Legal & Industry Updates - March 2023
SPECIAL EVENTS
New Horizons in the E-Commerce Sector: Consumer Concerns and the way forward, 15th March, 2023
The team at Ivy Law participated in a webinar on “New Horizons in the E-Commerce Sector: Consumer Concerns and the way forward” organized by Triodemy Law Classes. The key highlights of the webinar were discussion on the definitions of consumers and e-commerce as well as the e-commerce structure, e-commerce models and types of e-commerce transactions. The webinar emphasized on how the metaverse is a new facet of the e-commerce industry and the scope and application of Consumer Protection (E-Commerce) Rules, 2020. Further, the redressal mechanism for the issues related with e-commerce entities and consumer’s role in protecting themselves from the ongoing e-commerce frauds were also discussed exhaustively.
LEGAL & INDUSTRY UPDATES
Prevention of Money-laundering (Maintenance of Records) Amendment Rules, 2023 (“PLMA Rules, 2023”) (source)
The Ministry of Finance (“MoF”), on 7th March, 2023, has notified the PLMA Rules, 2023 amending the Prevention of Money-laundering (Maintenance of Records) Rules, 2005. Subsequent to the amendment:
Tightened reporting norms of non-profit organiations (“NPOs”) - MoF has tightened reporting norms of NPOs wherein the reporting entities are required to register the details of unregistered NPO clients on the DARPAN Portal of NITI Aayog and maintain such records for a period of 5 years after the business relationship between client and reporting entity ends or the account closes, whichever is later.
Definition of beneficial owners – MoF has tightened the definition of beneficial owners under PMLA, 2002, mandating reporting entities like banks and crypto platforms to collect information from their clients.
Change in ownership threshold - Any individual or group holding 10 per cent ownership in the client of a 'reporting entity' will now be considered a beneficial owner as against the ownership threshold of 25 per cent applicable earlier.
Maintenance of records – Currently, the reporting entities are required to maintain a record of all transactions, including the record of all cash transactions of more than INR10 lakh. Post the amendment, they will now have to also collect the details of the registered office address and principal place of business of their clients.
Cryptocurrencies to be Governed by Prevention of Money Laundering Act, 2002 (“PMLA, 2002”) (source)
MoF, on 7th March, 2023, has imposed anti-money laundering provisions on cryptocurrencies or virtual assets including crypto trading, safekeeping and related financial services, with the aim to tighten oversight of digital assets. Post the notification, Indian crypto exchanges would be required to report any suspicious activity to the Financial Intelligence Unit India which is in line with the global trend of requiring digital-asset platforms to follow anti-money laundering standards similar to those followed by other regulated entities like banks or stock brokers as the crypto assets are considered borderless and therefore require international collaboration to prevent regulatory arbitrage.
Reserve Bank of India (“RBI”) Imposes Monetary Penalty on a Renowned Online Payments Processing Service Company (source)
RBI, on 3rd March, 2023, has imposed a monetary penalty of INR 3.06 crore on a renowned online payments processing service company for non-compliance with certain provisions of the master directions issued by RBI related to Prepaid Payment Instruments and Know Your Customer requirements. RBI imposed the above said penalty in exercise of powers vested in RBI under section 30 (Power of Reserve Bank to impose fines) of the Payment and Settlement Systems Act, 2007. However, RBI made it clear that the action is based on deficiencies in regulatory compliance and not intended to pronounce upon the validity of any transaction or agreement entered into by the company with its customers.
Ministry of Electronics & Information Technology (“MeitY”) Launches Grievance Appellate Committee (“GAC”) to Address User Complaints Against Social Media Firms (source)
MeitY has launched GAC which was mandated in the recently amended Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, with the aim to serve as a faceless dispute resolution mechanism that would make digital platforms accountable to digital citizens and thereby provide them more influence and a safe platform to engage. Digital citizens can file an appeal with GACs within a period of 30 days from the date of receipt of communication from the intermediary’s grievance officer and GAC would subsequently endeavour to address the user’s appeal within a period of 30 days. The purpose is to work in a transparent manner by uploading all the decisions on the website which would be accessible to the public and thereby create a culture of disclosure and public scrutiny.
