SUPERIORS CAN BE PULLED UP FOR STAFF'S ILLEGAL ACTIVITIES

Chandu Gopalakrishnan
The Economic Times

Miffed because your firm keeps a tab on your online activities? The company has valid reasons for that. The law holds your boss responsible for your misdeeds and mistakes, even unintentional ones, that cause loss for your firm’s clients. Lawyers call it ‘vicarious liability’.

Employees nabbed for using office networks for illegal activities is not new. But when it is done from office computers, the employer company can face punitive action.

“Section 85 of the Information Technology Act makes the company and its directors and officers in charge of business liable for any cyber crimes committed with the company’s computer resource,” says Na Vijayashankar, a Bangalore-based e-business consultant and cyber law expert.

Vicarious liability is a form of secondary liability (indirect liability) that nails responsibility on the superior also for the acts committed by their subordinates.

Remember the famous baazee.com case? CDs of lewd MMS featuring two students from a Delhi public school were put on the website for auction by an IIT student. The CEO of auction website Avnish Bajaj was summoned and later arrested after it was established that the CDs were sold through the website.

Apart from Section 85, he also had to face charges under Section 67 of the Information Technology Act (transmission of obscene material through electronic media). In this case, Bajaj had neither a role nor any knowledge of the online auction of the CDs done by the IIT student.

The boy had passed on his ware like any personal commodity that was auctioned by several customers of the website. The company failed to detect it, and they had to face legal action. When the cyber crime is committed from within the company premises using its network, the legal liability of the employer becomes greater.

However, as in any section of the law, there are saving clauses. Firstly, the employer should have no knowledge about the crime. Secondly, they should have exercised due diligence.

“In most cases, we can presume that the company was ignorant, thereby satisfying the first clause. But the second clause expects that the company was not ‘negligent’. This is subject to interpretation based on the circumstances of the case,” says Vijayashankar. “In the baazee.com case, the CEO was arrested on the charge of such vicarious liability and we need to see a valid defence from the company of its due diligence,” he adds.

Going by the law, the CEO or director coming under the scanner is a “collateral damage,” says Capt Raghu Raman, CEO of Mahindra Special Services Group, the Mahindra group arm that specialises in corporate information security management and consulting.

“But putting the blame on a company for the trouble caused by misuse of its network is like holding Sunil Mittal responsible for someone using an Airtel mobile connection for terrorism activities. The legal liability over the company depends on how they have prepared themselves,” he adds.

“First, the firm has to define what is acceptable and what is not regarding the usage of office networks and resources. Then they have to prove that they have trained the employees in using the network. Finally, they have to make sure that they carry out regular assessment of employee activities,” he elaborates.

“For instance, a company gives laptops to its employees, and doesn’t want its employees to use pornography in it. First, they have to define what pornography is. Second, they should make the employee aware of the definition and the repercussions they’ll face on violation. Finally, they should check the laptops from time to time. Thereby, they’ll be clear of the blame, because they had done their job.”

Lack of proper audit of employee activities is clearly seen the most in online financial transactions these days, says Vijayashankar. “In a recent fraud case concerning an Indian online share trader, brought to media attention by the Online Investors Association, a manager had committed a misappropriation and the security mechanism set up by the company failed to spot and prevent it, which went on for a long time,” he adds. “There was perhaps lack of branch inspection and information security, which can be held as ‘lack of due diligence’.”

Keeping a tab on employees does not mean that the firm should play big brother, says Capt Raman. “But the firm cannot claim to be ignorant of any misdeed that invites legal liability unless they carry out timely audit,” he says.

With a move to amend the Information Technology Act going on, unconfirmed reports say that many in the IT sector are lobbying to cut the provision of vicarious liability from the Act. When the baazee.com CEO was arrested, the then NASSCOM president Kiran Karnik had vehemently criticised the move. “If it is because of the wording in the IT Act that such a thing can happen, then we surely need to amend the Act,” he had told reporters when asked about the need for an amendment to the Act.

 

FM INCREASES TAX BURDEN ON GAMING INDUSTRY

Ritwik Donde & Jacob Cherian, Mumbai
The Economic Times

Finance minister P Chidambaram raised his weapon, took one aim and shot down the citadel. No, he wasn’t playing a computer game, but just increasing the tax burden on the country’s fledgling gaming industry, which is now worried over increased piracy and lower profit margins.

