The Next Play- Block Chain, Sports and Tourism

The excitement and intrigue surrounding cryptocurrency might have fizzled out, but alternate use cases of the blockchain have found roots for varied purposes, such as electronic health records, land records, farm insurance, digital certificates, etc., across as many as thirteen states in the country. 

 

In partnership with a platform called Yunometa, the State of Tamil Nadu recently launched the Women’s Chennai Open in the world of Metaverse and NFTs on September 10, 2022 (https://chennaiopen.co/). With this launch, the synergies between sports and technology are being explored further. Sports enthusiasts will now be able to view the Chennai Open (women) in the metaverse and watch it live. 

The Chennai Open Metaverse will have a tennis court where visitors can choose their avatars, including their favourite players, and play a match. There is also a media section where they can visit and get regular updates on the events’ matches. The metaverse will further have two more sections, i.e., an NFT museum section to display tourism and culture for the State of Tamil Nadu and a section for virtual tours of Tamil Nadu’s most well-known tourist destinations, such as Fort St. George, Meenakshi Temple, and Mahabalipuram Temple, amongst others. 

It seems to be a great initiative not only to enjoy sports in a new way but also to showcase the culture of Tamil Nadu, which may have a ripple effect on the tourism industry.

According to a recent study by Finder, released in 2022, India is ranked first in NFT gaming adoption. As per the report, around 34% of the Indian population has played P2E games[1], while 11% have shown a willingness to play them in the future.[2] Further, the size of the Indian eSports industry is expected to grow to INR 11 billion by FY2025 and potentially generate an economic impact of INR 100 billion between FY2021 and FY2025.[3]

While the statistics paint an impressive picture of the industry’s potential, it would be imperative to note that the legal landscape is definitely ‘glitching’ while trying to adopt a legislative pathway that would foster yet effectively regulate the sector.

At present, the policy focus of the government pertains to taxation only. However, with the increase in the participation of gamers, it is also prudent to address user safety issues by creating guidelines and standards for privacy, fraud prevention, structuring appropriate KYC procedures and payment mechanisms, and ensuring overall ease of doing business, regulatory certainty, and taxes.

The policy initiatives undertaken by the government in the recent past, including the Online Gaming (Regulation) Bill, 2022, which failed to address key concerns such as privacy, age-verification of players, defining casual online gaming, and money-based gaming, have shown a lack of a comprehensive approach to resolving the crucial issues. Similarly, the Inter-ministerial Panel on Online Gaming formed in May 2022 has, till now, only issued a slew of suggestions ranging from issuing a cap on deposit and withdrawal limits on the game winnings to recommending forming a regulatory body to distinguish between “games of skill” and “games of chance,” differential GST treatment, blocking prohibited gaming formats, and issuing a stricter stance on gambling websites.

In addition, the Animation, Visual Effects, Gaming, and Comics Task Force (AVGC) was set up in April this year and commissioned to formulate a national AVGC policy to attract foreign direct investment in the sector and to recommend a national curriculum framework, facilitate skilling initiatives, and boost employment opportunities within the sector has yet to submit its first action plan.

The Draft Virtual Online Sports Regulation Bill released by the Rajasthan government in May 2022[4] seems encouraging since it envisages structuring a licensing regime and establishing a Rajasthan Virtual Online Gaming Commission that shall be tasked with recommending conditions for licences, recognising “self-regulatory organisations,” and issuing advisories, caution notices, and recommendations to self-regulatory organisations. However, the Bill only applies to “esports competitions, fantasy sports, and derivative formats as provided by the sports engagement platforms” and leaves poker, rummy, ludo, and other such games of skill outside its purview.

It is safe to conclude that, at present, the central and the respective state governments have fallen short of formulating a cohesive set of legislation on online gaming. Further, with the integration of blockchain with gaming, it would also be crucial for the government to finally take a stand on laws regulating cryptocurrency in the country.

Shaping a comprehensive regulation on blockchain gaming would also necessitate the concerted deliberation and collaboration of various stakeholders in the industry, as current laws largely fail to address important concerns such as privacy, fraud, user safety, and so on.

It is safe to conclude that, at present, the central and the respective state governments have fallen short of formulating a cohesive set of legislation on online gaming. Further, with the integration of blockchain with gaming, it would also be crucial for the government to finally take a stand on laws regulating cryptocurrency in the country.

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The Energy Conservation (Amendment) Bill, 2022 – A Retort to Increasing Emissions

On August 9, 2022, the Energy Conservation (Amendment) Bill, 2022 (the “Bill”) passed the muster of the Lok Sabha (lower house of the Indian Parliament). The Government of India had identified new areas to achieve higher levels of penetration of Renewable energy and the bill sought to enhance demand for renewable energy at the end- use sectors such as Industry, buildings, transport etc.

What demanded the introduction of the Bill?

Decarbonization. The Bill, which amends the Energy Conservation Act, 2001 (the “Act”), introduces a series of modifications that opens the door for sustainable development. According to Bill’s statement of objects and reasons, it aims to, among other things, promote the use of green fuels and the growing renewable energy sector, ensure industrial energy efficiency, and establish a domestic “carbon market”, and carbon trading scheme to fulfil the commitments made by India at COP-26 (Conference of Parties -26) in Glasgow in 2021.

 

What are the major changes proposed in the Bill?

 

The Penalty


To enhance the effectiveness of the law and create stronger deterrence, the bill introduced stricter enforcement mechanisms. The changes include new penalties and aggravation of existing penalties for violations of certain provisions relating to the efficient use of energy and its conservation[1], use of deceptive names (introduced in the Bill)[2], and provision of information[3].

A new penalty introduced, for instance, is that if a vehicle manufacturer fails to comply with fuel consumption standards, he will be liable to pay an additional penalty (in addition to the penalties he is liable to under the Act) per unit of vehicles sold in the corresponding year, as follows:

  • twenty-five thousand rupees per vehicle for non-compliance with norms up to 0.2 litres per 100 km.
  • fifty thousand rupees per vehicle for non-compliance with norms above 0.2 litres per 100 km.[4]


Carbon Credit Trading


The Bill seeks to reduce carbon emissions by creating a carbon credit trading scheme. The Central Government is empowered under Section 14AA of the Bill to specify such a scheme.

Interestingly, the Act has enumerated a scheme through which energy savings certificates are issued by the Central Government to those plants or industrial units whose energy consumption is less than the prescribed norms and standards. Units that are unable to comply with the set energy consumption norms are entitled to purchase the energy savings certificate to ensure compliance. The industrial units that fail to meet the energy savings targets even after purchasing the energy saving certificates are liable to be punished with a fine as per the provisions of the Act.

To understand how a carbon credit trading scheme would aid in reducing emissions, we must understand what a carbon credit trading scheme is. A carbon credit is a certificate/permit that gives its holder the right to emit a certain amount (usually a tonne) of carbon dioxide. Based on historical emissions, carbon credits are provided to an organisation in a particular sector. If the organisation goes over its allocated amount of carbon credits, then it would have to purchase more credits from the carbon market, where carbon credits are bought and sold. And the price of the carbon credit is determined by the market forces of supply and demand. Additional factors that influence the pricing of carbon credits include regulations established by the government, international climate change protocols, emission trading schemes, and a carbon tax. This scheme or system of buying and selling carbon credits is, in simplistic terms, a carbon trading scheme. Hence, the carbon trading scheme aims to reduce carbon/greenhouse gas emissions by assigning a financial cost for causing pollution. This implies that for such units, carbon emissions will now be equivalent to any other capital investment like raw materials or labour.


Expanding, Enlarging, and Empowering


  1. Vehicles and Vessels– The Act, under Section 14, empowers the Central Government to set standards to enable efficient use of energy and its conservation for any equipment, appliance that consumes, generates, transmits, or supplies energy. The Bill seeks to include vehicles (as defined under the Motor Vehicles Act) and vessels into the scope of Section 14. Corresponding provisions for penalties have also been included in the Bill for violations of the provisions of the Act.
  1. Buildings- Under the Act, the Central Government and the Bureau of Energy Efficiency have the authority to lay down energy conservation standards for buildings, ascertained in terms of area. The Bill seeks to amend the provision to the effect that, now, the Bureau and the government shall set energy conservation and sustainable building codes, that shall elaborate upon standards for energy efficiency and conservation, use of renewable energy, and other requirements for green buildings.
  1. Residential Buildings– The energy conservation code in the Act has only been made applicable to commercial buildings. The Bill seeks to include residential buildings along with commercial buildings under the scope of the Code. As per the amended provision of the Bill, the State Governments have also been empowered to lower the load threshold. By bringing residential buildings under the scope of the energy conservation code, the responsibility for ensuring mindful energy consumption would effectively fall on citizens as well as industries.
  1. Composition of BEE Governing Council– The governing council of the Bureau of Energy Efficiency (BEE) created under the Act has twenty, not exceeding twenty-six members, which is intended to be expanded to thirty-one, but not exceeding thirty-seven members by the Bill. This expansion is likely intended to improve bureaucratic efficiency in the administration and enforcement of the provisions of the Act.
  2. State Electricity Regulatory Commission– The Act empowers the Bureau of Energy Efficiency to make regulations as necessitated, with the approval of the Central Government[5]. The Bill also envisages empowering the State Commission to make regulations for discharging its functions under this Act[6].