MeitY to Develop a Platform to Update DigiLocker Documents using Aadhaar (source)
MeitY is formulating to launch a platform to update addresses and other demographic details through Aadhaar across various departments that issue important documents such as driving licenses, ration cards, voter ID cards etc. and the said facility will be available to citizens who store their documents in DigiLocker. The automated update mechanism is based on a consent framework wherein the citizens will be asked to provide their consent as to whether they want to avail this facility. Thereon, the platform will seek the consent of the concerned department. Further, the said platform will be based on Application Programming Interface (“API”) concept, and the departments will develop their own APIs with MeitY's assistance.
Central Government (“CG”) Suspends Foreign Funding Licence of Centre for Policy Research (“CPR”) (source)
CG has suspended the foreign funding licence of leading think-tank CPR for allegedly violating provisions of the Foreign Contribution (Regulation) Act, 2010 (“FCRA”). The suspension was ordered based on prime facie evidence that certain provisions of FCRA were not being followed adequately. Post the suspension, thorough investigation would take place based on which the final decision would be taken. Under FCRA, the licence of an organisation can be suspended for 180 days during which it cannot receive any foreign funding and the amount lying in its foreign funding account can be used only with the prior approval of the Ministry of Home Affairs.
CG to Tighten Regulatory Noose Around E-Pharmacies (source)
After giving approval to the draft Digital Personal Data Protection Bill, 2022 (“DPDP Bill”), CG is looking to tighten the regulatory noose around e-pharmacies over data breach and is also contemplating action against the e-pharmaceutical companies including banning them over issues including data privacy, malpractices and irrational sale of drugs. The DPDP Bill proposes a penalty of up to INR 500 crores for violation of rules. Further, it also proposes to remove a section from the Information Technology Act, 2000 (“IT Act”), which provides an option of compensation to individuals impacted by data breach.
CG to Notify ‘Negative List’ for Cross-Border Data Transfer in DPDP Bill (source)
CG is all set to include ‘negative list’ or a list of disapproved countries in the DPDP Bill, with the aim to block cross-data transfer to such countries. Though the cross-border data flow would be enabled to countries by default, however, CG would block that channel in case the receiving country is on the negative list. Further, in the draft bill, CG has drawn up the idea of trusted geographies wherein a ‘whitelist’ of countries would be identified, and CG would, by default, allow cross-border data transfer to these countries. As CG has the right to restrict certain geographies, it would therefore have to decide the criteria for restriction.
The Bar Council of India (“BCI”) Approves Foreign Lawyers to Practice in India (source)
BCI, on 10th March, 2023, has notified the Bar Council of India Rules for Registration and Regulation of Foreign Lawyers and Foreign Law Firms in India, 2022, wherein BCI has agreed to allow foreign lawyers and law firms to practice law in India on a reciprocity basis subject to the certain conditions such as the foreign lawyers and law firms will be entitled to practice only in non-litigious matters and in order to practice in India, foreign lawyers would have to register themselves with BCI for which the registration fees for a foreign lawyer would be $25,000, while for a law firm it would be $50,000. The registration will be valid for a period of 5 years and they will be required to renew it by filing an application for renewal within 6 months before the date on which such validity expires.
Legal Pay Introduces India’s First Pay-Later Product for Legal Expenses (source)
LegalPay has introduced a pay later product namely LegalPay Max with the objective of assisting businesses in payment of availed legal services in instalments wherein businesses can avail a credit line upto INR 50 Lakhs for all types of legal and professional expenses such as transaction, regulatory, advisory, arbitration and other legal expenses and the same can be spread over a tenure of upto 6 months with no extra cost. Businesses would therefore, have more control over their finances and more payment flexibility, while allowing them to select their preferred legal professional based on their requirements. Even though businesses would have the option to buy now, pay later, legal professionals would still be liable to receive 100% of their payment upfront.