The four percentage point hike in excise duty on packaged software has not gone down well with the gaming industry. Companies which have lined up new launches are the most-hit, because their costs will go up now, raising a question mark over the success of their products.

For instance, Mumbai-based Trine Studios is on the verge of launching its latest game ‘Streets of Mumbai,’ but CEO Sangam Gupta said this duty on packaged software bugs him.

“The costs will have to be bumped up now and it will be the distributors who are most likely to take the hit as their margins are likely to fall,” he said.

The packaged software companies are now worried that the hike in taxes would affect their future sales apart from boosting the black market in software.

According to Indiagames founder and CEO Vishal Gondal, “The government has failed to understand the biggest problem facing the gaming industry- piracy. The best way to tackle this problem was to make the software cheaper, negating the USP of pirated sales. But what this hike would do is just take the gaming software companies back to square one in their fight against piracy.”

A recent Business Software Alliance report says that India’s software piracy rate stood at 71 percent as at the end of 2007, a one percentage point drop from the previous year.

India’s losses due to piracy were pegged at $1.3 billion.

While box sales could take a hit, the online sales model for games could gain correspondingly, Dhruva Interactive CEO Rajesh Rao said.

Online subscriptions would work as people would rather pay small amounts over a long period, instead of a large amount up front.

The online gaming industry is expected to be nearly $200 million by 2010 according to IAMAI.

As packaged games become more and more expensive, the choice for the gamer is becoming even simpler, said games2win.com founder and CEO Alok Kejriwal.

Moreover, the online games do not attract the 12 percent hike even if they are sold online on demand, as they do not come in packed, so they would still continue to charge service tax on downloads, the excise would not be applicable to the online gaming portals, he added.

As per Nasscom, India’s gaming industry is expected to cross $424 million by 2010, representing a compounded annual growth of 72 percent over 2006-2010.

 

INDIAN IT INDUSTRY DISSATISFIED WITH BUDGET

New Delhi
The Economic Times

The Indian IT and ITeS industry across all sectors on Friday felt let down by the national budget for 2008-09, finding little in it to boost growth prospects.

The National Association of Software and Services Companies (Nasscom), the leading IT industry lobby, indicated extreme disappoint as Finance Minister P. Chidambaram did not comment on extending the Software Technology Parks of India (STPI) scheme.

The scheme, offering tax sops for the industry, expires March 31, 2009.

"This (STPI scheme) is extremely critical for small enterprises and the BPO industry, as well as for expansion in tier 2 and tier 3 cities as they are unable to avail the benefits of the SEZ (special economic zone) scheme," said Nasscom.

Business Process Industry Association of India (BPIAI) president Sam Chopra said: "Extension of tax holidays for STPI units for 20 more years would have helped the fast growing domestic business process industry segment."

"From IT and telecom industry point of view, apart from few small indirect positives, it was a lacklustre budget," said Sourabh Kaushal, industry manager (South Asia and Middle East), Frost & Sullivan, a global consulting firm.

"We expected the finance minister to extend the STPI scheme and also to rationalise the fees, taxes and duties applicable on the telecom sector, but this was not even touched upon by the minister in his budget," Kaushal said.

The finance minister also proposed to increase the excise duty on packaged software from 8 percent to 12 percent to bring it on a par with customised software that will attract a service tax of 12 percent.

"The contribution of the IT industry to the buoyant Indian economy did not deserve excise enhancement on packaged software and imposition of service tax on custom software," added Kapil Dev Singh, country manager of IT intelligence and advisory firm IDC India.

Agreed Nasscom, which said: "The imposition of service tax of 12 percent on customised software and higher excise duty on packaged software could lead to increased cost of IT and could slow down the IT usage in the domestic sector. This impacts in particular, small and medium enterprises who have just started deploying IT."

"The budget is not delightful for the Indian BPO industries. While we say that the Indian domestic BPO segment will contribute $30 billion export opportunity by 2010 at a growth of 52 percent, we now need to re-look and reconsider it," said Chopra of BPIAI.

