We are back in your inbox with updates from India’s corporate legal landscape for the month of January. Now that we are past 2020, let us together start 2021 with new hopes, new aspirations and a new set of reforms.
The Reserve Bank of India (RBI) issued operational guidelines for claiming subsidy under its Payments Infrastructure Development Fund Scheme, which was launched last year. It also introduced a Legal Entity Identifier (LEI), a 20-digit unique number, for all RTGS and NEFT transactions of Rs. 50,00,00,000/- or more, initiated or received by entities in India. The RBI has mandated the use of LEI for all entities with effect from April 01, 2021.
With the intent of safeguarding consumer’s interest, the RBI has increased the compliances that a bank needs to undertake in regard to grievance redressal mechanisms. Unlike the previous years, the revision is not just limited to making additional disclosures but may also result in paying for increasing grievances for some banks.
Additionally, the RBI has extended the mandatory Risk Based Internal Audit to certain categories of Non-Banking Financial Institutions as well. Further, through an amendment to the Foreign Exchange Management (Export of Goods & Services) Regulations, 2015, the RBI has clarified the scope of exemption provided for export of leased aircraft or helicopters outside India without providing any declaration to the regulatory authorities.
As discussed here previously, the central government had passed the Companies (Amendment) Act, 2020 last year to, among other things, decriminalise certain offences and amend corporate social responsibility (CSR) obligations. Recently, the government notified January 22, 2020 as the date on which some amended sections will come into force.
The Ministry of Corporate Affairs (MCA) has, through a circular, widened the scope of CSR activities to include spendings made by the entities for organising awareness programmes and public outreach campaigns on COVID-19 vaccination programmes. The MCA has amended the CSR obligations to make CSR project registration mandatory, change the manner in which CSR obligations are disclosed in board reports, and require the preparation of an annual action plan for CSR activities, amongst other reforms. The companies’ regulator also recently amended the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 to specifically provide for merger and amalgamation of start-up companies.
To ease compliance obligations, the MCA has permitted companies to conduct through video conferencing, the annual general meetings whose due date falls within the calendar year 2021. As an indirect extension to the Companies Fresh Start Scheme 2020, the MCA has introduced a Scheme for Condonation of Delay for Companies restored on the Register of Companies during December 2020 under Section 252 of the Companies Act, 2013. The eligible companies may avail the benefits of this scheme at any time before March 31, 2021. Further, the due date of filing annual financial statements for the financial year 2019-20 with the Registrar of Companies has been extended till February 15, 2021.
As the tradition goes, the most awaited annual budget had a portion reserved for the corporate sector as well. The Finance Minister announced amendment to the laws to provide for the incorporation of one person companies by non-residents, ease the conversion of one person company to any other form of company, the decriminalisation of some offences by limited liability partnerships, set up a conciliatory mechanism for quick resolution of contractual disputes, set up a faceless dispute resolution mechanism for small taxpayers, expand the threshold of small companies to companies having paid up capital less than rupees two crores and turnover not exceeding rupees twenty crores, and introduce a new category of ‘pooled investment vehicle’ within the ambit of the Securities Contract (Regulation) Act, 1956.
Do you have a question about any of these sweeping changes? Reach out to us at firstname.lastname@example.org.
From the Docket
In My Preferred Transformation and Hospitality Private Limited v. Sumithra Inn, the Delhi High Court while interpreting the jurisdiction clause in a management services agreement, ruled that in the event a jurisdiction clause confers ‘exclusive jurisdiction’ to Place A and the seat of arbitration is stated to be Place B, the courts at Place A shall not have ‘exclusive jurisdiction’ for adjudication of an application under the Arbitration and Conciliation Act, 1996 unless the clause explicitly states the same.
In Paypal Payments Private Limited v. Financial Intelligence Unit India, the Delhi High Court while adjudicating on the issue of whether payment intermediaries such as Paypal are reporting entities under the Prevention of Money Laundering Act, 2002 (PMLA), ordered that they may not fall within the scope of ‘payment system operators’ under the PMLA. The Court primarily relied on the RBI’s (as a regulator under the Payment and Settlement Systems Act, 2007) understanding. It has also directed the government to form a committee consisting of representation from RBI and the Ministry of Finance which shall then submit its observations in the form of a report to the court for further adjudication.
In Altico Capital India Limited v. SARE Gurugram Private Limited and others, the Delhi High Court held that a negative covenant against the parent company cannot be enforced in the absence of (a) the parent company being party to the relevant transaction documents; or (ii) the relevant board resolution authorizing the subsidiary company to enter into an agreement on behalf of the parent company. In this case, the Court based on the facts of the case rejected the application to enforce the negative covenant (that is, a restriction on any change in the management, corporate structure or charter documents without the prior consent of the plaintiff) against the parent company i.e. SARE Cyprus.
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