Legal issues involved in an outsourcing process to India

Outsourcing projects to India is fast becoming the vogue for many businesses in western countries, especially due to the success of recent offshore outsourcing ventures for many companies.

However, for those targeting countries such as India with their outsourcing projects, there is often a huge legal minefield to negotiate before, and after, arriving on foreign shores.

Much of this involves the difference in cultural and legal laws in the country, including Indian laws on intellectual property, laws governing international contracts, and Indian courts and their use of international contracts. In particular, the fact that Indian laws are constantly undergoing amendments and updates means that constant supervision of the legal issues involved in the outsourcing process is vital.

Many companies looking to outsource to India could be daunted by the legal challenges involved, especially the concern that contracts either signed with Indian agents or involving Indian law might not be honoured under some circumstances, and therefore need to know the ramifications and process involved with resolving this.

In the case of international contracts, the legal system of each nation becomes ill-equipped to deal with the situation adequately; meaning international law comes into play. India has signed on the World Trade Organisation (WTO) agreement, which affects intellectual property, while private international law governs the use of contracts.

Experts advise the use of a particular law to govern certain contracts, the Proper Law of the Contract, which is held up in court.

However, contract jurisdiction is a bit of a grey area. Companies with outsourcing intentions need also be aware of the fact that, under Indian law, parties are free to outline the terms of their own contract under the Proper Law by which it is to be governed. This means that courts in India can determine which nationality's law will govern the contract, and which court will have jurisdiction.

Of course, the key legal areas involved in outsourcing involve labour, compliance with regulations, taxation, document management, and disaster recovery.

And keeping on top of the legal issues is vital to the success of a firm looking to outsource, according to US lawyers, who point out that a breach of contract is not an easy case to win in India.

One lawyer, W Raymond Felton III, told Law.com: "The court system in India may be fine, but it's expensive to go over there to file a suit." He added that this is generally down to the major unknown areas of outsourcing compliances, and the lack of case studies in the area.

Nevertheless, the success of outsourcing and the money it saves for companies means many corporate businesses are investing more into investigating the legal aspect of offshoring and outsourcing to India, in order to reap the substantial rewards.