Companies law breather for GIFT units

Companies setting up shop at India’s first finance special economic zone at Gandhinagar’s international financial services centre may get exemption from some provisions of company law.

Companies setting up shop at the country’s first finance Special Economic Zone at Gandhinagar’s International Financial Services Centre (IFSC) might get exemption from some provisions of company law.

Deemed a ‘foreign jurisdiction’, catering to international markets, companies in the IFSC would not target domestic consumers, said a senior executive from Gujarat International Finance Tec-City (GIFT), which manages the SEZ. “IFSC needs to be treated on a par with other global financial centres. Applying the stringent provisions of the new company law would put it at a disadvantage,” said the executive.

After discussion with the Union finance ministry, the GIFT management has instituted a study of comparative company law provisions in other countries that apply to entities in an international financial centre.

“We are seeking information on why they need an exemption, and the list of exemptions from the Companies Act,” confirmed an official from the ministry. The GIFT management is expected to give the report in the next one month.

Among the exemptions sought is that IFSC-located companies be subjected to minimal regulatory filings. “Companies in IFSC should be treated as a foreign company setting up a branch in India,” said a source close to the matter.

A foreign company setting up a branch in India is required to have minimal fillings such as of annual results, fraud reporting or operational submissions.

The Reserve Bank of India recently allowed banks to set up IFSC Banking Units or IBUs, treated at par with a foreign branch. This will allow them to do everything a multinational bank can do from outside India. Capital markets watchdog Sebi has allowed broking firms to set up office in IFSC to service international clients.

Tax experts say India’s efforts to set up an international finance centre under a federal structure makes it unique, as both the Centre and the state have law-making rights, and the right to impose taxes. “That is not the case with most global finance centres,” says Amit Kumar Sarkar, partner, Grant Thornton India LLP. This also complicates matter for law makers and regulators.

“Company law is a central law. Still, the central government cannot on its own give exemptions without identical concurrence from state governments, given the federal nature of the Indian state,” said Sarkar.

Tax and legal experts said other states are keenly watching how India carves out its first financial SEZ, setting a precedent for others to follow.