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GS Paper: GS3

  • Indian Patent Regime vs. US norms

    The US Trade Representative (USTR) said in a report released last month that India was one of the most challenging major economies as far as IP protection and enforcement is concerned.

    What is the news?

    • US has decided to retain India on its Priority Watch List along with six other countries —Argentina, Chile, China, Indonesia, Russia and Venezuela.

    What is a Patent?

    • A patent is an exclusive set of rights granted for an invention, which may be a product or process that provides a new way of doing something or offers a new technical solution to a problem.

    Indian Patent Regime: A Backgrounder

    • Indian patents are governed by the Indian Patent Act of 1970.
    • India has gradually aligned itself with international regimes pertaining to intellectual property rights.
    • It became a party to the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement following its membership to the World Trade Organisation on January 1, 1995.
    • An interesting point is that the original Indian Patents Act did not grant patent protection to pharmaceutical products to ensure that medicines were available at a low price.
    • Patent protection of pharmaceuticals were re-introduced after the 2005 amendment to comply with TRIPS.

    Various agreements

    • India is also a signatory to several IPR related conventions, including the Berne Convention, which governs copyright.
    • It is signatory to the Budapest Treaty, the Paris Convention for the Protection of Industrial Property, and the Patent Cooperation Treaty (PCT), all of which govern various patent-related matters.

    Issues raised about India

    • Among the issues raised in the report are:
    1. India’s inconsistencies regarding patent protection
    2. Concerns about what can be patented
    3. Waiting time for obtaining patents
    4. Burdensome reporting requirements and
    5. Doubts about data safety
    6. Trademark counterfeiting and secrets
    • India had undertaken an intellectual property review exercise last year, where a Parliamentary Standing Committee examined this subject.

    Contention of the US: Patents Evergreening

    • One of the main points of contention between India and the U.S. has been Article 3(d) of the Indian Patent Act.
    • Section 3 deals with what does not qualify as an invention under the Act, and Section 3(d) in particular excludes the mere discovery of a new form of a known substance.
    • Section 3(d) prevents the mere discovery of any new property or new use for a known substance from being patented as an invention unless it enhances the efficacy of the substance repetitive.
    • This prevents, what is known as “Evergreening” of patents.
    • According to the Committee’s report, Section 3(d) allows for “generic competition by patenting only novel and genuine inventions.”

    TRIPS and the Doha Declaration

    • The Doha Declaration on the TRIPS Agreement and Public Health was adopted on November 14, 2021, by the WTO member states.
    • This declaration recognises the gravity of public health problems affecting developing and least developed nations.
    • It recognises that “intellectual property protection is important for the development of new medicines,” and acknowledges concerns about its effects on prices.
    • It is interpreted and implemented as a right to protect public health and, in particular, to promote access to medicines for all.

    Key provisions of Doha Agreement

    • Compulsory licences can be invoked by a state in public interest, allowing companies apart from the patent owner to produce a patented product without consent.
    • It concluded that India must not compromise on the patentability criteria under Section 3(d).
    • It said that this ensures the growth of generic drug makers and the public’s access to affordable medicines.
    • It indicated that India should resolve its differences with the US regarding the disqualification of incremental inventions through bilateral dialogue.

    Positive steps taken by India

    • The USTR report highlighted some positive steps taken by India in the recent past.
    • India has accession to the World Intellectual Property Organisation (WIPO) Performances and Phonograms Treaty and WIPO Copyright Treaty, collectively known as the WIPO Internet Treaties, in 2018 and the Nice Agreement in 2019.

    Back2Basics: Intellectual Properties

    • IP is protected in law by, for example, patents, copyright and trademarks, which enable people to earn recognition or financial benefit from what they invent or create.
    • By striking the right balance between the interests of innovators and the wider public interest, the IP system aims to foster an environment in which creativity and innovation can flourish.

