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The Force Majeure Clause is not a Free-for-All Protection

The impact of COVID-19 on domestic and international industries is severe, across all sectors. There are several legal issues that a company must face during the COVID-19 outbreak. One such legal issue is the occurrence of a force majeure event. A force majeure claim may protect a party from liability for its failure to perform its contractual obligation(s).

Manual for Procurement of Goods 2017 – Office Memorandum dated 19 February 2020

The Ministry of Finance (Department of Expenditure), vide its office memorandum (No. F.18/4/2020-PPD dated 19 February 2020), clarified that disruption of supply chains due to the spread of Coronavirus in China or any other country will be covered under the Force Majeure Clause (as defined in the Manual for Procurement of Goods, 2017).

Para 9.7.7 of the Manual for Procurement of Goods 2017 states the following with regard to the ‘Force Majeure Clause’:

  1. Force majeure is an extraordinary event/circumstance that is beyond human control and has been described as an act of God, natural disasters, war, strikes, riots, crimes (but it does not include negligence or wrong-doing, predictable/seasonal rain or any other event specifically excluded in the clause).
  2. Such a clause in the contract frees both parties from liability when prevented by such event from fulfilling their contractual obligations.
  3. A Force majeure clause is not an excuse for the parties’ non-performance entirely, and only suspends it for the duration of the force majeure event.
  4. If a force majeure clause is triggered, a notice of force majeure should be given to the other party as soon as such event occurs. Protection cannot be claimed ex-post facto.
  5. Where a force majeure event affects only the purchase organization, the purchase organization is to communicate with the supplier along similar lines as above for further necessary action.
  6. If the performance of the contract is prevented or delayed as a whole or in part for a period exceeding 90 days, either party may terminate the contract without any financial repercussion on either side.

This Office Memorandum essentially suggests that COVID-19 could be construed as a natural calamity which would excuse non-performance of contractual obligations, although certain prescribed procedural safeguards must be followed by the party seeking to invoke the clause.

However, it must be noted that the office memorandum does, to a large extent, over-simplify the grounds on which force majeure protection can be claimed by a party. Further, this office memorandum does not automatically assure the success of a party invoking such a claim, even on the grounds of COVID-19.

To appreciate the nuances relating to Force Majeure, it is important to understand the jurisprudence of the concept under the Indian Contract Act, 1872.

What is Force Majeure?

Force majeure is a French expression which translates, literally, to “superior force”.

In the context of law and business, the Merriam Webster dictionary states that force majeure usually refers to “those uncontrollable events (such as war, labor stoppages, or extreme weather) that are not the fault of any party and that make it difficult or impossible to carry out normal business. A company may insert a force majeure clause into a contract to absolve itself from liability in the event it cannot fulfill the terms of a contract (or if attempting to do so will result in loss or damage of goods) for reasons beyond its control”[1].

Black’s Law Dictionary defines Force Majeure as follows, “In the law of insurance, superior or irresistible force. Such clause is common in construction contracts to protect the parties in the event a part of the contract cannot be performed due to causes which are outside the control of the parties and could not be avoided by exercise of due care… Typically, such clauses specifically indicate problems beyond the reasonable control of the lessee that will excuse performance.”[2]

In India, it is often referred to as an “act of God”. However, the term “force majeure” has not been defined in any Indian statute. Various courts have, over time, held that the term force majeure covers not merely acts of God, but may include acts of humans as well.

The concept of Force Majeure is straightforward – in every contract in which parties undertake to fulfill obligations in the future (called an “executory contract”), the failure to perform such obligations will give the aggrieved party the right to claim damages from the defaulting party. However, if such failure to perform is due to events beyond the defaulting party’s control, then the defaulting party must not be held liable. The force majeure clause, therefore, allows one or more parties to a contract to avoid, suspend or postpone its performance, in whole or in part, on account of events beyond their control. The devil, as always, lies in the details.

Impossibility v. Frustration

The term “Force Majeure” is based on the concept of the Doctrine of Frustration under the Indian Contract Act, 1872 (particularly Sections 32 and 56, discussed in greater detail below); and has been developed through decades of judicial interpretation. The law uses the term “impossible” while discussing the frustration of a contract, i.e., a contract which becomes impossible has been frustrated. In this context, “impossibility” refers to an unexpected subsequent event or change of circumstance which fundamentally strikes at the root of the contract. This is construed in a practical, and not a literal, sense.

