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Corporate Law Brief-August 2023

Arbitration Brief - July, 2021

We warmly welcome our valued readers as we take immense pride in introducing our newsletter. This edition brings to light the most recent happenings in the arena of India’s corporate legal domain for the month of August 2023. Our team has diligently gathered an array of news and insights covering regulatory advancement, ensuring your continuous awareness and knowledge. Get comfortable, enjoy your favorite drink, and set off on an expedition through India’s corporate legal landscape.

Corporate Law Brief: August 2023

We hope this message finds you and your loved ones safe and healthy!

We warmly welcome our valued readers as we take immense pride in introducing our newsletter. This edition brings to light the most recent happenings in the arena of India’s corporate legal domain for the month of August 2023. Our team has diligently gathered an array of news and insights covering regulatory advancements thereby ensuring your continuous awareness and knowledge. Stay ahead with our meticulously curated newsletter, encompassing regulatory updates and priceless insights. Get comfortable, enjoy your favorite drink and set off on an expedition through India’s corporate legal landscape.

Recent Corporate Sector Updates:

Reserve Bank of India (RBI) Updates:

  • RBI released a circular on August 18, 2023, on ‘Fair Lending Practice – Penal Charges in Loan Accounts’ which comprises a series of instructions for the Regulated Entities (REs) in imposing penal interest in case of defaults/ non-compliance by the borrower with the terms on which credit facilities were sanctioned.

The key instructions are as follows:

  • If a penalty is charged for non-compliance with the material terms and conditions of the loan contract by the borrower, the same shall be treated as a ‘penal charge.’
    • It shall not be levied in the form of ‘penal interest’ that is added to the rate of interest charged on the advances.
    • REs are not allowed to introduce any additional component to the interest rate.
    • REs’ boards must create a policy concerning penal charges or similar fees.
    • The amount of penal charges imposed must be reasonable and proportionate to the extent of non-compliance and the reasons for imposing these charges must be clearly outlined in the loan agreement and terms and conditions.
    • Penal charges for loans granted to ‘individual borrowers for non-business purposes’ should not exceed the penal charges imposed on non-individual borrowers for similar non-compliance with terms and conditions.
    • The applicable penal charges must be communicated at the time of sending reminders to borrowers.

These instructions will come into effect from January 01, 2024, and will not be applicable to financial products like credit cards, external commercial borrowings, trade credits, and structured obligations, which are covered under separate product-specific guidelines.

Securities Exchange Board of India (SEBI) Updates:

  • On August 03, 2023, SEBI released a circular to modify paragraph B of the SEBI’s circular dated January 10, 2023 to allow Offer For Sale (OFS) for units of private listed Real Estate Investments Trusts (REITs) and Infrastructure Investment Trusts (InvITs) by a sponsor(s) or sponsor group entities, and other unitholders. The OFS framework for REITs and InvITs shall be equivalent to the OFS framework for equity shares of listed companies. However, in the case of OFS for listed InvITs, the trading lot shall be the same as the trading lot prescribed for such InvITs in the secondary market in terms of SEBI (Infrastructure Investment Trusts) Regulations, 2014.
  • SEBI vide circular dated August 04, 2023, has shortened the validity period of approval granted to Alternative Investment Funds (AIFs) and Venture Capital Funds (VCFs) for overseas investments from 06 to 04 months, based on recommendations from the Alternative Investments Policy Advisory Committee. The new framework will apply to the overseas investment approvals granted by SEBI following the issuance of this circular.
  • On August 09, 2023, SEBI released a circular to speed up the listing of specific securities after a public offering. Currently, it takes 6 working days (T+6 days) from the offering’s Closing Date (T), but now SEBI has reduced it to 3 working days (T+3 days). Issuers must include this new timeline in their offer documents, and key timelines for submitting applications, allocating securities, releasing blocked application funds, and achieving listing status must be prominently displayed in issuer advertisements as per SEBI’s ICDR 2018 regulations.
  • The SEBI vide its notification dated August 16, 2023, has introduced the SEBI’s Facilitation of Grievance Redressal Mechanism (Amendment) Regulations 2023, to strengthen investor grievance redressal mechanism. The amendments impose a stricter timeline of 21 (twenty-one) calendar days for addressing investor complaints. Moreover, SEBI has the authority to designate a corporate body for overseeing and managing the grievance redressal process. These updates underline SEBI’s commitment to address investor concerns promptly, thereby strengthening trust in the securities market.  

Ministry of Corporate Affairs (MCA) Updates:

  • MCA through circular dated August 23, 2023, has introduced a significant relaxation concerning additional fees for Limited Liability Partnerships (LLPs) in relation to Form-11, Form-3, and Form-4 submissions.  The waiver of additional fees for Form-3 and Form-4 applies solely to events occurring on or after January 01, 2021. For events before this date, regular fees will apply, with additional fees.

Tax Updates:

  • Central Board of Direct Taxes (CBDT) on August 17, 2023 clarifies foreign currency exchange rate for tax deducted on income payable in foreign currency  by substituting Rule 26  of the Income-tax Rules, 1962. As per the amended Rule 26, when deducting tax at source on income payable in foreign currency, businesses must now use the telegraphic transfer buying rate on the date of tax deduction. This rule applies to three scenarios: payments to entities located outside India; payments to units in International Financial Services Centres (IFSCs); and payments from IFSC units to entities in India. This amendment aims to simplify tax procedures and promote consistency in financial transactions involving foreign currency income.
  • The CBDT on August 18, 2023, introduced an amendment to the Income Tax Rules, 1962, relating to the valuation of perquisites for residential accommodation provided by employers which is effective from September 1, 2023. As a result, employees who are drawing substantial salaries and enjoying the benefit of rent-free accommodation owned by their employers will be able to save more and get a higher take-home salary.

Upcoming Nuggets:

  • MCA is planning to roll out separate digital competition legislation instead of making amendments in the existing Competition Act, 2002 to deal with big tech companies.
  • The RBI has recommended adding conversational features driven by artificial intelligence to the Unified Payment Interface (UPI) in order to enable digital payments through voice requests, making UPI more user-friendly and popular. To reduce the risks associated with relaxing two-factor authentication, the RBI has also announced intentions to increase the transaction limit for small-value digital payments made offline from 200 to 500 while maintaining a total maximum of 2,000 per payment instrument.

We trust that this edition of our newsletter has proven to be an enlightening and valuable resource for your professional endeavors. If you have any questions about any of these developments or would like to see something different next month in your inbox, we warmly encourage you to reach out to us at knowledge@sarthaklaw.com.

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