1. February - March 2016
an analysis by Advaita Legal
Sameeksha – general laws

3. © 2016 Advaita Legal. All rights reserved.
As we emerge from the colorful festivities of ‘Holi’ to our more mundane
daily lives and laws that govern them, it gives us immense pleasure to
present to you this edition of 'Sameeksha'.
From a corporate law point of view, we have a topical article which
introduces the reader with the finer nuances of the ‘Start-up Action Plan’
and allied subsequent developments. In another article under this head,
we have an article providing an overview of the key M&A trends of 2015-
16 including the highlight legal reforms in this space - this article had
recently been published in the American Bar Association SIL M&A and
Joint Ventures Committee Newsletter (issue 1/2016) as the ‘India update’.
From a labour law perspective, we have an article analysing in-depth the
concept of ‘overtime’ under the various state legislations on Shops and
Establishments and key legal issues emerging therefrom.
Last but not the least, from an infrastructure law perspective, we have a
pertinent article which discusses the aspect of setting up of a ‘regulator’
for the Railway sector with specific reference to the recent concept paper
issued by Ministry of Railways which has inter alia proposed setting up a
regulator, 'the Rail Development Authority' (RDA) that will, amongst
others, undertake the function of fixing tariff; and ensuring fair play and
level playing field for private investment in Railways.
We sincerely hope that you will find these articles interesting. Thank you
for your time.
Sujit Ghosh
Partner and National Head
Advaita Legal
Contents Foreword
Corporate law article:
start-up reforms
Start-up action plan:
Transformation of start-
up ecosystem in India’
01
Sudipta Bhattacharjee
Principal, Advaita Legal
Editor, Sameeksha
Corporate law article: MA
developments in India 2015
M&A trends in 2015:
focus on 'Ease Of Doing
Business'
04
Labour law:
Overtime
Overtime Laws: Its far
reaching ambit and
impact
06
Infrastructure law article:
RAIL regulator
A regulator for the
railways sector 09

4. © 2016 Advaita Legal. All rights reserved.
Start-up action plan: Transformation of start-
up ecosystem in India
- By Satyajit Gupta (Principal, M&A/Corporate) and
Saurabh Sharma (Associate, M&A/Corporate).
“It is time to hope, believe and do; the days of
disappointments are over.. The government wants to play
the supporting role and that of an enabler”
– Prime Minister Narendra Modi, at the launch of Start-up
Action Plan, 16 January 2016.
'Start-up India, stand up India'
‘Start-up India’ and ‘Ease of Doing Business’ - these have
been the buzzwords in the last year and more. India has
seen a host of reforms in the start-up and foreign
investment space and the Government has taken up a
series of measures to improve Ease of Doing Business.
The emphasis has been on simplification and
rationalisation of the existing rules and introduction of
information technology to make governance more efficient
and effective.
The Prime Minister of India, Mr. Narendra Modi,
announced the ‘Start-Up India’ initiative in his
Independence Day speech on 15 August 2015 with an aim
to create an optimal and enabling environment for both
existing and prospective entrepreneurs. This was followed
by launch of an action plan on 16 January 2016 highlighting
initiatives and schemes being undertaken by the
government to develop a conducive start-up ecosystem in
the country.
Ease of Doing Business in India is an attempt to simplify
the processes involved in conducting business in India.
It measures and tracks changes in regulations affecting 11
areas of a business life cycle i.e., starting a business,
dealing with construction permits, getting electricity,
registering property, getting credit, protecting minority
investors, paying taxes, trading across borders, enforcing
contracts, resolving insolvency and labour market
regulation. Currently India ranks at 130 (out of 189
countries) in World Bank’s Global Ease of Doing Business
index. The Government has set an ambitious target to
reach in top 50 countries in next three years and is
streamlining the regulatory structures and creating an
investor-friendly business climate by cutting through red
tape.
In this article, we have tracked key regulatory changes and
initiatives taken by the Indian Government towards both of
these interlinked spheres in the past year.
Corporate law article: start-up reforms
Start-up action plan
The action plan has laid down a road map for wide ranging
reforms to give a boost to the Indian start-up culture and
has received a positive response from the start-up
community and the investors. Some of the key reforms
proposed under the action plan include:
• Allowing start-ups to self-certify compliance with nine
labour and environment laws
• Creating a start-up India hub as a single point of contact
for the entire startup ecosystem and enable knowledge
exchange and access to funding
• Rolling out mobile application and website for
e-registration, tracking status, filing compliances,
information on clearances/approvals/registration etc.
• Legal support and fast-track patent examination at lower
costs
• Relaxed norms of public procurement for start-ups
(without any relaxation in quality standards or technical
parameters)
• Faster exit for start-ups under the proposed Insolvency
and Bankruptcy Bill 2015
• Funding support through a ’fund of funds’ with a corpus
of INR10,000 crore
• Credit guarantee mechanism through the National Credit
Guarantee Trust Company/Small Industries Development
Bank of India is being envisaged with a budgetary corpus
of INR500 crore per year for the next four years;
• Tax exemption on capital gains if the individuals have
invested such capital gains in the ‘fund of funds’
• Profits of the start-ups shall be exempted from income
tax for three years
• Initiatives and schemes for industry academia partnership
and incubation.
