Companies Act Compliance for Technology Transfer Agreements

February 21, 2024

Companies Act Compliance for Technology Transfer Agreements

This article is written by Ms. Kashvi Rajvansh, a first-year law student of Faculty of Law, Delhi University, Delhi.

ABSTRACT:

This research paper will talk about the governance of Technology Transfer Agreements in India with reference to the compliances as laid down in Companies Act, 2013. Wem will also understand the meaning of technology transfer agreements as well as the types and governance of each type with a highlight to some cases in the end.

INTRODUCTION:

What is a technology transfer agreement?

It refers to an online or offline legal agreement between two parties which can be either individuals or companies that get together to form a contract, in India, under the rules as laid down by the Indian Contract Act. The transfer is made and decided for technology which mostly takes the case to deal with Intellectual property. This enables partners of the agreement to be able to share expertise and enhance, commercialise or swiftly sell the goods or services involved.

BODY:

Transfer technology agreements are of various kinds, a few of which include:

Licensing Agreements: Licensing agreements are fundamental and important in the role of transferring technology as well as intellectual property. The contracts revolving around these involve the licensor granting the licensee such rights that shall allow the to use, create or sell the agreed technology by providing them owner rights for all these. Such agreements can be exclusive or non-exclusive in terms of the rights provided. The essential elements include license scope, mechanism for settling disputes and confidentiality.

Research and Development Agreements: Research and development agreements makes it easy for the academic organisations, research institutions and private companies to collaborate with each other for research and growth activities. These agreements help in compiling the collaboration provisions, including cost and revenue sharing, publication ownership, ownership of resulting intellectual property, and the agreement’s terms. They further encourage with the expertise, knowledge, and resource sharing to develop future technologies or improve existing ones.

Rules under Companies Act 2013 that govern such private companies are S.7 which talks about incorporation of a company and Chapter 27 as well as Chapter 28 which deal with the dispute mechanisms for companies.

Manufacturing and Distribution Agreements: Manufacturing and distribution agreements focuses on transferring technology to different parties for producing and commercializing a specific product. Technology owners have all the rights to license manufacturing and distribution and give it to another party with the necessary capabilities and resources. Important considerations within these agreements encompass quality control, volume requirements, pricing, intellectual property protection, termination clauses and exclusivity arrangements.

Franchise Agreements: Franchise agreements are a different type of technology transfer contract where the franchisor allows the franchisee to run a business using the franchisor’s specified industry model, trademark, and technology. These agreements summarize the provisions for using intellectual property, obtaining training and support, territorial ownership, financial responsibilities, advertising provisions, and the duration of the franchise. Franchise agreements are efficient for rapid business expansion and market penetration while guaranteeing the brand consistency.

Material Transfer Agreements: These agreements facilitate exchange of tangible materials between organisations for research purposes. Such agreements always specify the rights that can be exercised by the recipients. These are commonly used in scientific collaborations.

Joint Venture Agreements: Joint venture agreements involve the creation of a separate legal entity by numerous individuals to jointly develop, manufacture, market, or distribute a technology or product. These agreements hold the strengths and resources of all participants. Key aspects covered in joint venture agreements includes ownership structure with profit sharing, decision-making processes, and mechanisms involved for resolving disputes. They allow risk-sharing and provide opportunities to access new markets.

As per definition provided under Section 2 of Companies Axt, 2013, A joint venture can said to be a joint arrangement where parties to the arrangement have joint control of the rights. In the case of an unincorporated joint venture, the process of incorporation is not required. The other kind is the incorporated joint venture which requires a company to be used for the purpose of joint venture which is governed by The Companies Act. According to the rules laid down by ICMR, the eligibility of applicants for technology transfer includes companies that include start-up, small, medium or large companies that are incorporated that is to have 51% shares of Company is to be held by Indian citizens. The Technology Transfer in reference to Foreign Entity shall be subject to the approval of such Competent Authority of ICMR.

A few cases highlighting the disputes and clarifications over joint ventures as well as technology transfer agreements are:

Faqir Chand Gulati vs. Uppal Agencies Pvt. Ltd.:

In this case the rules as well as the definitions of Joint Venture was discussed. It was stated how in general such Joint Ventures in terms of incorporation as well as business also are governed by the rules of partnerships. Since Joint Ventures are closely similar to partnerships and their nature of association is also the same, such a decision was guided. For example a joint venture is such like that of a builder and the owner of a land where they are both responsible for certain liabilities but also share profits and divide area of work. In overall they seem to have a joint control over the land with the building. Thus, in such cases The joint venture can said to be governed by partnership act. However in case of a company established from the purpose of joint venture, the rules of Companies Act is what tends to apply in the case.

