Legal & Industry Updates - January 2024
SPECIAL EVENTS
Women in Mediation - Unleashing power of Women Mediators in Mediation, January 24, 2024
The team at Ivy Law participated in a lecture on “Women in Mediation: Unleashing power of Women Mediators in Mediation” organized by GNLU Centre for Alternate Dispute Resolution (“ADR”). The discussion was exhaustive, covering several aspects of mediation, including the meaning and process of mediation as well as the Mediation Act, 2023. Emphasis was bestowed upon the importance of gender diversity in mediation and how women can bring in qualities such as empathy, effective communication and relationship building to the mediation table. The lecture also included the need for the Central Government to switch from adversarial litigation to ADR routes. Further, how the United Nations Security Council resolution 1325 (2000) and subsequent resolutions on women, peace and security has motivated an extensive range of policy initiatives among Member States and international organizations to advance women’s participation in peace processes was also deliberated upon.
LEGAL & INDUSTRY UPDATES
The Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024 (“Companies Rules”) (source)
The Ministry of Corporate Affairs, on 24th January, 2024, has notified the Companies Rules along with the Foreign Exchange Management (Non-debt Instruments) Amendment Rules, 2024, with the aim to provide an overarching regulatory framework to enable public Indian companies to issue and list their shares in permitted international exchanges, which would further reshape the Indian capital market landscape and offer Indian start-ups and companies in the sunrise and technology sectors, an alternative avenue to access global capital beyond the domestic exchanges. It is also expected to lead to better valuation of Indian companies in line with global standards of scale and performance, boost foreign investment flows, unlock growth opportunities and broaden the investor base while particularly benefitting companies having ambitions to look at opportunities for expanding their presence in other markets.
Supreme Court of India (“SC”): Statutory Set Off or Insolvency Set Off Inapplicable to Corporate Insolvency Resolution Process (“CIRP”) (source)
SC, on 4th January, 2024, has held that statutory set off or insolvency set off is not applicable to CIRP proceedings under the Insolvency and Bankruptcy Code, 2016 (“IBC”). SC further asserted that if the resolution professional secures the assets from the creditors as per the IBC, the creditors would not be entitled to claim set-off during the course of the CIRP. It was also opined that there is a difference between CIRP and the liquidation process of the IBC as CIRP focuses on and fosters rehabilitation, revival and resolution of the corporate debtor, whereas IBC focuses on the constellation of assets of the company in liquidation, as well as distribution and payment to the creditors from the liquidation estate in terms of the order of preference set out in the insolvency statute.
SC Deprecates the High Court of Jharkand, Ranchi (“HC”) Order Granting Anticipatory Bail to Accused for Offering Compensation to Sexual Harassment Victim (source)
The SC recently addressed the issue of granting anticipatory bail to the accused solely based on the accused's willingness to offer interim compensation. The accused was charged under various provisions of the Indian Penal Code, 1860, the Protection of Children from Sexual Offences Act, 2012 and the Information Technology Act, 2000 wherein he was accused of outraging the modesty of the petitioner and circulating an indecent video on social media. The accused thereby approached the HC seeking relief by paying INR 1 lakh as ad interim victim compensation to the petitioner. The HC subsequently granted bail to the accused, however, it failed to provide any explicit reasons for its decision. Challenging this order, SC, upon initial review, deemed the HC's perspective legally unsustainable as there was absence of any discernible grounds on which anticipatory bail was granted, further criticizing the lack of clarity in its decision-making process.
The Reserve Bank of India (“RBI”) Releases Draft Framework for Self-Regulatory Organizations (“SROs”) in the Financial Technology (“Fintech”) Sector (“SRO-FT”) (source)
RBI, on 15th January, 2024, has issued a draft framework for SROs focused on the fintech sector, with the aim to empower the fintech sector to function and innovate responsibly even in the absence of formal regulations. The framework lays down broad functions, governance standards, and eligibility criteria for setting up SRO-FT. SRO would ensure statutory and regulatory compliance, adherence to industry standards as well as facilitate a transparent communication channel with RBI. However, RBI has left it to the industry to decide whether there should be a single SRO or multiple SROs, since given the diverse nature of fintechs, restricting to one SRO-FT could dilute some industry concerns, while having multiple SRO-FTs could undermine the representative character of self-regulation.
RBI Proposes Ease of Norms for Dividend Payout (“DPO”) by Banks (source)
RBI, on 2nd January, 2024, has released a draft circular stating that banks with net non-performing assets (“NNPA”) ratio less than 6%, as opposed to the current 7%, and capital adequacy above the minimum regulatory thresholds for the past three financial years should be eligible to declare dividends. RBI further proposed a revised graded DPO policy with a higher ceiling on dividend payment to 50%, from 40% earlier. The circular also stated that a commercial bank should have a minimum total capital adequacy of 11.5% to be eligible for declaring dividend, while the same for a small finance bank and payment banks has been set at 15%, and 9% for local area banks and regional rural banks.