Cisco president and country manger (India and SAARC) Naresh Wadhwa said: "On the taxation front, the reduced tax burden will be a relief to individual tax players. It would have been a boon for the Indian industry had the same been applied to corporate taxes."

"I believe that there was a need to address some of the issues, especially in the context of the rupee appreciation," said Ravi Pandit, chairman and group CEO of KPIT Cummins.

 

EOUS PROTEST HIKE IN DTA SALES DUTY

New Delhi, March 03, 2008
The Economic Times

The Union Budget has dealt yet another blow to 100% export-orient units (EOUs).

Not only is the Budget silent on the issue of removing the sunset clause on the tax sops given to EOUs, which kicks in next year, it has doubled the Customs duty on sale of goods from EOUs to domestic tariff area (DTA) from 25% to 50% in addition to the 100% additional Customs duties paid on such sales.

According to export promotion council for EOUs and SEZ Units (EPCES) chairman T Vasu, non-resolution of the issue of removal of the sunset clause under Section 10B of the Income Tax Act was disappointing.

The V Krishnamurthy committee report’s suggestion that it should be at least extended for one year was not followed.

“If the sunset clause is not removed, no exporter will like to operate under EOU scheme,” Vasu said, adding that the scheme, which has given a big boost to manufacturing activities, would collapse.

EOU exporters are also disappointed that while exports from the sector have also been affected adversely due to the rupee appreciation, the package announced to exporters on this account had not been extended to EOUs.

They feel that EOUs, which have exhausted their tax concessions, were as vulnerable as other exporters and thus there was no reason to exclude them from the package.

The doubling of Customs duty on sale of goods from EOU to DTA, which comes close on the heels of imposition of a minimum alternate tax of 12.5% in the last Budget, has also upset EOUs.

“There was no need for the hike as EOUs were in any case paying additional 100% duty, which is equivalent to full central excise duty. Moreover, the MAT introduced last year has also not been removed,” Vasu said.

 

SOPS TO STPI, EOUS NOT LIKELY TO BE EXTENDED

New Delhi, March 03, 2008
Business Standard

Even as Finance Minister P Chidambaram said that a final decision on expiry of tax benefits to export-oriented units (EoUs) and Software Technology Parks of India (STPIs) had not been taken yet, government sources indicated that an extension of the concessions was unlikely.

Finance Minister P Chidambaram said: “We have up to March 31, 2009, to take a view on that.”

An analysis of a sample set of 328,061 companies, contained in the revenue-foregone statement, shows that major tax expenditure on STPIs and EoUs in 2007-08 increased by 30.24 percent and 30.25 percent, respectively.

STPIs and EoUs enjoy direct-tax exemptions under Sections 10A and 10B of the Income Tax Act, 1961, which are set to expire on March 31, 2009. There are more than 8,000 STPI-registered units and 2,300 EoU units spread across the country.

Finance ministry officials added that companies should not have put up units in STPI and EoUs, knowing that the provisions were set to end by March 31, 2009. “Small players knew that the tax exemption was ending. If they knew that, why did they set up units,” an official said, adding that while there was enough time till March 2009 to take a final decision, “how long can one keep feeding milk to children”.

A high-power committee, headed by National Manufacturing Competitiveness Council (NMCC) Chairman V Krishnamurthy, had recommended to the finance ministry to extend the expiry of tax benefits for EoUs by another year.

Moreover, a finance ministry-sponsored study, conducted by economic think-tank Indian Council of Research in International Economic Relations (Icrier), has also recommended extension of the tax sops for STPIs and EoUs.

In Budget 2008-09, fiscal benefits to EoUs were further tightened by making sale of goods to domestic tariff area more costlier. This was done by increasing basic Customs duty payable by EoUs for sale of goods to DTAs from 25 percent to 50 percent. This would further squeeze profits of EoUs, on which minimum alternative tax (MAT) was imposed in last year’s Budget.

The sample data showed that revenue forgone by STPIs under survey was Rs 11,880 crore, which was 20.25 percent of the total figure of Rs 58,655 crore.

For the EoUs which were surveyed, the revenue forgone figure for 2007-08 stood at Rs 3,978 crore, which is nearly 6 percent of the total revenue forgone of the total sample size.