Filtrex Technologies Pvt. Ltd. Vs. Assessee:

This case deals with the Technology Transfer Agreement between Filtrex International Private Ltd. And Filtrex Holding Pvt. Ltd. The agreement between the parties stated that it was a technology transfer agreement with a non-disclosure clause applicable in case of third parties. The category of technology agreement in this case included the cartridge designs with the three stages as described to retrofit into the containers. The assessee in this case was an Indian Company which had entered into an agreement with Filtrex International for manufacturing and sale of carbon blocks as well as water purifier products. This company was based in Singapore. The scope of this transfer of technology, in particular, was in reference to the three-stage water purification for home. This includes the process of sediment filtration, the process of organic and inorganic removal and the removal of microbiological contaminates. The agreement was initially for a year but then it was extended so the appellant was under the rightful impression that since the technology is obviously available to them due to the technology transfer agreement, they could use the technology and make use of its utilisation on a seemingly permanent basis.

Gamesa Renewable Private Limited vs. DCIT

This case deals with the Technology Transfer Agreement between both the parties and regarding the technology in relation with AE 59 and G 97 models. It was established in the agreement that for acquiring this technology the assessee will pay 4% royalty and 4.5% on annual turnover of Wing Energy Generators. When the Technology Transfer Agreement was examined it was established that assessee was not calculating the royalty at an arm’s length pricing as was decided in the case for the acquiring of the valuable technology. In the above case the assessee had failed to substantiate his own claims that he was paying royalty in the terms of as was establishesd in the agreement.

Biocon Biopharmaceuticals Pvt. Ltd. vs. Income Tax Officer:

This case deals with a story between CIMAB which is a Cuban company and Biocon Biopharmaceuticals Pvt. Ltd. Which is an Indian company established under the Companies Act, 2013. CIMAB was into research, development, manufacturing and marketing of biopharmaceuticals. It had developed a technology for manufacture of such drugs which could help in treating cancer. Technology according to the case refers to:

(a) know-how viz,, information required for scientific, technical and technological evaluation of production of the products;

(b) technical information viz., information, whether patented or acquired by CIMAB relating to manufacture of products on commercial scale; and

Further on Biocon and CIMAB decided to enter into a joint venture agreement to create a joint venture company in India based on The Companies Act, 2013.

The Technology Transfer Agreement in the case was described to be the Technical Know-how for production and entire documentation, the conceptual design required for the product, the project for basic engineering, and the training of selected BIOCON personnel for the manufacturing of the products. It was also established that CIMAB guarantees that the Technology Transferred to BBPL is accurate, complete, updated in all aspects to help BBPL set up the manufacturing unit required. The argument was finally concluded by saying that it cannot be shown that the Technology Transfer was not stock-in-trade of CIMAB.

CONCLUSION:

We have understood what technology transfer agreements mean. Even though such technologies often deal with intellectual properties, however there still are various kinds of such agreements such as joint venture agreements which invite the account of the Companies Act of 2013. Under the act, Joint ventures are governed as well as it provides a mechanism for dispute resolution. We can also observe the difference between joint venture as per company act as well as partnership act. In simple and ground terms, a joint venture can be seen to be very similar with its principles and nature almost same as a partnership and thus it is also governed by partnership act for these very reasons. Through our cases we have also shed a light on how when there is a deal of transfer of technology and an agreement is formed in such a case between two companies, first the rules of the Indian Contract Act and then the compliances under the Companies Act, 2013, are eventually laid down to understand the terms and come up to a solution. Thus, the compliance that Companies Act puts forth on Technology Transfer agreements depends a lot on the kind of technology, the contract over which it was established as well as the kind of company that is dealing with it. A private company, an international company or a joint venture and the rules may even slightly differ according to that as well.

REFERENCES:

Blog on Technology Transfer Agreement- the legal regime in India by ipleaders and the link for the same is

https://blog.ipleaders.in/technology-transfer-agreement-legal-regime-india/

Article on Technology Transfer Agreement by Contract counsel and the link for the same is

https://www.contractscounsel.com/t/us/technology-transfer-agreement

Article on Joint Ventures in India by Lexology and the link for the same is

https://www.lexology.com/library/detail.aspx?g=10c33cd2-a0e6-4ff8-98c6-6b5d99473f0c

Article on understanding technology transfer agreements in India by King Stubb and Kasiva on Advocates and attorneys and the link for the same is

https://ksandk.com/information-technology/technology-transfer-regulations-in-india/

Article on Technology Transfer and Joint Venture by S.S. Rana and Co. and the link for the same is

https://ssrana.in/corporate-laws/commercial-contracts/technology-transfer-joint-venture/

ICMR- Guidelines for Technology Transfer and Revenue Sharing