Comprehensive Compliance for Global Capability Centers: Navigating Telecom, Environmental, Labor, and Data Regulations

Revenue Sharing:

• Legal Basis: The revenue-sharing model for telecom operators is based on the “Unified License Agreement” issued by the Department of Telecommunications (DoT). As per this agreement, licensees are required to share a percentage of their Adjusted Gross Revenue (AGR) with the government. The revenue-sharing mechanism is governed by Section 4 of the Indian Telegraph Act, 1885.
• Scope: The AGR includes revenue from both licensed and unlicensed activities. It is critical for a Global Capability Center (GCC) involved in telecom operations to accurately account for its revenue sources and ensure proper computation of AGR to avoid disputes or penalties.
• Compliance: Licensees must submit regular financial statements to the DoT, including detailed accounts of revenue, deductions, and the corresponding license fees. The percentage of revenue to be shared with the government varies based on the service category (e.g., Access Services, ISP, NLD, ILD) and is specified in the license agreement. Non-compliance may lead to penalties, interest on delayed payments, and, in severe cases, suspension or cancellation of the license.

Compliance with Unified Access Service License (UASL)

• Legal Framework: The Unified Access Service License (UASL) is governed by the Indian Telegraph Act, 1885, and the Indian Wireless Telegraphy Act, 1933. The UASL allows entities to provide both wireline and wireless telecom services within a specific licensed area.
• Scope: If the GCC intends to offer telecom services under the UASL framework, it must adhere to the stringent regulatory conditions set forth in the license. This includes maintaining the requisite net worth, fulfilling service obligations, and ensuring the rollout of services within the specified timeframe.
• Compliance: Network Rollout Obligations:* As per Clause 33 of the UASL, the licensee must meet the minimum network rollout requirements, including coverage of rural and urban areas. The DoT monitors compliance, and failure to meet these obligations can result in financial penalties or license termination.
• Service Continuity and Quality: Clause 34 mandates that the licensee must ensure continuity of service and meet the Quality of Service (QoS) parameters as prescribed by the TRAI. This includes maintaining call drop rates, ensuring adequate bandwidth, and providing customer support.

Environmental and Safety Regulations:

• EMF Radiation Norms: The standards for Electromagnetic Field (EMF) radiation are governed by the “Telecom Regulatory Authority of India (TRAI) Guidelines on EMF Radiation, 2012” and the “DoT Guidelines on EMF Radiation from Mobile Towers, 2013.” If the GCC involves the establishment of telecom towers or other wireless infrastructure, it must comply with the EMF radiation norms to ensure public safety. The radiation levels must not exceed the limits prescribed by the TRAI and the World Health Organization (WHO). The GCC must conduct periodic EMF radiation audits, as specified in the guidelines, and submit compliance reports to the local Telecom Enforcement Resource and Monitoring (TERM) cells. Non-compliance may lead to fines, tower shutdowns, or legal action under Section 13 of the Indian Wireless Telegraphy Act, 1933.

•  E-Waste Management: The disposal of electronic waste (e-waste) is governed by the “E-Waste (Management) Rules, 2016,” issued by the Ministry of Environment, Forest and Climate Change (MoEFCC). Telecom operations within the GCC generate e-waste, including obsolete equipment, batteries, and other electronic components. These must be disposed of in an environmentally responsible manner, following the Extended Producer Responsibility (EPR) framework under the E-Waste Rules. The GCC must establish a formal e-waste management plan, ensuring that all e-waste is handled, recycled, or disposed of by authorized e-waste recyclers. Documentation of e-waste transactions and annual returns must be submitted to the State Pollution Control Board (SPCB) as mandated by the rules. Failure to comply may result in penalties under the Environmental Protection Act, 1986.

Labour and Employment Compliance

•  Labour Laws Applicable to GCC: Labour and employment in India are regulated by several statutes, including the “Factories Act, 1948,” “Shops and Establishments Act” (varies by state), “Employees’ Provident Fund and Miscellaneous Provisions Act, 1952,” “Employees’ State Insurance Act, 1948,” and “The Code on Wages, 2019.” The GCC, being a workplace, must ensure compliance with all applicable labour laws. This includes regulations regarding working hours, overtime, occupational health and safety, employee benefits, and minimum wages.
• Employee Benefits: The GCC must ensure the timely payment of Provident Fund (PF) contributions under the EPF Act and Employee State Insurance (ESI) contributions. Non-compliance may lead to penalties, including interest on unpaid amounts and prosecution. Under the Factories Act and the Occupational Safety, Health and Working Conditions Code, 2020, the GCC must provide a safe working environment, including fire safety, ergonomics, and regular health check-ups. The GCC must adhere to the working hours, leave policies, and wage payment regulations as stipulated under the Shops and Establishments Act applicable to the state where the GCC is located. Annual returns and records of attendance and wages must be maintained and submitted to the local Labour Commissioner.

