Legal & Industry Updates - August 2022
SPECIAL EVENTS
Webinar on The Competition Amendment Bill – Key Takeaways, August 16, 2022
The team at Ivy Law participated in a webinar on ‘The Competition Amendment Bill - Key Takeaways’ organized by ASSOCHAM. The webinar centered around the Competition (Amendment) Bill, 2022 which was recently introduced in Lok Sabha due to a paradigm shift in the way businesses have operated in the last decade. The highlight of the webinar was the discussion on various amendments to the Competition Act, 2002 including the proposed structural changes to the Competition Commission of India (“CCI”) and the remodeling of the overseas mergers and acquisitions deals. The manner and implementation of settlement and commitment in anti-competitive proceedings was also emphasized upon.
LEGAL & INDUSTRY UPDATES
Amendment to the Companies (Incorporation) Rules, 2014 (source)
The Ministry of Corporate Affairs (“MCA”) through a notification dated 18th August, 2022, has notified the Companies (Incorporation) Third Amendment Rules, 2022 (“Amendment Rules, 2022”). Pursuant to the amendment, a new rule, Rule 25B (Physical verification of the Registered Office of the company), is inserted which stipulates that:
The Registrar of Companies (“ROC”) will carry out a physical check of a company’s registered office (“RO”) by way of the presence of two independent witnesses located in the same locality in which the said RO is situated.
The ROC will have to photograph the company’s RO during the physical verification.
Once the verification is done, a detailed report with various information, including location details and photographs of the RO, will be prepared.
Where RO is found to be not capable of receiving and acknowledging all notices and communications, the ROC will issue notice to the company and all the directors, of his intention to remove the name of the company from the ROC and requesting them to send their representations along with copies of relevant documents, within thirty days from the date of the notice, before taking further actions.
Amendment to the Foreign Exchange Management Act, 1999 (source)
The Reserve Bank of India, on 22nd August, 2022, has notified the Foreign Exchange Management (Overseas Investment) Regulations, 2022 (“OI Regulations, 2022”) with the aim to improve India’s standing in the Ease of Doing Business and aligning it with the current business and economic dynamics. The OI Regulations, 2022 stipulates that:
Indian Entity (“IE”) can lend or invest in any debt instrument issued by the foreign entity (“FE”) or extend non-fund-based commitment only if it is eligible to make Overseas Direct Investment (“ODI”) and has acquired control in FE at the time of making commitments.
While lending or investing in debt instruments, the IE should check whether the loan is duly backed by a loan agreement and if the rate of interest is charged on an “arm’s length” to avoid any conflict of interest.
The following guarantees can be issued to or on behalf of the FE:
Corporate or performance guarantee by IE
Corporate or performance guarantee by a group of IE in India, being a holding company (holding 51% stake in IE), or subsidiary company (51% held by IE), or a promoter group company which should be a corporate body
Personal guarantee by the resident individual promoter
Bank guarantee backed by a counter-guarantee or by collateral by the IE and issued by a bank in India.
In case of financial commitment by way of pledge, the IE can pledge the equity capital of the FE, in favor of an Authorized Dealer (“AD”) bank, public financial institution in India or an overseas lender, for availing fund or non-fund-based facilities for itself or for any FE in which it has made ODI.
The resident of India acquiring equity capital has to submit the share certificates to the AD bank within 6 months from the date of effecting remittance or the date on which the dues to such person are capitalized.
An Indian resident having ODI in a FE should realize and repatriate to India all the dues receivable from the FE, within 90 days from the date when such receivables fall due or the date of transfer or disinvestment or the date of actual distribution of assets made by the official liquidator.
A person resident in India who has made ODI or making financial commitment or undertaking disinvestment in a FE have to report such financial commitment or disinvestment within 30 days of receipt of such proceeds and restructuring within 30 days from the date of such restructuring.
In the case of Overseas Portfolio Investment or its transferring, a report of the same has to be made within 60 days from the end of the half-year in which such investment or transfer is made. Also, an Annual Performance Report has to be submitted with respect to each FE by 31st December every year.
