INCORPORATING A CEMENT MANUFACTURING UNIT A LEGAL PERSPECTIVE – ACTS, LAWS AND OFFICES
INCORPORATING A CEMENT MANUFACTURING UNIT
A LEGAL PERSPECTIVE – ACTS, LAWS AND OFFICES
AgendaCement Industry
• Industry Overview
Incorporation of a Cement Company
• Private/Public Entities• Joint Ventures/Subsidiaries
• Requests to RoC• Flow-chart view
Industrial Policies
• Industrial Licensing, IEMs , Location Policies• Procedures for Approval for E0Us/EPZs/FTZs/SEZs
List of approvals/clearances and departments
Government Involvement(Specific Acts and policies)
List of Applicable Labour Laws in the Sector
Legal Challenges to Cement Industry
Industry overview
Cement industry
Large cement plants
Mini & White cement plants
•Cement plants: 139 •Effective capacity: 234.3 mtpa
•Cement plants: 365 •Effective capacity: 11.1 mtpa
*Source : Ambit capital, Aranca research
2nd largest market in the world , 7–8 per cent of
global production
Exports to more 30 countries generating
employment for 50,000 people
Annual production of more than 1 mn tonnes
Per Capita consumption around – 170kg, world
average 430 kg
Incorporation: An overviewCOMPANIES ACT 1956
• Governs Incorporation of a company in India• Part II of the Act deal with the incorporation of a company and matters related thereto
* A public company is a private company which is a subsidiary of a company which is not a private company.
Private Company Public Company
Minimum Paid-up Capital - 100,000 Minimum Paid-up Capital - 500,000Minimum number of members: 2 Minimum number of members: 7Maximum number of members : 50 Maximum number of members : Unlimited
Transerferability of shares : Complete restriction
Transerferability of shares : No restriction
Issue of Prospectus : Cannot issue prospectus
Issue of Prospectus : Can issue prospectus
Number of Directors : < =2 Number of Directors : >=3
Incorporation of a Cement Company
Getting the appropriate persons to subscribe to the Memorandum(Public company: Min. of 7, Private company: Min. of 2)
Drawing up the Articles of Association (Indian Stamp Act, 1899)
Drawing up the Memorandum of Association (Indian Stamp Act, 1899)
Obtaining approval for the proposed name of the company from the ROC (Form 1A) (Prevention of Improper Use, Act-1950)
Incorporation of a Cement Company
Obtain a certificate of commencement of business from ROC in case of a public company
Receipt of Certificate of incorporation
Payment of registration Fee to the ROC
Starting Operations in IndiaStarting
operations in India
As a Indian company
Joint Ventures Wholly owned subsidiaries
As a foreign company
Liaison Office
Project Office
Branch Office
TaxationCorporate tax rate for foreign companies is 40%. The net tax rate includes various deductions and exemptions available under the tax laws. Tax holidays are available in Special Economic zones. Infrastructure Sector Projects enjoy special tax treatment/holidays. Electronic filing of customs documents is also there.
Investment FacilitationSecretariat for Industrial Assistance (SIA) inDepartment of Industrial Policy and Promotion, Government of India provides a single window service for entrepreneurial assistance, Investor facilitation and monitoring implementation of the projects.
Joint Ventures
Wholly owned subsidiaries
By forging strategic alliances with Indian partners foreign companies get following advantages. • Established distribution/ marketing set up of the Indian partner• Available financial resource of the Indian partners• Established contacts of the Indian partners which help smoothen the process of setting up of operations
•100% FDI is allowed in cement industry•Application to be filed to registrar of companies•Department of Company Affairs under Ministry of Finance is the regulatory authority
Liaison Office
Branch Office
Project OfficeForeign Companies planning to execute specific projects in India can set up temporary project/site offices in India with RBI’s permission subject to specified conditions.
