Welcome back to our June 2024 edition of the Corporate Law Newsletter. We’re thrilled to bring you varied news and insights, encompassing regulatory advancements to keep you up to date. From recent updates to court decisions, we’ve got all the news you need to stay ahead in the corporate legal landscape. So, sit back, enjoy your favorite beverage, and dive into the latest developments in India’s corporate legal landscape.
Recent Updates:
The Enforcement Directorate is probing alleged illicit transfers of foreign exchange to the tune of Rs. 50,000/- crore (Rupees Fifty Thousand Crore Only), with an emphasis on transactions conducted by fintech firms. These entities are suspected of engaging in fraudulent activities such as falsifying transactions relating to software imports, and exports from special economic zones, offering cloud computing services, and leasing graphics processing unit server space, to facilitate unauthorized movement of funds.
The Tamil Nadu Government is considering introduction of a legislation aimed at tackling addiction to online gaming and gambling by proposing limits on time and usage of online gaming and real money gaming platforms. The Tamil Nadu Online Gaming Authority, established to oversee online gaming in the state, has reportedly engaged with senior representatives from the gaming industry to explore ways to regulate games without distinguishing between online and real money games.
The Department for Promotion of Industry and Internal Trade plans to ease early-stage funding for startups, reduce compliance burdens, and lower logistics costs in its 100-day action plan. It is developing a policy for deep-tech startups and seeking input from 18 ministries. The plan includes business reforms, public-private partnerships, and reducing compliance burdens through the Jan Vishwas Bill.
The Government is contemplating a prohibition on the production, import, and distribution of chloramphenicol and nitrofuran antibiotics in food-producing animals, due to their misuse in poultry and animal feed supplements. The Drugs Technical Advisory Board, following recommendations from various committees and authorities, including the Marine Products Export Development Authority, is expected to look into this issue at the earliest.
Summons have been issued to online gaming companies, by the Directorate General of GST Intelligence (DGGI), Gurgaon, for the time period from October 2023 to June 15, 2024. This was in pursuance to DGGI’s detection of taxed money being re-imbursed to the players in a separate promo account, after the implementation of 28% GST on the entire entry-level betting amount.
India’s security establishment advises caution regarding Chinese FDI proposals, emphasizing the need for a risk assessment system before lifting COVID-era restrictions. Robust review and monitoring, particularly for investments from countries of concern, are recommended. While supporting investments for access to new technologies and domestic value addition, national security should not be compromised.
SEBI has revised its rule to allow Private Equity (PE) investors to retain their special rights until the listing date of the investee company’s Initial Public Offering (IPO). Previously, PE investors had to cancel these rights upon filing the updated IPO document with SEBI, which exposed them to risks if the IPO did not materialize. The new rule provides greater security for PE investors by ensuring that they are able to maintain their special rights until the company is officially listed, thereby boosting investor confidence and potentially facilitating a smoother IPO process.
SEBI has eased insider trading norms for senior executives of listed companies by reducing the minimum cool-off period from six to four months. It allows flexibility in trading plans, including setting price limits and making adjustments for corporate actions like bonus issues and stock splits. Additionally, insiders must notify the compliance officer within two trading days if they do not implement the trading plan. These changes aim to address the feedback that current rules were too restrictive and unpopular.
Unsecured loans by Non-Banking Financial Companies (NBFCs) grew at a Compound Annual Growth Rate (CAGR) of about 32% during the period 2017-2024, significantly outpacing the growth of secured retail loans. Their share of unsecured loans in overall credit rose to 14% and 23%, excluding large infrastructure loans. This rapid growth was driven by microfinance, personal consumption, and unsecured small and medium enterprise loans. Overall, NBFCs expanded their lending at a 15% CAGR, surpassing banks’ 11% CAGR, resulting in increased regulatory scrutiny due to their rising importance in the financial ecosystem.