Concluding Thoughts


The amendments that are envisioned under the Bill are strides in the right direction for enabling better regulation of carbon emissions and promoting the objective of sustainable development by encouraging a switch from fossil fuels to renewable energy sources. While the carbon trading scheme under the Bill has the right intentions, it is still lacking in clarifications pertaining to the market structure and incentive scheme for facilitating carbon trading in the country.

As with any other law, strict enforcement and alignment of all the relevant stakeholders contingent on the success of proposed policies under the Bill would be key in ensuring that India achieves its goals towards facilitating a steady shift from fossil fuels to promotion of new and renewable energy (wind, solar, etc.), accomplishes milestones contemplated in the National Green Hydrogen Mission, and actualizes its vision to meet 50 per cent of its energy requirements from renewable sources by 2030, as envisaged under the ‘Panchamrit’ strategy announced at the COP 26 conference in Glasgow.  

References:

[1] Section 14 clause (c) or clause (d) or clause (h) or clause (i) or clause (k) or clause (l) or clauses (n) and (x); and Section 15 clause (b) or clause (c) or clause (h) of the Act.

[2] Sub-section (1) of Section 13A of the Bill.

[3] Section 52 of the Act.

[4] Second proviso to Section 26 (2) of the Bill.

[5] Section 58 of the Act.

[6] Section 13 of the Bill.

Image Credits: Photo by catazul from Pixabay 

The amendments that are envisioned under the Bill are strides in the right direction for enabling better regulation of carbon emissions and promoting the objective of sustainable development by encouraging a switch from fossil fuels to renewable energy sources. While the carbon trading scheme under the Bill has the right intentions, it is still lacking in clarifications pertaining to the market structure and incentive scheme for facilitating carbon trading in the country.

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The Indian Telecommunication Bill, 2022: An Au Courant Approach

Telegraph was first introduced in India in the year 1851 and telephone exchanges were set up in the early 1880s. The Indian Telegraph Act, 1885; the Indian Wireless Telegraphy Act, 1933; the Telegraph Wires (Unlawful Possession) Act, 1950, were enacted to suit the needs of the day. The usage of the telegraph as a telecommunication mode became obsolete in 2013, and today technologies such as 4G and 5G, the Internet of Things, Industry 4.0, M2M communications, Mobile Edge Computing, etc. are revolutionising the sector.

While these technologies create new opportunities for social and economic growth, issues relating to dispute resolution and penalties, data privacy, the infrastructural needs of the industry, etc. become more complex.

With the objective of reforming the telecommunication law and making it more sensitive towards the concerns of this ever-evolving sector, a consultation paper on the “Need for a new legal framework governing Telecommunication in India[1] was issued by the Department of Telecommunication on July 23, 2022, inviting comments.

The Consultation Paper proposed a new legal framework to address the following:

  1. Simplification of the regulatory framework while ensuring regulatory certainty, minimising policy disruption, promoting investment, and preventing retrospective application.
  2. Spectrum assignment should be to best serve the common good and widespread access, with utilisation of spectrum liberally and neutrally allowed, as should the deployment of new technologies, the repurposing and rearrangement of frequency range, and the authorisation of the central government to share, trade, lease, and surrender spectrum.
  3. Provide a robust regulatory framework to obtain Right of Way and resolve disputes thereby ensuring the deployment of new technologies and ensuring continuous connectivity.
  4. Simplify the framework for mergers, acquisitions, or other restructuring.
  5. Ensure the license is not suspended or terminated during Insolvency while services are being provided, and ensure there is no default on license or spectrum dues.
  6. Expanding the scope of the Universal Service Obligation Fund to address delivery of telecommunications service to underserved rural and urban areas.
  7. Proportionate penalty for offences.
  8. Address situations of public emergency, public safety, or national security.

The draft Telecommunication Bill 2022 was created in response to public feedback on the consultation paper [2].  Further comments on the draft have been invited till 20th October 2022. It intends to replace the Indian Telegraph Act, 1885; the Indian Wireless Telegraphy Act, 1933; and the Telegraph Wires (Unlawful Possession) Act, 1950.

 

Key Takeaways of the Draft Telecommunication Bill, 2022

 

Over-the-top (OTT)

 

There was an interpretational discord as to whether OTT is regulated under the current legal system. The government is of the opinion that OTT is adequately covered under the definition of “Telegraph” in the Telegraph Act. However, there is no explicit legal backing. The proposed bill explicitly clarifies that OTT communication services are a telecommunication service. The bill’s definition of telecommunication service incorporates current technological trends in the industry and includes voice and video communication services, machine-to-machine services, and broadcasting services. Any transmission and receipt of a message through a wire, radio, optical, or electromagnetic system would be telecommunication. Such telecommunication, when intended to be received by the general public, becomes a broadcasting service. Therefore, an OTT service provider, be it broadcasting/streaming services or data/video call services, falls explicitly within the ambit of the Telecommunications Bill, 2022.

 

User-Beneficial Provisions

The bill requires that the identity of the person sending a message be made available to the user receiving the message at all times. Therefore, any call recipient from a landline, cellular, or through OTT platforms like WhatsApp, Facetime, or Zoom calls will have information about the caller. To achieve this end, the KYC of all the users has to be obtained by all service providers, including OTT platforms.  Users are prohibited from providing false information about their identity when obtaining telecommunications services. Any misrepresentation of identity is punishable with imprisonment for one year or a fine of up to 50,000 rupees. An advertisement or promotional message, whether fictitious or real, shall not be sent unless consent is procured from the recipient. Any unsolicited message shall be an offense, and the sender is liable to be penalized. The Bill formulates a mechanism for the preparation and maintenance of the ‘Do Not Disturb’ register. The user-beneficial provisions and the penalty for violation are not substantial enough. When the losses caused to the public because of cyber frauds are more than 1 lakh crore each year, the penalty for such fraud of INR 50,000 is not a deterrent. It is ideal that such offenders are abstained from providing telecommunication services so that repeated cyber frauds or impersonations can be avoided.

 

Spectrum Allocation

 

The Bill provides that spectrum allocation can be done only through auction, directly under circumstances specified in the schedule, such as national security, or in such a manner as mentioned in the rules. The Hon’ble Supreme Court of India, in “Union of India & Ors v. Centre for Public Interest Litigation and other” decided on February 2, 2012, stated that:

“When it comes to the alienation of scarce natural resources like spectrum, etc., it is the burden of the State to ensure that a non-discriminatory method is adopted for distribution and alienation, which would necessarily result in protection of national/public interest. In our view, a duly publicised auction conducted fairly and impartially is perhaps the best method for discharging this burden and the methods like first-come-first-served when used for alienation of natural resources/public property are likely to be misused by unscrupulous people who are only interested in garnering maximum financial benefit and have no respect for the constitutional ethos and values. In other words, while transferring or alienating the natural resources, the State is duty bound to adopt the method of auction by giving wide publicity so that all eligible persons can participate in the process.”

The Hon’ble Supreme court’s order mandates spectrum allocation only via auction. However, allocation of Spectrum under extraordinary circumstances such as national security and defence by the Central Government is understandable. Nevertheless, the entire list of Schedule I activities wherein the government is authorized to allocate spectrum to BSNL/MTNL or can assign it to “any other function or purpose as determined” is far too wide to defeat the very purpose of the order.  Further, it is ideal that such spectrum allotted under Schedule I, shall not be resaleable but only returnable to the government.

The Bill provides the Central Government rights to repurpose the spectrum frequency for a different use (“re-farm”), rearrange the frequency range (harmonization), or assign part of the assigned spectrum to another entity for efficient spectrum utilization, or if the spectrum remains unutilized.

 

Seamless Transition 

There is a new set of terms and conditions that will be formed after the Act and rules come into force. A telecom service provider and telecom infrastructure provider have a choice on whether to migrate to the new set of terms and conditions under this bill or the existing terms as per their existing license. A wireless equipment provider has to procure new authorisation (instead of a license). The existing spectrum licenses shall continue to remain valid for a period of 5 years or until the date of expiry, whichever is earlier. The existing rules under the old Telegraph enactments shall continue until superseded by the new rules. All Telecommunication Bill provisions are prospective in nature. These mechanisms would allow greater acceptance of the new Act and a seamless transition.

 

Penalties and Offences

In casesof breach of the terms and conditions of a license, registration, authorisation, or assignment, the government can revoke, suspend, or curtail such approvals. Further, the government can impose a penalty based on the severity of the breach after considering whether it is severe, major, moderate, minor, or non-severe. A licensee can provide a voluntary undertaking to the authority with respect to any breach or delay. Acceptance of a voluntary undertaking will put the proceedings on hold. An alternative dispute resolution mechanism for resolving certain disputes or classes of disputes is envisaged. The Bill provides a list of offences covered by it, the imprisonment or fine imposed, and whether such offences are bailable or cognizable.

 

Right of Way

The mechanism for Right of way is differentiated on the basis of whether it is public property or private property. In the case of public property, the authority has to provide permission in a time-bound manner.  In the case of private property, parties may mutually negotiate an agreement. To overcome the issues of the sale of property along with the telecom infrastructure, an explicit provision has been enshrined to state telecom infrastructure is different from the property it is installed on. Therefore, the property owner cannot claim ownership of the tower in his/her property, and it remains independent of any sale or lease. It is ideal that the Right of Way arrangements/agreements be standardized. Further, the legal framework should also encompass penalties in case of violation of the Right of Way by either the telecom infrastructure provider or the property owner.