Data Privacy and Cybersecurity Compliance

• Data Privacy Regulations: Data privacy is primarily governed by the “Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011” under Section 43A of the IT Act, 2000. Additionally, the upcoming “Digital Personal Data Protection Act, 2023” will play a critical role in shaping data privacy norms. The GCC must implement robust data privacy measures to protect sensitive personal data (SPD) and personally identifiable information (PII) handled during its operations. The GCC must appoint a Data Protection Officer responsible for ensuring compliance with the IT Rules and the forthcoming Data Protection Act.
• Cybersecurity Framework: The cybersecurity framework is governed by the “Information Technology (The Indian Computer Emergency Response Team and Manner of Performing Functions and Duties) Rules, 2013” and the “National Cyber Security Policy, 2013.” The GCC must ensure that its IT infrastructure complies with national cybersecurity standards, including those set by the National Critical Information Infrastructure Protection Centre (NCIIPC) if it qualifies as a Critical Information Infrastructure (CII)
• Cybersecurity Audits: Regular cybersecurity audits must be conducted to identify vulnerabilities and ensure adherence to CERT-In guidelines. The findings of these audits must be documented and made available to the DoT or other relevant authorities upon request.

Taxation and Financial Compliance

• Taxation in India is governed by the “Income Tax Act, 1961,” and the “Goods and Services Tax Act, 2017” (GST Act). The GCC, as a corporate entity, must comply with all applicable tax regulations, including corporate income tax, GST, withholding tax (TDS), and transfer pricing regulations for transactions with related entities.
• Corporate Tax: The GCC must file annual income tax returns and pay corporate tax at the applicable rate. Transfer pricing documentation is essential for transactions with foreign affiliates to ensure compliance with Section 92 of the Income Tax Act. The GCC must register for GST and comply with monthly/quarterly returns, invoicing, and input tax credit (ITC) regulations. Failure to comply with GST provisions may result in penalties and interest on unpaid tax under Sections 73 and 74 of the GST Act.

Foreign Exchange Management Act (FEMA) Compliance:

• The operations of a GCC involving foreign investments, cross-border transactions, or payments in foreign currency are governed by the “Foreign Exchange Management Act, 1999” (FEMA) and its accompanying regulations.
• FEMA applies to all transactions related to foreign exchange, including inbound and outbound investments, external commercial borrowings (ECBs), and remittances. Compliance is necessary to avoid penalties and legal action.
• Compliance: The GCC must ensure that all FDI is in line with the “Consolidated FDI Policy Circular” issued by the Department for Promotion of Industry and Internal Trade (DPIIT). The GCC must submit reports on foreign investments, including the Foreign Currency-Gross Provisional Return (FC-GPR) and the Annual Return on Foreign Liabilities and Assets (FLA), to the RBI. If the GCC raises funds through ECBs, it must comply with the ECB guidelines issued by the RBI, which include restrictions on end-use, minimum average maturity, and reporting requirements.

Intellectual Property (IP) Compliance:

• Intellectual Property Rights (IPR) in India are governed by various statutes, including the “Trade Marks Act, 1999,” “Patents Act, 1970,” “Copyright Act, 1957,” and the “Designs Act, 2000.” The GCC must protect its IP assets, including trademarks, patents, copyrights, and designs, to avoid infringement and ensure legal enforceability.
• Compliance:  The GCC should register its brand names, logos, and slogans under the Trade Marks Act to protect them from unauthorized use.
• Patent Filing and Management: If the GCC engages in R&D, it must ensure that innovations are patented under the Patents Act. This includes filing patent applications, maintaining patent portfolios, and monitoring for potential infringements.
• Copyright and Design Protection: Any software, creative content, or unique design used by the GCC should be protected under the Copyright Act or Designs Act. This ensures exclusive rights and prevents unauthorized use or reproduction.
• IP Enforcement and Litigation: The GCC must be prepared to enforce its IP rights through legal proceedings if necessary. This includes monitoring the market for infringements and taking prompt legal action under relevant statutes.

Anti-Money Laundering (AML) Compliance:

• AML compliance is governed by the “Prevention of Money Laundering Act, 2002” (PMLA) and the rules and regulations issued by the Financial Intelligence Unit-India (FIU-IND). The GCC, especially if involved in financial services, must implement measures to prevent money laundering and terrorist financing activities.
• Compliance: The GCC must implement robust KYC procedures as per the guidelines issued under the PMLA. This includes verifying the identity of clients, maintaining KYC records, and conducting periodic updates. The GCC must monitor transactions for suspicious activities and report any such transactions to the FIU-IND within the stipulated timeframe.
• AML Training and Awareness: The GCC must ensure that its employees are trained in AML procedures, including the detection and reporting of suspicious activities. Regular audits of AML processes should be conducted to ensure compliance.
• Record-Keeping Requirements: The GCC must maintain records of all transactions, including KYC documents and STRs, for a minimum period as prescribed by the PMLA. These records should be made available to regulatory authorities during inspections or investigations.

