Legal & Industry Updates - July 2024
SPECIAL EVENTS
Data Privacy Disputes: The Intersection of Technology & Arbitration and Infrastructure Disputes, July 20, 2024
The team at Ivy Law participated in a webinar on the “Data Privacy Disputes: The Intersection of Technology & Arbitration and Infrastructure Disputes” organized by the Manipal Law School, Bengaluru. The webinar focused on the importance of data & privacy and provided an in-depth discussion on the Digital Personal Data Protection Act, 2023, covering its major aspects such as the legal framework for digitizing data and when the data can be lawfully digitized. Additionally, it addressed the intersection of technology and arbitration in data privacy disputes, examining how advancements influence proceedings and outcomes, while also discussing the importance of appeal mechanism. Further, description and understanding of Artificial Intelligence and how it can assist in dispute resolution processes, was also emphasized upon profusely.
LEGAL & INDUSTRY UPDATES
The Companies (Appointment and Qualification of Directors) (Amendment) Rules, 2024 (“Rules, 2024”) (source)
The Ministry of Corporate Affairs (“MCA”), on 16th July, 2024, has notified Rules, 2024 amending Rule 12A (Directors KYC) of the Companies (Appointment and Qualification of Directors) Rules, 2014, with the aim to streamline the Know Your Customer (“KYC”) process for directors and ensure their contact information is current. Key amendments to Rule 12A includes:
Every individual holding a Director Identification Number as of March 31 of a financial year (“FY”) must submit e-form DIR-3 KYC to Central Government (“CG”) by September 30 of the following FY.
Personal mobile numbers and email addresses can be updated in e-form DIR-3 KYC by September 30 of the FY.
Additional updates to personal mobile numbers or email addresses during the same FY will require submitting e-form DIR-3 KYC with a fee of INR five hundred.
The Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Amendment Rules, 2024 (“IEPF Rules”) (source)
MCA, on 16th July, 2024, has notified the IEPF Rules, amending the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016. As per the amended norms, companies must remit any amount required to be credited to the Investor Education and Protection Fund (“IEPF”) online to the authority within 30 days from the date it becomes due. Earlier, companies were required to remit the amount into a specified account of the IEPF Authority maintained in the Punjab National Bank. Further, forms IEPF-1 (Statement of amounts credited to IEPF or transfer of amounts on account of shares transferred to the fund), IEPF-2 (Statement of amounts credited to Investor Education and Protection Fund) and IEPF-1A (Statement of amounts credited to Investor Education and Protection Fund) have also been substituted with new forms.
Key Amendments to the Insolvency and Bankruptcy Code, 2016 (“IBC”) and the Companies Act, 2013 (“CA, 2013”) Likely This Winter Session (source)
MCA is likely to introduce significant changes to the IBC and the CA, 2013 in the winter session of the Parliament. The IBC may see a creditor-led process to speed up insolvency resolutions and extend the pre-pack resolution to larger firms, beyond just Micro, Small and Medium Enterprises (“MSMEs”). Group insolvency is another significant amendment under consideration which would enable a consolidated resolution process for corporate groups, simplifying proceedings and potentially improving outcomes. Further, over 100 amendments to the CA, 2013 are planned to streamline audits, reduce compliance burdens for businesses, strengthen corporate governance, and broaden Corporate Social Responsibility norms, marking a shift in India’s corporate governance and insolvency framework.
MCA Intensifies Enforcement Actions to Ensure Stricter Adherence to Companies Law (source)
In the June quarter itself, the Registrars of Companies (“RoCs”) have issued 321 orders against various firms for alleged violations under the CA, 2013, therefore CG is emphasizing on better compliance, leaving companies with no excuses for non-adherence. Currently, around 560 companies are under inquiry, and 270 are having their books inspected wherein the offences include failure to file financial statements and annual returns, lack of independent directors, and violations related to significant beneficial owners, among others. Companies are being penalized for extending loans without board approval, not maintaining registered offices, and not reporting board resolutions on time. RoCs are also targeting firms using online platforms for investment without adhering to 'private placement' requirements.
The Indian Penal Code, 1860 (“IPC”), the Code of Criminal Procedure, 1973 (“CrPC”) and the Indian Evidence Act, 1872 (“Evidence Act”) Replaced by the New Criminal Laws (source)
The Ministry of Home Affairs, on 1st July, 2024, has introduced three significant bills namely the Bharatiya Nyaya Sanhita, the Bharatiya Nagarik Suraksha Sanhita, and the Bharatiya Sakshya Adhiniyam, with the aim to replace the British-era laws that are the IPC, CrPC, and the Evidence Act, respectively. Key changes include:
The introduction of features like Zero First Information Reports, allowing complaints to be filed at any police station, stricter penalties, increased digitization, mandatory videography of crime scenes, and streamlining the initiation of legal action.
Online police complaints and electronic summons service are introduced with the objective to reduce paperwork and enhance communication.
Stricter timelines for delivering trial judgments within 45 days and framing charges within 60 days, thereby emphasizing on timely justice delivery.
