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Practising Law InstituteCorporate Law and Practice Course Handbook Series

PLI Order No. 11926February-March, 2007

Doing Business in India: Critical Legal Issues for U.S. Companies

*9 STRATEGIES FOR U.S. COMPANIES TO MITIGATE LEGAL RISKS FROM DOING BUSINESSIN INDIA

Ashish S. PrasadVioleta I. Balan

Mayer, Brown, Rowe & Maw LLP

Copyright (c) 2007 Practising Law Institute; Ashish S. Prasad and Violeta I.Balan

*11 Table of Contents

I. BACKGROUNDA. History of United States--India Business Relations

1. The Bhopal Tragedy2. The Dabhol Scandal3. Lessons Learned

B. The Recent Expansion of United States-India Business Relations1. Outsourcing2. Expansion of U.S. Companies in the Indian Market3. Future Trends and Opportunities

II. INTELLECTUAL PROPERTY ISSUESA. Protections Available Under Indian Law

1. Patent Protection in India2. Copyright Protection in India

B. Risks to U.S. Companies1. Exclusions to Patent Protection in India2. Enforcement of Copyright Laws

C. Strategies for U.S. Companies to Mitigate Risks

III. BRIBERY AND OTHER CORRUPT PRACTICESA. Risks to U.S. Companies

1. Corruption in India2. Foreign Corrupt Practices Act3. India and the Foreign Corrupt Practices Act4. Indian Regulations

B. Strategies to Mitigate Risk

IV. FINANCIAL AND ACCOUNTING PRACTICESA. Risks to U.S. Companies

1. U.S. Regulations Applicable to Foreign Subsidiariesa) The Foreign Corrupt Practices Act



(i) Accounting and Record-Keeping Provisions(ii) Foreign Subsidiaries(iii) Third Party Liabilityb) The Sarbanes-Oxley Act(i) Accounting Provisions(ii) Section 404 Liability(iii) Chief Executive Officer and Chief Financial Officer Certifications2. SEC Cooperation with Foreign Regulators3. Indian Securities Law and Regulators

*12 B. Strategies to Mitigate Risk

V. COMMERCIAL DISPUTE RESOLUTION IN INDIAA. Risks to U.S. Companies

1. The Indian Court System2. Problems with the Indian Court System3. Judicial Reforma) Company Law Boardb) Fast-Track Courtsc) Computerizing the Courts4. Alternative Dispute Resolution

B. Strategies for Mitigating Risks in Commercial Disputes1. Include a Well-Drafted Arbitration Clause in the Main Contract2. Include Various Other Contract Clauses in the Main Contract3. Bring a Lawsuit in the United States4. Bring an Investor-State Arbitration under the Applicable Bilateral Investment Treaty

VI. CONCLUSION

*13 I. BACKGROUND

This paper discusses strategies for U.S. companies to mitigate legal risks from doing business in India. [FN1] Thediscussion will focus on intellectual property issues, bribery and corruption, financial and accounting practices, andcommercial disputes. We will explain the legal risk factors for each issue, outline the legal protections availableunder Indian or international law, and offer potential strategies for mitigating the legal risks.

A. History of United States--India Business Relations

Despite India's great potential and the success stories of the liberalization reforms since 1991, there are somepitfalls for U.S. companies doing business in India. For many U.S. companies, the history of business relationsbetween the United States and India is overshadowed by two names: Bhopal and Dabhol.

1. The Bhopal Tragedy

Early on the morning of December 3, 1984, a storage tank at Union Carbide's Bhopal pesticide plant,located in India's central Madhya Pradesh state, began leaking methyl isocyanate gas, spreading a toxic cloud overmiles. The effects of this gas leak were devastating. In the immediate aftermath of the leak, it is estimated that about3,000 people died, while long-term exposure to the gas put the death toll around 20,000 with thousands moresuffering permanent disability. To this day, it is one of the worst industrial disasters in history. [FN2]

The disaster had far-reaching effects on economic and diplomatic relations between the United States andIndia. Union Carbide Corporation (Union Carbide) found itself in a difficult situation, with accusations ofnegligence, including that the Indian subsidiary operating the plant, Union Carbide India Limited (UCIL), hadreduced its safety budget, precipitating the disaster. In March 1985, the Government of India (GOI) enacted theBhopal Gas Leak Disaster Act, which enabled the government to act as the legal representative of the victims inBhopal-related claims. Over the next four years, litigation arising out of the Bhopal disaster was transferred fromU.S. *14 courts to Indian courts, finally ending in February 1989, when the Supreme Court of India ruled that Union



Carbide pay a settlement of $470 million to the Indian government. Activists appealed the decision, arguing that theaward was too low and failed to address the criminal charges. In 1991, however, the decision was upheld andpayment was made to Bhopal victims and their families over the next decade and a half. [FN3]

For Union Carbide and the GOI, the settlement was looked upon as a favorable one, putting an end tolengthy and costly litigation. In addition, as part of the settlement, the corporation would not face criminal charges.The Indian government had been reluctant to pursue further litigation or seek punitive damages against UnionCarbide or Dow Chemical (which acquired Union Carbide in 2001). In 1992, the Supreme Court of India reinstatedcriminal negligence charges against Union Carbide's former chairman Warren Anderson and eight other executives.However, the GOI has thus far been hesitant to prosecute the case, some argue for fear of discouraging foreigninvestment. [FN4] In 2006, Bhopal activists, who staged a hunger strike and met with Prime Minister ManmohanSingh, were able to obtain promises of clean water and a clean-up of the toxic site, but not of prosecuting thecriminal negligence charges. [FN5]

2. The Dabhol Scandal

In 1991, facing a balance of payments crisis, India adopted important economic, fiscal and legislativereforms. [FN6] For decades, direct investment in India had been governed by the "license raj," a planned economysystem in which hard-to-acquire licenses for imports were granted by the GOI. The first reforms dismantled thissystem and freed 84 percent of Indian industry from licensing *15 requirements. Other economic reforms followed,allowing foreign investors a controlling share of joint ventures and raising foreign direct investment (FDI)thresholds in some economic sectors. [FN7]

Concurrent with its economic crisis, India faced an energy crisis. A shortage of electricity led to frequentblackouts and brownouts across the country. India's electric generating capacity was sufficient for 5 percent of itspopulation of 936 million people. [FN8] In 1992, the Indian Ministry of Power, unable to raise money to upgrade itspower infrastructure by selling off its public companies or by obtaining a loan from the World Bank, looked toforeign investment to solve the country's energy shortage.

In May 1992, India's Power Secretary, Shri S. Rajgopal, traveled to United States to meet with a dozen U.S.power companies to arrange for investment in India's power sector. Following the initial meeting in the UnitedStates, Rajgopal met with representatives of Enron Corporation, who made an offer to build a power plant inDabhol, a small township in the west coastal Maharashtra state. [FN9] India's Foreign Investment Promotion Board(FIPB) [FN10] approved Enron's proposal and soon thereafter Enron, operating under the registered Indian companyDabhol Power Corporation (DPC), began negotiations with the Maharashtra State Electricity Board (MSEB). Ratherthan proceed with the normal competitive bid process, the MSEB engaged in direct negotiations with DPC,reasoning that the power problems in Maharashtra (home to the commercial center, Mumbai) were so acute that itwould contract instead with a single *16 company with appropriate experience and the ability to finish the project ina timely fashion. [FN11]

By July 1992, the MSEB had signed a memorandum of understanding with DPC. Under the agreement,DPC would build a 2,015 MW gas-fired power plant at a cost of approximately $3 billion, which would be thelargest single FDI in India at the time and the largest power station in the country. The Dabhol plant would beowned by a consortium of companies. Enron would have an 80 percent share, General Electric, the supplier of theplant's equipment and machinery, would have 10 percent and Bechtel, the primary builder of the facility, 10 percent.Furthermore, Enron asked for 23 percent return on equity for the project, which it regarded as high risk. [FN12]

In December 1993, the MSEB entered into a power purchase agreement (PPA) with DPC promising topurchase power from the Dabhol facility as long as the plant met efficiency targets. Moreover, to assuage investorconcerns, the central government offered a counter-guarantee to pay for the power generated by the Dabhol plant iffor some reason the MSEB did not. Finally, the government agreed to a clause in the PPA allowing the parties theright to seek arbitration in London, alleviating concerns about adjudicating disputes in the overburdened Indiancourt system. [FN13]

During negotiations over the PPA, news of Dabhol reached the Indian public. Much of the media coveragewas negative and reflected a fear that Enron was taking advantage of the Indian public by charging high power rates.Further, corruption was alleged on the part of Maharashtra government officials suggesting that the no-bid processwas the result of bribery. [FN14] The criticism of Enron in India was so great that the opposition Bharatiya JanataParty (BJP) made cancellation of the Dabhol project a central tenet of its election platform. [FN15] When it won theMaharashtra state election a few months later, the BJP kept its election promise and shut down Dabhol. [FN16]

*17 The shut down was widely seen as a litmus test by other Western companies doing business in India.



U.S., French, and English government officials and business leaders made statements at the time suggesting thatwere Dabhol to fail, there would be repercussions on future investment in India. [FN17] Fortunately, the stategovernment was willing to renegotiate with Enron over the Dabhol project and, in January 1996, a new agreementwas reached. Among the new deal's provisions, Enron had to slash the cost of the project by 11 percent, lower theelectricity prices charged to the MSEB, and give 30 percent equity share of the project to the MSEB. [FN18] Afterthe successful renegotiation, construction on Dabhol resumed and part of the plant was functional by 2000.

The second Dabhol crisis, however, was just around the corner. The Dabhol plant was originally planned torun on relatively efficient but expensive liquid natural gas. However, when the Dabhol deal was renegotiated, theDPC agreed to operate the first phase of the plant on naphtha, a cheaper, less environmentally friendly fuel.Beginning in May 2001, the price of naphtha skyrocketed and the MSEB was unable to pay for Dabhol's power.Enron filed legal notice, alleging breach of contract. Just as this latest saga was unfolding, however, Enron collapseddue to allegations of securities fraud in the United States, and soon thereafter its co-partners in the DPC, GE andBechtel, took their case against the Indian central and state governments to an international arbitration court inLondon, as stipulated by the PPA. Rather than go through the arbitration, India appointed a committee to settleclaims from GE, Bechtel, and other foreign investors as well as to get the Dabhol plant up and running again. Indiasettled the foreign investor claims and was able to buy out GE's and Bechtel's stakes in the DPC for $305 million,later reselling those stakes to a newly created Indian company, Ratnagiri Gas and Power Pvt Ltd. [FN19]

3. Lessons Learned

For U.S. companies, the Bhopal and Dabhol experiences have been largely seen as negative, underscoringthe political and other *18 risks of doing business in India. Whether incidents such as Dabhol or Bhopal are viewedas exceptions, or thought of as examples of a general investment climate, is of paramount importance to Indiabecause they can have a definitive impact on an investor's decision to enter the Indian market.

The Bhopal disaster and the ensuing costly litigation in the United States and India illustrate the long reachof an accident, not just geographically but also in terms of people who may be held accountable, e.g., criminalcharges against top level executives. The episode also proves that accidents have not only physical effects, but alsobring about severely scrutinized social and economic harms. As a result, a disaster such as the one in Bhopal canraise important questions about foreign investors' responsibilities beyond legal obligations. Bhopal has beendescribed "as the product of (1) the colonial legacy of Indian law; (2) the power and greed of multinationals; (3) awestern imported development ethic or ideology . . .; and (4) the disregard by all powerful actors, governments, andinvestors alike, for the welfare of the poor citizens of the third world." [FN20] Therefore, investors must be preparedto be faced with such public accusations when tragedies strike. Investing in building a favorable public image andsupporting the communities in which the investments are located are not just sound business practices, but theycould prove beneficial in minimizing the public outcry if and when a disaster strikes.

The Dabhol saga indicates that domestic political struggles and a public's view of foreign investors asexploiting entities can play a significant role in the success of a particular investment. These considerations shouldtherefore be evaluated and incorporated in the company's business plans and political risk insurance policies.Further, while the renegotiation of the contract was viewed as a victory by both parties, Enron's willingness to enterinto a new contract under terms less favorable than the first one had important consequences. *19 First, it reinforcedthe general population's opinion that the first contract was unfair. Second, it undermined the integrity of thecontractual obligations and overlooked the pacta sunt servanda [FN21] principle of international contracts. Third, itencouraged governments to unilaterally void a contract as a tactic to coerce an investor into a renegotiation.

