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INTRODUCTION
This newsletter covers key updates in Indian laws for the month
of August 2021 relating to company law, securities laws, and
foreign exchange laws. In particular, we have covered:
(1) Companies law: The Limited Liability Partnership (Amendment)
Act, 2021.
(2) Securities law: (a) Amendments to disclosure regime under
Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) regulations, 2011 (“Takeover
Code“) and the Securities and Exchange Board of India
(Prohibition of Insider Trading) Regulations, 2015
(“PIT Regulations“); and (b) Securities
and Exchange Board of India (“SEBI“)
amendments in regulations regarding Real Estate Investment Trusts
(“REITs“) and Infrastructure Investment
Trusts (“InvITs“).
(3) Foreign Exchange Laws: (a) Press Note 3 of 2021 by the
Department for Promotion of Industrial and Internal Trade
(“DIPP”) on foreign direct investment in
petroleum and natural gas public sector units
(“PSUs“), (b) Draft Foreign Exchange
Management (Non-debt Instruments – Overseas Investment) Rules, 2021
(“Overseas Investment Rules“); and (c)
Draft Foreign Exchange Management (Overseas Investment)
Regulations, 2021 (“Overseas Investment
Regulations“).
(4) Competition Laws: Suo Motu action of the Competition
Commission of India (“CCI“) In Re:
Alleged anti-competitive conduct by Maruti Suzuki India Limited
(“Maruti Suzuki“) in implementing
discount control policy vis-à-vis dealers.
1. COMPANIES LAW
Please see below the summary of the key company law updates for
August 2021
1.1. The Limited Liability Partnership (Amendment) Act,
2021
1.1.1. The Limited Liability Partnership (Amendment) Act, 2021
(“LLP Amendment Act“) received the
President’s assent on 13 August 2021. The following are the key
amendments introduced by the LLP Amendment Act:
(a) The LLP Amendment Act has created a class of LLP called a
“small LLP” in line with the concept of a ‘small
company, and in which the contribution does not exceed INR
2,500,000 (Rupees Two Million Five Hundred Thousand), or such
higher amount, not exceeding INR 50,000,000 (Rupees Fifty Million)
as may be prescribed and the turnover of which for the previous
financial year does not exceed INR 4,000,000 (Rupees Four Million),
or such higher amount, not exceeding INR 500,000,000 (Rupees Five
Hundred Million), as may be prescribed.
(b) The LLP Amendment Act has decriminalized certain minor
offences and introduced amendments so as to convert the offences
into civil defaults and to convert the nature of punishment from
fines to monetary penalties.
(c) The LLP Amendment Act has amended the existing law allowing
a Regional Director to compound any offence which is punishable by
fine only under the Limited Liability Partnership Act, 2008
(“Act”).
(d) The LLP Amendment Act has inserted a new section in the Act,
permitting the central government to establish special courts, as
may be required for the purpose of providing a speedy trial for the
offences under the Act. The LLP Amendment Act also provides for the
powers and the procedure to be followed by these special
courts.
(e) The LLP Amendment Act also provides the central government
with the authority to prescribe the accounting and auditing
standards in consonance with the National Financial Reporting
Authority.
(f) Another key change is the change in the definition of a
‘resident in India’, which has been modified to provide
that any person who is resident in India for 120 (one hundred
twenty) days in the current financial year, may qualify as a
resident in India, and may accordingly be appointed as a designated
partner in an LLP. Under the earlier law, a person resident in
India for 182 (one hundred eighty two) days in the last financial
year would qualify within the definition of a ‘person resident
in India’.
1.1.2. The primary objectives of the LLP Amendment Act are to
incentivise conversion of partnership firms into limited liability
partnerships and to decriminalise certain offences so as to reduce
criminal prosecutions for minor omissions in the normal course of
the business transactions of an LLP.
1.1.3. Please click here
to read the amendment act.
2. SECURITIES LAW
Please see below the summary of the key securities law updates
for August 2021.