    Types of IP:

    (1) Copyright

    • Copyright is a legal term used to describe the rights that creators have over their literary and artistic works.
    • Works covered by copyright range from books, music, paintings, sculpture and films, to computer programs, databases, advertisements, maps and technical drawings.

    (2) Patents

    Discussed above

    (3) Trademarks

    • A trademark is a sign capable of distinguishing the goods or services of one enterprise from those of other enterprises.
    • Trademarks date back to ancient times when artisans used to put their signature or “mark” on their products.

    (4) Geographical Indications

    • Geographical indications and appellations of origin are signs used on goods that have a specific geographical origin and possess qualities, a reputation or characteristics that are essentially attributable to that place of origin.
    • Most commonly, a geographical indication includes the name of the place of origin of the goods.

    (5) Trade secrets

    • Trade secrets are IP rights on confidential information which may be sold or licensed.
    • The unauthorized acquisition, use or disclosure of such secret information in a manner contrary to honest commercial practices by others is regarded as an unfair practice and a violation of the trade secret protection.

     

     

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  • What are Fast Radio Bursts (FRB)?

    In a paper published in Nature, astronomers have reported a fast radio burst (FRB) whose characteristics are different from almost all other FRBs previously detected.

    Such news makes us think about alien and extraterrestrial life at the first. Do not get carried away with such thoughts. Its simply a space based phenomena.

    Fast Radio Burst (FRB)

    • FRBs are super intense, millisecond-long bursts of radio waves produced by unidentified sources in the distant cosmos.
    • They were first discovered in 2007 when scientists combed through archival pulsar data.
    • Pulsars refer to spherical, compact objects in the universe, which are about the size of a large city but contain more mass than the sun.
    • They often look like flickering stars but are not stars.

    Why in news?

    • The new study in Nature describes FRB 20190520B, first discovered in 2019.
    • What makes it different is that unlike many other FRBs, it emits frequent, repeating bursts of radio waves.
    • And between bursts, it constantly emits weaker radio waves.
    • FRB 190520B is co-located with a compact, persistent radio source and associated with a dwarf host galaxy of high specific star formation.

     

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  • Rhino reintroduction a hit in Assam Reserves

    The one-horned rhinos of western Assam’s Manas National Park, bordering Bhutan, are expected to have high life expectancy and significant growth in population, the 14th Assam rhino estimation census has revealed.

    Indian Rhino

    • The Indian rhinoceros also called the greater one-horned rhinoceros and great Indian rhinoceros is a rhinoceros native to the Indian subcontinent.
    • It is listed as Vulnerable on the IUCN Red List and Schedule I animal in the Wildlife Protection Act, 1972.
    • It once ranged across the entire northern part of the Indian Subcontinent, along the Indus, Ganges and Brahmaputra River basins, from Pakistan to the Indian-Myanmar border.
    • Poaching for rhinoceros horn became the single most important reason for the decline of the Indian rhino.

    Why in news?

    • The 14th Rhino Population Estimation / Census in Kaziranga National Park counted at least 2613 rhinos including calves, a jump of exactly 200 rhinos since the last census conducted in 2018.
    • Then at least 2413 Rhinos were counted in the national park.

    Threats to Rhinos

    • Ground rhino horn is used in traditional Chinese medicine to cure a range of ailments, from cancer to hangovers, and also as an aphrodisiac.
    • In Vietnam, possessing a rhino horn is considered a status symbol.
    • Due to demand in these countries, poaching pressure on rhinos is ever persistent against which one cannot let the guard down.

    Various protection moves

    • A rhino reintroduction programme under the Indian Rhino Vision 2020 was started in 2006.
    • This entailed the translocation of rhinos from Kaziranga National Park and Pobitora Wildlife Sanctuary besides orphans hand-reared at the Centre for Wildlife Rehabilitation and Conservation at Kaziranga.

