First & foremost we wish all our readers a happy & healthy 2017!
Below are some key reforms & legal developments in India during 2016 which we thought would be of interest:
• The Insolvency and Bankruptcy Code, 2016 (Code) was enacted as a unified legal framework governing the bankruptcy & insolvency regime for all companies, partnerships & individuals in a time bound manner. Per the Code, the National Company Law Tribunal (NCLT) would adjudicate insolvency resolution for companies & the Debt Recovery Tribunal would adjudicate insolvency resolution for partnerships & individuals. The Code is seen as a major game-changer in timely resolution of insolvency disputes & would contribute to the ease of doing business in India.
• Considered as the biggest tax reform in India since its Independence almost 70 years ago, the law providing for Goods & Services Tax (GST) was enacted which would subsume all indirect taxes under a single indirect taxation regime. In this regard, drafts of the Model Central/ State GST Act, 2016; the Model Integrated GST Act, 2016; & the Model GST (Compensation to the States for Loss of Revenue) Act, 2016 have been published by the Central Bureau of Excise & Customs. Once GST is fully implemented, it is expected to push India’s GDP by at least a couple of percent.
• The Ministry of Corporate Affairs (MCA) constituted NCLT & National Company Law Appellate Tribunal (NCLAT) & dissolved Company Law Board, set up under the Companies Act, 1956.
• The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 was enacted which inter alia provides for (i) a secured creditor taking possession of secured asset(s) with the assistance of the District Magistrate within 30 days of application; (ii) a secured creditor taking over the management of borrower company with no obligation to restore the same if secured creditor acquires controlling interest in borrower company upon conversion of debt into equity; (iii) power of the Reserve Bank of India (RBI) to carry out audit & inspection of asset reconstruction companies, & penalise them for non-compliance of its directions; (iv) maintenance of central database of security interest on property rights; (v) no levy of stamp duty in case of transfer of financial assets in favour of an asset reconstruction company.
• The Department of Industrial Policy and Promotion (DIPP) amended the foreign direct investment (FDI) Policy to permit:
- 100% FDI in Business to Business (B2B) e-commerce activities under automatic route.
2. 100% FDI under government route in trading, including through e-commerce, in respect of food products manufactured and/ or produced in India.
3. 100% FDI in defence wherein FDI beyond 49% is under government route.
4. 100% FDI in broadcasting carriage services under automatic route.
5. 100% FDI in brownfield airports.
6. 100% FDI in air transport services sector wherein FDI beyond 49% is under government route for persons other than non-resident Indians.
7. 74% FDI in private security agencies wherein FDI beyond 49% is under government route.
8. 100% FDI in brownfield pharmaceuticals wherein FDI beyond 74% is under government route.
9. Foreign Venture Capital Investor may contribute up to 100% of the capital of startups irrespective of the sector in which they are engaged, under the automatic route.
10. Courier services sector has been removed from the list of sectors/ activities for which conditions are prescribed.
11. 49% FDI in insurance & pension sectors under automatic route.
12. 100% foreign investment under automatic route in financial services regulated by sectoral regulators.
13. Establishment of branch office, liaison office or project office or any place of business in India under sectors of defence, telecom, private security & information & broadcasting, without RBI approval, if Foreign Investment Promotion Board’s approval has already been granted.
• The Sick Industrial Companies (Special Provisions) Repeal Act, 2003 repealed the Sick Industrial Companies (Special Provisions) Act, 1985 & dissolved the Board for Industrial and Financial Reconstruction (commonly referred to as the “BIFR”) as well as the Appellate Authority for Industrial and Financial Reconstruction. India had been waiting for several years (since 2003) for SICA to be repealed & the BIFR to be dissolved as these were not seen as effective legal remedies to manage sick industrial companies.
• The Real Estate (Regulation and Development) Act, 2016 (RERD Act) was enacted to establish a new regulator, viz. Real Estate Regulatory Authority (RERA) to regulate & promote the (currently unorganized) real estate sector & to ensure efficiency & transparency real estate projects. The RERD Act inter alia provides for prior registration of real estate projects & real estate agents with the RERA.
• The Government of India (GoI) took several steps in furtherance of its fight against corruption, black money, money laundering, terrorism & counterfeit currency notes. In this regard, the Ministry of Finance (MoF) notified the Income Declaration Scheme Rules, 2016 which inter alia provided for declaration of undisclosed income. Further, the MoF through a notification dated 8 November 2016 withdrew legal tender of INR 500 & INR 1,000 currency notes (commonly referred to as ‘demonetization’ & ‘remonetization’). Furthermore, the GoI has given another opportunity to declare undisclosed income pursuant to the Taxation & Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016 (Scheme) framed under the Taxation Laws (Second Amendment) Act, 2016. The Scheme inter alia provides for levy of tax, surcharge & penalty on the undisclosed income.
