financial Rules, 2005 govern procurements made by the Central Government. Some Ministries/ Departments have specific procedures/ Manuals to supplement these Rules. Procurements by CPSEs are governed by their own Manuals/ Procedures.

The Highlights of the Bill as given by Department of Expenditure, Ministry of Finance are as follows:

Objectives

⊙  A legislation to regulate public procurement by all Ministries and Departments of the Central Government, Central Public Sector Enterprises, Autonomous and Statutory bodies controlled by the Central Government and other procuring entities;

⊙  Ensuring transparency, fair and equitable treatment of bidders, promoting competition and enhancing efficiency and economy in the procurement process;

⊙  Ensuring highest standards of transparency, accountability and probity in the public procurement process and enhancing public confidence in public procurement.

Basic Features

⊙  Contains broad principles and provides flexibility for the variety of procuring entities to be covered.

⊙  To be supplemented by Rules for procurement of Goods, Works and Services.  Separate sets of Rules for:

•        Procurements for the purpose of national security

•        Entering into Public Private Partnerships

•        Procurement by Central Public Sector Enterprises

⊙  Exemptions from the law in certain circumstances

⊙  Key transparency and accountability norms incorporated from international best practices

⊙  Expeditious and streamlined grievance redressal Procedure

Scope and Coverage

⊙  To apply to procurements made by:

•        Ministries and Departments of the Central Government, their attached and subordinate offices

•        Central Public Sector Enterprises controlled by the Central Government

•        Central Purchase Organisations of the Central Government

•        Constitutional bodies whose expenditure is met from the Consolidated Fund of India

•        Any body or Board or corporation or authority or society or autonomous body (by whatever name called) established or constituted under an Act of Parliament Statutory or controlled by the Central Government

•        Provision for covering other entities by notification

⊙  No entities excluded from the law; only certain circumstances deemed relevant for exclusion

⊙  Covers the procurement process from the stage of needs assessment up to the award of the procurement contract.

Transparency and Accountability

⊙  An accountable ‘needs assessment’ process with all decisions and documents to be duly maintained facilitating an audit trail

⊙  No restriction on participation of bidders other than on specified conditions

⊙  Documentary record of procurement proceedings mandated

⊙  Transparent methods of registration and pre-qualification of suppliers respecting the need for fair competition

⊙  Statutory backing for Integrity Pacts between the procuring entity and participating bidders

⊙  Description of subject matter of procurement to be objective, functional and generic with guidelines to be prescribed

⊙  Standard terms and conditions of contract to be prescribed

⊙  Criteria for evaluating bids to be mandatorily published in the complete bidding document along with relative weights attached; no changes permitted once published

⊙  No price negotiations except in circumstances to be prescribed for which reasons to be recorded.

⊙  Establishment of an online portal known as the Central Public Procurement Portal as a single information window for all matters relating to procurement. Statutory requirement to publish information regarding invitations to bid, names of competing bidders, excluded bidders, debarred bidders, and award details.

⊙  E-procurement and e-payment enabled

Procurement Process

⊙  Essential contents of bidding documents mandated

⊙  Sufficient time to be allowed to prepare and present bids. Same time for all bidders.

⊙  Time bound reply to bidders’ request for clarifications.  All clarifications to be published on portal.  Pre-bid conference enabled

⊙  Modifications to bid documents to be published in the same manner as original bidding document.

⊙  Accountable bid opening and bid evaluation mechanism with separate 3-member Bid Opening Committee and Bid Evaluation Committee, with provision for a Technical Evaluation Committee, in case technical bids have to be evaluated separately

⊙  Standstill period of 10 days after notification of successful bidder and before signing contract.

Diversity of Procurement Methods

⊙  Open Competitive Bidding as the preferred method of procurement

⊙  A wide range of alternative methods available depending on the needs of the procuring entity and subject to appropriate justifications being provided for their use

⊙  Competitive Negotiations, Electronic Reverse Auctions and Framework Agreements facilitated by the Bill in accordance with international best practices

⊙  For low-value procurements and standard commercial items, three existing methods of procurement as per GFRs — purchase through Rate Contracts, purchase without quotations and purchase by Purchase Committees—continued.

