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We are delighted to welcome you back to our newsletter, where we keep you informed of the latest updates from India’s corporate legal landscape for the month of May 2023. Our team has diligently compiled a range of news and insights covering new case laws and regulatory advancements, ensuring you stay updated and informed. So, take a moment to unwind, grab a refreshing beverage, and allow us to transport you into India’s corporate legal sphere.
Exciting Developments in the Corporate World
India launches National Programme on Artificial Intelligence (NPAI) to promote Artificial Intelligence (AI) adoption. The program includes a roadmap for AI skills training, emphasizing the ‘skilling in AI’ component. A National AI Portal has been launched, serving as a central repository for AI initiatives, featuring online learning, skills development, and job opportunities. The government has introduced the Responsible AI for Youth program, providing AI knowledge to students nationwide.
- Udyam Assist Platform (UAP) has been launched by the Ministry of Micro, Small, and Medium Enterprises in India on May 09, 2023, to formalize Informal Micro Enterprises (IMEs) through the online generation of the Udyam Assist Certificate. The registration on the platform will be facilitated by designated agencies, such as scheduled commercial banks and non-banking companies. IMEs must have both the Udyam Assist Certificate and Udyam Registration Certificate to be eligible for the Priority Sector Lending incentives.
- Goods and Services Tax Network (GSTN) is set to integrate with the Account Aggregator before July 1, 2023, according to GSTN officials overseeing the process. This may significantly reduce friction in credit disbursement as it will enable small businesses to authorize lenders to access their tax records along with other financial information on a single platform.
- Food Safety and Standards Authority of India is evaluating the World Health Organization’s recent guidelines on non-sugar sweeteners, which state that non-sugar sweeteners like aspartame and stevia do not aid in weight loss and may increase the risk of type 2 diabetes and cardiovascular diseases.
RBI Update: Transition Alert
The Reserve Bank of India (RBI) issued a notification on May 19, 2023, confirming the withdrawal of ₹2000 banknotes while affirming their continued validity. The printing of ₹2000 notes ceased in 2018-19 due to sufficient availability of other denominations and the approaching end of their estimated lifespan.
MCA Update: Changes Promoting Ease of Doing Business in India
- MCA via a notification dated May 10, 2023, amended the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 whereby filing the financial statement and annual returns will be a precondition to filing an application for voluntary strike-off under Section 248(2) of the Companies Act, 2013 (Act).
- In order to streamline the process of obtaining approval for a merger and acquisition (M&A) scheme, Section 233 of the Act has been revised by way of amending Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016, which will come into effect from June 15, 2023. These amendments introduce new provisions that specifically address the timeline for approval, aiming to facilitate more efficient process for the M&A.
Taxation Updates: Impacting Businesses and Individuals
Central Board of Direct Taxes (CBDT) issued a notification identifying the entities that qualify for exemption from the provisions of Angel Tax i.e., Section 56(vii)(b) of the Income Tax Act, 1961. The exempted entities comprise foreign portfolio investors (Category I) registered with the Securities and Exchange Board of India (SEBI), Endowment Funds, Pension funds, and wealth funds from 21 jurisdictions specified in the notification. Additionally, government and government-related investors, as well as banks or entities engaged in the Insurance Business, are also eligible for exemption. Angel tax is levied on unlisted companies when they issue shares at a price that exceeds the fair market value.
- CBDT has issued Guidelines clarifying that no Tax Deducted at Source will be docked if the withdrawn amount does not exceed INR 100. As per the newly inserted Section 194BA of the Income Tax Act, 1961, online gaming platforms must deduct income tax from the net winnings of user’s account at the time of withdrawal as well as at the end of the financial year. Bonus, referral bonuses, and incentives will also be counted towards the taxable winnings on an online gaming platform.
Ministry of Finance Update: Widening the Scope of Laws
Ministry of Finance (MoF) vide notification dated May 9, 2023, amended the Prevention of Money Laundering Act, 2002 (PMLA). The notification further broadens the scope of activities carried out by professionals on behalf of their clients or any other persons. Now activities such as acting as a formation agent, director, or trustee or providing an office will fall under the PMLA. Earlier MoF had expanded the definition of ‘person carrying on designated business or profession’ to include chartered accountants, company secretaries, and cost and works accountants. Additionally, specific activities such as property transactions and asset management have been identified as falling within the purview of the PMLA. Certain exclusions have also been specified, such as lease agreements and activities performed by employees or professionals engaged in company formation.
