Comprehensive Regulatory Review of Corporate Law

What is Regulatory Review?

In simple words, the regulatory review is basically reviewing the effect of the rules and regulations in the country that have been established by the authorities. All the different branches and the committees draft various rules and regulations, the government authorities then oversee the check these rules and regulations. This is known as regulatory review. A regulatory review can also be considered as a type of formal examination.

Listing Regulation: Updates

There were many amendments that were introduced by SEBI for the listing regulations. SEBI wanted to make the corporate governance of the entities that are listed and protection of the investors more strong. SEBI issued a mechanism of removal for independent directors and an alternative appointment for them. With the Listing (Amendments) Regulations of 2023, the SEBI clarified and laid down some changes in the regulations related to listing. The ‘senior management’ definition was also amended under this. The requirement for the chairman and MD which earlier was supposed to be compulsory in nature was now voluntary. The NSE Prime Listing Norms have also come into effect.

Insider Trading Laws and Structured Digital Database

The concept of SDD (Structured digital database) has been in place since the year 2019. But only recently listed entities have started to realize its importance. The compliance in regards to the SDD is made vital, and the non-compliance of the same can lead to the display of ‘non-compliant with SDD’ on the stock exchange site. Controls of the insider trading were extended into the mutual funds in a more formal and extended form. The amendments related to the buy-back were approved.

Social Stock Exchange

With the announcement of revisions to this result under the ICDR Regulations, Listing Obligations and Disclosure Requirements Regulations, and Alternative Investment Funds Regulations, the idea of Social Stock Exchanges (SSE) made its official appearance in the Indian legal framework. For companies qualified and eager to begin registering with the SSES, SEBI has furthermore released a comprehensive SSE framework. SEBI also gave its in-principal clearance to the stock exchanges, Bombay Stock Exchange and NSE, to create social stock exchanges as distinct segments inside the exchange.

Provisions of Companies Act, 2013

The report of the CLC, that is, the Companies Law Committee, was made public to get comments from the public after its review. The report of the Companies Law Committee (CLC) was made public and includes suggestions for changes to the Companies Act. Essential recommendations include lengthening the cooling-off durations for directors who are independent, improving protections regarding auditors’ conflict of interest, and isolating automatic directorship vacation midst the company defaults. It’s also advised that the reasons behind the departures of essential managerial employees be disclosed. Proposed revisions to approval standards, which would replace the current 90% voting threshold with an amalgamation of special and regular majority votes, could simplify the process of fast-track mergers.

The terms of the Investor Education and Protection Fund (IEPF) can be expanded to include unpaid monies on the buy-backs. The proposals include moving the reopening of struck-off organizations to administrative offices and creating trained NCLT benches for difficult matters in order to relieve the backlog of cases before the National Company Law Tribunal (NCLT). However, timely filling of available NCLT jobs is essential for efficient implementation.

Prior revisions are refined in the 2022 CSR Amendment Rules, which push out the mandatory audit trail provision for computerized bookkeeping till April 1, 2023. Additional modifications require businesses to have daily backups of their electronic data on physical servers in India, which replace periodic backups, and to yearly report the service provider’s information if the business is based outside. The purpose of these changes is to improve transparency and visibility by streamlining corporate governance and adherence.

Updates from the Competition Law

Here the author has author has discussed all the updated brought in under the corporate law in terms of Competition (Amendment) Act, 2023:

The Indian parliament has just enacted the Competition (Amendment) Act 2023, which serves as an amendment to the existing Competition Act of 2002. This amendment aims to enhance the authority of the Competition Commission of India (CCI) in order to curb anti-competitive practices effectively. The objective of this amendment is to contemporize the Competition Law, particularly in relation to digital marketplaces, and harmonize it with the prevailing economic circumstances. The revisions have been implemented in accordance with the suggestions put out by the Competition Law Review Committee, which was established by the Government of India. The change of utmost importance is to enhance the methodology for imposing penalties on corporations that engage in anti-competitive practices, whether through income or worldwide turnover. Previously, the imposition of the ‘penalty’ was contingent upon the calculation of ‘relevant turnover’, which exclusively encompassed domestic turnover.