2.1. Amendments to the disclosure regime under Takeover
Code and PIT Regulations
2.1.1. SEBI vide notification dated 13 August 2021, has made
amendments to the Takeover Code which shall come into force from 1
April 2022. SEBI has relaxed certain disclosure obligations on the
acquirers / promoters pertaining to the acquisition or disposal of
shares aggregating to 5{e421c4d081ed1e1efd2d9b9e397159b409f6f1af1639f2363bfecd2822ec732a} (five percent) and any change of 2{e421c4d081ed1e1efd2d9b9e397159b409f6f1af1639f2363bfecd2822ec732a} (two
percent) thereafter. Further, SEBI has also relaxed the annual
shareholding disclosure requirements and the requirements in
relation to disclosure of the creation/invocation/release of any
encumbrance that are registered in depository systems. These
relaxations have been given on account of the implementation of the
system driven disclosures whereby such information will be readily
available with the stock exchanges.
2.1.2. Please click
here to read the notification.
2.1.3. SEBI vide circular dated 13 August 2021 relaxed the
regulatory provisions under the PIT Regulations. As per the
circular, listed companies which have complied with requirements of
the circular dated 9 September 2020 related to the implementation
of mechanism of system driven disclosures, will no longer need to
continue with the manual filing of disclosures as required under
Regulation 7(2) (a) & (b) of PIT Regulations.
2.1.4. Please click
here to read the circular.
2.2. SEBI amendments relating to REITs and
InvITs
2.2.1. SEBI vide notifications dated 30 July 2021 has made
amendments to the Securities and Exchange Board of India (Real
Estate Investment Trusts) Regulations, 2014 Securities and Exchange
Board of India (Infrastructure Investment Trusts) Regulations,
2014, wherein the provisions related to minimum application value
and trading lots for REITs and InvITs have been amended. The
minimum application value shall now be in the range of INR 10,000
(Rupees Ten Thousand) and INR 15,000 (Rupees Fifteen Thousand) and
the minimum trading lots for REITs and InvITs will be of 1 (one)
unit.
2.2.2. Please click
here and
here to read the notifications.
2.2.3. Further, SEBI vide circular dated 4 August 2021 has
clarified that registered unlisted InvITs which have already issued
units as of the date of the circular, shall be required to comply
with the amended provisions of SEBI (Infrastructure Investment
Trusts) Regulations, 2014 within a period of 6 (six) months from
the date of the circular.
2.2.4. Please click
here to read the circular.
3. FOREIGN EXCHANGE LAWS
Please see below the summary of the key foreign exchange law
updates for August 2021.
3.1. Press Note 3 of 2021 by DIPP on foreign direct
investment (“FDI”) in petroleum and natural gas
PSUs
3.1.1. The DIIP has released a press note on 29 August 2021
amending the consolidated FDI policy circular of 2020 in relation
to the permitted levels of FDI in petroleum and natural gas
PSUs.
3.1.2. Pursuant to the press note, the levels of permitted
foreign investment under the automatic route has been increased
from 49{e421c4d081ed1e1efd2d9b9e397159b409f6f1af1639f2363bfecd2822ec732a} (forty nine percent) to 100{e421c4d081ed1e1efd2d9b9e397159b409f6f1af1639f2363bfecd2822ec732a} (one hundred percent), if the
concerned PSU is operating in the petroleum and natural gas sector,
and has received an ‘in-principle’ approval for strategic
disinvestment.from the central government This has been done
primarily to aid the privatization of Bharat Petroleum Corporation
Limited, and the sale of the government’s 53{e421c4d081ed1e1efd2d9b9e397159b409f6f1af1639f2363bfecd2822ec732a} (fifty three
percent) stake in the company.
3.1.3. Please click here
to read the press note.
3.2. Draft Foreign Exchange Management (Non-debt
Instruments – Overseas Investment) Rules, 2021
3.2.1. The Reserve Bank of India through notification dated 9
August 2021 has issued the Overseas Investment Rules governing
overseas investment in equity and acquisition and transfer of
immovable property outside India by persons resident in India. The
acquisition and transfer of immovable properties outside India by
persons resident India is presently governed under Foreign Exchange
Management (Acquisition and Transfer of Immovable Property Outside
India) Regulations, 2015 and overseas investments are governed
under the Foreign Exchange Management (Transfer or Issue of Any
Foreign Securities) Regulations, 2004 (“ODI
Regulations“). Overseas Investment Rules were open
for public comments till 23 August 2021 and are proposed to be
finalised after public consultation. The Overseas Investment Rules
are not applicable to any investment made outside India by a unit
set up in an International Financial Services Centre
(“IFSC“).
