Reports suggest that pretty soon, online retailers like Japan based Rakuten.com, UK based ASOS.com, US based overstock.com, etc. that sell in India would soon have to register with an Indian arm if they have not already done so. This move would likely take place if the Indian government decides on implementing a literal interpretation of the 2013 Companies Act. The act would most likely involve IT companies, analytic firms and even Indian back offices.
The Companies Act of 2013 passed in August last year by the Indian Parliament states, “any company or body incorporated outside India with a place of business in India, whether on its own or through an agent, physically or through electronic mode or which conducts any business activity in India in any other manner, is classified as a foreign company.”
According to this new act, every foreign company operating in India would need to register here, establish a permanent work place and have at least one resident Indian director on its board.
Many argue that this could lead to an adverse situation wherein every foreign company doing business in the nation would need to register and create a permanent workplace in India. While the law currently covers every financial, consulting and online retail services, a literal interpretation would include companies that outsource work to IT back offices.
These restrictions would have adverse affects on thousands of firms in the country. While companies that have large business markets in India would want to register, others that have comparatively smaller markets would opt out of trading in the country forever in order to avoid the pain of registering their company here.
The challenge would increase manifold for online retailers without a physical presence in the country. Forcing these companies to register in India just because their customers reside here would be considered anti business like and almost aggressive.
Some believe that the new act would cover only those companies that want to do active business in India sans a physical presence. In the case an online portal is on the wrong side of the law, penalizing it would prove to be difficult for the government as the portal would not come inside India’s jurisdiction. Lack of assets in the country would also make these online portals less liable to pay the penalty fees imposed by the regulator. Blocking their websites is not a permanent option as well.
As such, the Indian government would most probably leave out e-commerce firms from the Companies Act of 2013, as expected by many industry experts. At least the government should come clear on its understanding of exactly which sectors would need to comply with this new law.