An extract from The Art Law Review, 1st Edition

Art transactions

i Private sales and auctions

Several auction houses have conducted online auctions during the coronavirus pandemic.

General considerations when buying art through online auction are the following.

  1. Terms and conditions: auction houses put the terms and conditions applicable to all their online auctions on their websites, and these must be closely scrutinised before taking part in the bidding process.
  2. The role of the auction house: the art house will sell the artwork with an authenticity certificate. The bidder must also conduct a thorough due diligence about the artist and the artwork they intend to buy.
  3. Registration: a bidder must register with the auction house before he or she can bid. Some auction houses ask for a minimum deposit registration along with details of how the payment will be made post auction.
  4. Buyers' premium: auction houses generally charge a buyers' premium to cover their administrative charges. This premium varies between auction houses.
  5. Payment: another important aspect that a bidder must understand is the terms of payment for a successful bid. Once a bid is placed by the bidder, the auction house will either generate the invoice immediately and email it to them, or a representative will contact the bidder by telephone to convey the payment details.
  6. Delivery: the auction house will be liable to take back the artwork if there is any damage during the transportation of the painting.

In terms of legislative considerations, the provisions relating to auctions and sale of goods in India are governed under the Contract Act and the SOGA. E-auctions have been recognised as a valid mode of conducting business in India.

The COPRA defines e-commerce 'as an activity that encourages buying or selling of goods/services including digital products over the digital/electronic network'. An electronic service provider means 'a person who provides technologies/processes to enable a product seller to engage in advertising/selling goods/services to customer and includes online market place'.

Another important piece of legislation that governs online platforms includes the Information Technology Act 2000 (the IT Act). The Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules 2011 ensure that portals and platforms safeguard buyers' personal information, such as passwords and biometric information. These Rules also impose a duty on portals collecting sensitive information to have a consumer privacy policy that is available on their website. Auction houses will have the liability and responsibility to store and record all the information related to their sales and bidders in compliance with the above rules.

Another important piece of legislation that guides art houses in conducting e-auctions and private sales is the Information Technology (Intermediary Guidelines) Rules 2011. The IT Act defines an 'intermediary' in terms of a particular electronic record as 'any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record'. This definition expressly includes online auction sites within its ambit.

ii Art loans

Loaning of antiques and art treasures in India is governed by the Guidelines for Lending Art/Antiquity to Institutions/Museums Abroad and Within the Country, provided by the Ministry of Culture. The Guidelines contain procedures for temporarily loaning art to foreign and national institutions and museums. Art may be loaned to international institutions or museums for three years, which is extendable by two years, on approval of the Inter-Ministerial Committee for Exhibition, headed by the Culture Secretary. Further, art may be sent outside India, for exhibitions, for a maximum of six months, which is extendable by an additional six months. Art may be loaned nationally, to government museums or institutions only. This loan may be long term (for 10 years, extendable by five years) or short term (for one year, further extendable by one year). These loans are extendable only on the approval of the Director General of the ASI or by the institution loaning the artwork. There is also a cooling-off period of three years between works being loaned to museums and institutions abroad.

Private collectors loan works to art museums in India. This is undertaken by parties through an agreement or contract.

iii Cross-border transactions

India is party to almost all major international treaties, including the 1970 UNESCO Convention, the Convention for the Protection of Cultural Property in the Event of Armed Conflict with Regulations for the Execution of the Convention, the Protocol to the Convention for the Protection of Cultural Property in the Event of Armed Conflict, the Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property, the Convention concerning the Protection of the World Cultural and Natural Heritage and the Convention for the Safeguarding of the Intangible Cultural Heritage.

Export–import licensing

Under the Foreign Trade (Development and Regulation) Act 1992, a person can only export or import a property if they are granted the export–import code number by the Director General, or the officer authorised by such Director General. Contravention of these export–import licensing provisions will attract penalties under both the Antiquities Act and the Customs Act 1962.

Choice of law

The number of cases related to the choice of law in India is particularly low. However, according to the rules of the Court of Arbitration for Art, the laws of the jurisdiction of the principal location of the seller will be applicable as substantial law or, if the dispute does not involve sale, the jurisdiction pertaining to the place where the dispute arises will apply. If such laws are applicable for cross-border disputes, the decree or award passed thereof will be executable in India.

Special regulations for cultural property

The laws governing transactions and movement of cultural property in India are the Antiquities Act and the Antiquities and Art Treasures Rules 1973, falling within the purview of the ASI and the Ministry of Culture.

Tax considerations for art acquired internationally

Taxation in India is governed under the goods and services tax (GST), which became applicable in 2018. According to the GST Act, goods classified as 'paintings, decoratives & sculptures', which include 'hand paintings drawings and pastels (including Mysore painting, Rajasthan painting, Tanjore painting, Palm leaf painting, basoli etc)' and 'paintings, drawings and pastels, executed entirely by hand, other than drawings of heading 4906 and other than hand-painted or hand decorated manufactured articles; collages and similar decorative plaques' are taxed at the rate of 12 per cent.

According to the Customs Tariff Act 1975, the customs duty applicable on import of 'paintings, decoratives and sculptures', especially 'paintings, drawings and pastels, executed entirely by hand, other than drawings of heading 4906 and other hand-painted or hand decorated manufactured articles; collages and similar decorative plaques', is 10 per cent per unit (in kilograms).

Further, the customs duty on the import of 'works of art created abroad – by Indian artists and sculptors, whether imported on the return of such artists or sculptors to India or imported by such artists or sculptors subsequent to their return to India', is exempt from customs duty under the Customs Tariff Act.

iv Art finance

There is no art financing in India. Most HNIs and private collectors buy art for the love of art and use private wealth. These collections are made up of a combination of international artists and Indian artists.

Banks and financial institutions do not provide financing for art in India. There have been a few art funds set up in India: the Osian Art Fund was set up in 2010; Kotak Mahindra Bank set up an art fund; and the Yatra Art Fund was set up in 2015. The Securities and Exchange Board of India (SEBI), however, ruled that these had to be wound up and asked the companies to return investor money. Phillip Hoffman in England also set up an Indian fine art fund. SEBI has strictly regulated matters involving funds being set up and the usage of retail investors' money.

The Prevention of Money Laundering Act 2002 (PMLA), which is the principal legislation dealing with the framework of anti-money laundering in India, has the concept of reporting entities (REs). It empowers the government of India to notify any business or profession that is required to maintain certain records. Although individuals dealing with art and art objects are not currently categorised as REs under the PMLA, the possibility cannot be precluded in the future.