We hope you and your close ones are safe and healthy. We are back in your inbox with updates from India’s corporate legal landscape for the months of April and May. This one is slightly longer than usual, given the tremendous changes taking place. Please bear with us till the end.
In our last post, we had covered the requirement that all the companies which use accounting software need to use such software which enables them to record audit trails and the same needs to be mentioned in the Auditor’s Report as well. This compliance has been deferred until 01 April, 2022 giving time to businesses to make their internal systems ready for such transition. The Ministry of Corporate Affairs (MCA) clarified that funds spent on ‘setting up makeshift hospitals and temporary Covid Care facilities’, ‘creating health infrastructure for COVID care’, ‘establishment of medical oxygen generation and storage plants’, ‘manufacturing and supply of Oxygen concentrators, ventilators, cylinders and other medical equipment for countering COVID-19’ will count towards Corporate Social Responsibility (CSR) under the Companies Act, 2013 and rules made thereunder. Further, MCA clarified that carrying forward of excess amount spent on CSR activities during Financial Year 2019-20 to Financial Year 2020-21 is permissible if the Company has disclosed the same in the Board’s Report for Financial Year 2020-21 and complied with other conditions stated in the circular.
Similar to last financial year, with the second wave of Covid-19 hitting the corporate sector, regulatory authorities have announced relief packages to ease the compliance burden. The MCA has extended the permissible gap between two board meetings to 180 days for the first two quarters of this financial year. Further, the time gap for filing of eForm CHG-1 and CHG-9 has been extended in certain cases. The eForms under the Companies Act, 2013 and the Limited Liability Partnership Act, 2008 whose due date of filling falls between April 01, 2021 and May 31, 2021 can now be filled at any time before July 31, 2021 without levy of any additional penalty. A list of eforms for whom such benefit can be availed is accessible here. Last week, the Reserve Bank of India (RBI) announced resolution framework 2.0 for addressing the stress caused due to the pandemic on individuals, small businesses and the Micro, Small and Medium Enterprises (MSMEs).
In the beginning of this financial year, the RBI notified master direction for regulating the Call, Notice and Term Money Markets in India. Further, in the Statement on Development and Regulatory Policies, RBI announced the, (i) enhancement of limit of maximum balance per customer at end of the day from ₹1 lakh to ₹2 lakh for Payments Banks; (ii) extension of the Priority Sector Lending classification for lending by banks to Non-Banking Finance Companies for ‘on-lending’ to certain sectors till September 30, 2021; (iii) enhancement of the loan limit from ₹50 lakh to ₹75 lakh per borrower against the pledge/hypothecation of agricultural produce backed by Negotiable Warehouse Receipts; and (iv) extension of the time period for keeping unutilised External Commercial Borrowings proceeds drawn on or before March 1, 2020 in term deposits to March 1, 2022, amongst others. In view of the ongoing pandemic, the RBI has relaxed the regulatory compliance timelines for payment system operators.
RBI has issued operational instructions to the banks for refunding of ‘interest on interest’ charged during the moratorium period, amongst other directions. Further, RBI has imposed partial restriction on dividend declaration for the year ended March 31, 2021 for banking companies and issued directions to govern the corporate governance framework surrounding the chair and meetings of the board, composition of certain committees of the board, age, tenure and remuneration of directors and appointment of the whole-time directors, statutory central auditors /statutory auditors in commercial banks.
To simplify the process of regular updation of KYC of each bank account holder, RBI has amended the scope of video based customer identification process (V-CIP) and has set minimum infrastructure requirements for undertaking the revised process of customer due diligence. Last month, RBI classified all investments made in foreign based Alternative Investment Fund (AIF) as ‘overseas direct investment’ and permitted it under the automatic route. Further, RBI has made it mandatory for prepaid payment instrument issuers to allow interoperability between different prepaid payment instruments and allow limited cash withdrawal for KYC compliant customers.
Alongside the relaxations covered above, the Government of India is attempting to regulate the online space. The Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 came into force on February 25, 2021 regulating intermediary platforms and digital media. These rules prescribed a timeline for ‘significant social media intermediaries’ to comply with the additional compliance requirements latest by May 25, 2021. Pursuant to these rules, on May 26, 2021, Ministry of Information & Broadcasting issued a public notice to all digital media publishers seeking information on the appointment of Grievance Redressal Officer, amongst the status of other compliances prescribed for digital media under the new rules.
- The Ministry of New & Renewable Energy has notified the guidelines for implementation of Production Linked Incentive Scheme ‘National Programme on High Efficiency Solar PV Modules’ for manufacturing of high efficiency Solar PV Modules.
- The Central Government has invited comments on the proposed amendments to the Indian Insurance Companies (Foreign Investment) (Amendment) Rules, 2021.
- Making the first move, European Union (EU) proposed legislation to regulate the use of Artificial Intelligence in the EU region.
- China has directed all financial institutions to not engage in cryptocurrency transactions hinting towards a stricter regime.
From the Docket
In Madurai Power Corporation Private Limited (MPCPL) v. Tamil Nadu Generation and Distribution Corporation Limited (TNGDCL) and State Load Dispatch Centre (SLDC), the Tamil Nadu Electricity Regulatory Commission passed an order in favour of the TNGDCL setting aside the MPCPL’s claims. In this matter, TNGDCL denied making payments to MPCPL for electricity injected into the Grid despite zero power dispatch instructions of SLDC. The Commission ruled that zero power dispatch instructions and Merit Order Ranking system are valid and enforceable in law. Further, MPCPL had the right to challenge such instructions before the Commission immediately but did not have a right to inject power into the Electricity Grid against the orders of the designated regulatory authorities.
In X v. Union of India, the High Court of Delhi while adjudicating on a petition for removal of offensive content from online websites framed a template of directions that a Court may pass in a given matter for removal of content in an effective manner. These template directions are framed after review of the current regulatory framework in India and foreign countries.
In M.P. Power Trading Co. Ltd. and Another v. Narmada Equipments Private Limited, the Supreme Court held that the State Electricity Commissions are vested with statutory powers under Section 86(1)(f) of the Electricity Act, 2003 to adjudicate on disputes between the licensees and generating companies and also refer them to arbitration, if required. In this matter, Supreme Court overturned the order passed by the High Court, emphasizing on the distinct and special provision i.e. Section 86 of the Electricity Act, 2003. The Court opined that this special provision shall override the High Court’s power to appoint arbitrators under the provisions of the Arbitration and Conciliation Act, 1996.
In Uttar Pradesh Power Transmission Corporation Limited v. CG Power and Industrial Solutions Limited, the Supreme Court of India held that cess under the Building and Other Construction Workers’ Welfare Cess Act, 1996 cannot be levied on contracts which do not involve any construction activities and are works (other than those covered in civil works category). It clarified that that mere installation/ erection of pipelines, equipment for generation, transmission, or distribution of power, electric wires, transmission towers at a project site do not amount to construction work and therefore cess cannot be levied on such contracts under the Building and Other Construction Workers’ Welfare Cess Act, 1996. Further, it held that the contracting parties cannot withhold payments in lieu of a cess payable under a statutory provision unless the contract between the parties provides such a clause, as the statute provides for a mechanism to recover such cess from the contractor.
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