BPO industry is recognized as a growing industry in India. As more and more
activities come up in this sector, corresponding legal issues are also making
their appearance. One such issue that confronts the industry today is a proper
understanding of the legal ownership of the assets.
BPOs own two kinds of assets namely the Computer Assets and the Human Assets.
The Computer assets include the hardware, software, connectivity etc. Human
assets include the direct employees assigned to a BPO job and indirect
employees who constitute an "Overhead" for the project.
When projects are undertaken by the BPO, price negotiations take place between
the service provider (The BPO) and the Service buyer (Client). Since the
entire BPO concept revolves around "Cost Reduction" for the Service buyer, the
price negotiations are based on how much it would cost the Client to undertake
the given work in his company abroad (Say in London or California) Vs how much
it would cost for a BPO in India (In Bangalore or Chennai etc). It is usual in
this industry for the client to negotiate with an identified BPO a "Transition
Plan" where either his expansion project is shifted to the BPO or the existing
operations are taken over.
In such planned transitions, the two parties share with each other the cost
differentials and agree to share the cost savings between them. For example if
the manpower costs in USA for a given type of workers is say US $ 50 per hour,
while in India it is US $ 15 per hour, the negotiations would perhaps settle
the contract at a price of US $ 30-35 so that the Service provider gets a
price saving of around US $15-20 per hour while the Indian Service provider
gains around US $ 15 to 20 per hour. The Indian service provider will have to
however meet additional costs over and above the manpower costs in terms of
the infrastructure that he has to set up, as well as the indirect employees
(Marketing, Finance, Administration etc). These costs are therefore to be
recovered either separately or absorbed in the profits.
If the BPO is well established and can command its own price for the service
or if the available price differential is thin, the BPO may negotiate with the
service buyer that the estimated cost of the infrastructure should be either
fully or partially boarne by the service buyer. Typically, in such
negotiations, the exact assets required to be deployed would be identified
jointly by the two parties, lists exchanged and approved and finally the
assets are purchased by the BPO and deployed. There may be cases where the
entire cost of the assets may be boarne by the client himself and he may even
identify and source some of the assets. (eg: a specialized software required
for the purpose of execution of the contract).
In such an instance the legal issue that arises is "Who is the owner of the
Asset"?.. Is it the BPO or Is it the Client?
These issues are normally dealt in the "Service Agreement" that the client and
the BPO signs and there is also the industry practice.
Typically, the assets are owned by the BPO. Though the Client has participated
in the purchase process and financed it, he is at best in the shoes of a
"Financier" and not that of an owner. In the example given above, the contract
may specifiy that the client will pay US $ 15 per hour for the manpower
(The number..how many dedicated workers to be deployed may also be
specified) but will pay US $ 100,000 upfront towards cost of the computer
assets to be deployed. In this case even if the payment of US $ 100000 exactly
match the invoice value of the assets, the assets cannot be considered as
owned by the Client. It is the BPO which shows the assets in its balance
sheet, it is the BPO which claims the "Depreciation" etc.
Similarly even in the case of the dedicated employees, it is the BPO which
pays salary (in rupees, obviously at a rate lesser than the US $ 15 or 20 per
hour which the BPO charges the Client). The employees therefore are also
not considered the employees of the Client but are considered the employees of
the BPO.
In a recent case of Cyber Crime in BPO, the Client has claimed ownership
on the assets because he has met its cost. He therefore claimed his access to
information as "Not an offence under Section 66" and claimed right of access
to information residing inside these assets.
Unless the service agreement made specific mention of such rights, going by
the normal BPO concept, any claim by a client that he is the owner of the
assets of the BPO is untenable. Even if he is able to prove that the assets
are owned by him, it does not give him the right to access the information
residing inside the computer. We often come across such debates in the
employer-employee relations and privacy of the mails of the employees.
(Readers may kindly read the earlier article ("Hacking"
..In India, It's Different..Let is Retain it) where we have analysed
section 66 and given our inference that "Section 66 offence is recognized,
when wrongful loss has been caused to any person even when the information
resides in a computer otherwise owned by the offender)
If the assets of the BPO are to be treated as the assets of the Client,
then the BPO should be a division of the Client and has to be a part of its
balance sheet. Such BPOs are actually called "Captive BPOs" while those
BPOs who take different clients and work simultaneously with them with
appropriate segregation of data for security considerations are often referred
to as "Third Party BPOs".
In case of Captive BPO s, there will be SOX and other legal and Tax
implications in such a relationship. Under the UK Data Protection Act
also there will be implications on whether the BPO is a "Data Processor" or a
"Data Controller"?. If in any instance we need to decide who owns the assets,
then it is necessary to not only see who has financed the cost of the asset
but also what was the intention of the parties.. was it a "Captive BPO" or a
"Third Party BPO"?
If a proper understanding of these aspects of BPO operations are not
understood by the Lawyers and the Judges, the Courts are likely to be
misguided into coming to wrong conclusions.
It is the responsibility of industry organizations such as NASSCOM to provide
proper guidance to the Police and Judiciary to enable them draw the
right inferences and uphold justice.
Naavi
July 07, 2006
(Comments and suggestions Welcome)