In a large body of cases, including Alopi Parshad and Sons Ltd vs Union of India, AIR 1960 SC 588 and the landmark Energy Watchdog and Ors. Vs. Central Electricity Regulatory Commission and Ors (2017) – 2017 3 AWC 2692 SC, the Supreme Court of India has categorically stated that mere commercial onerousness, hardship, material loss, or inconvenience cannot constitute frustration of a contract.

Furthermore, if it remains possible to fulfill the contract through alternate means, then a mere intervening difficulty will not constitute frustration. It is only in the absence of such alternate means that the contract may be considered frustrated.

Force Majeure under Indian Law

The two key sections of the Indian Contract Act, 1872 which are relevant for this discussion are:

Section 32 (Enforcement of contracts contingent on an event happening), which states that “Contingent contracts to do or not to do anything if an uncertain future event happens, cannot be enforced by law unless and until that event has happened…”

The impossibility of a performing a contract under Section 32 may arise not only due to a force majeure event but also due to the non-occurrence of any underlying condition in the contract. For instance, illustration (b) of Section 32 under the Contract Act states: “A makes a contract with B to sell a horse to B at a specified price, if C, to whom the horse has been offered, refuses to buy him. The contract cannot be enforced by law unless and until C refuses to buy the horse”.

In Energy Watchdog and Ors. Vs. Central Electricity Regulatory Commission and Ors (2017) – 2017 3 AWC 2692 SC (paragraph 34), the Supreme Court observed, “where the Court finds that the contract itself either impliedly or expressly contains a term, according to which performance would stand discharged under certain circumstances, the dissolution of the contract would take place under the terms of the contract itself and such cases would be dealt with under Section 32 of the Act. If, however, frustration is to take place de hors the contract, it will be governed by Section 56.”

Section 56 (Agreement to do impossible act) states that “a contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.”

It must be noted that for a contract to be frustrated under Section 56, it is the performance of contractual obligations that must become unlawful/impossible, not the ability to enjoy benefits under the contract.

Section 56 will govern frustration of contract where the such frustration is not contemplated in the contract itself. In the absence of a force majeure clause in the contract, it must be shown by the party seeking protection that it has become impossible for such party to perform its contractual obligations, and that the intent of the parties in entering into the agreement has been so entirely frustrated, that the contract’s fundamentals have irreversibly changed. In such a case, the parties can seek to invoke section 56 of the Indian Contracts Act.

If Section 56 applies to a contract, then parties will be discharged from their obligation to perform a part of the contract, or the entirety of the contract.

The Supreme Court in Boothalinga Agencies v. V.T.C. Poriaswami Nadar (1968) [AIR 1969 SC 110] observed that, “The doctrine of frustration of contract is really an aspect or part of the law of discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done and hence comes within the purview of Section 56 of the Indian Contract Act. It should be noticed that Section 56 lays down a rule of positive law and does not leave the matter to be determined according to the intention of the parties.” The Court continued and stated that while the English Law treated frustration of contracts as a question of construction; depending upon the true intention of the parties, the Indian Contract Act lays it down a positive rule of law.

The Supreme Court in Energy Watchdog and Ors. Vs. Central Electricity Regulatory Commission and Ors (2017)2017 3 AWC 2692 SC lent further insight into interpreting a Force Majeure situation:

  • Events beyond the reasonable control of one party should not render that party liable under a contract for performance, if that event prevents the party’s performance;

  • The language of the agreement relating to duty to mitigate, best efforts, prudent man obligations to nevertheless perform etc., will all be taken into consideration in understanding the parties’ intent;

  • Force majeure events must be unforeseeable by both parties;

  • The requirement to put the other party on notice must be met with if the contract provides for notice requirements; and

  • Burden of proof rests with the party relying on the defense of force majeure for its inability to perform the obligation.

Express Exclusions

It is crucial to note that where events or circumstances are expressly excluded from the definition of force majeure under a contract, there can be no frustration on the occurrence of such an event (Satyabrata Ghose vs. Mugneeram Bangur et.al., AIR 1954 SC 44).

Therefore, the definition of “Force Majeure” under a contract becomes critical.