    Try this PYQ:

    Q. Consider the following statements:

    1. Asiatic lion is naturally found in India only.
    2. Double-humped camel is naturally found in India only.
    3. One-horned rhinoceros is naturally found in India only.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 only

    (c) 1 and 3 only

    (d) 1, 2 and 3

     

    [wpdiscuz-feedback id=”n97ipqb1qb” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

    (Note: Comment feature is not available on the app.)

     

     

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  • Next-Generation Corvettes for Indian Navy

    The Defence Acquisition Council (DAC) has given the Acceptance of Necessity (AoN) for the procurement of next-generation Corvettes for the Indian Navy at an approximate cost of Rs 36,000 crore.

    What is a Corvette?

    • A Corvette is the smallest class of naval ships and it falls below the warship class of a frigate.
    • These are highly agile ships and are categorised as missile boats, anti-submarine ships, coastal patrol crafts and fast attack naval vessels.
    • The word corvette itself is derived from French and Dutch origin.
    • During World War II, the term Corvette was used to describe vessels which had anti-submarine roles assigned to them.
    • Modern Corvettes can go up to 2,000 tons in displacement which helps in keeping them agile.

    What kind of Corvettes does the Indian Navy possess?

    • The Indian Navy at present has the Kamorta Class Corvettes, which are also known as Project 28.
    • These ships have an anti-submarine role and are manufactured at Garden Reach Shipbuilders and Engineers in Kolkata.
    • The four Kamorta Class Corvettes that the Indian Navy possesses are named INS Kamorta, INS Kadmatt, INS Kiltan and INS Kavaratti.
    • The first of these was commissioned in 2014 and the last one in 2020.

    What new capabilities will the new generation Corvettes have?

    • The next-generation Corvettes will be manufactured for various roles like surveillance missions, escort operations, deterrence, surface action group operations, search and attack and coastal defence.
    • It is worth noting that these roles will be in addition to the anti-submarine roles being already performed by the existing Corvettes in the Navy.
    • Corvettes will be constructed based on new in-house design of the Indian Navy using latest technology of ship buildings.
    • They would contribute to further the government’s initiative of Security and Growth for all in the region (SAGAR).

     

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  • Dostarlimab: The New Wonder Cancer Drug

    A trial on 18 colorectal cancer patients in the US found that cancer could be treated without chemotherapy or surgery. The world is sitting up and taking note of Dostarlimab, which has been called a wonder drug.

    What is Dostarlimab?

    • Dostarlimab is an experimental drug. It contains laboratory-produced molecules.
    • It acts as substitute antibodies. It is sold under the brand name Jemperli.
    • It was approved for medical use in the United States and the European Union in 2021.
    • Its side-effects include vomiting, joint pain, itching, rash, fever etc.

    What are the findings?

    • The trial showed that immunotherapy alone – without any chemotherapy, radiotherapy, or surgery that have been staples of cancer treatment.
    • It could completely cure the patients with a particular kind of rectal cancer called ‘mismatch repair deficient’ cancer”.
    • All 12 patients had completed the treatment and were followed for six to 25 months after.
    • No cases of progression or recurrence had been reported during the follow-up.
    • The response too was rapid, with symptoms resolving in 81% of the patients within nine weeks of starting the therapy.

    Is Dostarlimab actually very effective?

    • Dostarlimab is not a new drug but a combination of drugs that are already approved for use in immunotherapy.
    • There is a possibility that Dostarlimab may improve the outcome and survival rate in rectal cancer patients but to say it as a magic drug for cancer is completely going overboard.

    How does this drug cure?

    • PD1 is a protein that regulates immune function and can sometimes keep T cells from killing cancer cells.
    • The therapy in the trial used PD1 blockades, allowing T cells to kill cancer cells.
    • ‘Mismatch repair deficient’ cancer is most common among colorectal, gastrointestinal, and endometrial cancers.
    • Patients suffering from this condition lack the genes to correct typos in the DNA that occur naturally while cells make copies.
    • Immunotherapy belongs to a category called PD1 blockades that are now recommended for the treatment of such cancers rather than chemotherapy or radiotherapy.