The Competition (Amendment) Bill, 2022 (“Bill, 2022”) (source)
The Central Government (“CG”), through a notification dated 05th August, 2022 has introduced the Bill, 2022 in Lok Sabha to overhaul the Competition Act, 2002 with the intent that the global technology (“tech”) companies will now have to seek the CCI’s approval for overseas Mergers and Acquisitions (“M&A”) wherein all the M&A deals where the transaction value exceeds INR 20 billion would require permission of the CCI if the companies have substantial business operations in India and any company making false and incomplete M&A disclosures to the CCI will have to pay aggravated penalties. Presently, India’s antitrust rules allow the CCI to examine deals based on asset size and turnover of the companies involved. However, the Bill 2022 will scrutinize the deals based on their transaction value. Further, the CG is seeking to reduce the time limit for approval of mergers to 150 days from the existing 210 days. Also, the Bill, 2022 empowers the CCI to appoint the Director General (“DG”), with prior approval of the CG, as opposed to the CG appointing the DG prior to the amendment.
Delhi High Court (“Delhi HC”): Electronic-Commerce (“e-comm”) Platform cannot Permit Third-Party Sellers to Latch on to Other Sellers (source)
The Delhi HC, on 02nd August, 2022 stated that an e-comm platform permitting a third-party seller to latch on to the name or mark and product listings of another seller is nothing but riding piggyback and therefore cannot be allowed. Observing, that the plaintiff, an online clothes seller, accused the defendant, Flipkart Internet Private Limited (“Flipkart”) of encouraging and allowing third-party sellers to use plaintiff’s mark along with the photographs of his products and thereby ride on the popularity of his products and designs, the Delhi HC directed Flipkart to disable the feature which can be used to the detriment of the owner of the brand. However, any such conduct by a third-party seller can be permitted if he has obtained the required consent and authorisation of the brand and the listing owner.
Supreme Court (“SC”): The term Freebies Should not be Confused with Social Welfare schemes (source)
The SC, on 18th August, 2022 asserted that irrational freebies announced by political parties during poll campaigns and social welfare schemes are two diverse topics and therefore a balance needs to be struck between the economy losing money and welfare measures. The SC heard a Public Interest Litigation filed by lawyer Ashwini Upadhyay, opposing the practice of political parties promising freebies during elections and sought the Election Commission to invoke its powers to freeze such parties’ election symbols and cancel their registration. However, the Chief Justice of India stated that though the issue of promise to grant irrational freebies is a serious issue, he will not encroach into the legislative domain as the idea to de-recognise political parties for making such promises during the polls is undemocratic. Also, the SC, after recommendations from stakeholders, hinted at setting up a mechanism for suggesting measures to the CG to deal with the issue.
The CG Proposes a New Data Protection Bill Draft (source)
As reported by the Economic Times, subsequent to the CG scrapping the Personal Data Protection Bill, 2019 amid widespread contentions about it violating fundamental rights, the Ministry of Electronics and Information Technology (“Meity”) has asserted that a comprehensive framework of a new data protection bill is being initiated to include the 81 amendments and 12 recommendations proposed by the Joint Committee of Parliament (“JCP”). The new bill will incorporate no major changes in the core principles of the Right to Privacy as enshrined by the SC, however it will be more accommodating towards the recommendations made by the JCP.
Meity to Conduct Quarterly Compliance Audits for Social Media Intermediaries (“SSMIs”) (source)
As reported by the Economic Times, Meity has put in place a mechanism to conduct compliance audits of SSMIs every quarter with the aim to assess their adherence with the Information Technology Rules, 2021 (“IT Rules, 2021”). As part of the audit, Meity will verify if the SSMIs are correctly reporting about the user grievances raised to them and whether the action taken by the SSMIs is in sync with the laid-out IT Rules, 2021. Such quarterly audits will be conducted in addition to the compliance report that the SSMIs are required to file every month wherein they disclose the action taken by them in response to various user grievances.
