Welcome to our updates from the world of corporate law and regulation.
In our last update, we covered the Reserve Bank of India’s (RBI) announcement about a 3-month moratorium. As India continues to remain in Lockdown 2.0, this newsletter focuses on the incremental or new measures announced by regulatory authorities to deal with the COVID 19 crisis.
Foreign Trade and Investments
The RBI has extended the period of realisation and repatriation of export proceeds, from nine months, to fifteen months from the date of export. This extension applies on all exports made until July 31, 2020. This may come as a relief for micro, small and medium enterprises, amongst other reliefs as covered in our previous post. Apart from the existing ‘government route’ and ‘automatic route’, the RBI has introduced a new route called ‘Fully Accessible Route’ under which non-residents are allowed to invest in notified government securities without any investment limit. It has also increased the investment limits for foreign portfolio investors. To protect the domestic market from ‘opportunistic takeovers and acquisitions’, the RBI has amended the relevant FEMA regulations. A detailed analysis of the amendment is covered in a previous post. The central banker has also made amendments to the Foreign Exchange Management (Non-Debt instruments) Rules, 2020 (“NDI Rules”) to allow 100% foreign investment in the insurance sector under automatic route.
Further amendments were announced to the NDI Rules on April 27, 2020 to provide additional restrictions on acquisition of shares by persons resident outside India under rights issue, and for single brand retail trading. Under the amended NDI Rules:
a. persons resident outside India acquiring shares pursuant to renunciation of rights issue will need to comply with pricing guidelines. Earlier, pricing guidelines did not apply to issue of shares under rights issue and the only condition was that the price at which shares were offered to non-resident were not less than the price at which shares were offered to the resident.
b. sourcing norms for single brand retail trading are now applicable from 3 years after opening of the first store, or online retail, whichever is earlier. This differs from the earlier requirement of applicability of these norms after 3 years from the opening of the first store.
c. breach of Foreign Portfolio Investments (“FPI”) investment limits will result in the investment being classified as FDI investment unless the excess investment is divested within 5 trading days of the breach, subject to the norms that may be specified by Securities and Exchange Board of India. Such FPIs will not be allowed to make any further portfolio investment in the company concerned.
The amendments to the NDI Rules have also formalized the amendments to the FDI Policy through Press Note 1 of 2020, liberalizing the FDI limits for intermediaries or insurance intermediaries, insurance brokers, reinsurance brokers, insurance consultants, corporate agents, TPA, surveyors and loss assessors upto 100% under the automatic route.
The Ministry of Corporate Affairs (MCA) has declared all spending pertaining to COVID 19 as a spending towards the corporate social responsibility (CSR) activity of a company. It has clarified that any contribution made to the PM CARES Fund or the State Disaster Management Authority shall also be treated as CSR activity, however similar contributions to Chief Minister’s Relief Funds or State Relief Funds for Covid- 19 created by state governments do not qualify as CSR activity.
The MCA has also waived physical presence requirements for extra-ordinary general meetings in line with the earlier relaxation given to board meetings. Till June 30, 2020, every extraordinary general meeting conducted online in accordance with the MCA-notified process shall be considered valid. It has also clarified the process of intimating members about meetings. For companies whose financial year ended on December 31, 2019, the Ministry has extended the period to conduct Annual General Meeting from six months to nine month. Further, till September 30, 2020, the Ministry has extended, from 120 days to 180 days, the permissible gap between two consecutive board meetings.
In addition to a general relaxation for all filings with the MCA-21 registry, the MCA has introduced Companies Fresh Start Scheme, 2020, under which all companies may complete any pending filing (irrespective of due date) without incurring any penalty or additional fees. The list of such pending filings that are covered under this scheme is available here. This is likely to come as relief to those companies whose directors are facing disqualification under the Companies Act for non-compliances by the companies in which they serve as directors.
These were the updates from India’s corporate legal landscape for the month of April. We hope you enjoyed them. We will be back in your inbox next month. Till then, stay inside and stay healthy!