Start-up India Action Plan – Devil is the detailing (Part 5)

Other policies and initiatives

In line with the Action Plan there have been further many policies and amendments that have been formulated and are being successfully implemented to bring the requisite changes in the regulations.

Set out below are a series of such polices which have been mapped to the actions points under the Action Plan:

SIMPLIFICATION AND HAND HOLDING

Compliance Regime based on Self-Certification

In order to promote the Start-Up ecosystem in the country and incentivizing the entrepreneurs in setting up new start-up ventures and thus catalyse the creation of employment opportunities through them, the Ministry of Labour and Employment has vide a direction dated 12 January 2016 (“Direction”) issued an advisory to the States/UTs/Central Labour Enforcement Agencies for a compliance regime based on self-certification and regulating the inspections under various Labour Laws.

The labour laws covered in the Direction are:  

1. the Industrial Disputes Act, 1947;
2. the Trade Unions Act, 1926;
3. the Building and Other Constructions Workers’ (Regulation of Employment and Conditions of Service) Act, 1996;
4. the Industrial Employment (Standing Orders) Act, 1946;
5. the Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979;
6. the Payment of Gratuity Act, 1972;
7. the Contract Labour (Regulation and Abolition) Act, 1970;
8. the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952;
9. the Employees’ State Insurance Act, 1948.

It has been advised that if such start-ups furnish online self-declaration for compliance of 4 labour laws mentioned above (viz. BoCW Act, ISMW Act, Payment of Gratuity Act and Contract Labour Act) for the first year from the date of starting the start-up, no inspection under these labour laws, wherever applicable, will take place.

From the second year onwards, up to 3 years from the setting up of the units, such start-ups are required to furnish self-certified returns (as is being done under Shram Suvidha Portal under these Acts for the central sphere) and would be inspected only when credible and verifiable complaint of violation is filed in writing and approval has been obtained from at least one level senior to the inspecting officer.

However, the advisory to State Governments is not to exempt the Start-ups from the ambit of compliance of these Labour Laws but to provide an administrative mechanism to regulate inspection of the Start-Ups under these labour laws, so that Start-ups are encouraged to be self-disciplined and adhere to such beneficial Legislation. These measures intend to avoid harassment of the entrepreneurs by restricting the discretion and arbitrariness. Punitive action shall, however, be taken whenever there is a violation of these labour laws.

Acting on the Directions, Employees Provident Fund Organisation has issued a Circular dated 21 January 2016 exempting start-ups from inspection under the Employees’ Provident Funds and Miscellaneous & Provisions Act, 1952 and also permitting start-ups to submit self-certified returns. The Labour ministry has also decided to exempt start-ups from inspections related to key labour laws.

Devil is in the detail: Upon completion of the three-year window period, start-ups could still be prosecuted for any non-compliance during the first three years of their operations. Hence it is imperative that start-ups obtain advice on compliances applicable to them and self-certify compliance only upon completion of all the necessary registrations, filings and returns.

Start-up India Hub

The Action Plan has created a centralised system under the ‘Start-up India Hub’ (“Hub”) which shall assist start-ups by providing them a platform to connect with various start-up accelerators, VC firms, business incubators, mentors and investors and shall also provide advisory services on financing, business structuring, management skills etc.

From the 1 April 2016, the Hub has been operational from 10:00 am to 5:30 pm on all working days and can be reached via the toll free number: 1800115565 or the email ID: dipp-startups@nic.

The Hub shall soon be launching an interactive online learning and development module to educate start-ups and aspiring entrepreneurs, through various stages of their entrepreneurial journey. The learning and development module shall be made available through the Start-up India web portal (http://startupindia.gov.in).

Further, in order to augment the existing list of incubators, a module to recognise incubators has been launched. Upon obtaining recognition from the Government of India, such incubators shall then be able to issue recommendation letters to start-ups. A maximum fee of INR 5,000/- can be charged by the incubators for providing ‘letter of recommendation’ to start-ups. In cases where external expert(s) is/are required to assess the innovativeness of a product/service/ process, a maximum fee of INR 10,000/- can be charged by the incubators.

Rolling-out of web portal and mobile app

A positive move in simplifying the registration process. DIPP on the 1 April 2016 has unveiled the Start-up India web portal and mobile app (“Start-up India Platform”) dedicated to Indian start-ups. The Start-up India Platform shall act as single point of contact between entrepreneurs, regulators and the government.

Key features of the Start-up India Platform are as follows:

1. Shall act as a single window for entrepreneurs towards receiving latest updates on various notifications, circulars issued by various departments and different funding agencies.
2. Entities that fulfil the criteria as per the definition of “start-up” and are incorporated/registered in India, shall be able to obtain recognition as a “start-up” to avail various benefits listed in the Action Plan. Start-ups shall be required to fill in a single page application form and formats of the recommendation/support letters that need to be attached as part of the application form have been provided for in the Start-up India Platform.
3. Shall provide a real time recognition certificate to start-ups upon completion of the application process. The certificate of recognition can be verified through the Start-up India Platform by entering the ‘Start-up Recognition/Certificate Number’.
4. By selecting a simple option, start-ups shall also be able to request for certificate of eligibility for tax exemptions from Inter-Ministerial Board.
5. Start-ups shall be able to register themselves with relevant agencies of the government, track registration status, file for compliances, self-certify, collaborate with various start-up ecosystem partners, apply for schemes etc.