 

Common Ducts & Cable Corridors

An express provision is planned under which the Central Government will require infrastructure projects to have common cable ducts and cable corridors established and such cable made available to facility providers on an open access basis.

 

Restructuring & Insolvency

A licensee entity undergoing restructuring/merger/acquisition has to merely inform the authority and an explicit prior approval is not required. The restructured entity has to thereafter follow the rules therein. In case of insolvency, service continuity is given priority, and the entity retains control over Spectrum. An enabling framework has been made for the Central Government to intervene and revert the control of the Spectrum to the Central Government in case the entity fails to provide telecommunications services, and has promptly paid the spectrum licensing fees/charges.

 

Regulatory Sandbox

A regulatory framework of simplified license terms and conditions to empower the start-up ecosystem is formulated, whereby such entities can live-test their products and services in a controlled environment.

 

The Telecommunication Bill is a framework that intends to create a comprehensive and centralised legal ecosystem for an industry that is rapidly expanding with the addition of new players in the market, investments, and technology. How the Telecommunication Act, Digital Data Protection Act, and Digital India Act finally shape up to create a legal landscape to address the new technological challenges remains to be seen. The proposed Telecommunications Bill has addressed the concerns of the present while keeping an eye on the future in its simple, light-touch approach- a concrete step in the right direction.

The Telecommunication Bill is a framework that intends to create a comprehensive and centralised legal ecosystem for an industry that is rapidly expanding with the addition of new players in the market, investments, and technology. How the Telecommunication Act, Digital Data Protection Act, and Digital India Act finally shape up to create a legal landscape to address the new technological challenges remains to be seen.

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The Dawning of Data Centres in West Bengal

It is rightly said that “Data” is the new oil in today’s digital world. Data consumption and cloud-based services have grown exponentially in the past decade, and they are increasing their efficiency by making use of cloud computing and artificial intelligence. Consequentially, the requirement for storage and management of data has grown as well. This demand, along with the government initiatives for digitising India, has given rise to the growth of data centres in the country.

The data centre industry is expected to grow further in the next few years to provide support for the upcoming 5G technology. Data centres require round-the-clock uninterrupted availability of power to operate effectively. However, such requirements inevitably increase carbon-di-oxide emissions. Therefore, there has also been a significant push towards the establishment of “Green Data Centres” – a sustainable solution that is dependent only on renewable energy.

In view of the increasing significance of data, data centers, and the associated regulatory requirements of data localization, the Legislature has also brought about various reforms such as the Digital India programme in order to regulate the entire data industry. However, a comprehensive framework specifically aimed at regulating the construction and operation of data centers is still needed.

 

Concept of Data Centres

 

A data centre is a physical facility that houses all virtual activities and is used to store applications and data, for edge computing, hosting content, and delivering cloud-based services. Data centres cover the three sectors of property, energy, and technology, and thus, various segments such as real estate and construction, hardware equipment, utilities (power, water, cooling), networking, and software services all come within their ambit.

 

National and Global Context

 

The last few years have seen rapid growth in the digital industries such as gaming, Edtech, OTT platforms, e-commerce, etc., in India. These industries are heavily dependent on data centre support. Further, the fast growth in cross-border transactions and the digitisation of transactions has impelled the Indian government to implement data localization mandates in order to ensure data protection and sovereignty. Consequently, global players are now looking to invest in establishing data centres in India, which makes it important to examine the facilities offered to the data centre industry by leading nations in this sector.

 

United States

Different states in the US provide different incentives to investors for setting up data centres. For example, Alabama exempts data centres from sales and property taxes, Hawaii offers job creation incentives, Florida offers industry tax refunds through the Florida Enterprise Zone, and so on.

 

China

China is the world leader in internet consumption; hence, data centres have grown there rapidly. At present, it is placed in the second position in the market capacity of data centres, right after the US. The Chinese Government has incentivised the construction of data centres through the allocation of land for the same and making it available at favourable prices. China’s National Development and Reform Commission has launched a project called “Eastern Data Western Calculation,” which aims to move the data collected from developed regions of the country to less developed ones.  Apart from this, several local governments in the central and western regions of the country offer tax benefits for setting up data centres.

 

Singapore

Singapore has several facilities, such as a country-wide fibre network, a corporate tax exemption for a data centre company under the Pioneer Certificate Incentive, a concessionary tax rate of 5% or 10% for a company under the Development and Expansion Incentive, on-site power plants, dual power feeds, etc. to incentivise the setting up of data centres.

 

Regulatory Framework in India

 

The size of the digital economy in India is estimated to grow from $ 200 billion in 2017-2018 to $ 1 trillion by 2025.

Currently, there is no single legal framework regulating the construction and operation of data centres in India. Several guidelines have been issued from time to time by various government departments relating to the data centre industry. One such draft guideline named “Data Centre Policy 2020” was published by the Ministry of Electronics and Information Technology and proposed to give the status of “infrastructure” to data centres, putting the data centre industry on the same pedestal as roads, railways, and power, which would enable them to avail long-term credit from domestic and international lenders at easier terms. Some of the other salient features proposed by this policy are:

  • Data centres are to be declared an Essential Service under “The Essential Services Maintenance Act, 1968” to enable continued service during calamities or crises.
  • Data centres are to be recognised as a separate category under the National Building Code of India 2016 as they require different norms than other commercial spaces.
  • Four Data Centre Economic Zones (DCEZ) are proposed to be set up by the Government of India, which will host an eco-system of both non-IT and IT infrastructures such as hyper scale data centres, cloud service providers, IT companies, and R&D units.
  • Incentives for setting up data centres will be available to both private sector and public sector Data Centre Parks/Data Centre Developers and Data Centre Operators.

The Telecom Regulatory Authority of India (TRAI) had also published a consultation paper on “Regulatory Framework for Promoting Data Economy Through Establishment of Data Centres, Content Delivery Networks, and Interconnect Exchanges in India,” which provides a list of clearances required to build a data centre, some of which are listed below:

  • Environment Clearance from the Ministry of Environment, Forestry and Climate Change
  • Consent to Establishment from the Metropolitan Development Authority and Central Pollution Control Board
  • Provisional Fire No Objection Certificate (NOC) from the State Fire and Rescue Services/National Fire Protection Association
  • Storm Water Permits and Sewage Discharge Approval from the State Pollution Control Board
  • Tree Cutting NOC from the Central Pollution Control Board: Forest Department
  • Drainage/Garden NOC from the Metro Water Supply and Sewage Board
  • Building Permit/Approvals, and Commencement Certificate from the Metropolitan Development Authority
  • Telecom Permit from the state’s Service Provider/Controller of Communication Accounts
  • Water Supply from Metro Water Supply and Sewage Board
  • Power Connection Feasibility, Design, and Sanction from the State Electricity Board
  • Traffic Approval NOC from the Commissioner of Traffic
  • NOC for High-Rise Structure from Airport Authority of India
  • Registration with DIC from the Director of Industry
  • IEM Registration with the Ministry of Commerce
  • 220kV power connection cable laying from a substation to project premises and 220kV power connection substation testing and charging from the State Electricity Board
  • Form V Approval (Labour) from the Labour Department: State Government
  • Plinth Checking Certificate from the Metropolitan Development Authority
  • Electricity Safety License from the Central Electricity Authority/Chief Electrical Inspector to the Government/Public Works Department Electrical Inspector
  • Elevator Permits and Certification from the Central Electricity Authority/Chief Electrical Inspector to the Government/Public Works Department (PWD) Electrical Inspector
  • Diesel Generator System Approval from the Central Electricity Authority/Chief Electrical Inspector to Government/PWD Electrical Inspector
  • High Speed Diesel (HSD) License from the Petroleum and Explosives Safety Organization/Chief Controller of Explosives Department/PWD: Electrical Inspector
  • Lift Operating Permits from the PWD Lift Inspector
  • Occupancy Certificate from the Metropolitan Development Authority
  • Completion Certificate from the Metropolitan Development Authority
  • Consent to Operate Certification from the Central Pollution Control Board
  • Preliminary Explosive License and Final Explosive License for HSD from Petroleum and Explosives Safety Organization/Chief Controller of Explosives Department

Several states have promulgated their own data centre policies, such as Maharashtra, through its IT/ITES Policy of 2015; Telangana, through its Telangana Data Centre Policy of 2016; Uttar Pradesh, through the Uttar Pradesh Data Centre Policy of 2021; Tamil Nadu, through the Tamil Nadu Data Centre Policy of 2021; Karnataka, through the Karnataka Data Centre Policy, 2022-27 and West Bengal, through the West Bengal Data Centre Policy of 2021.

 

Regulatory Framework in West Bengal

 

On September 6, 2021, the Department of Information Technology and Electronics, Government of West Bengal, introduced the “West Bengal Data Centre Policy 2021,” which will be valid for a period of five years from the date of the notification.

The nodal agency for the proper implementation of this policy is WBEIDC Limited (WEBEL), and they will promote it at both a national and international level.