RBI Mulls Exemptions for Bank Investments in Alternate Investment Funds (“AIF”) Rules (source)
RBI is contemplating granting of exemptions to recently tightened rules for bank investments in AIFs wherein, RBI ruled that banks and non-bank lenders cannot invest in AIFs with holdings in the banks' current or recent borrowers, to avoid cases of "evergreening" bad loans, and further asked lenders to sell existing investments within a month, or provision against them. The inadvertent impact of the RBI circular was that the banks and non-bank finance lenders steered clear of investing in AIFs fearing that they may violate the regulations. Therefore, RBI is considering suitable exemptions to some of the valid concerns.
Public Sector Banks (“PSBs”) Set to Evaluate Legal Companies Roped in for Insolvency and Bankruptcy Cases (source)
CG had recently expressed concerns over large haircuts and delays in resolution under the IBC and further directed lenders to build an effective framework for monitoring the progress of legal processes, and therefore, CG has requested PSBs to intensify their oversight and evaluation of IBC cases by evaluating the performance of legal firms engaged by such PSBs. CG also emphasized on the need for a monthly review of these cases to ensure that the legal counsel engaged by the lenders would be more aggressive in their approach, thereby leading to swifter resolution of the cases in hand.
More Startups Preparing to Move Their Parent Companies to India (source)
Startups with parent companies outside of India are planning to shift base and move back to India. Further, many business-to-business electronic commerce firms as well as online marketplaces are also in various stages of discussions to move their holding companies back to India. Several startups had set up overseas bases for easier funding and tax policies, however, amid a tightening regulatory environment and the Central Government (“CG”) working on new guidelines for improving regulation, these startups are putting their plan to action to reverse flip and move their base to India, which aims to provide a potential Initial Public Offering as well as ease of operating from home market.
CG Proposes to Formulate a Standard Operating Procedure (“SOP”) to Avail Eligibility Certificate for Startups (source)
CG is actively working to contrive an SOP with the objective to examine and fast-track applications for grant of eligibility certificates, a prerequisite for claiming tax benefits. The plan includes creating an SOP wherein all the issues which appear before the inter-ministerial board would be put up and consequently sorted out. Acknowledging the importance of easing the business process for startups, the Department for Promotion of Industry and Internal Trade aims to revamp the entire procedure to minimize hurdles related to eligibility certificates and foster an environment conducive to entrepreneurial success.
CG to Amend Information Technology Rules, 2021 (“IT Rules”) With the View to Introduce Artificial Intelligence (“AI”) Regulations (source)
CG is likely to amend the IT Rules and introduce rules for regulating AI companies and generative AI model. The amendments are likely to mandate that platforms which use artificially intelligent algorithms or language models to train their machines are devoid of any form of bias. The Ministry of Electronics and Information Technology is set to announce amendments prohibiting AI algorithms or language models with biases or training on biased datasets from open use. There would be a legal obligation on platforms to ensure that all these amendments are adhered to, thereby expanding the ambit of trust and safety of the internet.
The Ministry of Health and Family Welfare (“Health Ministry”) Notifies Revised Schedule M Under Drugs and Cosmetic Rules, 1945 (“D&C Rules”) (source)
The Health Ministry, on 6th January, 2024, has notified the revised Schedule M guidelines (Good Manufacturing Practices) under D&C Rules, with the aim to improve the quality of locally manufactured drugs. The pharmaceutical companies will now have to intimate the licensing authority about recalling a drug and also report product defects, deterioration or faulty production. Prior to the notification, there was no provision for informing the licensing authority about drug recall. The amended guidelines further state that the manufacturer must be responsible for the quality of the products so that they are fit for their intended use, comply with the requirements of the licence and do not place patients at risk due to inadequate safety, quality or efficacy.
Banks to Make Representations on Sustained Liquidity Drainage Amid Surging Cost of Funds (source)
Banks and other participants in bond and interest market rates are on the verge of making representations to the RBI with respect to the issues on Liquidity Coverage Ratio buffers and sustained liquidity drainage that has increased funding costs for lenders despite unchanged policy rates. As a result of these tight liquidity conditions as well as lack of bank funding, outstanding certificate of deposits which are short-term debt instrument used by banks to garner funds, and commercial papers which are unsecured money market instrument issued in the form of a promissory note by corporate borrowers, rose sharply.
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.