Even though the ‘start-up culture’ is a fairly new
phenomena, entrepreneurship has been integral part of
Indian history. However, it has not been an easy task to
starting and running a business, given the complex
regulatory and compliance regime of India. India has been
victim of ‘red tapism’ which implies excessive regulation or
rigid conformity to formal rules that hinders or prevents
action or decision-making. Filling out paperwork, obtaining
licenses, having multiple people or committees approve a
decision and various low-level rules have made it difficult
to run a successful business in India. The Government has
paid attention to and recognised the challenges a person
faces when starting a new business in India and with the
proposed measures, it has set the tone for laying the
foundation of a new chapter in India’s economic growth.
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5. © 2016 Advaita Legal. All rights reserved.
Defining 'Start-up'
In order to bring uniformity in the identified enterprises,
the Department of Industrial Policy and Promotion (DIPP)
notified the definition of 'start-up' on 17 February 2016 and
laid down a process for recognition and eligibility for
obtaining tax benefits. The definition specifies that an
entity (i.e. a private limited company/limited liability
partnership/registered partnership firm)
incorporated/registered in India shall be considered as a
‘start-up’ for a period up to five years from the date of its
incorporation/registration, if its turnover for any of the
financial years has not exceeded INR25 crore, and it is
working towards innovation, development, deployment or
commercialisation of new products, processes or services
driven by technology or intellectual property. However, any
such entity formed by splitting up or reconstruction of a
business already in existence shall not be considered a
‘start-up’ and an entity shall cease to be a start-up once it
completes five years from the date of its
incorporation/registration or if its turnover for any previous
year exceeds INR25 crores (whichever is earlier).
A business would be covered under the definition of start-
up only if it aims to develop and commercialise a new
product or service or significantly improves an existing
product, service or process that will create and add value
for customers or the workflow. Further, a start-up will be
eligible for tax benefits only after it has obtained
certification from an inter-ministerial board setup by the
DIPP, which shall consist of the joint Secretary of DIPP and
representatives of Department of Science and Technology
and Department of Biotechnology.
The definition seeks to bring a uniformity in recognition of
an entity as a start-up so that the benefits and relaxations
can flow to them. However, the definition lacks clarity on a
few fronts. It is not clear whether this definition would
apply to existing entities or only to such entities which are
incorporated/registered after the notification becomes
effective. Further, since being 'innovative' is an important
test, it is unclear if in case of multiple start-ups working on
similar idea and bringing similar improvement of existing
product, the benefit would be available to all such start-ups
or to the one who files the first application to DIPP. Also, if
an Indian start-up is bringing the same idea or innovation to
the Indian market which is already been used by
companies abroad, will such venture be still considered
innovative? Moreover, the requirement of certification
from the board may cause an impediment to the
Government’s efforts of making operation of a business in
India easier. This brings red-tape and bureaucracy in what
is intended to be an otherwise simple and automated
process. Therefore, the definition and the process requires
fine-tuning from DIPP to make it truly workable.
Easier incorporation process
In order to further augment the efforts of the Government
to streamline the processes and regulations for the start-up
ecosystem, the Ministry of Corporate Affairs (MCA), vide
its notification dated 26 May 2015, amended certain
provisions of the Companies Act, 2013 and relaxed some
of the provisions for the private limited company which is a
preferred vehicle for start-ups. The MCA further amended
the existing Companies (Incorporation) Rules, 2014 by
introducing Companies (Incorporation) Amendment Rules,
2016.
Through these amendments, MCA has sought to simplify
the process for setting up of a legal entity and remove the
inadequacies in the existing system causing delays in
incorporation process. The MCA has introduced an
integrated process for incorporation of a company. Now
the application for allotment of DIN, reservation of name,
incorporation of company and appointment of directors of
the proposed company can be filed in an integrated form.
The promoter will have an additional opportunity to rectify
defects and to re-submit the form. The Government has
also established a 'Central Registration Centre' under the
administrative control of Registrar of Companies, Delhi for
processing name reservation applications. Furthermore,
amendments have been passed removing the requirement
of prescribed limit of Rupees one lakh and Rupees five lakh
for private and public companies respectively as minimum
share capital and the requirement of common seal has also
been made optional. As a substitute, authorisation by two
directors and Company Secretary can be accepted.
The Finance Minister of India, Mr. Arun Jaitley, claimed in
his 2016 budget speech that further changes to the
Companies Act, 2013 are in offing (in light of the report of
the Companies Law Committee) and the Government is
also working towards enabling incorporation of a company
in one day. Though it seems like an ambitious claim, we
can expect further simplification of the process in the
coming year.
Reforms in the labour law regime
Recognising the potential of start-ups to create
employment opportunities, the Ministry of Labour and
Employment issued directions to various regulatory
organisations responsible for compliance with various
labour laws including the Contract Labour (Regulation and
Abolition) Act, 1970, Employees' Provident Funds and
Miscellaneous & Provisions Act, 1952, Employees' State
Insurance Act, 1948, Industrial Disputes Act, 1947,
Payment of Gratuity Act, 1972 and the Trade Unions Act,
1926. The proposal aims to provide the relaxations to start-
up as proposed in the action plan and has suggested
submission of an online self-declaration instead of the
provisions of inspection of establishments under labour
laws by regulatory bodies in the first year of incorporation
and filing of self-certified returns under the EPF Act.
