INCORPORATING A CEMENT MANUFACTURING UNIT

A LEGAL PERSPECTIVE – ACTS, LAWS AND OFFICES

AgendaCement Industry

• Industry Overview

Incorporation of a Cement Company

• Private/Public Entities• Joint Ventures/Subsidiaries

• Requests to RoC• Flow-chart view

Industrial Policies

• Industrial Licensing, IEMs , Location Policies• Procedures for Approval for E0Us/EPZs/FTZs/SEZs

List of approvals/clearances and departments

Government Involvement(Specific Acts and policies)

List of Applicable Labour Laws in the Sector

Legal Challenges to Cement Industry

Industry overview

Cement industry

Large cement plants

Mini & White cement plants

•Cement plants: 139 •Effective capacity: 234.3 mtpa

•Cement plants: 365 •Effective capacity: 11.1 mtpa

*Source : Ambit capital, Aranca research

2nd largest market in the world , 7–8 per cent of

global production

Exports to more 30 countries generating

employment for 50,000 people

Annual production of more than 1 mn tonnes

Per Capita consumption around – 170kg, world

average 430 kg

Incorporation: An overviewCOMPANIES ACT 1956

• Governs Incorporation of a company in India• Part II of the Act deal with the incorporation of a company and matters related thereto

* A public company is a private company which is a subsidiary of a company which is not a private company.

Private Company Public Company

Minimum Paid-up Capital - 100,000 Minimum Paid-up Capital - 500,000Minimum number of members: 2 Minimum number of members: 7Maximum number of members : 50 Maximum number of members : Unlimited

Transerferability of shares : Complete restriction

Transerferability of shares : No restriction

Issue of Prospectus : Cannot issue prospectus

Issue of Prospectus : Can issue prospectus

Number of Directors : < =2 Number of Directors : >=3

Incorporation of a Cement Company

Getting the appropriate persons to subscribe to the Memorandum(Public company: Min. of 7, Private company: Min. of 2)

Drawing up the Articles of Association (Indian Stamp Act, 1899)

Drawing up the Memorandum of Association (Indian Stamp Act, 1899)

Obtaining approval for the proposed name of the company from the ROC (Form 1A) (Prevention of Improper Use, Act-1950)

Incorporation of a Cement Company

Obtain a certificate of commencement of business from ROC in case of a public company

Receipt of Certificate of incorporation

Payment of registration Fee to the ROC

Starting Operations in IndiaStarting

operations in India

As a Indian company

Joint Ventures Wholly owned subsidiaries

As a foreign company

Liaison Office

Project Office

Branch Office

TaxationCorporate tax rate for foreign companies is 40%. The net tax rate includes various deductions and exemptions available under the tax laws. Tax holidays are available in Special Economic zones. Infrastructure Sector Projects enjoy special tax treatment/holidays. Electronic filing of customs documents is also there.

Investment FacilitationSecretariat for Industrial Assistance (SIA) inDepartment of Industrial Policy and Promotion, Government of India provides a single window service for entrepreneurial assistance, Investor facilitation and monitoring implementation of the projects.

Joint Ventures

Wholly owned subsidiaries

By forging strategic alliances with Indian partners foreign companies get following advantages. • Established distribution/ marketing set up of the Indian partner• Available financial resource of the Indian partners• Established contacts of the Indian partners which help smoothen the process of setting up of operations

•100% FDI is allowed in cement industry•Application to be filed to registrar of companies•Department of Company Affairs under Ministry of Finance is the regulatory authority

Liaison Office

Branch Office

Project OfficeForeign Companies planning to execute specific projects in India can set up temporary project/site offices in India with RBI’s permission subject to specified conditions.

• No activity other than the activity relating and incidental to execution of the project• Project Offices may remit outside India the surplus of the project on its completion

• Not allowed to carry out manufacturing activities on its own ,subcontract these to an Indian manufacturer. • Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines

• A channel of communication between the principal place of business or head office and entities in India• Cannot undertake any commercial activity directly or indirectly and cannot earn any income • Its role is to collect information about market opportunities and providing info about the company and its products to prospective Indian customers•It can promote export/import from/to India and also facilitate technical/financial collaboration

Industrial Policy Reforms

Reduced Industrial Licensing requirements

Removed restrictions on investment and expansion

Facilitated easy access to foreign technology and

foreign direct investment

Industrial PolicyIndustrial LicensingAll industrial undertakings

are exempt from obtaining an industrial license toManufacture, except for:

1. Industries reserved for the Public Sector2. Industries retained under compulsory licensing3. Items of manufacture reserved for the small

scale sector4. If the proposal attracts location restriction

Industrial Entrepreneurs Memorandum (IEM)

Industrial undertakings exempt from obtaining an industrial license are required to file an IEM

