Thursday, 3 March 2011

Can scientists in India start/own companies?

Earlier they couldn't. Now they can.

Let's get a little bit of background on this issue, before coming to the current status. (If you are not a big fan of knowing the nitty-gritty of government rules and procedures, please skip to the last part of the post.) Majority of the research organizations and academic-research institutes (like IITs, IISc, etc.) are government funded organizations - what that means is, they derive majority (if not the whole) of their funding from the government through various ministries (like HRD, S&T etc.). They are not in the strictest of sense, government organizations. Majority of them are structured as autonomous bodies. For example, CSIR, which has a network of 38 labs around the country is registered as a society. But, all these organizations, have decided that their employees will be governed by the government rules and regulations - i.e., The Central Civil Services (Conduct) Rules, 1964.

So, if scientists who are part of these organizations, want to start a company, they would have to follow the CCS rules mentioned above. Let's see what the CCS rules says about govt. employees (scientists) participating in private companies. The CCS rules (1964) 15 (1e) specifies:

"... no Government servant shall, except with the previous sanction of the Government...take part except in the discharge of his official duties, in the registration, promotion or management of any bank or other company registered or required to be registered, under the Companies Act, 1956 (1 of 1956) or any other law for the time being in force, or of any co-operative society for commercial purposes"

So, this rule clearly states that scientists could have nothing to do with private companies. But, that is where some nuances start playing a role. The rule states scientists cannot be part of the management of companies - does that mean they can't be part of the board of the directors of private firms. Actually, they can. They just have to get the sanction/approval (as needed by the rule) of the governing bodies of their respective organizations.

But can they start companies? Not until recently. Scientists who wanted to start technology companies have done so by proxy, not through their own name. That changed in 2009. In early 2009, the government issued a notification that allows scientists working in publicly funded organizations to hold equity stakes in technology/scientific companies and spinoffs. This would enable a scientist who is interested in commercializing his/her technology to work towards spinning off the venture and promote such a company.

What roles can scientists play in these companies? Well, that is where the conflict-of-interest rules will have to come in. There are certain roles that the scientist could possibly play without being involved in the day-to-day operations of the company (like being part of the board of directors, or serving as a technology mentor etc.), without raising conflict of interest issues. Certain other roles like being part of the operating team while at the same time holding a full-time position in the research organization will raise conflict of interest alarm bells - and hence should be avoided.

Through the same notification, the government has allowed research institutes to hold equity positions in private firms. The equity positions could be held in lieu of the technology transferred by the institute to the company. Even though the government has specified that it can be done, has not given the mechanism through which it can be done. So, it will take a bit of time for these policies to evolve and be operationalized. This notification has opened lot of doors. One has to wait and watch if people start walking through the doorways, to new destinations.

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