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What foreign companies must know when going to courts in India?

Foreign Companies and courts in India
Foreign Companies and courts in India


The Indian Economy is a middle-income developing market economy. [1] By nominal GDP, it is the fifth-largest economy in the world, and by purchasing power parity, it is the third-largest (PPP). India ranked 125th by nominal GDP and 142nd by nominal GDP in terms of per capita income, respectively, according to the International Monetary Fund (IMF) (PPP)[2] In addition to considerable governmental intervention and economic regulation, successive governments promoted protectionist economic policies from the time of independence in 1947 until 1991. The adoption of a comprehensive economic liberalisation in India was prompted by the end of the Cold War and a severe balance of payments crisis in 1991.[3]

Since the beginning of the twenty-first century, annual average GDP growth has ranged around 6% to 7%. India's major economy grew at the world's highest rate between 2013 and 2018, surpassing China.[4] For the majority of recorded history, up to the start of colonisation in the early 19th century, the Indian subcontinent had the greatest economy in the world.[5]

Due to its young population and low dependency ratio, robust savings and investment rates, growing globalisation in India, and integration into the global economy, the long-term economic outlook of the Indian economy remains good.[6] India's GDP is mostly driven by domestic private spending, at around 70%.[7] India's GDP is supported by government expenditure, investments, and exports in addition to private consumption.[8] India has been a member of the World Trade Organization since January 1, 1995.[9] With 500 million workers, India has the world's second-largest labour force.[10]

Judiciary in India and its basic structure.

The Indian Judiciary is a system of courts in the Republic of India that interpret and apply the law. India follows a common law system that was established by the British East India Company and influenced by other colonial powers, Indian princely states, and ancient and mediaeval practices.[11] India has a written constitution that establishes the framework for the separation of powers among the legislature, executive, and judiciary. The Constitution includes both federal and unitary provisions. It establishes the division of legislative and executive powers between the centre and the states, as well as a unified judiciary. The legislative powers of the federal/central and state legislatures are divided as follows:

1. The List of the Union (which comprises 100 entries, which include subjects of national significance such as national defence, taxation, incorporation of companies and banking).

2. The State List (which comprises 61 entries, which include subjects such as agriculture, land, trade and commerce with the state territories).

3. The List of Concurrent Events (which comprises 52 entries, which include subjects such as contracts, bankruptcy and insolvency, trust and trustees, on which both the central and state level legislatures may legislate; however, in case of a conflict, the central law prevails).

Furthermore, the Constitution provides for delegated legislation, which allows the executive to exercise legislative power through ordinances, rules, and regulations. The Constitution also gives the government the authority to establish special tribunals and appellate tribunals in consultation with the judiciary for the administration of specific issues such as tax cases, land cases, consumer cases, environment cases and company cases.

The authority of a court to hear/review a case decided by a tribunal, appellate tribunal or lower court is referred to as appellate jurisdiction. In India, in some cases to the Supreme Court or to both the Supreme court and the High Courts have appellate jurisdiction. They can either overturn or uphold any tribunal or lower court decisions.

Furthermore, the Indian judiciary is hierarchical, with the Supreme Court at the apex and a High Court in each state serving as the highest appellate court. The Supreme Court's decisions are binding on all High Courts and other subordinate courts or any tribunal in the country.

Cost of litigation in India.

Legal expenses include spending on litigation and arbitration, professional fees, regulatory filings, penalties and general stamp duty. Apart from travel and hospitality expenses, which are usually billed to the client. Legal expenses of stock market listed companies were approximately Rs 36,973.75 crore (approximately 452,88,745,322 $USD) in the fiscal year ended March 31, 2021.[12]

Decisions By Courts on Protectionism.

The Judiciary is an Independent Body in its function and identity the courts have not ruled unfavourably against an individual or entity including a foreign company. Further, on subjects of protectionism in Kailash Chand Sharma vs. State of Rajasthan (2002), the Supreme Court of India held that sweeping measures taken by the state on the basis of localism are not sanctioned by the constitutional mandate of equality and are liable to be rejected under the plain terms of Article 16(2) and in light of Article 16(1). (3).

Labour Cases In India.

Labour is included in the Indian Constitution's Concurrent List. As a result, both the Indian Parliament and state legislatures can pass labour laws.

The Ministry of Labour and Employment introduced four bills (or codes) in 2019 to consolidate and regulate wages, labour relations, social security, occupational safety, health, and working conditions:

Industrial Relations Code, 2020 (IRC 2020), Code on Wages 2019 (Wages Code), Code on Social Security, 2020 (SSC 2020).

The IRC Code, Wage Code, and SSC 2020 rules are expected to be notified into law. Existing labour laws continue to apply until the time of notification, as detailed below:

  • The 1947 Industrial Disputes Act. This is India's most important labour legislation, and it establishes a mechanism for collective bargaining and dispute resolution between employers and employees. The statute also includes provisions for unfair labour practices, strikes, lock-outs, lay-offs, retrenchment, transfer of undertakings and closure of businesses.

