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Corporate Laws in India, Germany and Canada: A Comparative Study

The Indian Corporate Scene has been ever evolving. Business in India has been ever accepting the idea of totality and has been trying to lay more and more emphasis on the welfare of all the stakeholders so as to ensure that everybody's interest is well accounted for. With this welfare bound setup, the Corporate scene in India has improved as well. With the help of more business-friendly legislations, the corporate scene has improved to meet the international standards.

The first step in the direction of establishment of the company's regime in India came in the pre-colonial era in the year 1850, with the establishment of Companies Act which was a model of the British Companies Act 1844. However not much of it was accepted widely and hence was amended on a number of occasions.

Thereafter, a number of new acts were incorporated which were all valiant efforts to meet up to requirements of the new India and included Legislations in the year 1882, 1913. Post-Independence also, it was recommended by the Bhabha Committee that changes need to be made to the Companies Act[1] and hence on the recommendation of the committee led by Mr C.H. Bhabha, the Companies Act 1956 came into effect on 1st April 1956. The first major amendment was the enactment of the Depositories Act, 1996[2].

Currently, the new Companies Act 2013 consists of 29 chapters, 658 sections and 7 schedules.

Foreign Direct Investment (FDI)

When we talk about corporate law, an important aspect regarding corporate law is the intricate nuances concerned with the Foreign Direct Investment (FDI) policy.
FDI refers to that situation when a company who is in one country takes controlling ownership of a business entity of another country.

This essentially means that such foreign companies have a full say in how that business organization would function. Moreover, since they are directly involved with the day-to-day activities of the organization, they often would bring, apart from money, technology, skills and knowledge with themselves[3]

Generally speaking, Foreign Direct Investment is preferred in open economies which has the required growth prospect alongside the much-needed skilled workforce.

FDI in India

India's economic development in the post liberalisation era was chalked out on the map of FDI. The entire motive with regards to opening the Indian economy was the easing up of the inflow of foreign investment in the Indian market. India at that point had all the required elements to be the next industrial hub of the world, but lacked the much-needed finances and upper end technology. Opening up the economy to foreign investment filled this much called for vacuum. Today, India is in the list of the top 100 countries of the world with respect to ease of doing business and ranks first with regards to the greenfield FDI ranking[4]. In 2019 alone, India attracted over $64 billion in FDI making it 9th on the list of the countries that have received the most FDI[5].

There are two routes, primarily through which, India gets its FDI.
  1. The first one is the automatic route whereby the Non-resident or the Indian company does not require any permissions as such from the Reserve Bank or the Government for their foreign direct investments.
     
  2. The second one is the government route, where any FDI would require the governments prior approval. Any company that wishes to use this route would be required to fill and submit an application routed through the Foreign Investment Facilitation Portal. It is a facility which uses single window clearance and is hassle free. The application would then be sent to the respective ministry which would then in consultation with the Department for Promotion of Industry and Internal Trade (DPIIT) either reject or accept the proposal.

New Rules of 2020

Keeping India's foreign affairs in mind, the DPIIT tweaked the FDI policy in India to protect the Indian Market from an economic hijack by neighbouring countries such as China in the wake of the global economic crisis and liquidity shortfall. The new rules, announced on the 17th of the month of April made it compulsory for any company located in any country that shares a land border with India to first seek permission from the government and then invest in India.

Such rules would also apply to owners of firms who are citizens of these specific countries (namely Pakistan, Bhutan, Nepal, China, Afghanistan and Myanmar) and might benefit from such investments[6].

FDI in Germany

Since the onset of beginning of the Industrialization of the European Union, Germany has emerged as one of the strongest economies for foreign investments which boasts of a highly advanced technological infrastructure. The government of Germany has been for long, keen to attract foreign investment.

With this in mind, it grants exclusive tax subsidies to all the foreign investors, investing in Germany for a period of one year, for acquiring immovable assets. Alongside that, a massive tax subsidy of up to the rate of 27% is provided to all those companies that employ about 250 people.

The German Government also provides attractive concession on loans for foreign investors who indulge in research and development, especially small-scale companies. Intelligent investment in Germany can be done in certain key sectors that can help the investors gain up to 50% of the eligible cost from the various schemes of the federal government[7]

FDI in Canada

The UNCAD's World Report (2020) states that Canada had attracted almost 50 billion USD worth of FDI in the financial year ending 2019. In that year itself, Canada ranked 11th in the world for the most convenient destination for FDI. The foreign investment that Canada gets is mostly oriented towards the, professional, scientific and technical activities which mainly include sectors such as mining, finance, wholesale trade etc.

The country recently adopted a regulation on the ownership of land by the foreign investors whereby it increased the tax charged on residential properties which were transferred to foreign entities.

It must also be noted that in the upcoming years, the ratification of the USMCA (Canada-United States-Mexico Agreement) would have a huge impact on the FDI policy since the United States is the main investor in Canada. Add to that, the fact that country ranks 23 in the ease of doing business globally, Canada is all set to become investment hub of the globalised world[8]

Competition Law

In the post liberalisation era, one thing was understood clearly, that the provisions of the present (at that time), Monopolistic and Restrictive Trade Practices Act (MRTP) 1969 wasn't sufficient enough to tackle the problem of competition in the country. There was a growing call for a level playing field and an investor-friendly environment. To tackle this, the Competition Act was enacted in the year 2002. The act provided for a 3-stage transition. It would also include the replacement of the MRTP Commission with the Competition Commission of India.

