Welcome to our updates from the world of corporate law and regulation.
Last month saw the release of the Annual Budget, impacting corporates and individuals alike. A key announcement amongst others, was the abolition of the Dividend Distribution Tax.
The Ministry of Corporate Affairs (“MCA”) notified the provision pertaining to takeover offer applicable on unlisted companies, as a part of a compromise or arrangement under the Companies Act, 2013. For operational ease, the MCA has also amended the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 to lay down the procedure for making such a takeover offer. The MCA has also prescribed the fee and format in which an application for such takeover offer can be made before the National Company Law Tribunal (“NCLT”), through an amendment in NCLT Rules, 2016. In the interest of accountability and standardisation, MCA has amended following forms for e-filing purposes: (i) Form NDH-1, NDH-2 and NDH-3 under Nidhi Rules, 2014; (ii) Form No. GNL-2 under the Companies (Registration Offices and Fees) Rules, 2014; and (iii) Form SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus: INC-32) under Companies (Incorporation) Rules, 2014.
The Reserve Bank of India (“RBI”) extended the ‘external benchmarking standards’ to loans granted to medium enterprises as well. To boost the economy, the RBI has exempted banks from maintaining Cash Reserve Ratio to the extent of loans granted to the Micro, Small and Medium Enterprises (“MSME”) sector and few other specific sectors. Further, it also relaxed the prudential guidelines for cases where the date of commencement of commercial operations for projects in non-infrastructure and commercial real estate sectors have been deferred. The Interest subvention scheme which was started last year for the MSME sector has been revised to dispense with the requirement of Udyog Aadhar Number. It would be interesting to observe the impact of amendment in the Factor Regulation Act, 2011 which aims to extend invoice financing to MSMEs, as proposed in this year’s Budget.
Liberalising its guidelines, the RBI allowed regional rural banks to act as ‘merchant acquiring banks’. It also amended the manner of reporting investments made in certificates of deposits to reflect the distinction between certificates of deposits held by bank entities and non-bank entities. The Securities and Exchanges Board of India (“SEBI”) has clarified that Foreign Portfolio Investors from Mauritius will continue to be eligible for SEBI registration purposes, despite Mauritius being added to the Financial Action Task Force’s surveillance list.
The Competition Commission of India plans to widen its scope and regulate M&A of technology companies through an amendment in the Competition Act, 2002. Alongside, the RBI plans to setup a new umbrella entity for all retail payment systems.
The Joint Parliamentary Committee had invited comments on the Personal Data Protection Bill (“PDP Bill”) last month. We have also submitted our comments. If the PDP Bill is passed in its current form, it may increase the compliance cost for data-dependant sectors. Do get in touch with us to know how it may impact you or your organisation.
From the docket
In Impex v. Oriental Insurance Co., the Apex Court reiterated the importance of warranties in maritime insurance policies. This case revolved around the importance of classification of the vessel carrying cargo and insured by the insurance company. The Court held that such classification is a piece of material information for insurance companies while deciding whether to provide risk cover to a certain vessel or not. Non-fulfillment of such classification was held to be a breach of warranty in this case.
In Anand Social and Educational Trust v. Commissioner of Income Tax & Another, the Supreme Court adjudicated on the registration of a trust under Section 12AA of the Income Tax Act, 1961. The Court reiterated the test which needs to be applied while deciding on a registration application. The Adjudicating Officer needs to check (i) whether the objects of the Trust are genuinely charitable in nature; and (ii) whether its activities are in line with the objects of the Trust. Such registration application cannot be rejected solely on the ground that the Trust has not carried out any activity on the date of such application. It held that the term ‘activities’ can be interpreted to include ‘proposed activities’ for cases where the Trust is newly established and has not utilised its funds for any purpose.
In M/s. Baspa Organics Ltd. v. United India Insurance Co. Ltd. and others, the Supreme Court affirmed the reasoning and order of National Consumer Disputes Redressal Commission on the point of rejection of an insurance claim. The Court observed and upheld that an insurance claim stands repudiated when the insured does not have a license or a permit to possess or produce the insured goods.
In Infinity Infotech Parks Limited v. Shiva Jute Mills Pvt. Ltd., the Supreme Court had to adjudicate whether a lessor was entitled to disconnect electricity from the premises on non-payment of rent, maintenance charges, amongst other payables that are due on account of the lessee. It held that considering the lessee had not paid a single rupee to the lessor for around 7 years, the lessee could not claim continuous supply of electricity without paying overdues.
In Usha Ananthasubramanian v. Union of India, the Supreme Court interpreted Sections 241(2), 337 and 339 of the Companies Act, 2013 and opined that Sections 337 and 339 were inserted to aid the power under Section 241 and need to be read mutatis mutandis. Under the aforementioned sections, an authority cannot freeze the assets of an individual who may also be a director of another company. The scope of these actions is limited to those assets of the company in which mismanagement had been carried upon and cannot be widened to include assets of any other corporate body.
In Bharti AXA General Insurance Co. Ltd. v. Priya Paul and Another, the Supreme Court, while interpreting a personal accident insurance policy and adjudicating Priya’s claim for loss of her child during a tour visit in a ‘glider’, affirmed that the claim was valid. The Court interpreted the terms of the policy as well as the guidelines in favour of the claimant and observed among other things that (i) a ‘glider’ is included within the definition of the term ‘aircraft’, as used in the insurance policy; (ii) the fact that the deceased was using a ‘glider’ for tourism and not for going from a place X to a place Y did not repudiate the claim.
In Canara Bank v. M/s. United India Insurance Co. Ltd. and others, the Supreme Court had to decide on the bank’s insurance claim for the farmer’s goods to whom it had granted loans which were kept in a cold storage facility insured by the insurance company. This suit had four stakeholders, namely the farmers (who had taken loan from the bank), the bank, the cold storage facility (which was insured) and the insurance company. The insurance company, while rejecting the bank’s claim, pleaded that the bank was not a party to the insurance contract or policy and that the fire which broke out in the cold storage facility was not ‘accidental’. The Court held that (i) the insurance company was privy to the fact that the goods stored in the cold storage facility were pledged to the bank; (ii) it could not establish the fact that the fire which broke out was not ‘accidental’ and therefore, the insurance company is liable to pay to the bank.
These were the updates from India’s corporate legal landscape for the month of February. We hope you enjoyed them and look forward to reading more! If you have any questions, please write to us at firstname.lastname@example.org.