 

BOSS, IT'S TIME FOR SOME TRAINING

Swati Anand, Bangalore
The Times of India

Training and mentoring are no longer terms restricted to entry-level employees. CEOs and top-level management too are being trained and assigned personal coaches and mentors to help them cope with the pressures of their challenging positions.

"With immense talent crunch in the market today, people are being poached from across verticals. People jump from diverse backgrounds, like petrochemicals to retail. So a certain amount of training becomes essential for the person being hired to have an overview of not just the company, but the entire sector," says J K Agrawal, head of BTI Consultants, the executive hiring arm of Kelly Services.

Internationally, companies have always placed emphasis on top-level training, but in India this is a recent phenomenon.

"CEO/CXO level training and coaching will become huge in the coming years. People are welcoming such initiatives since it gives them an objective view of their performance and helps them grow," says Ranjan Acharya, senior VP, corporate HRD, Wipro. "After all, it gets pretty lonely at the top."

Training at this level, however, is different from entry level programmes, where the period can extend to even three months. A new leader doesn't have the luxury of time.

"The initial training is conducted over a few days in the head office with other top management executives, which is usually abroad, particularly in case of an MNC. The emphasis here is more to acquaint the new candidate to the culture of the company," says Priya Chetty-Rajagopal, VP, Stanton Chase International.

After this stage, firms tailor their mentoring programme to the candidate's specific needs. Rajagopal gives the example of a pharma firm that assigned a mentor to their sales and marketing head based in Singapore when he took over India operations. "Company's mandate to the mentor was to broaden his horizons from sales and marketing to an overall outlook," she says.

Sometimes, the next level of training is not restricted to the head alone, but also includes his immediate team. "A CEO, after all, doesn't work in isolation. It's more holistic to include the immediate team, which could vary from two to twelve people, since the results then percolate across functions and to everyone in the organisation," says G Vishwanath, director, Organisations and Alternatives Consulting.

Some of the key areas of training are soft skills, public speaking, people and image management. Soft skills and people management are the most crucial areas since firms invariably land themselves with heads who're technically sound and have perfect resumes, but find it difficult to juggle various personality types in a team. This leads to poor productivity.

Companies are becoming more proactive in this area. Wipro, for instance, has a strong leadership training and executive coaching programmes in place. Some companies are also asking top-level employees to enrol for programmes at institutes like IIM, which would enable them to take on leadership roles, but such instances are still rare.

 

SIX COS EARN 30 PERCENT OF IT INDUSTRY REVENUES

Mumbai
The Financial Express

The growing IT industry saw over 29.3% of its revenues coming form top six companies Tata Consultancy Services (TCS), Wipro, Infosys Technologies, Satyam Computer Services, HCL Technologies and Tech Mahindra, says Dun and Bradstreet’s study on ‘India’s top IT companies 2008’. The firm has taken into account about 210 companies of which 86 are top listed IT firms that operate in the software development - packaged software, software services, hardware segment or IT services space and have revenue above Rs 10 crore.

This indicates the dominance of the six IT companies in the sector, while only 13.36% was contributed by remaining 44 companies. The report suggests that 60% of the companies surveyed were small size firms and accounted for 4.8% of the total turnover in FY07, and mid size firms that were about 33% and accounted for 20.8% and large size firms contributed 74.4% to the total turnover.

The report reveals that exports continue to contribute around 66% of the total revenue of $47.8 billion in FY07. Notably, services exports from India reached $81.3 billion in FY07, out of which IT & ITeS-BPO contributed over 38.5%. The study revealed that Indian IT companies expect to maintain an average annual growth of 50% in the next two years, further expanding India’s position in global services exports. Going forward, 96% of the surveyed companies displayed interest in growing through the organic or inorganic route. Offering value added services, expanding into new verticals and tapping new geographical locations among others emerged as the most popular paths to growth.

IT support & infrastructure management and IT consulting are expected to be the growing service lines for the next year and BFSI, retail & distribution services proved to be the most promising verticals. The study also focuses on challenges faced by the IT industry. While attrition and rupee appreciation remain bigger issues, competitions from countries like China and Malaysia that have low cost and better infrastructure are being seen as a major challenge for Indian IT companies.