3.2.2. Under the Overseas Investment Rules, acquisition of
immovable property by individuals is now permitted through the
purchases out of remittances sent under the Liberalized Remittance
Scheme (“LRS”) and out of income or assets outside India
(other than overseas direct investments
(“ODI“)). Under the current regime,
acquisition of immovable property by individuals is permitted by
way of gift, and inheritance or acquisition by way of purchase from
foreign exchange held in resident foreign currency account or joint
acquisition with a relative who is a person resident outside India,
provided there is no outflow of funds from India.
3.2.3. In relation to transfer of immovable property outside
India, a person reason resident in India is required to obtain a
general or specific permission from RBI under the current regime
for such transfer. Under Overseas Investment Rules, transfer of
immovable property by a person resident in India is permitted by
way of (a) gift to a person resident in India; (b) inheritance to
an individual; or (c) sale.
3.2.4. In relation to transfer of foreign securities, the ODI
Regulations permits transfer by way of pledge for obtaining fund
based or non-fund based facilities in India from an authorised
dealer or by way of sale of shares of a joint venture or wholly
owned subsidiary to another Indian party. Under the Overseas
Investment Rules, a person resident in India holding equity capital
may transfer such investment by way of sale to another person
resident in India or a person resident outside India. In case of
transfer on account of merger, amalgamation or demergers or buyback
or liquidation, the transfer is required to be approved by the
competent authority as per Indian laws or the laws of the host
country.
3.2.5. In case the person resident in India, making any
financial commitment or undertaking disinvestment, has an account
appearing as a special mention account or a non-performing asset or
is a wilful defaulter or if such person is under investigation by
any regulatory authority, then such person is required to obtain a
no-objection certificate as per the Overseas Investment Rules from
the concerned lender bank or regulatory body or investigative
agency for making any financial commitment or undertaking
disinvestment.
3.2.6. For restructuring, under the ODI Regulations, a listed
Indian party, who has set up a wholly owned subsidiary abroad or
have at least 51{e421c4d081ed1e1efd2d9b9e397159b409f6f1af1639f2363bfecd2822ec732a} (fifty one percent) stake in an overseas joint
venture, is permitted to write off capital and other receivables,
such as loans and royalty, in respect of the joint venture or the
wholly owned subsidiary up to 25{e421c4d081ed1e1efd2d9b9e397159b409f6f1af1639f2363bfecd2822ec732a} (twenty five percent) of the
equity investment. Under the Overseas Investment Rules, Indian
entity which has made an ODI may be permitted for restructuring of
the balance sheet by the foreign entity for the previous 2 (two)
years subject to ensuring compliance with reporting and
documentation requirement. Further, the diminution in the total
value of the outstanding dues towards the Indian entity, after such
restructuring, should not exceed the proportionate amount of
accumulated losses
3.2.7. The ODI Regulations prohibits an Indian party i.e., a
company or a partnership or a limited liability partnership
incorporated or registered under the applicable Indian laws, from
making any direct investment in foreign entity engaged in real
estate business or banking business. The Overseas Investment Rules
further extends these restrictions. As per the Overseas Investment
Rules a person resident in India is restricted from making any ODI
in a foreign entity engaged in (a) real estate activity; (b)
gambling in any form; and (c) offering financial products linked to
Indian Rupee except for products offered in an IFSC. Other general
restrictions under Overseas Investment Rules include (a)
restriction from making overseas investment in Financial Action
Task Force and International Organization of Securities Commission
non-compliant jurisdictions; (b) financial commitment by a person
resident in India in a foreign entity that has invested or invests
in India where such financial commitment is designed for the
purpose of tax evasion or tax avoidance by such person.
