Legal & Industry Updates - February 2024
SPECIAL EVENTS
Legal Empowerment for Dignity, Democracy and Justice, February 20, 2024
The team at Ivy Law participated in a webinar on ‘Legal Empowerment for Dignity, Democracy and Justice’ organized by Jindal School of Government and Public Policy. The discussion was wide ranging, covering various aspects including the concept of bringing together two schools of thought which are the School of Law and the School of Public Policy for the betterment of community and society as a whole. The webinar emphasized on the term Legal Empowerment, while focusing on two major points including ‘Legal Empowerment Cycle’ and ‘Building Collective Power’. Further, the speaker also laid stress on the need for more funds in the form of legal aids by advocates in order to fight for communities and people.
LEGAL & INDUSTRY UPDATES
The Ministry of Corporate Affairs (“MCA”) Announces the Establishment of Central Processing Center (“CPC”) (source)
MCA, on 2nd February, 2024, has notified the establishment of CPC with the aim to streamline and enhance the processing of electronic forms (“e-forms”) related to company affairs under the Companies Act, 2013, thereby allowing quicker processing times and reducing the workload on local registrar offices. However, despite the centralization of e-form processing, the jurisdictional Registrar of Companies (“ROC”), where a company’s registered office is located, retains authority over the company. Therefore, ROC would cover all matters under the Companies Act, 2013, except for the processing of e-forms, which is now the responsibility of the CPC.
The Securities and Exchange Board of India (“SEBI”) Proposes Framework for Foreign Portfolio Investors (“FPIs”) to Dispose Off Securities Post Expire of Registration (source)
SEBI, on 7th February, 2024, has proposed a consultation paper regarding framework for providing flexibility to FPIs in dealing with their securities post expiry of their registration wherein SEBI has proposed a mechanism to allow additional time for FPIs to liquidate their assets even after the expiry of their registration. Currently, there is no provision to deal with securities lying frozen in the dematerialization accounts of FPIs whose registration has expired. As the securities, blocked in the accounts of FPIs or written-off by them, continue to remain frozen for perpetuity, the share capital of such companies is also blocked. Similarly, the dematerialization accounts of FPIs also remain open, in frozen state, even after the FPIs surrender their registration, which is not desirable as it renders such accounts vulnerable to misuse.
SEBI Proposes Mandatory Registration of Portfolio Management Services (“PMS”) With the Association of Portfolio Managers in India (“APMI”) (source)
SEBI, on 15th February, 2024, has proposed to mandate distributors of PMS to register with the APMI with the aim to promote ease of doing business for portfolio managers by providing single filing for compliance and other declarations for PMS distributors, access to industry data, offering easy as well as faster access to portfolio managers, and thereby granting faster grievance redressal. At present, persons engaged by a portfolio manager to act as a distributor of the PMS, are required to obtain certification from the National Institute of Securities Markets and are further required to ensure that distributors abide by the code of conduct specified under portfolio managers' rules.
The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) (Amendment) Regulations, 2024 and Insolvency and Bankruptcy Board of India (Bankruptcy Process for Personal Guarantors to Corporate Debtors) (Amendment) Regulations, 2024 (“IBBI Regulations”) (source)
The Insolvency and Bankruptcy Board of India (“IBBI”), on 3rd February, 2024, has notified the IBBI Regulations wherein IBBI has lifted the restriction to allow the same insolvency professional (“IP”) as well as the personal guarantor (“PG”) for the resolution process and bankruptcy process of a company respectively, for a better harmonization and effective coordination of both processes. Further, prior to the amendment, after the repayment plan was submitted by the PG, the IP would evaluate its viability and submit a report to the adjudicating authority with a recommendation on whether to call a meeting of the creditors. However, subsequent to the amendment, the IP shall place the repayment plan in a meeting of the creditors for its consideration and where no repayment plan has been received within such period the IP shall notify the same in a meeting of creditors.
The Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) (Amendment) Regulations, 2024 (“Liquidation Regulations”) (source)
The IBBI, on 5th February, 2024, has notified the Liquidation Regulations to amend the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 (“Regulations, 2017”), with the aim to enhance the efficiency and transparency of the voluntary liquidation process (“VLP”) and contribute to a more robust regulatory framework for corporate voluntary liquidation in India. The key highlights of the amendments are:
Affidavit verification: In Regulation 3(1)(a) (Initiation of Liquidation), a new sub-regulation (iii) has been inserted requiring the corporate person to make sufficient provision for obligations arising from pending matters.
Disclosure requirements: In Regulation 3(1)(b), a new sub-regulation (iii) has been inserted mandating disclosure about pending proceedings before statutory authorities and pending litigations concerning the corporate person to ensure transparency and comprehensive reporting of legal matters that may impact the VLP.