Grievance Redressal

⊙  A statutory de-centralised three-tier framework for redressal of grievances arising under this Bill established:

⊙  Reconsideration by procuring entity

⊙  Grievance Redressal Committee in the procuring entity, which shall act quasi-judicially

⊙  Judicial proceedings before the appropriate High Court

⊙  For disputes relating to award of contract in high-value procurements, in view of their relatively small number and high importance, second tier redressal directly in High Court

⊙  For all other disputes, in view of the large number of procuring entities and the need for de-centralised and expeditious dispute resolution, three tier framework to be followed

Offences and Penalties

⊙  Prevention of Corruption Act applicable to offences by Public Servants

⊙  Corruption, collusion and anti-competitive behaviour by bidders to attract appropriate penalties. Term of imprisonment equal to that prescribed in Prevention of Corruption Act.

⊙  Provisions for debarment of bidders:

•        Automatic debarment on conviction for certain offences

•        Discretionary debarment on conviction for less serious offences

•        Discretionary debarment in addition to forfeiture of bid/performance securities. (Does not require conviction)

⊙  All debarments to be notified on the Central Public Procurement Portal

⊙  Appropriate penalties for frivolous or vexatious applications for grievance redressal

Click here to view the Draft Bill

FDI – Reporting of Issue / Transfer of ‘Participating Interest/Right’ in Oil Fields to a Non-Resident as an FDI Transaction

RBI on November 16, 2011, had decided to treat the issue / transfer of ‘participating interest/ rights’ in oil fields to a non- resident as Foreign Direct Investment (FDI) transaction under the extant FDI policy and the FEMA regulations. Accordingly, these transactions have to be reported as FDI transactions in terms of the provisions of Regulations 9 and 10 of the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time read with A.P. (DIR Series) Circular No.63 dated April 22, 2009 as well as paragraph 9 of Schedule I to the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time. Accordingly, transfer of ‘participating interest/ rights’ will be reported as ‘other’ category under Para 7 of revised Form FC-TRS as given in the Annex and issuance of ‘participating interest/ rights’ will be reported as ‘other’ category of instruments under Para 4 of Form FC-GPR.

Click here to view the Circular.

Click here, here, here, here, here to know more on FDI Policy

Infrastructure Debt Funds

In order to accelerate and enhance the flow of long term funds to infrastructure projects for undertaking the Government’s ambitious programme of infrastructure development, Union Finance Minister in his budget speech for 2011-12 had announced setting up of Infrastructure Debt Funds (IDFs). Accordingly, the Government has since come out with the broad structure of the proposed IDFs vide their press release dated June 24, 2011.

By virtue of Schedule 5 to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, a SEBI registered Foreign Institutional Investor (FII) and a Non-Resident Indian (NRI) may invest in securities other than shares or convertible debentures, subject to such terms and conditions mentioned therein and limits as prescribed for the same by the Reserve Bank and the Securities and Exchange Board of India (SEBI) from time to time.

AP (DIR Series) Circular No.8 dated August 9, 2011 and AP (DIR Series) Circular No.42 dated November 3, 2011 permits Qualified Foreign Investors (QFIs as defined therein to mean non-resident investors, other than SEBI registered FIIs and SEBI registered FVCIs, who meet the KYC requirements of SEBI) are allowed to invest in units of domestic Mutual Funds.

RBI vide a circular dated November 22, 2011 has permitted investment on repatriation basis by eligible non-resident investors in (i) Rupee and Foreign currency denominated bonds issued by the Infrastructure Debt Funds (IDFs) set up as an Indian company and registered as Non-Banking Financial Companies (NBFCs) with the Reserve Bank of India and in (ii) Rupee denominated units issued by IDFs set up as SEBI registered domestic Mutual Funds(MFs), in accordance with the terms and conditions stipulated by the SEBI and the Reserve Bank of India from time to time.

However these investments would be subject to certain terms and conditions as provided in the Circular.

Click here to view the Circular.