In 2022, it was announced that the Bengal Silicon Valley Tech Hub being developed at New Town, Rajarhat, is expected to become the main area for the development of the data centre units in the state. The biggest advantage for West Bengal is that the new submarine cable landing station is being developed at Tajpur in West Bengal and ancillary units will be created in the two electronics manufacturing clusters at Kalyani and Falta for supporting the data centres.

Data centre organisations will be classified as “Essential Services,” as has also been proposed in the National Policy.

In order to attract data centre companies to set up data centres in West Bengal, various other incentives have been proposed in the policy. The companies setting up data centres in West Bengal will be entitled to a hundred per cent exemption of stamp duty and registration fees for any transaction relating to the setting up of data centres in the state, and there will also be a waiver of electricity duty from the commencement of commercial activities up to five years.

Among the non-financial incentives, the data centres will also be entitled to:

  • Dual-power grid networks to ensure electricity supply without interruption
  • “Industrial” status is given to electricity supplied to data centres
  • Affordable power backup infrastructure
  • Companies who wish to establish captive firms will get single-window approvals and permits
  • Quality power and internet facilities are to be provided to Edge Data Centres being set up at various IT parks or industrial parks
  • Uninterrupted Power Supply and Internet Connectivity
  • Uninterrupted and high-speed water supply
  • A support system to be provided to set up captive water treatment plants for the Data Centre Parks
  • Extra FAR for data centre buildings.

West Bengal is becoming a lucrative option for setting up new data centres, and various corporate houses such as Reliance Jio, Adani Enterprises, and Hiranandani Group are also in the process of setting up data centres in the state. Several factors need to be taken into account before setting up a Data Centre and real estate is a significant one among them because data centres are one of the most expensive real estate investments. Extensive due diligence should be performed on the project site to ensure that it has a clear title and easy access to transportation and other utilities. In addition to this, all the relevant licenses and permissions should be obtained from the competent authorities to avoid legal issues in the future. Considering the progressive policies implemented by governments at both the central and state levels, it will be interesting to see how the data centre industry develops and how these policies affect it. 

Image Credits: Photo by Akela999 from Pixabay 

West Bengal is becoming a lucrative option for setting up new data centres, and various corporate houses such as Reliance Jio, Adani Enterprises, and Hiranandani Group are also in the process of setting up data centres in the state. Several factors need to be taken into account before setting up a Data Centre and real estate is a significant one among them because data centres are one of the most expensive real estate investments. Extensive due diligence should be performed on the project site to ensure that it has a clear title and easy access to transportation and other utilities.

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OECD BEPS Framework: Recent Development

Addressing tax issues arising in the digital economy has been a priority of the international community since past several years. It aims to deliver a consensus-based solution and ensure Multinational Enterprises (MNEs) pay a fair share of tax in the jurisdiction they operate. After years of intensive negotiations, the Organization for Export Co-operation and Development (OECD) / G20 has recently introduced a major reform in the international tax framework for taxing the Digital Economy.

The OECD / G20 inclusive framework on Base Erosion and Profit Shifting (BEPS) [“IF”] has issued a Statement, on 8th October 2021, agreeing on a two pillar-solution to address the tax challenges arising from the digitalization of the economy. There are 136 countries, including India, out of a total of 140 countries, representing more than 90% of the global GDP, that have agreed to this Statement. All members of the OECD countries have joined in this initiative and there are four G20 country members  (i.e. Kenya, Nigeria, Pakistan & Sri Lanka) who have not yet joined. The broad framework of the two-pillar approach as per the Statement is as follows:

 

Pillar One

 

Introduction and applicability:

  • Pillar One focuses on fairer distribution of revenue and allocation of taxing rights between the market jurisdictions (where the users are located), based on a ‘’special purpose nexus’’ rule, using a revenue-based allocation.
  • Applicable to large MNEs with a global turnover in excess of  Euro 20 Billion and profitability above 10% (i.e. profit before tax)[1]. This revenue threshold is expected to be reduced to Euro 10 Billion, upon successful review, after 7 years of the IF coming into force.
  • The regulated financial services sector and extractive industries are kept out of the scope of Pillar One.

 

Calculation Methodology:

  • Such allocation will help determine the ‘’Amount A’’ under Pillar one.
  • The special-purpose nexus rule will apply solely to determine whether a jurisdiction qualifies for Amount A allocation based on which 25% of residual profits, defined as profit in excess of 10% of revenue, would be allocated to the market jurisdictions using a revenue-based allocation key.
  • Allocation vis-à-vis nexus rule will be provided for market jurisdictions in which the MNE derives at least Euro 1 Million  of revenue  [Euro 250,000  for smaller jurisdictions (i.e. jurisdiction having  GDP lower than Euro 40 Billion )]
  • Profits will be based on financial accounting income, subject to:
    • Minimal adjustments; and
    • Carry forward of losses
  • Detailed revenue sourcing rules for specific categories of transactions shall be developed to ensure that revenues are sourced to end market jurisdiction, where goods or services are consumed.
  • Safe harbour rules will be separately notified, so as to cap the allocation of baseline marketing and distribution profits of the MNE, which may otherwise already be taxed in the market jurisdiction.

 

Tax Certainty:

  • Rules will be developed to ensure that no double taxation of profits gets allocated to the market jurisdiction, by using either the exemption or the credit method.
  • Commitment has been provided to have mandatory and binding dispute prevention and resolution mechanisms to eliminate double taxation of Amount A and also resolve issues w.r.t transfer pricing and business profits disputes.
  • An elective binding dispute resolution mechanism for issues related to Amount A will be available only for developing economies, in certain cases. The eligibility of jurisdiction for this elective mechanism will be reviewed regularly.

 

Implementation:

  • Amount A will be implemented through a Multilateral Convention (MLC), which will be developed to introduce a multilateral framework for all the jurisdictions that join the IF.
  • The IF has mandated the Task Force on the Digital Economy (TFDE) to define and clarify the features of Amount A (e.g. elimination of double taxation, Marketing and Distribution Profits Safe Harbour), develop the MLC, and negotiate its content so that all jurisdictions that have committed to the Statement will be able to participate.
  • MLC will be developed and is expected to be open for signature in the year 2022, with Amount A expected to come into effect in the year 2023.
  • IF members may need to make changes to domestic law to implement the new taxing rights over Amount A. To facilitate consistency in the approach taken by jurisdictions and to support domestic implementation consistent with the agreed timelines and their domestic legislative procedures, the IF has mandated the TFDE to develop model rules for domestic legislation by early 2022 to give effect to Amount A.
  • The tax compliance will be streamlined allowing in-scope MNEs to manage the process through a single entity.

 

Unilateral Measures:

  • The MLC will require all parties to remove all digital service tax (DST) and other similar taxes (eg: Equalisation levy from India perspective) with respect to all companies and to commit not to introduce such measures in the future.
  • No newly enacted DST or other relevant similar measures will be imposed on any company from 8 October 2021 and until earlier than 31 December 2023 or coming into force of the MLC.

 

Pillar Two

 

Introduction:

 

  • Pillar Two consists of Global anti-Base Erosion Rules (GloBE) to ensure large MNEs pay a minimum level of tax thereby removing the tax arbitrage benefit which arises by artificially shifting the base from high tax jurisdiction to low tax jurisdiction with no economic substance.
  • Pillar Two is a mix of several rules, viz. (i) Income Inclusion Rule (IIR); (ii) Undertaxed Payment Rule (UTPR); and (iii) Subject to Tax Rule (STTR).
  • IIR imposes a top-up tax on parent entity in respect of low taxed income of a constituent entity
  • UTPR denies deductions or requires an equivalent adjustment to the extent low tax income of a constituent entity is not subject to tax under an IIR.
  • STTR is a treaty-based rule which allows source jurisdiction to impose limited source taxation on certain related-party payments subject to tax below a minimum rate. The STTR will be creditable as a covered tax under the GloBE rules.
  • There would be a 10-year transition period for exclusion of a certain percentage of the income of intangibles and payroll which will be reduced on year on year basis
  • GloBE provides de minimis exclusion where the MNE has revenue of less than Euro 10 Million and profit of less than Euro 1 Million and also provides exclusion of income from international shipping.

 

Calculation Methodology:

 

  • Pillar Two introduces a minimum effective tax rate (ETR) of 15% on companies for the purpose of IIR and UTPR and would apply to MNEs reporting a global turnover above Euro 750 Million under country-by-country report.
  • The IIR allocates top-up tax based on a top-down approach, subject to a split-ownership rule for shareholdings below 80%. The UTPR allocates top-up tax from low-tax constituent entities, including those located in the Ultimate Parent Entities (UPE) jurisdiction. However, MNEs that have a maximum of EUR 50 million tangible assets abroad and that operate in no more than 5 other jurisdictions, would be excluded from the UTPR GloBE rules in the initial phase of their international activity.
  • IF members recognize that STTR is an integral part of Pillar Two for developing countries and applies to payments like interest, royalties, and a defined set of other payments. The minimum rate for STTR will be 9%, however, the tax rights will be limited to the difference between the minimum rate and tax rate on payment.
  • GloBE rules would not be applicable to Government entities, international organizations, non-profit organizations, pension funds or investment funds that are UPE of an MNE Group or any holding vehicle used by such entities, organizations, or funds.

