This
article is a summary of the key legal developments in the last 12 months, covers
some of the major legal changes brought in 2018. The changes are vast &
therefore, we focus on some of the key changes, which broadly impact the
corporates for their “Way of Doing
Business” in India which dominated
the headlines and we can expect 2019 to continue in the same way.
It’s
important for any business owner to be aware of the changes affecting their
business & put in place suitable safeguards. Failing to be prepared is
often costly in terms of money, resource & time.
|
Sector
|
Update
|
|
Investment in India
|
1. Single Master Form: On
June 7, 2018, the Reserve Bank of India (the "RBI")
issued a circular RBI/2017-18/194 A.P. (DIR Series) Circular No. 30 (the
"Circular"), introducing a single master form
(the "SMF") to integrate the existing reporting
norms for various types of foreign investment in India with an objective- To
subsume all foreign investments related reporting requirements, irrespective
of the mode or instrument through which the foreign investment is made. All Indian entities which
do not comply with this pre-requisite will not be permitted to receive any
foreign investment (including indirect foreign investment) going forward and
will be declared non-compliant with FEMA.
2. Cross Border Mergers: The Reserve Bank of India has
notified The Foreign Exchange Management ( Cross Border Merger) Regulations,
2018 (“Regulations”) w.e.f. March
20th, 2018. With notification of S.234 of the Companies Act, 2013,
both inbound and outbound mergers are been permitted, as earlier only inbound
merger was permitted under Companies Act, 1956. Government has also amended
the Companies ( Compromise, Arrangement and Amalgamations) Rules, 2016 and
inserted Rule 25 A which deals with cross border mergers. The notification of
these Regulations along with amendments in the Companies Act, 2013 has opened
door for cross border mergers in India. This will now give flexibility and
options for MNCs in structuring their merger deals involving Indian companies
as India has allowed outbound mergers. The provision of automatic approval of
RBI subject to compliance with requisite conditions will save time and fasten
the restructuring process which will in turn help in achieving the commercial
objectives. Outbound merger which has now permitted can also be seen as a
better option for MNCs to exit India instead of going for liquidation of its
Indian JV/WOS. Such exit also such MNCs to continue to treat the Indian
office as its branch office if it so desires.
|
|
Company Matters
|
1. Commencement of
Business- At present, there is no
minimum paid up capital requirements for incorporating the private as well as
public companies in India. Also, it is now mandatory for every company having
share capital to file a declaration that the subscribers have paid the value
of shares subscribed by them within 180 days from the date of incorporation
along with a verification of its registered office. No company is now
permitted to commence its business or exercise its borrowing powers without
complying with this requirement.
2. Significant
Beneficial Ownership- With the
implementation of Section 90 of the Companies Act, 2013, the Central
Government has also issued new Companies (Significant Beneficial Owners)
Rules, 2018 ("SBO Rules")
to implement the provisions of Section 90. The SBO Rules define the
expression 'Significant Beneficial Owner' to mean every individual, who
acting alone or together with one or more persons or trust, including a trust
and persons resident outside India, holds beneficial interest, of at least
10%, in shares of a company or the right to exercise, or the actual
exercising of significant influence or control as defined in Section 2(27) of
the Companies Act, 2013, but whose name is not entered in register of members
of a company as the holder of such shares. SBO Rules have been made
applicable even to cases where the shareholders/members of the Indian company
are persons other than individuals and natural persons. The term 'Beneficial
Interest' in a share has been defined to include the right or entitlement of
a person (without being a registered owner of such a share) to (i) exercise
or cause to be exercised any or all the rights attached to the share; or (ii)
receive or participate in any dividend or other distribution in respect of
such a share. Further, the definition provides that such rights may arise out
of any contract, arrangement or otherwise and may be exercised by such a
person directly or indirectly, either alone or together with any other
person.
3. Maternity Leaves for
female employees- The maternity leave to
eligible female employees under the Maternity Benefit Act, 1961 has been
extended from 12 weeks to 26 weeks. The Act is applicable on establishments
having 10 or more employees. Also, the Ministry of Labour & Employment is
working on an incentive scheme wherein 7 weeks’ wages would be reimbursed to
employers who employ women workers with wage ceiling upto Rs.15,000/- and
provide the maternity benefit of 26 weeks paid leaves, subject to certain
conditions.
