Legal & Industry Updates - February 2020
SPECIAL EVENTS
Panelist Discussion by Ivy Law at the Conference on Holistic Mining Policy for India, February 20, 2020
Kaveri Kumar, Founder and Head of Corporate Practice, was invited as a panelist at a round table panel discussion on 'The Holistic Approach to Mining and its User Industries', organized by the Foundation of Resource Convergence Society. Kaveri, was asked to provide her views on the role of the judiciary and the impact of the legal & regulatory framework on the operations of the mining sector. Kaveri elucidated the requirement of legal sectoral reforms which could facilitate operations in the sector and also the crucial role the judiciary plays in balancing the legal framework and mining operations. The panel comprised of eminent panelists, Former Secretary at the Ministry of Steel, Former Secretary at the Ministry of Coal, and other top executives from the mining industry. The conference primarily focused on the following key areas:
Need for re-examining mining policy
The Mines and Minerals (Development and Regulation Act, 1957
Mining ban in Karnataka and Goa
E-auctions of mines in India
Allocation of mines – Relation between survey and preferential allocation of mines
Mining Ban & E-auction - effects on direct and in-direct employment
Rationalization of royalty and taxes
Licenses and clearances
Environment friendly technology in mining
Merchant and captive mine allocations and terms
Impact analysis - Mineral Trade & Logistics
Impact analysis on dependent sectors – Steel, Power, Cement, White goods & Rural markets
LEGAL & INDUSTRY UPDATES
Amendment to the National Company Law Tribunal Rules 2016 (“NCLT Principal Rules”)
The Ministry of Corporate Affairs (“MCA”) on 3rd February 2020 notified the National Company Law Tribunal (Amendment) Rules 2020 (“NCLT Rules 2020”). The NCLT Rules 2020, have in the Schedule of Fees of the NCLT Principal Rules have inserted a new Serial number 22A, for the filing of an application in cases of takeover of companies which are not listed. The prescribed filing fee for the said application is Rs.5000. Further, in Annexure B (list of documents to be attached with the petition or application) after S.No. 12 of the NCLT Principal Rules, a new S.No 12A is inserted prescribing the list of documents to be submitted with the takeover application stated above.
High Court Relief for E-tailers in Competition Commission of India (“CCI”) Probe
As reported, CCI in January, 2020 had ordered a probe into alleged violations of competition law and certain discounting practices by the two e-commerce giants Amazon and Flipkart. The Hon’ble Karnataka High Court on February 14, 2020 granted an interim stay into a probe ordered by CCI against the e-tailer’s business practices. The court has given two months for all the parties involved, which includes trade body associations of small merchants, to respond to the plea before it hears the matter again. Trade bodies, Confederation of All India Traders and Delhi Vyapar Mahasangh, on whose complaint the CCI probe was initiated, have decided to file an appeal against the High Court order. Both the companies have faced complaints of deep discounting and favouritism towards select sellers, among others.
Amendment to the Companies (Compromises, Arrangements & Amalgamations) Rules 2016
The MCA on 3rd February, 2020, notified the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2020(“Companies Amendment Rules”). The Companies Amendment Rules, inserted a new Rule 3(5) in the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, (“Principal Rules”). The new Rule 3(5) provides for an application being made for an arrangement by a member (for the purpose of takeover offer in terms of Section 230(11) of the Companies Act, 2013 (Power to Compromise or make arrangements with Creditors and Members), when such member holds not less than three-fourths of the shares in the company, and such application is filed for acquiring any part of the remaining shares of the company. However, the new sub-rule does not apply to any transfer or transmission of shares through a contract, arrangement or succession, or any transfer made in pursuance of any statutory or regulatory requirement. Further, new sub-rule (6) prescribes the details for the valuation of shares and the bank account details for the take-over consideration.
Proposed Drugs and Magic Remedies (Objectionable Advertisements) (Amendment) Bill, 2020
The Ministry of Health and Family Welfare, on February 3, 2020 has proposed to amend the Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954 in order to keep pace with changing time and technology. In this regard, a draft bill namely, the Drugs and Magic Remedies (Objectionable Advertisements) (Amendment) Bill, 2020 (“Draft Bill”) has been prepared. The Draft Bill, amongst others, proposes to (1) elaborate the definition of an “advertisement” to include audio or visual publicity made by means of electronic media, internet or website; (2) the penalties monetary and penal are enhanced, in the case of first conviction, with imprisonment which may extend to two years from six months and with fine upto ten lakh rupees (the amount was not specified earlier) and in the case of a subsequent conviction, with imprisonment which may extend to five years from one year and with fine upto fifty lakh rupees (the amount was not specified earlier).