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6. © 2016 Advaita Legal. All rights reserved.
Acting on the directions issued by the labour department,
the Employees Provident Fund Organisation on 21
January 2016 notified a circular exempting the start-up
enterprises from compliance under the EPF Act in relation
to inspection of establishments and permitting
submission of self-certified compliance returns. The EPFO
has further clarified that from the second year onwards up
to three years from the setting up of the unit of such
start-ups, the inspections may be permitted only on
grounds of very credible and verifiable complaints of
violations, filed before EPFO in writing and for which the
approval has been obtained from central analysis and
intelligence unit established by the EPFO.
There is no doubt that labour law compliances have been
a persistent headache for Indian companies. They involve
long and cumbersome process with multiple legislations
and no single-window clearance system. These reforms
can be seen as a step in the positive direction and in-line
with Government of India’s move to facilitate ease of
doing business for start-ups.
Policy changes by RBI
The Reserve Bank of India (RBI) functions as a watchdog
for outbound and inbound investment in India and
implementing policies for economic development. In the
sixth Bi-monthly Monetary Policy Statement, 2015-16 of
RBI, Mr. Raghuram Rajan, RBI Governor, had laid out that
in line with Start-up India initiative, RBI will take steps to
bring ease in doing business and contribute to an
ecosystem that is encouraging for growth of start-ups.
In furtherance of the monetary policy, RBI has permitted
Indian companies to issue sweat equity, subject to
conditions, inter alia, that the scheme has been drawn
either in terms of regulations issued under the Securities
Exchange Board of India (SEBI) Act, 1992 in respect of
listed companies or the Companies (Share Capital and
Debentures) Rules, 2014 notified by the Central
Government under the Companies Act, 2013 in respect
of other companies. Indian companies can now also issue
equity shares against any other funds payable by the
investee company (e.g. payments for use or acquisition
of intellectual property rights, for import of goods,
payment of dividends, interest payments, consultancy
fees, etc.), remittance of which does not require prior
permission of the Government of India or RBI under
Foreign Exchange Management Act, 1999 subject to
conditions relating to adherence to foreign direct
investment policy including sectoral caps, pricing
guidelines, etc. and applicable tax laws.
The said monetary policy has also proposed regulatory
relaxations such as permitting FVCI to invest into start-ups
regardless of the sector, transfer of shares or ownership
with deferred considerations, allowing access to rupee
denominated extra commercial borrowings, issuance of
convertible loans, etc. The RBI has also simplified
processes on FDI related filings (online facility) to make
the life of start-ups easier and these reforms, when
implemented, would definitely provide a further boost to
the start-up ecosystem in India.
Platform for listing of start-ups
If entering in Indian business market is challenging and
laced with regulatory hurdles, exiting from a business
venture is equally complex. The investors who invest in a
start-up expect returns of their investment and there could
not be a better exit than listing of the start-up on Indian
stock exchange.
Identifying the pitfalls in the present system, SEBI in its
board meeting on 23 June 2015 undertook a review of the
extant regulatory framework in the primary market and
noted the suggestions of market participants on
customising the existing Institutional Trading Platform (ITP)
for start-up companies. Based on the same, SEBI
introduced (Issue of Capital and Disclosure Requirements)
(Fourth Amendment) Regulations, 2015 on 14 August
2015, amending the Issue of Capital and Disclosure
Requirements (ICDR) Regulations, 2009. ITP shall facilitate
capital raising as well and will be made accessible to
companies which are intensive in their use of technology,
information technology, intellectual property, data
analytics, bio-technology, nano-technology to provide
products, services or business platforms with substantial
value addition.
The present Indian government is cognizant of rise of start-
ups and is keen to promote listing of such start-ups in India
who otherwise explore the stock exchanges abroad citing
relaxed regulatory regime. Opening the ITP for start-ups
will provide a much needed platform for the Indian start-
ups, however, it is too soon to predict if this would be as
successful in real-life as it looks on paper.
Conclusion
Today entrepreneurs are combining innovative ideas,
cutting edge technology, huge customer base and the
traditional Indian entrepreneurial skills to write new
chapters in the history of Indian business. They are
adamant on changing the rules of game and there is no
doubt that efforts are being made to provide them much
needed support. These interventions being planned are all
part of a massive impetus to aid entrepreneurs embark on
a less cumbersome journey, from the inception of ideas to
starting and operationalising their businesses, thereby
encouraging innovation and entrepreneurship among
India’s thriving start-up generation. Easier regulatory norms
and efficient business environment directly influence the
inflow of foreign investment which is an important
resource for development of an economy as it leads to
employment generation, achievement of advanced
technology and knowhow.
Whether India will achieve its target rating on Ease of
Doing Business index and whether these reforms will bring
realisable change in the Indian regulatory system are
questions which will get answered with time. However, it
has certainly brought positivity in the sector and may have
brought ‘achche din’ (good days) for the Indian start-ups
and entrepreneurs.
