Skip to main content

Key Legal Developments of 2018 in India

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.
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.
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-


Popular posts from this blog

Non-Banking Financial Companies (NBFC)

A Non-Banking Financial Company (NBFC) is a  company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares stock/bonds/debentures/securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property. A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (Residuary non-banking company). Advantages of NBFC a)it can provide loans and credit facilities, b)it can trade in  money market instruments c)it can do wealth management such as Managing portfolios of stocks and shares d)it can underwrite stock and shares and oth…

Nidhi Companies in India

This article enumerates the brief transaction procedure involved in the establishment of a Nidhi Company and the laws relating to Nidhi Company in force in India. It shall be noted that the activities described hereunder covers various relevant legislations, regulations and rules, for the time being in force in India and the legal entity has to obtain approval/register itself with Ministry of Corporate Affairs (“MCA”).
Preface In the Indian financial sector, Nidhi Company refers to any mutual benefit society notified by the MCA. They are created mainly for cultivating the habit of thrift and savings amongst its members. The amount of business conducted by Nidhi Companies is not as big as commercial banks or deposit taking Non-Banking Finance Companies. Nidhi Companies are highly localized and mostly single office institutions. They are also referred to as mutual benefit societies, because they accept deposits and give loans to only their own members; and membership is limited to individ…

Types of Companies under New Companies Act-2013

With new testament of Corporate law in force has introduced several different types of companies with special features.
ONE PERSON COMPANY (OPC) One Person Company is defined in Sub- Section 62 of Section 2 of The Companies Act, 2013, which reads as follows: 'One Person Company means a company which has only one member' It shall also be important to note that Section 3 classifies OPC as a Private Company for all the legal purposes with only one member. All the provisions related to the private company are applicable to an OPC, unless otherwise expressly excluded. ØOnly a natural person who is an Indian citizen and resident in India- üshall be eligible to incorporate a One Person Company; üshall be a nominee for the sole member of a One Person Company. ØNo person shall be eligible to incorporate more than a One Person Company or become nominee in more than one such company. ØNo minor shall become member or nominee of the One Person Company or can hold share with beneficial interest. ØT…

SEBI VS PACL: Trouble in Paradise

In its biggest-ever crackdown on a large-scale money pooling scheme estimated at nearly Rs. 50,000 crore (twice the amount to be recover from SAHARA group), regulator SEBI has ordered  Pearls Agrotech Corporation Limited (“PACL”) to refund investors within three months and wind up operations. SEBI had found PACL violating Collective Investment Scheme Regulations by mobilizing the money without being registered with the regulator, SEBI. Besides, closure of PACL operations, SEBI  is initiating further proceedings against PACL and its nine promoters and directors for fraudulent and unfair trade practices, as also for violation of SEBI's CIS Regulations, among others, as per a direction from the Supreme Court. At present, it is being estimated that PACL has more than 58.5 million customers, more than twice the 22 million demat accounts in the entire country and has paid commission of
Rs 7,893.8 crore up to March 2012  to more than its 8 lakh agents who works as network of chain system fo…

Nidhi Companies Rules 2014- An analysis w.r.t. Nidhi Company Registration

“Nidhi is a company formed with the exclusive object of cultivating the habit of thrift, savings and functioning for the mutual benefit of members by receiving deposits only from individuals enrolled as members and by lending only to individuals, also enrolled as members” -Section 406, Companies Act, 2013 & Companies Rules 2014
Nidhi Company are registered or formed only for the benefit for its members only, an outsider i.e. who is not the member of the Nidhi Company is not allowed to deposit any money or doing any kind of business with the concerned Nidhi Company. In this article we will analyze the impact of Nidhi Companies Rules 2014 on the registration of Nidhi Company Incorporation of Nidhi Company i)A Nidhi Company to be incorporated under the Companies Act, 2013 (“Act”) shall be a public company and with a minimum paid up equity share capital of five lakh rupees; ii)On and after the commencement of Companies Act, 2013, no Nidhi Company shall issue preference shares; iii)Except as…

NBFC & Companies Act 2013 w.r.t. issue of Debentures

With the new testament of corporate law, Companies Act, 2013 to be effective from April 01, 2014, NBFC are facing lack of oxygen supply for their survival as to ensure that debenture issuances did not trespass into the domain of public deposits and were beginning to understand that optionally convertible debentures market will die out slowly that the rules have thrown language open to interpretation. Section 71 of the Companies Act, 2013 along with the rules implies that the debenture issuances have to be secured by specific moveable and immoveable properties. NBFCs may face a rocky time in finding these specific moveable and immoveable properties for issue of secured debenture.  Section 71 of the Companies Act, 2013 states that – 1.A company may issue debentures with an option to convert such debentures into shares, either wholly or partly at the time of redemption: Provided that the issue of debentures with an option to convert such debentures into shares, wholly or partly, shall be ap…


In Sahara Desert- Distress Hours Once upon a time, Sahara’s Subrarta Roy- a friend to all who came calling-whether a matinee idol in his 80s or a sports star in her teens, self bestowed title- “Sahara Shri”- the sponsor of the Indian cricket team and a group headed by a colourful, flamboyant CEO hobnobbing with Bollywood stars and cowbelt politicianscould boast of having friends in high places. Today in this distress hours, there seems to be few people who he can turn to in his hour of distress. For the sleepy Lucknow of the 1990s whose favourite past-time seemed to be reminiscing the city’s long gone glory days, Subrata Roy Sahara brought a cash of heavy bling and some more. Sahara has stayed afloat for more than 35 years despite repeated regulatory onslaughts. The first setback was in the late '90s when RBI slashed the discretionary investment powers of its finance firm. The next blow came in 2006 when its depository services firm had to be shut down. The big jolt came in 2008 whe…