Banks as sponsors to Infrastructure Debt Funds

IDFs can be set up either as Mutual Funds (MFs) or as Non-Banking Finance Companies (NBFCs). While IDF-MFs will be regulated by SEBI (SEBI has amended the Mutual Funds Regulations to provide regulatory framework for IDF-MFs by inserting Chapter VI-B to the MF Regulations), IDF-NBFCs will be regulated by Reserve Bank of India (RBI). The Reserve Bank had also issued a press release on September 23, 2011 which contained the broad parameters for banks and NBFCs to set up IDFs. Click here to view the detailed regulations relating to IDF-NBFCs.

RBI has notified that scheduled commercial banks would be allowed to act as sponsors to IDF-MFs and IDF-NBFCs with prior approval from RBI subject to inter alia the following conditions:

·         Banks may act as sponsors to IDF–MFs subject to adherence to SEBI regulations in this regard.

·         A bank acting as sponsor of IDF–NBFC shall contribute a minimum equity of 30 per cent and maximum equity of 49 per cent of the IDF-NBFC.

·         Investment by a bank in the equity of a single IDF – MF and NBFC should not exceed 10 per cent of the bank’s paid up share capital and reserves.

·         Investment in the equity of a bank in subsidiary companies, financial services companies, financial institutions, stock and other exchanges put together should not exceed 20 per cent of bank’s paid up share capital and reserves and this limit will also cover bank’s investments in IDFs as sponsors.

·         Banks’ exposures to IDFs - (MFs and NBFCs) by way of contribution to paid up capital as sponsors will form part of their capital market exposure and should be within the regulatory limits specified in this regard.

·         Banks should have clear Board laid down policies and limits for their overall infrastructure exposure which should include their exposures as sponsors to IDFs - (MFs and NBFCs).

·         The IDFs - (MFs and NBFCs) should make a disclosure in the prospectus / offer document at the time of inviting investments that the sponsoring bank's liability is limited to the extent of its contribution to the paid up capital.

Click here to view the notification. 

Foreign Direct Investment – Reporting of issue / transfer of ‘participating interest/right’ in oil fields to a non resident as an Foreign Direct Investment transaction

Earlier the transfer of equity shares / fully and mandatorily convertible debentures/ fully and mandatorily convertible preference shares of an Indian company, from a person resident outside India (non-resident) to a person resident in India or vice versa, had to be reported to an Authorized Dealer bank within 60 days of transactions. Further, the receipt of consideration for issue of shares as well as the issue of shares of an Indian company, to a non-resident had to be reported to the Reserve Bank of India through an Authorized Dealer bank within 30 days of the transaction (receipt of consideration for issue of shares to a non resident or issue of shares to the non-resident) an accordance with the Regulations 9 and 10 and para 9 of Schedule I to the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2000 (Click here to view) and Circular on Foreign Direct Investment in India -Transfer of Shares / Preference Shares / Convertible Debentures by way of Sale - Modified Reporting Mechanism (Click here to view)

The Reserve Bank of India on 16^th November 2011, vide a notification, has decided that to treat the issue / transfer of ‘participating interest/ rights’ in oil fields to a non- resident as Foreign Direct Investment (FDI) transaction under the extant FDI policy and the FEMA regulations. Accordingly, these transactions have to be reported as FDI transactions in terms of the provisions of Regulations 9 and 10 of the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time read with A.P. (DIR Series) Circular No.63 dated April 22, 2009 as well as paragraph 9 of Schedule I to the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time. Accordingly, transfer of ‘participating interest/ rights’ will be reported as ‘other’ category under Para 7 of revised Form FC-TRS as given in the Annex and issuance of ‘participating interest/ rights’ will be reported as ‘other’ category of instruments under Para 4 of Form FC-GPR.

Click here to view the notification.

Click here, here, here & here to know more about FDI Policy. 

