Legal & Industry Updates - October 2023
SPECIAL EVENTS
Mediation Practices in India and Beyond the Borders, October 30, 2023
The team at Ivy Law participated in a webinar on “Mediation Practices in India and Beyond the Borders” organized by IMS College, Noida. The discussion was exhaustive, covering various aspects of mediation including the process of resolving disputes and how to resolve the disputes outside of traditional court proceedings. The webinar asserted on different approaches that can be inculcated while mediating and the ways in which mediation practices transcends borders, cultural differences, and legal systems, with the aim to offer a flexible and consensual approach to conflict resolution. Further, resolution of a wide range of disputes, from family and commercial matters to labour disputes, in a cost-effective and time-efficient manner was also pondered upon.
LEGAL & INDUSTRY UPDATES
Companies (Incorporation) Third Amendment Rules, 2023 (“Incorporation Rules”) (source)
The Ministry of Corporate Affairs (“MCA”), on 20th October, 2023, has notified the Incorporation Rules amending the Companies (Incorporation) Rules, 2014 (“Rules 2014”) wherein Rule 30 (Shifting of Registered Office from one State or Union Territory to another State) of Rules 2014 has been revised and a new provision has been introduced stating that the shifting of the registered office would be allowed, if the management of the company has been taken over by new management, following the resolution plan mentioned under Section 31 (Sentences in cases of conviction of several offences at one trial) of the Insolvency and Bankruptcy Code, 2016 (“IBC”), and no appeal is pending in any court or tribunal, as well as no inquiry, inspection or investigation is pending or initiated after the approval of the resolution plan.
MCA Set to Crowdsource Ideas for Updating Rules Under the Companies Act, 2013 (source)
MCA is all set to solicit ideas from public for amending a wide gamut of rules under the Companies Act, 2013, as it readies itself to release a framework of the same by the end of October, 2023 for public consultations. The move is part of the broader efforts by Central Government (“CG”) to reduce India Incorporated’s compliance burden and make it easier for companies to do business. A comprehensive review of the dozens of rules that have so far been incorporated under the Companies Act, 2013 would be undertaken with the involvement of stakeholders. At present, CG has already scrapped 39,000 unnecessary compliances and 1,500 archaic laws.
CG to Soon Come Up With Rules for Direct Listing of Indian Companies Abroad (source)
The Ministry of Finance and MCA are on the verge of finalizing a framework to enable direct listing of Indian companies abroad, potentially introducing it within the current financial year. The move aims to enhance access to foreign capital for unicorns and other businesses while encouraging more Indian-led startups to incorporate within India. The framework may include requirements for companies to undertake secondary listings on Indian exchanges in order to address regulatory oversight concerns. However, the Department of Revenue has raised concerns about potential loss of revenue due to direct listings which needs to be addressed. Presently, Indian firms must use depository receipts or list debt securities to access foreign equity markets.
CG to Tighten Rules on International Transactions Above INR 50,000 to Prevent Terror Financing (source)
The Ministry of Finance, on 17th October, 2023, has notified the Prevention of Money-laundering (Maintenance of Records) Third Amendment Rules, 2023 (“Rules, 2023”), aimed at strengthening measures to combat terror financing and enhance oversight of international financial transactions. The key amendments under Rules, 2023 are:
All international transactions exceeding INR 50,000 would face stricter scrutiny wherein the reporting entities involved in these transactions are now required to identify clients, verify their identities, and determine the purpose of the business, including its ownership and control.
Reporting entities must have safeguards in place to ensure the confidentiality and appropriate use of the exchanged information, with the primary goal of preventing tipping-off.
The reporting entities are obligated to ascertain whether a client is acting on behalf of a beneficial owner, identify this beneficial owner, and go through the process of verifying the beneficial owner's identity using reliable and independent identification sources.
The Insolvency and Bankruptcy Board of India (“IBBI”) to Tighten Voluntary Liquidation Regulations (source)
IBBI, on 5th October, 2023, has unveiled a discussion paper for streamlining the voluntary liquidation process, with the aim to strengthen regulatory oversight and efficient data management. IBBI has proposed that the directors of stressed firms must disclose pending litigations, proceedings or assessments before statutory authorities while making a declaration for initiation of the liquidation process. Further, liquidators of stressed firms seeking voluntary liquidation will have to explain to IBBI their failure in completing the liquidation process within prescribed time limit and also provide a final deadline for concluding the process. The primary objective of proposing these changes is to expedite the exit process of sick businesses and thereby reduce severe erosion of the stressed asset value.
Reserve Bank of India (“RBI”) Scrutinizes Companies Seeking Payment Aggregator License (source)
RBI has intensified scrutiny on payment aggregator license applicants, with the aim to focus on operational checks of such companies, data access controls, and audit trails of every activity. Further, in light of recent fraud case in relation to a renowned payment provider, RBI is closely monitoring access to sensitive data as well as examining the source of funds, shareholding structures, and ultimate beneficial ownership of several financial technology (“tech”) companies before issuing the license, in order to place emphasis on internal checks and controls, and prevent fund embezzlement. Despite more than 80 applicants in the pipeline, RBI may limit the issuance of licenses to fewer than 50, restricting large payment provider companies from adding new merchants, thereby impacting their business growth.
Banks Appeal RBI to Advance Time for Reporting Cash Reserve Ratio (“CRR”) Status (source)
The banks have approached RBI with a petition to shift the reporting cut-off time for CRR, with the objective to encourage high-street lenders to increase lending in the call money market in order to avoid intermittent skews in rates, mitigate fluctuations in interest rates, and avoid parking a significant portion of funds at RBI's Standing Deposit Facility (“SDF”) as a precautionary measure in light of ceaseless banking obligations. RBI has therefore encouraged banks to evaluate their liquidity needs over the reserve maintenance cycle and actively lend surplus funds in the call market rather than passively parking cash at the SDF, which offers less attractive rates. Further, this move is also intended to enhance the efficiency of the interbank call money market, which plays a crucial role in influencing the cost of funds in the broader economy.
