The disputes landscape for foreign investors in India

India has a robust legal system where commercial disputes are generally settled by litigation before the courts, or through arbitration. What are the common areas of dispute and non-compliance that any South Korean investor should be aware of when planning to invest in the country, and what remedial action is available within the legal framework?

The Commercial Courts Act, 2015, provides for special commercial courts and benches of judges for the expeditious hearing of commercial matters, such as disputes arising from shareholder, subscription, investment and joint venture agreements, as well as insurance transactions, IP, sale of goods, and arbitration.

In addition to the formal court system, the country has certain quasi-judicial authorities, like the Competition Commission of India (CCI) and the Directorate General of Trade Remedies (DGTR), as well as several specialised tribunals (such as the National Company Law Tribunal) set up under special legislation to deal with specific types of cases. These tribunals usually have their own set of procedural rules and appellate structures.

Arbitration. Institutional and ad-hoc arbitration, whether seated in India or outside, offers certain distinct advantages over ordinary Indian courts including faster adjudication, procedural flexibility, limited grounds to challenge awards, a trend of upholding arbitral independence, and pro-arbitration amendments to India’s arbitration laws.

Cross-border disputes. India does not have any special laws for cross-border or foreign party-related disputes. Indian laws are generally agnostic to the foreign residence of a party. A foreign party can also sue and be sued before Indian courts if the requirements for invoking the jurisdiction are fulfilled. Indian courts, however, respect party autonomy. Hence, parties can choose a foreign, neutral jurisdiction or seat in their agreements.

Enforcement of court orders, judgments and arbitral awards. Indian courts have wide powers to execute decrees, including attachment and sale of properties, and arrest and detention in civil imprisonment. Arbitral awards from an India-seated arbitration can be enforced in the same way as a decree from an Indian court. These provisions are also available to foreign parties seeking to enforce Indian judgments, decrees and arbitration awards.

India only directly enforces judgments from specific countries that the government has notified as reciprocating territories. Judgments from other countries cannot be directly enforced and, as such, a fresh suit must be filed in India based on the foreign judgment. Such judgments merely hold evidentiary value. South Korea is not a reciprocating territory.

India is a party to the New York Convention for the enforcement of arbitral awards. Indian courts regularly recognise and enforce foreign awards if they are passed in commercial disputes and passed in countries notified as reciprocating territories by the Indian government under arbitration laws. South Korea is a reciprocating country under arbitration laws.

Indemnity claims. Indemnity claims by investors against Indian promoters can arise from several contractual representations or warranties. Depending on the grounds for triggering indemnity, parties must be aware of evidentiary issues in proving indemnity claims, particularly where damages are not necessarily attributable to the counterparty. Another key issue is the strict following of contractual procedures and timelines for raising indemnity claims.

Arbitrability. Given the potential overlap between statutory remedies under company laws, which are not arbitrable, and contractual disputes under a share purchase agreement, share subscription agreement, or shareholders’ agreement, claims must be carefully structured to avoid objections to arbitrability.

Proof and calculation of damages. Recently, there have been pronouncements on the interplay between foreign exchange laws and the payout of damages to foreign claimants. It is important to correctly calculate damages and to adduce the proper experts’ testimony to support calculations.

Award enforcement. While recent Supreme Court judgments have realigned Indian law on enforcement in line with the understanding of the New York Convention in other developed jurisdictions, enforcement actions remain a key challenge. It is important to have an enforcement strategy in place from the time of the outset of the claim process.

In our experience, arbitration is a particularly effective mechanism for adjudication of corporate disputes, except where a statutory remedy under Indian company laws is sought.

Trade laws

The Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020, (CAROTAR) prescribe conditions on imports from free-trade agreement partners, including South Korea. Importers must possess supporting documents demonstrating prescribed value-addition and originating norms, and meet the mandatory standards (quality control orders) for the import of products such as steel, auto parts and chemicals. Officers have discretionary powers to deny preferential tariff treatment.