• No activity other than the activity relating and incidental to execution of the project• Project Offices may remit outside India the surplus of the project on its completion
• Not allowed to carry out manufacturing activities on its own ,subcontract these to an Indian manufacturer. • Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines
• A channel of communication between the principal place of business or head office and entities in India• Cannot undertake any commercial activity directly or indirectly and cannot earn any income • Its role is to collect information about market opportunities and providing info about the company and its products to prospective Indian customers•It can promote export/import from/to India and also facilitate technical/financial collaboration
Industrial Policy Reforms
Reduced Industrial Licensing requirements
Removed restrictions on investment and expansion
Facilitated easy access to foreign technology and
foreign direct investment
Industrial PolicyIndustrial LicensingAll industrial undertakings
are exempt from obtaining an industrial license toManufacture, except for:
1. Industries reserved for the Public Sector2. Industries retained under compulsory licensing3. Items of manufacture reserved for the small
scale sector4. If the proposal attracts location restriction
Industrial Entrepreneurs Memorandum (IEM)
Industrial undertakings exempt from obtaining an industrial license are required to file an IEM
1. In Part ‘A’ with Secretariat of Industrial Assistance (SIA), DIPP, GOI, and obtain an acknowledgement
2. After commencement of commercial production, Part ‘B’ of the IEM has to be filled
Industrial Policy
Industrial undertakings are free to select the location of a project
In the case of cities with population of more than a million (as per the 1991 census):• The proposed location should be at least 25 KM away from the Standard Urban Area limits of that city• Located in an area designated as an "industrial area" before the 25th July, 1991
The location of industrial units is further regulated by the local zoning, land use regulations & also the environmental regulations
Policy Relating to Small Scale Undertakings*
Locational Policy
• Get registered with the Directorate of Industries/District Industries Centre in the concerned State Government• Also free from locational restrictions cited above
(An industrial undertaking is defined as a small scale unit if the investment in fixed assets in plant and machinery does not exceed Rs 10 million)
Industrial Policy
A Notification issued under The Environment Protection Act 1986 has listed 29 projects in respect of which environmental clearance needs to be obtained from the Ministry of Environment, GOI: Cement Industry is one of these.
Foreign Direct Investments Policy
Environmental Clearances
• The GOI has allowed FDI up to 100% in the cement and gypsum products industry• FDI can be bought through:
Automatic RouteNew Ventures Existing
CompaniesGovernment
Approval
RBI has given permission to Indian Cement companies to accept investment under this Route without obtaining prior approval from RBI
Government approvals are accorded on the recommendation of the Foreign Investment Promotion Board (FIPB), chaired by the Secretary, DIPP (Ministry of Commerce and Industry) with the Union Finance Secretary, Commerce Secretary, andother key Secretaries of the Government as its members.
Industrial PolicyClearances and Approvals Required
Approvals/Clearances Required Department to be Approached and Consulted
Incorporation of Company Registrar of Companies
Registration/IEM/Industrial license DIC for SSI/SIA for large and mediumindustries
Allotment of land State DI/SIDC/Infrastructure Corporation /SSIDC
Permission for land use a. State DIb. Dept. of Town and CountryPlanning
NOC and consent under Water and Air Pollution Control Acts State Pollution Control Board
Approval of construction activity and building plan a. Town and country planningb. Municipal and local authoritiesc. Chief Inspector of Factoriesd. Pollution Control Board
Weights and Measures Inspector of Weights and Measures
Quality Marking Certificate Quality Marking Center of the State Government
Industrial PolicyRegulation
Problem: Cartelizing of cement firms
•The Competition Commission of India says that cement firms met regularly to fix prices, control market share and hold back supply
• The Commission claims that cement companies in India had been organizing themselves in a cartel for a while now, colluding, during industry body meetings, to fix production levels as well as the price of a bag of cement — in this case doubling it between 2004 and 2011 — so they could make windfall, illegal profits
• Consequently, the CCI has slapped a fine totaling Rs 6,307.32 crore on the top-10 cement companies here and the industry body Cement Manufacturers’ Association
Competition Commission of India is a body of the Government of India responsible for enforcing The Competition Act, 2002 throughout India and to prevent activities that have an adverse effect on competition in India. It was established on 14 October 2003
Cement Control Order, 1967
Cement Cess Rule, 1993
Cement (Quality Control) Order,1995
Cement (Quality Control) Order, 2003
Site and Building Plan approval
Health clearance
Fire service clearance
Environmental clearance from State Pollution Control Board
Registration with Inspector of Factories under Factories Act
Registration under Boilers Act (For Boilers)
Safety Certificate from Chief Electrical Inspector
Rules and Orders, DIPP
NODAL AGENCY Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce
State Level Statutory Clearance
Government Involvement
Applicable Labour Laws
APPRENTICES ACT, 1961• Promotion of new manpower at skills and improvement/refinement of
old skills• Apprenticeship Advisor• Obligations of employers and apprentice• Offences and punishment
