Legal & Industry Updates - January 2021
SPECIAL EVENTS
Knowledge Session on Constitutional Documents – Impact on Shareholders and the Company, January 22, 2021
Ivy Law conducted a knowledge session on Constitutional Documents (Memorandum and Articles of Association) - Impact on Shareholders and the Company. Kaveri Kumar, Founder and Head of Corporate Practice, Ivy Law was the keynote speaker and focused on the significance of Constitutional Documents on managing the affairs of a company. The binding effect of the Constitutional Documents vis-a-vis a shareholders agreement was deliberated upon. Significance of the Constitutional Documents in the event of internal disputes amongst shareholders and corporate governance matters were also addressed.
Significance of E-contracts, January 13, 2021
The team at Ivy Law participated in an online session on the 'Significance of E-Contracts', conducted by Lawyered. The webinar gave insights on legal provisions such as Section 10A of the Information Technology Act, 2000, which provides for the validity of contracts formed through electronic means and Section 65B of the Evidence Act 1872, stipulating the admissibility of electronic records as evidence in India. Different challenges related to E-Contracts such as stamping were also considered. Aspects pertaining to affixation of stamp paper and different modes of digital signatures were also emphasized.
LEGAL & INDUSTRY UPDATES
The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 (source)
The Ministry of Corporate Affairs (“MCA”) has notified the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 (“CSR Amendment Rules”), dated January 22, 2021. The CSR Amendment Rules have introduced a new concept of impact assessment, applicable to companies having the obligation to spend the average Corporate Social Responsibility (“CSR”) amount of Rs. 10 Crore or more, in three immediately preceding financial years. Impact assessment is required to be undertaken by an independent agency. Further, the composition of CSR Committee, the CSR Policy and CSR projects approved by the Board of Directors (“Board”) are required to be disclosed on the company’s website (if any). Any excess amount spent on CSR, maybe set-off against the requirement to spend up to immediate succeeding 3 financial years, subject to such excess amount not to include the surplus arising out of the CSR activities and the Board having passed a resolution to that effect. Every entity within the ambit of CSR Amendment Rules, is required from April 1 to get itself registered, by filing of new Form CSR-1 with the Registrar of Companies.
Notification of Provisions Under the Companies (Amendment) Act, 2021 (source)
The MCA by a notification dated January 22, 2020, appointed January 22 as the date to bring into force 11 provisions under the Companies Amendment Act, 2020. The sections notified include Section 2(52) (Amendment to the definition of a ‘listed company’), Section 11 (Further Issue of Share capital), Clause (c) Section 18 (Declaration in Respect of Beneficial Interest in any Share), Clause (ii) of Section 22 (Resolutions and Agreements to be Filed), Section 25 (Periodical Financial Results), Section 27 (Corporate Social Responsibility), Section 53 (Application of Act to Foreign Companies), Section 55 (Exemptions under the Chapter ‘Companies Incorporated Outside India), Section 58 to 60 (both inclusive) (Constitution of Appellate Tribunal, Benches of Appellate Tribunal, and Establishment of Special Courts), Section 62 (Lesser Penalties for Certain Provisions), and Section 64 and Section 65 (Punishment for Wrongful Withholding and Adjudication of Penalties).
Companies Incorporation Amendment Rules, 2021 (source)
The MCA has notified the draft Companies (Incorporation) Amendment Rules, 2021 (“Notification”) which amends the Companies (Incorporation) Rules, 2014. The Notification amends Rule 41 of Companies (Incorporation) Rules, 2014 which relates to conversion of a public company into private company. The Notification stipulates that on receipt of an objection or a specific objection being raised by the Regional Director upon examination of an incorporation application, the objection shall be recorded in writing and a hearing(s) should be held within a period of 30 days by the Regional Director from the date of raising such an objection. The company will be directed to file an affidavit to record the consensus reached at the hearing. The Regional Director shall pass an order either approving or rejecting the incorporation application stating the reasons within 30 days from the date of the hearing.
Proposal for Board Meetings, Annual General Meetings, Extraordinary General Meetings to be Permanently Convened Virtually (source)
As reported by Economic Times, the government is considering to make virtual board meetings, annual general meetings (AGMs) and extraordinary general meetings (EGMs) a permanent feature. Suitable changes could be made to the Companies Act, 2013. Since March last year, MCA has granted multiple relaxations regarding statutory compliances to companies, in light of the disruptions caused by the pandemic, along with several extensions to various deadlines. The concessions include a decision to do away with the requirement of a physical board meeting to pass certain resolutions such as approval of mergers or restructuring and the permission to hold AGMs and EGMs via video conference or other audio-visual means. This appears to be a step in the right direction; however, MCA would have to design the rules to ensure that shareholders’ interests are protected through legislative amendments to the Companies Act, 2013.