 Additionally, on the 31 March 2016, the Government has released the web portal – Indian Intellectual Property Panorama (“IP Panorama”) to increase awareness and build sensitivity towards IP among stakeholders in the SME sector, academia and researchers. The IP Panorama is a single window interface for information on IP and guidance on leveraging it for competitive advantage. The Indian IP Panorama is a customized version of IP Panorama Multimedia toolkit, developed by World Intellectual Property Organization (WIPO) and has been developed under the aegis of DeitY, DIPP and C-DAC in close coordination with the Indian IP office.

 Devil is in the detail: The Government claims that through the Start-up India Platform, start-ups can get themselves registered within 24 hours and be validated as eligible start-up entities. However, one shall have to wait and see whether the Start-up India Platform can deliver value with real time management.

Legal Support and Fast-tracking Patent Examination at Lower Costs

The government has given form to this action point by setting up a Scheme for Facilitating Start-ups Intellectual Property Protection (“SIPP”) (“Scheme”), which shall run initially on a pilot basis for a period of 1 year.

The Scheme is aimed at creating fast-track mechanism for start-ups to file for IP (patents, designs, trademarks). A panel of facilitators shall assist start-ups with the filings up till the final disposal of the Intellectual Property Rights (“IPR”) applications. The empanelment of facilitators is being undertaken by the Controller General of Patents, Designs and Trademarks (“CGPDTM”). The Scheme also provides for a fee structure which will be applicable to the empanelled facilitators and the same shall be paid directly to the facilitator by the Central Government through the office of the CGPDTM, irrespective of the number of filings carried out. Start-ups shall bear only the cost of the applicable statutory fees. Further, the facilitators shall on a pro-bono basis, also provide general advisory, information of different IPRs, promotion and protection of IPRs in overseas jurisdictions, etc.

The CGPDTM has already come out with the first list of patents/designs and trademark facilitators who have been found eligible to be empanelled. Owing to high demand, another call for applications was recently concluded.

The Scheme earlier mandated that any eligible start-up which has been certified by the ‘Start-Up Certification Board’ as having an innovative business can apply for the Scheme and for this purpose.

However, vide notification dated 11 July 2016, DIPP has updated the Scheme and clarified the definition of start-ups by linking it with definition provided in the DIPP Notification. Further, the notification has also clarified that the start-ups covered under the Scheme will not be required to obtain certificate of an eligible business from Inter-Ministerial Board of Certification.

Further, the DIPP, Ministry of Commerce & Industry, GoI has issued a very detailed “IPR Facilitation For Start-ups” document with an aim to guide start-ups regarding the various procedures followed by the office of CGPDTM with respect to IPRs especially patents, designs and trademarks.

Additionally, vide notification dated 16 May 2016, the GoI has implemented the Patent (Amendment) Rules, 2016 (“Patent Rules”). The Patent Rules aims at making patent registration process much easier and cost effective for start-ups (eligible start-ups shall be any entity which is covered under the definition of start-ups under the DIPP Notification).

Key benefits to the start-ups as per the Patent Rules are as follows:

• Start-ups have been introduced as a new entity type and are entitled to get fee reduction equivalent to “individual persons”.
• As the start-ups are now being considered as a new entity and have become eligible for 80% rebate on official patent filing fees.
• Fast tracking on patent applications – Controller to issue the First Examination Report (FER) within 105 days.
• 6 months’ reduction to file response to FER (extendible by up to 3 months). Further, Controller to dispose the applications within 3 months from the date of receipt of last reply, or within 3 months from the last date to put the application in order for grant, whichever is earlier.
• Upto 90% refund of patent fees for application withdrawals after filing the request for examination but before issuance of FER.
• Foreign filing license request will be disposed of within 21 days from the date of request where the applicant opts for filing patent application in foreign country without filing the application in India.

Devil is in the detail: Start-ups, especially technology start-ups, require initial investments of up to lacs and crores of rupees. Saving 80% in patent fees (which falls to up to INR 30,000 – INR 50,000) will not pare substantial costs.

Relaxed Norms of Public Procurement for start-ups

Vide Policy Circular dated 10 March 2016, the GoI relaxed procurement norms related to experience and turnover for micro, small and medium start-ups with a view to enable these ventures to be part of its mandatory public procurement. With effect from 1 April 2015, all PSUs, central government ministries and departments have been directed to procure at least 20 per cent of products and services required by them from micro and small enterprises.

Faster Exit for start-ups

On 28 May 2016, the Insolvency and Bankruptcy Code, 2016 (“Code”) has received the presidential assent and has been notified in the official gazette. The Code details provision for fast-track corporate insolvency resolution process and voluntary liquidation of corporate persons. Entities meeting such criteria as may be specified may be wound up within a period of 90 days. The Code also provides for the appointment of an insolvency professional. The insolvency professional shall assist a start-up to wind-down its operations and pays off all creditors and sells the assets.

[This is the fifth of a series of 6 posts that seeks to consolidate all the benefits and policy directives directed towards promoting Start-ups in India.]