We are back in your inbox with updates from India’s corporate legal landscape for the month of November and December. As we approach the end of this calendar year, reforms in the fintech sector seem to be trending.

After we wrote about it previously, the Reserve Bank of India (RBI) has notified guidelines for the new ‘Co-Lending Model’ (CLM) and the conditions for perpetual validity of registration certificate for payment system operators. The CLM could be a win-win situation for both commercial banks and non-banking financial institutions as it allows for greater flexibility comparatively. To ease the business for the payment aggregators, the RBI has also relaxed its norms with respect to maintenance of an escrow account. Now, it allows payment aggregators to maintain two separate escrow accounts with the intent of diversifying the risk and ensuring business continuity amidst the pandemic. On a separate note, perhaps for administrative ease, the banking regulator has introduced a cooling period of one year for a payment system’s stakeholders who wish to get a registration certificate from the RBI after their application is rejected or license is revoked or not renewed or surrendered.

In early December, the RBI reiterated the requirement for banks to provide Real Time Gross Settlement (RTGS) facility 24×7 to all its customers. Amongst other facilities, the RBI has also permitted banks to increase the contactless card transaction limit to Rs. 5,000/- from the current limit of Rs. 2,000/-. This becomes more important given the pandemic situation in the country. To fasten the approval process in export of goods and services, the government has delegated some powers to authorised banks reducing the turnaround time of compliances involved. Further, the RBI has directed banks to ensure compliance with all the regulatory laws while maintaining current accounts with them.

The central government, exercising its powers under Section 435 (1) of the Companies Act, 2013, has designated special courts in the State of Maharashtra, West Bengal and Tamil Nadu to adjudicate on matters (under the Companies Act) filed by the securities regulatory authority. Moreover, the central government has amended the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 to provide for purchase of minority shareholding in demat form; the Companies (Appointment and Qualification of Directors) Rules, 2014 to extend the timeline for passing the online self-assessment proficiency test for directors to two years; and the Companies (Auditor’s Report) Order, 2020 to defer the applicability of the order till Financial Year commencing on 1st April 2021. Further, the RBI has relaxed its reporting requirements under the Foreign Exchange Management Act, 1999, discontinuing 17 returns with effect from November 13, 2020. With a larger goal of supporting the economy, RBI has passed an order restraining banks to declare dividend on their equity shares from the profits pertaining to the financial year ended March 31, 2020.

Do you have a question about any of these sweeping changes? Reach out to us at knowledge@sarthaklaw.com.

From the Docket

In SEBI v. Udayant Malhoutra, the Supreme Court reiterated the position of law on ex-parte orders. It held that the Securities Exchange Board of India, while exercising its powers under the securities law can pass ex-parte interim orders only when there exists a prima facie urgency. On the facts of the case, the Court opined that an allegation of using unpublished price sensitive information by a board member of a company which is pending since November 2019, cannot become an urgent matter in June 2020.

In Union Bank of India v. DMC Infrastructure, the Delhi High Court clarified their stand on interpretation of orders pronounced by tribunals, in this case, the Debt Recovery Tribunal and the Debt Recovery Appellate Tribunal. The Court cannot set aside a tribunal’s judgment unless it is perverse, arbitrary and contrary to the law. Further, it clarified that in a recovery suit, where the tribunal had attached the property of a guarantor for the recovery and the guarantor defaulted to make second installment, the tribunal had allowed for the sale of property by the bank but it is bound to return back (and not forfeit) the first installment paid by the guarantor.

In State of Madhya Pradesh and Another v. Uttar Pradesh State Bridge Corporation Limited and Another, the Supreme Court, relying on the precedents, held that a tender needs to be interpreted from the issuing authority’s perspective as the issuing authority is the best person to understand the intent and commercial arrangement behind the tender. It reiterated that the Court can only adjudicate on whether the process followed in the bid selection complies with the principles of natural justice and cannot decide on whether the decision taken by the issuing authority is valid or not. In this case, the Court opined that, where a bidder had hidden the fact that there was an FIR lodged against it for collapse of a bridge built by it, the suppression of that material fact would amount to ‘fraudulent practice’ within the terms of the tender issued. It is immaterial if the investigation is pending as on the date of tender or not.

We wish you a very Happy New Year from all of us at Sarthak. We hope you enjoyed reading our newsletter.

We will see you again in 2021 with our newsletter. Until then, stay safe, stay healthy and enjoy!

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