Nevertheless, the modifications implemented by this legislation are not substantial, and the Digital Competition Law Committee will be responsible for addressing any substantial reformation of the competition framework, should it be deemed essential. The Bill was passed by the lower house of the Parliament in March 2023, subsequent to its referral to the Standing Committee on Finance for scrutiny in August 2022. Following this, several amendments were introduced in February 2023.

Developments from the Reserve Bank of India (RBI)

In this section the author has discussed all the regulation that has been passed by the RBI under the corporate law:

The Reserve Bank of India (RBI) has introduced a novel framework to facilitate the acceptance of ‘Green Deposits’ by Regulated Entities to enhance green financing. This framework is scheduled to be implemented starting from June 1, 2023. Green finance refers to the practice of providing financial support, such as loans and investments, to activities and initiatives that aim to address climate risk mitigation, adaptation, and other environmental objectives. Within this particular framework, the monies acquired through green deposits by corporations will be allocated towards financing activities or initiatives pertaining to renewable energy, energy efficiency, clean transport, climate change adaptation, and sustainable water and waste management. 

In order to enhance the attractiveness of India’s International Financial Services Centers (IFSCs) to domestic investors and to align remittances within IFSCs with foreign remittances under the Liberalized Remittance Scheme (LRS) framework, the Reserve Bank of India (RBI) has eliminated the obligation for the prompt repatriation of funds that remain unused in the Foreign Currency Account (FCA) within India’s IFSCs for a period of up to 15 days. The elongation of transaction deadlines for different reasons often poses issues for resident investors in complying with the need to repatriate any unused funds within 15 days of receipt. In February 2023, the Reserve Bank of India (RBI) implemented a policy that allows resident individuals to invest in securities within the International Financial Services Centre (IFSC) within the Liberalized Remittance Scheme (LRS) framework.

The Reserve Bank of India (RBI) amended the Master Direction on Know Your Customer (KYC) Direction, which was initially issued in 2016, on April 28, 2023. The modifications were implemented in response to the increasing inclination towards in-person loan transactions and to enable lenders to utilize digital documents, including those kept on the DigiLocker platform, as a means to minimize physical interaction with borrowers. 

Moreover, the alteration above was necessitated to integrate the amendments made on March 7, 2023, to the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005. Additionally, it was done to provide guidance on the implementation process of Section 12A of the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005, and to revise specific instructions in alignment with the recommendations put forth by the Financial Action Task Force (FATF).

Updates from the Ministry of Commerce and Industry

Here is the list of all the changes that have been introduced by the Ministry of Commerce and Industry under corporate law:

In pursuit of the goal to enhance the nation’s exports to USD 2 trillion by 2030, the Government of India has recently introduced the Foreign Trade Policy (FTP), 2023. This policy came into force on April 1, 2023. The introduction of the new FTP signifies a transition from a regime that relies on incentives to one that is centered on remission and entitlement. In contrast to previous Free Trade Policies (FTPs) that were usually limited to five-year duration, the present policy lacks a predetermined termination date. Instead, the Central Government will periodically revise and adjust the policy in response to evolving trade conditions at both regional and worldwide scales.

Upcoming Nuggets

The Securities and Exchange Board of India (SEBI) is currently soliciting feedback and suggestions from relevant parties about the proposed modifications to the SEBI (Alternative Investment Funds) Regulations of 2012. This initiative aims to enhance the governance mechanisms for Alternative Investment Funds (AIFs) by implementing several measures. These measures include the establishment of borrowing guidelines for Category I and II AIFs, the compulsory dematerialization of securities and investments, the extension of custodian appointment to all AIFs, the imposition of a maximum tenure for large-value funds that cater to accredited investors, and the mandatory renewal of AIFs’ registration.

The Securities and Exchange Board of India (SEBI) has recently implemented a proposed framework for the voluntary delisting of Non-Convertible Debt Securities (NCDS). To gather input and opinions from relevant parties, SEBI has extended an invitation for public feedback through May 26, 2023. Opinions were also solicited regarding the potential expansion of the scope to encompass non-convertible redeemable preference shares or other types of convertible instruments.