Trade remedial actions by the DGTR reflect the global trend of increasing protectionism, thereby increasing dispute concerns. South Korean companies should effectively map out remedial measures to avoid disruptions and disputes.

Intellectual property

India is a signatory to important treaties related to IP, including the Paris Convention, the Patent Co-operation Treaty (PCT), the Berne Convention, the Universal Copyright Convention and the Madrid Protocol. Over the years, the Indian IP system has evolved in sync with global trends, which can be seen from the framework of National IPR Policy and the decisions of Indian courts that are increasingly granting newer forms of relief to IP owners.

To mitigate the risk of IP disputes, South Korean owners should consider the following strategies:

(1) Devise an appropriate IP search strategy given deficiencies in India’s IP databases.

(2) Have separate India-level agreements for IP assignments or licences to avoid the entire understanding falling in the public records of IP offices and make the structure efficient from a stamp duty perspective.

(3) Devise an appropriate IP ownership structure with its Indian subsidiary and its Indian employees from an IP and tax perspective.

(4) With reference to patent licensing, restrictive covenants prohibited under Indian patent law should be avoided.

(5) If Indian resident inventors are involved, a prior foreign filing licence should be obtained from the Indian Patent Office, or such a patent application should be first filed in India. Contravention of this provision may lead to a fine, imprisonment or revocation of the Indian patent.

(6) Keep track of Indian courts’ views on fair, reasonable and non-discriminatory licensing practices for standard-essential patents.

(7) Trademark assignments should be structured with the goodwill of the business during acquisitions, since assignments without goodwill involve tedious processes and may not provide the acquirer the right to claim prior goodwill.

(8) Encumbrances in relation to brands to be acquired from Indian companies may require a specific check since the Trade Marks Registry does not have a process to record encumbrances.

(9) The work-for-hire concept is not completely recognised in India, and accordingly, the copyright transfer agreement should specifically set out a copyright assignment clause reflecting the term and territory of assignment.

Antitrust

The Competition Act, 2002, administered by the CCI, governs the Indian competition landscape. The CCI has recently adopted a harsher focus on some sectors of particular interest to South Korean businesses. It has investigated the restricted availability of spare parts, resale price maintenance (RPM) and restrictions of finance facilities. The CCI has identified vertical restraint concerns such as exclusivity, territorial restrictions, RPM and tie-in arrangements. Anti-trust allegations against prominent manufacturers also abound.

Mirroring global antitrust developments, the CCI imposes hefty penalties on the companies and their officials. South Korean businesses must watch out for:

(1) Abuse of dominance claims could be easier to bring in the technology, high-tech machinery or even white goods sectors. This is because the CCI tends to adopt a narrower market definition in these sectors, resulting in potentially higher market power.

(2) Vertical restraints are routinely under the CCI spotlight. Particularly for RPM cases, the CCI could find a violation notwithstanding that a player may not have any market power.

(3) Technology markets that result in high entry barriers (for reasons such as network effects) could face increased scrutiny. Self-preferencing in vertically integrated markets, non-transparency with respect to algorithms used, leveraging to penetrate related markets, must be carefully reviewed.

(4) The CCI is increasingly adopting sophisticated and intrusive investigation techniques for price-fixing and other cartel cases, including reviewing algorithms, calling for email records, scrutinising call data records, and conducting dawn raids.

(5) Given a large base of low-income or middle-class consumers in India, the CCI has a strong proclivity to bring in cases where seemingly Indian consumers are affected, e.g., unfair or excessive pricing, unilateral terms of engagement with consumers, discriminatory pricing. Therefore, consumer business policies must adequately respond to these challenges.

The dispute landscape in India is ever-evolving. As one of the fastest growing economies, India is a hotbed of opportunities for international investors. South Korean investors would be much better placed in their India play if they remain cognisant of the potential issues set out above.

Atul Pandey is a partner at Khaitan & Co in New Delhi. You can contact him at atul.pandey@khaitanco.com

Ravitej Chilumuri is a partner at Khaitan & Co in Mumbai. You can contact him at ravitej.chilumuri@khaitanco.com

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