Introduction
Industrial Licence is an important regulatory approval which allows an entity to commence the manufacturing of products falling within the ambit of notified industries that require the licence. This framework is primarily governed by Section 11 of the Industries (Development and Regulation) Act, 1951 (“IDRA”) and applicable policies and notifications brought in effect by the central government.
The objective behind the regulatory requirements in the industrial and manufacturing sector is to address national security, environmental concerns, strategic interests and public safety. Industrial licence is a very important aspect of such regulatory requirements.
An industrial licence is required by all the industries that fall within the ambit of the list of industries that require a mandatory industrial licence, the list broadly covers the industries which work in defence and strategic products, hazardous chemicals and other such industries that affect public safety and national security.
Importance of Industrial Licence
Due to policy changes brought in effect following the economic liberalization, now most of the sectors do not require an industrial licence. However, industries involved in sensitive sectors that directly or indirectly affect national security and public safety still require a mandatory industrial licence. Industrial Licence allows the government to monitor the activities of the entities engaged in the sensitive sectors that might affect the national security and public safety, while allowing supervised growth in such sectors.
In addition to the above stated, industrial licence also allows the government to implement broader policy objectives, like balanced regional development, protection of small scale industries, and prevention of monopolies.
Businesses proposing to establish manufacturing operations in India should therefore determine at an early stage whether their activities require an Industrial Licence and identify any additional sector-specific approvals applicable to their operations.
Compliance After Grant of Licence
Industrial licence compliance is a multi-step process, business must ensure compliance even after the licence has been obtained, continuous compliance with the conditions attached with the licence and applicable laws regulating the business’s operational activities is also necessary. Pursuant to the licence the entity must ensure to obtain prior approval in the event of any significant changes to the operations of the business, like changes in the nature of products manufactured, manufacturing capacity, location or other material aspects of the business.
Therefore, it is important for business to ensure continuous compliances of relevant regulations imposed by the government in respect of the activities carried out by the business, because failure of compliances will result in regulatory inquiries and might also lead to revocation of the licence which will significantly affect the operations of the business. For this reason, periodic legal and regulatory reviews can help businesses identify compliance gaps and address them before they develop into more significant regulatory concerns.
Conclusion
Understanding the applicability of industrial licence before commencement of business operation in India is of vital importance, this identification step should be undertaken at the initial legal and regulatory due-diligence stage, i.e. a project specific legal and regulatory assessment to ascertain the requirement of all applicable approval and licences will allow mitigation of risks once the business commences its operations.
All business planning to set up an industry must obtain Industrial licence if applicable along with other mandatory approvals and licences. Early identification will allow the business to understand the requisites of the proposed manufacturing activity, plan operational and commercial details that are consistent with the applicable approvals and prevent any risks and penalties that could have been avoided by an initial due-diligence.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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