Amendments to the Prohibition of Unfair Practices in Technical Educational Institutions, Medical Educational Institutions and Universities Bill, 2010

The unprecedented growth in higher education in recent years, of which the growth of higher professional education, especially technical and medical education has been mainly through private participation. The current national policy supported by several judicial pronouncements is against commercialization of higher education, though the policy encourages private “note for profit” participation with surplus revenues to be ploughed back for growth and development of institutions has led to the amendment to the Prohibition of Unfair Practices in Technical Educational Institutions, Medical Educational Institutions and Universities Bill, 2010.

The Union Cabinet on 16^th November 2011 has approved the official amendment to the Prohibition of Unfair Practices in Technical Educational Institutions, Medical Educational Institutions and Universities Bill, 2010 based on the recommendations of the Parliamentary Standing Committee on HRD for consideration of the Parliament.

The press release issued in relation to the amendment says that the Bill aims to provide an institutional mechanism for preventing, prohibiting and punishing unfair practices in technical and medical educational institutions and universities. The object is to curtail the element of profiteering in some institutions which are presently beyond the scope of any such regulation. The institutions are also expected to mandatorily disclose information related to admission process by publication of its prospectus. This is expected to bring about public accountability of such institutions and act as a check on use of unfair practices being adopted vis-a-vis students.

The provisions of mandatory disclosure of information related to the admission process and holding the institution accountable in respect of compliance with such information is an innovation over the inspection based regulatory processes normally adopted. The student or any other stakeholder can move the tribunal as well as the competent criminal court of law in case the institutions attempts to adopt unfair practices and the burden of proof would be upon the institution.

The students would stand to benefit by enactment of a legislation to curb unfair practices in admission and other areas of higher educational institutions, who are exposed to the prevalence of distortions in the admission process leading to harassment and extortion of students for admission.

Prompt and effective deterrent action is constrained in the absence of any Central law prohibiting capitation fee and other unfair practices. While the current policy in higher education is to promote autonomy of institutions, adoption of unfair practices by misusing autonomy would be detrimental for the credibility of the higher education sector. It would be in public interest to balance autonomy of higher education institutions with measures to protect the interests of students and others accessing higher education.

Foreign Direct Investment – Transfer of Shares

According to Regulations 9 and 10 of the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2000 (Click here to view) prior approval of the Reserve Bank of India was required in case of transfer of shares from a Resident to a Non Resident where:

1.     the transfer does not conform to the pricing guidelines as stipulated by the Reserve Bank from time to time; or

2.   the transfer of shares requires the prior approval of the FIPB as per the extant Foreign Direct Investment (FDI) policy; or

3.  the Indian company whose shares are being transferred is engaged in rendering any financial service; or

4.    the transfer falls under the purview of the provisions of SEBI (SAST) Regulations, require the prior approval of the Reserve Bank of India.

The transfer of shares from a Non Resident to a Resident which does not conform to the pricing guidelines as stipulated by the Reserve Bank of India from time to time also required the prior approval of the Reserve Bank of India.

As a measure to further liberalize and rationalize the procedures and policies governing FDI in India, the RBI vide a circular dated November 4^th 2011, has decided to allow the following without the prior approval of the Reserve Bank of India :

Transfer of shares from a Non Resident to Resident under the FDI scheme where the pricing guidelines under FEMA, 1999 are not met provided that :-

(i) The original and resultant investment are in line with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation, etc.;

(ii) The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST, buy back); and

(iii) Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

Transfer of shares from Resident to Non Resident :

(i)      where the transfer of shares requires the prior approval of the FIPB as per the extant FDI policy provided that :

o   the requisite approval of the FIPB has been obtained; and

o the transfer of share adheres with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time.

(ii)    where SEBI (SAST) guidelines are attracted subject to the adherence with the pricing guidelines and documentation requirements as specified by Reserve Bank of India from time to time.

(iii)   where the pricing guidelines under the Foreign Exchange Management Act (FEMA), 1999 are not met provided that:-

o   The resultant FDI is in compliance with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc.;

o   The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST); and

o   Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

(iv)  where the investee company is in the financial sector provided that :

o   NOCs are obtained from the respective financial sector regulators/ regulators of the investee company as well as transferor and transferee entities and such NOCs are filed along with the form FC-TRS with the AD bank; and

o   The FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc., are complied with.