Corporate Social Responsibility (CSR) Compliance

• CSR activities are mandated by Section 135 of the “Companies Act, 2013,” along with the “Companies (Corporate Social Responsibility Policy) Rules, 2014.” If the GCC meets the specified criteria (net worth, turnover, or net profit), it is required to spend at least 2% of its average net profits on CSR activities.
• Compliance: The GCC must constitute a CSR Committee and formulate a CSR policy outlining its focus areas, budget, and implementation strategy. The policy must be approved by the Board and disclosed in the company’s annual report.
• Implementation and Reporting: The GCC must ensure that the allocated CSR funds are spent on activities listed under Schedule VII of the Companies Act. The implementation of CSR projects can be done directly or through registered trusts, societies, or companies. An annual report on CSR activities, including the amount spent and the impact assessment, must be included in the Board’s report.
• Unspent CSR Amount: Any unspent CSR amount must be transferred to a fund specified under Schedule VII or to an escrow account for ongoing projects, as per the timelines and conditions mentioned in the Companies Act.

Competition Law Compliance:

• The “Competition Act, 2002,” enforced by the Competition Commission of India (CCI), governs competition law in India. The GCC must ensure that its business practices do not violate competition law provisions related to anti-competitive agreements, abuse of dominance, and mergers and acquisitions.
• Compliance: The GCC must avoid entering into agreements that could be considered anti-competitive under Sections 3 and 4 of the Competition Act. This includes cartels, price-fixing, and exclusive supply or distribution agreements. If the GCC holds a dominant position in any market, it must ensure that its business practices do not constitute an abuse of dominance, such as predatory pricing, refusal to deal, or unfair trade practices, as outlined in Section 4 of the Act.

Corporate Governance and Board Compliance:

• Corporate governance in India is governed by the “Companies Act, 2013,” the “Securities and Exchange Board of India (SEBI) (Listing Obligations and Disclosure Requirements) Regulations, 2015” (LODR Regulations), and various other regulations. The GCC must ensure that its corporate governance practices align with the best practices prescribed under the Companies Act and SEBI regulations, particularly if it is a publicly listed company.
• Compliance: The GCC must ensure that its Board of Directors includes a mix of executive, non-executive, and independent directors as mandated by Section 149 of the Companies Act and Regulation 17 of the LODR Regulations. Independent directors must meet the criteria of independence and be appointed through a transparent process. The GCC must establish and maintain an Audit Committee and a Nomination & Remuneration Committee as per Sections 177 and 178 of the Companies Act and the corresponding SEBI regulations. These committees are responsible for overseeing financial reporting, internal controls, and the selection and remuneration of key managerial personnel.
• Corporate Governance Report: If the GCC is a listed entity, it must prepare and submit a corporate governance report to the stock exchanges as per the LODR Regulations. This report should include details on board composition, committee meetings, compliance with governance norms, and any material non-compliance with the regulatory framework.
• Related Party Transactions (RPTs): The GCC must ensure that all related party transactions are conducted at arm’s length and are approved by the Audit Committee and the Board as per Section 188 of the Companies Act and Regulation 23 of the LODR Regulations. RPTs must be disclosed in the company’s annual report.

Customs and Import/Export Compliance:

• The import and export of goods in India are governed by the “Customs Act, 1962,” the “Foreign Trade (Development & Regulation) Act, 1992” (FTDR Act), and the “Special Economic Zones Act, 2005” (if applicable). If the GCC is involved in importing or exporting goods, it must comply with the customs and trade regulations, including duty payments, documentation, and licensing requirements.
• Compliance: The GCC must ensure that all imports are accurately declared, and the correct customs duty is paid as per the Customs Tariff Act, 1975. The customs value must reflect the transaction value, and any misdeclaration can lead to penalties under Sections 111 and 112 of the Customs Act.
• Import/Export Licensing: Certain goods require an import/export license under the FTDR Act. The GCC must obtain the necessary licenses or authorizations from the Directorate General of Foreign Trade (DGFT) before proceeding with the import or export of such goods.
• Special Economic Zones (SEZ) Compliance: If the GCC is located in an SEZ, it must comply with the SEZ Act and Rules, which govern various aspects of operations within an SEZ, including the import/export of goods, exemptions from customs duties, and compliance with SEZ-specific regulations.
• Documentation and Record-Keeping: The GCC must maintain proper documentation for all import/export transactions, including invoices, shipping bills, bills of entry, and certificates of origin. These records must be preserved for the period stipulated under the Customs Act and be readily available for audit or inspection by customs authorities.
• Export Promotion Schemes: If the GCC avails of any export promotion schemes such as the Duty Drawback Scheme, Export Promotion Capital Goods (EPCG) Scheme, or the Merchandise Exports from India Scheme (MEIS), it must ensure compliance with the relevant guidelines and fulfill all export obligations within the specified timelines.

Read more: Navigating Compliance Challenges: A Roadmap for GCCs in Regulatory Frameworks

Contributed by – Sambhram Shetty

King Stubb & Kasiva,
Advocates & Attorneys

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