Welcome to our updates from the world of corporate law and regulation.
With Covid-19 redefining normalcy in business, corporate India has begun the process of closing last year’s financials and strategising their business plans for the remaining three quarters. Last week, the Ministry of Corporate Affairs amended the Companies (Indian Accounting Standards) Rules, 2015 after due consultation with the National Financial Reporting Authority. Consequently, Non-Banking Financial Companies (NBFC) which fall under the purview of the Reserve Bank of India (RBI) have also issued clarifications about the implementation of Indian Accounting Standards on NBFCs.
In these testing times, RBI, stressing on the need for transparency, has directed Asset Reconstruction Companies to formulate and adopt a ‘fair practices code’. It has set up a special purpose vehicle named the SLS Trust to extend benefits to NBFCs and to Housing Finance Corporations under its liquidity scheme.
As a part of its day-to-day functioning, the RBI has issued revised circulars on the following matters: (i) Facility for Exchange of Notes and Coins; (ii) Detection and Impounding of Counterfeit Notes; (iii) Conduct of Government Business by Agency Banks; (iv) Disbursement of Government Pension by Agency Banks; (v) Scheme of Penalties for bank branches based on performance in rendering customer service to the members of public; (vi) Self Help Group – Bank Linkage Programme; and (vii) Lead Bank Scheme.
With the government bringing in reforms for businesses, it has also brought consumer-centric legal reforms. The provisions of Consumer Protection Act, 2019 have now come into effect vide the government’s notification dated July 15, 2020 and July 23, 2020. In furtherance of the same, the government has established the Central Consumer Protection Authority and enacted Consumer Protection (E-Commerce) Rules, 2020, amongst other procedural rules. To ensure minimum quality of products, the Bureau of Indian Standards has defined new standards for electric vehicle charging systems, power track systems, and digital radio mondalines, amongst other products. Further, the government has issued guidelines for tariff-based competitive bidding process for procurement of power from Grid Connected Renewable Energy Power Projects along with power from Coal Based Thermal Power Projects. The objective of these guidelines is to ensure continuous power supply on round the clock basis.
From the Docket
In Shivraj Gupta v. Commissioner of Income Tax, Delhi, the Supreme Court adjudicated on the issue of whether a non-compete fee under a deed of covenant can be interpreted as some compensation for terminating the association with a company under the Income Tax Act, 1961. The Court reiterated that absence of any immediate competition from the promoters of the target company vis-a-vis the acquirer company does not give any right to the tax assessment authorities to question the non-compete fees received by the promoter of the target company. Business reality and commercial expediency have to be seen from an assessee’s point of view and not from the regulator’s. It further held that this commercial arrangement cannot be said to be a colourable device to evade tax.
In Zee Learn Limited v. UTI Asset Management Co. Ltd. & Others, the Bombay High Court held that the benefit of a moratorium period, as announced by RBI, cannot be extended to mutual funds and debentures. The purpose of the RBI’s scheme was to provide benefits for term loans and working capital facilities provided by a category of entities. It clarified that ‘UTI Asset Management Co. Ltd.’ neither fell under any category of entity to whom RBI had addressed the circular nor had Zee Learn availed its products which are in the nature of term loan or working capital.
In Prabhat Ranjan Deo v. Union Public Service Commission, the Delhi High Court reiterated that matters falling within the ambit of the Central Administrative Tribunal such as appointment of an IPS officer have to be primarily adjudicated by the officers of the tribunal. It further clarified that the aggrieved party has a right to approach a high court only after the grievance is not resolved at the special tribunal set for that purpose.
In Federation of Association of Private Schools in Tamil Nadu (FAPSIT) v. the Office of Revenue and Disaster Management Department & Others, the state government order prohibiting schools to compel payment of school fee was challenged. The Madras High Court held that there needs to be a balance between the interests of the school authorities and the parents. It directed all unaided private schools to collect 40% of the tuition fees by August 31, 2020.
These were the updates from India’s corporate legal landscape for the month of July. We hope you enjoyed them. We will be back in your inbox next month. Till then, stay safe and stay healthy!