 

Implementation:

  • Model rules to give effect to the GloBE rules are expected to be developed by the end of November 2021. These model rules will define the scope and set out the mechanics of the GloBE rules. They will include the rules for determining the ETR on a jurisdictional basis and the relevant exclusions, such as the formulaic substance-based carve-out.
  • An implementation framework that facilitates the coordinated implementation of the GloBE rules is proposed to be developed by the end of 2022. This implementation framework will cover agreed administrative procedures (e.g. detailed filing obligations, multilateral review processes) and safe-harbors to facilitate both compliance by MNEs and administration by tax authorities.
  • Pillar Two is proposed to be effective in the year 2023, with the UTPR coming into effect in the year 2024.

 

FM Comments :

 

With the introduction of the OECD/G20 inclusive framework on BEPS, OECD expects revenues of developing countries to go up by 1.5-2% and increase in overall reallocation of profits to developing countries of about USD 125 Billion. India, being a huge market to large MNEs, has always endorsed this global tax deal. However, with the introduction of this framework, India will have to abolish all unilateral measures, such as equalization levy tax and Significant Economic Presence (digital permanent establishment) provisions. MNEs will also have to re-visit their structure to ring-fence their tax positions based on the revised digital tax norms.  This Statement lays down a road map for a robust international tax framework w.r.t taxing of the digital economy,  not restricted to online digital transactions.

References

[1] Calculated, using an “averaging mechanism”, details of which are awaited.

Image Credits: Photo by Nataliya Vaitkevich from Pexels

With the introduction of the OECD/G20 inclusive framework on BEPS, OECD expects revenues of developing countries to go up by 1.5-2% and increase in overall reallocation of profits to developing countries of about USD 125 Billion. India, being a huge market to large MNEs, has always endorsed this global tax deal.

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Global Captive Centers in India: Can Add Value if Set Up Differently

Major forces of change, such as the emergence of new technologies, maturing of platform-based business models and other competitive threats are forcing businesses to transform themselves. Another driver of large-scale change is the pandemic, which has led to new ways of working. Hybrid models, where a large chunk of employees work remotely and not from a designated office space, are now becoming the norm. Although some companies have begun to announce plans for their employees to return to workplaces, the consensus opinion is that a hybrid model is going to become the new norm because it significantly reduces operating costs; also, employees are finding it more convenient.

One area where the above changes are clearly visible relates to how large and medium enterprises across industries are looking at outsourcing to countries such as India. In recent years, the contours of both IT outsourcing and BPO have evolved rapidly; the above-mentioned forces of change are only accelerating the velocity of change.

A survey by NASSCOM recently found that by 2025, MNCs are likely to set up 500 new Global Captive Centers (GCCs) in India. Until two years ago, the number of such units established annually was around 50. This demonstrates that India’s large talent pool continues to be attractive. But it’s a different world we live in than even five years ago.

Earlier, most MNCs viewed their GCCs in India as low-cost delivery centers and design, architecture, prioritization of projects etc. were all the exclusive domain of Business/Technology leaders in the parent company. Cost arbitrage opportunities still exist in India vis-à-vis western countries, and thus, cost savings will remain an important objective for evaluating GCC performance. However, the ongoing shifts are raising the bar on how GCCs are expected to contribute to their parent organizations. Along with cost-efficient service delivery, enhancing automation, driving process innovation and enabling adoption of new technologies and architecture paradigms will all become important performance criteria. In some cases, there may even be expectations of new product innovations coming out of the Indian GCC.

MNCs will need appropriate operating models and talent to deliver on the potential. Employee contracts need to be suitably structured. IPR must be appropriately protected. Compliance with data privacy and other regulations must be ensured. As MNCs plan and implement their GCCs in India, they must keep in mind that India too is changing rapidly. They must formulate their strategies keeping in mind four specific factors:

  • Quality infrastructure (including reliable electricity and broadband connectivity) is now available across the country, and not limited to Tier 1 cities. This gives companies a wider choice of locating their GCCs.
  • As a result of reverse-migration triggered by the pandemic, talent too is available in smaller cities across the country. Given the possibility of remote working, the proximity to families and lower cost of living have become significant incentives; in fact, many employees prefer to live and work from such locations.
  • Many state governments are offering incentives to companies establishing operations in less-developed parts of their states and creating employment opportunities.
  • The country’s FDI, income tax and GST regimes are also frequently being tweaked to make India more competitive and business-friendly.

All this means that making choices and decisions around business objectives, investment routing, structuring and locations based on criteria and checklists that were relevant even a couple of years ago may lead to sub-optimal outcomes. Your GCC in India has the potential to be a global Centre of Excellence- so make sure that you make the right decisions so that your investments deliver ROI in ways that go far beyond cost arbitrage.

Mr. Sandip Sen, former Global CEO of Aegis and a well-known veteran of the BPO industry, put it thus: “These are exciting times for the Business Process Management industry for many reasons. Use of Artificial Intelligence (AI), analytics and higher levels of automation mean that players at the lower end of the value chain will need to raise their capabilities. In the next phase, GCCs will focus more on innovation as well as technology enablement aimed at enterprises to embrace ecosystem-based business models and higher levels of customer-centricity. But to achieve all this, companies have to take an approach that is very different from what they might have taken some years ago”.

 

Image Credits: Photo by Alex Kotliarskyi on Unsplash

MNCs will need appropriate operating models and talent to deliver on the potential. Employee contracts need to be suitably structured. IPR must be appropriately protected. Compliance with data privacy and other regulations must be ensured. 

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Project Cost in Infrastructure Projects: Concept, Challenges and Way Forward

The IMF and Central Statistic Organization had dubbed the Indian economy as the fastest growing economy back in 2019. Moving forward, in 2021 despite the havoc wrecked by the pandemic on advanced economies across the globe, the IMF has kept India’s growth forecast unchanged at 9.5%. In order to sustain India’s growth momentum, the development of country’s infrastructure sector is cogent. The National Infrastructure Pipeline has been the focus of current policies, with an unprecedented increase in capital expenditure allocation for FY 2021-22 by 34.5% to INR 5.5 lakh crore to propel infrastructure creation. However, the April-June 2021 report of The Ministry of Statistics states that 470 projects sanctioned by the centre suffered from a cost overrun of 61.5 percent, that is Rs 4,46,169.37 crore[1].

Project cost remains the central concern for any seminal discussion on infrastructural projects in India or around the world. This is the nebulous point where a host of stakeholders would converge to dispute, disagree, or litigate. This article aims to discuss the concept of project cost and its various implications for the different stakeholders involved.

Introduction to Infrastructure and Projects

 

Costs that are reasonably incurred for the acquisition and construction of infrastructure are referred to as infrastructure costs. Hence, Project cost could mean the total cost of an infrastructure project.  In India, there is no clear definition of the term infrastructure. However, on 1st March 2012, the Cabinet Committee on Infrastructure approved the framework to include a harmonised master list of sub-sectors to guide all the agencies responsible for supporting infrastructure in India. These sub-sectors include transports and logistics, energy, water and sanitation, communication, and social infrastructure. Out of the plethora of these sub-sectors, during the fiscals of 2020-2025, it is expected that sub-sectors such as Energy (24%), Roads (19%), Railways (13%) and Urban (16%) shall constitute 70%of the projected capital expenditure in infrastructure in India[2]. The total capital expenditure as per the report is expected to be 102 lakh crore Indian rupees. Furthermore, in India, the current investment in infrastructure is USD 3.9 Trillion, and the required investment is USD 4.5 Trillion, leaving a gap of USD 526 Billion[3]. Therefore, the energy and infrastructure sector are instrumental in generating tremendous employment opportunities and drive a substantial increase in GDP per annum in India as well as countries all over the world.

 

Structure of Project Finance Transactions

 

The main parties involved in a project finance transaction structure are (i) The Authority or the Government (ii) The Private Party Investors/Developers, Sponsors or Promotors and (iii) the Lenders. These three parties are key players responsible for the determination of project costs in infrastructure and construction projects. The principal point of convergence for these three players is the project company (i.e., also known as special purpose vehicle) set up by the private party investors under which the infrastructure project is formed and under which the project exists in the concession agreement. The project cost is mainly estimated by the private party and the lenders who would finance in the form of equity and debt. The typical financial structure for infrastructure projects has a debt-to-equity ratio of 75:25. However, the ratio may vary depending upon the risks involved.

                Illustration I: Key parties that influence the project cost of an infrastructure project

                                                                                                                     

 

Risks that affect the Determination of Project Cost

 

Every project has certain risks attached to its completion. These risks influence the determination of project costs by the authority, the private parties and the lenders. The risks, in turn, then affect the total cost of the project. The risks affecting the three parties are explained below:

 

                                Illustration II: Risks that affect the determination of project cost

    

 Risk for Authority

Risk for Private Party
Investors

Risk for Lender

Technical or physical risks

Economic or market risks

Economic or market risks

Risk relating to land acquisition

Construction and completion risk – cost overrun/time
overrun/delays

Financing risks

For eg. Technical or physical risks may include risks
associated with
technology during
construction and operation as well as social and environmental risks.