Meaning of “Predatory Pricing/Abnormally Low Bids” for Submission of Tenders by Procurement Entities
The Ministry of Finance through an Office Memorandum dated February 6, 2020, clarified the meaning of “Predatory Pricing/Abnormally Low Bids”, for procurement entities facing difficulties in finalizing tenders. The ministry referred to para 7.5.7 of the Manual of Procurement of Goods, 2017, issued by the Department of Expenditure which states: “An Abnormally low Bid is one in which the Bid price, in combination with other elements of the Bid, appears so low that it raises material concerns as to the capability of the bidder to perform the contract at the offered price. Procuring Entity may in such cases seek written clarifications from the bidder, including detailed price analyses of its bid price in relation to scope, schedule, allocation of risks and responsibilities, and any other requirements of the bids document. If, after evaluating the price analyses, Procuring Entity determines that the bidder has substantially failed to demonstrate its capability to deliver the contract at the offered price, the Procuring Entity may reject the bid/proposal. However it would not be advisable to fix a normative percentage below the estimated cost, which would be automatically be considered as an abnormally low bid. Due care should be taken while formulating the specifications at the time of preparation of bid document so as to have a safeguard against the submission of abnormally low bid from the bidder.”
Disqualification of Directors Due to Failure in Filing of Returns
As reported, the Hon’ble Bombay High Court in an interim order declined to stay a 2017 circular issued by the corporate affairs ministry and granted no relief to directors of various companies against disqualification due to failure in filing of returns. The circular comprised of a list of directors who were disqualified for non-filing of returns of their respective companies. The High Court was of the prima facie opinion that, if the company in which the person is or has been a director has not filed financial statements or annual returns for any continuous period of three financial years on the date on which the company fails to do so, a disqualification is incurred. Therefore, if such financial statements or annual returns for any continuous period of three financial years have not been filed, then the action is triggered. The High Court further clarified, if such a director had been appointed within six months of the company becoming a defaulting company, he would not incur disqualification.
Dilution of Promoter Holding of Bandhan Bank
As reported, the Reserve Bank of India (RBI) may offer a breather to Bandhan Bank to dilute its promoter holding after allowing another private lender, Kotak Mahindra Bank, time to reduce the holding of its promoters, while capping their voting rights. RBI’s bank licence rules mandate that promoters of private banks need to reduce their shareholding to 40% within three years, 20% in 10 years and pare it to 15% in 15 years. Currently, Bandhan Bank promoters hold 61% stake in the lender. Last September, RBI had disallowed the lender from opening new branches as it was not able to bring down the shareholding of non-operative financial holding company to 40%, which was prescribed in the licensing conditions. In addition, the regulator had ordered a freeze on the salary of the bank’s managing director and CEO.
Clarification on Foreign Direct Investment Policy (FDI Policy) in Single Brand Retail Trading (SBRT)
DPIIT on February 27, 2020, issued a clarification on the issue pertaining to whether sourcing of goods from units located in a Special Economic Zones (SEZ’s) would qualify as sourcing from India, as per FDI Policy. As per the extant FDI Policy, in respect of proposals involving foreign investment beyond 51%, sourcing of 30% of the value of goods procured, are required to done from India. DPIIT clarified, as regards, sourcing of goods from units located in SEZ’s in India, such units would qualify as sourcing from India, subject to Special Economic Zone Act, 2005 (as amended from time to time) and other applicable laws/rules/regulations. It was further clarified, that goods which are proposed to be sourced by an SBRT entity from such units have to be manufactured in India. FDI in SBRT is governed by provisions of para 5.2.15.3 of Press Note 4 (2019). However, compliance with all the conditions enumerated in the FDI Policy and as notified under Foreign Exchange Management Act would continue to be the responsibility of the manufacturing entity.
Review of FDI Policy in Insurance Sector
DPIIT on February 21, 2020 through Press Note 1 (2020 Series) amended the FDI Policy to allow 100% FDI for intermediaries or insurance intermediaries. Intermediary services include insurance brokers, re-insurance brokers, insurance consultants, corporate agents, third-party administrators, surveyors and loss assessors.
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.