Click here to view the Circular.

Click here, here & here to know more about Foreign Direct Investment (FDI) norms

Period for Payment of Cheques Reduced from 6 months to 3 Months

The Reserve Bank of India vide a notification dated November 4^th  2011, has  decided to reduce the period within which cheques/drafts/pay orders/banker’s cheques are presented for payment from six months to three months from the date of such instrument.

RBI has stated that such a decision is because some persons are taking undue advantage of the said practice of banks of making payment of cheques/drafts/pay orders/banker’s cheques presented within a period of six months from the date of the instrument as these instruments are being circulated in the market like cash for six months.

In exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949, Reserve Bank has directed all the Banks that with effect from April 1, 2012, banks should not make payment of cheques/drafts/pay orders/banker’s cheques bearing that date or any subsequent date, if they are presented beyond the period of three months from the date of such instrument.

Click here to view the Notification.

Foreign investment in India by SEBI registered FIIs in other securities

Earlier in a Circular dated April 29^th  2011,(Click here to view) the limit for FII investment in non-convertible debentures / bonds issued by Indian companies in the infrastructure sector was enhanced from USD 5 billion to USD 25 billion. This was subject to the conditions that such instruments shall have a residual maturity of five years and above, the investments would have a lock-in-period of three years and ‘infrastructure’ would be as defined under the extant External Commercial Borrowings (ECB) policy.

Later through another circular dated August 9^th 2009, (Click here to view) it was decided that Qualified Foreign Investors as defined therein (QFIs) were allowed to invest in units of Mutual Funds debt schemes upto a limit of USD three billion within the overall limit of USD 25 billion for FII investment in non-convertible debentures / bonds issued by Indian companies in the infrastructure sector.

RBI has vide a circular dated November 3^rd 2011, had decided that:

1.     FIIs would also be allowed to invest in non-convertible debentures / bonds issued by Non-Banking Financial Companies categorized as ‘Infrastructure Finance Companies’(IFCs) by the Reserve Bank of India within the overall limit of USD 25 billion.

2.    The lock-in-period of three years for FII investment stands reduced to one year up to an amount of USD 5 billion within the overall limit of USD 25 billion. This lock-in-period shall be computed from the time of first purchase by FIIs.

3.   The residual maturity of five years and above stipulated would now onwards refer to the original maturity of the instrument at the time of first purchase by an FII.

4.   The above changes at (i) and (iii) above would also apply for QFI investment in units of Mutual Fund debt schemes within the limit of USD three billion.

Click here to view the Circular

Amendment to the FDI Policy

The Department of Industrial Policy and Promotion (DIPP) has on 31st October 2011, issued Corrigendum to the Consolidated FDI Policy Circular (Circular 2 of 2011) deleting much discussed Para  3.3.2.1 from the semi-annual circular on foreign direct investment policy. The DIPP had on September 30, 2011 come out with the new FDI Policy effective from October 1, 2011.(Click here & here to know more)

This new  Para 3.3.2.1 stated that instruments with in-built option of any type would not qualify as an eligible instrument of FDI. This particular clause had generated a huge debate creating lot of uncertainty for exit of foreign investors and private equity players.

Para 3.3.2.1 stated as follows: “Only equity shares, fully, compulsorily and mandatorily convertible debentures and fully, compulsorily and mandatorily convertible preference shares, with no in-built options of any type, would qualify as eligible instruments for FDI. Equity instruments issued/transferred to non-residents having in-built options or supported by options sold by third parties would lose their equity character and such instruments would have to comply with the extant ECB guidelines.”

The PE investors had met officials of DIPP last week and received a positive nod regarding the removal of the clause. Indian Private Equity & Venture Capital Association (IVCA) said it would continue to follow up the matter with the Department of Economic Affairs (DEA), finance ministry and the RBI. “After all, the insertion has been made primarily at the behest of the RBI,” said IVCA president Mahendra Swarup. Following IVCA’s meeting, officials of DEA also agreed that while a decision on this matter was under consideration, any insertion in the policy must only be prospective and not made in retrospective effect applicable to already valid transactions, according to PE investors who are involved in the discussion, as reported by Business Standard.