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7. © 2016 Advaita Legal. All rights reserved.
M&A trends in 2015: focus on 'Ease Of Doing
Business'
- By Satyajit Gupta, Principal – Corporate/M&A, with
research inputs from Saurabh Sharma and Avichal
Mathur, Associates.
This article has been published in the ABA SIL M&A and Joint Ventures
Committee Newsletter (issue 1/2016) as the India update
With the National Democratic Alliance ('NDA') gaining a
decisive majority in the 2014 general elections, the
expectation was that India would experience dramatic
growth in all sectors, as the Government and
administration would leave behind the policy paralysis that
had been the hallmark of the previous regime. In an
unpredictable global economy where the Indian economy
has shown resilience, the NDA government has set about
making radical and positive reforms to boost foreign
investment and create a business friendly climate in India.
In 2015, the Indian economy saw an average growth of 7.5
per cent making it one of the fastest growing economies in
2015. In fact, OECD has also pegged India’s growth rate at
a healthy 7.4 per cent for the next financial year in a report
released recently.
However, in the reported M&A deals space, there
appeared to be a slowdown with the total quantum
dropping to USD20 Billion, a dip of 40 per cent compared
to the deal volume of USD33 Billion in 2014. To combat
this, the Government has proposed several regulatory
relaxations and liberalisations in the FDI policy, exchange
control norms, etc. and it is hoped that this forward looking
outlook continues and drives the deal volume up. The
Government’s focus is on ‘ease of doing business’ and its
growth focused initiatives – ‘Start Up India’ and ‘Make in
India’ are also enterprises to garner investor traction and
contribute to the India growth story.
Company law reform
Compliances under the Companies Act, 2013 have been
sought to be relaxed especially in relation to private
companies, through amendments and exemptions. Private
companies have been provided various exemptions
ranging from exemptions in relation to general meetings
(exemption for provisions under notice of meetings,
statement to be annexed to notice, quorum for meetings,
chairman of meetings, etc.) to exemption from the
requirement of a shareholders resolution (for exercising
borrowing powers, disposing of an undertaking of the
company, remitting any debt due from a director etc.). In
terms of setting up of a company, the requirement of
minimum paid-up capital has been removed, a
consolidated form has been introduced to fast track the
incorporation procedure and the requirement of a company
seal and certificate of commencement of business have
also been done away with.
Corporate law article: MA developments in India 2015
Developments in anti-trust laws
The Competition Commission of India ('CCI') has clarified
that communication of a combination to a statutory
authority per se cannot be considered as a trigger to file a
notice with the CCI, however, public announcements
under SEBI Takeover Regulations, can be considered as a
trigger to file. The CCI has also introduced e-filing facility
on 1 December 2015 to help it handle submissions related
to combinations promptly and also to simplify the process
for entities to submit information. The CCI also clarified the
ambit of acquisitions ‘solely for investment purposes’,
while also fining certain Zuari entities a hefty INR30 Million
for not notifying it in time for an acquisition which was
strategic in nature (and which was picked up by the
regulator due to a television interview).
Evolution in securities laws
In the securities law space, the Securities and Exchange
Board of India ('SEBI') overhauled the Insider Trading
Regulations. Definitions of ‘insiders’, ‘connected persons’
and ‘unpublished price sensitive information’ have been
widened under the new regulations. The new regulations
have been made applicable to all securities as defined
under Securities Contracts (Regulation) Act, 1956 except
units of mutual funds. The regulations permit sharing of
‘unpublished price sensitive information’ in PE/M&A
backed diligences, introduce certain valid defences for
insiders as well as the concept of trading plans.
Also, through amendments introduced in the SEBI
Takeover Regulations and SEBI Delisting Regulations,
acquirers have been allowed to delist the company
pursuant to making an open offer provided he declares his
intention of delisting at the time of making the detailed
public statement of the proposed acquisition. SEBI has
also granted exemption to certain transactions (e.g.
conversion of debt into equity under a strategic debt
restructuring scheme) from complying with the Takeover
Regulations through amendments to the said regulations.
Additionally, SEBI has notified new listing norms for start-
ups on Institutional Trading Platform, thereby easing the
norms for raising money for small enterprises.
FDI norms
Significant changes have been introduced in the year 2015-
2016 by the Indian Government with regard to the foreign
investment norms, to attract investment in sectors like
defence, railways, insurance, etc. A few examples are set
out below:
Insurance and Pension
The foreign investment cap of the sector has been
increased from 26 per cent to 49 per cent, however
investment above 26 per cent has been made subject to
government approval. The Insurance Regulatory and
Development Authority ('IRDA') has also provided clarity on
the ‘Indian ownership and control’ test required to be met
by all Indian insurance companies and insurance
intermediaries. The IRDA has defined ‘control’ to mean the
right to appoint a majority of the directors or control the
management or policy decisions.
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8. © 2016 Advaita Legal. All rights reserved.
Railway infrastructure
The foreign investment limit in construction, operation and
maintenance of specified infrastructure projects like
suburban corridor projects through PPP and high speed
train projects, have been raised to 100 per cent through
automatic route.