Consequence of Force Majeure

Most commercial agreements contain a clause on force majeure, which provides protection to the parties to the agreement, against claims and liabilities arising out of non-performance or breach of the contract due to certain specified force majeure events.

If the force majeure clause in an agreement contains specific consequences, then it is those consequences that will apply, irrespective of the provisions of Section 32/Section 56. If no alternate consequence is provided for under the agreement, then the provisions of Section 32/56 will apply. Therefore, it becomes pertinent to carefully consider the language of the force majeure clause in the contract in question.

Temporary Suspension of Contract

The texts of Section 32 and Section 56 do not explicitly contemplate a situation where the contract remains valid although a party’s obligations are suspended or postponed due to force majeure.

Although Section 56, illustration (e), does discuss a situation of partial discharge of a contract, it may not be wise to place too much reliance on it, as the Supreme Court in Satyabrata Ghose vs. Mugneeram Bangur et.al., AIR 1954 SC 44 has noted that the illustrations to Section 56 are flawed in their wordings and, “cannot derogate from the general words used in the enactment”.

Additionally, Section 56 illustration (e) only envisages the partial discharge of a severable contract and does not envisage a temporary suspension of obligations under a contract.

There are no precedents for this concept and the manner in which various courts will interpret this aspect remains to be seen.

However, nothing prevents parties from contractually agreeing that the occurrence of certain events shall only cause temporary/partial suspension of obligations under a contract.

Burden of Proof

The onus of proving the existence of a force majeure event lies on the party claiming benefit under it. This includes the burden of proving that the non-performance was caused due to force majeure, that steps were taken to mitigate the loss, that the procedural requirements (if any) under the contract were observed etc.

Once the existence of a force majeure is proved, the burden of proving the existence of alternate means of fulfilling the contract will fall on the counterparty/counterparties.

The Court will, of course, carry out its own examinations to arrive at its conclusion.

Force Majeure in the time of COVID

COVID-19 may, at most, constitute a temporary impossibility in the fulfillment of a contract.

If time is of the essence in a contract, COVID-19 may result in the contract being frustrated. However, this is purely a question of fact and depends on the specific circumstances of each case. In all other contracts, unless COVID-19 renders a contract impossible, the obligations continue to persist.

Whether or not a Force Majeure clause, which permits temporary suspension of obligations, covers the COVID pandemic is a question of interpretation. The terms “pandemic” or “epidemic” may be expressly defined as forming part of Force Majeure, or it may be possible to argue that such terms are included by implication. However, if the clause expressly excludes such events, then COVID-19 will not constitute a force majeure event.

Therefore, the applicability of Force Majeure protection to COVID is a question of fact and interpretation and has no direct precedent in Indian jurisprudence.

[1] https://www.merriam-webster.com/dictionary/force%20majeure
[2] https://blacks_law.enacademic.com/11167/force_majeure

Further Relaxations under Customs and GST Laws due to the COVID -19 Outbreak

The Government of India has announced various additional relaxations for taxpayers under Customs Law and Goods and Services Tax (GST) in order to overcome the unprecedented hardships caused by the COVID-19 outbreak. In order to ensure smooth facilitation of trade, some practical difficulties have also been eased by way of circulars issued under Customs and GST law. (See also our earlier posts on relaxations under the Foreign Trade Policy, Customs laws, and GST)

We have summarised key takeaways from recent circulars below.

1. Acceptance of an undertaking in lieu of bonds: Circular No. 17/2020-Customs dated 3 April 2020

  • CBIC has clarified that an undertaking can be submitted in lieu of the bonds required to be filed for various purposes (such as provisional assessment, warehousing of goods etc.) under the Customs Act, 1962 (‘Customs Act’). This relaxation will apply to Government/public sector undertakings, manufacturer/actual user importer, authorised economic operators, status holder, and importers availing warehouse facilities. The aforesaid relaxation is applicable till 30 April 2020, upon fulfilment of prescribed conditions which, inter alia, include the following:

  • The undertaking has to be on the letterhead of the Importer Exporter Code (‘IEC’) holder, duly signed and submitted vide registered email ID of the IEC holder/their authorised customs broker.

  • The IEC holder must undertake to submit the proper bond in the prescribed format on notarised stamp paper on or before 7 May 2020.

  • This undertaking will not substitute the requirement of security prescribed under Customs Act, and the authorities may require some security to be furnished in specific cases.

