Legal & Industry Updates - February 2021
SPECIAL EVENTS
Role of Pharmaceutical Companies in Covid – A Legal Perspective, February 26, 2021
The team at Ivy Law participated in a webinar on “Role of Pharmaceutical Companies in Covid – A Legal Perspective”, conducted by Lawyered. The webinar highlighted different challenges faced by pharmaceutical companies during Covid, like classification of packaging materials as essential goods and administrative issues like lack of protocol for production of drugs. The panel also discussed the dependence of the Indian pharmaceutical industry on other countries for Active Pharmaceutical Ingredients (API’s) and the need to be self-reliant on APIs. The process for registration of a new drug including the stages in the trial of a drug were also emphasized.
LEGAL & INDUSTRY UPDATES
Companies (Specification of Definitions Details) Amendment Rules, 2021 (“SDD Amendment Rules”) (source)
The MCA on February 01, 2021, has notified SDD Amendment Rules. The SDD Amendment Rules amend the definition of a small company. As per the SDD Amendment Rules, a company can claim to be a small company as per the Companies Act, 2013, if (i) paid up capital does not exceed rupees two crores and the turnover does not exceed more than rupees twenty crores. Earlier, the classification of a small company required the paid-up capital and turnover not to exceed Rs. 50 lakhs and Rs. 2 crores respectively.
Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2021 (“CAA Amendment Rules”) (source)
The MCA on February 01, 2021, has notified CAA Amendment Rules. The CAA Amendment Rules have introduced that a scheme of merger or amalgamation under section 233 of the Companies Act 2013 may be entered into between any of the following class of companies, namely: - (i) two or more start-up companies; or (ii) one or more start-up company with one or more small company. For the purpose of the CAA Amendment Rules, “Start-up Company” means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognized as such in accordance with the definition issued by the Department for Promotion of Industry and Internal Trade.
Ministry of Corporate Affairs Initiates Process of De-Criminalisation of Compoundable Offences under Limited Liability Act, 2008 (source)
As per a press release issued by the Press Information Bureau on February 03, 2021, the Ministry of Corporate Affairs (MCA) has started the process of decriminalization of compoundable offences under the Limited Liability Partnership Act, 2008 (“LLP Act”). Twelve offences have been proposed to be decriminalized and Section 73 of the LLP Act (penalty on non-compliance of any order passed by the tribunal) containing criminal liability has been proposed to be omitted. The decriminalized offences will be transferred to In-House Adjudication Mechanism (IAM) to free criminal courts from routine cases. In addition to the de-criminalization of the LLP Act, the Government also proposes the introduction of certain new concepts for greater ease of doing business. The new concepts include:
Small LLP: It is proposed to create a class of LLP called as “Small LLP” in line with the concept of Small Companies. Such Small LLPs would be subject to lesser compliances, lesser fee or additional fee and lesser penalties in the event of default. Thus, lower cost of compliance would incentivize unincorporated micro and small partnerships to convert into the organized structure of an LLP and derive its benefits.
Non-convertible Debentures (NCDs): It is proposed to allow LLPs to raise capital through issue of fully secured Non-Convertible Debentures (NCDs) (as an alternative to equity participation) from investors who are regulated by SEBI or RBI. This will help deepen the debt market and enhance the capitalization of LLPs.
Reduction of Additional Fee: It is also proposed to amend Section 69 of the LLP Act with a view to reduce the additional fee of Rs. 100 per day which is presently applicable for the delayed filing of forms, documents. A reduced additional fee is expected to incentivize smooth filing of records and returns of LLPs and consequently result in an updated registry for proper regulation and policy making.
Draft Companies (Incorporation) Second Amendment Rules, 2021 (“Incorporation Amendment Rules”) (source)
MCA on February 01, 2021 has published the Incorporation Amendment Rules. As per the Incorporation Amendment Rules:
Any natural person, who is an Indian citizen, whether resident in India or otherwise, would be allowed to form a One Person Company (OPC). Previously NRIs were not allowed to incorporate OPCs.
For being considered as a resident in India, the residency period has been proposed to be reduced to 120 days from 182 days for NRIs.
Rule relating to voluntary conversion unless OPC has completed two years from the date of incorporation is proposed to be omitted and with effect from 01.04.2021, conversion of an OPC into a public company or a private company shall be permitted anytime. An OPC may be converted into a private or public company other than a company registered under section 8 of the Companies Act, 2013 after increasing the minimum number of members and directors to two or minimum of seven members and three directors as the case may be,
The limitation of paid up capital and turnover presently applicable for OPCs (paid up share capital of fifty lakhs rupees and average annual turnover during the relevant period of two crore rupees) is being done away with so that there are no restrictions on the growth of OPCs in terms of their paid-up capital and turnover.