• The Benami Transactions Prohibition (Amendment) Act, 2016 was enacted which (i) amends the definition of benami transactions; (ii) provides for imprisonment & fine for entering into benami transactions; (iii) establishes adjudicating authority & appellate tribunal; & (iv) empowers the Central Government to confiscate benami property. “Benami” means entering into a contract & holding property in a name which is fictitious or of a third party who is not the real owner of the property or beneficiaries under a contract.
• MCA notified certain provisions of the Companies Act, 2013 which inter alia provide for corporate restructuring, winding up by NCLT, reduction of share capital, variation of shareholders’ rights, removal of names of companies from the register of companies, transfer of certain pending proceedings to NCLT, & certain provisions relating to NCLT, NCLAT & Special Courts.
• MCA notified various rules under the Companies Act, 2013 which inter alia include the Companies (Mediation and Conciliation) Rules, 2016; the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016; the NCLT Rules, 2016; the NCLAT Rules, 2016; the Companies (Transfer of Pending Proceedings) Rules 2016; the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016; & the Companies (Removal of Names of Companies from the Register of Companies) Rules 2016.
• MCA increased the threshold for reporting of combinations by 100% under the Competition Act, 2002. Further, a target enterprise having assets valued not more than INR 3,500,000,000 (approx. USD 51,650,000 billion) in India or turnover of not more than INR 10,000,000,000 (approx. USD 147,569,000 billion) in India is exempted from such reporting until 3 March 2021. Further, a group exercising less than 50% voting rights in an enterprise is also exempted from the provision governing combinations until 3 March 2021.
• With a view to enhance the ease of reporting of FDI transactions, the RBI on 1 February 2016 mandated online filing of Advance Remittance Form, Form FC-GPR & Form FC-TRS on e-Biz Portal (https://www.ebiz.gov.in/home/) & the physical filing of these forms has been discontinued w.e.f. 8 February 2016.
• RBI on 20 May 2016 amended the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 to inter alia allow a purchaser in a cross border share transfer to make payment of up to 25% of the total consideration on a deferred basis within a period not exceeding 18 months from the date of the share transfer agreement.
• RBI on 1 August 2016 issued ‘Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector’ which provide for a continuous authorisation policy for obtaining a banking license. Such policy is a significant change from the former ‘Stop and Go’ policy. The guidelines inter alia provide norms relating to eligible promoters, corporate structure requirements, corporate governance, prudential & exposure norms, & the procedure for application. Further, large industrial houses are excluded as eligible entities but are permitted to invest in banks up to 10% & individual promoters or standalone promoting/ converting entities are not mandated to have Non-operating Financial Holding Company structure.
• RBI issued the ‘Scheme for Sustainable Structuring of Stressed Assets’ on 13 June 2016 to construct an autonomous mechanism for deep restructuring of large accounts to revive projects which are viable. Pursuant to this scheme, lenders may segregate the debt into sustainable debt & restructure the balance amount into equity/ quasi equity instruments which are expected to provide an upside to the lenders in case of recovery.
• RBI released the revised framework for external commercial borrowings (ECB) where companies in infrastructure sector have been recognised as Track I borrowers. Further RBI vide a notification dated 27 October 2016 on ‘External Commercial Borrowings (ECB) by Startups’ permitted startups to raise ECB upto USD 3,000,000 or equivalent per financial year either in INR or any convertible foreign currency or a combination of both, with average minimum maturity period of 3 years.
• RBI through a circular dated 27 December 2016 decided to allow foreign portfolio investors to transact in instruments of non-convertible debentures/ bonds, either directly or in any manner as per the prevalent or approved market practice.
• DIPP notified the eligibility criteria to be qualified as a ‘startup’. An entity would be considered as startup if (i) it has not completed 5 years from its incorporation/ registration; (ii) if its turnover for any of the financial years has not exceeded INR 250,000,000 (approx. USD 3,690,000); & (iii) it is working towards innovation, development & deployment or commercialisation of new products, processes or services driven by technology or intellectual property. Further, to obtain tax benefits, a startup would need to obtain a certificate of an eligible business from the Inter-Ministerial Board of Certification.
• On 8 October 2016, the Government of Maharashtra launched the Mumbai Centre for International Arbitration (MCIA) in Mumbai. The MCIA is India’s first-of-its-kind international institution for arbitration & has been set up with the aim of attracting resolution of disputes involving Indian parties.
Major laws proposed to be enacted in 2017:
• The Companies (Amendment) Bill, 2016
• The Consumer Protection Bill, 2015
• The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2015
• The Factories (Amendment) Bill, 2016
• The Model Central/ State Goods and Services Tax Act, 2016
• The Model Goods and Services Tax (Compensation to the States for Loss of Revenue) Act, 2016
• The Model Integrated Goods and Services Tax Act, 2016
• The Model Shops & Establishments (Regulation of Employment and Conditions of Service) Bill, 2016