For eg. Economic or
market risks may include input and output price variations, variation in
demand, debt/equity financing as well as counterparty risks.

For eg. Economic or
market risks may include input and output price variations, variation in
demand, debt/equity financing as well as counterparty risks.

The other risks that affect the cost of the project are contractual and legal risks, resource and raw material availability risks, demand risks, design risks, force majeure, property damage, permits, licenses, authorization, supply risk, social and environmental risks.

 

The Major Risks affecting Project Cost in India: Cost Overrun and Time Overrun

 

Out of the myriad of risks affecting project cost, the major risks in India are the risks associated with cost and time overruns. As many as 525 infrastructure projects were hit by time overruns, and as many as 470 infrastructure projects, each worth Rs 150 crore or more, were hit by cost overruns of over Rs 4.38 Trillion owing to delays, according to a report by the Ministry of Statistics, cited previously[4] The main causes for time overruns are delay in obtaining forest and environmental clearances, delay in land acquisition,  and lack of infrastructure support.  As per the report, there are other reasons like delay in project financing, delay in finalisation of detailed engineering, alteration in scope, delay in ordering and equipment supply, law, geological issues, contractual complications and delay in tendering.

 

The Key Elements of Project Cost

 

The elements of ‘costing’ include variables such as raw materials, labour, and expenses. Thus, for infrastructure projects as well, at the time of estimation of cost, these variables would come into play. The factors affecting cost for a public-private partnership project could be the following:

 

                        Illustration III: Factors affecting Cost of Projects: PPP model projects

FACTORS AFFECTING COST OF PROJECTS : PPP MODEL PROJECTS

Materials

Labour

Consultants

Contractor

Client

External
Factors

Dispute
Resolution

Costs and delays
associated with procurement and delivery of materials, import costs

Availability or non –
availability of skilled labour.

Recurring changes in
design

Poor site management
and supervision

Change orders

Force Majeure events
and weather changes.

International dispute
resolution in outside jurisdictions[1]

Unavailability of raw
materials

Poor management of
labour

Delay in approvals and
inspections

Inept subcontractors

Political and policy
changes such as MII[2]

Approvals from
authorities

Costly and time-consuming
domestic litigation

Wastage and theft of
materials – 13 to 14 million construction waste (FY 2000-2001)[3]

Increasing cost of
labour

Inaccuracy in design,
costs associated with knowledge transfer

Poor planning,
scheduling and cash flow management by Contractors

Poor communication for
quality and cost

Accidents

High legal costs and high
arbitrators fees[4].
Non-realisation of arbitral awards and court decree amounts.

 

 

Case Study: The Mumbai Monorail – An EPC Contract Model

 

Time and cost overruns in projects lead to disputes and arbitrations. A suitable example is the  Mumbai Monorail which has entered disputes and arbitration between the Contractor and the Authority over its project cost[9]. The development authority MMRDA entered into a contract with L&T Scomi Engineering for the construction of the Mumbai Monorail project. The original project cost between the Private Party Investors and the Authority was estimated to be Rs 2,700 crore, after which disputes arose. The Authority had claims against the Contractor for not completing the project task on time. The arguments of the Contractor pertained to the cost escalations caused by delays due to the fault of the Authority.  In 2019, the Bombay High Court appointed an arbitrator to settle the dispute. Currently, the dispute is still in the arbitration stage. Furthermore, post-December 2018, the MMRDA had taken over the Operation and Maintenance of the Mumbai Monorail project from L&T Scomi Engineering. Due to the Make in India policy, the tenders for manufacturing of the Mumbai Monorail were altered to encourage manufacturers and Indian technology partners to participate and fulfil the demands of manufacturing the additional monorail rakes[10]. Among other issues currently plaguing the Mumbai Monorail project, such as unavailability of a sufficient number of rakes to keep the services running and an inadequate number of spare parts, the widening deficit between revenue and O&M costs, remains primary.   

   

Way Forward

 

As per the report by the Ministry of Statistics cited above, the reason for cost and time overruns can be largely attributed to the state-wise lockdown due to the COVID-19 pandemic, which has been causing great hindrance to the implementation of infrastructure projects. Time and cost overruns in projects lead to disputes and arbitrations. Furthermore, in the procurement stage of projects, biddings in India happen with the project sponsor underbidding for the project so as to survive the competitive market. However, the underbidding combined with lack of margin included in the overall costs by contractors or sponsors often overlook inevitable hidden and unforeseeable costs which in turn enhance the final costs of the project. For instance, the Mumbai-Monorail project is a classic example of cost overrun. The solution would be to have a clear understanding of the project agreements, risks involved in the project particularly the conditions of force majeure, an objective evaluation of project cost while bidding taking into account uncertainties relating to raw material procurement, labour laws, land acquisition and risks related to cost and time overruns due to decisions of the awarding authority or public policy or any of the factors described above. The compensation clauses should be coherent and unambiguous, and in line with actual project cost incurred in the project leaving less scope for future disputes and arbitrations. Furthermore, it would be useful for the contractors / concessionaires , while making claims in an infrastructure project, to do it in a timely manner while maintaining clear and systematic evidentiary documentation, to substantiate the claims that may have arisen during the course of the project.

References: 

[1] http://www.cspm.gov.in/english/flr/FR_Mar_2021.pdf

[2] Finance Minister Smt. Nirmala Sitharaman releases Report of the Task Force on National Infrastructure Pipeline for 2019-2025, dated 31 December 2019, Press Information Bureau, pib.gov.in (2019), https://pib.gov.in/Pressreleaseshare.aspx?PRID=1598055 (last visited Sep 17, 2021).

[3] Forecasting Infrastructure Investment Needs and gaps, Global Infrastructure Outlook – A G20 INITIATIVE, https://outlook.gihub.org/ (last visited Sep 17, 2021).

[4] 422nd Flash Report on Central Sector Projects (Rs.150 Crore and Above), March 2021, Ministry of Statistics and Programme Implementation Infrastructure and Project Monitoring Division (2021), Available at: http://www.cspm.gov.in/english/flr/FR_Mar_2021.pdf (last visited Sep 17, 2021)

[5] Joseph Mante, Issaka Ndekugri & Nii Ankrah, Resolution of Disputes Arising From Major Infrastructure Projects In Developing Countries Fraunhofer, https://www.irbnet.de/daten/iconda/CIB_DC24504.pdf (last visited Sep 17, 2021).

[6] Make in India Initiative, Government of India.

[7] Sandeep Shrivastava and Abdol Chini M.E. Rinker Sr., Construction Materials and C&D Waste in India, School of Building Construction University of Florida, USA, https://www.irbnet.de/daten/iconda/CIB14286.pdf (last visited Sep 17, 2021).

[8] Amendments to the Arbitration and Conciliation Act, 1996, August 2014, Law Commission of India, Report No.246.

[9] Larsen and Toubro Limited Scomi Engineering BHD vs. Mumbai Metropolitan Region Development Authority MANU 2018 SC 1151, Arbitration Petition (C) No. 28 OF 2017.

[10]Adimulam, S. (2021, March 2). Mumbai: Monorail rakes will be made in India. Mumbai. Retrieved September 17, 2021, from https://www.freepressjournal.in/mumbai/mumbai-monorail-rakes-will-be-made-in-india.

 

 

Image Credits: Photo by Wade Austin Ellis on Unsplash

The solution would be to have a clear understanding of the project agreements, risks involved in the project particularly the conditions of force majeure, an objective evaluation of project cost while bidding taking into account uncertainties relating to raw material procurement, labour laws, land acquisition and risks related to cost and time overruns due to decisions of the awarding authority or public policy or any of the factors described above.

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The Messi Exit: A Legal & Financial Perspective

Behind the passions of the fans, tackled goals, swanky parties and brand endorsements, there is a lot that goes into structuring a football team/club, registration as well as the transfer of a player while maintaining sustainable finances. 

In response to multiple financial irregularities in clubs such as Deportivo La Coruña, Racing Santander, Valencia, Real Zaragoza, Real Mallorca, Albacete, Real Betis etc., the economic control framework was introduced in 2013 to keep clubs financially afloat and maintain competitive sustainability.

At a later stage, FFP (Financial Fair Play) came into effect against errant clubs for breach of regulations. Spain’s economic control- La Liga controls the fire before it can damage (to an extent) by setting a limit to the amount a club can spend, thereby making it easier to stay within limits and preventing the creation of unsustainable debts. 

What were the legal reasons for Messi’ s exit from Barcelona?

 

Recently Argentinean professional footballer Lionel Andrés Messi, popularly known as Leo Messi, decided to part ways with the Spanish football club FC Barcelona and join the French football club Paris Saint-Germain. Messi had been with the Spanish club for the last 21 years and their association came to an end on 30th June 2021, when they decided to move on.

Messi had agreed to a new five-year contract with Barcelona, however on 8th August 2021, the legendary football player announced his exit from the Spanish club, by signing a two-year contract with the French club Paris Saint-Germain, with the option of further extension up to a year. FC Barcelona announced that despite the agreement between the club and Messi, they were not able to honour the new contract due to the Spanish football league’s (LaLiga’s) financial fair-play rules. 

 

What is LaLiga Financial Fair-play Rule? 