Reserve Bank of India (RBI) Updates:
RBI has amended certain provisions of overseas portfolio investment, dealing with overseas investment in an international financial services center, of the Foreign Exchange Management (Overseas Investment) Directions, 2022. Pursuant to this amendment: (a) resident individuals and listed companies can invest in offshore funds managed by regulated fund managers; (b) general partners can now set up their funds in jurisdictions offering better commercial advantages, without worrying about the permissibility of Indian investments; and (c) investment shall now be allowed not only in “units”, but also in other financial instruments.
SEBI Updates:
To improve operational efficiency and minimize risk to clients’ securities, SEBI, through its circular dated June 05, 2024, has mandated the direct transfer of securities to client’s demat accounts. This circular, effective from October 14, 2024, changes the current practice where brokers pool securities before crediting them to client’s accounts.
On June 10, 2024, SEBI issued a circular on “Ease of Doing Investments – Non-submission of ‘Choice of Nomination’, which highlights that investors will be able to avail any service request from their mutual fund registrar and transfer agent, even if they do not submit ‘Choice of Nomination’. However, all new investors/unit holders shall compulsorily provide ‘Choice of Nomination’ for DEMAT accounts and mutual fund folios, except for jointly held DEMAT accounts as well as mutual funds.
SEBI issued a circular “Modification in Framework for Offer for Sale (OFS) of Shares to Employees through Stock Exchange Mechanism”. Through this circular, SEBI tweaks the process for offer for sale of shares to employees through stock exchanges. Employees will have to place bids on T+1 (trading plus one day), but at the previous day’s valuation. This circular shall come into effect from the 30th day of its issuance i.e., July 13, 2024.
On June 27, 2024, SEBI issued a circular permitting up to 100% aggregate contribution by Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and Resident Indians (RIs) in the corpus of Foreign Portfolio Investments (FPIs) based in International Financial Services Centers (IFSCs). SEBI announced that it has amended the FPI rules to provide this flexibility, allowing NRIs, OCIs, and RIs to fully contribute to the corpus of FPIs located in IFSCs in India, which are regulated by the IFSC Authority. This move is aimed at boosting FPI in India.
SEBI through its Master Circular issued Guidelines on Anti-Money Laundering Standards and Combating the Financing of Terrorism (CFT) / Obligations of Securities Market Intermediaries under the Prevention of Money Laundering Act, 2002 and its associated Rules. This master circular, amongst other things: (a) lays down policies and procedures to combat money laundering and terrorist financing; (b) prescribes the obligation to establish certain policies and procedures; (c) lays down provisions pertaining to risk management, monitoring of transactions; and (c) prescribes procedure for freezing funds, financial assets / economic resources / related services.
SEBI issued the Master Circular for Portfolio Managers, which supersedes the previous Master Circular for Portfolio Managers issued on March 20, 2023. This circular specifies: (a) application procedure for registration as a portfolio manager, along with a list of registration and post-registration activities; (b) operating guidelines for portfolio managers; (c) procedure for investments by portfolio managers; (d) disclosure requirements for portfolio managers; (e) reporting requirements for portfolio managers; and (f) a grievance redressal mechanism.
For the ease of reference, SEBI, on June 27, 2024, issued the Master Circular on Mutual Funds, superseding the previous Master Circular for mutual funds dated May 19, 2023. The new Master Circular provides a revised format for Key Information Memorandum (KIM), Statement of Additional Information (SAI), and Scheme Information Document (SID).
Technology, Media, and Telecommunications Updates:
The Ministry of Electronics and Information Technology (MeitY) has scheduled two meetings with industry players and associations on June 13, 2024, and June 18, 2024, to discuss concerns pertaining to the detrimental impact of the draft Digital Competition Bill on startups. This draft bill was introduced in February 2024 by the Ministry of Corporate Affairs to address anti-competitive practices by big tech firms. The meetings, chaired by the Secretary of MeitY and attended by officials from MeitY and the Ministry of Corporate Affairs, aim to address the aforesaid concerns.