    Will Indian patients get access to the drug?

    • At present, Indian doctors seem to be generally wary of prescribing Dostarlimab for their patients.
    • Experts have termed as optimistic the findings of an ongoing trial—a group of rectal cancer patients showed no signs of a tumour after taking the drug for six months.
    • None of the participants reported any severe side-effects either.
    • Yet, doctors say they want to assess the duration of the response.

    What do we know about the clinical trial?

    • Cancer was treated in all the patients and could not be detected by physical examination, endoscopy, positron emission tomography, or magnetic resonance imaging.
    • Thus, there is a thought that cancer can be treated without chemotherapy or surgery.

    Is it too early to celebrate?

    • Cancer specialists said initial signals show how precision medicine is building the future but they need to test more patients from different areas and other types of cancers.
    • The combination of drugs was administered to a small number of patients and for a specific type of cancer.

     

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  • RBI plans to link Credit Cards with UPI

    The RBI has proposed to allow the linking of credit cards with the Unified Payments Interface (UPI).

    Integrating Credit Cards to UPI

    • The integration will first begin with the indigenous RuPay credit cards.
    • Both the RuPay network and UPI are managed by the same organisation – the National Payments Corporation of India (NPCI).

    What is UPI?

    • UPI is an instant real-time payment system developed by National Payments Corporation of India (NPCI) facilitating inter-bank transactions.
    • The interface is regulated by the Reserve Bank of India and works by instantly transferring funds between two bank accounts on a mobile platform.

    Why such move?

    • The linkage of UPI and credit cards could possibly result in credit card usage zooming up in India given UPI’s widespread adoption.
    • The integration also opens up avenues to build credit on UPI through credit cards in India, where in the last few years, a number of startups like Slice, Uni, One etc. have emerged.
    • The move could also be a push to increase adoption by banking on UPI’s large user base.
    • So far, UPI could only be linked to debit cards and bank accounts.
    • This will provide additional convenience to the users and enhance the scope of digital payments.

    What could be the hurdles?

    • There are some regulatory areas that would have to be addressed before the linkage happens.
    • For instance, it is not clear how the Merchant Discount Rate (MDR) will be applied to UPI transactions done through credit cards.
    • UPI and RuPay attract zero-MDR, meaning that no charges are applied to these transactions, which is a key reason behind the prolific adoption of UPI both by users and merchants.
    • The norm has faced pushback from the payments industry.
    • It has argued that it limits the aggregators’ ability to invest in and maintain the financial infrastructure of the payment ecosystem that they have built.
    • Applicability of zero-MDR on UPI could also be a reason why other card networks such as Visa and Mastercard may not have been onboarded to UPI for credit cards yet.

    Note: MDR is a fee that a merchant is charged by their issuing bank for accepting payments from their customers via credit and debit cards.

    What is the big picture?

    • UPI has become the most inclusive mode of payment in India with over 26 crore unique users and five crore merchants on the platform.
    • The progress of UPI in recent years has been unparalleled.
    • Many other countries are engaged with us in adopting similar methods in their countries.
    • In May, UPI processed 5.95 billion transactions worth over Rs 10 trillion, a record high since its launch in 2016.
    • NPCI is looking to soon process a billion transactions a day.

     

    Try this PYQ from CSP 2017:

    Q.Which one of the following best describes the term “Merchant Discount Rate” sometimes seen in news?

     

    (a) The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank

    (b) The amount paid back by banks to their customers when they use debit cards for financial transactions for purchasing goods or services

    (c) The charge to a merchant by a bank for accepting payments from his customers through the bank’s debit cards

    (d) The incentive is given by the Government to merchants for promoting digital payments by their customers through Point of Sale (PoS) machines and debit cards

     

    [wpdiscuz-feedback id=”jap9mp9zh2″ question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

     

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  • Monetary tightening and its impact on growth

    Context

    A rate hike in the monetary policy committee’s June meeting was a foregone conclusion after the spike in inflation and an off-cycle surprise interest rate hike on May 4.

