Legal & Industry Updates - May 2023
SPECIAL EVENTS
The Intelligence Advantage - Playing Moneyball with Legal Data, May 25, 2023
The team at Ivy Law participated in a webinar on “The Intelligence Advantage: Playing Moneyball with Legal Data” organized by Epiq. The key highlights of the webinar was the growing importance of digitisation to build sustainable infrastructure for better data management with the aim to enhance the relationship between law firms and their corporate clients. The webinar emphasized on how corporate legal departments as well as law firms are becoming increasingly reliant upon data to make critical decisions like understanding consumer behaviour to optimise the supply chain. Further, the need for responsible data innovation along with future trajectory for its use by corporates was also discussed exhaustively.
Changing Balance of Power Between Legal Departments and Law Firms, May 31, 2023
The team at Ivy Law participated in a webinar on the “Changing Balance of Power Between Legal Departments and Law Firms” organised by Lexology. The key highlights of the webinar included overview of the recent studies on the changing balance of power between legal departments and law firms, further emphasizing on the importance of Key Performance Indicators for the legal department to assess its insourcing and outsourcing strategy. The webinar focused on the impact of technology on insourcing and outsourcing decisions and also provided valuable information on how to optimise insourcing and outsourcing decisions and make the most of the ever-changing legal ecosystem.
LEGAL & INDUSTRY UPDATES
Companies (Removal of names of Companies from Register of Companies) Second Amendment Rules, 2023 (“Companies Rules, 2023”) (source)
The Ministry of Corporate Affairs (“MCA”), on 10th May, 2023 has notified Companies Rules, 2023, wherein a new proviso under Rule 4(1) (Application for removal of name of company) has been inserted which prohibits the company from filing an application for removal of name of company unless it has filed overdue financial statements u/s 137 (Copy of financial statement to be filed with Registrar) and annual returns u/s 92 (Annual return) of the Companies Act, 2013, up to the end of the financial year in which the company ceased to carry its business operations. It further states that once the Registrar of Companies’ (“ROC”) action has already been initiated against the company, it can only file the application for removal of names, after filing pending financial statements and annual returns.
Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2023 (“Amendment Rules”) (source)
MCA, on 15th May, 2023, has notified the Amendment Rules to modify sub-rules (5) and (6) of Rule 25 (Merger or Amalgamation of certain companies) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 wherein:
Rule 25 (5) provides that if no objection/suggestion is received within a period of 30 days from ROC/Official Liquidator, and if Central Government (“CG”) thinks that the scheme is in the public interest, CG can issue a confirmation order of such scheme of merger or amalgamation in Form No. CAA.12 (Notice and Advertisement of notice of the Meeting of creditors or members) within a period of 15 days after the expiry of said 30 days. If CG does not issue a confirmation order within 60 days, it will be deemed that there is no objection.
Rule 25 (6) provides that if the objections/suggestions are received within 30 days, a confirmation order would be issued within 30 days, if the objections/ suggestions are deemed unsustainable, and the CG thinks that the scheme is in the public interest. However, if CG thinks that the scheme is not in the public interest, CG can file an application before the tribunal within 60 days stating that the objections/opinion should be considered u/s 232 (Merger and amalgamation of companies) of Companies Act, 2013.
Partial Sale of Companies Not to be Considered Default under Insolvency and Bankruptcy Code, 2016 (“IBC”) (source)
MCA has proposed revisions to the IBC which would allow several resolution plans for different parts of an insolvent company to increase value realization wherein it could allow part-sale of a corporate debtor under the bankruptcy law only if the stressed entity fails to attract a rescue plan for itself in entirety. The proposed move is part of CG’s broader efforts to cut delay in resolution under IBC and prevent the erosion of stressed asset value. At present, the resolution plan for the entire insolvent firm is allowed, without which the firm would go for liquidation.
The Insolvency and Bankruptcy Board of India (“IBBI”) Issues Notice to Seek Public Comments on Regulatory Framework Under IBC (source)
IBBI, on 4th May, 2023, has issued a notice seeking comments from the public on the regulations notified under IBC as it aims to crowd source ideas for the regulatory framework. IBBI asserted that participation of the public, particularly the stakeholders in the insolvency ecosystem, would ensure that the regulations are informed by the legitimate needs of those interested in and affected by the regulations and would enable collective choice.