The Instruments and Exchange Board of India (SEBI) has put forth a proposal to broaden the scope of the Qualified Institutional Buyer (QIB) definition. This is intended to enhance the pool of prospective investors for debt instrument issuers and promote the debt market growth. SEBI has invited public feedback on these suggestions through May 29, 2023. The capital market regulator has suggested the proposed inclusion of specific investor categories in the Qualified Institutional Buyer (QIB) category. These categories include SEBI-regulated enterprises and multistate cooperatives with a net worth above INR 500 crores.

The Central Board of Direct Taxes (CBDT) has put out recommended modifications to the assessment of share valuation for tax purposes as outlined in the Income Tax Act of 1961. The proposed modifications seek to incorporate the consideration of non-residents, implement novel approaches to valuation, and establish a safe harbor provision of 10 per cent. The proposed revisions aim to enhance the efficiency of share valuation, offer explicit guidance for non-resident investors, and integrate essential protective measures.

India is now in the process of formulating a draught for its forthcoming Foreign Direct Investment (FDI) policy pertaining to the space sector. This policy is expected to permit a maximum of 100 per cent FDI in this domain. The newly implemented policy would facilitate international investment in three specific categories of space-related endeavors: 

1. The establishment and operation of satellites;
2. The operation of launch vehicles;
3. The production of space-related components and subsystems. The anticipated release of the draught is projected to occur during the next three months.

The Department of Consumer Affairs is now engaging in consultations with various stakeholders, which notably include representatives from the pharmaceutical industry. The primary objective of these consultations is to identify and implement effective measures to safeguard consumers’ interests. The proposals encompass the implementation of several measures, such as the inclusion of manufacturing and expiry dates on each individual strip, the utilization of Q.R. codes, and the provision of the option to purchase required tablets separately rather than in entire strips. Currently, pharmacists engage in the sale of whole strips containing ten or more pills or capsules. This practice results in the wastage of medical resources and imposes an avoidable cost burden on customers.

Financial institutions are contemplating adopting a standardized system that would allow borrowers to respond formally before their loan accounts are labeled as fraudulent. This deliberation has been prompted by the recent decision of the esteemed Supreme Court in the case of State Bank of India & Others v. Rajesh Agarwal & Others. In the near future, a committee will be established with the purpose of formulating a comprehensive framework. This framework will encompass various aspects, including the methodology for engaging with borrowers, the requisite documentation to be provided, the generation of reports, as well as the establishment of timetables, and the subsequent steps to be taken. Prior to finalizing the criteria to be adhered to by all lenders in such instances, banks would collaborate with the Reserve Bank of India (RBI) to establish a shared framework.

Foreign Trade Policy, 2023

The Foreign Trade Policy 2023 (FTP) was officially announced on March 31, 2023, in accordance with the authority granted by Section 5 of the Foreign Trade (Development & Regulation) Act, 1992. It has been implemented as of April 1, 2023.

Key Aspects

The Following aspects behind the Foreign Trade Policy of 2023:

• Duration of FTP: 

The current Foreign Trade Policy (FTP) represents a departure from previous policies in that it lacks a specified termination date. Moreover, future adjustments to the FTP will be undertaken as necessary without being tied to any specific timeframe. 

The process of granting permissions through online means without the need for a physical interface. The primary objective of the FTP is to streamline the clearance process for various permissions by implementing simplified procedures and leveraging technology. This includes reducing the time required for processing applications and facilitating immediate approval for exporters operating under the automatic route. The current objective is to minimize the processing time for certain permissions to a maximum of one day.

• Reduction in charges for Micro, Small and Medium Enterprises (MSMEs): 

The application user charges for advance permission and Export Promotion Capital Goods (EPCG) Schemes have been reduced, resulting in favorable outcomes for a significant proportion (55-60%) of exporters categorized as Micro, Small, and Medium Enterprises (MSMEs).