- MoF has made amendments to the Foreign Exchange Management (Current Account Transactions) Rules, 2000, by omitting Rule 7. As a result of this omission, spendings made outside India using international credit cards for payments will now be subject to the overall limit of the Liberalised Remittance Scheme, which is capped at USD 250,000 per financial year. This amendment seeks to bring parity between the usage of debit and credit cards and ensure effective monitoring of foreign exchange transactions.
- SEBI is seeking comments and inputs from stakeholders on proposed amendments to the SEBI (Alternative Investment Funds) Regulations, 2012. The objective is to strengthen governance mechanisms for Alternative Investment Funds (AIFs) through various measures, including borrowing guidelines for Category I and II AIFs, mandatory dematerialization of securities/investments, extension of custodian appointment to all AIFs, maximum extension of tenure for large value funds catering to accredited investors, and the mandatory renewal of AIFs’ registration.
- SEBI has introduced a proposed mechanism for the voluntary delisting of Non-Convertible Debt Securities and invited public feedback from stakeholders upto May 26, 2023. Views were also sought on expanding the scope to non-convertible redeemable preference shares or other convertible securities.
- SEBI is proposing to expand the definition of the Qualified Institutional Buyer (QIB) to increase the potential investor base for issuers of debt securities and further develop the debt markets and sought public opinion on the said proposals upto May 29, 2023. The capital market regulator has proposed including certain categories of investors in the QIB segment, such as SEBI-regulated entities as well as multistate cooperatives with a net worth of more than INR 500 crores.
- CBDT has proposed amendments to the valuation of shares for taxation under the Income-Tax Act, 1961. The changes aim to include non-resident consideration, introduce new valuation methods, and create a 10% safe harbour provision. These amendments seek to streamline share valuation, provide clarity for non-resident investors, and incorporate necessary safeguards.
- India is preparing to launch its draft for the new Foreign Direct Investment (FDI) policy for space sector, which will allow 100% FDI in the area. The new policy will enable foreign investment in three distinct types of space activities: (i) satellite establishment (ii) operations, and launch vehicle operation and (iii) manufacturing, and sub-system manufacturing. The draft is expected to be released in the coming three months.
- Department of Consumer Affairs is holding consultations with stakeholders including the pharma industry to find a solution to protect the consumer interest. The recommendations include printing manufacturing and expiry date on each strip, and even using QR code and the choice to buy required tablets instead of full strip. The pharmacies at present sell entire strip of ten or more tablets or capsules, and this practice leads to medical wastage and puts an unnecessary financial burden on customers.
- Banks are considering a common framework for borrowers to respond before their loan accounts are classified as fraudulent following the ruling of the Hon’ble Supreme Court in the matter of State Bank of India & Ors vs Rajesh Agarwal & Ors. (Civil Appeal No. 7300 of 2022). A committee will be set up soon to draft the framework, which will detail the process of approaching borrowers, the documents to be submitted, and the reports to be given, along with timelines and the course of action. Banks will share this common framework with the RBI before finalizing the guidelines to be followed by all lenders in such cases.
From the Docket
- Supreme Court has granted relief to private airport developers in the case of Central GST Delhi – III vs Delhi International Airport Ltd. It was held that the private airport developers are not liable to pay service tax on User Development Fee levied on flyers for operation, maintenance, and development of Mumbai, Delhi, and Hyderabad international The court took note of a 2006 tax circular clarifying that collection of amounts by way of taxes, sovereign or statutory dues, would not be subjected to the service tax levy.
- In the case of Alpha G184 Owners Association vs Magnum International Trading Company Pvt. Ltd. a bench of Justice, J K Maheshwari and M. M. Sundresh said that a ‘pedantic and hyper-technical approach’ would cause damage to the very concept of consumerism. The bench stated that the Consumer Protection Act has a ‘laudable objective’ and the 2019 law facilitates consumers to approach forums by providing a very flexible procedure. ‘It is meant to encourage consumerism in the country. Any technical approach in construing the provisions against the consumer would go against the very objective behind the enactment.’
The content provided in this newsletter is intended for general awareness and should not be considered as legal advice. Readers are advised to consult with a qualified legal professional regarding any specific issues mentioned herein. If you have any questions about any of these developments or would like to see something different next month, reach out to us at firstname.lastname@example.org.
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