Special provisions for crimes against women and children, ensuring sensitive handling and expedited medical examinations.
Updated definitions, including emerging crimes such as false promise of marriage and gang rape of minors, alongside a comprehensive definition of terrorism.
The Securities and Exchange Board of India (“SEBI”) Likely to Act Against ‘Silent’ Portfolio Management Service (“PMS”) Firms (source)
The silence of many PMS firms in a booming market has alarmed SEBI as it is unable to get responses from them, raising concerns about potential misuse of dormant licenses and therefore SEBI is on the verge of canceling or requesting the surrender of these licenses. Non-responsive PMS firms, even with little or no assets, could misuse their licenses amid high investor interest. SEBI has therefore formed a dedicated team to monitor the PMS sector, collecting extensive data on account details, funds, redemptions, fees, and brokerages. They would also respond to alerts triggered by deviations from regulations, such as minimum investment amounts or unauthorized short positions. SEBI's efforts aim to ensure compliance and prevent misuse of PMS licenses in a volatile market.
The Ministry of Electronics and Information Technology (“MeitY”) to Propose Removal of Ex-Ante Provision From Digital Competition Bill, 2024 (“Bill, 2024”) (source)
The MeitY is likely to advise the MCA to exclude the ex-ante provision from the proposed draft of the Bill, 2024. An ex-ante provision in a regulation or a law empowers CG to take preventive action based on a forecast or a predictable outcome of an event, rather than waiting for the outcome. However, these provisions are opposed by several stakeholders, terming it as burdensome. Other concerns include compliance for significant digital enterprises, dominance control, and its impact on venture investments in technology startups. Currently, the Competition Commission of India (“CCI”) works on an ex-post framework where it takes action on companies after it receives a complaint against their unfair market practices. The draft Bill, 2024 has proposed that the CCI should also have pre-emptive powers to complement the ex-post powers.
Renowned Japanese Automobile Company Launches INR 340 Crore Investment to Support Indian Startups (source)
A well-known Japanese automobile company has launched its new venture called “Next Bharat Ventures” with an outlay of INR 340 Crore to back early-stage startups through a residency programme. During the 4-month hybrid residency programme, selected impact entrepreneurs will receive extensive mentorship, access to resources, and networking opportunities with industry experts and peers, enabling them to scale their ventures organically. The venture will focus more on startups making a social impact through their business in sectors like agriculture, rural supply chain management, financial inclusion and rural mobility. It further aims to make up to 20 investments every year, over the next three to four years and also expects to invest between INR 1 to 8 crore per startup.
Litigation Funding Startups Eyeing Arbitration and Insolvency Resolution Cases (source)
Litigation funding startups in India are increasingly focusing on arbitration and insolvency resolution cases, offering financial assistance to companies involved in expensive legal disputes. Various notable startups are providing services that include funding for the corporate insolvency resolution process and connecting clients with specialized lawyers. Experts emphasize the importance of a robust third-party funding system, suggesting that courts should implement strict case management rules and amend existing laws, such as the Arbitration and Conciliation Act, 1996, to enhance transparency for funders. Additionally, these startups are also exploring negotiation and mediation to help clients avoid litigation, while also offering third-party litigation funding options when necessary.
Budget 2024: CG Abolishes Angel Tax in a Major Boost for Startup Ecosystem (source)
In a significant move to bolster the Indian startup ecosystem, the Finance Minister of India (“FM”) has announced the abolition of the angel tax on all asset classes in Union Budget for 2024-25. First introduced in 2012, Section 56 (2) (viib) of the Income Tax Act, 1961, known as angel tax, is applicable on any amount received by a privately held company against sale of its shares at a price higher than its fair market value. The differential amount is treated as income and taxed at a rate of around 31%. While the tax was primarily intended to deal with money laundering, in practice it turned out to be a tax on private capital for startups. Startup industry leaders have long argued that it placed an undue financial and compliance burden on young ventures and deterred the growth of genuine risk capital for the fast-growing industry.
Budget 2024: FM Announces Slew of Measures for MSMEs (source)
The key measures announced in the Budget 2024-25, such as the expansion of credit guarantee schemes, and development of new credit assessment models based on digital footprints, are aimed at improving access to financing for the crucial MSME sector. These initiatives are likely to provide a significant boost to digital lending startups and financial technology companies focused on serving the financing needs of smaller businesses. CG’s push to further develop the Trade Receivables Discounting System platform also has the potential to unlock more working capital for MSMEs through invoice discounting. Overall, the budget's focus on the MSME segment and the role of technology-driven lenders highlights CG's efforts to support the growth and financial inclusion of this vital part of the Indian economy.
Foreign Investors May Get a Taste of Ease of Doing Business (source)
In budget 2024-25, the FM asserted that the Foreign Direct Investment (“FDI”) and overseas investment rules would be simplified, further solidifying the belief that India could take steps to create a simpler regime for overseas investment by diluting the rigid distinction between foreign portfolio investment (“FPI”) and FDI. Similarly, norms could be revisited to help Indian industrialists whose overseas investments are greater than those in the country to invest at home more easily. This proposed revamp would also include changes to the Foreign Exchange Management Act, 1999. Currently, a single FPI is allowed to hold up to 10% of a company's stock. In case of FDI, investment up to 100% is allowed in most sectors.
