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INDIA JURIS

 February 06

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This E-Newsletter has been published by India Juris, full service Indian law firm with special expertise in Business, Corporate & IP laws, on requests from clients and associates worldwide with an object to keep them abreast of latest legal & business developments in India.

   
  • Press note 9 needs to be changed
  • Hotels not affected by Press Note 2
  • More time to challenge Patent
 
Press note 9 needs to be changed
 
Press Note 9 bars a foreign investment company from borrowing from an Indian bank to buy into a company in India. In the past few months, large banks (foreign as well as local) some MNCs and a few private equity players have been lobbying with the government to change this rule. While bankers think they should have the freedom to invest in a wider number of asset classes, foreign investors argue that dismantling the norm will not only raise the return on the equity they chip in, but also make it possible for them to pay a higher price for the shares of local companies they buy.

Banks are more than willing to lend to private equity firms which want to borrow to leverage their investments, but the restrictions prevent the flow of capital. Interestingly, private equity represents almost one-third of the FDI flow, and in the past two years, about $3.5bn has come in through this route. Investment companies under foreign control are not permitted to borrow locally for investments. This has a negative impact on sale valuations, is disadvantageous for Indian founders exiting their companies and serves no public purpose.

 
51% Foreign Direct Investment permitted in single brand retail trading
 

The government has decided to allow foreign direct investment (FDI) in retail outlets meant exclusively for ‘single brands’. This will allow multinational giants to invest in Indian outlets meant for premium brands. Foreign companies will be allowed to invest up to 51% in joint ventures that set up such outlets. The government may gradually open up major segments of retail to FDI. 

The government has allowed 100% foreign investment through the automatic route in wholesale trading and trading and sourcing for exports.

 
Hotels not affected by Press Note 2
 
The provisions of Press Note 2 (2005 series), which allowed 100 per cent foreign direct investment in townships, housing and construction projects, will not apply to hotels, hospitals and special economic zones.

FDI up to 100 per cent was already allowed under the automatic route in hotel and tourism sector vide Press Note 4 (2001 series) and in the hospital sector vide Press Note 2 (2000 series).

Special Economic Zones are separately regulated under the SEZ Act, 2005. The clarification came after queries from investors on the applicability of Press Note 2 (2005 Series), which was announced in March last year. With this notification, the government had allowed 100 per cent FDI in townships, housing, built-up infrastructure and construction-development projects.

Establishment and operation of hotels and hospitals would continue to be governed by Press Note 4 (2001 series) and Press Note 2 (2000 series) respectively.
 
More time to challenge Patent
 

The government will give more time to patent seekers and rivals who want to block a market monopoly to enable them sharpen their legal assaults.

The proposed amendments to the patent rules will give a patent challenger six months from the date of publication of an application to file his objections with the patents controller as against the three now. The patent seeker, in turn, will get three months to respond to the challenge with a defence as against the one month allowed now. Both the parties will get a hearing from the patents controller on request.

The amendments to the rules notified in December last year will also speed up approvals for overseas filing of patent applications from the present three months to just 21 days.

This, however, will not apply to inventions having defence and atomic energy uses. Besides, the proposed amendments will also allow an inventor to keep his application live for four years as against the present three, without making a request for its examination.

This gives him more time to assess the commercial viability of the invention before making a request to examine it. A rival can also request the government to examine the application and decide its fate. Details of the application will not be available to the public in the first 18 months of filing.

The Controller of Patents will have to refer the application for examination in a month and report the result to the applicant in six months. The proposed amendments will also give nine months to the applicant to give more information about the invention if the patents controller raises an objection about the claims, as against the six months allowed now.

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