Click here to view Corrigendum to Circular 2 of 2011 - Consolidated FDI Policy

National Manufacturing Policy

The Cabinet has approved the revised National Manufacturing Policy proposed by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry on 25th October, 2011. The policy has been formulated after detailed consultations with the industry; subject matter experts; State Governments and the concerned Ministries/Departments of the Government of India. 

The key objectives of the policy are: 

• To increase the sectoral share of manufacturing in GDP to at least 25% by 2022; 
• To increase the rate of job creation so as to create 100 million additional jobs by 2022; 
• To enhance global competitiveness, domestic value addition, technological depth and environmental sustainability of growth. 

The policy also provides for creation of large integrated industrial townships called National Investment and Manufacturing Zones (NIMZs) with state-of-the-art infrastructure; land use on the basis of zoning; clean and energy efficient technologies; necessary social and institutional infrastructure in order to provide a productive environment to persons transitioning from the primary to the secondary and tertiary sectors. The land for these zones will preferably be waste infertile land not suitable for cultivation; not in the vicinity of any ecologically fragile area and with reasonable access to basic resources. 

It is envisaged to ensure compliance of labour and environmental laws while introducing procedural simplifications and rationalization so that the regulatory burden on industry is reduced. The interventions proposed are generally sector neutral, location neutral and technology neutral except the attempt to incentivize green technology for sustainable development No subsidies are proposed for individual units or areas. The basic thrust is to provide an enabling environment for tapping the potential of the private sector and the entrepreneurial skills of the younger population.

Click here to view the policy.

Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 and the Information Technology (Intermediaries guidelines) Rules, 2011

Data protection and data privacy laws had been constantly evolving all around the world. India had been lacking a dedicated Data Privacy Law or Data Protection Law as many other foreign countries. With the constantly increasing dependence on cyberspace and also the advancements like the Cloud Computing, more Privacy Violations and Cyber Security issues are likely to arise in future. A dedicated privacy and data protection law in place will considerably reduce these apprehensions. Moreover there has been a strong opinion that if India strengthens its data protection law, it can attract multi-national corporations to India. The 2008 amendment of the IT Act and the subsequent rules instigated the strengthening of the data protection laws of the country.  Prior to the 2008 amendment there were no data privacy legislations in India. The implementation of those legislations initiated the pursuit towards effective data protection; however the measures prescribed in the 2008 legislations were limited in scope. To bolster these protections, the Government of India has notified the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 and the Information Technology (Intermediaries guidelines) Rules, 2011.

Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules    (Click here to view)

The Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules have been notified under powers conferred under Section 87(2) read with Section 43A of the Information Technology Act 2000). It regulates the collection, disclosure, transfer and storage of sensitive personal data, and widens the scope of the regulation in Section 43A of the Act.

The sensitive personal data or information of a person dealt by the Rules consists of information relating to, passwords, financial information such as bank accounts or credit card details, his or her physiological and mental health condition, medical records and history, their sexual orientation, and biometric information. It is mandated by the rules that individuals should be informed when personal information about them is collected and also the purpose of that collection. The data thus collected cannot be retained for longer than is necessary and it cannot be used for any purpose other than for which it was collected. Individuals will have the right to access to their personal data and correct inaccuracies. They can also opt-out of providing personal data by sending a withdrawal of consent in writing. The body corporate dealing with the information is required to publish their privacy policy regarding the handling of such information.

Though the information is to be kept confidential from third parties, the Rules permit all sensitive personal details to be shared with government agencies for the purpose of verification of identity, or for prevention, detection, investigation including cyber incidents, prosecution, and punishment of offences. The government agencies mandated under the law to obtain such information can request the body corporate stating the purpose of seeking such information.

The Rules also provide for data transfer. The body corporate can transfer the information to any other body corporate or a person in India, or located in any other country if it is necessary for the performance of the lawful contract between the body corporate and the provider of the information. However, the transferee should be ensuring the same level of data protection that is adhered to by the body corporate as provided for under these Rules.