2. Clearance of imports under Trade Agreements without original signed copy of Certificate of Origin (‘COO’): Trade Notice No. 59/2019-20 dated 28 March 2020, 62/2019-20 dated 6 April 2020 and Circular No. 18/2020-Customs dated 11 April 2020

  • The trade notices issued by DGFT and the customs circular prescribe as follows:

  • The original signed copy of the COO will be issued retrospectively, after the concerned Indian agencies resume operations post removal of lockdown.

  • Online applications for COO will be processed and a digitally signed copy will be provided to the applicant. However, the original signed copy of the COO will only be issued after the authorised agencies resume operation.

  • Fee of INR 600 will be payable for all COOs irrespective of whether they are retrospective or not.

  • The competent authorities of the countries with whom India has a trade agreement have been requested to accept the digitally signed COOs, and to provisionally clear the consignments at the preferential rate of duty until the circumstances on account of the COVID 19 pandemic normalise. Such provisional clearance may be allowed subject to execution of an undertaking or a bond.

  • Customs authorities have also been instructed to provisionally assess and clear import consignments on the basis of digitally signed copy or an unsigned copy of COO. The assessment will attain finality upon submission of the original COO by the importer. The provisional assessment and clearance may be subject to execution of an undertaking or a bond.

3. Electronic Communication of PDF based gate pass (‘e-Gate pass’) and electronic Out of Charge copy of Bill of Entry (‘e-OoC copy of BoE’) to custom brokers/ importers: Circular No. 19/2020-Customs dated 13 April 2020

In order to facilitate and expedite customs clearance and to make it more contactless, CBIC has decided to enable electronic communication of PDF based e-OoC copy of BoE and e-Gate pass to the importers/ customs brokers w.e.f. 15 April 2020. All custodians are required to register themselves on ICEGATE to ensure that the potential benefits can be availed across the Customs ecosystem.

4. Manner of Continuation of Merchandise Exports from India Scheme (‘MEIS’) for shipments exported on or after 01 April 2020 and Introduction of the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme: Trade Notice no. 3/2020-21 dated 15 April 2020

The RoDTEP scheme has been approved by the Cabinet and will replace the existing MEIS scheme. Further, in view of the extension of FTP 2015-20 till 31 March 2021, the benefits for goods listed in MEIS schedule has been extended till 31 December 2020. It has also been clarified that as and when any goods from MEIS schedule are notified under RoDTEP, the same will no longer be eligible for benefit under MEIS. Detailed operational framework of RoDTEP will be separately notified.

5. Special refund and drawback disposal drive: Instruction No. 03/2020-Customs dated 9 April 2020

CBIC has instructed the concerned officers to expedite processing of all pending Customs refund and drawback claims. This special drive shall be effective till 30 April 2020, and shall be applicable to all refund and drawback claims pending for disposal as on 07 April 2020.

6. Clarification in respect of certain challenges faced by registered persons in the implementation of provisions of GST Law: Circular No. 137/07/2020-GST dated 13 April 2020

  • Advances received under a service contract which is cancelled subsequently: CBIC has clarified that those service contracts in respect of which advance payment was received but such contract subsequently got cancelled, and the taxpayer has issued invoice as well as deposited tax on such contracts, a credit note will have to be issued for adjustment of tax by declaring such credit note in the GST return for the month during which it was issued. However, in case there is no output liability against which a credit note can be adjusted, refund of tax paid can be claimed under “Excess payment of tax, if any”. Similarly, in cases where a receipt voucher was issued on receipt of advance, a refund voucher will have to be issued and refund application for such GST paid on advance can be filed in FORM GST RFD-01 under the category “Refund of excess payment of tax”.

  • Goods supplied under an invoice which is subsequently returned: A credit note will have to be issued for adjustment of tax by declaring the same in the return for the month during which such credit note was issued. However, in case there is no output liability against which a credit note can be adjusted, refund of tax paid can be claimed under “Excess payment of tax, if any”.

  • Time limit for filing of Letter of Undertaking (‘LUT’) for the financial year 2020-21: The time limit for filing the LUT in respect of exports to be made after 1 April 2020 has been extended till 30 June 2020. It has been further clarified that exporters may continue to export without payment of IGST under the existing LUT pertaining to financial year 2019-20.

