Legal & Industry Updates - April 2022
LEGAL & INDUSTRY UPDATES
Clarification on Applicability of Regulation 23 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 in Relation to Related Party Transactions (source)
As per a circular issued by Securities and Exchange Board of India, dated March 30, 2022, Regulation 23 (Related Party Transactions) of the Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) was amended inter-alia, enhancing the scope of related party transactions (RPTs) and the materiality threshold for seeking shareholder approval. SEBI has clarified that for an RPT that has been approved by the audit committee and shareholders prior to April 1, 2022, there shall be no requirement to seek fresh approval from the shareholders. All RPT’s that have been approved by the audit committee prior to April 1, 2022 which continues beyond such date and becomes material as per the revised materiality threshold shall be placed before the shareholders in the first general meeting held after April 1, 2022. It is reiterated that an RPT for which the audit committee has granted omnibus approval, shall continue to be placed before the shareholders if it is material in terms of Regulation 23(1) of the LODR Regulations. Additionally, the explanatory statement contained in the notice sent to the shareholders for seeking approval for an RPT is required to provide relevant information so as to enable the shareholders to take a view whether the terms and conditions of the proposed RPT are not unfavorable to the listed entity, compared to the terms and conditions, had the similar transaction been entered into between two unrelated parties. The information so provided shall include but not be limited to the information specified in the circular dated November 22, 2021 so as to enable the shareholders to take an informed decision.
Companies (Management and Administration) Amendment Rules, 2022 (source)
The Ministry of Corporate Affairs on April 6, 2022 has notified the Companies (Management and Administration) Amendment Rules, 2022 (“M&A Amendment Rules”) to further amend the Companies (Management and Administration) Rules, 2014 . The M&A Amendment Rules have inserted a new Rule 14(3) to restrict the inspection of register or index or return in respect of the members of a company. According to the M&A Amendment Rules, particulars of the register or index or return in respect of the members of a Company related to address or registered address (in case of a body corporate); e-mail ID; unique identification number; PAN Number, shall not be made available for any inspection under sub-section (2) or for taking extracts or copies under sub-section (3) of Section 94 (Place of keeping and inspection of registers, returns, etc.) of the Companies Act, 2013.
The Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) (Amendment) Regulations, 2022 (source)
The Insolvency and Bankruptcy Board of India has notified the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) (Amendment) Regulations, 2022 (“VLP Amendment”). As per the VLP Amendment, the liquidator is required to endeavor to complete the liquidation process of the corporate person and submit the final report under Regulation 38 (Final Report Prior to Dissolution) within two hundred and seventy days from the liquidation commencement date where the creditors have approved the resolution and within ninety days from the liquidation commencement date in all other cases. The liquidator shall submit the final report and the compliance certificate in Form-H along with the application under Section 59(7) (Voluntary Liquidation of Corporate Persons) to the Adjudicating Authority. Further, the period of distribution of liquidation proceeds is reduced to 30 days from the current period of 6 months and the period for the preparation of the list of the stakeholders by the liquidator is reduced to 15 days from the last date for receipt of claims.
Implementation of Four Central New Labour Codes Deferred (source)
As reported by National Herald, the implementation of the four central new labour codes is deferred, until at least some of the major industrial states frame rules. Since labour is a concurrent subject, both the Union and the state governments need to frame rules, and only after notification of the new rules can the already notified codes be implemented. All the four new labour codes, the Code on Wages, 2019, the Industrial Relations Code, 2020, the Occupational Safety, Health and Working Conditions Code, 2020, and the Code on Social Security, 2020, comprising of 44 central laws are to be finally subsumed into these codes. Though, it is reported the Union Ministry of Labour is ready with the rules for the four codes subsuming 29 Central labour laws, no major industrial state in the country is yet ready with the rules applicable in their domain. Only the Union Territory of Jammu & Kashmir has notified the rules. Uttar Pradesh, Bihar, Uttarakhand and Madhya Pradesh have only put up draft rules for two codes and Karnataka has prepared rules for only one code. Large industrial states such as Maharashtra, Delhi, Tamil Nadu, Punjab are yet to take action in this regard. Framing of rules takes several months because it needs to undergo a process. It took about three and half months to frame rules at Central level by the Union Ministry of Labour which had started the process in mid-November 2020. The most contentious issues under the new codes are companies employing up to 300 workers need not require government approval of hire and fire (service condition and job security), workers need to give 60-day notice for strike (trade unionism), working hour may be extended to 12 hours (safety of health), and exclusion of many workers from social security net in bigger enterprises through contract or muster roll systems, and in smaller enterprises by making social security rules not applicable. The new codes also require the employers to revamp their system, including the salary structures of the employees. Since the Code on Wages caps employees allowances at not more than 50 per cent of wages, all the companies would significantly change the salary structure, for which only handful of companies are ready at this moment.
