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We warmly welcome our valued readers as we take immense pride in introducing our newsletter. This edition brings to light the most recent happenings in the arena of India’s corporate legal domain for the month of October 2023. Our corporate team has diligently gathered an array of news and insights covering regulatory advancements thereby ensuring your continuous awareness and knowledge. Stay ahead with our meticulously curated newsletter, encompassing regulatory updates and insights. Get comfortable, enjoy your favorite drink, and travel through India’s corporate legal landscape.
- The Ministry of Finance vide notification amended the Money Laundering (Maintenance of Record) 2005 (PMLA Rules). Some of the key changes brought in by the said Amendment are listed below:
- Implementation of a group-wide policy on sharing of information for client due diligence and management on money laundering and terror financing risk by reporting entity (which is part of a group).
- reporting entity shall be required to obtain from the third party or the Central KYC Records Registry, the records and information for client due diligence on an immediate basis in the event it relies on a third party for identification of the client.
- every reporting entity including Virtual Digital Assets Service Providers (VDASPs) must ensure to identify its clients and the beneficial owners using ‘reliable and independent sources of identification’ when they commence an account-based relationship or handle a transaction of Rs. 50,000/- or more (whether it’s a single transaction or a series of connected ones), or any international money transfer operations. Besides, it has to take reasonable steps to understand the nature of the customer’s business, its ownership, and control upon the occurrence of any of these specified events.
- The Central Government is considering a proposal to build a 25,000 Graphics Processing Units (GPUs) cluster to support Artificial Intelligence (AI) startups. GPU is a high-powered version of the Central Processing Units and is used to create AI models and applications. There is currently a worldwide shortage of such GPUs owing to the high demand from the AI industry, but a massive 25,000 GPU cluster being built by the central government could help provide much-needed computing power for Indian AI startups. The project will also ensure the sovereignty of Indian data and a visionary step that will accelerate innovation.
- According to the latest version of the draft Indian Telecommunications Bill 2023, the Central Government plans to introduce a regulatory sandbox for over-the-top (OTT) communication applications. The sandbox will test features before they are released in the market. This move will foster a more innovative and competitive environment. Specific regulations and eligibility requirements will be unveiled. The sandbox will facilitate the testing of features by emerging and established companies. The move is anticipated to enhance user experience and fortify the security framework.
- In order to curb the illegal betting and gaming platforms by offshore platforms that use domain farming to operate in India, the Central Government is considering steps involving stricter guidelines for Unified Payments Interface (UPI) transfers. Some of the other possible solutions that the Central Government is exploring include more stringent verification process, active tracking and blocking of unregistered online gambling enterprises, and Tax Collection at Source (TCS) on UPI payments.
Ministry of Corporate Affairs (MCA) Updates:
- MCA vide its notification has made it compulsory to issue securities in dematerialized (DEMAT) form by private companies. As per newly inserted Rule 9B of the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023, all private companies except small company(s) and government company(s) are now required to:
- issue all their securities only in DEMAT form, from the date of this notification i.e., October 27, 2023;
- facilitate dematerialization of all its existing securities; and
- ensure that the entire holding of securities of its promoters, directors, and key managerial personnel has been dematerialized before the issue of any securities or buyback of its securities in accordance with the provisions of the Depositories Act 1996 and regulations made thereunder.
The timeline for compliance with the mandatory dematerialization of existing securities is within 18 (eighteen) months from the closure of the financial year on March 31, 2023, i.e., on or before September 30, 2023. However, transfer of securities and further issues can only happen in DEMAT form, from the date of the notification onwards i.e., October 27, 2023.
Besides, all public companies are required to give details in Form PAS-7 of share warrants issued before the commencement of the Companies Act, 2013 i.e., April 01, 2014, to the respective Registrar of Companies on or before January 26, 2024, and get the shares dematerialized in their account post the surrender from bearers of share warrants on or before April 26, 2024.
- Additional disclosure requirement for the Limited Liability Partnership (LLP(s)) under the Limited Liability Partnership (Third Amendment) Rules, 2023 has been introduced by the MCA. Now LLPs are required to maintain a register of partners with details of their beneficial interest in Form 4A at their registered offices within 30 days of its incorporation and on or before November 26, 2023, in case of existing LLPs. In addition, the concept of submission of declaration in respect of beneficial interest in any contribution, akin to the provisions under the Companies Act, 2013, has been introduced for the LLPs. A person who holds a beneficial interest in the LLP on behalf of some other individual/ entity and the person who holds or acquires a beneficial interest in the contribution of an LLP but whose name is not registered in the register of partners has to file a declaration in Form 4B and Form 4C respectively within a period of 30 days from the date of entering his/ her name in the register or acquiring an interest in the LLP.