 

Under the LaLiga fair play rule, each club is provided with a cost limit for each season, which includes the wages of the players, the coaching staff, physios, reserve teams, etc. Clubs have the flexibility to decide how the wages are distributed, as long as the overall limit is not breached. Factors taken into consideration for setting the financial cap are inclusive of expected revenues, profits and losses from previous years, existing debt repayments, and sources of external financing among others. In this case, the Catalan club could not accommodate Messi’s contract within the financial limit for the upcoming year, even though Messi was allegedly willing to take a 50% pay cut. 

Considering the fact that Messi is Barcelona’s record scorer with 751 goals and 10 La Liga titles, Messi’s exit could mean a heavy blow for the world’s most valuable[1] European football club. 

A football clubs’ main revenue is generated from TV broadcasting rights, matchday sales, and commercial revenue which includes sponsorship contracts, merchandising sales, and digital content that the club creates. It is too early to say whether Messi’s departure will have an impact on how Barcelona performs in the ongoing season. However, there is no question over how Messi has played an important role in bringing laurels to Barcelona over the past few years, which has garnered a significant fan following, not just for the footballer, but also for the club. Thus, his exit may likely cause a dip in the viewership and fan following which will directly affect the Club’s revenue.

Typically for a footballer, his contract with any club would include basic salary, signing-on fees, royalty fees, and objectives based on games. Apart from these, some of the other key element included in a contract is his image rights, merchandising right and licensing deals, which form a major portion of any footballer’s gross income. 

 

What are Image Rights? 

Image rights are the expression of a personality in the public domain. For an athlete, it will include their name, photo, and likeness, signature, personal brand, slogans, or logos, etc. Generally, football clubs try to extract a greater percentage from the image rights of a player, in a club capacity as compared to their personal capacity. Club capacity is usually when the image rights of the player are used in connection with or combined with his name, colours, crest, strip, logos identifying him as a player for his club. Personal capacity is usually when the player is appearing in and conducting activities outside his role as a player at the club. 

Any player leaving the club would have an impact on the commercial revenue generated by the club in the form of sponsorship contracts, merchandising sales as well as digital content. This would be especially notable for a player like Messi, whose personal brand value boasts over 130 trademarks. Messi’s trademark portfolio consists of mostly a single class trademark in his home country of Argentina, with others filed or registered in China, Brazil, EU, Malaysia, UK, Spain, Canada, Chile, and the US. The most common goods and services represented in Messi’s trademark portfolio are class 25 (clothing and footwear), class 28 (games, toys, and sporting apparatus) and class 9 (computer software). Apart from the above classes, class 18 has been filed in multiple applications.

The trademark consists of either the word mark MESSI/LIONEL MESSI or his logo. This means that Barcelona will no longer be able to use the footballer’s name or logo for apparel and merchandise sales, which will directly impact its revenue as most clubs collect a portion of the sales revenue. Also, Messi’s exit means that the club will have no control over his image rights to attract corporate sponsorships. Further, Messi’s huge online presence, with over 276 million Instagram followers, which is more than double of Barcelona’s official account (100 million), will have a direct impact on any advertising or publicity that the club may generate. 

A player of Messi’s stature, brand, and persona is significant to any club. How the present scenario is played with the new club and how much impact Messi’s presence will bring to Paris Saint-Germain is yet to be seen. 

A football clubs’ main revenue is generated from TV broadcasting rights, matchday sales and commercial revenue which includes sponsorship contracts, merchandising sales and digital content that the club creates. It is too early to say whether Messi’s departure will have an impact on how Barcelona performs in the ongoing season.

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Architectural Design Copyright: Analyzing Strategic Trolling in Light of the Design Basics Judgement

Like any other form of creative works of expression, copyright protection was extended to work of architectural design keeping in mind the creative labour that goes into the production of such works and to protect the legitimate interest of such bona fide authors. However, there have been instances where copyright owners have made their revenue model to indulge in the scheme of copyright trolling.

 

Copyright trolling is a scenario where creators of copyrighted work enforce their work with the hopes of profiting from favorable infringement enforcement lawsuits.

This article analyses one such US case which was an appeal in the Seventh Circuit Court of Appeal i.e., Design Basics, LLC v. Signature Construction[1] that addressed the question of copyright protection over architectural designs and its alleged infringement by a subsequently developed floor plan. The article also touches upon the Indian intellectual property laws that deal with copyright protection of architectural designs.

Background of the Design Basics Case

The Appellant had received copyright registration over series of its floor plans and sued Defendant for alleged infringement of ten of its floor plans. In response, the Defendants moved for summary judgment, wherein the lower court, while dismissing the Appellant’s claim of infringement ruled that the Appellant’s copyright protection in its floor plan was ‘thin’ and only a ‘strikingly similar’ plan could give rise to an infringement claim. The Appellant’s appeal against the Summary Judgement met with the same fate as the seventh circuit court, re-affirmed the position taken by the lower court for reasons explained herein in greater detail. While doing so, the court came down heavily on the Appellant i.e., Design Basics, LLC., a home design company, for its floor plan-based copyright trolling scheme that it had utilized to file over a hundred copyright cases, including the present one, in federal courts that had resulted in thousands of victims paying license/settlement fees.

Test of Similarity: Independent Creation or Unlawful Copying   

In the present case, the copyright protection was hailed as a thin one, as the designs mostly consisted of unprotectable and basic elements – a few bedrooms, a large common living room, kitchen, etc. The Court reiterated the fact that “copying” constitutes two separate scenarios – Whether the defendant has, rather than creating it independently, imitated it in toto and whether such copying amounts to wrongful copying or unlawful appropriation. For instance, in the present case, much of the Appellant’s content related to functional considerations and existing design conventions for affordable, suburban, single-family homes. In such a case, to give rise to a potential copyright infringement claim, only a “strikingly similar” subsequent work would suffice.

Determining the Piracy: A Circumstantial Scenario

The Seventh Circuit explained that in absence of evidence of direct copying, the circumstantial evidence should be taken into consideration. To bring a case under this limb, one had to identify whether there was access to the plaintiff’s work by the creators of the subsequent work and if so, then, whether there exists a substantial similarity between the two works. The substantial similarity should not only be limited to the protective elements of the plaintiff’s work but also, any other similarity.

The court in this case used the term “probative similarity” when referring to actual copying and “substantial similarity” when referring to unlawful appropriation. In a case of thin copyright protection, a case of unlawful appropriation requires more than a substantial similarity. Only if a subsequent plan is virtually identical to the original work, it will cause an infringement.

The utility aspect: The Brandir analogy

For instance, if a particular type of architectural detailing is a significant feature of an organization, so much so that it creates an imprint on the minds of the target consumers that such a style is attributable to the Appellant, is that design/style copyrightable? To answer this question the case of Brandir International, Inc. v. Cascade Pacific Lumber Co[2], must be taken into consideration, where the court stated that “if design elements reflect a merger of aesthetic and functional considerations, the artistic aspects of a work cannot be said to be conceptually separable from the utilitarian elements. Conversely, where design elements can be identified as reflecting the designer’s artistic judgment exercised independently of functional influences, conceptual separability exists.

The rule of law, as evidenced from the above precedent states that the copyrightability of work ultimately depends upon the extent to which the work reflects artistic expression and is not restricted by functional considerations. Hence, while considering designs, which have a particular utility in the minds of the customers, the artistic part should be considered separately from the utilitarian part, as, the Copyright Act clearly states that the legal test lies in how the final article is perceived and not how it has evolved at the various stages along the way. Any similarity in the end-product when taken as a whole should be considered.

The Ideal Test(s) for Determination of Ingringement: Scènes à Faire and Merger Doctrine

The determination of piracy and subsequently the legitimacy of a copyright claim has seen a sharp change over a period. There has been a change in the stance of the courts from the Sweat of the Brow system to the Originality Test. Where the former absolved a defendant from a copyright infringement claim based on the evaluation of substantial labour in the development of the subsequent work, without taking into consideration the amount of overlap or the quality of such work, the latter absolved the author of a subsequent work from a potential copyright infringement claim if his work (the subsequent work) enshrines an adequate amount of creativity and diligence.

An extension of the Originality doctrine is seen in a Scene A Faire scenario, which states that when certain similarities are non-avoidable, what needs to be determined is if the depiction pertains to certain things which are extremely common to a particular situation, for e.g., the depiction of police life in the South Bronx will definitely include “drinks, prostitutes, vermin and derelict cars.”[3] Hence, such depictions do not come under the realm of copyright protection.[4]

The court adopted the same analogy in the present scenario, stating that the rooms in the Appellant’s floor plans were rudimentary, commonplace, and standard, largely directed by functionality. For example, the placement of the bedroom, hall, and kitchen did not show an extraneous unique expression of an idea. Hence, they constituted of a scene a faire scenario, which could not be protected.

Expressions and not ideas are protectable. The doctrine of merger prevents the protection of underlying ideas. However, if certain ideas can only be expressed in multiple ways, copyrighting each expression would end up in copyrighting the idea itself, which would run counter to the very basis of copyright protection. Similarly, where the Appellant is the owner of 2500+ floor plans, is it possible for any other Appellant to design a suburban single-family home that is not identical to at least one of these plans?

The court answered in negative and held that if the copyright infringement claim of the Appellant was allowed to succeed, then it would own nearly the entire field of suburban, single-family type homes, which would be a result of anti-competitive practice. Hence, the present plea was not allowed.