Construction and development
Relaxations in the conditions of foreign investment in the
sector have been introduced. These include easing of exit
norms, removal of requirement of minimum capitalisation
and minimum land area.
Defence
Foreign investment in the sector has now been permitted
up to 49 per cent in the automatic route and investment
above this level can be permitted on case to case basis
where it provides the country access to modern state of
the art technology.
Retail trading
Various changes including removal of local sourcing norms
for state of the art products has been brought in.
An interesting judgment to note was rendered by the
Bombay High Court which evaluated a downstream FDI
structure to rule that investment in the holding company
was a ‘sham’ structured to invest downstream by way of
redeemable instruments, which are not permitted by
Indian FDI norms. The court held that it would not provide
assistance to enforcement of transactions which are not
compliant with the FDI norms.
Arbitration law reforms
In end-2015, the Government introduced amendments to
arbitration law by way of ordinances (replaced by an
amendment act), intended to ease the process of
arbitration, impose timelines and rationalise costs. Some
key changes include: (a) a twelve-month timeline for
completion of arbitrations seated in India; (b) flexibility for
parties to approach Indian courts for interim reliefs in aid of
foreign-seated arbitrations; and (c) introduction of ‘costs
follow the event’ regime.
Conclusion
The medium to long term macro-economic outlook for
India has remained mostly promising and after the general
elections in 2014, the outlook has only improved
exponentially. However, the euphoria on the macro-
economic front has not resulted in any high value deals in
2015. It is difficult to pin down the issues/hurdles that are
blocking large deals in India especially given the presence
of large buyout firms as well as attractive (and perhaps,
under-valued) targets. The large block of promoter holdings
in Indian companies, non-availability of cheap and external
credit and regulatory factors may be some factors
impeding M&A deals in India.
Reforms in laws applicable to real estate sector,
insolvency/bankruptcy norms are still stuck in the
legislative process. These need to be expedited to bring
much-needed clarity and predictability in Indian laws
impacting M&A. Further relaxations to FDI norms, quicker
statutory approvals are also key to attracting further
foreign enterprises to explore India as a target destination.
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9. © 2016 Advaita Legal. All rights reserved.
Overtime Laws: Its far reaching ambit and
impact
- By Sonali Singh (Associate).
Introduction
Owing to the history of grave exploitation and atrocities
faced by the labour class, protective legislations paved way
in India during the early 18th Century and also surfaced in
the Constitution in the form of Directive Principles of State
Policy. Statutes were enacted to deal with employment,
lay-offs, minimum wages, working conditions, industrial
relations, social security and welfare of personnel
employed in industries.
With the development of the economy and society, there
has been a change in the dynamics of employment
conditions in some of the segments of workmen. The
legislations however, continue to address the labour issues
uniformly across the different sectors and levels of
employment. One of the major and the oldest concerns for
labour protective legislations is to regulate working hours
of the workmen. Recognising its importance, the
International Labour Organisation adopted the resolution
forming the ILO convention of 1919, which limited hours of
work to eight hours a day and 48 hours a week. Following
suit, similar provisions were added in statutes of India to
regulate working hours in India in compliance with the
convention. Although the intent of the legislature, in
stipulating strict provisions for labour protection is noble,
the dynamism of the working conditions across various
sectors/industry necessitates a relook into this aspect. This
article therefore, attempts to shed light on the legal
position of overtime laws, its applicability on different
establishments and a few key points to be kept in mind.
Legal position
The concept of overtime in commercial establishments, by
workmen in India, is governed and calculated on the basis
of the Shops and Establishments Act. Some of the other
statutes which regulate overtime in different sectors are
the Factories Act, 1948, Minimum Wages Act, 1948,
Mines Act, 1952, Building and Other Construction Workers
(Regulation of Employment Service) Act, 1996, Working
Journalist (Conditions of Service) and Miscellaneous
Provisions Act, 1955, etc. Overtime as defined in statutes,
generally means and comprises of the hours worked on
any day, in excess of the number of hours constituting a
normal working day. The principle of law governing
overtime is, that the employee working overtime must be
compensated, by the employer for such work done in
accordance with the mode and method of calculation of
the overtime wage payable, stipulated in the relevant
labour legislation.
Labour law: Overtime
Overtime wage under Shops and
Establishments Act
The Shops and Establishments Act (Act) of various states,
typically dictates that no adult shall be employed or
allowed to work about the business of an establishment
for more than a specified number of hours in a day, which
varies generally from 9 to 12 hours, from state to state and
the law applicable therein. Certain exceptions and
exemptions have been carved out by the respective state
governments on a case to case basis, by either providing
an upper limit of the total working hours in a week or
sometimes an absolute exemption from applicability of the
Act in specific situations.
Overtime wage is generally payable keeping the ordinary
remuneration as the benchmark, in the manner prescribed
under law. The law in most states provide for different
calculation methods to be used for calculating the overtime
wage, which varies in accordance with the terms of
employment/payment of wages, which can be either daily,
weekly or monthly.
Whilst determining payment of overtime wages, two
important aspects which needs to be considered are:
i. Statutory Provisions; and
ii.The contract of employment.