4. Daycare Facilities- In establishments where 50 or more employees are employed,
employers must provide daycare facilities for employees' children.
5. Remuneration of
Independent Directors- Earlier any person
having any pecuniary relationship with the company cannot be appointed as
Independent Director which has been revised that an independent director
cannot have any pecuniary relationship with the company other than (i)
remuneration payable to such person, and (ii) transactions with the company,
which do not exceed 10% of his total income.
6. Corporate Social
Responsibility- With the recent
amendments to the provisions governing Corporate Social Responsibility (CSR) which is mandatory for
prescribed classes of companies to spend at least 2% of their 3-year annual
average net profit on social activities. Prior to the amendment, if the
company fails to spend the requisite amount, it can specify the reason for
the same and no further action was requisite. However, with the amendment,
the amount which are to be allocated towards CSR activities, but which remain
unutilized in a given financial year is required to be transferred a special
account called “Unspent CSR Account” to be opened by the company with any
scheduled bank and the amount therein will have to spent by the company within
a period of 3 financial years from the date of such transfer.
7. Changes in Penal
Provisions of the Companies Act, 2013:
Ø Non- compliance with provisions relating to issue of shares at
discount would amount only to a penalty, instead of imposition of fine, imprisonment
or both;
Ø Furnishing false/incorrect information at the time of creating
charge would be liable to action for fraud under Section 477 of the Companies
Act, 2013;
Ø Failure to file an annual return would result in a penalty
instead of a fine or imprisonment.
8. Additional Ground for
disqualification for appointment of Director- Under S.164 of the Companies Act, 2013, provides the
conditions for the disqualifications for a person to be appointed as
director:
a.
The person is of
unsound mind;
b.
He/she is an undischarged
insolvent and
c.
And order
disqualifying him/her for appointment as a director has been passed by a
court or tribunal and the order is in force.
Further
under S.165, a director is not permitted to hold office for more than 20
companies for private
limited companies ( 10 companies for public limited companies) at the same
time.
With the amendment, the additional ground to be inserted in
S.164 is - if the person holds office as director, including any alternate
directorship, in more than 20 companies for private limited companies ( 10
companies for public limited companies) at the same time, that person would
be ineligible to be appointed as a director of a company.
9. With the amendment to the Companies ( Prospectus &
Allotment of Securities) Rules 2014 effective from October 2nd,
2018, it makes mandatory for every unlisted public company to (i) issue the
securities only in dematerialized form and (ii) facilitate the dematerialization
of all its existing securities.
|
|
Specific Relief
|
With effective from August 1st, 2018, the civil
dispute resolution under Specific Relief Act, 1963 has been changed. Some of
the major changes which will impact your business are highlighted below:
i.
Courts must grant
specific performance of a contract when claimed by a party unless such remedy
is barred under the limited grounds contained in the statute.
ii.
If a contract is
broken due to non-performance of a promise by a party, the party suffering
the breach has the option of substituting performance through a third party
or through its own agency.
iii.
A suit filed under
the Specific Relief Act must be disposed of by the court within 12 months
from the date of service of summons to the defendant. Such period can be
extended by 6 months after recording written reasons by the court.
iv.
No injunction can be
granted by the court in relation to an infrastructure project if such
injunction would cause delay or impediment in the progress or completion of
the infrastructure project.
|
|
Negotiable
Instruments
|
For cheque bouncing matters, it the complainant is been
compensated, then the case can be set aside and the same has been clarified
by the Supreme Court in the case of M/s Meters & Instruments Pvt. Ltd v.