• Export promotion initiatives: 

The reduction of export thresholds for status holders aims to facilitate greater access to higher status for exporters and mitigate transaction costs associated with exports. The user’s text is too short to be rewritten academically.

• Merchanting trade reform: 

In order to enhance merchanting services originating from India, it will now be feasible to engage in the merchanting trade of restricted and forbidden commodities as per the export policy. Merchant trade refers to the process of transporting commodities between two foreign nations, bypassing Indian ports, with the involvement of an intermediary based in India. Adherence to RBI rules will be required, with the exception of goods/items that fall under the purview of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) and the Special Chemicals, Organism, Materials, Equipment and Technologies (SCOMET) list.

• Rupee payment to be accepted under FTP schemes: 

As to the Reserve Bank of India’s circular on International Trade Settlement in Indian Rupees issued on July 11, 2022, the option to utilize Indian Rupees for the invoicing, payment, and settlements of exports and imports is a significant move towards internalization. The benefits of FTP (Foreign Trade Policy) have been expanded to include the realization of rupees through special Vostro accounts.

• Towns of Export Excellence (TEE): 

The towns of Faridabad, Mirzapur, Moradabad, and Varanasi have recently been recognized as Trade and Export Enclaves (TEEs) with the aim of fostering the development and expansion of these centres for export industry. Financial assistance will be granted to acknowledge unit associations under the Market Access Initiative Scheme, an export promotion program, with priority given to projects aimed at enhancing exports through marketing, capacity building, and technological services. Service providers that have been certified by the DGFT or Department of Commerce and operate in these specific sectors are eligible for permission under the EPCG program. Under this program, eligible entities have the opportunity to get financial support in order to attend different trade shows and fairs, with the aim of exploring further marketing opportunities.

• Facilitation of e-commerce exports: 

The extension of all benefits provided by the Free Trade Policy (FTP) is to be applied to exports in the domain of e-commerce. The maximum allowable value for exports facilitated by courier services has been raised from INR 5 lakh to INR 10 lakh per cargo.

• EPCG scheme: 

The inclusion of the Prime Minister Mega Integrated Textile Region and Apparel Parks (PM MITRA) scheme as an eligible scheme to avail advantages under the Common Service Provider (CSP) Export Promotion Capital Goods (EPCG) Scheme has been implemented. Green Technology products, including Battery Electric Vehicles (BEV), different forms of vertical farming equipment, recycling and wastewater treatment systems, rainwater harvesting systems and filters, and green hydrogen, will now be eligible for a reduction in their Export Obligation requirements. These requirements pertain to the obligation to export products covered by authorization or permission, with specific regulations regarding quantity, value, or both, as prescribed or specified by the regional or competent authority.

• Special one-time Amnesty Scheme for default in export obligations: 

An Amnesty Scheme has been implemented to address instances of noncompliance in export obligations by holders of advance authorization and EPCG authorization. Under this scheme, authorization holders have the opportunity to regularize all pending cases of default in Export Obligation by paying the customs duties that were exempted in proportion to the unfulfilled export obligation. The maximum interest that can be charged on these duties is limited to 100% of the exempted amount. Interest is not applicable to the component of Additional Customs Duty and Special Additional Customs Duty. The plan is accessible within a restricted timeframe, concluding on September 30, 2023.

• Emphasis on streamlining SCOMET licensing procedure: 

Recently, policy modifications have been implemented, including the establishment of broad authorizations for the export of specific SCOMET goods. These changes aim to simplify the licensing process for such items, thereby enhancing the worldwide competitiveness of SCOMET item exports. There is an emphasis on streamlining policies to enable the exportation of dual-use high-end goods and technologies, including unmanned aerial vehicles (UAVs), drones, and cryogenic tanks, among others. The establishment of an effective export control system in India would enable Indian exporters to gain access to dual-use high-end goods and technology while simultaneously facilitating the exportation of controlled items and technologies falling under the Special Chemicals, Organisms, Materials, Equipment, and Technology (SCOMET) category from India.