Proposed Stringent Foreign Direct Investment Rules for the E-commerce Sector (source)
As reported by Economic Times, Department for Promotion of Industry and Internal Trade (DPIIT) may issue a clarification through a Press Note, expressly prohibiting e-commerce platforms such as Amazon India and Walmart-Flipkart from holding stake in a seller, directly or indirectly. Press Note 2 of 2018 had banned entities related to an e-commerce marketplace from selling its goods on that marketplace. Further, the restrictions also applied to those entities whose inventory was controlled by the marketplace. The inventory of a vendor will be deemed to be controlled by the marketplace if more than 25% of the vendor’s purchases are from the marketplace entity, including its wholesale unit. The Confederation of All India Traders (CAIT) has repeatedly complained to the government that online retailers are violating FDI rules for e-commerce. E-commerce marketplaces can’t mandate any seller to sell any product exclusively on its platform only. While many loopholes have been plugged over the years, marketplaces have come up with new structures to sidestep the rules such as having their own brands, third party manufacturing, curate more brands and increase margins, that makes many rules redundant. DPIIT will hold consultations with all stakeholders before it issues the clarification.
Depositing of Source Code for Governmental Control (source)
As reported by Economic Times, Bharat Sanchar Nigam Limited (BSNL) has come out with a notice inviting tenders as it seeks to launch commercial 4G services across India. BSNL’s inviting proposals notified that the applicant company must own or have unrestricted, irrevocable access and license to modify the source code, provide software support for all future versions, and the source code should be deposited in an escrow account for core and radio access network (RAN). Earlier, Delhi-based Cellular Operators Association of India had contended that the source code constitutes commercially valuable, confidential and sensitive information, thus its submission for security testing is not necessary to address security requirements. However, the Telecom Committee of PHD Chamber of Commerce and Industry in a letter to the Division of Telecommunications claimed that depositing of the source code to an escrow account, will give full control and visibility to the government over any potential misuse of fourth generation technology or 4G equipment for snooping.
Task Force for Monitoring Over-the-Top Advertising (source)
As reported by Economic Times, the Advertising Industry Regulator, Advertising Standards Council of India (“ASCI”) is setting up a task force to monitor and regulate advertising on over-the-top (OTT) streaming platforms, at a time when OTT platforms such as Amazon and Netflix are exploring advertising revenue options to move beyond subscription-only models, while others such as Zee5, Disney+Hotstar, Sony Liv and Voot, which are already large platforms for advertising, continue to increase their user bases. Advertising on OTT was not part of ASCI guidelines earlier; ASCI is working closely in partnership with the Ministry of Information & Broadcasting, Central Consumer Protection Authority, Ministry of Consumer Affairs, Ministry of Ayush, and Food Safety and Standards Authority of India, to form guidelines and processes, which will monitor advertising on OTT platforms.
Securities and Exchange Board of India (SEBI) Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2021 (“Draft LODR Regulations”) (source)
SEBI on January 08, 2021, published the Draft LODR regulations. The Draft LODR Regulations incorporate the following events regarding corporate insolvency resolution process (CIRP) of a listed corporate debtor, under the insolvency code: (i) specific features and details of the resolution plan as approved by the adjudicating authority under the insolvency code, not involving commercial secrets, such as: (a) pre and post net-worth of the company; (b) details of assets of the company post CIRP; (c) details of securities continuing to be imposed on the companies’ assets; (d) other material liabilities imposed on the company; (e) detailed pre and post shareholding pattern assuming 100% conversion of convertible securities; (f) details of funds infused in the company, creditors paid-off; (g) additional liability on the incoming investors due to the transaction, source of such funding etc.; (h) impact on the investor -revised P/E, etc.; (i) names of the new promoters, key managerial persons(s),if any and their past experience in the business or employment. In case where promoters are companies, history of such company and names of natural persons in control; (j) brief description of business strategy; (ii) proposed steps to be taken by the incoming investor/acquirer for achieving the Minimum Public Shareholding (“MPS”); (iii) quarterly disclosure of the status of achieving the MPS; and (iv) details as to the delisting plans, if any approved in the resolution plan.
Clarification on Spending of CSR Funds for Awareness and Public Outreach on Covid- 19 Vaccination Programme (source)
As per the clarification issued by MCA, dated January 13, 2021, spending of CSR funds for carrying out awareness campaigns/programmes or public outreach campaigns on COVID- 19 vaccination programme is an eligible CSR activity under item no (i), (ii), and (xii) of Schedule VII of the Companies Act, 2013, relating to promotion of health care, including preventive health care and sanitization, promoting education, and, disaster management respectively.
Amendments to the Mines and Mineral (Development and Regulation), Act 1957 (source)
As reported by Economic Times, structural reforms through legislative amendments are approved to the Mines and Mineral (Development and Regulation), Act 1957 (“MMDR Act”), to remove restrictive end-use conditions on captive mines, resolve legacy issues and unlocking more blocks for auction. The amendment is made to Section 10A(2)(b) of MMDR Act, which pertains to leases where reconnaissance permits or prospecting licenses were granted. Another amendment deals with Section 10A(2)(c) of the MMDR Act, which relates to grant of mining leases to resolve legacy issues and allows reallocation of mines through auctions. These changes will allow the auction of more than 500 mines for gold, diamond, platinum, copper, zinc and lead among others, and are expected to attract big-ticket investment from mining giants.
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.