Legal & Industry Updates - June 2024
SPECIAL EVENTS
Artificial Intelligence (AI) Through a Legal Lens, June 30, 2024
The team at Ivy Law participated in a webinar on “AI Through a Legal Lens” organized by the Punjab Legal Rights Consortium. The webinar focussed on the importance of AI and how nearly 80% of the population owns a smartphone, making it nearly impossible for the majority of citizens to escape AI. It further laid stress on AI playing a crucial role in various aspects of life, from assisting with shopping to aiding in surgery, and the fact that even the Supreme Court of India is employing AI through SUPACE and SUVAS, indicating the diverse and essential applications of AI in society. Therefore, the need for proper legislation to regulate the functions and usage of AI tools, including their access to public data and the significant threats AI might pose if used without boundaries and legal consequences were also discussed at length.
LEGAL & INDUSTRY UPDATES
The Securities and Exchange Board of India (Foreign Portfolio Investors) (Amendment) Regulations, 2024 (“Regulations, 2024”) (source)
The Securities and Exchange Board of India (“SEBI”), on 6th June, 2024, has notified the Regulations, 2024, amending the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 (“Regulations, 2019”), wherein SEBI has relaxed the timeline for foreign portfolio investors (“FPIs”) for reporting and disclosing material changes. The key amendments are as follows:
Material changes categorised as Type 1 such as restructuring, change in jurisdiction or merger or acquisition-related changes, will have to be disclosed within 7 working days of the occurrence of the change while the supporting documents should be provided within 30 days.
New sub-regulations have been inserted to Regulation 7 (certificate of registration) of Regulations, 2019, wherein an FPI must pay the registration fees as provided in Part A of the Second Schedule (Payment of fees applicable to foreign portfolio investor) of Regulations, 2019 for every block of 3 years before the beginning of such a block. Further, if the FPI does not pay the required registration fee and the late fee, and continues to hold securities or derivatives in India, it must be allowed to sell such securities or wind up derivative positions within 360 days from the date of expiry of 30 days, in such manner as may be specified.
The Insolvency and Bankruptcy Board of India (“IBBI”) Proposes Ease of Compliance Burden on Insolvency Professionals (“IPs”) (source)
The IBBI, 10th June, 2024, has released a discussion paper which seeks to alleviate the compliance burden on IPs managing stressed asset resolution. The proposed framework aims to streamline the reporting and the deadlines, and consolidate various reporting systems into a centralized IBBI website to enhance accessibility and reduce redundancy. Monthly compliance reporting would replace the current fragmented filing system, with IPs required to submit a consolidated monthly status update for all Corporate Insolvency Resolution Processes. The primary objective is to enhance the efficiency of IPs by allowing them to focus more on resolution activities rather than compliance mandates, thereby aligning with broader regulatory efforts to ease business operations.
IBBI Proposes Amendments to Hold Guarantors of Bankrupt Firms Accountable in Resolution Plans (source)
The IBBI, on 19th June, 2024, has released a discussion paper, proposing changes in the resolution plan process to hold guarantors of bankrupt firms accountable. Stakeholders are encouraged to review and provide feedback on the proposed amendments to streamline the valuation process for stressed firms. IBBI has proposed that the resolution plan submitted by an investor won’t extinguish the creditors’ right to proceed against loan guarantors to the stressed firm and enforce realisation of guarantees governed through various agreements. The move would make it difficult for personal guarantors of defaulting firms to escape liabilities.
The Ministry of Corporate Affairs (“MCA”) Penalizes a Renowned Global Tech Company for Violating Significant Beneficial Owner (“SBO”) Norms Under the Companies Act, 2013 (“CA, 2013”) (source)
The MCA has imposed heavy penalties on a very prominent technology (“tech”) company for violating the SBO norms under Section 90 (Register of SBOs in a Company) of the CA, 2013. The Registrar of Companies for the concerned state stated that the company failed to exercise due diligence in ascertaining the SBO. This action was followed by the recent penalties on other renowned companies for similar violations, highlighting MCA's increasing focus on foreign-owned companies' compliance. The concerned company and its officers are now required to identify and disclose all SBOs within 90 days and may appeal the order within 60 days.
The Ministry of Electronics and Information Technology (“MeitY”) Meets Industry Bodies on Concerns Over the Draft Digital Competition Bill, 2024 (“DC Bill”) (source)
Indian policymakers met with industry representatives to discuss the proposed DC Bill, eliciting varied opinions. The meeting included industry associations, companies, and government bodies like the Competition Commission of India and MCA. They argued that the DC Bill would deter investment and create regulatory overlap, while few supported it for balancing innovation and fair competition. The DC Bill addresses anti-competitive practices by tech companies, with penalties for non-compliance. Further, a reassessment of the DC Bill was urged upon, emphasizing Indian market sensitivities. The MCA sought comments on the DC Bill, with key concerns about turnover thresholds and core digital services.
The Ministry of Commerce and Industry (“MCI”) to Propose a Dedicated Deep Tech Startup Policy in the Forthcoming Budget (source)
The MCI is likely to propose a dedicated policy for deep tech startups in the forthcoming Budget, with the aim to promote innovation and intellectual property creation through extensive research and development (“R&D”). The policy builds on the draft National Deep Tech Startup Policy which was released in July, 2023 and will target the challenges faced by deep tech startups, thereby fostering a conducive ecosystem for technological advancements across various sectors. Essential elements which would be required to promote R&D and innovation include creation of intellectual property rights, funding, infrastructure, standards, and capacity building. Therefore, the Central Government is aspiring to create funds of funds and a separate window for deep tech startups.