The drafting of a solid contract and unwavering adherence to the terms of the contract is generally viewedas the best strategy to prevent breaches or renegotiations such as in Dabhol. The likelihood of renegotiations can bereduced if parties include in their agreements clauses dealing with unforeseen circumstances and hardships in a fair,useful and creative manner. However, a firm contract, regardless of its content or length, is not the solution to allproblems. A solid and candid business relationship, preferably as transparent as possible, can prove essential if thedeal is threatened to break down. This relationship is built before or during the initial negotiation phase, but it mustbe maintained after the contract is signed. Mechanisms that cultivate open and permanent communication areindispensable to the success of any long term business relationship. Investors should be aware that contracts do notcarry the same significance in other cultures as they do in the American culture. The Indian culture, as most otherAsian cultures, is based on relationships. The signing of a contract is just the beginning of a relationship which mustbe nurtured and maintained. [FN22]



B. The Recent Expansion of United States-India Business Relations

The last decade has seen a remarkable expansion of commercial ties between the United States and India. With apopulation over 1 billion, a large and sophisticated English-speaking work force, a democratic government, and acommon law legal system, India has been viewed by U.S. companies as an enormous potential market for labor andconsumer goods.

*20 1. Outsourcing

Much of India's success with U.S. companies can be attributed to the outsourcing boom of the last decade.With 100 percent FDI in place for the technology sector, and a large base of technology workers, India became adestination for the research and development (R & D), application development and information technology (IT)maintenance work for global companies wishing to lower their labor costs. By 2005, about half of the Fortune 500companies were clients of Indian IT companies. [FN23] Overall, India claims almost 70 percent of the market forglobal offshore IT services while three of the country's six biggest companies (by stock market valuation) are in theIT industry. [FN24]

Furthermore, business process outsourcing (BPO), the outsourcing of business functions such as callcenters and finance and accounting operations, is increasingly being done in India. [FN25] India has been anattractive choice for BPO because it has a well educated workforce. [FN26] Further, there are no equity caps oninvestments in an Indian entity which will process data transmitted to it from the parent company located outsideIndia. [FN27] In addition, corporations which wish to establish a wholly owned subsidiary in India as a captiveoutsourcing company can generally use the "automatic route" and do not need governmental approval. [FN28]Lastly, if the company engaging in the BPO functions is established as an Export Oriented Unit (EOU) or anotherspecially designated unit, then the company may enjoy up to ten-year tax holiday. [FN29]

U.S. companies, recognizing the benefits of the favorable tax treatment and the relatively inexpensive laborof the Indian market, *21 have outsourced a lot of their business functions to India. For example, GE hasapproximately 12,000 employees in India who undertake accounting, claims processing, credit evaluation, and othersimilar functions for approximately eighty worldwide GE branches. [FN30] Intel India has increased its staff from10 to 1,000 in 4 years and estimates it will reach 2,000 in 2006. [FN31] Dell has said that it will increase itsoutsourcing presence in India from 10,000 to 20,000 employees. [FN32] It is estimated that more than 40 percent ofthe global Fortune 500 companies perform their back office processing in India. [FN33] McKinsey & Companyforecasted that Indian service companies would reach $142 billion in revenues in 2008. [FN34]

2. Expansion of U.S. Companies in the Indian Market

In addition to the outsourcing boom, U.S. companies have in recent years been ramping up operations inIndia to serve the Indian market. India's consumer middle-class is estimated to be 300 million strong, [FN35] aboutthe same as the population of the United States. [FN36] A 2005 study by the Indo-American Chamber of Commercefound that a majority of U.S.-based firms with operations in India reported "double-digit year-on-year growth." Forexample, consumer products have been a success story for U.S. companies in India. To name a few, Reebok hasreported that India is its "fastest growing market in the Asia Pacific" region and Motorola has listed India as its thirdlargest market. [FN37] U.S. companies are acquiring Indian companies, developing products for the Indian market,and generally increasing their market presence there.

*22 3. Future Trends and Opportunities

Overall, these trends will likely continue as India's annual GDP rate of around 8 percent over the past twoyears shows no signs of abating. While a decade ago many prognosticated the potential of India, that potential hasnow started to be realized. According to Goldman Sachs, India could become the fastest growing economy in theworld by 2050. [FN38] It is estimated that India's GDP will reach $1 trillion by 2011 and $27 trillion by 2050,making India the third largest economy in the world. [FN39] India has already been labeled as the second mostattractive investment location among transnational corporations, [FN40] the second most attractive destination formanufacturing, [FN41] and the most preferred destination for services. [FN42] The successful IT industry, therapidly growing telecom market, the opening of the food processing and manufacturing sectors, and the recentinfrastructure programs and commitments for the development and modernization of roads, airports, ports, and



power sources are the main investment opportunities which U.S. companies have been targeting. [FN43]The growth of India's economy will likely be correlated to the expansion of the diplomatic ties between the

United States and India. Besides common values and interests, [FN44] the United States and India share importantsecurity threats and economic concerns. First, they share a security threat posed by violent religious extremists.Second, they share a concern over the growth of China as a significant *23 regional and world power. [FN45] Inaddition, the two countries are cooperating on a variety of global issues, such as funding for innovation andtechnological advances and advancement of public health. [FN46]

President George Bush's visit to India in March 2006, and the ensuing nuclear agreement between the twocountries, provide further foundation for expanded ties between the United States and India. [FN47] As stated bySecretary of State Condoleezza Rice, the U.S.-India Civilian Nuclear Cooperation Agreement "will advanceinternational security, enhance energy security, further environmental protection, and increase businessopportunities for both . . . countries." [FN48] While there is room for improvement and significant trade barriersbetween the two countries still exist, two-way trade between the United States and India increased from $16 billionin 1998, to $26 billion in 2005. [FN49] U.S. exports, totaling almost $8 billion, increased almost 30 percent in 2005.[FN50]

II. INTELLECTUAL PROPERTY ISSUES

The protection of intellectual property is a paramount concern for U.S. companies doing business in India,especially for companies that have IT or business process functions there. India's intellectual property laws haveundergone significant reform over the past ten years, bringing many of them in line with international standards.However, these intellectual property protections are still weaker than those of the U.S. in important ways. Further, aneed for public awareness, as evidenced by the small number of patent applications filed per year, coupled withinefficient bureaucracy and weak penalties, have contributed to weak protections for intellectual property. [FN51]

*24 Outsourcing to India has exposed U.S. companies to a host of IP protection issues. In a standard Indianoutsourcing arrangement, a company will turn over its IT functions (e.g., application development and maintenance,data center management, and data network operations) or business process functions (e.g., call center, customerrelationship, finance and accounting, and human resources) to a supplier or captive facility in India. This transferusually requires that a company give control of significant intellectual property to its supplier. [FN52]

In this section, we will discuss the risks to a U.S. company's intellectual property when it does business in India,identify the protections available under Indian law, and outline potential strategies for preserving a company'sintellectual property rights in India.

A. Protections Available Under Indian Law

1. Patent Protection in India

Historically, patent protection in India has been weaker than in the United States. Prior to 1970, studies hadshown that foreign nationals were applying for patents at almost three and a half times the rate of Indian nationals.[FN53] In addition, Indian pharmaceutical companies were found to represent only 10-25 percent of the domesticmarket. [FN54] These statistics combined with a protectionist political climate led to passage of the Patents Act of1970.

The law provided little protection for patent holders, especially for foreign pharmaceutical and chemicalcompanies. Procedural delays that allowed a patent to expire before a product went to market, a compulsorylicensing system with a low royalty ceiling, as well as the exclusion from patentability of certain substancesintended for use as food, medicines or drugs or produced by "chemical processes," all contributed to a weak patentprotection. [FN55] This system, coupled with an overburdened patent office unable to adequately register or enforcepatents, led to the flourishing of piracy in *25 India. It also made India less appealing to multinational companieslooking to open operations that involved technology transfers.

Patent term duration, particularly for food and medicine patents, was short under the Patents Act of 1970,typically lasting only three years. Development, regulatory approval, and mandatory clinical trials were alsorequired, slowing down the release of these products. Moreover, procedural delays associated with patentregistration included a minimum six-year patent examination period. Because the term of pharmaceutical patents



was the "earlier of seven years from the date of publication or five years from the date of issuance," these delaysensured that patents had expired before practical use. [FN56]

Since 1994, India has strengthened protections for foreign and domestic patent holders. That year, Indiajoined the General Agreement on Tariffs and Trade (GATT), which later became the World Trade Organization(WTO). Membership in the WTO required that India enact legislation within ten years to comply with theorganization's negotiated Trade-Related Aspects of Intellectual Property Rights (TRIPs) agreement. [FN57] Sincethen, the GOI has enacted three successive amendments to the Patents Act of 1970 to bring its patent laws intocompliance with TRIPs. [FN58]

India now allows patentability for pharmaceuticals and agro-chemicals. [FN59] In addition, it has extendedthe patent period to 20 years. [FN60] Other significant reforms include a shifting of the burden of *26 proof in casesof patent infringement, taking the burden from the patentee to the company or individual, to demonstrate that therehas been no infringement on a patent-holder's rights. [FN61] IP enforcement is undergoing further reform with theGOI implementing two modernization projects to improve services for patent and trademark information. [FN62]

2. Copyright Protection in India

India grants copyright protection under the Indian Copyright Act 1957 and the Copyright Rules 1958. Theformer act has been amended multiple times and, after the passage of a 1999 amendment, is compliant with theinternational copyright requirements of the TRIPs agreement. Generally, these laws correspond with internationalstandards for copyright protection. For example, copyrights can be granted for original literary, dramatic, musical,artistic, film, and sound works. The term of a copyright for literary, dramatic, musical or artistic work is the lifetimeof the author plus 60 years. For photographs, films, records, and posthumous publication, the copyright is grantedsimply for 60 years. [FN63]

The author of the work is presumed to have the copyright unless the author creates the work within thescope of his/her employment, and in such case the employer has the copyright. [FN64] Further, Indian law providesfor "moral rights" of an author in a particular work. [FN65] Under this doctrine, one can claim authorship rights andprohibit alteration or mutilation of the work. [FN66] More importantly, these rights cannot be assigned, but they canbe enforced even after the copyrights in the work have been assigned. [FN67]

Unlike India's patent regime, India's copyright laws provide some intellectual property protection forcomputer programs, making*27 deliberate software piracy an infringement and a punishable offense. As a result ofthe latest amendment to the Copyright Act in 1999, copyright protection was also extended to cover originaldatabases. However, other sections of the 1999 amendments extended the "fair use" doctrine of the Act to computerprograms and allowed for the copying of computer programs for purposes such as "noncommercial personal use,""protection against loss," as well as study of the program itself, among others. [FN68]

B. Risks to U.S. Companies

1. Exclusions to Patent Protection in India

Despite the reforms, Indian patent law still has loopholes of which U.S. companies should be aware. Mostnotably, India does not recognize patents on computer programs, per se. [FN69] A 2004 Patents (Amendment)Ordinance modifying the Patent Act extended patentability to the technical application of a computer program toindustry or in combination with hardware. [FN70] However, this language was scrapped in a recent 2005amendment and reverted the law to its prior position of excluding computer program per se from patentability.[FN71] The absence of protections for computer programs per se is a substantial concern for U.S. companiesoutsourcing IT or business process functions to India.

Besides the IT industry, the U.S. pharmaceutical industry has been dissatisfied with some of the provisionsof the new amendments to Indian patent law, pointing to the new "mailbox" [FN72] application*28 systemestablished under the 1999 Amendments. [FN73] Under this system, established to comply with TRIPs, apharmaceutical patent may be acquired by filing for one before the establishment of a law granting them, therebyensuring a patent is registered once the law comes into effect. However, the 2005 Amendments prevent a patenteewho acquires a patent through this system from bringing an infringement action against a business producing andmarketing the patented product before January 1, 2005 and which continues manufacturing the product on the datethe patent is ultimately granted. [FN74] The patentee may only demand a "reasonable" royalty. [FN75]

A noteworthy exclusion to India's patent regime is micro-organisms. [FN76] However, after passage of the



2005 Amendments, a "Technical Expert Committee" was established to evaluate the patentability of micro-organisms and recommend changes to the Patent Act accordingly. [FN77] TRIPs does not allow a member state tobar patents of microorganisms, a factor that will likely play a role in the committee's deliberations. [FN78]

Despite the radical change in India's patent law since the passage of the amendments, U.S. companies haveexpressed reservations over some of the notable patent protection absences in the new laws. In the aftermath of the2005 Amendments, Acting U.S. Trade Representative Peter Allgeier summed up the United States' position vis-à-visthe new laws: "'India took a significant step to improve its patent protection regime this year with passage of a newPatent Amendment"' but the United States "'will closely monitor implementation of the amendment."' [FN79]

*29 2. Enforcement of Copyright Laws

The greatest obstacle to copyright protection in India is enforcement of the existing laws. Civil actions,criminal charges or institution of administrative proceedings are available remedies against infringement. [FN80]However, because copyright infringement cases must be litigated in the overburdened Indian court system(discussed in the "Commercial Dispute Resolution" section of this paper) where they are assigned low priority, it isdifficult to prosecute such cases. [FN81] Further, Indian courts will generally not award damages unless it is proventhat the alleged infringer was aware or had a reasonable basis for ascertaining that copyright existed in the work.[FN82] In addition, the courts' treatment of litigants is not currently compliant with TRIPs standards. [FN83]