3.2.8. The Overseas Investment Rules also prescribes for a new
pricing guideline. Under the new framework, for issue or transfer
of equity capital from a person resident outside India to a person
resident in India, if the securities are listed then the price
should be as worked out in accordance with the concerned stock
exchange. In other cases, the price should be with 5{e421c4d081ed1e1efd2d9b9e397159b409f6f1af1639f2363bfecd2822ec732a} (five
percent) range of the fair value arrived on an arm’s length
basis as per any internationally accepted pricing methodology.
3.2.9. Please click here
to read the Overseas Investment Rules.
3.3. Draft Foreign Exchange Management (Overseas
Investment) Regulations, 2021
3.3.1. The Reserve Bank of India through notification dated 9
August 2021 has issued the Overseas Investment Regulations with the
aim to promote ease of doing business. Overseas investments are
presently covered under the ODI Regulations. The Overseas
Investment Regulations deals with overseas financial commitments by
modes other than equity capital and introduces the concept of
deferred payment. The Overseas Investment Regulations were open for
public comments till 23 August 2021 and are proposed to be
finalised after public consultation.
3.3.2. As per the ODI Regulations, overseas financial
commitments, other than by means of equity capital, can be made by
creation of charge, by way of pledge, on the shares of the joint
venture or step-down subsidiary outside India. In addition to the
existing modes, the Overseas Investment Regulations prescribes that
financial commitments, which are not made by means of equity
capital, can be made by way of (a) loan which is backed by a loan
agreement; (b) issuing guarantee to or on behalf of the foreign
entity or its step-down subsidiary in which the Indian entity has
acquired control; and (c) pledge in favour of an AD Bank or a
public financial institution in India or an overseas lender or by
creating charge by way of mortgage or hypothecation of assets in or
outside India.
3.3.3. The Overseas Investment Regulations also prescribes that
for ODI through investment in equity capital in the foreign entity
and control over such entity are pre-requisites for making any
financial commitment by modes other than equity capital in such
foreign entity.
3.3.4. The Overseas Investment Regulations introduces the
concept of deferred payment, according to which, foreign securities
equivalent to the amount of total consideration shall be
transferred or issued, as the case may be, upfront by the seller to
the buyer, subject to pricing guidelines and indemnification
outlined in Foreign Exchange Management (Guarantee) Regulations,
2000.
3.3.5. The Overseas Investment Regulations also prescribes
reporting requirements for overseas investments which includes
reporting by (a) person resident in India for any financial
commitments or disinvestments; (b) person resident in India for
making any overseas portfolio investment or transferring such
investment by way of sale; (c) submitting annual performance
report; and (d) submitting annual return on foreign liabilities and
assets. Overseas Investment Regulations prescribes restriction on
further financial commitments, directly or indirectly, towards the
concerned foreign entity or transfer of such investment until delay
in reporting, if any, is regularised.
3.3.6. Please click here
to read the Overseas Investment Regulations.
4. COMPETITION LAWS
Please see below the summary of the key competition law updates
for August 2021.
4.1. Suo Motu action of CCI in Re: Alleged
anti-competitive conduct by Maruti Suzuki India Limited in
implementing discount control policy vis-à-vis
dealers
4.1.1. In an order published on 23 August 2021, the CCI has
imposed a penalty on Maruti Suzuki to the tune of INR 2,000,000,000
(Indian Rupees two billion) for restricting and controlling the
discounts offered by its dealers to the end consumers.
4.1.2. The CCI has taken the suo motu action based on an
anonymous email and has observed that the discount control policy
of Maruti Suzuki is an agreement amongst enterprises engaged at
different stages or levels of production chain in different markets
which puts a restriction on resale price. Such an agreement is
anti-competitive in nature and is strictly prohibited under the
provisions of Competition Act, 2002.
4.1.3. The CCI rejected contentions of Maruti Suzuki in relation
to absence of a formal agreement for implementation of the discount
control policy of Maruti Suzuki and that such discount control
policy is a measure by the dealers to police themselves and Maruti
Suzuki is merely a third party
4.1.4. The CCI concluded that the conduct of Maruti Suzuki has
caused an appreciable adverse effect on competition. Therefore, in
addition to the imposition of penalty, the CCI further ordered
Maruti Suzuki to cease and desist from indulging in such
anti-competitive practice.
4.1.5. Please click here
to read the CCI Order.
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