Meeting of contributories: In Regulation 37(2) (Completion of liquidation), the amendment requires the liquidator to hold a meeting of contributories within fifteen days from the end of two hundred and seventy days or ninety days, as applicable.
Status Report Filing: In Regulation 39 (Corporate Voluntary Liquidation Account), a new sub-regulation (4) is inserted requiring the liquidator to file a Status Report with the Board of Directors within seven days of the contributories’ meeting to ensure timely reporting and updates to the regulatory authority regarding the progress and status of VLP.
IBBI Solicits Resolution Professionals (“RPs”) to Share Copies of Reports on Insolvency Applications with Creditors, Debtors (source)
IBBI, on 12th February, 2024, has instructed RPs to distribute their reports on insolvency applications to both creditors and debtors of the relevant companies. As per the Insolvency and Bankruptcy Code, 2016, RPs must submit a report to the adjudicating authority recommending either the approval or rejection of an application to commence the insolvency resolution process. However, IBBI noted instances where RPs failed to share their reports with debtors and creditors, resulting in unequal access to information. To address the same, IBBI has advised that RPs must provide copies of their reports to both debtors and creditors in all cases with the aim to ensure that both parties are well-informed about the assessments and recommendations made by the RP, thereby fostering transparency and enabling informed decision-making.
Competition Commission of India (“CCI”) Notifies Leniency Plus Regime to Curb Cartelisation (source)
The CCI, on 20th February, 2024, has notified the Competition Commission of India (Lesser Penalty) Regulations, 2024, a leniency plus regime wherein companies involved in cartels can receive reduced penalties if they provide information about other undisclosed cartels, which are not previously known to CCI. As per a CCI notification issued in 2023, if a second participant came clean, they would be eligible for a waiver of up to 50% of the penalty. However, the new regime offers a further 30% reduction in the penalty to the second cartel participant to come clean if they disclose the existence of another cartel. This entity would also be eligible for a full waiver of any penalty that arises from an investigation into the newly disclosed cartel. This scheme aims to encourage greater transparency and cooperation in tackling anti-competitive practices.
Supreme Court of India (“SC”): When Two Clauses in a Deed are Contradictory, the Earlier Clause Takes Precedence Over the Other (source)
The SC, in a recent judgement, emphasized that when two clauses in a deed are contradictory, the earlier clause would take precedence over the later one. This ruling came during the interpretation of clauses in a Power of Attorney (“PoA”) executed by landowners in favor of individuals from whom the appellant purchased land which authorized the holders to execute sale deeds, and to present them for registration on behalf of the landowners. However, allegations arose regarding criminal acts committed by the PoA holders and the appellant, leading to the filing of the First Information Report (“FIR”). The appellant contended that clause 15 of the PoA authorized them to present sale deeds for registration, and thus they had not committed any criminal acts. SC, after examining the clauses, concluded that clauses 3 and 11 authorized the execution and registration of deeds by the PoA holders, while clause 15 added to these powers without nullifying them and further stated that since clauses 3 and 11 could not be reconciled with clause 15, the former prevailed. SC thus quashed the FIR.
Delhi High Court (“HC”): Arbitration Clause Is Not Void Under Section 29 of the Indian Contact Act, 1872 (“IC Act”) For Stipulating Multiple Choices Of Seats, Allows Section 11 Petition of the Arbitration and Conciliation Act, 1996 (“A&C Act”) (source)
The Delhi HC has held that if an arbitration agreement stipulates multiple seats of arbitration, thereby, offering a choice to the parties, it is not void under Section 29 (Agreements whose meaning is not certain or capable of being determined are invalid) of the IC Act which declares agreements uncertain in meaning or incapable of being made certain as void. It further emphasized Section 29’s limited role in a Section 11 (Appointment of Arbitrators) of A&C Act petition, which is to ascertain the prima facie existence of an arbitration agreement. The HC held that the arbitration clause in question clearly stipulated that the seat of arbitration could be Goa, Karnataka, or Delhi, offering a choice to the parties. The HC found no ambiguity in the clause, as it provided clear options for jurisdiction, thereby not falling under the purview of Section 29.
The Ministry of Power (“MoP”) Urges States for Immediate Adoption of Renewable Energy Rules (source)
The MoP, on 12th February, 2024, has notified that all states and union territories should implement the amended Electricity (Promoting Renewable Energy through Green Energy Open Access) Rules, 2022 within 15 days of the said notification and align open access regulations, on aggregation basis, in accordance with the notified rules. As per the notification, entities with a contracted demand of 100 kW or above are now eligible for Green Energy Open Access, which facilitates the consumption of renewable energy. This move aligns with India's renewable energy goals and aims to strengthen India's position in renewable energy sector. Further, this regulatory change would simplify the process of obtaining green energy, thereby contributing to India's sustainable development and energy security efforts.