Copyright piracy and optical media piracy, in particular, are growing problems in India. [FN84] India doesnot currently have an optical disc law to address optical media piracy. [FN85] The U.S. copyright industry estimatesthat lost sales due to piracy in India of U.S. movies, sound recordings, musical compositions, software, and booksamounted to almost $500 million in 2004. [FN86] After placing India on the Priority Watch List, the United Statesurged India to enhance its protection of "undisclosed test data against unfair commercial use *30 for pharmaceuticaland agricultural chemical products." [FN87] The enforcement regime needs to be strengthened in several areas,including stronger border protection against counterfeited and pirated goods, speedier law enforcement actionagainst infringers, increased number of raids for copyright infringement, tougher sentences imposed by courts, andshorter time in reaching court dispositions. [FN88]

C. Strategies for U.S. Companies to Mitigate Risks

In order to protect themselves from the risks mentioned above, U.S. companies can undertake several steps. First,U.S. companies should note that the "work made for hire" doctrine in India is limited to "work made by an employeewithin the course of employment" and it does not extend to "commissioned work" or work undertaken byindependent contractors or third party subcontractors. As a result, the "work made for hire" provisions should besupplemented with contractual protections such as IP assignment clauses. [FN89]

Second, if an Indian vendor hires third parties to develop IP, it is advisable to obtain an assignment in favor of thecustomer from the third parties. Also, the contracts between the Indian vendor and third parties should includeappropriate assignments transferring full legal title in the new IP to the Indian vendor, which can in turn be furtherassigned from the Indian vendor to the ultimate customer. [FN90]

Third, because Indian law includes complicated presumptions applicable to licensing and assignment (e.g., ifduration is not specified, it is deemed 5 years, if territory is not specified, it is presumed to be India, if the right isnot exercised within a year, then the rights lapse), the contractual provisions should be drafted to clearly state theduration and territory of assignment or license. For example, the clause might contain this language: "Supplierhereby irrevocably assigns in perpetuity to Customer any and all worldwide right, title and interest." [FN91]

The contract can also include: 1) requirements for periodic delivery of transaction-critical deliverables to thecustomer over the term of the contract, 2) complete and forceful IP ownership provisions, 3) infringement *31warranties and indemnity clauses, 4) non-disclosure obligations and 5) non-compete provisions restricting the use ofcompetitive technology or personnel for competitors. The customer can also require that the vendor personnelexecute customer-approved non-disclosure agreements that would expressly allow the customer to self-enforce theagreement against the vendor's employees. [FN92] Lastly, the contract can deal with rights of access in deliverablesand other IP between the vendor and the customer and include provisions regarding those rights after termination ofthe engagement. [FN93]

III. BRIBERY AND OTHER CORRUPT PRACTICES



A. Risks to U.S. Companies

1. Corruption in India

Corruption is regarded as a widespread problem for U.S. companies doing business in India. It may comefrom a government official demanding a special "fee" for approval of necessary permits or from a business partnerlooking for a "sweetened" bid. In a 2005 study measuring perceptions of corruption by country, India ranked 92ndout of 159 countries. [FN94] Bribery is a common feature in both India's public and private sectors, affecting alllevels of Indian society. [FN95] A 2000 survey by India's Central Vigilance Commission, an independent Indiangovernment commission advising on corruption problems, found that almost 50 percent of Indians who usegovernment services pay bribes. [FN96] In this section, we will describe the laws--both U.S. and Indian--concerningcorrupt practices, explain the *32 risks involved under different investment schemes, and offer potential strategies tomitigate those risks and ensure compliance with the applicable regulations.

2. Foreign Corrupt Practices Act

The U.S. Foreign Corrupt Practices Act (FCPA) explicitly defines and prohibits engagement in corruptpractices. The FCPA was passed by the U.S. Congress in 1977 in the wake of a series of SEC investigations intoforeign corrupt practices by major American companies. The Act's main goal was to curb the bribing of foreigngovernment officials in return for contracts. Its provisions defined and prohibited bribery, set new accountingprocedures, and granted enforcement powers to the SEC and DOJ. [FN97]

The anti-bribery provision of the FCPA defines bribery and allows exceptions for certain kinds ofpayments. The law broadly applies to U.S. companies, including companies incorporated or with their principalplace of business in the United States, as well as those companies' officers, directors, employees and agents. [FN98]Moreover, the FCPA can, in some circumstances, apply to majority-owned subsidiaries with some provisionsapplying to minority-held subsidiaries or joint-ventures. [FN99]

Bribery is defined by the FCPA as paying, promising to pay, or giving authorization to pay any foreignofficial, foreign political party, or third person for purposes of influencing him/her in "his official capacity" orinducing him to use his/her influence with a foreign government to assist "in obtaining or retaining business for" anyperson. [FN100] Moreover, the FCPA extends the scope of bribery to include willfully knowing that such moneywould be directed to a foreign official or political party for the same ends. [FN101] The FCPA explicitly prohibitsthis activity, but offers some exceptions.

For example, the FCPA provides for some forms of payment to foreign officials and political parties andtheir officials as long as the payments are made for "routine governmental action" by said person(s). [FN102] Suchroutine actions are meant to include those performed *33 commonly by such officials and include: obtaining permitsand licenses, processing governmental applications, inspecting goods, providing police security, phone service,power and water, and other similar actions. [FN103] Furthermore, the FCPA includes some affirmative defenseswhich allow for payments to be made if they are lawful under the laws of the foreign official's country. [FN104] Forexample, an affirmative defense applies to a payment made as a "reasonable and bona fide expenditure, such astravel and lodging expenses" for a foreign official to promote, demonstrate or explain products or services or to aidin the performance of a contract with a foreign government. [FN105]

Beyond the provisions on bribery, the FCPA includes provisions on accounting that require acompany to maintain a level of financial transparency to prevent the use of "slush funds" for purposes ofbribery. Every issuer of securities who is registered with the SEC must comply with these provisions whichconsist of keeping "books, records, and accounts" that "reflect the transactions and dispositions of the assetsof the issuer" as well as developing and maintaining a "system of internal accounting controls." [FN106]These controls must *34 provide reasonable assurance that transactions are executed in a mannerauthorized by management, that access to assets and transactions is limited to those authorized bymanagement, and that transactions are recorded accurately and "in conformity with generally acceptedaccounting principles." [FN107] We will discuss the accounting and record-keeping provisions of theFCPA in greater detail in the "Financial and Accounting Practices" section of this paper. The FCPA isenforced jointly by the SEC and DOJ. [FN108] While the two agencies may work in parallel, the SEC isgenerally responsible for civil investigations of violations of the FCPA's accounting and reportingprovisions while the DOJ is tasked with criminal prosecutions arising out of the anti-bribery and accountingand reporting provisions of the Act. [FN109] The maximum civil penalty for violation of the anti-bribery



provisions by a corporate entity is a fine of $2 million, [FN110] while the fine for an individual committinga willful violation ranges from $10,000 to $100,000. [FN111] In addition, an individual committing such aviolation may face criminal charges with a 5-year maximum jail sentence. [FN112]

3. India and the Foreign Corrupt Practices Act

U.S. companies doing business in India must pay particular attention to compliance with the FCPA. Underthe FCPA, a company is liable for any violation which stems from "knowing that all or a portion of such money orthing of value will be offered, given, or promised, directly or indirectly, to any foreign official." [FN113] This"knowledge requirement" is more extensive than "actual knowledge of wrongdoing" and does not accept "willfulblindness." [FN114] Willful *35 blindness may be gleaned from the presence of certain "red flags," factors thatreasonably alert a U.S. company to conduct in violation of the FCPA. Red flag factors include the reputation of acountry for widespread corruption, news accounts regarding corruption in a country or relevant industry within acountry, absence of transparency of third-party agent's or official's records, and payments made through convolutedmeans (e.g., third countries involved and use of entities in secrecy jurisdictions), to name a few. [FN115]

4. Indian Regulations

Of course, the operations of U.S. companies in India must be in compliance with the local laws of theIndian central and state governments with respect to corruption. India's legal regime on corruption is weaker thanthat of the United States. The Indian Penal Code specifically prohibits bribery of public servants, but prosecutes theindividual receiving the bribe, not the other party involved in the act of bribery itself. In addition, one clause(Section 165) prohibiting bribery also extends to subordinates under the direction of a public official who acceptbribes or make arrangements with another official to accept bribes on his behalf. The penalty for accepting bribesincludes imprisonment for up to three years, a fine, or both. Indian anti-bribery law only applies to a person orpersons who are, or soon expect to be, public officials, and does not apply to private citizens accepting bribes forbusiness. [FN116]

Beyond normal law enforcement, the Indian government established two prominent governmentorganizations to deal with the problems of corruption. The Central Vigilance Commission (CVC) is tasked withinvestigating corruption and releases regular reports and surveys on corruption in India's public and private sectors,while the Central Bureau of Investigation (CBI) is charged with investigating and prosecuting corruption cases.[FN117]

Despite these measures against corruption, enforcement of the anti-corruption laws is an area whereimprovement is possible. In a recent survey of perceptions of corruption in India, 75 percent of respondents felt thatcorruption in public services had increased in 2004-2005. [FN118] Moreover, another study found that of the sectorsperceived to be most corrupt, the power sector in India was ranked in *36 the top three. [FN119] This is especiallyproblematic in that corruption in power administration negatively affects foreign investment in this sector, which iswidely thought to be required for future GDP growth in India. Likewise, large-scale corruption scandals in the 1990sinvolving the telecommunications sectors discouraged foreign investment at a time when the GOI actively sought it.[FN120]


To mitigate the risks associated with corruption or the perception of corruption in India, a U.S. corporation shouldfirst and foremost adopt and disseminate to all employees in India or dealing with India a written policy oncompliance with the applicable anti-corruption regulations. [FN121] Raising awareness about anti-corruptionobligations and non-compliance sanctions is half the battle in combating or preventing corruption. This policy maybe part of a more general compliance program, if such a broader program already exists. The anti-corruption policyshould include a general statement of compliance, [FN122] but then it should be carefully drafted to reflect theactual business conducted or expected to be conducted in India. It should also describe in layman *37 terms theobligations of employees, including reporting requirements, and provide a short summary of the implementing andmonitoring procedures in place. The repercussions on the employee and the company should also be described insimple, but firm language. The same or a shorter policy should be provided to all individuals or business entities thatmay act on the company's behalf, e.g., agents or consultants.

In addition to a general policy, the U.S. company should, of course, develop implementing, monitoring and



reporting mechanisms. They should be developed in consultation with corporate and local personnel or personnelfamiliar with the culture and legal climate in India. An assessment of their utility and currency should be conductedregularly and, if necessary, the procedures should be updated to reflect changes in law or practice.

A policy or procedure without proper dissemination, training, implementation and enforcement would be of littleusefulness. As a result, adequate communications and training for all employees are necessary. [FN123] Thetraining materials should include not just an overview of the obligations and disciplinary actions, but also includepractical guidelines on how to deal with everyday business activities. Naturally, the training tools may be differentdepending of the functions of the employee, e.g., an executive may be trained on how to recognize red flags or spotimproper practices while a lower-level employee may not necessarily need the same type of training. Becausecommunicating to Indians implicates different cultural norms than communicating to Americans, it is advisable thatthe training materials are developed with the help of linguists or qualified personnel accustomed with the culture,habits and customs in India.

If the company deals with third-party agents, independent contractors, and consultants on a sustained basis, it maybe wise to invest in training those entities as well. [FN124] However, training cannot replace due diligence beforeentering into the engagement or monitoring of the *38 third party during the course of the engagement. Whenselecting third parties as business partners in India, U.S. companies should conduct due diligence by evaluating thereputation of the Indian company, especially in the ethical arena, and verifying whether any foreign official may beassociated with the third party as an owner, member of the board of directors, executive management, or employee.[FN125] Further, during the course of the business relationship with the third party, the U.S. company shouldcarefully monitor the accuracy of the invoices and the documentation attached to the expense reports. [FN126]

The compliance policy and procedures should also include contact persons for answering questions or reportingconcerns or suspected violations. Protecting the confidentiality of those who seek guidance or report improprieties isvery important to foster a desirable open environment. [FN127] If feasible, an email inbox or help line may also beset up for receiving questions or reporting improprieties. The use of email reporting may encourage reporting byindividuals who wish to remain anonymous.

Besides a regular audit process, internal investigations should be launched in the event allegations of corruptpractices are reported or suspected. These activities should be carefully documented. The documentation shouldinclude not just a summary of the process, but also the sources of information and the results or recommendationsgiven. Prompt action and, if necessary, disciplinary proceedings must be taken without delay. In order to have acredible compliance program, the disciplinary actions should be enforced consistently and equally among allemployees.

