Policy makers working to stimulate growth should first understand what it is that’s keeping investors away
Is manufacturing experiencing slow growth because of the high risks involved, or is it that companies are moving away from investment in physical assets as they are drawn by the relative profitability of financial assets? Or is it both? Either way, second guessing the needs of investors is key.
There is little disputing the fact that an efficient and speedy dispute resolution process is critical for investors. India’s record on this front is abysmal and a recent report by India’s Law Commission states that litigating in courts is “a time-consuming and expensive exercise, and justice usually eludes both parties to an action”. The fact that it has not deterred investors from deploying considerable resources into often risky ventures is remarkable. But there is only so much that can be achieved when the dispute resolution system is plagued by delays.
This month’s Cover story provides insights into efforts to update the country’s arbitration laws. For arbitration, as it is currently practised in India, is often not seen as a viable alternative to litigation. India’s new government is aware of this critical problem and in its election manifesto outlined plans to develop India into “a global hub” for arbitration. The Law Commission, meanwhile, recently proposed a series of amendments to the Arbitration and Conciliation Act, 1996.
But can amending the law inject renewed vigour into the process? The overwhelming majority of arbitrations held in India are ad hoc and one of the key recommendations of the commission is that the law should encourage institutional arbitration. Commentators welcome this move, but most would agree with Naresh Thacker, a partner at Economic Laws Practice, when he says that “legislation is neither the best mode nor sufficient to encourage institutional arbitration”. Be that as it may, the realization that the status quo cannot be allowed to continue is encouraging.
In Pulling the strings, we turn our attention to the issue of control over investee companies in India. While the recent easing of the foreign direct investment ceiling in the defence sector, and plans for similar easing in insurance, have been welcomed by many observers, some would-be investors have expressed disappointment that the new ceilings still prohibit foreign parties from gaining overall control of investee companies.
With this in mind, our coverage investigates the innovative strategies that investors can deploy to safeguard their interests in investee companies. A lot hinges on the comfort level of the partners, but as Darshika Kothari, a partner at AZB & Partners, explains, there is scope to build “a fair bit of protection under [various] agreements, as long as the same are justifiable”. Ramesh Vaidyanathan, the managing partner at Advaya Legal, offers up a more straightforward remedy: “If you can’t control, enter slowly and consolidate.”
In this month’s What’s the deal? we revisit a long running dispute between German and Indian joint venture partners that may well have benefited from such advice.
The company concerned is wind turbine maker Enercon, and its plight was first investigated by India Business Law Journal in May 2011 in a feature story entitled Mutiny in the boardroom. So, where is the Enercon dispute now and how did it get there? Moreover, what lessons can be learned from it? Our analysis suggests that the situation might have been avoidable if different strategies had been adopted by the parties. Ulrich Bäumer, a partner at Osborne Clarke in Germany, believes that the German company’s big mistake was not protecting its “crown jewels” – its intellectual property.
Still on the subject of intellectual property, in this month’s Vantage Point, Ida Puzone of the Organization for an International Geographical Indications Network argues that the protection and enforcement of geographical indications remains a key challenge in India. More than 200 geographical indications have been registered in India to date and her arguments may well be a wakeup call for all concerned parties.
In Donning legal armour we look at the chinks in India’s defence procurement guidelines and explain how vendors can protect themselves when striking deals in the sector. The Ministry of Defence recently introduced offsets in defence procurement and has issued guidelines on how such offsets may be used. However, the policy has been caught up in conceptual problems that have unnerved many players in the sector. Our coverage suggests pragmatic ways to deal with the procedural tangles so that vendors in the defence sector can be confident that they have the maximum possible protection.
In this month’s Intelligence report, we present India Business Law Journal’s eighth annual survey of law firm billing rates. This year 60 Indian law firms consented to publish their fee schedules, shedding light on the trends in legal fees and billing practices. The initiative has again been applauded by in-house counsel in India and beyond, who are able to use the data to benchmark the billing rates of Indian law firms.
As in previous years, the country’s largest firms shied away from participating, but the results paint an intriguing picture of the billing practices of India’s small and medium size law firms. Overall, billing rates held steady, but the average rates charged by senior partners crept up by 2.6%. Prem Rajani, a partner at Rajani Singhania & Partners, warns that further rises may soon be necessary. “Salaries and operating costs have gone up tremendously and may require us to increase our rates overall by around 5-10%,” he says.
Clients be warned. Higher fees may be imminent.