Legal Opinion Regarding Marketing/Distribution Business of Foreign
Entity in India
Brief background of the opinion seeker:
The opinion seeker- Vipush Industries Private Limited (hereinafter referred “the Company”) is a private company having its registered office at A-117, FIRST FLOOR, GD-ITL NORTHEX TOWER NETAJI SUBHASH PLACE DELHI North West DL 110038 IN NCT of Delhi. It was incorporated on 31/08/2016. Currently, the Company is having its Authorized Share Capital of Rs. 10, 00,000 and paid up capital of Rs. 30,000.
Current Directors of the Company are Ms PALLAVI KUMARI, Indian Director (DIN: 07236407) and Ms CALASNICOVA ALA, Foreign Director (DIN: 08528453).
Current Shareholders of the Company are M/s SMART TAX PLANNERS (INDIA) PRIVATE LIMITED and Mr Suraj Kumar.
MOA of the company states–
To carry on the business in India and abroad as Traders, Distributors, Dealers, Exporters, Importers, Brokers, Stockist & Commission agent, Agency business, Selling & Marketing Business of Agricultural, Commercial, Industrial Products, Household, Domestic, Automobiles, Farms and Forest products, Food and Beverage products, Beauty and Fashion products, Leather and Leather products, Rubber and Rubbers products, Petroleum and Petroleum products, Engineering products, Plant and Machineries, Equipments, Apparatus and other Gadgets, Appliances, Accessories, Spare Parts, Computer Hardware, Software, all types of Dyes and Chemicals, Minerals, Pharmaceuticals, Wool, Silk, Yarn, Fibres, Garments, Textiles, Paper & paper products, Tea, Timber products, Plastics and plastic products, Footwear, Marble, Granites, Cement and Ceramic Tiles, Pesticides, Glass & Glassware, Tyres and Tubes, Cement, Fertilizers, Iron & Steel, Copper, Gold, Silver, Diamonds, Precious Stones and Jewellery, Ferrous & Non Ferrous Metals, Electronic Toys, Games, Batteries, Button Cells, Telephones & Sim Cards, Gas Lighters, Calculating Machines, Electronic Organizers, Computer Floppy Diskettes, Audio, Video Tapes, Compact Discs, T. V. Software, Film & T. V. Serials, E-commerce, Web based solutions and internet portals or any other merchandise and commodity.
The main provision as per the Legal Agreement shared by M/s Vipush Industries Private L imited (Distributor) and Manufacturer are as follows:
- Sales are limited to the territory specified in the agreement. Distributor is not entitled to distribute the products specified in the application to any other territory without the consent of the Manufacturer.
- Prices indicated by the Manufacturer must include all taxes in the country of manufacturer.
- The amount must be paid in Euros by bank transfer to the bank of the manufacturer, Distributor may determine the method of payment and the sender at its discretion
- Taxes in European countries imposed now or in the future in respect of the transaction provided for in this contract shall be imposed on the manufacturer
- At the request of the Distributor and at his expense, the Manufacturer organizes product training for the Distributor's agents every 7 months. The volume, content and timing of trainings are determined by the agreement of the parties.
- Distributor may use trademarks, trade names and services of the Manufacturer
- When Distributor reaches the maximum agreed limits of the Goods during the last 12 months and if the Distributor is interested in acquiring increased volumes of the Goods, manufacturer should gradually increase the output of its plant.
- Any disputes under this contract can be considered only in the Swiss Chambers' Arbitration Institution (SCAI).
Our interpretation on Business Model on the basis of this agreement:
The Company is planning to enter into the business of sale of goods of European Brands in India as well as outside India. The company will own the exclusive rights for sale of goods in India as well as outside India.
The company will act as an intermediary thus earns revenues on commission basis, ranging from 3-7% per transaction, from buyer of goods.
Call center based in India
Call center based outside India
Commission Income on purchase outside India and sale in India
The Company, which is only acting as an intermediary, will not be having any warehouse/stock in India and thus goods will directly be shipped to the buyer from the manufacturer, which is based on the Indian territory. The Buyer which will transfer the sale amount to the manufacturer in the currency of manufacturer’s country and the manufacturer will transfer the commission to the intermediary party
The company does not have responsibility to clear the goods from custom in India and custom duty liability is also of buyer
1) Does our business comply with Indian law?
As the company is involved in Marketing services and as per Foreign Exchange Policy by Foreign Exchange Management Act, 1999 (FEMA) such kind of company can do business in India even with 100% foreign shareholding. So in case of Vipush Industries Private Limited the business of marketing and other services comply with FEMA provision.
The Foreign Exchange Management Act, 1999 (FEMA) is an Act of the Parliament of India "to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India".
Secondly, As Memorandum of Association (MOA) is considered as the charter document of the company it also permits marketing activity
Thirdly, Commercial laws in India permits Marketing activity as the main business activity. Commercial/ Business laws are The Companies Act, 2013; Sales of Goods Act, 1930; Indian Contract Act, 1872 (I&II) etc.
Conclusion: This kind of business is permitted in India
2) Does this type of business require any additional certification or licensing
As the company is not going to engage directly in importing the goods. Instead they will appoint Indian entity who will have all this license like Import Export Code (IEC), Food Safety and Standards Authority of India (FSSAI) etc. and their role is just limited to pass the business to Indian vendors who will import directly from the client. So, IEC, GST and FSSAI license is not required
3) Does this type of business require any equipment or storage facilities
As per the Laws mentioned this type of business doesn’t require any equipment or storage facilities.
4) The Company is not an importer, and does not intend to import products, and after s igning the Agreement with the manufacturer, Company gets with exclusive rights to d istribute goods in India. The company will look for a Partner who has an import license, will receive FSSAI and other necessary documents, and will have storage facilities. Can a Company do this?
Yes, the company can enter into this business. As mentioned above such businesses are permitted as per the basic governing laws and does not violate any law in India i.e. Foreign Exchange Management Act, Company Law and Indian Contract Act.
And the commercial offer/Agreement does not contradict the business law in India i.e. Foreign Exchange Management Act, Company Law and Indian Contract Act.
For Signed by:
Name: Vinay Kumar Gupta (CA, CS, CWA)
Membership No. : 092443
Vinay K Gupta and Company