*39 IV. FINANCIAL AND ACCOUNTING PRACTICES

Given the recent wave of investigations into accounting practices in the United States by the SEC and otherregulatory bodies, it is important for U.S. companies to understand what constitutes legal compliance in accountingfor their business operations in India. In this section, we will explain the accounting standards required by U.S. lawfor investment in a foreign company. We will then discuss the risks to U.S. companies from liability under theFCPA and the Sarbanes-Oxley Act as well as increased extraterritorial enforcement by the SEC. We will thencontrast those regulations with Indian regulatory law and explain what steps need to be taken to comply with bothsets of rules. Finally, we will provide recommendations for a compliance program for U.S. companies to mitigatethose risks.


1. U.S. Regulations Applicable to Foreign Subsidiaries

In response to a number of high profile corporate and accounting scandals, Congress passed the Sarbanes-Oxley Act in 2002. In addition to new SEC registration and reporting requirements, the Act places additionalresponsibility for compliance directly on executives. Further, the FCPA makes U.S. companies liable for the acts offoreign subsidiaries. In light of these regulations and renewed scrutiny by federal regulators, it is very important fora U.S. company, as well as its foreign subsidiaries, to be in compliance with these regulations in their Indianoperations.

a) The Foreign Corrupt Practices Act



(i) Accounting and Record-Keeping Provisions

As noted in the previous section, a U.S. company with a subsidiary in India should ensure that it iscompliant with the accounting and record-keeping provisions of the FCPA. Recent amendments to the ExchangeAct have resulted in heavier penalties for executives and officers found to be in violation of those provisions.Penalties for a single criminal violation include imprisonment for a maximum of 20 years and fines of $5 million foran individual and $25 million for an entity. [FN128] These penalties are significantly more severe than those for *40violation of the anti-bribery provisions of the FCPA discussed in the previous section. The most common means ofFCPA enforcement is a civil action by the SEC under its accounting provisions, rather than a criminal or civil chargeby the DOJ or the SEC under the anti-bribery provisions. [FN129]

(ii) Foreign Subsidiaries

The FCPA contains various provisions for foreign subsidiaries depending on the degree of ownership bythe registered "issuer" company. According to the Sarbanes-Oxley Act, any company registered with the SEC isliable for the accounting practices of a foreign subsidiary for which it is the majority shareholder. In contrast, theFCPA provides a safe-harbor exemption for U.S. parent companies that do not have majority ownership of theirsubsidiaries. However, to be in compliance, a U.S. parent company must demonstrate a good faith effort to make thesubsidiary comply with the accounting provisions. This good faith effort is evaluated in the context of the laws andpractices governing the business operations of the country in which the subsidiary is based. [FN130] A U.S. parentcompany involved only as a passive investor in a foreign joint venture, and not involved in the day-to-daymanagement of the venture, will not be liable under this provision. [FN131]

(iii) Third Party Liability

In addition to liability from foreign subsidiaries, a U.S. company may be liable for the accounting andrecord-keeping practices of a third party under the accounting provisions of the FCPA. This vicarious liabilityapplies to the conduct of a third party which has acted on behalf of an individual or entity of the issuer. These thirdparties may include agents, consultants, and other representatives of an entity working on behalf of the issuer.Moreover, the issuer may be liable even if the third *41 party is not subject to the accounting provisions, if that partyin some way ratifies behavior in violation of those provisions. [FN132]

b) The Sarbanes-Oxley Act

(i) Accounting Provisions

The Sarbanes-Oxley Act, which created accounting standards for U.S.- registered companies, has importantimplications for U.S. companies doing business in India. The Act requires an issuer to ensure that the accountingfirms used for its foreign subsidiaries are willing to submit to audit by the Public Company Accounting OversightBoard ("PCAOB" or "the Board"). [FN133] According to section 102 of the Act, accounting firms, both foreign anddomestic, that "participate in the preparation or issuance of, any audit report" for an issuer must be registered withthe Board. [FN134] Once registered, the accounting firms are subject to the extensive powers of the Board withrespect to auditing of an issuer's paperwork. Under section 106(b), once a foreign accounting firm has registeredwith the Board, it has "deemed to have consented" to the production of its audit workpapers. [FN135]

(ii) Section 404 Liability

One part of the Sarbanes-Oxley Act that should be carefully considered by a U.S. company doing businessin India is section*42 404. This section requires that an issuer include an internal control report as part of its annualreport to the SEC stating management's responsibility for internal controls of financial reporting and assessing "theeffectiveness of the internal controls structure and procedures." [FN136] Furthermore, it requires an issuer'sindependent auditor to evaluate and report on this assessment according to standards set out by the PCAOB.[FN137] However, unlike the FCPA, section 404 of the Sarbanes-Oxley Act does not distinguish between a majorityand a minority interest in a foreign subsidiary. [FN138] Thus, any U.S. issuer must report on the fraud-preventing



internal controls of its subsidiaries regardless of its voting control in these companies. [FN139]

(iii) Chief Executive Officer and Chief Financial Officer Certifications

As part of the Sarbanes-Oxley Act, the chief executive officer and chief financial officer of every publiccompany in the United States must certify in each periodic report to, among other things, that: 1) based on his or herknowledge, the report does not contain any untrue statement of a material fact or omit a material fact necessary toconstruct the statements made misleading, 2) based on his or her knowledge, the financial statements and otherfinancial information included in the report fairly present in all material respects the financial condition, results ofoperations and cash flows of the company as of and for the periods mentioned in the report, and 3) he or she isresponsible for establishing and maintaining disclosure controls and procedures and internal control over financialreporting *43 for the company. If the chief executive officer or chief financial officer gives a false certification, heor she may be subject to both civil and criminal penalties. As a result, internal control over financial reportingbecomes a major concern for CEOs and CFOs and a requirement under the Sarbanes-Oxley Act.

Internal control over financial reporting is the process designed by, or under the supervision of, the CEOand CFO and effected by the board of directors, management and other personnel to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. It includes policies and procedures that: 1) pertain to themaintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of theassets of the company, 2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that the receiptsand expenditures of the company are being made only in accordance with authorizations of management and thedirectors of the company, and 3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financialstatements.

2. SEC Cooperation with Foreign Regulators

Despite the SEC's increased scrutiny of the corporate governance practices of U.S. companies after theSarbanes-Oxley Act, there are limits to extraterritorial enforcement of its regulations. Generally, the SEC will seekto prosecute a securities law violation if such fraud or non-compliance will substantially injure investors in theUnited States. Thus, a foreign company that is listed on an American exchange and registered with the SEC will fallunder the jurisdiction of the SEC.

In the years since Sarbanes-Oxley, extraterritorial enforcement by the SEC has expanded due to increasedcooperation among international securities regulators. To obtain evidence from overseas, the SEC has entered intomultiple Memoranda of Understanding (MOUs) with counterparts in other countries. [FN140] The SEC signed an*44 MOU with its Indian counterpart, the Securities and Exchange Board of India (SEBI), in March 1998. [FN141]This MOU, though narrow in scope, stated the mutual intent of the regulatory bodies to "provide each otherassistance in obtaining information and evidence to facilitate the enforcement of their respective laws relating tosecurities matters." [FN142] In addition, both organizations agreed to assist each other in obtaining cooperationfrom other domestic governmental entities and to consult periodically on developing a framework for cooperation.[FN143] As far as technical assistance, the SEC and SEBI agreed to "work together to identify and address . . .training and technical assistance needs to facilitate the development of a regulatory framework for the offer,purchase and sale of securities in India as well as the cross border offering of securities." [FN144]

3. Indian Securities Law and Regulators

Securities in India are regulated by the SEBI. While FDI in most cases can be made without registration inIndia, any Foreign Institutional Investment (FII), which includes any foreign entity or institution that makesinvestments in the India's securities market, must be registered with the SEBI. A company registered with the SEBImust comply with its accounting regulations. In general, Indian accounting practices are based on the InternationalFinancial Reporting Standards (IFRS) and are issued by the Institute of Chartered Accountants of India (ICAI). TheIndian Generally Accepted *45 Accounting Principles are similar to the IFRS though there are some importantdifferences between the two standards. [FN145]

Any company registered with the SEBI must comply with its disclosure requirements. Generally, financial



statements must consist of a balance sheet, a profit and loss account, notes to the financial statement, an auditor'sreport, and a cash-flow statement (required of large enterprises only). [FN146] The balance sheet should confirm tothe standard form detailed in Schedule VI of the Indian Companies Act, 1956. [FN147]


Due to the inherent intricacies of financial information, the resources and the expenses associated with complyingwith the accounting and record-keeping provisions of the FCPA and the Sarbanes-Oxley Act are higher than acompliance program with the anti-bribery provisions of the FCPA. The accounting and record-keeping complianceprogram should, however, be part of, or at least be developed in conjunction with, the anti-bribery FCPAcompliance program. To mitigate the risks of violating the FCPA or applicable accounting standards, a U.S.corporation should set the tone at the top and make sure that it has in place adequate disclosure controls, proceduresand internal control over financial reporting.

For the reasons discussed above, e.g., corruption, different accounting practices and the need for increased duediligence, the imposition of transparent and consistent internal controls are imperative for a company doing businessin India. As a result, corporations should undertake the following actions: 1) design controls and procedures, orsupervise their design, to ensure that material information relating to the company, including its consolidatedsubsidiaries, is made known to the public by others within those entities, 2) design internal controls over financialreporting, or cause such design under their supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting procedures, *46 3) evaluate the effectiveness of the company's disclosure controls andprocedures and present their conclusions about the effectiveness of the disclosure controls and procedures, and 4)disclose any change in internal controls over financial reporting that occurred during the most recent fiscal quarter oryear that has materially affected or is likely to materially affect the company's internal controls over financialreporting.

For this purpose, disclosure controls and procedures mean controls and procedures that are designed to ensure thatinformation required to be disclosed is recorded, processed, summarized and reported within the time framesspecified by the SEC. They comprise, without limitation, controls and procedures designed to ensure thatinformation required to be disclosed is accumulated and communicated to the company's management, including thechief executive officer and chief financial officer as appropriate to allow timely decisions regarding the requireddisclosures.

In order to provide these certifications, a company should first and foremost start early by creating a realistic timeschedule. U.S. corporations should not wait until the end of their fiscal year to start collecting, reviewing, andanalyzing information or evaluating their internal procedures. Circulating drafts well in advance of deadlines andallowing adequate time to review, comment and revise are important steps in ensuring accurate and thoroughreporting. Each person who has a role in the company's public disclosure should know what is expected of him orher and when the disclosure is due. Further, individuals responsible for drafting periodic SEC reports or sections ofsuch reports should understand the applicable disclosure requirements. They should also familiarize themselves withany changes that may have been adopted since the preparation of the last periodic report. Appointing a disclosurecoordinator who has overall responsibility for creating a timetable and keeping everyone on schedule with theirreporting or drafting obligations is advisable.

The SEC has recommended that companies establish a "disclosure committee" to ensure adequate and timelydisclosure of periodic reports and consider the materiality of information furnished. Such a committee shouldinclude the principal accounting officer or controller, the general counsel or other attorney responsible for disclosurematters, the principal risk management officer, the chief investor relations officer and other officers or employees asappropriate, e.g., heads of the Indian subsidiaries. If the committee does not include the CEO and the *47 CFO, thecommittee or a delegate of the committee should meet with the CEO and CFO to discuss the committee's activitiesand recommendations prior to filing the periodic report. Once a draft of the SEC report has been prepared, allmembers of the committee should review the draft, focusing on areas within their expertise or under theirsupervision or management. If there are any issues or concerns, the committee should ask questions of theappropriate persons. In addition, companies should also consider obtaining internal certifications from some or all ofthe members of the disclosure committee or senior managers who assisted in preparing the report.

Issuing written disclosure guidelines which include checklists or questionnaires relevant to the company'sdisclosure process is also highly recommended. The creation of a methodology, matrixes and templates will helpprocess or business owners create their own controls and will streamline the reporting structure. The guidelines



should be disseminated periodically to those responsible for SEC reporting, but also to those on whom thecorporation rely for information. The guidelines can also be used as a tool to facilitate understanding of reportingobligations throughout the company.

A documented and disciplined compliance approach is also essential to the success of the program. After a fewyears of applying a rigorous compliance procedure, documenting the process will become a corporate mentality andwill likely be seen as less burdensome. Eventually, an open culture in which communication flows freely from thetop-down, from the bottom-up and across functions will help increase accountability at all levels. Early and constantcommunications with the external auditors is equally important. If the internal auditing functions are outsourced toIndia, as they increasingly are, it is important to remember that the responsibility still lies with the U.S. corporationand coordinating communication between internal outsourced auditors and external auditors is imperative.

In addition, the chief executive officer and the chief financial officer must take steps to ensure that documentationexists whereby the U.S. company is able to obtain all necessary and appropriate information from the Indian entity.If the Indian entity is a subsidiary of the U.S. company, this may be relatively easy, although the requirement shouldbe documented in the organizational documents of the Indian entity to ensure that the U.S. corporation has access tothe information it needs to prepare its own reports. In an outsourcing arrangement, the contracts between the partiesagain should specifically lay out the information *48 the U.S. company will need and what it will do to obtain thisinformation, including information on the U.S. company's onsite access and records.