A body corporate has to comply with reasonable security practices and procedures as mentioned in the Rules including a comprehensive documented information security programme and information security policies. In case of any information security breach, the body corporate can be required by the agency mandated under the law to demonstrate, that they have implemented the security control measures.

Generally information requests made by government agencies have certain inbuilt checks, which are apparently absent in case of these Rules, except that the request for information has to be made in writing, and reasons for seeking the information has to be stated. However the Ministry of Communications & Information Technology vide press release dated May 10, 2011 stated that the Rules does not give any undue powers to Government agencies for free access of sensitive personal information. It was also pointed out that the Rules provide for inherent checks-and-balances as the Government agencies ought to have been mandated under the law to obtain such information and the information so obtained shall not be published or shared with any other person.

There exists an ambiguity when it comes to the applicability of the Rules. The Ministry of Communications & Information Technology came up with another press release to provide clarity in this regard. The press release states that the rules are regarding sensitive personal data or information and is applicable to the body corporate or any person located within India. In the light of clarification issued by the Ministry, the Rules does not apply to body corporate outside India. The clarification is silent about the situation which involves a foreign body corporate with their computer resource located in India. However such body corporate can be brought under the purview of the rules in the light of Section 75 of IT Act which speaks about offence or contravention committed outside India which involves a computer, computer system or computer network located in India.

The press release further states Rules 5 and 6 which deal with collection and disclosure of information respectively, is not binding on a body corporate providing services under contractual obligation with any legal entity. Hence the personal data sent to India by customers outsourcing work to companies in the country will not be covered under new rules.  However a body corporate, providing services to the provider of information under a contractual obligation directly with them, is subject to Rules 5 & 6.

It has also been clarified that Providers of information, as referred to in these Rules, are those natural persons who provide sensitive personal data or information to a body corporate, eliminating the uncertainty as to whether an entity which collects and provides information to another entity will be considered as a provider of information. It was also believed that the rules would make it difficult for Indian outsourcers to operate if they were required to take written consent from individuals in other countries whose data they collect and process through call centers and business process outsourcing operations. However it has been clarified that consent includes consent can be given by any mode of electronic communication.

Concerns have been raised that these rules are too restrictive and could deter foreign companies from doing business in India.  The question as to whether these Rules will turn to be advantageous or not has to be time tested.

Information Technology (Intermediaries guidelines) Rules, 2011 (Click here to view)

The Ministry of Communications and Information Technology on April 11, 2011 has notified the Information Technology (Intermediaries guidelines) Rules, 2011. These rules prescribe certain guidelines that are to be followed by intermediaries.

According to Section 2(1)(w) of the IT Act, post 2008 amendment, an Intermediary is one who receives, stores or transmits an electronic record or provides any service with respect to that record. The provision further states that Intermediaries include telecom service providers, network service providers, internet service providers, web hosting service providers, search engines, online payment sites, online-auction sites, online market places and cyber cafes.

The aforementioned rules prescribe the due diligence to be observed by intermediary in the course of its functioning. The intermediary has to publish the rules and regulations, privacy policy and user agreement for accessing the intermediary’s computer resource and it must inform the users not to host, display, upload, modify, publish, transmit, update or share any information unlawfully. The intermediary should also refrain from knowingly involving in any such activities. This does not however include temporary or transient storage of information automatically by the intermediary. If the intermediary comes to know about the existence of such information, access to such information or data has to be removed within thirty six hours. In the event of any such information and subsequent removal, the records regarding the same has to be preserved for at least ninety days for investigation purposes. The intermediary has the right to immediately terminate the access or usage rights of the users on the grounds of non-compliance with rules and regulations.

The intermediary is bound to provide assistance to Government Agencies who are lawfully authorised for investigative, protective, cyber security activity. Cyber security incidents have to be reported to the Indian Computer Emergency Response Team. The intermediary has to publish on its website the name and contact details of the Grievance Officer and also the procedure for filing a complaint against violation of Rule 3. The Grievance Officer will redress the complaints within one month from the date of receipt of complaint.