Legal & Industry Updates - March 2020
SPECIAL EVENTS
Webinar on ‘Grand Challenge for Cyber Security’, March 31 2020
The team at Ivy Law participated in a webinar, conducted by Data Security Council of India (“DSCI”). The webinar was an interactive session involving entrepreneurs and start-ups. The key focus of the webinar was on problem statements faced by start-ups and entrepreneurs, the process for legal entity registration as per the start-up definition of Department for Promotion of Industry and Internal Trade. The webinar was supported by the Ministry of Electronics and Information Technology (Meity), to promote a culture of innovation and entrepreneurship by building key cyber security capabilities in the country.
LEGAL & INDUSTRY UPDATES
Covid–19 & Contracts
As reported, several Indian IT companies are seeking client waivers to allow employees to work from home (WFH). In certain contracts, client waivers are mandatory as some service agreements stipulate maintaining a very high level of security. Although, as gathered, clients are open to issuing the waivers, but for some projects governed by strict privacy and data security laws, the transition for WFH requirements countrywide is considered as a challenge. The WFH model could damage the ability to manage day-to-day service delivery for certain clients. It is also apprehended, the current situation, may lead to inadvertent breach of contracts, if the deliverables are not delivered at the prescribed time. However, as most of the contracts have a 'Force Majeure' clause, the execution of work could move to a WFH model. In cases where confidentiality of the work could be jeopardised, in such cases the said work could be continued later with client consent. Further, the critical challenges operationally are to establish the necessary management and oversight procedures, adequate WFH infrastructure to ensure that the workforce has adequate in-home network connections, for which IT companies are upgrading their networks and testing procedures.
Companies (Meetings of Board & its Powers) Amendment Rules, 2020
The Ministry of Corporate Affairs (“MCA”), on March 19, 2020 has issued a notification amending the Companies (Meetings of Board and its Powers) Rules, 2014. The amended Companies (Meetings of Board and its Powers) Amendment Rules, 2020, in order to take precautionary steps to overcome the outbreak of Covid-19, have in-principle relaxed the requirement of holding board meetings with physical presence of directors, on matters such as for approval of the annual financial statements, Board’s report, as prescribed under Section 173 (2) (Meetings of the Board) of the Companies Act, 2013 (“Act”), read with Rule 4 (Matters not to be Dealt with in a Meeting through Video Conferencing or other Audio Visual Means) of the Companies (Meetings of Board and its Powers) Rules, 2014. Such meetings may till 30th June, 2020 be held through video conferencing or other audio-visual means, by duly ensuring compliance of Rule 3 (Meetings of Board through Video Conferencing or Other Audio-Visual Means) of the (Companies (Meetings of Board and its Powers) Rules, 2014.
Spending of Corporate Social Responsibility (CSR) Funds for Covid-19 (source 1, source 2)
The MCA on March 23 2020, issued a clarification regarding spending of CSR funds for Covid-19. As per the clarification, spending of CSR funds for Covid-19 activity is an eligible CSR activity. Funds maybe spent for various activities related to Covid-19, under item (i) and (xii) of Schedule VII of the Act, relating to promotion of health care, including preventive healthcare, sanitation and disaster management. Further, item no. (viii) of the Schedule VII of the Act, enumerates activities that may be undertaken by companies in discharge of their CSR obligations and inter alia provides that contribution to any fund set up by the Central Government for socio-economic development and relief qualifies as CSR expenditure. The PM-CARES Fund has been set up to provide relief to those affected by any kind of emergency or distress situation. Any contribution made to the PM-CARES Fund shall qualify as CSR expenditure under the Act.
Filing Form Company Affirmation of Readiness towards Covid-19
MCA on March 23 2020, has deployed a web Form CAR (Company’s Affirmation of Readiness Towards Covid-19). The filing is applicable to all Indian companies/ Foreign companies/ LLPs/ Foreign LLPs. There is no fee applicable for Form CAR. Form CAR has been deployed as a purely confidence building measure to assess the readiness of the companies to deal with Covid-19 threat in India. As such no penalty or enforcement related action is applicable. Stakeholders may at their convenience file this form. It is purely voluntary as part of contribution towards joining the movement to fight against the spread of the disease.
Ministry of Health and Family Welfare Issues Telemedicine Practice Guidelines
The Ministry of Health and Family Welfare, on March 25 2020, issued Telemedicine Practice Guidelines (“Guidelines”), enabling doctors to write prescriptions and provide consultation based on telephone conversations. The Guidelines aim to reduce the risk of transmission for medical professionals as well as patients. The Guidelines, aim at decongesting healthcare facilities in the wake of Covid-19, along with making health care facilities available in remote areas. The Guidelines provide information on technology platforms, tools available to medical practitioners, technology and transmission of voice, data, images and information etc.