V. COMMERCIAL DISPUTE RESOLUTION IN INDIA

U.S. companies doing business in India often find themselves in commercial disputes that lead to litigation. In thefollowing section, we will evaluate the risks involved with commercial litigation in India, explain the protectionsafforded foreign investors by Indian law, and outline strategies to mitigate the risks of a commercial dispute, whichshould be considered before entering into a contract with an Indian party.


For U.S. companies doing business in India, the principal commercial dispute resolution risk arises from thepossibility of being drawn into litigation in the Indian courts, which labor under long delays and constraints injudicial and administrative resources. Commercial disputes in India follow the adversarial common law approachfamiliar to companies in the U.S. Moreover, the process of taking a commercial suit to court is analogous to thecommercial litigation process in the United States.

1. The Indian Court System

The Indian court system's hierarchy is similar in some respects to that of U.S. state judiciary systems.Original jurisdiction for commercial disputes can occur in one of four classes of courts in an Indian state: HighCourt, District Court, Court of Civil Judges of Senior Division, and Court of Civil Judges of Junior Division.[FN148] Under certain conditions, state High Court decisions can be appealed to the Supreme Court of India.[FN149] However, unlike the U.S. judiciary, there is no parallel federal court system in place in India.

For most commercial disputes in India, the original jurisdiction will probably be the District or High Court.In most cases, the District Court has the original jurisdiction. However, in some Indian states with majormetropolitan areas, the state High Court has original*49 jurisdiction. This is largely due to base pecuniary limits setfor determination of jurisdiction. For example, in Delhi, if the value of the suit is over Rs. 20 lakhs (approximately$40,000), the case will first be tried in the High Court of Delhi. Similar base limits are present in the courts ofMadras, Mumbai, and Kolkata. As most commercial disputes between foreign and Indian parties will havecomparable or greater dollar amounts at stake, the cases in these states will most likely be first heard in these HighCourts. [FN150]

2. Problems with the Indian Court System

The most commonly cited disadvantage to resolving commercial disputes in the Indian courts is theprotracted process in the courts. [FN151] The Indian court system is overburdened with more than 3 million casespending in the High Courts and some 25 million cases pending in the subordinate courts. [FN152] This is largelydue to a lengthy trial process and insufficient number of judges available to hear cases. A December 2001 study



found that over 15 percent of a total of 13,140 judicial posts were vacant. [FN153] Moreover, attorneys often extendthe trial proceedings through various methods including filing interrogatories that must undergo admission in courtas well as responses from the parties involved in the suit, further burdening the system. [FN154] The tremendouscase backlog is also due to the fact that the State (India's central and various state governments as well asgovernment-owned corporations and statutory bodies) is the largest *50 litigator in India's judiciary system and, bynature of its size, is able to endure lengthy court procedures. [FN155] Finally, India's appeals courts regularlyoverturn lower court decisions, encouraging protracted litigation from aggrieved parties looking for a positiveoutcome. [FN156]

3. Judicial Reform

To address the inefficiencies in its court system, the Indian government has committed itself to a programof judicial reform. Most notable among the reform achievements has been the establishment of a number of specialcourts and judicial tribunals to address disputes in certain areas (i.e., taxation, industrial complaints, debt recovery,consumer disputes). The decisions of the independent tribunals may subsequently be appealed to the respective HighCourts. Of these tribunals, the Company Law Board (CLB), deserves special attention from U.S. companies doingbusiness in India, especially from U.S. investors in Indian companies.

a) Company Law Board

The CLB is an independent tribunal charged with hearing petitions regarding the internal disputes of Indiancompanies, including those arising over a company's formation, management, and dissolution under the CompaniesAct, 1956. A party may petition the CLB directly and any CLB decision may be appealed, on a question of law, to aHigh Court. The CLB has the power to alter a company's Memorandum of Association, to issue shares at a discount,to call general meetings, to compel the registration of transfer of shares upon petition, and to order furtherinvestigation into a company's affairs, among others. Mostly, however, these powers are subordinate to the CLB'swork in reviewing petitions regarding oppression of shareholders or mismanagement of a company.

There is no requirement that the CLB, consisting of up to nine individuals, be staffed by judges or personswith legal qualification. Under a 2002 amendment to the Companies Act, the CLB is *51 to be replaced by theNational Company Law Tribunal. [FN157] This proposed tribunal, with a sitting or retired judge presiding,composed of up to sixty-two members, will have jurisdiction and power over the same company matters as the CLBas well as powers relating to winding-up, mergers and amalgamations of companies previously vested in HighCourts. The amendment also envisions a full transfer of pending CLB and High Court cases regarding the formation,merger, management, and dissolution of a company. [FN158] Currently, the appointment of this tribunal is underadjudication by the Supreme Court of India and, until it rules otherwise, the CLB carries on its functions. [FN159]

b) Fast-Track Courts

As part of its judicial reform efforts, the GOI has instituted fast-track courts. These courts were set up in2000 and their term was extended last year until 2010 to reduce the backlog of cases in the Indian courts. The fast-track courts are mainly concerned with taking up cases that have been pending for two years or more, or casesinvolving "under-trials," defendants who have been in prison awaiting hearings. So far, the government has set up1,700 fast-track courts and initial data has shown that they have helped clear hundreds of thousands of backloggedcases. [FN160]

c) Computerizing the Courts

Another judicial reform effort put forward by the Indian government is the computerization of thejudiciary. By developing case databases and making court documents available in electronic format, the trial processin India can be sped up, making *52 case and courtroom management more efficient. The GOI recently approved a$3.8 billion proposal for the computerization of district and subordinate courts. [FN161] Presently, the SupremeCourt of India is fully computerized as are many of the High Courts. [FN162]

4. Alternative Dispute Resolution



In spite of these steps to reform the Indian judiciary system, many U.S. companies conducting business inIndia have and will continue to make use of the alternative dispute resolution process to settle commercial disputesthere. Alternative dispute resolution in India is governed by the Arbitration and Conciliation Act, 1996. Thisimportant arbitration reform law differs from its predecessors (The Arbitration Act, 1940, the Arbitration (Protocoland Convention) Act, 1937, and the Foreign Awards (Recognition and Enforcement) Act, 1961) in that the new lawis based on the Model Law on International Commercial Arbitration adopted by the United Nations Commission onInternational Trade Law (UNCITRAL) in 1985.

A matter can be referred to arbitration under the Arbitration and Conciliation Act for any dispute that couldbe decided by a civil court with the notable exceptions of antitrust matters and matters related to the dissolution of acompany. [FN163] It requires that an arbitration agreement be made in writing, either as a clause in a contract or asa separate agreement, before a matter can be brought before an arbitral tribunal. [FN164] The arbitral tribunal maybe composed of as *53 many members as agreed upon by the parties, provided that the number is not even. [FN165]

The Arbitration and Conciliation Act allows for the parties involved to decide in advance on the venue ofarbitration and governing procedural law. Parties are not bound by India's Code of Civil Procedure on matters suchas procedure or evidence, though it may request the assistance of the court of original jurisdiction in takingevidence. [FN166] Once an award decision is made, an aggrieved party can apply to the court of original jurisdictionwithin three months if a party was incapacitated, the arbitration agreement was invalid under the law, a party wasnot properly notified of the arbitrational proceedings, or the award deals with a dispute beyond the scope of thesubmission to arbitration. Apart from these grounds and an exception allowing a party to appeal to the SupremeCourt of India, a tribunal's award has the same power as a decree of the courts. [FN167]

For a foreign investor, there are several distinct advantages to settling commercial disputes by arbitration.Arbitration provides a venue free of the lengthy court filings and appeals process characteristic of the Indian courtssystem. Parties can decide in advance on the judges, the venue, the procedure, and the timetable for the arbitration.Further, the finality of a tribunal's decision is attractive because in virtually all cases, an arbitral decision may not beappealed to the Indian courts system.

Another advantage is cost savings. The court's fees for preparing the complaint, copying documents, andserving notices are all borne, in part, by the litigants. [FN168] In arbitration, these costs are significantly less.Arbitration may also reduce the cost of legal fees as the shorter pre-trial discovery phase can reduce the amount ofhours required significantly.

For these reasons, the arbitration process is the method recommended by the GOI (as well as manyprominent Indian High Court and Supreme Court justices) for foreign companies to settle disputes. [FN169]

*54 B. Strategies for Mitigating Risks in Commercial Disputes

1. Include a Well-Drafted Arbitration Clause in the Main Contract

Given the advantages of settling commercial disputes by arbitration, a U.S. company doing business inIndia should consider making provisions in any contract or agreement with an Indian company to settle any futuredisputes in this manner. [FN170] To be valid under the Indian Arbitration and Conciliation Act, an arbitrationagreement can either be made as a clause to a more comprehensive business contract or as a separate agreement. It ispreferable that the agreement define as many of the terms of arbitration as can be settled upon at the outset. TheArbitration and Conciliation Act honors provisions regarding venue, number and qualifications of judges, scope,timetable, and procedural method for arbitration.

The choice of venue for arbitration is an important one. The Arbitration and Conciliation Act enforcesforeign arbitration agreements and awards made outside India under the New York Convention of 1961 and theGeneva Convention of 1923. [FN171] The Indian courts enforce these foreign awards as if they were the judgmentof an Indian court or arbitral tribunal with the only exception being for cases "induced or affected by fraud orcorruption." [FN172] Whenever feasible, the venue should be chosen outside the Indian party's local jurisdiction.

*55 The arbitration clause or the main contract shall also include choice of law provisions that expresslyexclude the conflict of law provisions of the jurisdiction where the arbitration would take place. If feasible, the U.S.company should insist on having U.S. law as the governing law, preferably of the state where the U.S. business islocated or a larger jurisdiction such as New York. Even if English is widely spoken in India and the arbitrationhearing will most likely be conducted in English, it is advisable to include a requirement that all witness testimonyshall be presented in English or translated in English at the cost of the submitting party.

Depending of the nature of the contract with the Indian party, the U.S. corporation may want to establish



the size of the arbitral tribunal ahead of time. For smaller disputes, parties may wish to consider the appointment ofa sole arbitrator, while for larger disputes, a three-panel tribunal is more desirable. While agreement can be reachedlater, once the dispute has arisen, it is wiser to decide on the size of the tribunal at time of contracting when partiesare amicable and not likely to have many objections. Selecting the method how the arbitrators would be appointed isalso a possibility.

The parties shall also decide whether they want an administered, ad hoc arbitration or a combination (adhoc with particularly designated procedural rules). While adhoc arbitration is generally cheaper, an institutionallyadministered arbitration may provide extra protection against any judicial due process challenges to the award.Further, the selection of the institution is important because the procedural rules of such institution will govern thedispute. If the venue chosen is in India, a local arbitration institution such as the Indian Council of Arbitration (ICA)[FN173] may seem desirable. An arbitral institution such as the AAA (American Arbitration Association) or ICC(International Chamber of Commerce) may be more desirable because of these institutions' long histories inresolving disputes.

2. Include Various Other Contract Clauses in the Main Contract

Apart from arbitration clauses, there are a number of other risk-mitigating clauses a U.S. company mightconsider including in a business contract with an Indian party. One is a stabilization clause which protects thevarious parties' contractual obligations from factors *56 outside the purview of the contract that could influence thelegal content of those obligations. [FN174] For instance, a stabilization clause could be written to protect servicecosts from the effects of inflation or the re-evaluation of currency. [FN175] Similarly, a revision clause may beadded that would trigger a modification of the original contract when contractual obligations are effected by someexternal factor. [FN176]

In the case of a long-term contract, there are some additional clauses to be considered. A change clauseenables parties to go back to a pre-determined position if conditions have created a substantial difference in theirrespective financial status. [FN177] Likewise, with large international construction contracts, it may be advisable toput in a unilateral change clause which permits a certain change in performance to be within the agreement's scope,allowing a party's contractors and engineers to make some alterations (within agreed-upon limits) without triggeringa complete renegotiation of the original contract. [FN178]

Finally, while including language on the conditions for arbitration, it may be useful to consider otherdispute-mitigating clauses. A termination-for-cause clause carefully defines the preconditions for termination of acontract, preventing a situation like Dabhol in which a government unilaterally terminated a contract without citingfault from the opposing party. [FN179]

3. Bring a Lawsuit in the United States

If the other party is the Indian state, the investor may sue the Indian government under the ForeignSovereign Immunities Act (FSIA), using the commercial activity exception. Section 1605(a)(2) of the FSIA states:"[a] foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case. . . in which the action is based upon a commercial activity carried on in the United States by the foreign state; orupon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere;or upon an act outside the territory of the United States in connection with a commercial activity of the foreign stateelsewhere and that act causes a direct effect in the *57 United States." [FN180] Therefore, if "commercial activity"and a causal link can be established, U.S. companies may be able to avail themselves of the U.S. court system.

