Legal & Industry Updates - August 2019
SPECIAL EVENTS
Seminar on Challenges of Today’s Corporate: Focus on Ethics, Technology & Fraud Prevention, New Delhi, August 8, 2019
Ms. Rita Kumar, Principal Advisor ADR, Regulatory & Compliance and Ms. Monika Singhal, Senior Associate, Corporate Secretarial & Compliance, participated in a seminar on the issue pertaining to ‘Various Challenges Faced by Today’s Corporates’, organised by the PHD Chamber of Commerce and Industry. Some of the key focus points of the session were, strengthening of corporate governance standards, better fraud risk mitigation management, role of a chief financial officer to safeguard its organization from financial risks and the factors influencing the finance sector in the next three years.
Impact of Confidentiality in Arbitration and on the Growth of Jurisprudence and Common Law, New Delhi, August 31, 2019
Ms. Astha Sehgal, Associate, participated in a session on the issue pertaining to ‘Confidentiality in Arbitration’, organized by Singapore International Arbitration Centre and Indian Arbitration Forum. The key points discussed in the session were (i) The implied obligation of maintaining confidentiality arising from arbitration agreements; (ii) difficulty in balancing the proponents of transparency and confidentiality in commercial arbitration agreements; and (iii) the need of resolving disputes arising from joint venture agreements, through arbitration.
LEGAL & INDUSTRY UPDATES
Reliance Industries Limited (“Reliance”) & British Petroleum Company plc (“BP”) to Set-Up Fuel Retail Service & Aviation Fuel Joint Venture ("JV")
As reported, Reliance and BP will be entering into a JV. Reliance will be transferring its existing 1,400 petrol pumps and 31 aviation fuel stations in the JV. BP will hold 49% (forty-nine percent) of the equity stake, whereas, Reliance will hold the balance 51% (fifty-one percent) of the equity stake in the JV. The JV will be set-up with the target to install 5,500 fuel stations in the upcoming five years, to bring up innovative models like the mobile fuel units to provide packaged fuels to customers including home delivery facility. The JV also plans to expand to retail service station network and aviation fuels business across India.
Provident Fund, Pension Fund & Gratuity Fund (“Funds”) not to Form a Part of Liquidation Estate
The National Company Law Appellate Tribunal, on 19th August, 2019, held that as per Section 36(4)(a)(iii) (Liquidation Estate) of IBC, the dues of Funds will not form a part of the liquidation assets or estate of corporate debtors and therefore, cannot be used for settlement of claims of the creditors in the liquidation process.
Saudi Arabia’s Aramco (“Aramco”) to Buy 20% Stake in the Oil-to-Chemicals Division (“O2C”) of Reliance
As reported, Reliance and Aramco have signed a letter of intent to form a long-term partnership where Aramco is in the process of investing in 20% (twenty percent) stake, at an enterprise value of $75 billion for the O2C division of Reliance. Aramco is reported to only have an economic interest for the first five years and not a direct equity stake. Aramco will obtain a direct stake after five years, when the division will be bifurcated into a separate company and become a subsidiary of Reliance.
Corporate Social Responsibility (“CSR”) Norms to be Considered as ‘Civil Liability’ Only
Pursuant to a recent announcement made by the Ministry of Finance, violation of CSR norms under the Companies Act, will be treated only as ‘civil liability’ and not as a criminal offence. Imprisonment of up to three years was incorporated through the Amendment Act. MCA will review the existing CSR provision.
The Consumer Protection Act, 2019
The Consumer Protection Act, 2019 (“New Act”) came into on 09th August 2019. The key features of the New Act are:
The consumer can file cases in the nearest District or State Consumer Commission under the jurisdiction of which he resides or works, rather than filing the case at place of purchase or where the seller has its registered office.
The introduction of the concept of ‘Product Liability’. The consumer can now file a case against a manufacturer or product service provider or product seller, who will now be responsible to compensate the consumer for any injury or damage caused by defective product or deficiency in services.
Recognition of “sharing personal information" of consumers as an unfair trade practice and enabling regulations to be notified on E-commerce.
Any complaint relating to violation of consumer rights, unfair trade practices or misleading advertisements which hampers the interests of consumers as a class will now be forwarded to authorities such as district collector or the commissioner of regional office or the Central Consumer Protection Authority for class action, either in writing or through an electronic mode.
Setting up of a simplified dispute resolution process and has provision for mediation and e-filing of cases.
Introduction of provisions for deterrent punishment and stiff penalties like imprisonment for adulteration of products and impositions of hefty fines to keep a check on misleading advertisement and also lays out penalties for celebrities endorsing or promoting false advertising and adulterated goods.