CG Mulls New Framework to Put IBC Cases on Fast Track (source)
CG is contemplating a new mechanism which is expected to expedite the resolution of bankruptcy cases and reduce case burden on the National Company Law Tribunal (“NCLT”). This new mechanism allows creditors and debtors to reach informal agreement on the plan to resolve bankruptcy and then approach the NCLT to immediately admit the case. As the Corporate Insolvency Resolution Process (“CIRP”) mandated by IBC has seen lengthening delays amid rising authorized challenges and a scarcity of NCLT benches, therefore the new framework is being proposed wherein it would comfortably coexist with CIRP beneath the overarching IBC.
Central Board of Direct Taxes (“CBDT”) Proposes to Exclude Foreign Investors and Pension Funds from the Purview of Angel Tax (source)
The Ministry of Finance, on 19th May, 2023, has notified a press release wherein CBDT has proposed to exclude a host of foreign investors including sovereign wealth funds, foreign portfolio investors, pensions funds and entities registered with Securities and Exchange Board of India (“SEBI”), from the purview of angel tax, with the aim to strengthen India's startup ecosystem by providing more liberty, clarity and flexibility to both resident and non-resident investors, resulting in increased global investment in the domestic market.
Using Client’s Funds to Avail Bank Guarantees (“BGs”) by Stock Brokers Not Allowed Anymore (source)
SEBI has recently notified that the stock brokers and clearing members would, from 1st May, 2023 onwards, not be allowed to use their client’s funds to avail BGs. Brokers were often found pledging their clients' funds with banks, which in turn issued BGs worth twice the amount of fixed deposits, thereby creating a significant disparity between their true net worth and the guarantees utilized for trading. This exposed the market to risks and therefore the move has been taken with the aim to mitigate exposure of the market, client’s funds to risk and ensure greater protection to investors’ funds. In hindsight, the rule would effectively raise the working capital requirement of stock brokers.
SEBI Seeks Investor Data from Alternate Investment Funds (“AIF”) for Risk Assessment (source)
SEBI has recently asked various fund trustees to evaluate the proportion of “high-risk” clients and non-profits in each AIF along with the percentage of investors that are based in countries that show up on the Financial Action Task Force’s (“FATF”) grey list and the United Nations Security Council’s consolidated list. This move has been taken to ensure that countries on the FATF grey list are subjected to greater monitoring as such jurisdictions often try to plug the gap in their Anti-Money Laundering regime. Further, trustees are also directed to assess the degree of 'enhanced due diligence' carried out by the funds for receiving investments from ‘politically exposed persons’.
SEBI Proposes Delisting Mechanism for Non-Convertible Debt Securities (source)
SEBI has proposed a mechanism for the voluntary delisting of non-convertible debt securities wherein an entity would not be permitted to delist a few non-convertible debt securities while other non-convertible debt securities continue to remain listed. In the proposed mechanism, the listed entity will have to make an application to the stock exchange for seeking in-principle approval of the proposed delisting of non-convertible debt securities within 15 working days from the date of passing of the special resolution. However, the proposed mechanism would not be applicable to the delisting of non-convertible debt securities of a listed entity that have been delisted by the stock exchanges as a consequence of any penalty or delisted under a resolution plan approved under the IBC.
The Reserve Bank of India (“RBI”) Proposes Changes to India’s Corporate Social Responsibility (“CSR”) Laws to Promote Climate Action (source)
RBI has proposed several changes to the decade-old CSR laws regulated by Section 135 (Corporate Social Responsibility) of the Companies Act, 2013 with the aim to widen the scope of geographies, businesses, and timelines over which green projects are adopted and undertaken by companies to encourage corporate India’s green transition. The proposed changes include:
Introducing the option to limit CSR activities to a few broad categories so that CSR actions are indicative rather than prescriptive.
Removing the 3 year limit on projects in order to allow the firms to engage in long-term projects that benefit the climate.