Market Capitalization of Stressed Companies Triples After IBC Resolution (source)
IBC in India has led to a threefold increase in the combined market capitalization of all the stressed companies that have been resolved, reaching ₹6 lakh crore from ₹2 lakh crore, with a 75% sales boost for these firms. Even the sick companies flourished after the resolution which eventually led to growth of the economy. A record 185 cases were resolved in the previous fiscal year, generating over INR 51,000 crore in recoveries, and thereby surpassing what creditors realised from other channels. It has further changed debtor-creditor relations by enforcing discipline among borrowers to pay up. A multi prolonged approach would be adhered by the concerned authorities with the aim to strengthen the adjudicating system and streamline processes to handle around 1,000 cases annually.
CG Set to Issue Cabinet Note on National Deep-Tech Policy to Support Startups in Advanced Sectors (source)
CG will soon float a Cabinet note announcing plans for the introduction of the National Deep Tech Startup Policy, with the objective to build on the existing startup framework while targeting the unique requirements of deep-tech ventures, and focusing on domains like robotics, computer vision, nanotechnology, and artificial intelligence (“AI”). It proposes the establishment of a specialized deep-tech capital guidance fund, encouraging partnerships between CG, private investors, and foreign stakeholders. Additionally, with the focus on long-term sustainability and funding, the policy suggests fiscal incentives, such as tax rebates, to attract investors to support deep-tech startups and strengthen the deep-tech startup ecosystem.
CG Proposes to Set Up 25,000 Graphics Processing Units (“GPU”) Cluster to Support Indian Artificial Intelligence (“AI”) Startups (source)
CG is considering a proposal to build a substantial 25,000 GPU cluster to support AI startups, as GPUs are in high demand worldwide due to their importance in the AI industry, leading to their scarcity, and thereby, increased prices and reliance on foreign providers. This cluster, estimated to cost around INR 8,000-10,000 crore, would potentially be developed through a public-private partnership and offered as a service to startups. This move has been welcomed by Indian entrepreneurs, as it aims to foster innovation and technological progress. CG's initiative further aims to reduce GPU costs for Indian companies and enhance self-reliance in AI infrastructure, aligning with CG's broader goal of self-sufficiency.
Government of Karnataka (“GoK”) Working on Startup Procurement Policy (source)
GoK is in the process of developing a ground-breaking procurement policy that would mandate government departments and entities to source goods and services from startups. GoK is currently working on the rules for this policy, which is expected to be a game-changer for the entire startup ecosystem as they are being designed to support startups who often lack the scale to handle large government orders. Though GoK has not yet determined the precise share of procurement that startups would receive, it is speculated that it might be set at around 5%. This opportunity would be extended to startups that are registered with the state government and would encompass a wide range of goods and services that government departments or related bodies would purchase.
Age-Gating Rules to be Applicable to All the Companies Under the Digital Personal Data Protection Act, 2023 (“DPDP Act”) (source)
The introduction of DPDP Act, necessitating the verification of minors' ages through parental consent, has triggered concerns among various industries, including telecommunications, banking, and electronic-commerce as the mandate would include huge costs and could be time consuming. As per the DPDP Act, it is emphasized that all companies, not just social media platforms, must establish age verification mechanisms to ensure the verifiable consent of users. Further, the ambiguity surrounding 'verifiable consent' and complexities in identifying the guardian pose significant implementation challenges. Amid these uncertainties, companies are seeking government guidance on age verification procedures and the process of obtaining consent, highlighting the need for clarity on these critical aspects within the new DPDP Act.
Tech Majors Seek Eighteen Months for DPDP Act Compliance (source)
The Asia Internet Coalition, which includes major United States of America-based tech companies, has penned a letter to the Union and state Ministry of Electronics and Information Technology, wherein it has expressed the need for up to an 18-month extension for the implementation of various provisions of the DPDP Act. They stated that the provisions would involve obtaining consent from Indian users for personal data processing and creating a consent management framework, and therefore, would necessitate significant structural changes within their organizations. Further, they also highlighted the requirement to store consent notices in an accessible manner for data fiduciaries to modify or erase data principal's personal data.
Indian Pharmaceutical Companies Can Now Supply Generic Bedaquiline Without Fear of Litigation (source)
With a major American pharmaceutical company (“US Pharma”) confirming that it will not enforce secondary patents for anti-tuberculosis drug Bedaquiline in low and middle-income countries, Indian pharmaceutical companies will now be able to supply the same to other countries without fear of litigation, with the objective to offer more affordable access to the drug. US Pharma used the strategy of "patent evergreening" to maintain high prices and monopolize the market, however, the rejection of extension of its drug patent in India promises wider availability of this crucial tuberculosis treatment.
Supreme Court (“SC”): Resolution Professionals (“RPs”) Can't Challenge Tribunal Order (source)
SC has ruled that RPs do not have the authority to file appeals against bankruptcy court decisions since they are considered "neutral" individuals appointed to assist the tribunals, oversee the operations of financially troubled companies during insolvency proceedings, complete necessary statutory processes, and facilitate resolution proposals. The court's ruling came in response to an appeal filed by the appellant, who challenged the decision made by the National Company Law Appellate Tribunal (“NCLAT”) wherein SC held that only aggrieved parties, such as the Committee of Creditors, are permitted to file appeals against the rulings of the National Company Law Tribunal or NCLAT. This decision is expected to expedite the process of insolvency resolution.
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.