The Government has notified certain provisions of the Telecommunication Act, 2023, with effect from June 26, 2024. The said Act will replace the Indian Telegraph Act, 1885, and the Indian Wireless Act, 1933. Under the new legislation, the Government is empowered to take over control and management of any or all telecommunication services or network, if deemed necessary for national interest, international relations with foreign countries, or during war. Besides, the new Act simplifies the regulatory framework, replacing license regime with a more straightforward authorization process.
TRAI notified the Telecommunication Consumers Education and Protection Fund (Sixth Amendment) Regulations, 2024, which amended the Telecommunication Consumers Education and Protection Fund Regulations, 2007. This amendment: (a) provides for utilizing funds for maintenance & audit of accounts; (b) participation of consumer groups’ representatives to attend meetings of the Committee For Utilization of Telecommunication Consumers Education and Protection Fund; and (c) permit any scheduled bank to deposit the amounts of the telecommunication consumers education and protection fund.
TRAI, vide press release dated June 20, 2024, released the Recommendations on ‘Inputs for formulation of National Broadcasting Policy – 2024’. TRAI has classified these recommendations under the following three categories:
- Vision – amongst other things, (i) creating a conducive ecosystem for growth of the broadcasting sector, (ii) catering to diverse consumer needs, (iii) enabling inclusivity and literacy, (iv) safeguarding intellectual property, and (v) generating employment.
- Mission – further sub-divided into (i) Propelling Growth, (ii) Promoting Content, and (iii) Protecting Interests; and
- Goals – further sub-divided into (i) Propelling Growth – establishing a robust broadcasting ecosystem, (ii) Promoting Content – encouraging Indian content outreach at the global stage, and (iii) Protecting Interests – Safeguarding rights of content creator and leveraging broadcasting services for protecting socio-environmental interests of the society.
TRAI, issued the following directions to access providers under its Telecom Commercial Communications Customer Preference Regulations, 2018: (a) directions pertaining to user-friendliness for registering complaints pertaining to unsolicited commercial communications, preferences and consents through mobile apps and web portals of an access provider; and (b) directions on submitting performance monitoring report to TRAI in modified formats on a monthly basis.
TRAI, has brought in the Telecommunication Mobile Number Portability (Ninth Amendment) Regulations, 2024, which will come into force from July 01, 2024. These regulations seek to reduce porting of mobile numbers through fraudulent swapping of SIM cards; and introduce a new provision for non-allocation of unique porting codes, if a request for the same has been made before the expiry of 7 days from the date of SIM swap/replacement.
Vide press release dated June 06, 2024, TRAI, stated that fraudulent WhatsApp messages, SMS and voice calls are made to people from individuals claiming to represent TRAI, alleging false activity with the recipient’s mobile number, whilst threatening them with disconnection of mobile numbers and attempts to trick them into installing malware/phishing attacks. To prevent such instances, TRAI encourages citizens to report fraudulent communications through the Chakshu facility on the Department of Telecommunications’ Sanchar Sathi platform, and report instances of cyber-crime at the designated cyber-crime helpline number 1930 or through the official website.
Tax Updates:
The Goods and Services Tax (GST) Council held its 53rd meeting on June 22, 2024. Some of the key proposals of this meeting are as follows:
- proposed extension of timeline for availing input tax credit (ITC) from financial years 2017-18 to 2020-21, to November 30, 2021;
- conditional waiver of interest and penalty for demand notices issued under Section 73 (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful misstatement or suppression of facts) of the Central Goods and Services Tax Act, 2017, for the financial years from 2017-18 to 2019-20, where tax has been fully paid till March 31, 2025;
- reduction of pre-deposit for – filing appeal before the appellate authorities;
- a sunset clause for receipt of any new anti-profiteering application, from April 01, 2025;
- changes in GST rates on goods and services; and
- clarifications on (i) import of services between related parties, (ii) taxability of corporate guarantee, and (iii) ITC eligibility under reverse charge mechanism, along with reducing litigation and simplifying tax compliances.