Mandating that CSR funds be used to adopt climate friendly technologies and processes in companies that operate in hard-to-abate and polluting sectors.
CG to Set Up a Panel to Prepare a List of Small Public Sector Banks (“PSBs”) for Privatisation (source)
CG is apparently on the verge of setting up a panel consisting of officials from RBI and NITI Aayog, among others, with the aim to lookout for ways to privatise PSBs as they have turned out to be profitable, bigger and fewer in number after several rounds of consolidation. The panel would assist in identifying lenders for privatisation, including mid and small-sized banks, and determine the quantum of the stake sale based on their performance, including their bad loan portfolio among other parameters.
CG Intends to Amend the Intellectual Property Rights (“IPR”) Policy to Take Care of Changing Opportunities (source)
CG has asserted that there is a need to amend the IPR policy to take care of changing opportunities as it has been observed that India lacks the culture of patents filing, further highlighting how the time duration of patents filing and grant of patents is 3 years in India, while the global average is 2 years. Also, it was opined how IPR is critical to promote economic growth and development through innovation, competitiveness, and technology transfer which is vital to attract foreign investment essential for initiatives like Make in India to establish India as a global hub for design, manufacturing, and innovation and therefore, needs to be duly amended.
India to Seek Pharmaceutical IPR Waiver for Future Pandemics (source)
India is pushing for a global patent waiver for vaccines, therapeutics, and diagnostics to combat future pandemics, after securing a five-year waiver for Covid-19 vaccines in 2022. In the event of future pandemics, an omnibus waiver would allow a quick response and thereby avoid lengthy negotiations. Discussions around a moratorium on levying customs duties on e-transmissions are also expected to transpire.
The Ministry of Electronics and Information Technology (“MeitY”) to Lead Proposed Body to Fact Check Government News (source)
CG is likely to opt for a fact-checking team led by MeitY to verify any information pertaining to the government that is published on social media and internet intermediaries, however, it would reportedly not be empowered to screen or assess opinions that are presented by the publications. The three-member body would consist of two officials from the Information Technology ministry as well as a third independent member with expertise in law, social media or public policy. Earlier, the Press Information Bureau was identified as the preferred agency for carrying out such fact checking exercise which invited serious criticism from free speech activists who warned that it could lead to censorship of free speech in the country.
CG Working Groups Propose to Submit Artificial Intelligence (“AI”) Framework Soon (source)
The seven working groups that have been constituted with representatives from industry and academia under India’s National programme ‘INDIAai’, are likely to submit recommendations for a comprehensive framework governing various facets of AI to fine tune the policy to make it more realistic. Apart from establishing a regulatory framework, the working groups are required to perform various tasks including evaluating methods for capacity building, skilling and promoting startups in AI, to guide moonshot or innovative projects in AI, and the setting up of data labs, among others.
United States of America (“US”) Based Venture Capital (“VC”) Fund General Catalyst Stresses Focus on Governance in Indian Startups (source)
US-based VC fund General Catalyst; has emphasised on the importance of governance in Indian startups amid rising cases of financial irregularities by defining the role of Chief Financial Officer, making sure the companies are working with the right audit firms, and that there’s transparency in what is being reported. General Catalyst further described their approach to be focused on engagement with the concerned companies at multiple levels and going into reasoning and understanding of the financial view of business. Indian startups are thereby changing in response to recent high-profile governance lapses, with founders initiating changes including valuing independence on boards and putting in place new disclosure and whistle-blower policies.
Indian Startups Accuse Internet and Mobile Association of India (“IAMAI”) of Undue Favour Towards Reputed Big Technology (“Tech”) Companies (source)
Prominent founders of some of India’s new age businesses and startups have accused IAMAI of “promoting the anti-Indian views” of big tech companies and providing undue favours to them, thereby flagging a lack of "credence" and claiming that IAMAI is not representing their interests in a responsible manner. They have called into question IAMAI’s organisational structure, which is led by representatives of such tech companies while protesting against the IAMAI after it opposed a new law to combat the anti-competitive practices of big tech firms.
