Economic powerhouses find harmony in troubled times

India shares a long association with Japan, not only in legal and economic areas but also in cultural and religious matters. This has particularly strengthened economic ties, which began at the start of the 20th century. The relationship remains largely free of territorial, cultural and ideological disputes and is testimony to the societal similarities of the two nations.

This is reflected in the two countries’ legislation. They are among the few to have specific company laws. India enacted the Companies Act, 2013, while Japan brought in the Companies Act (Act No. 86 of July 2005). Although there are similarities and differences of law and procedure, the underlying principles are common, particularly as to disclosure, reporting and shareholder approval. Because many joint venture private and listed companies have Japanese companies as shareholders, such entities will obviously appoint their representatives to boards of directors.

The Companies Act, 2013, applies to Japanese ventures in India. Lawyers are called on to explain the law to legal heads, directors and such departments as commercial. The similarities and differences make lawyers crucial in explaining the requirements of law in India.

For example, the Companies Act in India requires that board meetings must be held at least every 120 days. A notice calling a meeting must comply with the company’s articles of association. If it does not, a minimum of seven days’ notice must be given. Shorter notice is possible with the consent of the directors. One-third of the total number of directors constitute a quorum unless otherwise provided for in the articles of association. Board meetings are permitted through video conferencing, provided protocols are in place to ensure clarity and confidentiality, among other requirements. The chairman of the board shall act as the chairman of the meetings of shareholders.

Japanese law requires that directors report the status of the execution of their duties to the board of directors at least once every three months, which requires a meeting of the board at least once every three months. A person calling for a board of directors’ meeting must send a notice to each director no later than one week or such period as prescribed under the articles of incorporation, prior to the day of the board of directors meeting. A resolution shall be passed by a majority or a higher proportion as specified in the articles of incorporation of the directors present at the meeting where the majority of the directors entitled to participate in the vote are present. There are no specific provisions in the Japan Act regarding remote attendance. However, it appears that remote online attendance is permitted as a quorum under the Regulations for Enforcement of the Companies Act. The Japan Act does not require the chairman of the general meeting of shareholders to be the chairman of the board of directors. However, it is often stated in the articles of incorporation that the president shall act as the chairman of the general meeting of shareholders. Directors with special interests in a resolution may not vote on it.

With the rise in the number of joint ventures and the increase in investment from Japan, particularly for startups, it is important for participants to understand the differences between each country’s laws. This will enable smooth and efficient board processes, enhanced governance and ease of operations.

Notwithstanding their common approaches, Japan and India were bound to have their differences. The latest was the finding by a panel of the Disputes Settlement Body of the WTO in Japan’s grievance of 2019, holding that India’s tariff treatment of certain products was inconsistent with articles 11:1(a) and (b) of the General Agreement on Tariffs and Trade, 1994. Although India has since appealed, this has not harmed the countries’ joint endeavours. The forthcoming Japan Month in September and October 2024 only emphasises the commitment and joint endeavours of both nations to enhance bilateral relations in many areas, including politics, economics, culture and security. Coupled with the ambition of the Japan and India Vision 2025, the relationship is set to enter a new era of mutually beneficial economic and regional prosperity. This is a much-needed result in the ever-changing world of trade alliances.

Shiv Sapra is a partner at Kochhar & Co.