MCA | Amendment Rules 2023 to the Indian Accounting Standards

On April 1, 2023, the Ministry of Corporate Affairs (MCA) released a notification regarding the implementation of the Companies’ Indian Accounting Standards Amendment Rules, 2023, which will come into effect on the same date. The aforementioned modifications adhere to the guidelines set forth by the Institute of Chartered Accountants of India (ICAI) and the International Financial Reporting Standards (IFRS). They constitute a component of the government’s endeavors to harmonize the accounting standards of India with those of the international community, as well as to enhance the caliber and transparency of financial reporting within the country.

From the Docket

The Supreme Court has provided legal redress to private airport developers in the Central GST Delhi – III v. Delhi International Airport Ltd. case. According to the ruling, it has been determined that the private developers of airports are not obligated to bear the burden of service tax for the User Development Fee imposed on passengers for the purposes of operating, maintaining, and enhancing the Mumbai, Delhi, and Hyderabad International airports. The court acknowledged a tax circular from 2006, which provided clarification that the imposition of service tax would not apply to the collection of taxes, whether they are sovereign or statutory dues.

In the legal matter of Alpha G184 Owners Association v. Magnum International Trading Company Pvt. Ltd., a panel consisting of Justice J K Maheshwari and M. M. Sundresh expressed that adopting a meticulous and excessively technical perspective will undermine the fundamental principles of consumerism. The court expressed that the Consumer Protection Act possesses a commendable goal, and the legislation enacted in 2019 enables consumers to access dispute resolution forums through a highly adaptable mechanism. The primary objective of this initiative is to foster consumerism in the nation. Any technical method employed in interpreting the provisions against the customer would undermine the enactment’s underlying goal.

In the case of N.N. Global Mercantile Private Limited v. M/s. Indo Unique Flame Ltd. &Ors., the Supreme Court has established that failing to register and stamp an arbitration clause within a contract result in its unenforceability.

The Supreme Court, in the matter of Mansarovar Commercial Pvt Ltd v. Commissioner of Income Tax, Delhi, has pronounced that the determination of tax jurisdiction is contingent upon the geographical location where the control and management of a company’s operations are being carried out, rather than the place of registration of the company as per the provisions of the Income Tax Act, 1961.

New Ministry of Corporate Affairs Policy

• A new policy from the Ministry of Corporate Affairs (MCA) mandates that regulators carry out comprehensive reviews of current regulations and rules as well as pre-legislative discussions.
• The goal of the policy is to improve rule establishing workflow effectiveness, involvement of stakeholders, and transparency.
• This was first implemented on January 1, 2024, with retroactive consequences.
• The policy will be applicable to a number of laws covered by the MCA, such as the Companies Act of 2013, The Insolvency and Bankruptcy Code of 2016, and the Limited Liability Partnership Act of 2008.
• The MCA has previously held consultations with the public before enacting new primary legislation or amending existing ones. Nevertheless, not all authorities used this strategy continuously.
• While most authorities, such as India’s Competition Commission, chose not to interact with the business community prior to the latest modifications to the Competition Act, other lawmakers, such as India’s Insolvency and Bankruptcy Board, have implemented discussion practices.
• The updated policy, which relies on suggestions by the legislative branch and the guidelines presented in the budget address for 2023-2024, attempts to standardize consultative procedures and eliminate any gaps.
• Authorities are required to finish a comprehensive examination of the present laws by the conclusion of the 2024-2025 fiscal years.
• Analyzing shareholder and regulatory body suggestions will be part of this evaluation, which aims to streamline compliance by doing away with complicated procedures.
• The ministry seeks to fulfil the needs of the contemporary financial environment, provide a strong framework for regulation, and establish a more welcoming and accommodating regulatory framework by offering clear rules for consultation and thorough assessment.

Conclusion

In conclusion, the regulatory review of corporate law is very important in nature. The companies have to always be in compliance and be updated about all the regulatory review of corporate law that takes place. These regulatory reviews of corporate laws play a vital role in establishing the transparency in the country. Corpbiz experts can provide guidance and assistance to you and your company in all the stages and ensure that all the compliances are in place.

Frequently Asked Questions (FAQs)

Read Our Article: Corporate Identification Number Or CIN In India