Kanchan Mehta, Criminal Appeal No. 1731 of 2017, where it has been held that
an accused in a case u/s 138 of Negotiable Instruments Act, 1881 can be
discharged even without the consent of the complainant, if the Court is
satisfied that the complainant has been duly compensated. It was also held
that the normal role of criminal law that compensation of offence is possible
only with the consent of complainant/victim is not applicable for the cases
u/s 138 of Negotiable Instruments Act.
|
|
Data Protection
|
1. EU’s General Data Protection Regulation (GDPR) effective from
May 25, 2018 to impact companies doing business in Europe, which includes the
corporates from India doing business in Europe. The liability is 4% of annual
global revenue or € 20 millions, whichever is greater. For a detailed note,
please click on the following link:
2. Following on the lines of
EU’s GDPR, India has also
proposed its own Data Protection Bill, 2018 prepared by the SriKrishna
Committee- to protect the autonomy of individuals in relation with their
personal data, to specify where the flow and usage of personal data is
appropriate, to create a relationship of trust between persons and entities
processing their personal data, to specify the rights of individuals whose
personal data are processed, to create a framework for implementing
organizational and technical measures in processing personal data, to lay
down norms for cross-border transfer of personal data, to ensure the
accountability of entities processing personal data, to provide remedies for
unauthorized and harmful processing, and to establish a Data Protection
Authority for overseeing processing activities.
For a detailed note, please click on the following link:
|
|
E- Commerce
|
1.
E-commerce players to
get GST registration for each state in India of their operations.
2.
With effective from
October 1st, 2018, E-commerce players shall be liable to:
i.
Tax Deducted at
Source (TDS) at the rate of 1% from the payment made or credited to supplier
of taxable goods or services or both, where the total value of such supply,
under a contract, exceeds INR 2,50,000/-;
ii.
Tax Collected at Source
(TCS) at such rate not exceeding 1%, of the net value of taxable supplies
made through it by other suppliers where the consideration with respect to
such supplies is to be collected by the operator. However, no TCS liability
would accrue in respect of the E- commerce entities based outside India.
i.
Related entity can no
longer sell on an ecommerce platform;
ii.
Ecommerce platform
cannot discriminate among vendors including giving favourable treatment to
big vendors;
iii.
Single Vendors cannot
sell more than 25% to one ecommerce portal;
The new revised norms
in FDI for ecommerce could impact-exclusive launches or sale of products;
cashback/ big & deep discounts/faster delivery at sites.
The purpose of the
revised norms to ensure: - level playing field for brick & mortar retail;
smaller domestic ecommerce players can compete with big Ecommerce giants with
surplus money chest; smaller sellers on ecommerce platforms to get equal
treatment with big sellers/vendors.
|
|
E-Pharmacies
|
A Delhi High Court has put a stay on the online sale of medicines
by e-pharmacies. And, in subsequent development, at first a Single Judge
Bench of Madras High Court put a ban on sale of medicines by e-pharmacies,
however, the same was revoked by a Double Judge Bench of Madras High Court
which leads to allow the sale of medicines by e-pharmacies and Central
Government has been asked to frame the rules for the operations of
e-pharmacies. Central Government has already issued draft rules for operation
of e-pharmacies, where it is a requisite to acquire only one license to
operate in the country and they cannot sell tranquillisers, psychotropic
drugs, narcotics and habit-forming drugs. However, the two different rulings
on the same issue by two different High Court has created a confusion which
would be clear once the rules for e-pharmacies are in place by the Central
Government.
|
|
Usage of Aadhaar Card
as E-KYC
|
On September 26, 2018, a 5 judge bench of Supreme Court upheld
the validity of Aadhaar, however impose certain restriction on the corporates
to use the 12 digit number to validate the identities of customers, which may
force the corporates to going back to old ways for customer verification and
may impact on the financial viability of the business models especially for
startups in financial & technology services Moreover, this judgement has
now questioned electronic signatures ( eSigns) validation through Aadhaar and
now eSigns used by consumers to sign legal documents digitally could be
stopped. For a detailed note, please click on the following link:
The Central Government is considering to amend telegraph and
other applicable laws, to allow QR code as offline mechanism for KYC. This
move would ease the pressure on Fintech & telcos post-Aadhaar judgement,
however, it’s advisable to wait till further actions are implemented in place
to resolve the issue.
|
To know further details of recent
changes in law and impacts on your business or for more information, please
connect with us on +91 8448824659 or
email- admin@equicorplegal.com.
Comments
Post a Comment