On October 31, 2018, the World Bank published its annual study (Ease of) Doing Business 2019. India moved up 23 places in the economic competitiveness ranking and is now ranked 77th (out of 190).

This is indeed considerable news – for foreign investors as well as for the initiators of the large-scale investment “Make in India” – Campaign aimed at making it easier for foreign investors to do business in India through deregulation, reduction of bureaucracy, better land acquisition laws and a uniform tax system. This should pave the way for India to become an attractive business location.

Since the ranking was published, not a day goes by in which the Indian government celebrates itself as a market reformer with PR measures and business events. Please refer Twitter Hashtag EODB, which “India” basically hijacked.

Bureaucratic nightmare using the Director's KYC Update as an example

Most German and foreign directors still had good memories of Narendra Modi's promise to simplify bureaucratic processes when, in the summer of this year, the requirements of a director's KYC update suddenly rolled towards them like a medium-severe, bureaucratic tsunami.

On July 10, 2018, the Ministry of Corporate Affairs (MCA) issued a notification requiring all directors of Indian companies who had received their Directors Identification Number (DIN) on or before March 31, 2018 to register by March 31, 2018 August 3 to submit the DIR-XNUMX KYC form with your relevant data to the MCA. Personal data such as name, mobile phone number and a (private) email address as well as the so-called KYC documents (Know Your Customer) were requested for the purpose of proof of identity and address. In the case of German directors, these refer to a copy of the passport and identity card.

So far so good. However, the requirements did not end there: for German/foreign directors, these documents also had to be notarized and legalized (certified by the regional court). Failure to do so resulted in the DIN being temporarily deactivated and a fine being imposed.

Whichever director, after submitting the required data and documentation, thought he had finally reached the end of this test of patience imposed by the authorities was wrong: when uploading the DIR-3 KYC form to the Ministry of Corporate Affairs, two passwords were automatically generated, of which the director had one received via SMS to the specified mobile phone number, the other in an email to his email address. The validity of these so-called OTPs (One Time Password) was limited to 30 minutes. The passwords had to be sent to the person within this time company secretary be forwarded to someone who entered it into a form - only then was the KYC update successfully completed.

Between demands, glossy studies and reality

So laudable are the overarching objectives of the Indian government Ease of Doing Business (EODB) the daily bureaucratic requirements seem so Kafkaesque (see example above).

Clearing out “fake directors” from the Indian company register was certainly a necessary and sensible measure, but the way it was implemented was unrealistic – at least by international standards.*

Regardless of how well India performs in official ratings, a radical simplification of bureaucratic processes cannot be expected. Therefore, every foreign company should expect actions like the ones mentioned above and not let them throw them off track straight away.

Corporate compliance in focus

Unfortunately, for most companies, corporate compliance is not on the priority list as an annoying compulsory exercise. The most recent Handelsblatt article uses an example to describe how fatal this can end MW India. Instead, corporate compliance should be an absolute top priority and should not be entrusted solely to local management.

From now on, we will report more often on this blog about important compliance requirements, but also provide our readers with instructions and tools to help them fulfill their regulatory and bureaucratic obligations as easily as possible.

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