Securities and Exchange Board of India (“SEBI”) Demands Mutual Funds to Stop Advertisements That Depict Returns to Investors (source)
SEBI, on 3rd March, 2023, has issued a letter demanding the Association of Mutual Funds of India (“AMFI”) to ask fund houses to stop all such advertisements, illustrations, pamphlets and brochures which shows future returns to investors. It was further noted that such advertisements are not in compliance with the letter and spirit of the Advertisement Code prescribed in SEBI (Mutual Funds) Regulations, 1996 as they are ambiguous and are therefore, likely to be misunderstood by investors.
SEBI Mulls Permanent Capital Vehicles (“PCVs”) to Offer Long Funding (source)
SEBI is on the verge of exploring whether it is beneficial to allow PCVs in India. PCVs are investment structures that help fund managers secure long-term capital commitments from limited partners. Unlike regular private equity and venture capital funds which have fixed lives, a PCV can last in perpetuity. SEBI is taking in consideration various aspects of the proposal such as who can invest in such vehicles, what should be the minimum amount of investment and whether and how the rules would be different from existing alternative investment funds (“AIFs”). However, such PCVs, catering to more sophisticated investors, would not be an escape route for normal AIFs to indefinitely stretch the lives of their funds.
The Factories (Karnataka Amendment) Bill, 2023 (“Amendment Bill”) (source)
Karnataka State Legislature has passed the Amendment Bill to amend the Factories Act, 1948 with the aim to drive investments in electronics manufacturing and help existing units to expand further. Some of the key features of the Amendment Bill are:
Increasing the number of hours of work from the existing 9 hours up to 12 hours inclusive of rest intervals in any day subject to a maximum of 48 hours in any week subject to the written consent of such worker for such work, and the remaining days of the said week for the worker shall be paid holidays.
Extending the total number of hours of work by a worker without an interval to 6 hours to any class of factories to facilitate the increase in the daily maximum hours of work due to provisions of flexibility in working hours.
Women allowed to work at night and work overtime with necessary safeguards.
Overtime payable for 6 day work week, 5 day work week and 4 day work week.
Overtime hours per quarter extended from 75 hours to 144 hours to allow factories to engage workers on overtime for an increased period of time in a quarter.
Indian Startups to Meet Minister of State for Electronics & Information Technology to Highlight Issues Post Silicon Valley Bank’s (“SVB”) Collapse (source)
Amid raising concerns of Indian startups impacted by the fallout of the events at SVB, the Minister of State for Electronics & Information Technology pitched the resilience of Indian banks to the representatives from the startup and venture capitalist ecosystem and urged them to bank locally, emphasizing the need to devise a plan on how RBI can get domestic banks to offer loans to these startups. MeitY’s aim is to address the situation and offer any assistance to the members of India’s innovation and startup ecosystem who had financial holdings in SVB. MeitY is also expected to recommend exploring the option of startups being allowed to transfer money from their SVB accounts to Indian banks without facing any taxation issues.
After SVB Crisis, Equity Market Across the World Comes Under the Sell Off Heat (source)
After outbreak of SVB crisis, various United States of America as well as European banks also provided feed to global banking crisis as a result of which the equity market across the world has come under the sell off heat leading to sharp selling in Indian stock market as Bombay Stock Exchange Sensex shed 2.18 per cent whereas National Stock Exchange Nifty lost 2.29 per cent in last few weeks. However, this slide in quality stocks could be a good opportunity for long term positional investors who believe in bottom fishing. Further, the banking experts have asserted that the impact of the banking collapse would be limited in India and would not have any effect on the Indian banks as the Indian banking system is more insulated & regulated under the supervision of RBI.
Rajasthan Government to Launch E-governance Center of Excellence For Strengthening Cyber Security (source)
The Rajasthan state government has proposed to spend INR 147.55 crores to establish a new e-governance center of excellence in Jaipur which would focus on securing critical data and strengthening cyber security by promoting digital ecosystem, new blockchain and cyber security measures in the state. Further, it would include all necessary tools and software to develop and implement useful information technology products and solutions to strengthen e-governance and would thereby be instrumental in checking cybercrimes in the state while creating awareness about online fraud and capacity building of state technical graduates in modern technology.