4. Bring an Investor-State Arbitration under the Applicable Bilateral Investment Treaty

If the other party is the Indian state, an investor may also be able to bring investor-state arbitrationproceedings against the Indian state. These arbitrations are brought under an applicable Bilateral Investment Treaty(BIT). Unfortunately for U.S. corporations, there is no BIT between the United States and India and there iscurrently no serious indication that the two governments are engaged in treaty negotiations. India, however, hasentered into BITs with the United Kingdom, Germany, France, Italy, Portugal, Austria, Spain, Sweden, Switzerland,Denmark, the Czech Republic, The Netherlands, Thailand, Egypt, Korea and other countries. [FN181] Dependingon its corporate structure, a U.S. corporation may avail itself of the benefits of one of the existing BITs signed byIndia and be able to bring an investor-state arbitration against the Government of India. Going back to the Dabhol



saga, it is worth remembering that GE and Bechtel (the principal shareholders in the Dabhol project) and a numberof European banks filed investor-state arbitration claims against India. [FN182]

BITs between India and other countries provide for arbitration by the International Centre for Settlementfor Investment Disputes (ICSID), an autonomous organization with ties to the World Bank, [FN183] or ad hocUnited Nations Commission on International Trade Law (UNCITRAL) arbitration. [FN184] BITs typically providea guarantee of non-discriminatory national treatment, most-favored-nation clauses, fair and equitable treatment, andexpropriation only *58 for public purpose and upon payment of prompt and adequate compensation. [FN185]

VI. CONCLUSION

Considering the proven economic opportunities available in India, there is no doubt that any U.S. corporation witha global platform is already in India or should seriously considering entering the Indian market. As with any foreigncountry, and particularly a developing country, there are many risks associated with doing business there. Thestrategies outlined in this paper will assist U.S. companies to mitigate some of the most important legal risksencountered when doing business in India. While the discussion focused only on a few specific issues (intellectualproperty, bribery and corruption, financial and accounting practices, and commercial disputes), the tactics suggestedto ensure compliance with applicable legal requirements and avoid risks are universal. Remembering a few generalrules, being knowledgeable about local laws and practices and appreciating the cultural differences between theUnited States and India will guide U.S. corporations to decisions which will mitigate the legal risks of doingbusiness there while enjoying a prosperous business venture in India.

[FN1]. The authors would like to thank Michael Zmora for his assistance in preparing this article.

[FN2]. BBC News On This Day, 3 December 1984: Hundreds die in Bhopal chemical accident, http://news.bbc.co.uk/onthisday/hi/dates/stories/december/3/newsid_ 2698000/2698709.stm (last visited Sept. 30, 2006).

[FN3]. Union Carbide, Bhopal Information Center, Chronology, http:// www.bhopal.com/chrono.htm (last visitedSept. 30, 2006).

[FN4]. Eric Weiner, A Lasting Legacy of Bhopal's Leak, CHRISTIAN SCI. MONITOR, Dec. 12, 1994, at 8.

[FN5]. Randeep Ramesh, Bhopal hunger strikers win clean-up fight: Indian prime minister bows to protest demands:Clean water to be supplied for families near toxic site, GUARDIAN (LONDON), Apr. 18, 2006, at 20.

[FN6]. India faced a $6 billion current account deficit in 1991, was in danger of a default on $70 billion of externaldebt, and had experienced severe difficulty borrowing on international markets. K.K. Sharma, Editorial, Promisingstart down a rocky road, FINANCIAL TIMES (LONDON), Aug. 9, 1991, at 14; David Housego & AlexanderNicoll, Monday Interview: India's Financial Architect, FINANCIAL TIMES (LONDON), Sept. 2, 1991, at 30.

[FN7]. Sharma, supra note 6.

[FN8]. In 1995, India's generating capacity was estimated at 84,000 megawatts (MW). Looking forward, the U.S.Department of Energy estimated that India would need an additional capacity of 140,000 MW by 2005. Richard P.Teisch & William A. Stoever, Enron in India--Lessons From a Renegotiation, 35 MID-ATLANTIC J. BUS. 51, 52-53 (1999).

[FN9]. Jeswald W. Salacuse, Renegotiating International Project Agreements, 24 FORDHAM INT'L L.J. 1319,1343-1347 (2001) (discussing in detail the background of the India's need for electrical power, the ensuing reforms,and the subsequent negotiations with Enron).

[FN10]. The FIPB is a governmental board within the Prime Minister's office that advises and clears any FDI inIndia. "Its objective is to promote FDI into India by undertaking investment promotion activities in India and abroadby facilitating investment in the country through international companies, non-resident Indians and other foreigninvestors." IndiaMart, India Finance and Investment Guide, Investment in India--Foreign Investment PromotionBoard, http://finance.indiamart.com/investment_in_india/fipb.html (last visited Sept. 30, 2006).

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[FN11]. 1 Dimple Sahi Bath, INDIA POWER PROJECTS: REGULATION, POLICY AND FINANCE 393 (1998).

[FN12]. Teisch & Stoever, supra note 8, at 55.

[FN13]. Id; 1 Bath, supra note 11, at 393-94.

[FN14]. Teisch & Stoever, supra note 8, at 55-56.

[FN15]. Danielle Mazzini, Stable International Contracts in Emerging Markets: An Endangered Species?, 15 B.U.INT'L L.J. 343, 352 (1997); Salacuse, supra note 9, at 1350-51.

[FN16]. Teisch & Stoever, supra note 8, at 56; 1 Bath, supra note 11, at 394.

[FN17]. Teisch & Stoever, supra note 8, at 57; John-Thor Dahlburg, This Power Game Has High Stakes for India;Rocks and Rhetoric Fly as a U.S. Consortium Begins to Build a Huge Utility Plant. If Newly Elected OfficialsScratch the Project, Billions in Foreign Investment May Be Jeopardized, L.A. TIMES, June 22, 1995, at 1; Salacuse,supra note 9, at 1352.

[FN18]. Teisch & Stoever, supra note 8, at 59.

[FN19]. Ratnagiri Gas and Power Pvt Ltd. is a special purpose vehicle (SPV) formed by GAIL(India) Ltd andNational Thermal Power Corporation. See rediff.com, DPC is now Ratnagiri Gas and Power Pvt Ltd, http://www.rediff.com/money/2005/jul/07dpc.htm (last visited Sept. 30, 2006); The Economic Times, Dabhol renamedRatnagiri Gas, http:// economictimes.indiatimes.com/articleshow/1164709.cms (last visited Sept. 30, 2006).

[FN20]. Jamie Cassels, Outlaws: Multinational Corporations and Catastrophic Law, Speech at the Cordell HullSpeakers Forum at the Cumberland School of Law (Nov. 2, 2000) in 31 CUMB. L. REV. 311, 318 (2000).

[FN21]. Latin for "pacts must be respected."

[FN22]. Salacuse, supra note 9, at 1359 (noting that "although a detailed contract governed the project, no realbusiness relationship appears to have existed at all between Enron, on the one hand, and the Maharashtra StateElectricity Board and the various concerned Indian government departments, on the other [hand]").

[FN23]. Swati Lodh Kundu, India a Fortune 500 success story, ASIA TIMES ONLINE, Nov. 4, 2005,http://www.atimes.com/atimes/South_Asia/GK04Dfo2.html.

[FN24]. Special Report, Can India fly?, ECONOMIST, June 3, 2006, at 4, 13.

[FN25]. Aparna Viswanathan, Business Process Outsourcing to India: An Analysis of Key Legal Issues, BNAINTERNATIONAL'S WORLD DATA PROTECTION REPORT, Oct. 2002, at 12.

[FN26]. Bryan Bertram, Note, Building Fortress India: Should a Federal Law Be Created to Address PrivacyConcerns in the United States-Indian Business Process Outsourcing Relationship?, 29 B.C. INT'L & COMP. L.REV. 245, 249 (2006).

[FN27]. Viswanathan, supra note 25.

[FN28]. Id. (noting that this general rule applies to companies which have not entered into a previous joint venturein India by an investment in shares or debentures or a technical collaboration or a trade mark agreement in the sameor a similar field).

[FN29]. Id. at 13.




[FN30]. Bertram, supra note 26, at 249.

[FN31]. Gautam Mahajan, India, and Investment Potential in India, Remarks at seminar India: The New Asian Tigerorganized by The Center for American and International Law (June 13, 2006) (on file with author).

[FN32]. Gautam Mahajan, Location and Other Challenges, Remarks at seminar India: The New Asian Tigerorganized by The Center for American and International Law (June 13, 2006) (on file with author).

[FN33]. Viswanathan, supra note 25. See also Mahajan, India, and Investment Potential in India, supra note 31(noting that GE has invested over $80 million in India and has approximately 16,000 employees, with 1,600 of themin R&D).

[FN34]. Bertram, supra note 26, at 249.

[FN35]. U.S. Commercial Service, India--Market of the Month, http:// www.buyusa.gov/india/en/motm.html (lastvisited Oct. 22, 2006).

[FN36]. U.S. Census Bureau, U.S POP Clock Projection, http:// www.census.gov/main/www/popclock.html (lastvisited Oct. 22, 2006).

[FN37]. Kundu, supra note 23.

[FN38]. Dominic Wilson & Roopa Purushothaman, Dreaming with BRICs: The Path to 2050, at 4 (Oct. 1, 2003),http:// www2.goldmansachs.com/insight/research/reports/99.pdf.

[FN39]. Mahajan, India, and Investment Potential in India, supra note 31 (citing to the Goldman Sachs Report ofOctober 1, 2003, Dreaming with BRICs: The path to 2050).

[FN40]. Id. (citing the United Nations Conference on Trade and Development's World Investment Report, 2005).

[FN41]. Id. (citing A.T. Kearney's Business Confidence Index, 2004).

[FN42]. Id. (citing A.T. Kearney's Global Foreign Direct Investment Services Location Index, 2005).

[FN43]. Id.

[FN44]. Richard A. Boucher, The United States and South Asia: An Expanding Agenda, Statement of AssistantSecretary for South and Central Asian Affairs before the House International Relations Committee Subcommittee onAsia and the Pacific (May 17, 2006), http://www.state.gov/p/sca/rls/rm/2006/66374.htm (stating that "PrimeMinister Singh and President Bush share a vision for a new relationship that brushes away past suspicions andantagonism to reveal a bedrock foundation of common values").

[FN45]. Baker Spring, Nuclear Energy Cooperation with India Will Strengthen U.S.-India Ties, (The HeritageFoundation Executive Memorandum No. 1007), July 25, 2006, at 2,http://www.heritage.org/Research/AsiaandthePacific/upload/em_ 1007.pdf.

[FN46]. Press Release, The White House, Fact Sheet: United States and India: Strategic Partnership (Mar. 2, 2006),http:// www.whitehouse.gov/news/releases/2006/03/20060302-13.html.

[FN47]. Boucher, supra note 44 (stating that "if we can do nuclear power, we can do anything together").

[FN48]. Condoleezza Rice, The U.S.-India Civilian Nuclear Cooperation Agreement, Opening Remarks Before theSenate Foreign Relations Committee (Apr. 5, 2006), http://www.state.gov/secretary/rm/2006/64136.htm.

[FN49]. Boucher, supra note 44.



[FN50]. Id.

[FN51]. Sonia Baldia, India, in INTELLECTUAL PROPERTY LAW IN ASIA 438 (Christopher Heath ed., 2003).

[FN52]. Mayer, Brown, Rowe & Maw LLP, OUTSOURCING--MAXIMIZING VALUE AND AVOIDINGPITFALLS 60 (2006).

[FN53]. Suresh Koshy, Note, The Effect of TRIPs on Indian Patent Law: A Pharmaceutical Industry Perspective, 1B.U. J. SCI. & TECH. L. 4, para. 12 (May 1995).

[FN54]. Id.

[FN55]. See generally Baldia, India, supra note 51, at 438-44.

[FN56]. Koshy, supra note 53, paras. 16-17.

[FN57]. William New, India's TRIPS Compliance Effort Could Be Test Case (Mar. 24, 2005), http://www.ip-watch.org/weblog/index.php? p=33&res=1024&print=0 (last visited Nov. 27, 2006); Kranti Kumara, India AdoptsWTO Patent Law With Left Front Support (Apr. 18, 2005), http:// www.countercurrents.org/glkumara180405.htm(last visited Nov. 27, 2006).