A Classic Case of Copyright Trolling

The court called this instance a classic case of a copyright troll. This was because Design Basics, as a matter of practice, had registered copyrights in over thousands of floor plans for single-family tract type suburban homes, which they used for attacking several smaller businesses, using their employees to spawn through the internet in search of targets and slapping on them strategic infringement suits in which the merits were always questionable. This fueled their agenda in securing “prompt settlements with defendants who would prefer to pay modest or nuisance settlements rather than be tied up in expensive litigation.”

The Indian Position on Protection of Architectural Design

Even though courts in India have not taken a similar stand on copyright protection over architectural work yet, a similarly high threshold of originality for protection and enforcement of such works stems from the Copyright Act, 1957 (“the Act”) as well as the Designs Act, 2000. Section 2(b) of the Act defines ‘work of architecture’ as: “any building or structure having an artistic character or design, or any model for such building or structure.”, and Section 2(c)(ii) includes work of architecture under the ambit of artistic work.

Additionally, Section 59 of the Act, restricts remedies in case of “works of architecture” which states that where construction of a building or other structure which infringes or which, if completed would infringe the copyright in some other work has been commenced, the owner of the copyright shall not be entitled to obtain an injunction to restrain the construction of such building or structure or order its demolition. The owner of the copyrighted building cannot claim specific relief and the only remedy available to the copyright owner will be damages and criminal prosecution.

The law corresponding to this is Section 2(d) of the Designs Act, 2000 which allows for designs of buildings to be registered. This provision may prove to be more useful as it allows for mass production of the designs registered under the Designs Act. As for Copyright protection, if a design has been registered under the Copyright Act, as well as the Designs Act, then the copyright ceases to exist if the design is commercially reproduced or reproduced more than fifty times.

Thus, the Copyright Act purports to provide protection to very special architectural works which have an artistic element to them and are not mass-produced to protect the artistic integrity of the work. Hence, commercial rights of architectural work are better protected under the Designs Act which allows for the reproduction of the design multiple times.

Analysis and Conclusion

The Appellate court in the present case concluded that apart from the marking up of the Design Basics floor plan by Signature, there was no evidence of actual copying. Even under the test for circumstantial proof of actual copying, there existed many noteworthy differences between the two works, for instance, the room dimensions, ceiling styles, number of rooms, and exterior dimensions were all different enough to preclude an inference of actual copying as a matter of law. Even though the two plans were similar, they differed in many aspects. Hence, the copyright infringement claim could not subsist.

The United States’ Modicum of Creativity approach is a modern proliferation of the originality test, which delves into the thought process and the judgment involved behind the formulation of subsequent work.[5] However, using this approach in isolation is not enough. Whether the subsequent work is the result of a thought process and adequate judgment should be determined after passing it through the ‘Nichols Abstraction’ test. The Seventh Circuit decision was largely based on the Nichols Abstraction test[6] which narrows down to the product that remains after filtering out all the dissimilarities. The residual product, in this case, that remained after filtering out all the dissimilarities between the two was the main idea behind the works and ideas are not protectable and hence a case of infringement could not be made out.

Copyright trolling is more common in countries that provide escalated damages for infringement and there it needs to be addressed in a stricter manner. In 2015 alone, trolls consumed a whopping 58% of the US federal copyright docket. Clearly, the judiciary plays a very important role in sorting out a troll from a genuine copyright claim. Moreover, the litigation process needs to be cost-effective, which may enable defendants to dispute the claims of a copyright troll more easily. Hence, proper care and caution must be taken while meandering through the trolls.

References: 

[1] Case No. 19-2716 (7th Cir. Apr. 23, 2021)

[2] 200 (2d Cir. N.Y. Dec. 2, 1987)

[3] David Nimmer, Nimmer on Copyright Vol III, (1963).

[4] http://blog.ciprnuals.in/2021/06/from-sweat-of-the-brow-to-nichols-abstraction-a-revisitation-of-the-r-g-anand-precedent-with-its-mature-modern-implications/

[5] Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340 (1991).

[6] Nichols v. Universal Pictures Corp., 45 F.2d 119 (2d Cir. 1930)

 

 

Image Credits: Photo by Sora Shimazaki from Pexels

Copyright trolling Is more common in countries that provide escalated damages for infringement and there it needs to be addressed in a stricter manner. In 2015 alone, trolls consumed a whopping 58% of the US federal copyright docket. Clearly, the judiciary plays a very important role in sorting out a troll from a genuine copyright claim.

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Bad Bank in India: A Concept Note

The Indian banking system has been grappling with the ballooning Non-Performing Assets (NPAs) crisis on its balance sheets for decades now. The pandemic marked a further downward spiral for the Indian economy; proving specifically detrimental to individual borrowers and large corporates across sectors, who were adversely affected by the cash flow in businesses which led to defaults in outstanding obligations. The consequential increase in the NPAs revived the discussions for institutionalizing an independent entity that would exclusively deal with the bad loans and help in cleaning up the NPAs off the balance sheets. As of March 2021, the total NPAs in the banking system amounted to Rs 8.35 lakh crore (approx). According to the Reserve Bank of India’s (RBI) financial stability report, the gross NPAs ratio for the banking sector could rise to 9.8% by March 2022.

Following India’s first-ever Bad Bank announcement in the 2021-22 Union Budget by the Finance Minister; India, Debt Resolution Company Ltd (“IDRCL”), an Asset Management Company (“AMC”) has been set up that shall work in tandem with the National Asset Reconstruction Company Ltd (“NARCL”) to streamline and square away bad loans as per the documents and data available with the Registrar of Companies (“RoC”).

Proposed Mechanism of Bad Bank in India

  • The Government of India (“GOI”) has primarily set up two entities to acquire stressed assets from banks and then sell them in the market.
  • The NARCL has been incorporated under the Companies Act, 2013. NARCL will buy stressed assets worth INR 2 lakh crore from banks in phases and sell them to buyers of distressed debt. NARCL shall also be responsible for the valuation of bad loans to determine the price at which they will be sold. Public Sector Banks (PSBs) will jointly own 51% in NARCL.
  • The IDRCL will be an operational entity wherein 51% ownership will be of private-sector lenders / commercial banks, while the PSBs shall own a maximum of 49%.

NARCL will purchase bad loans from banks and shall pay 15% of the agreed price in cash, and the remaining 85% in the form of Security Receipts. If the bad loans remain unsold, the government guarantee shall be invoked; a provision worth INR 30,600 crore has been structured for the same.

Benefits of Bad Bank in India

Since non-performing assets have majorly impacted Public Sector Banks, the institutionalization of a Bad Bank shall equip PSBs in selling / transferring the NPAs, while simultaneously improving and promoting credit quality, strategically minimizing efforts in loan recovery and enhancing the macroeconomy.

Additionally, the profits of the banks were mostly utilized to cut losses. With the NPAs off their balance sheets, the banks will have more capital to lend to retail borrowers and large corporates.

The issues faced by Asset Reconstruction Companies (ARCs) relating to the governance, acceptance of deep discount on loans, and valuation may not concern the Bad Bank, owing to the government’s initiative and support that engages appropriate expertise.

 

Challenges of Bad Bank

As per the operational structure, bad banks shall buy bad loans, that have been recorded in the books of the PSB’s or private lenders. If the institution fails to secure buyers and record appropriate prices for the assets, the entire exercise shall prove to be futile.

In India, 75% of the bad loans are defaulted corporate loans, including a consortium of banks that had loaned corporations to finance major infrastructure and industrial projects. Countries such as Mexico, Greece, South Korea, Argentina, and Italy have portrayed that bad banks rarely yield positive outcomes in settings dominated by industrial, corporate, and conglomerate-level bad loans. Hence, structural and governance issues at various levels with state governments, judiciary, and political interests shall have to be streamlined and implemented efficiently to steer away from making them a repository of bad loans and for cleaning up the books of the PSBs.

Bad Bank: A One-Time Exercise?

The Government of India will have to undertake appropriate reforms/lending norms to reduce the number of NPAs. Setting up Bad Bank is most likely to tackle only the existing NPAs problem and should be a one-time exercise.

The concept of Bad Bank has been a success in certain European countries and the United States of America, however, it is pertinent to understand that they were structured to tackle home loans and toxic mortgages, unlike in India. Hence, in-depth analysis of the experiences of these countries should be utilized and intricately be revamped in alignment with key differences to ascertain the role of Bad Bank in the near future in the country.

Banks will get a huge financial boost with the transfer of the NPAs off their books and help in credit growth in the country. The success of Bad Bank is also crucial in restoring the faith of the taxpayer in the banking system. With the existence of the Insolvency and Bankruptcy Code, 2016 and Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, it remains to be seen how a Bad Bank will be a complement in the resolution of the bad loans.

 

Image Credits: Photo by Visual Stories || Micheile on Unsplash

The concept of Bad Bank has been a success in certain European countries and the United States of America, however, it is pertinent to understand that they were structured to tackle home loans and toxic mortgages, unlike in India. Hence, in-depth analysis of the experiences of these countries should be utilized and intricately be revamped in alignment with key differences to ascertain the role of Bad Bank in near future in the country.

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