    Reasons fast forwarding of interest rate hike

    • 1] Broad based inflation: A confluence of factors has pushed inflation higher and made it persistent and broad-based. 
    • 2] Policy rates are still negative: Even with this hike, the repo rate, the signalling tool for bank interest rates, is still below pre-pandemic levels.
    • The real policy rate (repo rate less expected inflation) remains negative and has some distance to cover before it reaches positive territory — where the RBI would like to see it.
    • 3] Lag in effect: Monetary policy impacts growth, and thereafter, inflation with a lag.
    • To control inflation, the RBI needed to act faster by front loading rate hikes.
    • 4] Elevated inflation expectations: The risk of inflation expectations getting unmoored had risen.
    • Household and business inflation expectations remain elevated, as indicated by the RBI’s inflation expectations survey of households.
    • 5] Interest rate hike in the US: The aggressive stance of the US Federal Reserve and ensuing tightening financial conditions.
    • India is better placed today than in 2013 to face the Fed’s actions with a stronger forex shield.

    How US Fed’s actions affect India?

    • India is not insulated.
    • Capital outflow: The headwinds now are stronger than in 2013 and we have seen net capital outflows since October 2021.
    • S&P Global expects the US federal funds rate to be hiked to 3-3.25 per cent in 2023, higher than the pre-pandemic level, and highest since early 2008.
    • Despite a strong forex hoard, the RBI has had to deploy monetary policy to mute the impact of the Fed’s actions.

    Inflation and its impact

    • Upward pressure on food inflation: The pressure on food inflation has increased owing to the impact of the freak heatwave on wheat, tomatoes and mangoes, which is driving prices higher.
    • This is on top of rising input costs for agricultural production, the global surge in food prices and the expected sharper than usual rise in minimum support price.
    • Fuel inflation will remain high, duty cuts notwithstanding, as global crude prices remain volatile at elevated levels.
    • Core inflation, the barometer of demand, is a complex story.
    • Goods (despite only partial pass-through of input costs) are witnessing higher inflation than services.
    • That’s because services faced tighter restrictions during the Covid-19 waves, restricting their consumption and the pricing power of providers as well.
    • Service categories that are mostly regulated, such as public transport, railways, water and education, have over 50 per cent weight in core services.
    • However, prices of discretionary services such as airlines, cinema, lodging and other entertainment are rising.
    • Transportation-related services have seen the sharpest rise in the past six months due to fuel price increases.
    • Impact on the poor: For those at the bottom of the pyramid, high inflation hits harder because energy and food are a big chunk of their consumption basket.

    Growth prospects

    • S&P Global has recently cut the growth outlook for major economies for 2022 — that of the US to 2.4 per cent from 3.2 per cent, for Eurozone to 2.7 per cent from 3.3 per cent earlier, and for China to 4.2 per cent from 4.9 per cent.
    • This will hurt exports which are very sensitive to global demand.

    Monetary policy actions

    • Not all aspects of supply-driven inflation can be addressed via monetary policy.
    • So the authorities are complementing monetary policy actions by using the limited fiscal space to cut duties and extend subsidies to the vulnerable.

    Conclusion

    Monetary tightening impacts growth with a lag of at least 3-4 quarters and the fact that real interest rates are negative and borrowing rates still below pre-pandemic levels, implies monetary policy is unlikely to be growth-restrictive for this year.

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  • Challenges in global growth recovery

    Context

    The global economy was well on its path to recovery until the invasion of Ukraine by Russia.