  • Due date for furnishing FORM GSTR-7 (TDS statement): Tax deducted for period from 20 March 2020 to 29 June 2020 can be deposited till 30 June 2020. Further, no interest will be leviable if such tax deducted is deposited by 30 June 2020.

  • Due date for filing a refund claim: Application for submission of refund claims due to be filed by 31 March 2020, is extended till 30 June 2020.

Filings under section 124 and 125 of the Companies Act, 2013

Considering the present situation around COVID-19 the stakeholders have indicated various difficulties relating to transfer of money remaining unpaid or unclaimed for a period of seven years. In view of the issues, the MCA has directed the stakeholders towards the circular number 11/2020 dated March 24, 2020 and circular number 12/2020 dated March 30, 2020 granting relaxation on delayed filing without payment of additional fees till September 30, 2020 and the same also includes the relaxations applicable to filing of various IEPF eForms viz. IEPF-1, IEPF-1A, IEPF-2, IEPF-3, IEPF-4, IEPF-5 and IEPF-7. Therefore, the MCA has asked the stakeholders to plan other concomitant actions accordingly.

Click to access the circular.

MCA clarification on passing of special and ordinary resolutions by companies under the provisions of Companies Act, 2013 and the rules made thereunder on account of the threat posed by COVID-19.

Further to the MCA circular dated April 08, 2020 issued in relation to passing of special and ordinary resolutions by companies under the provisions of Companies Act, 2013, the MCA is in receipt of representations from various stakeholders. Representations indicate the difficulties faced by them in the present circumstances, in serving and receiving the notices/responses by post. Considering the same and to give more clarity in terms of holding of EGM’s during the Covid 19 related social distancing norms and the lockdown for the period as indicated in the April 08, 2020 circular, or till such further orders, whichever is earlier, MCA has issued following clarifications:

  1. Considering the present circumstances, as per the provisions of rule 18 of the Companies (Management and Administration) Rules, 2014, the notice to the members may be given only via emails at the email id’s registered with the company or with the depository participant/depository.
  2. Companies which are required to provide the facility of e-voting, are required to observe the following while publishing the public notice as per rule 20(4)(v) of the Companies (Management and Administration) Rules, 2014:
  • A statement that the EGM has been convened through VC or OAVM;
  • Date and time of the EGM;
  • Availability of notice on the website of the company and the stock exchange;
  • Manner in which the members holding physical shares and who have not registered their email id’s may cast their vote through remote e-voting or through the e-voting system during the meeting;
  • The manner in which the members can register their email id’s with the company; and
  • Any other detail considered necessary by the company.

3. Chairman of the company must make sure that the company has made all efforts feasible under the present circumstances to enable the members to participate and vote at the meeting.

4. Companies which are not required to provide e-voting facility are also allowed to give notice to the members only via emails at the email id’s registered with the company or with the depository participant/depository. In addition to this, such companies are required to observe the following:

  • Upload the notice on the company website;
  • Contact all the members whose email id’s are not registered with the company and inform them about the meeting and also request them to register their email id’s so that the company can send notice;
  • In absence of contact details of the members, the company must give a public notice and include the details of the meetings and request the members to contact the company to register their contact details and email id with the company;

Please refer to the MCA circular no. 17/2020 dated April 13, 2020 for more details.

COVID-19 related Frequently Asked Questions (FAQs) on Corporate Social Responsibility (CSR)

Further to the clarification issued by the Ministry of Corporate Affairs (MCA) on contributions to PM CARES fund as eligible CSR activity under item number viii of Schedule VII of Companies Act, 2013 the MCA has received several representations from various stakeholders seeking clarification on eligibility of CSR expenditure related to COVID-19 activities. As a consolidated response to all the representations, the MCA has released a set of FAQ’s along with clarifications for better understanding of the stakeholders on CSR expenditure related to COVID-19 activities.

Whether contribution made to ‘PM CARES Fund’ shall qualify as CSR expenditure?

MCA: Contribution made to ‘PM CARES Fund’ shall qualify as CSR expenditure under item no (viii) of Schedule VII of the Companies Act, 2013 and it has been further clarified vide office memorandum F. No. CSR-05/1/2020-CSR-MCA dated 28th March, 2020.