Startup20 Engagement Group (“Startup20”) Proposes Cross Border Listings and Unified Standards for G20 Startups (source)
Startup20 has suggested policies for easy navigation of entrepreneurs across G20 nations, formulation of respective national startup policies to access each other’s markets, and making debt and venture debt products accessible to startups along with cross-border listing of startups throughout G20 countries and establishment of unified G20 startup accounting standards, governance standards and startup due diligence standards. It has also called for facilitation of a Common Engagement Platform across G20 nations to promote collaboration and creating an organisation or platform with rotational leadership among the startup ecosystems.
Implementation of Four Labour Codes Stalled Until 2024 Elections (source)
The implementation of 4 major labour codes, namely the Code on Wages, 2019, the Industrial Relations Code, 2020, the Occupational Safety, Health and Working Conditions Code, 2020 and the Code on Social Security, 2020 that were introduced by the Parliament in 2019 and 2020, have been stalled until next the general elections. These codes seek to bring sweeping changes to India’s job market including increase in the number of companies that can fire workers without government approval, striking off of rules that bar women from working night shifts and introduction of a new social security regime. However, while critics see them as controversial and anti-worker, those demanding freer labour policies assert that they would boost growth and employment and end outdated laws that are no longer in sync with a rapidly transforming economy.
Open Network for Digital Commerce (“ONDC”) Faces Slow Electronic Commerce “(E-Commerce”) Growth as Network Participants Identify Snags in the System (source)
The government-backed ONDC, which was launched on 31st December, 2021, is yet to showcase any significant traction for e-commerce orders and is encountering various obstacles as it expands its presence across the nation. Further, multiple network users have also flagged snags in the system, from sellers not updating inventory listings and payment reconciliation issues to delivery frauds and logistical glitches. Therefore, while ONDC, as a network, has scaled to about 20,000 daily orders from around 1,000 in March, 2023, 97-98% of the orders have only been for hyperlocal deliveries of food and grocery.
High-Risk Data Fiduciaries to be Regulated More Granularly Under Digital Personal Data Protection Bill, 2022 (“DPDP Bill”) (source)
The Ministry of Skill Development and Entrepreneurship have asserted that the upcoming DPDP Bill would encompass a category named 'high-risk significant data fiduciaries' which would include firms that process a large quantum of critical user data, and regulations on the same would be much more detailed. Also, the safe harbour provision contained in Section 79 (Exemption from liability of intermediary in certain cases) of the Information Technology Act, 2000 is also considered to be quashed.
Banks, Asset Reconstruction Companies (“ARCs”) Spar Over Key Document and Indemnity Clause (source)
India’s large banks and ARCs are engaged in a cold tussle wherein the banks demand that ARCs which acquire loans should give an undertaking that they have no links with the promoters of defaulting borrower companies which would serve as a legal declaration and would thereby become particularly significant if any such company faces bankruptcy and is auctioned to a new owner. Various leading lenders are refusing to sign the standard indemnity clause they give on sale of sticky loans to ARCs which go on to become a deal breaker in the stressed loan market and are therefore demanding an undertaking from such ARCs.
The Shanghai Cooperation Organization (“SCO”) Vote Unanimously to Adopt India’s Proposal on Digital Public Infrastructure (“DPI”) (source)
Inter-governmental body, SCO, on 13th May, 2023, have unanimously adopted India’s proposal for developing DPI as the right way for deploying digital technology. India has developed DPI like unified payment interface and Aadhaar, among others, to make services available to people in a convenient manner and therefore the objective behind adopting DPI is to make sure that the technology is democratised and also to promote digitally inclusive growth among member states
Insurance Regulatory and Development Authority of India (“IRDAI”) Demands Insurance Companies to Lay Down Social Media Guidelines for Employees (source)
IRDAI has asked insurance companies to lay down social media guidelines for their employees with the aim to ensure that no unverified or confidential information is disseminated to the public through social media platforms. The IRDAI Information and Cyber Security Guidelines, 2023 issued by IRDAI to all the insurers, have inserted a specific section on ‘Acceptable usage of social media’ which prescribes prior approval of organisation’s compliance team and corporate communication team before any information received, accessed or obtained by an employee in his/her professional or personal capacity is shared by him on any media forum.
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.