Employee stock option plans, employee stock purchase plans, and restricted stock units given by foreign companies to employees of their Indian subsidiary will not attract GST, except if an amount exceeding the cost of securities/shares is charged from the Indian subsidiary by the foreign holding company. In such a case, GST shall be levied on the additional fee, markup, or commission, charged by the foreign holding company from its Indian subsidiary, for issuing shares/securities to the subsidiary’s employees.
The Government is assessing GST rate rationalisation to balance the tax regime and address inverted duty structures. Potential changes include merging the 12% and 18% slabs into a new 15-16% rate, ensuring revenue neutrality and avoiding anti-consumer perceptions.
Intellectual Property (IP) Update:
The Hon’ble High Court of Karnataka has notified the following steps towards establishment of an IP division – establishing a sub-committee comprising of the Registrar (Judicial), High Court of Karnataka, and Dr. Arul George Scaria, Associate Professor of Law, National Law School of India University, Bengaluru, who shall be assisted by a law clerk, to prepare draft rules for establishing an IP division in the High Court of Karnataka. The said sub-committee shall prepare the draft rules and present the same before the High Court of Karnataka and the District Judiciary Rules Committee for its approval.
Upcoming Nuggets:
The International Financial Services Centre Authority (IFSCA) has announced plans to introduce regulations for the direct listing of companies at Gujarat International Finance Tec-City (GIFT) by the beginning of July. This is a follow-up to the consultation paper dated May 03, 2024, issued by the IFSCA on the proposed listing regulations.
The National Deep Tech Start-up Policy (NDTSP) aims to boost early-stage technology development and commercialization, with its final draft soon to be presented for cabinet approval. This policy will guide ministries in creating schemes for deep tech startups and is expected to be announced in the next Union Budget. It includes measures such as a dedicated deep tech capital guidance fund, fiscal incentives to attract domestic investment, and reduced tariffs on imports. The policy emphasizes longer-term funding, nurturing R&D, strengthening IP regimes, and creating supportive regulations and infrastructure.
Improper disposal of expired medicines poses health and environmental risks. To address this issue, India’s drug controller is finalizing a guidance document outlining safe disposal methods for unused and expired drugs. The document will cover procedures for disposal, collection, storage, and transportation of expired and unused drugs. This initiative aims to protect public health and the environment from hazards related to discarded medications.
From the Docket:
In the case of Indian Medical Association & Another. vs Union of India & Others, the Supreme Court of India has mandated all advertisers and advertising agencies to obtain a “Self-Declaration Certificate” (SDC) before releasing any new advertisements. The Ministry of Information & Broadcasting through its notification, detailed this directive following the Supreme Court’s order dated May 07, 2024. This requirement shall apply to advertisements released after June 18, 2024. The following details of advertisements are required to be filled in the SDC:
- product / service being advertised;
- title of the advertisement;
- brief description of the advertisement, with a mention of any specific features or claims made in the advertisement;
- full script of the advertisement (in a pdf file);
- URL of advertisement audio / video, for TV / radio / internet advertisement or PDF of actual advertisement for print / static internet advertisement; and
- proposal date of first broadcast / publishing of advertisement.
The Bombay High Court, in the matter of Pidilite Industries Limited vs Astral Limited (formerly known as Resinova Chemie Limited), granted an interim injunction in the design infringement case filed by Pidilite. The Court held that Pidilite’s design, besides being distinctive and having a unique appeal to the eye, was also validly registered and not a trade variant of any known designs, and that Astral’s design elements did not significantly differ from that of Pidilite’s. It was also held that not granting an interim injunction restraining Astral from manufacturing, selling, or dealing in any products infringing upon Pidilite’s registered design, would cause irreparable harm to Pidilite.
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, we warmly encourage you to reach out to us at knowledge@sarthaklaw.com.
We will be back next month with another newsletter. Until then, stay safe, stay healthy, and enjoy!