Microsoft Corporation (“Microsoft”) and Youth Enterprise Scheme Bank (“Yes Bank”) to Join Open Network for Digital Commerce (“ONDC”) Platform (source)
As reported by the Economic Times, Microsoft is the first multinational tech firm to join the ONDC platform which is the CG’s ambitious project to streamline digital commerce in India by enabling all kinds of buyers and sellers to leverage the digitisation of commerce through its network on the basis of decentralisation, openness and greater user utility. Microsoft plans to introduce social e-comm or a group buying experience in the Indian market which will include a shopping application for Indian consumers with the intention of harnessing the ONDC network to discover the best pricing among retailers and sellers. This multi-faceted partnership between Microsoft and ONDC will give Microsoft access to micro, small and medium enterprises as well as mid-market customers.
Further, Yes Bank has also entered into a partnership with Seller App, a seller-centric intelligence platform to join ONDC platform with the aim to enhance the market access for their corporate clients, especially small and medium enterprises.
The Ministry of Railways Suggests Penalties and infrastructure Improvement to Lower Rake Congestion (source)
As reported by the Economic Times, the Ministry of Railways has recommended levying of penal demurrage charge to check rake congestion due to instances of coal handling terminals and power houses taking more than permitted free time to release wagons because of delays in loading or unloading. Therefore, the zonal railways have now been advised to make use of provision of penal demurrage to prevent the delays and take proactive steps for improvement of handling infrastructure at old steel plants.
Digital India Act (“DIA”) to Monitor Social Media, Over-the-Top (“OTT”) Platforms, Metaverse (source)
As reported by the Economic Times, DIA, the upcoming digital regulatory framework, will have jurisdiction over social media platforms like Twitter, Inc. (“Twitter”), Facebook and the metaverse and will also monitor any violation of content guidelines by OTT platforms like Netflix, Inc. (“Netflix”) and Amazon Prime Video. Meity is on the verge to roll out the DIA with the aim to replace the existing Information Technology Act, 2000 along with introducing specific rules for women and children’s online safety. The proposed act is expected to be modelled on Europe’s General Data Protection Regulation and similar regulations in Singapore and Australia.
Apple Inc. (“Apple”) Enters Into a Long-Term Patent Agreement with LG Electronics Inc. (“LG”) (source)
As reported by the Economic Times, LG has received a one-time payment of around $600 million in patent licensing fees from two companies, one of them being Apple. LG and Apple have most likely entered into a long-term patent use agreement of up to 10 years which covers many standard essential patents. The pair had signed a cross-licensing agreement over patents in the past but since LG exited its smartphone business, the aforementioned agreement is no longer required. Therefore, LG will achieve a large profit from this recent settlement as it is not required to pay Apple in return because it does not manufacture smartphones anymore. However, LG is still very important for Apple’s ecosystem, as LG Innotek and LG Display companies continue to supply camera modules and displays to Apple.
Adani Enterprises (“Adani”) - Securities Exchange Board of India (“SEBI”) Restraints not Applicable to New Delhi Television Ltd. (“NDTV”) Promoter Company (source)
As reported by the Economic Times, Adani dismissed the claims made by NDTV that the regulatory curbs by SEBI restricted NDTV’s founders from selling their stake in the company to Adani as Adani seeks to takeover NDTV through an Indian company Vishvapradhan Commercial Private Limited (“VPCL”). VPCL had given INR 4 billion in loans to NDTV’s founders more than a decade ago in exchange for warrants that allowed them to buy a stake in NDTV at any time. At the moment, Adani wishes to takeover NDTV by exercising their right to convert the warrants into equity, which is a contractual obligation on part of NDTV and any injunctions enforced by SEBI on NDTV promoters from dealing in securities markets do not in any way touch upon such contractual agreements which predate the injunction.
Parliamentary Panel Reprimands Twitter Officials over Data Security and Privacy (source)
As reported by the Economic Times, the Parliamentary Standing Committee on Information and Technology has questioned top Twitter officials over a whistle-blower’s allegations that Twitter knowingly allowed the Indian government to place its agents on the company payroll where they had direct unsupervised access to the company’s systems and user data. The members of the committee also probed into whether Twitter’s data security policies is in sync with local policies and with the single global privacy policy and the steps taken by the microblogging site in handling conflicts in national privacy policies of different countries.
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.