Cloudtail Sends Termination Notice to Vendors (source)
As reported by Economic Times, Cloudtail, one of the largest sellers on Amazon India, has sent out contract termination notices to vendors who were working with the firm, stating that it is the process of ceasing the listing and sale of products on the Amazon marketplace in near future. The notice marks formally informing vendors of its impending closure. There is uncertainty amongst the small sellers on account of not knowing where their current inventory and businesses would be moved to. It is also contemplated that some vendors moving larger volume of goods through Cloudtail have already got new agreements on transfer of business to other seller entities. It was earlier reported that Cloudtail had started shipping its inventory in top categories such as electronics, health and personal care to other big sellers on Amazon India, such as VRP Telematics, Rocket Kommerce and Cocobulu Retail. Amazon decided to shut Cloudtail, as India’s current regulations bar entities running online marketplaces and their group companies from owning equity in any seller on their platform or having control over their inventory. Cloudtail played a critical role in the initial success of Amazon in India by delivering large numbers of orders to consumers in a day or two. Cloudtail was credited with shipping over half of all products sold on Amazon India at one point. This was before the government tightened the ecommerce rules in 2016, stating that a single seller could not account for more than 25% of total sales on an online marketplace.
Government Working on Rules to Make E-commerce Fairer for Customers, Small Sellers (source)
As reported by Economic Times, the central government is intending to propose a new set of policies to bring about “algorithmic fairness” for consumers of ecommerce companies. The proposed rules will make it compulsory for ecommerce firms to show search results of several sellers instead of just focussing on preferred sellers. The rules will also restrict ecommerce companies from sharing consumers buying behaviour with anyone. Showing some chosen sellers is construed as limiting choices for consumers and is discriminatory. The objective is to make the algorithm democratic for the consumer. These rules will be a part of the framework for Open Network for Digital Commerce (ONDC) and will apply to all companies engaged in digital commerce including Amazon, Flipkart, Google Playstore, Apple Store, cab aggregators and hotel aggregators. Independent sellers on ecommerce marketplaces have alleged that the platforms give preferential treatments to some sellers. These sellers pop up more in product searches than third-party entities, they have claimed, and also alleged that platforms shared consumer data such as shopping behaviour with their preferred sellers which were partially or fully owned by marketplaces. ONDC will safeguard consumer interest and protect small businesses by granting them equal opportunity. The framework is being worked upon by the Ministry of Consumer Affairs as well as the Department for Promotion of Industry and Internal Trade. The proposed framework seeks to control digital monopolies and create more inclusiveness within the digital commerce ecosystem. As a platform intended to promote open networks developed on open-source methodology, ONDC will also ensure protection of consumer rights and enable small, medium and micro enterprises to get on to the digital bandwagon. The online retail sector has faced flak from small traders and offline retailers for allegedly giving preferential treatment to related parties and flouting regulations.
Government to Float New Data Governance Policy Framework (source)
As reported by Economic Times, in response to the widespread concern over sharing of citizen data and its subsequent monetisation by government agencies, the Centre has now revised the proposed legislation that will now be termed as National Data Governance Framework and Policy (“NDG Policy”). The NDG policy will set standards for governance of citizen data that will set standards for its storage, collection and use solely by the government. The NDG Policy, has done away with provisions related to “monetisation” and will not be applicable to private entities. The NDG Policy is to be released for public consultation in the coming week. The government, which was seeking to better utilise the voluminous data that it collects for delivery of public services, had sought comments on the India Data Accessibility and Use Policy (previous policy), until March 18. The earlier policy was criticised by experts who argued that since the Data Protection Ac has not been implemented yet, there were no security safeguards for anonymisation, privacy infringement and economic incentivisation. NDG policy has however addressed those concerns. Accountability is set for setting standards of anonymisation Further, any overlap with the Personal Data Protection Bill will also be addressed.
Disclaimer: The updates provided in this document is not a legal opinion and does not claim to capture all legal developments related to the subject matter stated herein. It is advisable to seek legal advice for accurate applicability, prior to relying on the updates for any legal matter.