The Central Drugs Standard Control Organisation (“CDSCO”) Issues Sampling Guidelines to Ensuring Quality and Efficacy of Drugs and Cosmetics (source)
CDSCO, on 9th February, 2024, has released directives to enhance surveillance on the quality and effectiveness of drugs and cosmetics in the market with the aim to uniform drug sampling methodology for drug inspectors under drug regulatory authorities of state and central governments. The guidelines highlight the absence of cosmetics sampling in certain regions and the lack of centralized database for outlets where substandard or counterfeit products have been reported and therefore proposes maintaining regular surveillance on such identified outlets. Further, the guidelines emphasize the importance of promptly testing and obtaining laboratory reports to prevent further use of substandard products. Further, post the notification, drug alerts and product recall notices are to be issued promptly for public awareness, regardless of the proceedings of drug inspectors under the Drugs and Cosmetics Act, 1940 and related rules.
Draft IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 (“IRDAI Regulations, 2024”) (source)
The Insurance Regulatory and Development Authority of India, on 2nd February, 2024, has proposed the draft IRDAI Regulations, 2024, with the aim to enhance ease of doing business while ensuring protection of customer interests. The exposure draft brings forth instituting a provision that enables relaxation in the lock-in period if the insurance company or the shareholder is in financial distress or to facilitate the amalgamation of insurers or shareholders. Additionally, the draft suggests that applicants seeking new registration need to provide more clarity on their capital structure and in the case of transfer of shares, the insurance companies are suggested to provide more clarity on the applicability of the requirement of prior approval for the transfer of shares.
Budget, 2024: Tax Benefits for Startups Extended to March, 2025 (source)
The Central Government (“CG”), in Budget, 2024, has announced to extend the tax benefits for startups for an additional one year i.e. till March, 2025, with the aim to promote startups and improve the startup ecosystem. The tax holiday scheme for startups, announced for the first time in the Union Budget 2017, offers 100% tax rebate to eligible startups on profits made for a period of three years in a total time frame of 10 years of operations, however, to avail the same, their turnover should be less than INR 100 crore in any of the previous financial years. In addition to that, CG has also allocated a corpus of INR 1 lakh crore, coupled with interest-free loans for 50 years, to foster technological innovation in emerging sectors.
Startup Founders Urge CG and the Reserve Bank of India (“RBI”) to Reassess Actions Against a Renowned Indian Financial Technology (“Fintech”) Company’s Payments Bank (source)
Various startup founders, investors, and the broader fintech community are on high alert as they react to RBI’s actions against a renowned fintech company’s Payments Bank wherein RBI had placed major restrictions on the fintech company’s Payments Bank, thereby creating trouble for its respective associate company. The startup founders have expressed their concerns in writing to the Prime Minister of India, Finance Minister, as well as the RBI, urging them to reassess the regulatory action taken against the said fintech company as they emphasized on the potential consequences of such regulatory measures. Post the action, numerous startups are engaged in intense discussions, assessing the need to reevaluate their data systems and compliance protocols, and further seeking guidance from their legal counsel and advisors on the same.
Electronic Commerce (“E-Commerce”) Companies Making Concentrated Efforts to Boost Gender Diversity in Supply Chain Roles (source)
Several e-commerce companies are taking steps to address gender imbalance in supply chain roles, which is traditionally considered a male-dominated field. By offering facilities like crèche facilities, period leaves, and women-only delivery and customer service stations, they are on the verge of creating a more inclusive and supportive work environment. Further, they are partnering with women’s campuses to attract more women to these roles, providing them with opportunities to learn and grow in the field.
Budget 2024: Railways Gets a Boost as CG Announces More Vande Bharat Trains, Three Major Economic Railway Corridor Projects (source)
CG, in Budget, 2024, has announced that nearly 40,000 normal bogies would be converted to standard Vande Bharat bogies for faster and better connectivity. Further, it was also presented that three major railway corridors including port connectivity corridor, energy, mineral and cement corridor and high traffic density corridor, would be introduced, with the aim to improve logistics efficiency and reduce cost. It was highlighted that expansion of railway sector would be supported in large cities focusing on transit-oriented development. Therefore, the finance minister of India raised the allocation for the Indian Railways by 5.8% to a record INR 2.55 lakh crore.
Banks to Conduct Periodic Performance Review of Empaneled Advocates to Fast-Track Cases in Debt Recovery Tribunals (“DRTs”) (source)
The Ministry of Finance has urged banks to regularly review the performance of appointed or empaneled advocates and rationalize the cases assigned to them based on performance. This action forms part of the strategies aimed at improving the efficiency of DRTs for faster debt retrieval and to reduce case backlogs at different stages through rigorous monitoring. Further, steps would be taken by banks and financial institutions to reconcile cases which are pending in DRTs and Debt Recovery Appellate Tribunals but have already been settled. Additionally, the discussion also pertained to banks ensuring the presence of their officers at all the hearings for their respective cases in judicial forums.
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.