    Uncertainties in global growth prospects

    • Divergent economic recoveries: Economic prospects have worsened since the Ukraine crisis, worsening the divergence between the economic recoveries of advanced economies and those of the developing ones.
    • The prevailing uncertainties in global growth prospects come in the aftermath of frequent disruptions to worldwide supply chains in the last two years.
    • Against this background, two key macroeconomic variables have a persistent effect on growth rebound.
    • 1] Price pressure: There is tenacious price pressure, leading to policy trade-offs especially in developing economies.
    • 2] Capital outflow: There have been capital outflows and a tightening of financial conditions, affecting investment and growth in the medium and long term.

    1] Price pressure

    • Global concern: In some of the advanced economies, inflation has reached its highest level in the last 40 years.
    • The major contributors to high inflation are energy and food prices.
    • A spike in oil and gas prices due to a tight fossil fuel supply and geopolitical uncertainty have led to substantial increases in energy costs worldwide.
    • In developing economies, rising food prices have had cascading effects, culminating in higher overall inflation.
    • This gets intensified if poor weather hits harvests and rising oil prices drive up the cost of producing and transporting fertilizers.
    • In developing economies, higher prices for food impacts different sections of the population differently, depending on the types of food consumed and the share of food expenditure in a household’s consumption basket.
    • Persistent short supply and increases in food and fuel prices could significantly increase the risk of social unrest as the poorer sections are pushed to the edge of heightened deprivation.

    2] Capital outflow

    • Emerging markets suffered their first portfolio outflows in a year in March 2022.
    • The Institute of International Finance (IIF) says “foreign net portfolio outflows for emerging markets came to $9.8 billion in March.
    • Investors have become more selective, as higher risk sensitivity mounts due to tighter monetary conditions and rising inflation.
    • Reasons for capital outflow: Interest rates tightening in the United States is associated with capital flow reversals from emerging markets.
    • Impact on developing economies: For developing economies, the result of sudden large capital outflows is currency depreciation and tighter external sector conditions, leading to growth fluctuations.

    Way forward

    • Monitor the pass-through of international prices: Though the factors contributing to high inflation (global supply shocks) are beyond the control of central banks, they need to carefully monitor the pass-through of rising international prices to domestic inflation to calibrate their responses.
    • Calibrate the pace of policy tightening: The pace of policy tightening needs to be attuned to prevailing economic situations and activity levels.
    • Communicate the importance of inflation targeting: Central banks could also signal a readiness to shift the monetary stance to maintain the credibility of their inflation-targeting frameworks by clearly communicating the importance of inflation stabilisation in their objectives and backing it with policy actions.
    • Foreign exchange interventions: As sudden capital flow reversals can threaten financial stability, foreign exchange interventions could address market imbalances.
    • Fiscal consolidation: There exists an imperative to prune expenditure and get back to the road of fiscal consolidation.
    • However, a push for consolidation should not prevent governments from prioritising spending to protect and help vulnerable populations affected by price increases and the pandemic.
    • Income support policies: In the post-pandemic global economy, there will be a likely cross-sectoral labour reallocation.
    •  These transitions require labour market and income support policies that are designed to provide safety nets for workers without hindering employment growth.

    Conclusion

    The message from the current phase of global growth is clear. Policymakers in the developing economies have to prepare for tighter financial conditions and spillovers from geopolitical volatility.

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  • Understanding SEBI Rules on Passive Funds

    The Securities and Exchange Board of India (SEBI) recently issued a circular on passive funds covering matters related to transparency, liquidity and operational aspects of exchange-traded funds (ETFs) and index funds.

    What are Passive Funds?

    • A passive fund is an investment vehicle that tracks a market index, or a specific market segment, to determine what to invest in.
    • Unlike with an active fund, the fund manager does not decide what securities the fund takes on.
    • This normally makes passive funds cheaper to invest in than active funds, which require the fund manager to spend time researching and analysing opportunities to invest in.
    • Tracker funds, such as ETFs (exchange traded funds) and index funds fall under the banner of passive funds.

    What is a passive ELSS scheme?