The following were the objectives of the Competition Law [9]:

  1. To make sure that no business entity was in a dominant position (except by own merit)
  2. To provide for a regulation of combinations
  3. To check anti-competitive practices

Anti-competitive Agreements:

Section 3 of the aforementioned act provides for anti-competitive agreements. It states that enterprises, or persons including cartels would not enter into agreements in respect of production (or the other nuances of business), which would adversely impact the competition in India. Such agreements, even if entered into would be deemed void. For this purpose, the following things would be referred to as having appreciable adverse impact.
  1. Determining sale prices (directly or otherwise)
  2. Try to limit or control, in any manner, production, supply, market mechanism etc.
  3. Share the market or source of production by allocation of any specific geographical area of the market, number of customers or the nature of the goods produced in any manner whatsoever
  4. Indulge in bid rigging or collusive bidding (directly or otherwise)

Competition Law in Germany

Germany has for long, strongly advocated the rigorous enforcement of the prohibition of cartels. The German Federal Cartel Office in the year 2017, during rigorous audits found out that many companies were breaching the rules of competition. Although the fines that were collected were less as compared to other years, the FCO made it aptly clear that prevention of competition by any means in the market would be strongly taken care of[10].

The competition act in Germany is known as the Act Against Restraint of Competition (ARC) and was put to force on 5th June 2017. The provision regarding prohibition of Cartel is mentioned in Sec 1. However, what must be noted in this regard is that formation of Cartels isn't considered a crime under their criminal law, but they are considered an administrative offense. There is one important exception here, which is the rigging of bids which is considered a criminal offence under section 298 of the German Criminal Code[11].

Competition Law in Canada

The Competition Act in Canada is a federal law which more or less covers all the business conduct in Canada. It contains provisions from both civil and criminal side and aims at preventing the business houses to stop competition.

Following are the purposes of the Canadian Competition Act

  1. To enhance the efficacy and adaptation capacity of the economy of Canada
  2. Give the domestic players in the Canadian market, a level playing field and help them compete internationally.
  3. Ensure that the small-scale business houses are not completely bulldozed by the firms who boast of a huge economic and technological backing.
  4. To ensure that the consumers have a plethora of choices from among goods and services available in the market[12].
These were a few of the most important areas in which the comparison of Canada and Germany with India was done as far as the Corporate scene in the three countries are concerned. A detailed study shows us that India still lacks a couple of steps behind these two countries in this area but at the rate at which our country is catching up, the time is not far when we would topple these two countries and secure their position instead.

End-Notes:
  1. Available at https://blog.ipleaders.in/history-of-the-company-legislations/#:~:text=By%20the%20end%20of%201950,(Amendment)%20Act%2C%201956. Browsed on 21/06/2020 at 13:15 hrs.
  2. Available at https://www.rna-cs.com/an-insight-into-the-depositories-act-1996/ browsed on 21/06/2020 at 14:15 hrs.
  3. Available at https://www.business-standard.com/about/what-is-fdi browsed on 21/06/2020 at 14:50 hrs.
  4. Refer to footnote no 3.
  5. Available at https://www.thehindubusinessline.com/economy/india-among-top-10-fdi-recipients-attracts-49-billion-inflows-in-2019-un-report/article30608178.ece browsed on 21/06/2020 at 15:06 hrs.
  6. Available at https://theprint.in/opinion/investment-a-must-to-become-global-power-new-fdi-rules-cant-protect-indias-interests/407263/#:~:text=On%2017%20April%202020,it%20can%20invest%20in%20India. Browsed on 21/06/2020 at 15:26 hrs
  7. Available at http://www.investineu.com/content/germany-%25E2%2580%2593-major-destination-foreign-investment#:~:text=Foreign%20Direct%20Investment%20(FDI)%20policy%3A&text=The%20Federal%20Government%20of%20Germany,a%20period%20of%201%20year.&text=Foreign%20investment%20investing%20in%20certain,50%25%20of%20the%20eligible%20costs. Browsed on 21/06/2020 at 18:29 hrs.
  8. Available at https://www.nordeatrade.com/en/explore-new-market/canada/investment browsed on 21/06/2020 at 18:42hrs.
  9. Available at https://www.mondaq.com/india/antitrust-eu-competition-/33971/indian-competition-act-an-overview browsed on 21/06/2020 at 17:26 hrs.
  10. Available at https://www.globallegalinsights.com/practice-areas/cartels-laws-and-regulations/germany#:~:text=The%20competition%20act%20in%20Germany,in%20section%201%20et%20seq.&text=Cartels%20are%20not%20criminalised%20under%20German%20law. Browsed on 21/06/2020 at 18:01 hrs.
  11. Available at https://www.gesetze-im-internet.de/englisch_stgb/englisch_stgb.html browsed on 21/06/2020 at 18:08 hrs.
  12. Available at https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04267.html browsed on 21/06/2020 at 18:18 hrs.
Written By: Mr. Saikat Mukherjee, BA LLB - 3rd Year, Symbiosis Law School, Nagpur.
Email: [email protected]

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