Statutory provisions
As has been discussed above, the statutory provisions
governing overtime wages in establishments have been
encapsulated in the Act, which put a limitation on the
number of hours worked by an employee. It is pertinent to
note that the words used in the statute with respect to the
limitation on hours worked are absolute and do not provide
any room for deviations. Such strict usage of words, even
after accommodating the cushion of extension of a few
hours provided in certain states, do not seem to support
the trend of working beyond the hours stipulated, which
sometimes are stretched overnight. Therefore, can it be
said that the non-compliant work hour pattern would make
the employer of the commercial establishment, liable to
pay overtime wages, in addition to what the employees are
already paid or in certain circumstances even bring the
employer within the ambit of penal provisions of the
statute?
Although the exact terms used in the statute vary from
state to state and have to be examined individually for each
case, certain loopholes do exist which may enable the
employer to avoid any additional liability in cases of
overtime work.
Two aspects of the existing law, which are crucial to be
observed before affixing liability and could be seen as
plausible loopholes, have been discussed below, namely;
i. The applicability of the Act; and
ii.The relevant premise for calculation of overtime.
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10. © 2016 Advaita Legal. All rights reserved.
I. Applicability of the Act
For the responsibilities and duties to follow from the Act, it
is important to check whether the Act would apply on the
sector and arrangement of the employment/engagement
of the workmen. The important things to bear in mind are,
that whether the relevant organisation comes within the
purview of a ‘shop’ or ‘commercial establishment’ as
defined in the Act and further that whether the activity
performed therein would attract applicability. It is pertinent
to note that the language of the statutes which govern the
scope of what all professions and businesses come within
the Act vary from state to state and therefore must be
examined from a fact specific approach. However, few
general exemptions such as that for the legal profession
has been carved out by the Supreme Court in the
Sasidharans1 case for uniform non-application of Act
across India.
Amendments introduced in a few states sought to enlarge
the definition of 'Commercial establishment' under their
state legislation by including the establishment of a legal
practitioner, architect, engineer, accountant, tax consultant
and certain other categories. The amendment was
subjected to a legal challenge and it was held that there
are no common properties or characteristics to be found in
other commercial establishments and the establishment of
a legal practitioner and that there is no rational basis for
herding them together. It was concluded that the inclusion
of the establishment of a legal practitioner in a commercial
establishment does not answer the test of reasonableness
and the inclusion would therefore, be violative of Art. 14 of
the Constitution. Also, for an activity to attract applicability
of the provisions of the Act, it should be commercial in
nature. The very concept of commercial activity cannot be
rightly equated to an advocate’s practice and discharge of
duties performed in the administration of justice, which is
a regal function of a State.
Furthermore, a reading of judicial views as expressed in
various judgments show that there is always a distinction
between a professional activity and a business or
commercial activity. The Judiciary has kept this distinction
clear and observed that in a case of professional activity,
an individual has to apply his professional skill as against
commercial or business activity where the transaction is
done with the active cooperation of employer and his
employees for sale of certain goods or with the profit
motive. Keeping the judicial view in mind and the fact that
an establishment must necessarily be commercial in
nature for the Act to apply, it appears that certain
professions may find a ground to oppose applicability of
the Act.
II. The relevant premise for calculation of overtime
Another aspect of the law which deserves a thought is
that, generally the language of the statute for restricting
the work hours makes reference to hours worked within,
the shop or commercial establishment. Therefore, if the
statute mandates that “no employee shall be required or
allowed to work in any shop or commercial establishment
7
1 V. Sasidharan vs. M/s. Peter and Karunakar and others AIR 1984 SCC 1700.
for more than nine hours in any day and forty-eight hours in
any week”, can it be interpreted to mean that the
employee is permitted to work from outside the shop or
establishment beyond the stipulated hours?
Some of the Acts such as the one holding ground in Delhi
has addressed this concern by tweaking the language to
read, “No adult shall be employed or allowed to work
about the business of an establishment for more than
nine hours on any day or 48 hours in any week…” Similar
amendments have not been made in many other states
which are known to be hubs of employment opportunities.
This ambiguity assumes importance from the employer’s
point of view, as this may be an important aspect while
deciding his liability in paying overtime wages or even
deciding a penalty, for allowing an activity, not permitted
by law. The lack of clarity from the words used, appears to
pave way towards a dispute between the employer and
employee. Hence, it would be advisable that requisite
clarity is brought in the statutory provisions.
The contract of employment
Overtime wages as stipulated under the Act are to be paid
by the employer to the employee, in accordance with the
mode and method provided in the state specific statutes.
The benchmark to calculate the overtime wage is usually
based on the amount of the normal remuneration which is
payable to the employee. It is important to note that
usually the employees who are paid a monthly salary
amount, receive an amount which is above and beyond the
minimum basic wage prescribed under law. This salary
amount is seen to include many other allowances under
various heads, payable to the employee. Therefore, in
order to circumvent the liability to pay overtime wages, can
the employer take the plea that the amount payable as
overtime wage is subsumed in the total amount paid
monthly, as a separate component? And that no additional
amount remains payable even if the employees are
required to work overtime.