[FN58]. These amendments are: The Patents (Amendment) Act, 1999, The Patents (Amendment) Act, 2002, andThe Patents (Amendment) Act, 2005, respectively. See the website of the Office of the Controller General ofPatents, Designs and Trademarks for the full text of relevant Indian patent law, including these amendments: http://www.patentoffice.nic.in/ipr/patent/patents.htm

[FN59]. Ahibhusan De & Uma Baskaran, What the new patent regime means in practice: India's latest amendmentto its Patent Act revolutionized the country's IP regime by introducing a product patent for pharmaceuticals,MANAGING INTELL. PROP., July 1, 2005, at 63, available at 2005 WLNR 13478570 (noting that these productshave not been patentable for more than three decades). See also Office of the United States Trade Representatives,2005 Special 301 Report, available at http://www.ustr.gov/assets/Document_Library/Reports_Publications/2005/2005_Special_301/asset_upload_file195_ 7636.pdf (last visited Oct. 28, 2006)(noting that effective January 1, 2005, India expanded product patent coverage to include pharmaceuticals and agro-chemicals).

[FN60]. De & Baskaran, supra note 59.

[FN61]. The Patents (Amendment) Act, 2002, Amendment No. 43, available at:http://www.patentoffice.nic.in/ipr/patent/patentg.pdf (last visited Oct. 28, 2006).

[FN62]. These modernization efforts include computerizing the relevant offices as well as a streamliningadministrative functions and additional personnel training. Baldia, India, supra note 51, at 10.

[FN63]. Id. at 457-58

[FN64]. Id. at 457.

[FN65]. Negi Ranjan and Charan Sandhu, Investment in India: Intellectual Property Considerations (on file withauthor).

[FN66]. Id.

[FN67]. Id.



[FN68]. Baldia, India, supra note 51, at 458, 459-60.

[FN69]. Patrick Mirandh, What the revised Patent Act means for software, MANAGING INTELL. PROP., May 1,2005, at 95, available at 2005 WLNR 9247292.

[FN70]. Manisha Singh, India's patent law--is it TRIPs compliant? India recently passed a series of significantamendments to its patent law to meet its WTO obligations. But has it done enough? MANAGING INTELL. PROP.,July 1, 2005, at 67, available at 2005 WLNR 13478445.

[FN71]. Mirandh, supra note 69. See also Manisha Singh Nair, Patentability of Softwares in India, MONDAQ BUS.BRIEFING, Nov. 30, 2005. However, even if computer programs are not patentable, the "technical effect broughtout by the employment of the software can be patentable." De & Baskaran, supra note 59.

[FN72]. The "mailbox" system was implemented in 1999 after the United States brought a WTO claim against India.Idirut Dalal, Adapting to the new regime: last year's patent reform in India means that companies must quickly adoptnew strategies to secure and protect their IP rights effectively and efficiently, MANAGING INTELL. PROP., Apr.,1, 2006, at 37. It allowed the filing of patent applications for pharmaceuticals and agrochemicals from 1995 to 2005and permitted exclusive marketing rights (EMR). Id.

[FN73]. See Office of the United States Trade Representatives, 2005 Special 301 Report, supra note 59 (noting thatthe U.S. pharmaceutical industry reported shortcomings in the recently enacted patent legislation, e.g., the "law doesnot permit holders of patents that will issue from 'mailbox' applications to enforce their rights with respect to genericcopies that continue to be marketed on the date that the patent is granted").

[FN74]. Singh, supra note 70.

[FN75]. Id.

[FN76]. De & Baskaran, supra note 59.

[FN77]. Patrick Mirandah, India's unfinished TRIPs agenda, MANAGING INTELL. PROP., June 1, 2005, at 83,available at 2005 WLNR 11136750; De & Baskaran, supra note 59.

[FN78]. Mirandah, India's unfinished TRIPs agenda, supra note 77.

[FN79]. Press Release, Office of the United States Trade Representative, Special 301 Report Finds Progress andNeed for Significant Improvements (Apr. 29, 2005), http://www.ustr.gov (follow "Press Room" hyperlink, thenfollow "Press Releases" hyperlink").

[FN80]. Baldia, India, supra note 51, at 460, 467-68 (civil remedies include injunctions, damages, infringer's profits,and delivery of infringing goods; criminal remedies include search, seizure, forfeiture, fines and imprisonment forwillful acts; administrative remedies include the issuance of an order prohibiting the importation of the infringingcopies in India and the delivery of confiscated goods to the holder of the copyright).

[FN81]. Priti H. Doshi, Note, Copyright Problems in India Affecting Hollywood and "Bollywood", 26 SUFFOLKTRANSNAT'L L. REV. 295, 307-08 (2003).

[FN82]. Baldia, India, supra note 51, at 460.

[FN83]. Doshi, supra note 81, at 308 (noting that the criminal court system in India violates Articles 41(2), 42 and61 of TRIPs, provisions dealing with "fair and equitable treatment towards litigants").

[FN84]. Office of the United States Trade Representatives, 2005 Special 301 Report, supra note 59 (optical mediaincludes devices such as optical media products such as compact discs (CDs), video compact discs (VCDs), digitalversatile discs (DVDs), and compact disc read-only memory (CD-ROMs)). For a detailed description, by type of





piracy, see International Intellectual Property Alliance, 2006 Special 301 Report: India, at 65-70 (Feb. 13, 2006),available at http://www.iipa.com/rbc/2006/2006SPEC301INDIA.pdf (last visited Sept. 3, 2006).

[FN85]. Office of the United States Trade Representatives, 2005 Special 301 Report, supra note 59.

[FN86]. Id.

[FN87]. Id.

[FN88]. Id.

[FN89]. Sonia Baldia, India Specific Contractual Issues (2005) (on file with the author).

[FN90]. Id.

[FN91]. Id.

[FN92]. Id.

[FN93]. Sonia Baldia, Key Issues in Offshore Business Process Outsourcing, INTERNATIONAL IT ANDOUTSOURCING NEWSLETTER (Mayer, Brown, Rowe & Maw LLP), Mar. 2006, at 1, 3.

[FN94]. Transparency International, Corruption Perceptions Index 2005,http://www.transparency.org/news_room/in_focus/2005/cpi_2005#cpi (last visited Nov. 5, 2006).

[FN95]. A 2004 U.N. survey on corruption in India's water and sanitation sectors reported that 30 percent ofrespondents had made payments in the past six months to speed up repairs. See United Nations World WaterAssessment Programme, The 2nd UN World Water Development Report: 'Water, a shared responsibility,' at 68, box2.11, U.N. Doc UNESCO: 92-3-104006-5 (Mar. 2006), available athttp://www.unesco.org/water/wwap/wwdr2/table_contents.shtml (follow "Chapter 2: The Challenge of Governance"hyperlink).

[FN96]. See Government of India, Central Vigilance Commission, available at http://www.cvc.nic.in/ (last visitedNov. 5, 2006).

[FN97]. Toral Patel, Corrupt Practices in India: No Payoff, 20 LOY. L.A. INT'L & COMP. L.J. 389, 390 (1998).

[FN98]. Seth T. Taube, Investigating Foreign Subsidiaries: The Mixed Marriage of Alien Cultures and DomesticLaws, at 6-7, Paper Presented at ACI's National Forum on Fraud Risk Management: Preventing, Detecting andResponding to Fraud & Misconduct (Feb. 28 - Mar. 1, 2006).

[FN99]. Id. at 11.

[FN100]. 15 U.S.C. § 78dd-1 (for issuers); id.. § 78dd-2 (for domestic concerns); id.. § 78dd-3 (for "any person")."Issuer" refers to companies that either have securities registered with the SEC under Section 12 of the SecuritiesExchange Act of 1934 (commonly known as the "Exchange Act") or must file reports under the Exchange Act. 15.U.S.C. § § 78l(g), 78o(d). "Domestic concern" is defined as "any individual who is a citizen, national, or resident ofthe United States" or "any corporation, partnership, association, joint-stock company, business trust, unincorporatedorganization, or sole proprietorship which has its principal place of business in the United States, or which isorganized under the laws of a State of the United States or a territory, possession, or commonwealth of the UnitedStates." 15 U.S.C. § 78dd-2(h)(1)(A),(B). See also Marika Maris & Erika Singer, Foreign Corrupt Practices Act, 43AM. CRIM. L. REV. 575, 601 (2006).

[FN101]. 15 U.S.C. § 78dd-1(a)(3) (for issuers); id. § 78dd-2(a)(3) (for domestic concerns); id. § 78d-3(a)(3) (for"any person"). The "knowing" standard in the anti-bribery provisions includes "aware[ness] . . . that such result is


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substantially certain to occur" or a "firm belief that such circumstance exists." id. § 78dd-1(f)(2) (for issuers); id. §78dd-2(h)(3) (for domestic concerns); id. § 78dd-3(f)(3) (for "any person");

[FN102]. 15 U.S.C. § 78dd-1(f)(3) (for issuers); id. § 78dd-2(h)(4) (for domestic concerns); id. § 78dd-3(f)(4)(A)(for "any person").

[FN103]. 15 U.S.C. § 78dd-1(f)(3)(A)(i)-(iv) (for issuers); id. § 78 dd-2(h)(4)(A)(i)-(iv) (for domestic concerns);id. § 78dd-3(f)(4)(A)(i)- (iv) (for "any person").

[FN104]. 15 U.S.C. § 78dd-1(c)(1) (for issuers); id. § 78dd-2(c)(1) (for domestic concerns); id. § 78dd-3(c)(1) (for"any person").

[FN105]. 15 U.S.C. § 78dd-1(c)(2) (for issuers); id. § 78dd-2(c)(2) (for domestic concerns); id. § 78dd-3(c)(2) (for"any person").

[FN106]. 15 U.S.C. § 78m(b)(2)(A), (B).

[FN107]. Id.§ § 78m(b)(2)(B)(i)-(iii).

[FN108]. Maris & Singer, supra note 100, at 589.

[FN109]. Id. at 589-90.

[FN110]. 15 U.S.C. § 78dd-2(g)(1)(A) (addressing penalties for domestic concerns); id.§ 78ff(c)(1)(A) (addressingpenalties for issuers). See Maris & Singer, supra note 100, at 593 ("prominent corporations have regularly receivedsignificant combined fines in excess of $ 2,000,000 for FCPA violations, including a combined fine of over $ 20million imposed on Lockheed Martin in 2002").

[FN111]. 15 U.S.C. § § 78dd-2(g)(2)(A), (B), 78dd-3(e)(2)(A), (B); 78ff(c)(2)(A), (B); id.§ 78ff(c)(1)(B)(discussing civil penalties for violations by issuers); id.§ 78dd-2(g)(2)(B) (describing individual civil penaltiesagainst domestic concerns). See also Maris & Singer, supra note 100, at 592-93.

[FN112]. 15 U.S.C. § § 78dd-2(g)(2)(A), 78dd-3(e)(2)(A), 78ff(c)(2)(A).

[FN113]. Id. § § 78dd-1(a)(3) and 78dd-2(a)(3).

[FN114]. Taube, supra note 98, at 15.

[FN115]. Id. at 15-16, n.3.

[FN116]. Patel, supra note 97, at 399-400.

[FN117]. Id. at 401.

[FN118]. Transparency International India, Centre for Media Studies, India Corruption Study 2005 to ImproveGovernance--Volume I: Key Highlights, at 1 (June 30, 2005), available at http://www.cmsindia.org/cms/events/corruption.pdf.

[FN119]. Transparency International India & Org-Marg Research Pvt. Ltd, Corruption in India: An EmpiricalStudy--An Overview, at 10 (Dec. 17, 2002), available at http://www.unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN019890.pdf.

[FN120]. In 1994, India's telecommunications sector was opened to private enterprise. However, the governmentcontinued to hold regulatory power over telecom and granted licenses to interested parties for a fee. In perhaps themost famous case of telecom fraud, in 1996, the Minister of State for Communication, Sukh Ram, was found to have






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conspired with a private telecom equipment manufacturer to award them a license in exchange for a bribe. In theensuing investigation, the CBI found Rs. 3.6 crore (approximately $1 million) stashed in his homes. He wassubsequently sentenced to three years in prison. Patel, supra note 97, at 402-03.

[FN121]. See Robert W. Tarun, Basics of the Foreign Corrupt Practices Act: What Every General Counsel,Transactional Lawyer and White Collar Criminal Lawyer Should Know, at 19 (Apr. 2006), available at http://www.lw.com/resource/Publications/_pdf/pub1287_1.pdf (noting that compliance programs should include "a clearstatement of the company's code of conduct or ethics policy (the 'tone at the top'), strong managers and complianceofficers, clear written compliance materials, periodic training and consulting, program monitoring, enforcement, andperiodic audits of specific work programs").

[FN122]. Maris & Singer, supra note 100, at 597 (noting that "[c]ompliance programs generally serve to indicatecorporate intentions to comply with the FCPA").

[FN123]. Id. at 598 (noting that "[e]ffective compliance programs include a code of conduct . . . and a system toeducate employees about the FCPA"). See also Tarun, supra note 121 (suggesting that "[t]he organization musteffectively disseminate the standards and procedures to all employees").

[FN124]. Tarun, supra note 121, at 20 (advising that compliance programs should include "corporate procedures toensure that the company forms business relationships with reputable agents, consultants, and representatives forpurposes of business development in foreign jurisdictions" and "regular training of . . . agents, and consultantsconcerning the requirements of the FCPA and of other applicable foreign bribery laws").