Ministry of Consumer Affairs, Food and Public Distribution (“Affairs Ministry”) to Make E-Commerce Platforms Liable for Fraud Committed by Sellers on their Platforms (source)
The Affairs Ministry is working on making e-commerce companies liable for fraud committed by sellers on their platforms by attaching “fall back liability” to their role as intermediaries. At present, e-commerce companies take shelter under the ‘intermediaries’ tag when they are castigated by the Central Consumer Protection Authority for selling mediocre products and refuse to acknowledge any responsibility or provide appropriate remedy to consumers, by making a reference to Section 79 (Exemption from liability of intermediary in certain cases) of the IT Act. Therefore, the Affairs Ministry is in the process of restructuring the e-commerce rules with the aim to make them more accountable and thereby ensure that the consumer interests are protected adequately in the emerging digital economy.
Employees' Provident Fund Organisation (“EPFO”) yet to Provide Clarity on 1.16% Additional Employees’ Pension Scheme (“EPS”) Contribution for Higher EPS Pension (source)
The EPFO has activated an online application link to seek higher pension under the EPS, however, EPS members are yet to get clarity on 1.16% additional EPS contribution for higher EPS pension. A 2014 notification by the EPFO made it mandatory for employees opting for EPS contribution, above the wage ceiling of INR 15,000, to pay 1.16% of basic salary above INR 15,000 towards the pension scheme which was further declared invalid on 4th November, 2022 by the Supreme Court. Hence, any clarity regarding the abovementioned issue will help employees get a more accurate estimate of their total additional contribution and future returns if they exercise the higher EPS option on or before May 3, 2023.
Income Tax Exemption to Insolvency and Bankruptcy Board of India (“IBBI”) (source)
The Central Board of Direct Taxes, on 1st March 2023, has notified income tax exemption to IBBI under section 10(46) (Incomes not included in total income) of the Income Tax Act, 1961 (“IT Act”). The exemption shall be available in respect of grants-in-aid received from CG, fees and fines collected under the Insolvency and Bankruptcy Code, 2016 and interest income accruing on them. However, in order to avail the exemption, IBBI should not engage in any commercial activity, activities and the nature of the specified income should remain unchanged throughout the financial years and return of income should be filed in accordance with the provision of section 139(4C)(g) (Return of Income) of the IT Act.
Indian Post Partners with Bigfoot Retail Solutions Private Limited (“Shiprocket”) to Benefit Startups and Small & Medium Enterprises (source)
India Post has signed a Memorandum of Understanding with Shiprocket to boost shipping and last-mile e-commerce delivery services across the country. Shiprocket, an emerging logistics aggregator company with three lakh sellers, including startups and a large number of small and medium businesses as well as 70 million consumers annually, would benefit from India Post's vast network and extensive reach which would further result in cost-effectiveness and business growth.
The Finance Bill, 2023 (source)
Lok Sabha, on 24th March 2023, has passed the Finance Bill, 2023 with 64 official amendments. Some of the key amendments of the Finance Bill, 2023 are:
Mutual funds with less than 35 per cent of their total proceeds invested in equity shares of domestic companies would lose indexation benefits and will be taxed as short-term capital gains. Currently, debt mutual funds are treated as long-term investments if held for more than 3 years and are taxed at 20 power cent with indexation benefits or 10 per cent without indexation.
Securities Transaction Tax on the sale of options has been hiked to INR 2,100 from INR 1,700 on a turnover of INR 1 crore.
Tax on royalty or technical fees earned by foreign non-resident companies has been hiked from 10 per cent to 20 per cent.
Tax relief for taxpayers opting for a new tax regime who earn a marginally higher income than the no-tax ceiling of INR 7 lakh.
Establishment of a Goods and Service Tax Tribunal has been approved, which would help streamline pending litigations.
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.