  • The Trade Unions Act of 1926. This provides for trade union registration and establishes the law governing registered trade unions.

  • Employees' Provident Fund and Other Provisions Act of 1952 (EPF Act). This establishes a contributory social security system for establishments with at least 20 employees. The EPF Act provides benefits to employees whose basic salary is less than USD200 per month or who have an existing provident fund membership based on a previous employment arrangement.

  • The Factories Act of 1948. This statute specifies, among other things, the health, safety, working hours, benefits, overtime, and leave requirements for factories in India.

  • The Employees' State Insurance Act was passed in 1948. This law applies to all factories, industrial and commercial establishments, hotels, restaurants, cinemas, and retail establishments. Employees earning less than USD280 per month qualify for benefits under this statute. The statute provides for benefits in cases of sickness, maternity, and work-related injury, as well as certain other circumstances.

  • The Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act of 2013 was enacted in 2013. This statute aims to protect women from sexual harassment in the workplace and prescribes detailed guidelines for employers and employees on the prevention and redress of sexual harassment complaints

  • The Minimum Wage Act of 1948. The respective state governments are responsible for setting and revising the minimum wage under this statute.

  • The Child Labor (Prohibition and Regulation) Act of 1986 was passed. This statute makes it illegal to employ children under the age of 14 in certain occupations such as automobile workshops, bidi-making (a type of cigarette), carpet weaving, handloom and power loom industries, mines, and domestic work. Furthermore, in light of the Right of Children to Free and Compulsory Education Act 2009, the government amended the statute to prohibit the employment of children under the age of 14 in all occupations except those in which the child assists his or her family after school hours.

Employees from Other Countries

The above-mentioned labour laws apply to all establishments in India. As a result, any establishment incorporated or established in India would be required to comply with the labour laws applicable to such establishment in respect of its employees, regardless of nationality.

Appreciation of evidence by the trial courts

Section 3 of the Indian Evidence Act of 1872 defines evidence as oral statements made by witnesses and documents produced in court.

In civil proceedings, the parties state their cases through pleadings, which are accompanied by the documents relied on by the parties, according to the Code of Civil Procedure, 1908. Following that, both parties file evidence to support their claims.

After the pleadings stage is completed and the Court has framed the issues, the parties move on to the evidence stage, where the witnesses are examined in-chief and cross-examined.

The doctrine of estoppel prevents a person from taking a position that differs from what he previously stated.

Following the conclusion of the evidence stage, the parties present their final arguments, and the court issues its final judgment/decree.

Effective Enforcement of Judgments

A judgment must be pronounced in open court and dated and signed by the judge at the time of pronouncement (Order 20, Rule 1 of Civil Procedure Code ).

Enforceable. In India, all types of commercial judgments are enforceable. Money judgments are one example.

• Summary decisions.

• Ex-parte decisions.

• Judgments by default.

Excluded. There is no specific category of commercial judgments that are not enforceable, as long as the judgement is conclusive (that is, not subject to any appeal/stay).

Foreign judgment.

To be enforceable, a foreign judgement must be conclusive. Section 13 of the Civil Procedure Code specifies the test for conclusiveness.

The Value of Contract Drafting

An easily overlooked, but potentially more important, protective step is to include "choice of law," "choice of venue," and "limitation of liability" provisions in contracts. Contracts specify the obligations of each party. Clarity between the parties and improved understanding of the contract result from this. Conflicts in the workplace are undesirable because they waste resources that could be used to boost productivity.

Additionally, by defining the scope of one's liability, contracts can reduce the risk involved. For instance, a contract may restrict one's liabilities and prevent the sale of their personal belongings to settle debts in the event that a firm is dissolved.


To avoid litigation entirely, foreign businesses should consider including provisions in their contracts mandating International arbitration of disputes related to large investments. Arbitration entails the parties submitting their disagreements to a neutral decision maker who is an expert in the substantive law and has the authority to issue a binding decision. The primary benefit of arbitration is that it allows a business to avoid having a court decide its case. This can be extremely beneficial to any corporate defendant, particularly when a foreign company having large investment stakes is pitted against a local entity.

The Legal Procedure

If everything else fails and a company finds itself in court, it does not have to be the end of the world. The Indian legal system is set up to repeatedly evaluate the merits of the plaintiff's claims.


Although the prospect of expanding to the Indian market can appear daunting, the preceding discussion shows that a few simple steps can significantly reduce the threat and consequences of litigation. Nonetheless, this article is only a summary of what foreign businesses should know about litigation in India. The main point to remember is that "prevention is worth than cure." Given the current state of markets in India and the currently favourable exchange rates, opening or purchasing a business here makes good financial sense.

Disclaimer: The content of this article is intended to provide a general guide to the subject matter only. Specialist advice should be sought about your specific circumstances. Should you have any legal queries you may contact us at Need Legal Assistance.

[1] [2] [3] [4] [5] Maddison, Angus (2007). Contours of the World Economy 1–2030 AD : Essays in Macro-Economic History. Oxford University Press. p. 379. ISBN 978-0-191-64758-1. [6] [7] [8] [9] [10] [11] [12]


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