Supreme Court (“SC”) Upholds Amendments Made to Section 5(8)(f) (Financial Debt) of the Insolvency Bankruptcy Code, 2016 ("IBC")
The Hon’ble SC on 09th August, 2019 upheld the amendments made to Section 5(8)(f) (Financial Debt) of the IBC, for treating homebuyers as ‘financial creditors’. It was observed that any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing and to be treated as 'financial debt'. Further it was held that the Real Estate (Regulation and Development) Act, 2016 (“RERA”) is to be read with the Consumer Protection Act, 1986 ("CP Act") and IBC, and in case of any conflict, provisions of IBC shall prevail. Therefore, an aggrieved homebuyer can now seek relief under three laws: RERA, CP Act and IBC. The homebuyers are now empowered to initiate bankruptcy proceedings against a developer before the National Company Law Tribunal and shall be treated at par with banks and other institutional creditors.
Reserve Bank of India (“RBI”) Highlights Lapses in Meetings of Committees while Investigating Infrastructure Leasing & Financing Services ("IL&FS") debacle
As reported, RBI in its inspection report has outlined that the key committees, ‘Risk Management Committee’ and the ‘Investment Review Committee’ ("IRC"), of IL&FS, did not meet for last three years and no meeting of the IRC had taken place since 5th October, 2015. All investment related decisions of IRC were being taken and approved by the Committee of Directors without any system of monitoring and reviewing the investments at periodical intervals. The IL&FS board failed to monitor the affairs of the entities where investments were made. The report also highlighted that there was no disclosure of any non-performing assets for the last four years and wide divergences were observed between the reported and assessed positions of assets' classification and provisions.
Notification of the Arbitration and Conciliation (Amendment) Act, 2019 (“A&C Act”)
The President of India gave his assent to the amendments to the A&C Act, which was published in the Official Gazette of India with effect from 09th August, 2019. The key amendments of the A&C Act have been covered previously in the ‘Legal and Industry Updates - July 2019’.
The Investment Pitch for Jammu and Kashmir (“J&K”) and Ladakh
As reported, the Trident Group has offered an investment of Rs. 1,000 crores in J&K in the small-scale industries and peripheral sectors serving hospitality. The investment promises to create direct and indirect employment opportunities to 1,000 families including special employment generation plans for women of J&K. (source)
As reported, Reliance has announced investment initiatives for J&K and Ladakh (“New Union Territories”). A special task force is intended to be set up to focus on making investments in the New Union Territories, especially in key sectors like tourism, agriculture, IT and healthcare among others. (source)
As reported, Uday Kotak, who is the President-Designate of Confederation of Indian Industry (“CII”) and Managing Director and Chief Executive Officer of Kotak Mahindra Bank has called for extending support to Indian Government and private initiatives to promote investments, growth and create job opportunities in J&K. (source)
As reported, hospitality player, Lemon Tree Hotels has also proposed two new properties with 35- 40 beds each in Gulmarg and Sonmarg areas. Lemon Tree Hotels already operates three hotels with a capacity of 176 beds in the region. (source)
As reported, ‘Gujarat Cooperative Milk Marketing Federation’, which sells dairy products under the brand name ‘Amul’ is in talks with ‘Jammu and Kashmir Milk Producers’ Cooperative Ltd’ for aiding in the development of the dairy and animal husbandry sector of J&K and to create employment opportunities. It also plans to extend support in technology, management and procurement systems in J&K. (source)
As reported, helmet maker Steelbird Hi-tech India Limited ("Steelbird") has offered to set up a plant in J&K with an aim to start a new industrial revolution and employment opportunities for J&K. Steelbird also plans to provide manufacturing facility in accordance with the upcoming global investors summit to be held at Srinagar, J&K. (source)
Amendment to Companies (Share Capital and Debentures) Rules, 2014
The MCA, on 16th August, 2019, amended the provisions related to Differential Voting Rights (“DVRs”) under the Act vide Companies (Share Capital and Debentures) Amendment Rules, 2019 (“Amendment Rules”) by amending Companies (Share Capital and Debentures) Rules, 2014. The key amendments made under the Amendment Rules are as follows:
MCA has raised the existing cap of 26% (twenty-six per cent) of the total post-issue paid up equity share capital to 74% (seventy-four per cent) of total voting power in respect of shares with DVRs of a company. The requirement of distributable profits for three years for a company to be eligible to issue shares with DVRs is removed.
The authority to sign the physical share certificate in a one-person company is now extended to the company secretary as well. Prior to the amendment, such authority was limited to the director of the company only.
The time period within which Employee Stock Options can be issued by start-ups recognized by the Department for Promotion of Industry & Internal Trade (DPIIT), to promoters or directors holding over 10% (ten per cent) of equity shares, has been increased from five years to ten years from the date of its incorporation.
The rule pertaining to the debenture redemption reserve (“DRR”) is substituted by a new rule. The new rule provides about the creation of DRR, the adequacy limits, utilization of the DRR and partly-convertible debentures.
