Legal & Industry Updates - March 2021
SPECIAL EVENTS
Webinar on Legal Demand of Next-Gen Companies, March 04, 2021
The team at Ivy Law participated in a webinar on “Legal Demand of Next Gen Companies”, conducted by Lawyered. The webinar highlighted different challenges faced by Next-Gen companies like lack of employment benefit schemes during Covid, other administrative issues such as deficiencies in e-registration and single window clearance of licenses. The panel also discussed the importance of Next-Gen companies in providing ease to the consumers and in generating employment opportunities. The impact of campaigns like Start up India and Make in India were also emphasized.
LEGAL & INDUSTRY UPDATES
The Securities and Exchange Board of India (SEBI) Proposes Changes to Rules for Appointment of Independent Directors (source)
SEBI on March 01, 2021, issued a Consultation paper on “Review of Regulatory Provisions related to Independent Directors” for public comments. SEBI has proposed sweeping changes to rules governing independent directors, including norms that pertain to their appointment and removal, eligibility criteria and remuneration structure. SEBI intends to introduce the dual-approval system for the appointment and removal of independent directors. This requires the majority of all shareholders as well as the majority of minority shareholders, other than the promoter and promoter group, to approve the appointment and removal of such directors. Full text of the independent director’s resignation letter is required to be disclosed to the stock exchanges. A one-year cooling-off period is recommended before an independent director can become a whole-time director. SEBI has also suggested changes in the remuneration structure for independent directors by allowing awarding of long-term stock options.
Amendments to Remuneration in Schedule V of the Companies Act, 2013 (source)
Ministry of Corporate Affairs (MCA) on March 18th, 2021 notified Section 32 and Section 40 of the Companies (Amendment) Act, 2020 (“Amendment Act”). Section 32 of the Amendment Act, seeks to amend Section 149 of the Companies Act, 2013 wherein a proviso was added to provide that an independent director may receive remuneration, if a company has no profits or inadequate profits in accordance with Schedule V (conditions and remuneration for the appointment of a managing or whole-time director or a manager without the approval of the central government) of the Companies Act, 2013. Further, Section 40 of the Amendment Act amends Section 197(3) (Overall Maximum Managerial Remuneration and Managerial Remuneration in Case of Absence or Inadequacy of Profit) of the Companies Act, 2013 to provide that, if a company fails to make profits or makes inadequate profits in a financial year, any non-executive director of such company, including an independent director shall be paid remuneration in accordance with Schedule V of the Companies Act, 2013. The amended Schedule V of the Companies Act, 2013 further provides for the maximum limit of remuneration payable by companies which are loss making or have inadequate profits to non-executive and independent directors depending upon the effective capital of the company. Earlier, only executive directors were entitled to remuneration in the event of a loss. The new provision allows the board of directors to pass a special resolution, if the board intends to increase the remuneration beyond the upper limit. This provision is applicable to both non-executive and executive directors.
Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2021 (“Amendment Regulation”) (source)
The Insolvency and Bankruptcy Board of India (“Board”) has inserted a new Rule 12A (Updation of Claim) which requires a creditor to update its claim as and when the claim is satisfied, partly or fully, from any source in any manner, after the insolvency commencement date. Further, the Amendment Regulation has inserted Regulation 1A in Regulation 40B (Filing of Forms) which stipulates, that where the activity prescribed in the said regulation, requiring filing of Form CIRP 7 (Reporting of status of ongoing corporate insolvency resolution processes) is not complete by the specified date, the interim resolution professional or resolution professional, as the case may be, shall file Form CIRP 7 within three days of the said date, and continue to file Form CIRP 7, every 30 days, until the said activity remains incomplete. Further, subsequent filing of Form CIRP 7 is not required to be made until thirty days have lapsed from the filing of an earlier Form CIRP 7. The Board has also clarified only one Form CIRP 7 shall be filed at any time whether one or more activity is not complete by the specified date. Further, in the schedule to the principal regulations (as stated below), Form C, under Regulation 8 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, in respect of submission of claim by financial creditors is substituted.
Review of Foreign Direct Investment Policy on Downstream Investments made by Non-Resident Indians (source)
The Ministry of Commerce and Industry, vide Press Note No. 1 (2021 Series) has reviewed the Foreign Direct Investment (FDI) policy in relation to the investment made by Indian companies owned and controlled by Non-Resident Indians (NRI’s) on a non-repatriation basis and in order to provide clarity on the downstream investment made, in addition to the consolidated FDI Policy Circular of 2020 effective from October 15, 2020 (“FDI Policy”). A new clause (c) under para 1.2 (ii) in Annexure 4 is added which provides that investments by NRI’s on a non-repatriation basis as stipulated under Schedule IV of the Foreign Exchange Management (Non-Debt Instrument’s) Rules, 2019 are deemed to be domestic investments at par with investments made by residents. Accordingly, an investment made by an Indian entity, which is owned and controlled by NRI’s on a non-repatriation basis shall not be considered for calculation of indirect foreign investment.
Payment System Operators Face Tighter RBI Norms (source)
As reported by Economic Times, the Reserve Bank of India has tightened its rules for payment companies and for storing customer data. From April 1, 2021 all licensed payment system operators are required to submit detailed ‘compliance certificates’ to the central bank twice a year. The Compliance Certificates are required to be signed by their CEOs or managing directors and should confirm that the company has complied with all RBI rules on the storage and security of payments data. The compliance certificates are required to be submitted on April 30 and October 31 every year for the period ending March 31 and September 30, respectively. The above compliances are in addition to the rules issued by RBI in April 2018, which required all payment system operators to submit (i) a board-approved annual system audit report (SAR) by CERT-empaneled auditors, (ii) a one-time report stating that the company is in compliance with the RBI’s data localization rules, which provide that the payments data of Indians and Indian companies should be stored on servers located in India.
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.