Aditi Banerjee
Introduction
“Fashion is the part of the daily air and it changes all the time, with all events. You can even see the approaching of a revolution in clothes. You can see and feel everything in clothes.”
—Diana Vreeland[1]
The fashion clothing industry is one of the largest industries in the world with annual global business of trillion dollars.[2] It includes designing and manufacturing to selling and advertising of apparels worldwide. Both high fashion clothing and mass fashion clothing are subsets of the fashion clothing industry. Due to rapid changes in the fashion trends, there is a huge demand for clothes in all parts of the world, among people of all age groups and among all classes of the society. This is the reason for emergence of huge number fashion clothing brands in the market.
Even the Indian Fashion Clothing Industry employs millions of people and does business of billions of dollars every year. Everyday advertisement of a new fashion brand can be seen on the internet. However, carrying out the business of fashion clothing is not as simple as it looks. The fashion clothing brands have to comply with the laws of the land in carrying out their day to day business. This article tries to throw lights on the legal compliances that are required to be followed by fashion clothing brands in India.
Registration
Registration of the brand is the first step towards starting a fashion clothing business. The registration procedure varies on the basis of the type of entity that will be created for carrying out the business. One may choose to create following types of partnership or company for carrying out the business of fashion clothing in India:
- One Person Company: According to Section 2 (62) of the Indian Companies Act, 2013, a One Person Company is a company comprising of a single person as its shareholder. A One Person Company enjoys all the benefits of a private company like limited liability, bank loans, credits, etc.
- Private Limited Company: According to Section 2 (68) of the Indian Companies Act, 2013, a private company is a company having a minimum paid up share capital of one lakh rupees. Private Limited Companies are of two types. First being companies limited by shares, where members have limited liabilities only to the extent of nominal share amount as written in its Memorandum of Association (MoA). Second is company limited by guarantee, where members’ liability is limited to the extent of liability undertaken by them in the MoA.
- Partnership: As per Section 4 of the Indian Partnership Act, 1932, a relation between individuals who have agreed to share the profits of a business carried on by them is known as partnership. The agreement signed between the partners governs the business. The partners have unlimited liability.
- Limited Liability Partnership: The Indian LLP Act, 2008 governs the Limited Liability Partnerships in India. It is a hybrid between a company and a partnership, with limited liability of partners like that in companies and with the flexibility of partnerships.
- MSME: The Ministry of Micro, Small and Medium Enterprises governs and administrates the MSMEs in India. Sections 2 (g), 2 (h) and 2 (m) of the Indian MSME Act, 2006 define medium, micro and small enterprises respectively.
The type of company or partnership needs to be decided on the basis of availability of capital, accounting and compliance requirements, number of members, type of business, availability of funds, etc.
Intellectual Property Laws
Protection of intellectual property is one of the most important aspects of a fashion clothing business. First of all, the brands need to register their trademarks in accordance with the Indian Trademark Act, 1999 for the protection of their trademarks. The brands should also register and protect their apparel designs under the Indian Copyright Act, 1957 and the Indian Design Act, 2000 for protecting them from getting counterfeited or copied. The clothing brands should also comply with the Geographical Indication laws before claiming specific origin and quality of their products.
The brands must make sure that they are not selling plagiarised and copied clothes without procuring license from the rightful owner of the design, as this can make them liable for infringing the IP of other brands and designers. The clothing brands can also earn royalties by assigning and licensing their trademarks by entering into valid trademark assignment and licensing agreements. They can also license or sell the rights of their apparel designs to other brands. Proper due-diligence must be conducted by clothing brands before entering into these IP agreements with other brands or designers in order to make maximum profits and to save themselves from IP disputes.
Labour Laws
India employs millions of workers in its textile and clothing industry.[3] Recently, three new labour codes have been introduced in India, consolidating all the earlier labour legislations. The Indian Industrial Relations Code, 2020 contains provisions related to the condition of workers, layoffs and retrenchments, strikes, trade unions and settlement of industrial disputes. The Indian Code on Social Security, 2020 contains provisions related to workers provident fund, employee insurance, gratuity, maternity benefits, compensation, etc. The Indian Code on Wages, 2019 contains provisions related to minimum wages, bonus and payment of wages. The Fashion Clothing Brands need to strictly comply with the labour legislations of the country.