Patna High Court Questions the Delay in Finalising the Amendments to the Drugs and Cosmetics Rules, 1945 for E-pharmaceutical Companies ("Draft Rules")
As reported, Hon’ble Patna High Court on 31st July, 2019, has questioned the Ministry of Health and Family Welfare (“MOHFW”) regarding the delay in finalising of the Draft Rules. The Hon’ble Court noted that the Draft Rules have not been finalised almost a year after their publication and questioned such delay from the MOHFW. On 17th December, 2018, the Hon’ble Madras High Court had imposed a ban on online sale of medicines by e-pharmacies, which was later stayed by the court in January, 2019 directing MOHFW to finalize the Draft Rules.
MCA to Determine InterGlobe Aviation’s (Indigo’s) Promoter Dispute from the Lens of a "Management Dispute" or a “Company Law Violation”
As reported, the promoters of Indigo have been in a dispute alleging corporate governance violations. MCA shall determine whether allegations of governance lapses are a management dispute or violation of company law. In case of company law violations, IndiGo will be required to rectify the non-compliance or invoke its powers under Section 6 (Act to override memorandum, articles, etc) of the Companies Act, 2013, (“Act”) enabling it to override any memorandum, articles, agreements or resolutions passed at general meeting or by the board of directors in case of violation of statutory norms.
Indian Space Research Organization (“ISRO”) Invites Private Sector Companies to Build Polar Satellite Launch Vehicles (“PSLVs”)
As reported, ISRO has invited an Expression of Interest (“EoI”), inviting only Indian private sector companies to build five PSLVs, for the purpose of boosting the ‘Make-in-India’ initiative. ISRO’s new commercial arm ‘New Space India Limited’ ("NSIL") which was established on 06th March, 2019, has been given the responsibility for achieving the production of PSLVs through Indian industries. NSIL has stated that only a consortium can participate in the EoI and has requested the Indian companies to make its submissions by 6th September, 2019.
SC Determines the Rights & Limitations of an Employee to Withdraw Resignation
The Hon’ble SC, on 22nd August 2019, determined the rights and limitations of an employee to withdraw its resignation and highlighted the general principle, that an employee is entitled to withdraw its resignation at any time before it becomes effective or prior to the expiry of the period of notice, but the principle has exceptions attached to it, i.e. (i) in case of presence of contrary provisions governing the terms and conditions of the office/post or in the presence of a legal contractual or constitutional bar, a ‘prospective resignation’ cannot be withdrawn by the employee. or (ii) if the office administration have already made arrangements against the employee’s resignation or letter of retirement and has hired a new employee for the job, in such case the unrestrained choice of an employee to withdraw its resignation may be constrained.
Packaged Food Labels May have ‘Expiry/Use by Date’ Along with the ‘Best Before Date’
As reported, companies selling packaged food commodities may soon have to provide details with respect to ‘expiry date’/’use by date’ along with the ‘best before date’ on the labels of packaged food items. The companies might have to offer discounts or enable the consumers to bargain on those food products which have crossed the ‘best before date’ but are still safe for consumption. The ‘expiry date/use by date’ indicates that the food items might not have the required quality and safety attributes and therefore cannot be sold to consumers for consumption. Whereas, the ‘best before date’ labels indicate that period within which the products have the required qualities therefore can be marketed for consumer’s consumption. This proposal is under consideration by the Food Safety and Standards Authority of India which aims to reduce food wastage.
MCA Issues Clarification Under Section 232(6) (Merger and Amalgamation of Companies) of the Companies Act, 2013
The MCA, on 21st August 2019, issued clarifications to the queries raised by stakeholders under section 232(6) (Merger and Amalgamation of Companies) of the Act, which allows the companies to decide and agree upon an 'appointed date' (“AD”) from which the schemes referred in the Section 232(6) shall come into force. As per the clarifications provided by MCA, the AD under the scheme may be a specific calendar date or an event-based date as mutually agreed upon by the parties to the scheme. The AD identified under the scheme shall be deemed to be the 'acquisition date' and date of transfer of control for the purpose of conforming to accounting standards.
Relaxing of Foreign Direct Investment (“FDI”) Norms
The union cabinet, on 28th August 2019, approved and relaxed norms pertaining to FDI in various sectors. 100% (hundred percent) FDI under automatic route is allowed in (i) coal mining, setting up of coal processing plants and sale of coal and (ii) contract manufacturing, under a legally tenable contract, whether on principal to principal or principal to agent basis. In Single Brand Retail Trading (i) local sourcing norms for FDI have been eased and (ii) online sales prior to opening of brick and mortar stores is now permitted. Further, 26% (twenty-six percent) FDI under government route for uploading/streaming of news and current affairs is permitted in digital media.
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.