    • Passive funds mimic an underlying index. By contrast active funds are actively managed by fund managers.
    • The SEBI has now introduced a passive equity-linked saving schemes (ELSS) category, which will give taxpayers another investment option to avail of tax benefits.
    • According to the circular, the passive ELSS scheme will be based on any index comprising equity shares from the top 250 companies in terms of market capitalization.
    • Beginning 1 July, a fund house will be able to either have an active ELSS scheme or a passive ELSS scheme, but not both.

    What are the norms for debt ETFs?

    • Passive debt funds are now divided into three categories:
    1. Corporate debt funds with exposure to corporate bonds
    2. G-Sec funds investing in government securities, and
    3. Hybrid funds where allocation is a combination of corporate bonds and government securities
    • Currently, debt funds in the passive category invest only in AAA-rated instruments.
    • The Sebi circular introduces norms for each debt fund category, including portfolio exposure limits to each sector, the issuer (based on rating) and group.
    • Application of these provisions should help mitigate concentration risk in debt ETFs/ index funds.

    What about tracking error?

    • As per Sebi’s circular, passive funds must disclose ‘tracking error’ and ‘tracking difference’ in their monthly fact sheets.
    • These metrics indicate how different the performance of the fund is compared to its underlying index—an effort to keep investors better informed.
    • The circular specifies limits for tracking error and tracking difference, which passive funds must follow.

    What is the mandate on disclosing NAVs?

    • Because of poor liquidity for ETFs in the secondary market in India, ETF prices could differ widely from the net asset value (NAV) of the fund.
    • The NAV of the fund represents the value of the underlying asset of the ETF.
    • The Sebi circular mandates disclosure of NAV (indicative) on a continuous basis throughout the day on the stock exchange.
    • While the practice is already in existence, Sebi rules institutionalize it.
    • Checking the NAV can help one avoid making a transaction at a significant premium or discount.

    Can one execute ETF transactions directly?

    • Investors can buy or sell units of ETFs only on stock exchanges.
    • But, large buy or sell transactions can also be directly placed with the fund house.
    • Sebi now says orders greater than ₹25 crore alone can be placed for redemption or subscription directly with the asset management company (AMC).

     

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  • What is a Not-for-Profit Company?

    The Enforcement Directorate (ED) has summoned Rahul Gandhi and Sonia Gandhi following a trial court order in a tax assessment case of his not-for-profit company.

    What is the case?

    • A case alleged cheating and misappropriation of funds on part of the leaders in acquiring the newspaper.
    • The alleged persons acquired it through a Section 25 company — in which they have 86% stake.

    What is a Section 25 company?

    • It is defined under the Companies Act, 1956.
    • It is a not-for-profit charitable company.
    • It is formed with the sole object of promoting commerce, art, science, religion, charity, or any other useful object.
    • It intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of any dividend to its members
    • Section 8 of the Companies Act, 2013 includes other objects such as sports, education, research, social welfare and protection of the environment among others.

    Fiscal activities allowed

    • While it could be a public or a private company, a Section 25 company is prohibited from payment of any dividend to its members.
    • Section 25 states that by its constitution the company is required/ intends to apply its profits, if any, or other income in promoting its objects and is prohibited from paying any dividend to its members.

    What are prominent examples of such companies?

    • According to details available with the Ministry of Corporate Affairs, a large number of companies have been formed under the Section.
    • Among these are Reliance Foundation, Reliance Research Institute, Azim Premji Foundation, Coca Cola India Foundation, and Amazon Academic Foundation.

    Why are such companies formed?

    • Most people looking to form a charitable entity go for forming a company under Section 25, now Section 8, rather than a Trust structure.
    • This is because most foreign donors like to contribute to a company rather than Trust because they are more transparent and provide more disclosures.
    • If a company has to be converted into a not-for-profit company, they can’t be converted into a Trust, however, they can be converted into a Section 25/ Section 8 company.

     

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