MCI Secretary: India’s Growth Leading to the Trend of ‘Reverse Flipping’ for Startups (source)
As per the MCI Secretary, India's robust economy is luring startups back home, as domestic startups that once used to move abroad for capital access and tax benefits are now returning to India. This "reverse flipping" denotes a developing business climate full of opportunities for foreign and domestic investors. He asserted that the digital economy, AI, and data centres play a pivotal role in India's future growth. It was further highlighted that India’s economy grew by 8.2% in 2023, and the country boasts over 1 lakh government-recognized startups.
Trade Unions Demands Scrapping of Labour Codes and Restoration of Old Pension Scheme (“OPS”) (source)
A joint platform of 10 central trade unions urged CG to repeal the four labour codes and the new pension scheme, advocating for a return of the original 29 labour laws and the OPS. In the pre-budget meeting with the Finance Minister, they demanded a minimum wage of INR 26,000 per month and the immediate convening of the Indian Labour Conference. They further criticized the reduction of penalties for defaulting employers and also called for enhanced resource mobilization through increased corporate and wealth taxes, filling vacancies in government sectors, and curbing public sector undertaking privatization. Along with this, they demanded that the budget focus on rural development, micro, small and medium enterprises, infrastructure, exports, and skill development.
Supreme Court (“SC”): Subsequent Changes in Law Cannot be a Valid Ground for Condonation of Delay (source)
SC, on 5th June, 2024, ruled that a subsequent change in law cannot be a valid ground for condoning delays in filing appeals or applications. The appeals were filed against orders of the Delhi High Court (“HC”), which had declared acquisition proceedings to have lapsed under section 24(2) (Right to Fair Compensation and Transparency) of Land Acquisition Rehabilitation and Resettlement Act, 2013. The acquisition proceedings were initiated under the Land Acquisition Act, 1894 for various public projects and the Delhi Metro. However, in some cases, compensation was not paid within the prescribed time frame. SC thus directed the Delhi HC to conduct a fact-finding inquiry to determine the rightful claimant for compensation, extended the time limit for initiating fresh acquisition proceedings, and provided guidelines for determining compensation and rehabilitation measures.
SC - HC Lacking Original Civil Jurisdiction Cannot Postpone Passing an Arbitral Award (source)
The SC, in a recent judgement held that a HC lacking original civil jurisdiction cannot extend the time limit for passing an arbitral award under section 29A (Time limit for arbitral award) of the Arbitration & Conciliation Act, 1996 (“A&C Act”). It further clarified that this power resides with the principal civil court of original jurisdiction, though HCs with original civil jurisdiction can extend the time. Section 29A mandates an 18-month period for passing an arbitral award, extendable by the original civil court. The case arose from the Meghalaya HC's refusal to extend the time limit due to its lack of original civil jurisdiction. The SC, however, dismissed the appeal, affirming the HC's decision and the statutory interpretation.
Delhi HC: Court Has Authority to Appoint Sole Arbitrator Even Though Arbitration Agreement Specified Three-Member Tribunal (source)
The Delhi HC, on 2nd June, 2024, upheld a petition citing section 11(6) (Appointment of arbitrators) of the A&C Act and ruled that court has the authority to appoint a sole arbitrator despite the arbitration agreement specifying a three-member tribunal. In the instant matter, a dispute amongst the parties was adjudicated by a sole arbitrator, hence the petitioner contended that according to the arbitration agreement, the matter should have been decided by a tribunal of three arbitrators, thus challenged the award passed in the court. However, the HC observed that the parties failed to agree on the panel of arbitrators, leading to a petition under section 11(6) of the A&C Act, thereby appointing a sole arbitrator, to which neither party objected to.
Bombay HC: Birth of First Child Before Service Irrelevant for Maternity Leave Eligibility (source)
The Bombay HC ruled that the birth of a first child before employment is irrelevant when considering maternity leave after joining the service. The petitioner, who worked with the Airport Authority of India (“AAI”), had 1 child before joining service and 2 more children after joining. When she applied for maternity leave for her third child, the AAI rejected her application, citing the Maternity Benefit Regulation under the AAI Regulations, 2003, which restricts maternity leave to female employees with more than two surviving children. However, the court concluded that the term “two surviving children” refers to children born during the service period, ensuring that the employee can benefit from maternity leave twice during her career, thereby aiming to support women employees and not intending to curb population growth.
The Digital Personal Data Protection (“DPDP”) Act, 2023 to Become Top Priority for the Upcoming Government (source)
Various tech policy lawyers, think tanks and policy groups are keen on notifying DPDP Rules that would further assist in enforcing the DPDP Act, 2023, along with regulation of AI and the Digital India Bill, 2023. Currently, these are the topmost priority items for the new leadership at MeitY after the results of the general elections, as the aim is to bring immediate attention to intermediary liability, fake news, and AI regulation, which could further have a significant impact on digital businesses and stakeholders. The new government would stress on AI development and how it needs to be regulated, particularly in light of the European Union’s recent approval of the world’s first law governing AI development.
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.