Rationalization of e-forms applicable for OPCs by omitting e-Form No.INC-5 and modification of e-form INC-6 (application for conversion from OPC to a private company or a public company and also private company to OPC.
The Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021 (“IT Intermediary Rules”) (source)
The Ministry of Electronics and Information Technology (“MeITY”), on February 25, 2021 notified the IT Intermediary Rules governing the digital media industry to ensure greater compliance with local laws. As per the IT Intermediary Rules, social media platforms have been mandated to take down flagged posts within thirty-six hours of receiving a notice while encrypted messaging apps, including WhatsApp, Signal and Telegram have been directed to trace the originator of contentious messages. They have to also introduce a mechanism for voluntary verification of identity of users as a means to curb fake and anonymous posts on social media. Companies will also have to set up automated tools to weed out certain kinds of messages and delete messages upon requests from users within 24 hours if the context is inappropriate in nature. The IT Intermediary Rules have also defined a “Code of Ethics and Procedure and Safeguards in relation to Digital/Online Media”(“Digital Media Code”). The Digital Media Code is expected to have a far-reaching effect on the video streaming services – popularly known as the over-the-top (OTT) players. While allowing for self-regulation, the government has tightened its grip over the redressal mechanism by forming a three-tier structure, where the individual players will have only one level of self-regulation mechanism, the second level will be a self-regulatory body, headed by a retired judge of a high court or Supreme Court. The judge will have to be appointed from a panel prepared by MeITY, and have up to six other members, who can be experts from the field of media, broadcasting, technology and entertainment. There will be an oversight mechanism, where the government will designate an authorised officer who will have the power of blocking access of content. An inter-departmental committee will be constituted, to hear complaints regarding violation or contravention of the Digital Media Code.
Draft Guidelines for Social Media Influencers (“Draft SMI guidelines”) (source)
Advertising Standards Council of India on February 22, 2021 has issued Draft SMI Guidelines for social media influencers. As per the Draft SMI Guidelines, (i) advertisements must be distinguishable by the average consumer from editorial and independent user-generated content, to prevent the audience from being confused between the two. Therefore, a disclosure label must be added from the list of approved labels; (ii) the disclosure label used to highlight advertising content is required to be upfront (within the first two lines of any given platform); (iii) the disclosure label must be in English or translated into the language of the advertisement in a way that it is well understood by the average consumer who is viewing the advertisement; (iv) blanket disclosures in a profile/bio/about section will not be considered adequate because people visiting the site might read individual reviews or watch individual videos without seeing the disclosure on another page; (v) if the advertisement is only a picture post such as Instagram stories or Snapchat, the label needs to be superimposed over the picture and it should be ensured that the average consumer is able to see it clearly; (vi) in the case of video not accompanied by a text post, the disclosure label should be superimposed on the video in a manner that is easily visible to the viewer; (vii) in case of audio media, the disclosure label must be clearly announced at the beginning and at the end of the audio; (viii) filters should not be applied to social media advertisements if they exaggerate the effect of the claim that the brand is making; (ix) the influencer must do their due diligence about any technical or performance claims made by them; and (x) it is recommended that the contractual agreement between advertiser and influencer carries clauses pertaining to disclosure, use of filters as well as due diligence.
Reserve Bank of India (RBI) Issues Master Direction on Digital Payment Security Controls (“DPSC Direction”) (source)
RBI on February 18, 2021 issued the DPSC Direction. The DPSC Direction provides necessary guidelines for the Regulated Entities (Scheduled Commercial Banks, Small Finance Banks, Payment Banks and Credit Card issuing NBFCs) to set up a robust governance structure and implement common minimum standards of security controls for digital payment products and services. The DPSC Direction shall create an enhanced and enabling environment for customers to use digital payment products in a more safe and secure manner. The DPSC Direction consolidates important control aspects broadly in the following areas viz., Governance and Management of Security Risks, Generic Security Controls, Application Security Life Cycle (ASLC), Authentication Framework, Fraud Risk Management, Reconciliation Mechanism, Customer Protection, Awareness and Grievance Redressal Mechanism, specific controls related to Internet Banking, Mobile Payments Application Security Controls and Card Payments Security.
RBI Rejects Demand of Online Merchants to Store Customers' Credit Card Data (source)
As reported by Economic Times, the Reserve Bank of India has rejected demands of top merchants like Amazon, Microsoft, Netflix;, Flipkart and Zomato to store customers credit card data under the new payment aggregators and payment gateway (PA/PG) norms enforceable from July 2021. RBI guidelines bar merchants from storing “customer card and related data" on their servers. The guidelines also bar payment aggregators from storing customer card credentials within their database or the servers assessed by the merchant. The regulator is of the view that merchants storing credit card data would cause security risks to the consumer and they do not have any locus standi as these norms pertain to payment aggregators and gateways.
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.