Below are certain legal and regulatory developments in India, during 2022, which provide a snapshot on the pace with which the Government of India (GoI) is bringing in reforms to contribute to a strong and robust economy:
- The Ministry of Corporate Affairs, GoI (MCA):
- notified amendments to the Limited Liability Partnership Rules, 2009 and a few key amendments are: (i) certain new forms have been prescribed and various existing forms have been updated; (ii) provisions related to adjudication of penalties have been prescribed; (iii) regulatory fee provisions have been updated; (iv) now five individuals may apply for allotment of identification number along with the incorporation; (v) allotment of Permanent Account Number and Tax Deduction Account Number at the time of incorporation; and (vi) provision for signing of statement of account & solvency during corporate insolvency resolution process have been prescribed.
- notified Companies (Appointment and Qualification of Directors) Amendment Rules, 2022 amending the Companies (Appointment and Qualification of Directors) Rules, 2014 requiring among various matters that written consent to act as a director be provided prior to appointment as a director and that in case if an appointment pertains to a national of a country which shares a land border with, then prior security clearance from the Ministry of Home Affairs, GoI would be required to be attached along with such consent.
- amended the Companies (Incorporation) Rules, 2014, to introduce a new rule 25B which provides the process to be followed by the jurisdictional Registrar of Companies to carry out a physical verification of the registered office of a company.
- amended the Companies (Corporate Social Responsibility Policy) Rules, 2014, to provide amendments including in relation to: (i) constitution of Corporate Social Responsibility (CSR) committee for a company with unspent CSR funds; and (ii) cost of impact assessments can be considered as CSR spending not exceeding 2 (two) % of total CSR expenditure for the applicable financial year or INR 5,000,000 (approx. USD 61,000), whichever is higher.
- The Reserve Bank of India (RBI):
- notified the Foreign Exchange Management (Overseas Investment) Rules, 2022 and the Foreign Exchange Management (Overseas Investment) Regulations, 2022, respectively,superseding the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2015. The new regime aims to cover wider economic activity and significantly reduce the need for seeking specific approvals, thereby reducing the compliance burden and associated costs.
- issued the Guidelines on Digital Lending, which apply to all commercial banks, primary (urban) co-operative banks, state co-operative banks, district central co-operative banks and NBFCs (including housing finance companies) i.e., the Regulated Entities.
- released a concept note on Central Bank Digital Currency (CBDC) for India; and on 12 December 2022, the Ministry of Finance, GoI, through a press release, announced RBI’s launch of pilots of CBDC in both Wholesale and Retail segments.
- notified the RBI (Regulatory Framework for Microfinance Loans) Directions, 2022, which prescribe provisions regarding definition of microfinance loan, assessment of household income, limit on loan repayment obligations of a household, pricing of loans, guidelines on conduct towards microfinance borrowers and so on.
- The Ministry of Electronics and Information Technology, GoI (MeitY):
- through the Indian Computer Emergency Response Team, issued the cyber security directions relating to information security practices, procedure, prevention, response and reporting of cyber incidents for safe and trusted internet.
- notified the amendment to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, introducing various important obligations for intermediaries and provisions for appeal to the Grievance Appellate Committee.
- released the Digital Personal Data Protection Bill, 2022 (Data Protection Bill), for public consultation. The purpose of the Data Protection Bill is to provide for the processing of digital personal data in a manner that recognizes both the right of individuals to protect their personal data and the need to process personal data for lawful purposes, and for matters connected therewith or incidental thereto. The Data Protection Bill prescribes penalty extending up to INR 5,000,000,000 (approx. USD 60 million).
- The following schemes were launched:
- Design-led Production Linked Incentive (PLI) scheme to build a strong ecosystem for 5G technology as part of the scheme for telecom & networking products.
- PLI scheme on ‘National programme on High-Efficiency Solar PV Modules’, with an outlay of INR 195,000,000,000 (approx. USD 2.4 billion) to build an ecosystem for manufacturing of high efficiency solar PV modules in India, and reduce import dependence in the renewable energy sector.
- The Securities and Exchange Board of India (SEBI):
- amended the SEBI (Foreign Portfolio Investors) Regulations, 2019, authorizing SEBI to generate the Foreign Portfolio Investor (FPI) registration number, which, prior to the amendment, was done by the National Securities Depository Limited (NSDL). Subsequently, the Department of Economic Affairs, GoI, through its notification dated 29 March 2022, permitted both NSDL and Central Depository Services (India) Limited to host the Common Application Form for FPI registration.
- amended the SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations) to introduce Special Situation Funds (SSFs) as a sub-category under Category I Alternative Investment Funds (AIFs). SSFs are AIFs set up for investment in ‘special situation assets’ which include: (i) stressed loan available for acquisition; (ii) security receipts issued by an asset reconstruction company; and (iii) securities of investee companies.
- amended the SEBI (Intermediaries) Regulations, 2008, stipulating certain matters, such as widening the scope of SEBI’s powers of initiating proceedings against wrongdoers and taking adequate action against them.
- issued a circular on Foreign Investment in AIFs, providing that AIFs may raise funds from any investor whether Indian, foreign or non-resident Indians, by way of issue of units, in terms of the AIF Regulations.
- issued the Master Circular for FPIs, Designated Depository Participants and Eligible Foreign Investors, providing for various matters such as, registration of FPIs, KYC requirements for FPIs, investment conditions/ restriction on FPIs and issuance of offshore derivative instruments by FPIs.
- issued fresh guidelines for overseas investment by AIFs/ Venture Capital Funds (VCFs), with respect to various matters such as doing away with the requirement of the overseas investee company to have an Indian Connection and AIFs/ VCFs are now permitted to invest in an overseas investee company, incorporated in a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding or a signatory to the bilateral Memorandum of Understanding with SEBI.
- issued circulars permitting the Real Estate Investment Trusts and Infrastructure Investment Trusts having net worth of INR 1,000,000,000 (approx. USD 12.1 million) or higher to issue commercial papers, subject to the prescribed conditions.
- The Insolvency and Bankruptcy Board of India (IBBI) made several amendments to the:
- IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 during 2022, including in relation to record/ evidence of transaction, sharing of information, process e-mail, meetings of the committee and regulatory fee provision.
- IBBI (Liquidation Process) Regulations, 2016 and IBBI (Voluntary Liquidation Process) Regulations, 2017 (Voluntary Liquidation Regulations), in order to enable better participation of stakeholders and streamline the liquidation process to reduce delays and realise better value. The tentative timeline for completion of liquidation has been reduced under the Voluntary Liquidation Regulations.