The Department for Promotion of Industry and Internal Trade (“DPIIT”) to Create Strict Timelines for Government Agencies for Clearance of FDI Proposals (source)
DPIIT plans to establish strict timelines for government agencies to expedite clearance of FDI proposals from prioritized sectors, further addressing delays in the current standard operating procedures and emphasizing the need for prioritization of applications, particularly in sectors identified for liberalization. Following the abolition of the Foreign Investment Promotion Board, FDI proposals are now submitted through the Foreign Investment Facilitation Portal. Notably, FDI equity inflows in India decreased by 3.49% to USD 44.42 billion in 2023-24, prompting the need for reforms. Additionally, a corporate tax reduction for foreign firms and customs duty rationalization are expected to encourage more foreign investments and boost domestic manufacturing.
Budget Proposal for Dormitory Facilities Close to Factories May See More Women Join Workforce (source)
The budget proposal for rental housing with dormitory facilities near factories is significantly aimed to boost female workforce participation by providing them accessible living accommodations. These facilities alleviate commuting challenges that often deter women from seeking employment, especially in male-dominated industries. By creating a supportive environment, this move shall encourage women to enter the workforce and align with gender equality efforts. Further, companies that have established dormitory as well as crèche facilities may benefit from increased productivity and a more diverse workforce, thereby leading to enhanced innovation and performance, while also promoting active participation of women in the economy which would benefit both individuals and organizations.
Gujarat High Court (“HC”): Asking Personal Details From Unknown Woman Not Sexual Harassment Under the IPC (source)
The Gujarat HC has recently observed that asking an unknown woman her name, address, and mobile number may be inappropriate but does not prima facie constitute sexual harassment under Section 354A (Sexual harassment and punishment for sexual harassment) of the IPC. This observation was made in a case wherein the petitioner was booked under IPC for allegedly asking an unknown woman these aforementioned personal questions. However, the petitioner argued that Section 354A of the IPC specifically pertains to acts of sexual harassment, which involve unwelcome physical contact, explicit sexual overtures, demand for sexual favors, showing pornography, or making sexually colored remarks, and since his actions did not meet these criteria, therefore, it did not justify the charges under section 354A.
Diversity Initiatives to Bring More Women in Workforce (source=)
The CG is crafting a comprehensive strategy to increase women's participation in the workforce in order to align with the global standard, thereby aiming to support the country's goal of becoming a developed nation by 2047. Discussions between the various ministries are in the works, further supported by a concerted policy as well as increased budget for the same. Proposals under consideration include incentives to create employment, development of the care economy, and enabling easier access to finance, to encourage more women to join the labour force. Also, the proposed policy would suggest creating jobs that promote gender equality.
The Open Network for Digital Commerce (“ONDC”) Aspires to Take E-commerce to All Sectors of the Society (source)
The CG’s ONDC initiative was launched in 2021 with the aim of democratising digital commerce, breaking the dominance of major e-commerce platforms, and enabling small and medium-sized businesses to participate in the digital economy. However, the Chief Executive Officer of ONDC stated that digital commerce has been exclusive, favoring a select few elitists on both the buyer and seller sides and thus highlighted that ONDC’s primary objective is to create an open market to increase participation and implement transparent and fair pricing mechanisms, empowering both sellers and buyers. He further emphasized the need to integrate MSMEs into e-commerce, as they represent nearly 30% of the Gross Domestic Product.
The Asian Development Bank (“ADB”) Allocates USD 240.5 Million Loan for Rooftop Solar Systems in India (source)
ADB has approved a loan of USD 240.5 million to finance rooftop solar systems across India, supporting the CG’s renewable energy expansion and climate goals. This financing will be used for tranches 2 and 3 of the Multitranche Financing Facility Solar Rooftop Investment Program. ADB's financing further supports the Prime Minister’s Surya Ghar program, which promotes rooftop solar systems nationwide. The loan would be divided between the State Bank of India and the National Bank for Agriculture and Rural Development. This program is expected to reduce technical and operational burdens, enhance power distribution efficiency, and support India's environmental and energy goals by increasing renewable energy share, reducing fossil fuel reliance, and decreasing greenhouse gas emissions.
Pharmaceuticals (“Pharma”) Industry Seeks Relief from Price Control for Patented Drugs (source)
The Organisation of Pharmaceutical Producers of India (“OPPI”) has requested CG to exempt patented and orphan drugs from price controls, highlighting that the current regulations obstruct innovation and reduce economic incentives for inventors. OPPI argued that tighter price controls post patent expiry impair the pharma sector's ability to invest in research and development, ultimately stifling the creation of new drugs. This request emphasizes the need for a regulatory environment that supports innovation while balancing drug affordability and access, and further aligns with efforts to create a more attractive market for multinational pharma companies, which could be seen as crucial for the advancement of the healthcare.
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.