An important concern moreover is, that for the
employment arrangements to be entered into, would the
employer be positioned to draft the agreement in such a
way that his liability under the head of overtime wages is
avoided? Even though, it is a principle of law that the
contractual relationships between parties are governed by
the terms of the contract binding the parties, the contract
cannot have an enforceable term which goes against the
statute. Therefore, the success of clauses inserted in the
employment agreement to circumvent the liability of
paying overtime wages in addition to the agreed
consideration for employment, depends upon the language
used in the state specific statute.
For example, the Delhi Shops and Commercial
Establishments Act, 1954 (Delhi Act) keeps ‘normal
remuneration’ as the benchmark for calculating the
overtime wage and not the ordinary rate of wages. The
term ‘normal remuneration’ however, continues to be
undefined in the Delhi Act. In such a situation, the

11. © 2016 Advaita Legal. All rights reserved.
employer seems to be at an advantageous position to
negotiate the terms to suit his requirements by bifurcating
parts of the amount paid monthly under the heads of
‘normal remuneration’, overtime wage or any other head
which the employer may deem appropriate.
Conclusion
The overtime laws have been prescribed in many labour
protective legislations with the intent to ensure
comfortable working conditions. Its impact and approach
is far reaching and has been working towards the cause it
aimed to uphold. However, some of the ambiguities,
which have been discussed above, pose a threat to
effective implementation and on-ground success of the
legislations.
8
The overtime laws governed by the Act vary minutely
from state to state but minor variations have the potential
of causing significant changes in the law as may be
understood to be applicable. Keeping in mind the
ambiguities discussed above, the initiative of the
Government towards rolling out a model Shops and
Commercial Establishments Act, as announced in the
budget speech of 2016 is laudable as it would bring in
certainty as regards application of law and also give the
legislature an opportunity to suggest requisite
amendments to safeguard the interests it vowed to
protect.

12. © 2016 Advaita Legal. All rights reserved.
A regulator for the railways sector
- By Amrita Roychoudhury (Associate) with inputs from
Shailendra Singh (Managing Associate).
Introduction
Unlike other infrastructure sectors such as electricity,
airports and telecommunications, private participation and
investments in the railway sector has been almost
negligible. While an attempt has been made to involve the
private sector in areas such as wagon procurement and
leasing, freight trains and container operations, terminals
and warehousing facilities, catering services, and other rail
infrastructure through various policy instruments/schemes
framed by the Ministry of Railways (MoR), Myriad issues of
policy uncertainty, lack of a regulator to create a level
playing field, the lack of incentives for investors, and
procedural/operational issues have significantly restricted
private sector participation.
One of the important policy tools to manage industries
characterised by either too little or imperfect competition
such as 'railways' is by setting a regulator that sets the rules
of the game and administers these rules as a neutral referee
to enable long term development, by harmoniously
balancing the interests of the consumers and the providers
of services. Institutional separation amongst government,
regulators and the industry enables independent decision-
making duly addressing the concerns of different
stakeholders. Against this backdrop it is indeed
commendable that the MoR has issued a concept paper and
proposed setting up a regulator 'the Rail Development
Authority' (RDA) that will, amongst others, undertake the
function of fixing tariff; and ensuring fair play and level
playing field for private investment in railways.
The background
The need for establishing a 'Rail Regulator' has been felt
and advocated several times in the past. The Rail Tariff
Enquiry Committee 1977 emphasised requirements of a
regulatory body entrusted with the task of expert
examination (not a judicial examination) of tariff revision
matters. Similarly, the Railway Convention Committee
(2000) in its report endorsed the recommendation of
Planning Commission for setting up of such an authority
on the lines of Telecom Regulatory Authority. Dr. Rakesh
Mohan Committee which was set up to examine the
revamping of Indian Railways also reiterated the need for
such an authority. The 10th Five Year Plan1 of Government
of India while doing detailed appraisal of the 9th Five Year
Plan highlighted the need for a Rail Regulator for fixation of
rail tariffs and regulation of the activities of Indian Railways.
The Ministry of Railways itself proposed to set up a Rail
Tariff Authority through a Cabinet note in January 2014.
The National Transport Development Policy Committee
(NTDPC) report of 2014 had recommended that a Rail Tariff
Authority should be set up which should finally become the
Infrastructure law article: Rail regulator
Overall Rail Regulator encompassing other regulatory
functions in addition to tariff. Further the NTDPC report
recommended that an institutional mechanism to gather,
analyse and use cost data and market intelligence needs to
be established. The Bibek Debroy Committee Report
(2015) has also gone into the detailed rationale and role for
a rail regulatory authority and suggested a regulator with
over-arching functions. Briefly, while various earlier reports
have recommended setting up a 'rail regulator', the debate
largely has been on the exact role of the regulator- whether
it be restricted to a tariff setting role or should it play a
much greater role in the working of the sector.
It is this aspect of the matter that merits a closer
examination, i.e. what is the role that RDA should have in
the context of the legislative framework mandated under
the Indian Railways Act, 1980.