Environment Laws
In India, there is no sui generis environment law for fashion clothing industry, but industry specific standards are to be followed by the clothing brands as well. Also, the consumers today are aware about climate change and environment degradation, therefore they are shifting towards sustainable fashion products. As per the Indian Environment Protection Act, 1986, all companies must have some sort of a Spill Prevention Control and Countermeasures Plan, and not complying with the act is punishable by both fine and imprisonment.[4] There is Indian Hazardous Wastes (Management and Handling) Rules, 1989 which sets standards for waste handling and management. There are also laws for controlling air and water pollution by industries. The chemicals used in clothing industry is also harmful to the ozone layer, therefore clothing companies also need to comply with the Indian Ozone Depletion Substances (Regulation) Rules, 2000.
Taxation Laws
The Fashion Clothing industry is one of the largest contributors to the Indian economy. Its contributions are about 7% to industry output, 2% to the GDP and 15% to India’s total exports.[5] After the introduction of GST in 2017 in India, sale of apparel above Rs. 1,000 fall in the 12% tax slab, and sale of apparel below Rs. 1,000 fall in the 5% tax slab. An E-way bill is also required for transportation of goods above Rs. 50,000. The clothing brands also need to pay taxes under and comply with the Indian Income Tax Act, 1961.
Consumer Laws
The Fashion Clothing brands also need to comply with the consumer laws of India. Recently, the Consumer Protection E-Commerce Amendment Rules, 2020 was introduced in India, imposing restrictions on flash sales, unfair trade, etc. The fashion clothing e-giants like Myntra and their subsidiary brands need to comply with such rules. The Indian Consumer Protection Act, 2019 had also introduced various provisions in the favour of consumers. The Fashion Clothing brands need to act with great caution when it comes to quality and consumer safety, as non-compliance with consumer laws can land them in great difficulties.
Contracts
There are also various kinds of contracts like employment contracts, licensing agreements, sale-purchase agreements, joint-venture agreements, advertisement contracts, etc. that Fashion Clothing Brands sign in order to carry out their day to day activities. They need to comply with the provisions of the Indian Contract Act, 1872 and the clauses of the contracts they have entered into in order to make sure they do not incur any liability due to breach of any contract.
Conclusion
The Fashion Clothing Brands need to adhere to various kinds of legal compliances in order to prevent themselves from getting caught in the web of lawsuits, and to save themselves from incurring liabilities of paying hefty damages and being subject penalties. Therefore, it is pertinent to hire in-house lawyers or law firms / compliance consultancies to keep a check on the legal compliances and to fulfil the legal requirements of these clothing brands, so that they can smoothly carry on their business without incurring any liability.
[1] Kristi Kellogg, 57 Iconic Fashion Quotes to Dress By, https://www.glamour.com/story/fashion-quotes (last accessed 28 Aug, 2021 at 11: 25 PM).
[2] Volume and Consumption: How Much Does The World Buy?, https://www.commonobjective.co/article/volume-and-consumption-how-much-does-the-world-buy (last accessed 28 Aug, 2021 at 11:50 PM).
[3] Wages and Working Hours in the Textiles, Clothing, Leather and Footwear Industries, INTERNATIONAL LABOUR ORGANIZATION, GDFTCLI/2014.
[4] Karthik T. and Gopalkrishnan D., Impact of Textile in Environmental Issues and Environmental Legislation, https://www.fibre2fashion.com/industry-article/6403/impact-of-textile-in-environmental-issues?download=true (last accessed 29 Aug, 2021 at 1:56 AM).
[5] Surajit Maity, GST on Apparel Industry, https://taxguru.in/goods-and-service-tax/gst-apparel-industry.html (last accessed 29 Aug, 2021 at 1:15 AM).
Author: Aditi Banerjee (Student Editor)