CONTRACT LABOUR ACT, 1970• To regulate the employment of contract labor and abolish it in certain
cases• Applicability• Revocation and amendment of licenses• Liability of principal employer
EMPLOYEES’ PROVIDENT FUNDS & MISC. PROVISIONS ACT, 1952
• Eligibility• Benefits• Applicability
EMPLOYEES’ STATE INSURANCE ACT 1948
• Applicability of the act• Benefits• Penalties• Contribution period
Applicable Labour Laws
FACTORIES ACT, 1948•Applicability of the Act•Registration & Renewal of Factories•Welfare Measures•Employment of Young Persons
INDUSTRIAL DISPUTES ACT, 1947•Provisions for investigation and settlement of industrial disputes and for certain other purposes.•Power of Labour Court to give appropriate Relief•Period of Operation of Settlements and Awards•Prohibition of Strikes & Lock Outs
STANDING ORDERS ACT, 1946•Applicability of the Act•Matters to be provided•PENALTIES
MINIMUM WAGES ACT, 1948•Provide for fixing minimum rates of wages in certain employments•Composition of Committee Penalties•Payment of Minimum Rates of Wages
Applicable Labour Laws
MINIMUM WAGES ACT, 1948
• To provide for fixing minimum rates of wages in certain employments• Fixing Hours for normal working• Composition of Committee• Maintenance of registers and records• Claims, Penalties, Offence, Punishment
TRADE UNIONS ACT, 1926• To provide for the registration of Trade Union & define the law
relating to registered Trade Unions• Minimum Requirement for membership of Trade Union• Registrations and Cancellation of Trade Unions• Penalties, Offence and Punishment
EQUAL REMUNERATION ACT, 1972
• To provide for the payment of equal remuneration to men and women workers and for the prevention of discrimination
• Advisory Committee to regulate the process• Power of Government for appropriation• Penalties and Offence
Applicable Labour Laws
PAYMENT OF WAGES ACT, 1936
• To regulate the payment of wages of certain classes of employed persons
• Applicability and Coverage• Legal deductions• Offences and Penalties
WORKMEN’S COMPENSATION ACT,
1923
• To provide workmen and/or their dependents some relief in case of accidents, arising out of and in the course of employment and causing either death or disablement of workmen
• Applicability, Coverage and Employer’s Liability• Amount of Compensation• Report of Incidents and Penalties
PAYMENT OF GRATUITY ACT, 1972
• To provide for a scheme for the payment of gratuity to employees• Applicability, Qualification, Nomination• Forfeiture of Gratuity• Protection of gratuity and Penalties
Environmental Laws and ActsStated in
Constitution of IndiaReferred by Directive
Principles of State PolicyGuided by Fundamental
Rights structure
The Environment (Protection) Act - 1986 Hazardous Waste (Management and Handling) Rules - 1989
The Public Liability Insurance Act and Amendment -1991 & 1992 The National Environmental Tribunal Act – 1995
Practice required by law India China United States Standard work day 9 hours 8 hours 8 hours
Severance pay for redundancy dismissal of employee with 5 year tenure
10.7 week salary 21.7 week salary None
Severance pay for redundancy dismissal of employee with 1 year tenure
2.1 week salary 4.3 week salary None
Premium pay for overtime 100% 50% 50%
Minimum Wage (US$/month) 29.9 182.5 1242.6
Minimum rest while at work 30 minutes per 5 hour None None
Maximum overtime limit 200 hours per year 1 hour per day None
Government approval required for 9 person dismissal Yes No No
Government approval required for 1 person dismissal
Yes No No
Government approval for redundancy dismissal granted Rarely Not applicable Not applicable
Dismissal priority rules regulated Yes Yes No
Dismissal due to redundancy allowed? Yes, if approved by government Yes, without approval of government Yes, without approval of government
Legal Challenges to Cement Industry
Competition Act – 2002 ( Amendment in 2007)
• Competition Commission of India• Competition Appellate Tribunal
• 6300 Crore Rs Penalty on Cement Companies for cartelization• Orders for CMA
Obsolete Labor Laws• World Bank Report on Indian Labor Laws- 2008
• “………India’s labor regulations - among the most restrictive and complex in the world - have constrained the growth of the formal manufacturing sector where these laws have their widest application. Better designed labor regulations can attract more labor- intensive investment and create jobs for India’s unemployed millions and those trapped in poor quality jobs. Given the country’s momentum of growth, the window of opportunity must not be lost for improving the job prospects for the 80 million new entrants who are expected to join the work force over the next decade”…..
The End
ReferencesLinks•http://www.cmaindia.org/– Cement Manufacturers’ association•www.mhupa.gov.in - Ministry of Housing and Urban Poverty Alleviation•www.cidc.in – Construction Industry Development Council , set up by Planning Commission•www.ncbindia.com – National Council for Cement and Building Materials•www.dipp.nic.in – Department of Industrial Policy and Promotion under Ministry of Commerce and Industry, Govt of India•http://www.fipbindia.com/ - Foreign Investment Promotion Board•http://www.mca.gov.in/ - Ministry of Corporate Affairs•http://finmin.nic.in/ - Ministry of Financial Affairs•http://moia.gov.in/ - Ministry of Overseas Indian Affairs•http://envfor.nic.in/ - Ministry of Environment and Forests•http://www.investindia.gov.in
Articles, Papers and Reports•FDI Circular for consolidated FDI policy 2012- Department of Industrial Policy and Promotion under Ministry of Commerce and Industry, Govt of India•The Labour Laws Manual•Indian Cement Industry – CII•The Competition (Amendment) Act, 2007 – Competition Commission of India•Equal Remuneration Act, 1976•Ninety fifth report on performance of cement industry – Parliament Report ( Presented to Rajya Sabha & lok sabha in 2011)