The concept paper
The concept paper issued by the MoR proposes that the
RDA would not be involved with:
i. policy making on the grounds that it is prerogative of
the legislature and MoR and should remain so;
ii. financial/expenditure management of Indian Railways-
though the Authority can suggest benchmarks that can
guide decision making;
iii. setting technical standards on the grounds that the
expertise developed by Research Design and
Standards Organisation (RDSO) - the authority that
currently is responsible for setting technical standards
would be difficult to replicate in a short time frame with
the regulator; and
iv. compliance of safety standards and practices on the
reasoning that the present arrangement wherein the
safety/technical standards are laid down by Indian
Railways, while clearances/permissions are obtained
from the Commissioner of Railway Safety, an
independent body under the Ministry of Civil Aviation is
robust enough to ensure independence.
Some views on the negative list
While it may acceptable (arguably though) to not involve
the RDA in policy formulation directly, it is important to
understand the context of the regulatory dynamics as
prevalent in India today. Under the Electricity Act, 2003,
the sectoral regulator(s) for the electricity sector, i.e. the
Central Electricity Regulatory Commission and the State
Electricity Regulatory Commission are both required to
advise the Central and the State Government, respectively
on various policy related matters.1 Similarly, under the
Telecom Regulatory Authority of India Act, 1997, one of
the function of TRAI is to make recommendations to the
Central Government on various policy matters.2 There
appears to be a precedent to engage with a sectoral
regulator for formulation of policies by the Central
Government, at least indirectly. A similar role for RDA may
also be considered.
9
1 Refer section 79 (2) and 86 (2) of the Electricity Act, 2003.
2 Refer section 11 (1) of the Telecom Regulatory Authority of India Act, 1997.

13. © 2016 Advaita Legal. All rights reserved.
Similarly, suggesting benchmarks that can guide decision
making on financial/expenditure management of Indian
Railways does not appear to be aligning with the overall
goal of setting a regulator. On the setting of technical
standards, again, there appears to be a reluctance to have
a clearly defined role for the regulator, given that the
reasoning adopted of expertise of RDSO being difficult to
replicate in a short time with the regulator looks
implausible. Also, the setting of safety/technical standards
being taken out from the function of RDA especially on the
grounds that RDSO which is an 'independent body' under
the Ministry of Civil Aviation is well equipped and robust
enough to ensure that independence appears to negate
the very objective of the concept paper seeks to achieve-
institutional separation amongst government, regulators
and the industry.
The role of RDA
Having set out the proposed negative list of dont’s, the
concept paper then goes on to set out that the RDA would
recommend passenger and freight tariffs, considering the
cost structure. In cases where the Government does not
accept the suggested tariffs, Indian Railways would be
compensated appropriately perhaps through increased
allocations in the Gross Budgetary Support or through a
suitable mechanism. This, the concept paper states, would
bring in transparency and consistency in tariff setting.
However, the concept paper then goes on to add that in
the event the projected revenues do not materialise as
considered by the RDA at the time of tariff determination,
the MoR reserves the right to approach the RDA for
revision of tariffs.
A couple of concerns arise, basis the provisions above.
One, it needs to be clarified whether the tariff is to be
determined by RDA or suggested by it. This assumes
significance as tariff determination exercises by a regulator
are typically quasi-judicial function, even in terms of the
regulatory landscape that DOT India under various
statutes. It pre-supposes an adjudication mechanism on
the basis of the materials available on record and are
generally governed by the regulations framed by the
regulator- a power conferred on it by the parent statute or
by the principles of tariff determination laid down in the
parent statute. Therefore, one has to be amply clear of
whether the function of RDA, in so far as the tariff setting
is concerned, is to be determinative/adjudicatory or is
merely suggestive- in which it may be possible to qualify it
as an expert body making a recommendation which holds
no binding value. If the latter were to be the case, then it
needs to be thought through whether RDA would qualify
as a 'regulator' as understood in legal or common industry
parlance.
Second, after the determination of tariff, the right to revise
the tariff does not vest with the regulator, except in cases
where 'review' is sought. 'Review' is a specific power that
must be conferred on the regulator by the statute and in
the absence of an express provision in the statute, there is
no inherent power of review. It is pertinent to mention
here that a regulator is a creature of statute and must act
10
within the four corners of a statute. Ordinarily, an
appellate mechanism under such regulatory
dispensation are provided for to test the legality,
proprietary or validity of an order passed by a regulator.
The rights of MoR therefore, to approach the RDA for
revision of tariffs needs some clarity.
Interestingly, the concept paper also acknowledges that
an important pre-requisite for determination of tariffs is
the availability of an efficient accounting system and a
transparent costing mechanism, yet as mentioned
earlier, puts the financial/expenditure management of
Indian Railways, in the negative list, out of the purview
of RDA severely curtailing the role of RDA on this aspect
to suggesting benchmarks that can guide decision
making on financial/expenditure management of Indian
Railways.
Conclusion
While it needs to be appreciated that it is only a 'concept
paper' that MoR has come out with on the RDA and it is
possible that all or most of the concerns gets ironed out
when the structure is further deliberated, what is of
utmost concern is that the structure, role, power and
function of the RDA must be thought through-lest we
end up adding one more to the list of many
'autonomous bodies' that the MoR currently houses.

14. Notes

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