Welcome to our updates from the world of corporate law and regulation. The year has started with the government focusing on boosting the country’s GDP. Digital India programme and the infrastructure are expected to play key roles in achieving the GDP target of USD 5 trillion by 2026. During the next five years, the government expects around Rs. 100 lakh crore to be invested in the infrastructure sector, generating jobs and improving ease of living.
Towards the end of 2019, the Union Cabinet had also approved the National Highway Authority of India’s proposal to set up an Infrastructure Investment Trust to monetize National Highway projects. The Reserve Bank of India (“RBI”) has also permitted the use of all non-bank prepaid instruments, cards and unified payments interface, without any pre-transaction notification, to enhance the National Electronic Toll Collection system.
The RBI has doubled the cap on foreign portfolio investments in debt, from Rs. 75,000 crores to Rs. 1,50,000 crores, through ‘Voluntary Retention Route’, opening doors for big ticket investments. Under the general route, debt instruments issued by asset reconstruction companies or under corporate insolvency resolution process are further exempted from the foreign portfolio investment limits imposed under the RBI directions. Promoting the Digital India programme, the RBI has amended Know Your Customer directions and permitted banks to carry out online verification process, at the time of onboarding new customers, through digitally verified documents and geo-tagging. The RBI has also extended the process of e-mandate imposed on payment instruments, permitting recurring transactions with additional factor of authentication, to the unified payment interface transactions as well.
As a precautionary step, the RBI has directed all payment card issuers to enhance their security systems and provide multiple options to the end users in terms of switching on or off their payment channels. These directions have to be followed from 16 March, 2020. The RBI has also revised its framework for imposing penalty on payment system operators, making it more transparent and objective.
As we mentioned in our last update, RBI has further relaxed the norms for International Financial Services Centres (“IFSC”). Trading of rupee derivatives at IFSC with the help of IFSC Banking Units has been introduced by the industry’s watchdog. However, the RBI has also directed all banks to report all currency derivative transactions to trade repository by 31st January 2020, including the transactions of value less than USD 1 million.
The Ministry of Corporate Affairs, through its notification dated 3rd January, 2020, has amended the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 bringing down the compliance cost for companies having paid up share capital between 5 crore to 10 crore. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI”) brought to effect from January 24, 2020 provides priority to debts due to secured creditors over all other debts, revenues, taxes, cesses and other rates payable to any authority, amongst other amendments. This amendment opens strong avenues of recovery for secured creditors. The Government of India (“GoI”) has also notified the United Arab Emirates as a ‘reciprocating territory’ for the purposes of the Civil Procedure Code, easing the process of enforcement of decrees and orders passed by courts of the United Arab Emirates.
The Securities and Exchanges Board of India (“SEBI”) has amended the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 to change all requirements under the regulations from the date of registration to the date of filing of draft offer or offer documents. It has also issued a circular to all credit rating agencies to strengthen the rating process for ‘issuer not cooperating’ ratings. Based on market capitalisation, the top 500 listed entities are expected to ensure that by April 1, 2022, the chairperson of their board is a person who is a non-executive director and is not related to the managing director of the company.
SEBI has notified norms for portfolio managers aiming at curbing mis-selling, and weeding out of dubious operators in the market. All portfolio managers must seek authorisation from SEBI to continue to act as portfolio managers. Additionally, it has issued a circular which aims to streamline the process for the rights issue of units and the guidelines for such issue by a listed Real Estate Investment Trust or an Infrastructure Investment Trust. To ensure the enforcement of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, it has notified stringent penalties for non-compliance with the same and has directed stock exchanges to take strict action against the defaulter.
India, as a country, is going through major law reforms affecting several business verticals. The long awaited Personal Data Protection Bill (“PDP Bill”) is still due and is a matter of concern for many industries, including forensic auditors. It would be interesting to analyse the impact of the PDP Bill read with its upcoming rules on data-dependant sectors. Alongside, India is also awaiting the Supreme Court’s final decision on the three year old Tata – Mistry case.
The most recent acquisition, UberEats by Zomato, has been a subject of much conversation in the Indian market. Going forward, the Competition Commission of India plans to add ‘deal size’ as one of it’s parameters while giving clearance to global M&A deals.
GoI has invited comments on the insertion of Form 15E, a form that may be used for making an application to an assessing officer for the determination of the sum chargeable or payable to a non-resident Indian, to streamline the process of making an application by TDS deductor. This form, if notified, would be helpful to domestic entities who interact with foreign entities on a day to day basis. The government has also passed an ordinance to liberalise foreign direct investment in the coal industry.
From the docket
In Gurshinder Singh v. Shriram General Insurance, the Supreme Court clarified the position of law on the interpretation of insurance contracts. It held that an insurance claim cannot be rejected merely on the grounds that the theft of the insured good was reported late to the insurance company. It relied on the rule of contra preferatum, to interpret the contract in favor of the party with lesser bargaining power.
In Star India Private Limited v. Society of Catalysts, the Apex Court, while interpreting a service cum sponsorship agreement entered between Star India and Airtel for the purposes of ‘Har Seat Hot Seat’ contest, held that the charging of extra amount for SMS service did not constitute ‘unfair trade practice’. It relied on the fact that the agreement did not explicitly mention any revenue sharing arrangement between the parties and the fee charged from Airtel was incidentally a source of revenue for Star India but was independent of the prize money to be paid to the winner.
In H.P. Puttaswamy v. Thimmamma, the Apex Court opined that the physical presence of the parties to a sale deed before the registrar is not mandatory under the Registration Act, 1908 for the purposes of registration of the document. It further reiterated that such physical presence may be made mandatory in a particular state if the state government wishes so.
In Kaish Impex Private Limited v. Union of India, the Bombay High Court held that the power to attach bank accounts is an ‘omnibus’ power and should be used only in limited circumstances. It asserted that there is no room for doubt that such powers have been envisaged under the Central Goods and Services Act and is granted to the revenue authorities, they cannot be used in every case considering the implications of such a ‘drastic step’.
In Pawan Hans Limited v. Aviation Karmachari Sangathan, the Supreme Court ruled that benefits under Employment Provident Fund Act are also extended to contractual employees of a company provided that they are not availing any similar benefit under any other scheme of the government or the employer. It reiterated that such legislation must be interpreted in such a manner that it benefits the employees.
These were the updates from India’s corporate law for the month of January. We hope you enjoyed them and look forward to reading more!