[FN125]. Kathryn C. Atkinson & James G. Tillen, The Foreign Corrupt Practices Act: Compliance Issues in the Taxand Customs Arena, 57 TAX EXECUTIVE 448 (Sept. 1, 2005), available at 2005 WLNR 19823843 (noting that thedue diligence activities may not be a "check-the-box exercise" and it should be "an iterative process . . . tailored tothe facts and circumstances presented by each engagement"). See also Maris & Singer, supra note 100, at 598(noting that due diligence should activities should include "investigation of agents, partners or consultants of acompany that could potentially violate the FCPA").

[FN126]. Atkinson & Tillen, supra note 125.

[FN127]. Maris & Singer, supra note 100, at 598 (noting that "[e]ffective compliance programs include . . . aprotected means for employees to report potential or actual violations"); Tarun, supra note 121, at 20 (suggestingthan an effective compliance program would include a mechanism "by which officers, employees, agents, andconsultants can report suspected criminal conduct without fear of retribution or the need to go through an immediatesupervisor").

[FN128]. 15 U.S.C. § 78ff(a).

[FN129]. According to a 2003 study, out of 604 FCPA enforcement actions brought by the SEC since the law'sintroduction in 1977, a mere 7 percent were related to bribery of foreign officials. See R. Cook, The LegalObligation to Maintain Accurate Books and Records in U.S. and Non-U.S. Operations, MONDAQ BUS.BRIEFING, Mar. 17, 2006.

[FN130]. 15 U.S.C. § 78m(b)(6); Patel, supra note 97, at 393.

[FN131]. Taube, supra note 98, at 17-18.

[FN132]. Stuart H. Deming, The Potent and Broad-Ranging Implications of the Accounting and Record-KeepingProvisions of the Foreign Corrupt Practices Act, 96 J. CRIM. L. & CRIMINOLOGY 465, 476 (2006).

[FN133]. Sarbanes-Oxley Act of 2002, P.L. 107-204 § 101, 15 U.S.C. § 7211 available athttp://www.sec.gov/about/laws/soa2002.pdf (last visited Sept. 9, 2006). The PCAOB is comprised of five memberswho are appointed by the SEC in consultation with the Chairman of the Board of Governors of the Federal Reserve

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and the Secretary of the Treasury. PCAOB, The Board, http://www.pcaobus.org/About_the_PCAOB/The_Board/index.aspx (last visited Sept. 9, 2006). Under section 101 of theSarbanes-Oxley Act, the PCAOB has the power, inter alia, to: "register public accounting firms that prepare auditreports for issuers"; set "auditing, quality control, ethics, independence and other standards relating to thepreparation of audit reports by issuers"; undertake "inspections of registered public accounting firms"; "conductinvestigations and disciplinary proceedings concerning, and impose appropriate sanctions where justified upon,registered public accounting firms and associated persons of such firms" (including fines of up to $100,000 againstindividual auditors, and $2 million against audit firms). 15 U.S.C. § 7211(c).

[FN134]. 15 U.S.C. § § 7212, 7216.

[FN135]. 15 U.S.C. § 7216(b)(1).

[FN136]. 15 U.S.C. § 7262(a).

[FN137]. 15 U.S.C. § 7262(b).

[FN138]. 15 U.S.C. § 7262.

[FN139]. Since the passage of the Sarbanes-Oxley Act in 2002, section 404 has been the subject of some criticism,particularly from foreign private issuers registered with the SEC. Part of the criticism relates to the burdensome costof developing internal controls that meet the law's standards as well as the cost of the auditor's evaluation andassessment of the internal control procedures, which requires an independent audit of these controls. Nonetheless, itis a reality for U.S. public companies and a potential liability issue of which a U.S. company should be aware beforesetting up a subsidiary or joint venture in India. See Clyde Stoltenberg et al., A Comparative Analysis of Post-Sarbanes-Oxley Corporate Governance Developments in the US and European Union: The Impact of TensionsCreated by Extraterritorial Application of Section 404, 53 AM. J. COMP. L. 457, 457-58 (2005).

[FN140]. The SEC has MOUs with regulators in Germany, Portugal, India, Singapore and Japan. It also has signedcooperative agreements with regulators in over 27 countries, as well as the European Community and the membersof the International Organization of Securities Commissions (IOSCO). See Michael D. Mann & William P. Barry,Developments in the Internationalization of Securities Enforcement, 39 INT'L LAW. 667, 674-80 (2005). For a listof MOUs among IOSCO's members, see OICU-IOSCO, Memoranda of Understanding, http://www.iosco.org/library/index.cfm?section=mou (last visited Nov. 12, 2006).

[FN141]. Mann & Barry, supra note 140, at 676, n. 39. Memorandum of Understanding Between the United StatesSecurities and Exchange Commission and the Securities and Exchange Board of India Regarding Cooperation,Consultation and the Provision of Technical Assistance, Exchange Act Release No. IS-1124, 66 SEC Docket 1863(Mar. 18, 1998), available at http:// www.sec.gov/about/offices/oia/oia_bilateral/india.pdf.

[FN142]. Memorandum of Understanding between the United States Securities and Exchange Commission and theSecurities and Exchange Board of India Regarding Cooperation, Consultation and the Provision of TechnicalAssistance, supra note 141, ¶ 4.

[FN143]. Id. ¶ ¶ 4-5.

[FN144]. Id. ¶ 7.

[FN145]. Ernst & Young, India, DOING BUSINESS IN INDIA 133, 134 (2006).

[FN146]. Id. at 136. The notes to the financial statement should also list disclosures concerning the company'saccounting policies, contingent liabilities, auditor payment, managerial compensation, value of goods imported,details of raw material consumption, and amounts of foreign exchange received and spent. Id.

[FN147]. Id.












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[FN148]. The distinction between Courts of civil judges of senior and junior division is related to the value of thesuit, not the nature of the suit itself. Suman Jyoti Khaitan, Commercial Litigation in India, at 3, Remarks at seminarIndia: The New Asian Tiger organized by The Center for American and International Law (June 13, 2006) (on filewith author).

[FN149]. According to Article 132 of the Indian Constitution, a further appeal to the Supreme Court can be madeprovided that the High Court certifies that "the case involves a substantial question of law as to the interpretation ofthis Constitution." Furthermore, Article 136 of the Constitution allows for the Supreme Court to grant "special leaveto appeal from any judgment, decree, determination, sentence or order in any cause or matter passed" by any Indiancourt or tribunal. India Const., arts. 132, 136, available at http://www.indiacode.nic.in/coiweb/welcome.html (follow"Constitution of India in English" hyperlink) (last visited Nov. 13, 2006).

[FN150]. Khaitan, supra note 148.

[FN151]. See Jason Overdorf, Unclogging the Courts, NEWSWEEK, July 18, 2005, at 36 (giving an example of adispute which took 16 years to resolve and noting that "the closest anyone will come to experiencing eternity is thecountry's court system").

[FN152]. Over 33 Lakh Cases Pending in High Courts, HINDUSTAN TIMES, Feb. 27, 2006, available at 2006WLNR 3361329.

[FN153]. Indian Law Institute, DISPUTE RESOLUTION PROCESS IN INDIA, IDE ASIAN LAW SERIES No.16, at 16 (2002), available at http:// www.ide.go.jp/English/Publish/Als/pdf/16.pdf.

[FN154]. Id. at 15.

[FN155]. Id. at 16. Approximately 50 percent of the petitions (excluding appeals) in the Bombay High Court in thefirst six months of 2000 were filed against these governmental or semi-governmental bodies. Id. at 16-17.

[FN156]. Id. at 18. "There is a qualitative difference in the variety, novelty and method in the decision-making bythe appellate court. Apart from that, unlike in the trial court, the appellate court generally have substantialcontribution from the well-prepared lawyers." Id.

[FN157]. Kamal Mukhi, An Introduction to Dispute Resolution in India in Company Matters, at 2, 7-8, Remarks atseminar India: The New Asian Tiger organized by The Center for American and International Law (June 13, 2006)(on file with author).

[FN158]. See Indian Ministries of Companies Affairs, COMPANIES (SECOND) AMENDMENT 2002,http://dca.nic.in/report/ar2k12k2/arch1.htm (last visited June 19, 2006) and Indian Ministry of Companies Affairs,2005 Annual Report, http:// www.mca.gov.in/MinistryWebsite/dca/report/annualreport2005/CHAPTER2.pdf (lastvisited June 19, 2006).

[FN159]. Mukhi, supra note 157, at 7.

[FN160]. Overdorf, supra note 151. As further evidence of the efficiency of fast-track courts, they have disposed of11,580 cases out of 41,374 transferred to them in eight states in which the courts have been established, according tothe Indian Ministry of Justice. See http:// pib.nic.in/archieve/lreleng/lyr2001/roct2001/30102001/r301020012.html.

[FN161]. The proposal is in the amount of Rs. 384 crore. Prime Minister Inaugurates Conference of Chief Ministers,Chief Justices of High Courts, HINDUSTAN TIMES, Mar. 11, 2006, available at 2006 WLNR 4107130.

[FN162]. The National Informatics Centre, a division of the GOI's Department of Information Technology,administers the computerization program. It states that presently all High Courts are computerized, though the levelof technological integration varies from state to state. For example, all High Courts are connected to a Local-Area



Network but not all are connected to the case management information system. For more information, see http://www.indiancourts.nic.in.

[FN163]. Indian Law Institute, supra note 153, at 39-40. Restrictions also include matters under the purview of theMonopolies and Restrictive Trade Practices Act. Id. at 40. See also ARBITRATION AND CONCILIATION ACT,1996, § 2(3), available at http://legalservices.maharashtra.gov.in (follow "Download" hyperlink) (last visited Nov.16, 2006).

[FN164]. Indian Law Institute, supra note 153, at 40; ARBITRATION AND CONCILIATION ACT § § 7(1), 7(2),7(3), 7(5).

[FN165]. ARBITRATION AND CONCILIATION ACT § 10.

[FN166]. Indian Law Institute, supra note 153, at 41-42; ARBITRATION AND CONCILIATION ACT § § 20(1),19(1), 27(1).

[FN167]. ARBITRATION AND CONCILIATION ACT § 37 (3).

[FN168]. Indian Law Institute, supra note 153, at 65.

[FN169]. The Constitution of India, Article 51(d) provides that the government should "encourage settlement ofinternational disputes by arbitration." India Const., art 51(d), supra note 149. Furthermore, in a recent press release,the Law & Justice Minister of India, announced that the ministry was insituting an arbitrational system to ensure"that no dispute arises out of investment agreements for attracting foreign capital and if at all any dispute arises, it issorted out through conciliation and arbitration." New Legal System in the Offing to Attract $100 Billion Investmentin India: Law & Justice Minister, HINDUSTAN TIMES, Feb. 25, 2006, available at 2006 WLNR 3300045. Thesentiments in support of arbitration for international commercial disputes were recently echoed by the Chief Justiceof India. See Shri Y.K. Sabharwal, Delayed Justice, Justice Sobhag Mal Jain Memorial Lecture delivered on July 25,2006, at 12-13, available at http://supremecourtofindia.nic.in/new_ links/DelayedJustice.pdf.

[FN170]. While arbitration has many advantages, opting for this method of dispute resolution has the disadvantageof lacking a meaningful appeal process.

[FN171]. See Embassy of India, Legal Dispute Resolution, http://www.indianembassy.org/newsite//Doing_business_In_India/Legal_Dispute_ Resolution_System.asp (last visitedSept. 3, 2006)

[FN172]. ARBITRATION AND CONCILIATION ACT, § 48(2).

[FN173]. For more information, see http://www.ficci.com/icanet/index.htm.

[FN174]. Mazzini, supra note 15, at 360.

[FN175]. Id.

[FN176]. Id. at 361.

[FN177]. Id.

[FN178]. Id.

[FN179]. Id. at 362.

[FN180]. 28 U.S.C. § 1605 (a)(2).




[FN181]. For a list of all the countries with which India has signed BITs and the text of these particular BITs, seeUnited Nations Conference on Trade and Development, Investment Instruments Online, Bilateral InvestmentTreaties, http://www.unctadxi.org/templates/DocSearch.aspx?id=779 (last visited Nov. 17, 2006).

[FN182]. See International Institute for Sustainable Development, European Banks move to BIT arbitration againstIndia in Dabhol dispute, INVESTMENT LAW AND POLICY WEEKLY NEWS BULLETIN, Dec. 17, 2004,available at http:// www.iisd.org/pdf/2004/investment_investsd_dec17_2004.pdf.

[FN183]. See http://www.worldbank.org/icsid (last visited Nov. 17, 2006).

[FN184]. Note that India has not ratified the Washington Convention, therefore the UNCITRAL venue is morelikely to be used.

[FN185]. See India Model BIT, available at http:// ita.law.uvic.ca/Indiamodelbit.htm (last visited Nov. 17, 2006).

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