- MCA has vide its notification dated October 27, 2023, mandated companies to designate a person responsible for furnishing information and extending cooperation to authorities with respect to the beneficial interest in shares of a company under Rule 9 of Companies (Management and Administration) Rules, 2014. The appointment of the designated person will be done by passing a resolution at board level and the details of the same shall be reported in the annual return.
- MCA has notified amendment to Section 23 of the Companies Act, 2013 which aims to facilitate the direct listing of shares of Indian public companies, including in GIFT city, in foreign jurisdictions. The Government may soon notify the class of public companies and classes of securities that would be permitted for direct listing in foreign jurisdictions.
- Non-residents and foreign corporations seeking to open bank accounts within IFSC Gift City will be exempted from providing their PAN. Instead, they must file a declaration in Form 60 and should not have any tax liabilities in India.
- Department for Promotion of Industry an Internal Trade (DPIIT) start-up registered companies have received a welcome clarification from the Central Board of Direct Tax stating that they will not be subject to tax verification related to angel taxation. This provides much awaited clarity regarding the application of angel tax to registered startups, helping establish a framework that minimizes legal disputes and prevents past issues with angel tax valuations for startups and associated tax assessments.
- On recommendations of the 45th Goods and Service Tax (GST) Council meeting, the Central Board of Indirect Taxes and Customs (CBIC) issued the clarification on October 27, 2023, relating to the export of services-condition under (iv) of Section 2(6) of the Integrated Goods & Services Tax (IGST) Act 2017, that supplier of service and recipient of service are not merely establishments of distinct persons. CBIC further clarified that a company incorporated in India and a body corporate incorporated by or under the laws of a country outside India, which is also referred to as a foreign company under the Companies Act, 2013 are separate persons under the Central Goods & Services Tax (CGST) Act, 2017 and thus are separate legal entities.
Securities Exchange Board of India (SEBI) Updates:
- In order to streamline the transmission process in the securities market, SEBI announced a centralized method for reporting and verification through KYC Registration Agencies (KRAs) in the event of an investor’s death. The mechanism shall come into effect on January 1, 2024. According to the circular, after discovering of an investor’s demise, the relevant intermediary must contact the notifier or nominee for the death certificate and PAN. They also have to verify the death certificate either offline or online mode on the next business day.
- SEBI has released a notification on October 6, 2023 with respect to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, (LODR) allowing for relaxation to entities with listed non-convertible securities from dispatching physical copies of the financial statements to the holders of such securities in compliance with Regulation 58(1)(b). This notification has been released in relation to SEBI’s previous circular, which granted listed entities relaxations with regard to Annual General Meetings (AGMs) and general meetings, and the MCA circular, which extended the relaxation for listed entities with regard to sending physical copies of financial statements, including the Board’s report, Auditor’s report, or other necessary documents to shareholders, for AGMs conducted. The notification extends the requirements of the above-mentioned regulation until September 30, 2024.
From the Docket:
- A Division Bench of the Hon’ble Supreme Court in the case of M/S Mathosri Manikbai Kothari College of Visual Arts vs. The Assistant Provident Fund Commissioner,held that ‘The mere fact that two Institutes, managed and controlled by the same management, offer different courses or were established at different times is not relevant for their clubbing under the EPF Act’. The Bench concluded that even though the two institutions’ eligibility for The Employees’ Provident Funds and Miscellaneous Provisions (EPF) Act, 1952 coverage may overlap, they will both be protected by the same statute.
- In the case of Smt. M. Hemalatha Devi & Ors. vs. B. Udayasri, the Hon’ble Supreme Court of India held that regardless of whether the parties have an arbitration agreement, consumers cannot be forced to arbitrate after they file a complaint before Consumer Forum. The Consumer Protection Act is a unique law. The remedies that it provides constitute special remedies that cannot be taken away from a customer. It is a recourse given to the customer if he/she discovers a defect in the products or services they have been given and consequently, he/she can bring grievances to the notice of the government-approved consumer forum.
- The Hon’ble Supreme Court of India in the case of Assessing Officer Circle (International Taxation) 2(2)(2) New Delhi Vs. M/s Nestle SA, stated that Double Taxation Avoidance Agreement (DTAA) cannot be enforced in Indian courts, authorities, or tribunals unless it has been formally notified by the Central Government under Section 90 of the Income Tax Act, 1961.
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