1. In Part ‘A’ with Secretariat of Industrial Assistance (SIA), DIPP, GOI, and obtain an acknowledgement

2. After commencement of commercial production, Part ‘B’ of the IEM has to be filled

Industrial Policy

Industrial undertakings are free to select the location of a project

In the case of cities with population of more than a million (as per the 1991 census):• The proposed location should be at least 25 KM away from the Standard Urban Area limits of that city• Located in an area designated as an "industrial area" before the 25th July, 1991

The location of industrial units is further regulated by the local zoning, land use regulations & also the environmental regulations

Policy Relating to Small Scale Undertakings*

Locational Policy

• Get registered with the Directorate of Industries/District Industries Centre in the concerned State Government• Also free from locational restrictions cited above

(An industrial undertaking is defined as a small scale unit if the investment in fixed assets in plant and machinery does not exceed Rs 10 million)

Industrial Policy

A Notification issued under The Environment Protection Act 1986 has listed 29 projects in respect of which environmental clearance needs to be obtained from the Ministry of Environment, GOI: Cement Industry is one of these.

Foreign Direct Investments Policy

Environmental Clearances

• The GOI has allowed FDI up to 100% in the cement and gypsum products industry• FDI can be bought through:

Automatic RouteNew Ventures Existing

CompaniesGovernment

Approval

RBI has given permission to Indian Cement companies to accept investment under this Route without obtaining prior approval from RBI

Government approvals are accorded on the recommendation of the Foreign Investment Promotion Board (FIPB), chaired by the Secretary, DIPP (Ministry of Commerce and Industry) with the Union Finance Secretary, Commerce Secretary, andother key Secretaries of the Government as its members.

Industrial PolicyClearances and Approvals Required

Approvals/Clearances Required Department to be Approached and Consulted

Incorporation of Company Registrar of Companies

Registration/IEM/Industrial license DIC for SSI/SIA for large and mediumindustries

Allotment of land State DI/SIDC/Infrastructure Corporation /SSIDC

Permission for land use a. State DIb. Dept. of Town and CountryPlanning

NOC and consent under Water and Air Pollution Control Acts State Pollution Control Board

Approval of construction activity and building plan a. Town and country planningb. Municipal and local authoritiesc. Chief Inspector of Factoriesd. Pollution Control Board

Weights and Measures Inspector of Weights and Measures

Quality Marking Certificate Quality Marking Center of the State Government

Industrial PolicyRegulation

Problem: Cartelizing of cement firms

•The Competition Commission of India says that cement firms met regularly to fix prices, control market share and hold back supply

• The Commission claims that cement companies in India had been organizing themselves in a cartel for a while now, colluding, during industry body meetings, to fix production levels as well as the price of a bag of cement — in this case doubling it between 2004 and 2011 — so they could make windfall, illegal profits

• Consequently, the CCI has slapped a fine totaling Rs 6,307.32 crore on the top-10 cement companies here and the industry body Cement Manufacturers’ Association

Competition Commission of India is a body of the Government of India responsible for enforcing The Competition Act, 2002 throughout India and to prevent activities that have an adverse effect on competition in India. It was established on 14 October 2003

Cement Control Order, 1967

Cement Cess Rule, 1993

Cement (Quality Control) Order,1995

Cement (Quality Control) Order, 2003

Site and Building Plan approval

Health clearance

Fire service clearance

Environmental clearance from State Pollution Control Board

Registration with Inspector of Factories under Factories Act

Registration under Boilers Act (For Boilers)

Safety Certificate from Chief Electrical Inspector

Rules and Orders, DIPP

NODAL AGENCY Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce

State Level Statutory Clearance

Government Involvement

Applicable Labour Laws

APPRENTICES ACT, 1961• Promotion of new manpower at skills and improvement/refinement of

old skills• Apprenticeship Advisor• Obligations of employers and apprentice• Offences and punishment

CONTRACT LABOUR ACT, 1970• To regulate the employment of contract labor and abolish it in certain

cases• Applicability• Revocation and amendment of licenses• Liability of principal employer

EMPLOYEES’ PROVIDENT FUNDS & MISC. PROVISIONS ACT, 1952

• Eligibility• Benefits• Applicability

EMPLOYEES’ STATE INSURANCE ACT 1948

• Applicability of the act• Benefits• Penalties• Contribution period

Applicable Labour Laws

FACTORIES ACT, 1948•Applicability of the Act•Registration & Renewal of Factories•Welfare Measures•Employment of Young Persons

INDUSTRIAL DISPUTES ACT, 1947•Provisions for investigation and settlement of industrial disputes and for certain other purposes.•Power of Labour Court to give appropriate Relief•Period of Operation of Settlements and Awards•Prohibition of Strikes & Lock Outs

STANDING ORDERS ACT, 1946•Applicability of the Act•Matters to be provided•PENALTIES

