Welcome to our updates from the world of corporate law and regulation.

A lot has happened since our last update, from the extension of nationwide lockdown to the announcement of an INR 20 lakh crore economic package and the Reserve Bank of India’s COVID-19 regulatory package to the substantial lifting of lock-down restrictions as part of Unlock 1.0. This newsletter will focus on the key announcements impacting the corporate sector.

General Corporate

With the bankers’ bank becoming the regulator of housing finance companies, it has mandated such companies to comply with the Know Your Customer (KYC) directions. Further, the benefit of announcements made in RBI’s Covid 19 regulatory package in March (as covered in our March newsletter) has been extended further by three months i.e. upto August 31, 2020.

The Ministry of Corporate Affairs (“MCA”) has extended the filing date of Form NFRA – 2, an annual return to be filled by auditors of a company, and the due dates of MCA forms filled for name reservation of a company.

Our colleagues, Mani Gupta, and Vedant Kumar had earlier examined the discrepancy in Schedule VII of the Companies Act, 2013 that did not include contributions to Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) as an eligible CSR expenditure. Schedule VII has now been amended (with retrospective effect) to classify any donation made to PM CARES Fund as a contribution towards corporate social responsibility activity. Easing corporate governance norms, the MCA clarified that the companies can hold annual general meetings for this calendar year through video conferencing, provided they follow the standard operating procedures prescribed. Similarly, hard copy notice requirements for the rights issue by listed companies have also been relaxed.

Foreign Trade and Investment

The Reserve Bank of India (“RBI”) has extended the benefit of its Interest Equalisation Scheme till March 31, 2021. This scheme was scheduled to expire at the end of March 2020 and this extension has been a relief to the Micro, Small and Medium Enterprises (“MSME”) sector. It would assist them in availing export credits more easily during these testing times. Other measures announced in the Finance Minister’s economic package for the MSME sector have been covered in a previous post.

Similar to the extension in realisation and repatriation of export proceeds announced earlier, the GoI has extended the time limit for the settlement of import payments, from six months to twelve months. This extension is valid for all imports whose date of shipment is before July 31, 2020. Further, the regulator has increased the permissible period of pre-shipment and post-shipment export credit from 12 months to 15 months, for disbursements made upto July 31, 2020. For foreign investors who had opted for a voluntary retention route, the RBI has extended the time frame for meeting the Committed Portfolio Size requirement by three months. For a detailed note of all the measures announced for supporting foreign trade in India, please feel free to reach out to us.

Under the Atma Nirbhar Bharat Abhiyan, the GoI has further announced several other measures to promote investment in India, including the following:

  • Setting up of a fast-track investment clearance through an Empowered Group of Secretaries
  • Introduction of schemes to incentivise investment in upcoming sectors such as Solar PV manufacturing, advanced cell battery storage, space, etc.
  • Increasing the FDI limit in defense sector from 49% to 74%

Banking Sector

RBI has extended the deadlines for 18 regulatory returns (but not statutory returns) including payment of dividend return, monthly statement of gold and silver, amongst others by thirty days. Further, keeping in mind the macroeconomic situation of the nation, it has reduced the repo rate (the rate at which it lends to other banks) by 40 basis points. Consequently, there has been a reduction in rates under liquidity adjustment facility, marginal standing facility and bank rate. To increase the lending capacity of the banks, the regulator has permitted them to temporarily lend upto 30% of their eligible capital base to a group of connected counter-parties.

Upcoming Nuggets

In the second half of May, the RBI, exercising its powers under RBI Act, 1934, had revoked the license of fourteen Non-Banking Finance Companies (NBFC) and nine additional NBFCs had voluntarily surrendered their license. This cancellation and surrender has occurred despite the 30,000 crore liquidity scheme announced as a part of the Atma Nirbhar Bharat Scheme, which indicates that the sector may need more help to survive.

With the United States passing the Holding Foreign Companies Accountable Bill, it would directly affect the investments made in Chinese companies. It is likely that India might replace China and become the next investment hub for developed nations. Even during these testing times, India’s Jio has been able to attract foreign investors including Facebook Inc., KKR & Co., Silver Lake, Vista Equity Partners, General Atlantic and potentially Microsoft as well. The Government of India might come up with measures to further incentivise foreign investment in India, including easy registration of property, fast disposal of commercial disputes and simpler tax regime.

The United States has also introduced a Bill titled ‘COVID-19 Consumer Data Protection Act’ which aims to protect the personal data of individuals specifically relating to Covid 19. A similar move can be expected in India, which may be made a part of the Personal Data Protection Bill 2019.

The Competition Commission of India has invited comments on amendments to its regulations framed under the Competition Act, 2002, specifically to regulate the enforceability of ‘non-compete’ clauses in mergers and acquisitions. This would potentially impact the manner in which such clauses are drafted and negotiated in M&A transactions.

From the Docket

In Ramanand & others v. Dr. Girish Soni & Another, the Delhi High Court has held that Section 56 of Indian Contract Act, 1872 (which lays down the principle of frustration of contracts) would not apply to lease agreements. The Court further held that non-payment of rent on account of an unforeseeable event such as the lockdown can only be availed if it is within the scope of the force majeure clause of the lease agreement. The general applicable laws do not allow for such a claim to be valid and the tenants are bound to pay the landlord the due rent, irrespective of whether the rented premises was commercially used or not.

Meanwhile, in Halliburton Offshore Services Inc. v. Vedanta Limited, the Delhi High Court has clarified that past non-performance cannot be condoned on the ground of Covid-19 lockdown. The court further held that for allowing the defense of force majeure, it has to be assessed whether Covid-19 indeed affected the performance of a party, and for that past conduct of the party will have to be reviewed.

These were the updates from India’s corporate legal landscape for the month of May. We hope you enjoyed them. We will be back in your inbox next month. Till then, stay safe and healthy!

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