Government Introduces Limited Liability Partnership (LLP) Settlement Scheme 2020 (“LLP Scheme”)
MCA, on March 4th 2020, notified the LLP Scheme. It was observed, a large number of LLP’s had defaulted in filing information with regard to any change made in the LLP agreement, statutory and annual returns, and in filing notice of appointment of a partner/designated partner. It was also noted, a large number of LLPs had not filed statutory documents in a timely manner with the Registrar of Companies (“RoC”). As part of Government's efforts to promote ease of doing business, a one-time relaxation is provided to the defaulting LLPs to make good their default by filing pending documents and to serve as a compliant LLP in future. The Central Government has decided to introduce the LLP Scheme, by allowing a one-time condonation of delay in filing of statutory documents with the RoC.
Advice to Employers & Private Establishments for Non-Termination of Employee’s Services
The Ministry of Labour and Employment, on March 20 2020, has issued an advisory, to all Employer’s Associations and all the employer’s and owners registered with the associations, to extend their coordination by not terminating their employees, particularly contractual or casual workers, from their job or reduce their wages. If any worker takes leave, the worker should be deemed to be on duty without any consequential deduction, in wages for this period. Further, if the place of employment is to be made non-operational due to Covid-19, the employees of such unit will be deemed to be on duty.
Special Measures under the Act & the Limited Liability Partnership Act, 2008 in View of Covid-19 Outbreak
MCA on March 24 2020, in order to support and enable companies and limited liability partnerships (LLPs) in India, focused on taking the necessary measures to address the Covid-19 threat, including the economic disruptions caused by it, and has issued the following measures to reduce the compliance burden and other risks:
No late fee for statutory flings – no additional fees shall be charged for late filings during a moratorium period from 1st April to 30th September 2020, in respect of any document, return, statement etc., required to be filed in the MCA-21 Registry, irrespective of its due date, which will not only reduce the compliance burden, including financial burden of companies, LLPs at large, but also enable long-standing non-compliant companies, LLPs to make a 'fresh start'.
Meetings of the Board - the mandatory requirement of holding meetings of the Board of the companies within the intervals provided in section 173 of the Act (120 days) stands extended by a period of 60 days till next two quarters i.e., till 30th September. As a one-time relaxation, the gap between two consecutive meetings of the Board may extend to180 days till the next two quarters, instead of 120 days as required under the Act.
The Companies (Auditor's Report) Order, 2020 shall be made applicable from the financial year 2020-2021 instead of being applicable from the financial year 2019-2020 as notified earlier.
Meeting of Independent Directors (ID) - as per the Act, IDs are required to hold at least one meeting without the attendance of non-independent directors and members of management. For the financial year 2019-20, if the IDs of a company have not been able to hold such a meeting, the same shall not be viewed as a violation. The IDs, however, may share their views amongst themselves through telephone or e-mail or any other mode of communication, if they deem it to be necessary.
Deposit Payment Reserve - requirement under section 73(2)(c) of the Act, to create the deposit repayment reserve of 20% of deposits maturing during the financial year 2020-21, before 30th April 2020 shall be allowed to be compiled with till 30th June 2020.
Investing Maturing Amount of Debentures - Requirement under Rule 18 of the Companies (Share Capital & Debentures) Rules, 2014 to invest or deposit at least 15% of amount of debentures maturing in specified methods of investments or deposits before 30th April 2020, may be complied with till 30th June 2020.
Filing of Commencement of Business Declaration - newly incorporated companies are required to file a declaration for Commencement of Business within 180 days of incorporation under section 10A of the Act. An additional period of 180 days is allowed for this compliance.
Minimum Residency Requirement of Directors - Non-compliance of minimum residency in India for a period of at least 182 days by at least one director of every company, under Section 149 of the Act, shall not be treated as a non-compliance for the financial year 2019-20.
Yes Bank Limited Reconstruction Scheme, 2020
The Ministry of Finance, on March 13 2020, notified the Yes Bank Limited Reconstruction Scheme, 2020 (“Reconstruction Scheme”). In terms of the deteriorating financial position of Yes Bank Limited (“Yes Bank”) relating to liquidity, capital, and the absence of any credible plan for infusion of capital necessitated, the Reserve Bank of India, in public interest and particularly in the interest of the depositors, placed Yes Bank under moratorium by an order of the Government of India, Ministry of Finance. State Bank of India and certain other investors have expressed their willingness to make investment in Yes Bank and to participate in the Reconstruction Scheme. The Reconstruction Scheme broadly addresses (i) the change in share capital, (ii) alteration of articles of association of the reconstructed bank, (iii) constitution of the board of directors, (iv) rights and liabilities of the reconstructed bank, (v) continuation of services of the employees, and (vi) no change in the offices or branch network of the reconstructed bank.
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.