MINIMUM WAGES ACT, 1948•Provide for fixing minimum rates of wages in certain employments•Composition of Committee Penalties•Payment of Minimum Rates of Wages

Applicable Labour Laws

MINIMUM WAGES ACT, 1948

• To provide for fixing minimum rates of wages in certain employments• Fixing Hours for normal working• Composition of Committee• Maintenance of registers and records• Claims, Penalties, Offence, Punishment

TRADE UNIONS ACT, 1926• To provide for the registration of Trade Union & define the law

relating to registered Trade Unions• Minimum Requirement for membership of Trade Union• Registrations and Cancellation of Trade Unions• Penalties, Offence and Punishment

EQUAL REMUNERATION ACT, 1972

• To provide for the payment of equal remuneration to men and women workers and for the prevention of discrimination

• Advisory Committee to regulate the process• Power of Government for appropriation• Penalties and Offence

Applicable Labour Laws

PAYMENT OF WAGES ACT, 1936

• To regulate the payment of wages of certain classes of employed persons

• Applicability and Coverage• Legal deductions• Offences and Penalties

WORKMEN’S COMPENSATION ACT,

1923

• To provide workmen and/or their dependents some relief in case of accidents, arising out of and in the course of employment and causing either death or disablement of workmen

• Applicability, Coverage and Employer’s Liability• Amount of Compensation• Report of Incidents and Penalties

PAYMENT OF GRATUITY ACT, 1972

• To provide for a scheme for the payment of gratuity to employees• Applicability, Qualification, Nomination• Forfeiture of Gratuity• Protection of gratuity and Penalties

Environmental Laws and ActsStated in

Constitution of IndiaReferred by Directive

Principles of State PolicyGuided by Fundamental

Rights structure

The Environment (Protection) Act - 1986 Hazardous Waste (Management and Handling) Rules - 1989

The Public Liability Insurance Act and Amendment -1991 & 1992 The National Environmental Tribunal Act – 1995

Practice required by law India China United States Standard work day 9 hours 8 hours 8 hours

Severance pay for redundancy dismissal of employee with 5 year tenure

10.7 week salary 21.7 week salary None

Severance pay for redundancy dismissal of employee with 1 year tenure

2.1 week salary 4.3 week salary None

Premium pay for overtime 100% 50% 50%

Minimum Wage (US$/month) 29.9 182.5 1242.6

Minimum rest while at work 30 minutes per 5 hour None None

Maximum overtime limit 200 hours per year 1 hour per day None

Government approval required for 9 person dismissal Yes No No

Government approval required for 1 person dismissal

Yes No No

Government approval for redundancy dismissal granted Rarely Not applicable Not applicable

Dismissal priority rules regulated Yes Yes No

Dismissal due to redundancy allowed? Yes, if approved by government Yes, without approval of government Yes, without approval of government

Legal Challenges to Cement Industry

Competition Act – 2002 ( Amendment in 2007)

• Competition Commission of India• Competition Appellate Tribunal

• 6300 Crore Rs Penalty on Cement Companies for cartelization• Orders for CMA

Obsolete Labor Laws• World Bank Report on Indian Labor Laws- 2008

• “………India’s labor regulations - among the most restrictive and complex in the world - have constrained the growth of the formal manufacturing sector where these laws have their widest application. Better designed labor regulations can attract more labor- intensive investment and create jobs for India’s unemployed millions and those trapped in poor quality jobs. Given the country’s momentum of growth, the window of opportunity must not be lost for improving the job prospects for the 80 million new entrants who are expected to join the work force over the next decade”…..

The End

ReferencesLinks•http://www.cmaindia.org/– Cement Manufacturers’ association•www.mhupa.gov.in - Ministry of Housing and Urban Poverty Alleviation•www.cidc.in – Construction Industry Development Council , set up by Planning Commission•www.ncbindia.com – National Council for Cement and Building Materials•www.dipp.nic.in – Department of Industrial Policy and Promotion under Ministry of Commerce and Industry, Govt of India•http://www.fipbindia.com/ - Foreign Investment Promotion Board•http://www.mca.gov.in/ - Ministry of Corporate Affairs•http://finmin.nic.in/ - Ministry of Financial Affairs•http://moia.gov.in/ - Ministry of Overseas Indian Affairs•http://envfor.nic.in/ - Ministry of Environment and Forests•http://www.investindia.gov.in

Articles, Papers and Reports•FDI Circular for consolidated FDI policy 2012- Department of Industrial Policy and Promotion under Ministry of Commerce and Industry, Govt of India•The Labour Laws Manual•Indian Cement Industry – CII•The Competition (Amendment) Act, 2007 – Competition Commission of India•Equal Remuneration Act, 1976•Ninety fifth report on performance of cement industry – Parliament Report ( Presented to Rajya Sabha & lok sabha in 2011)