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Corporate Law Brief-March 2021

The Reserve Bank of India (RBI) has mandated the usage of Cheque Truncation System (CTS) across the country w.e.f. September 30, 2021 and passed the Reserve Bank of India (Digital Payment Security Controls) Directions, 2021 to set minimum security standards to be followed for all digital payment infrastructure operating in India. The RBI has issued directions in relation to posting and collection of margins for permitted derivatives contracts…

We hope you had a colorful and joyful Holi. We are back in your inbox with updates from India’s corporate legal landscape for the month of February and March.

The Reserve Bank of India (RBI) has mandated the usage of Cheque Truncation System (CTS) across the country w.e.f. September 30, 2021 and passed the Reserve Bank of India (Digital Payment Security Controls) Directions, 2021 to set minimum security standards to be followed for all digital payment infrastructure operating in India. The RBI has issued directions in relation to posting and collection of margins for permitted derivatives contracts. To enable indian residents to invest in the International Financial Services Centres (IFSC) under the liberalised remittance scheme, the RBI has notified the conditions of such investments. The Bank’s regulatory body is aiming to collect more detailed information of the international transactions done using debit/ credit cards and UPI, including the ones done on ecommerce websites.

Last month, the Central Government established the Central Scrutiny Centre for undertaking scrutiny of all Straight Through Processes (STP) e-forms (submission which the filling portal accepts automatically without any prior approval) submitted by companies as a part of secretarial compliances under the companies law. STP e-forms include the filling made for change in directors of a company, annual returns, amongst others. Additionally, the Government has introduced e-form MGT-7A for annual reporting requirements of Small Companies and notified the minimum time period of rights issue offer to be 07 days.

Recently, the Ministry of Corporate Affairs (MCA) has announced major changes in the reporting and disclosure requirements of the companies in India. The key ones include, disclosure on Insolvency & Bankruptcy Code matters and valuation, Management’s representation in relation to inflow/ outflow of funds and utilisation thereof, declaration of dividend, ability of accounting software to record audit trail; reporting of title deeds of immovable property not held in the entity’s name, shareholding of Promoters, investment in virtual currency/ cryptocurrency, benami property details, compliance with number of layers of companies, utilisation of borrowed funds and share premium, relationship with struck off companies, amongst others. Further, all the companies which use accounting software need to use such software which enables them to record audit trails. These changes have been introduced vide the Companies (Audit and Auditors) Amendment Rules, 2021, the Companies (Accounts) Amendment Rules, 2021, and amendments to Schedule III of the Companies Act, 2013.  

The government has passed the legislation to establish the National Bank for Financing Infrastructure and Development (NaBFID), a development financial institution for supporting long term non-recourse infrastructure financing in India. To control this institution, the government shall have 26% stake in the NaBFID’s shareholding and the Board of such institution shall always have a government’s representative in form of the Chairperson.

The Central Government has revised the definition of ‘listed company to exclude (i) public companies which have not listed equity shares on securities exchange but have listed non-convertible debt securities, non-convertible redeemable preference shares; (ii) private companies which have listed non-convertible debt securities, and (iii) public companies which have not listed their equity shares on recognised securities exchange but on recognised foreign securities exchanges. The MCA has also notified the effective date of the following provisions of the Companies Amendment Act, 2020:

  • 11 February 2021 – Section 52 and Section 66: introduction of new category of companies called Producer Companies, regulations in relation to it and introduction of the Producer Companies Rules, 2021;
  • 18 March 2021 – Section 32 and Section 40: enabling independent directors to receive remuneration in the event company has not earned profits; and
  • 24 March 2021 – Section 23 and Section 45: reduction in penalty for non-compliance of provisions relating to unpaid dividend amount.

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From the Docket

In Tata Consultancy Services Limited v. Cyrus Investments Private Limited and others, the Supreme Court overturned National Company Law Appellate Tribunal (NCLAT) order and upheld the removal of Mr. Cyrus Pallonji Mistry from his position of executive chairman and director of the company. The Court ruled that the NCLAT did not have power to reinstate Mr. Cyrus Mitry under Section 241 read with Section 242 of the Companies Act, 2013. Further, such remedy to reinstate was neither sought by the parties nor such remedy is practically possible as the tenure of Mr. Mistry ended in 2017. It also clarified that at the time of initiation of legal proceedings against the Tata Group, Mr. Mistry was merely removed from the post of Executive Chairman (and continued to be a Non-Executive Director) and Executive Chairman is not a statutory post under the Companies Act, 2013.

In Engineering Analysis Centre of Excellence Private Limited v. the Commissioner of Income Tax and another, the Supreme Court adjudicated on the taxation aspect involved in transactions wherein an Indian resident purchases an end user license to use a software developed and resold by a foreign software company. It ruled that the payments made in such transactions cannot be construed as a royalty paid for the copyright over such software for the purposes of the Income Tax Act, 1961 and are therefore not subject to direct tax in India.

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