Whether contribution made to ‘Chief Minister’s Relief Funds’ or ‘State Relief Fund for COVID-19’ shall qualify as CSR expenditure?

MCA: ‘Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-19’ is not included in Schedule VII of the Companies Act, 2013 and therefore any contribution to such funds shall not qualify as admissible CSR expenditure.

Whether contribution made to State Disaster Management Authority shall qualify as CSR expenditure?

MCA: Contribution made to State Disaster Management Authority to combat COVID-19 shall qualify as CSR expenditure under item no (xii) of Schedule VII of the 2013 and clarified vide general circular No. 10/2020 dated 23rd March, 2020.

Whether spending of CSR funds for COVID-19 related activities shall qualify as CSR expenditure?

MCA: Ministry vide general circular No. 10/2020 dated 23rd March, 2020 has clarified that spending CSR funds for COVID-19 related activities shall qualify as CSR expenditure. It is further clarified that funds may be spent for various activities related to COVID-19 under items nos. (i) and (xii) of circular No. 21/2014 dated 18.06.2014, items in Schedule VII are broad based and may be interpreted liberally for this purpose.

Whether payment of salary/wages to employees and workers, including contract labour, during the lockdown period can be adjusted against the CSR expenditure of the companies?

MCA: Payment of salary/ wages in normal circumstances is a contractual and statutory obligation of the company. Similarly, payment of salary/ wages to employees and workers even during the lockdown period is a moral obligation of the employers, as they have no alternative source of employment or livelihood during this period. Thus, payment of salary/ wages to employees and workers during the lockdown period (including imposition of other social distancing requirements) shall not qualify as admissible CSR expenditure.

Whether payment of wages made to casual /daily wage workers during the lockdown period can be adjusted against the CSR expenditure of the companies?

MCA: Payment of wages to temporary or casual or daily wage workers during the lockdown period is part of the moral/ humanitarian/ contractual obligations of the company and is applicable to all companies irrespective of whether they have any legal obligation for CSR contribution under section 135 of the Companies Act 2013. Hence, payment of wages to temporary or casual or daily wage workers during the lockdown period shall not count towards CSR expenditure.

Whether payment of ex-gratia to temporary /casual /daily wage workers shall qualify as CSR expenditure?

MCA: If any ex-gratia payment is made to temporary / casual workers/ daily wage workers over and above the disbursement of wages, specifically for the purpose of fighting COVID 19, the same shall be admissible towards CSR expenditure as a onetime exception provided there is an explicit declaration to that effect by the Board of the company, which is duly certified by the statutory auditor.

Relaxation in adherence to prescribed timelines issued by SEBI due to COVID-19

In wake of the current nationwide lockdown of 21 days as directed by Government of India SEBI has considered the requirement to extend the timelines for processing of various investor requests pertaining to physical securities and compliance and disclosures to be made under SEBI Regulations and various SEBI circulars. In the event of further extension in the lockdown period as directed by Government of India / State Governments, additional relaxation in prescribed timelines for equal number of extended days in lock down is also being given to intermediaries / market participants for the following matters:

  • Processing of Remat Requests;
  • Processing of Transmission Requests;
  • Processing of request for Issue of Duplicate Share Certificates;
  • Processing of Requests for Name Deletion/ Name Change/Transposition/ Pending Share Transfers (Re-lodgement cases in the case of share transfers);
  • Processing of Requests for Consolidation / Split / Replacement of Share Certificates / Amalgamation of Folios;
  • Handling Investor Correspondence / Grievances / SCORES complaint;
  • Submission of Half Yearly Report to SEBI pursuant to Circular No. CIR/MIRSD/7/2012 dated July 05, 2012;
  • Compulsory Internal Audit of RTAs by CA / CS / CMA holding Certificate of Practice and Certified Information Systems Auditor (CISA)/ Diploma Information Systems Auditor (DISA) pursuant to Circular dated April 20, 2018, issued by SEBI;
  • Submission of Audit Report by CISA/CISM qualified or equivalent auditor by QRTAs to SEBI along with comments of the Board; pursuant to Circular dated September 08, 2017 issued by SEBI on Cyber Security and Cyber Security Resilience framework for QRTAs
  • Submission of Compliance Report by QRTAs duly reviewed by the Board of Directors of the QRTA to SEBI on Enhanced monitoring ofQRTAs pursuant to Circular dated August 10, 2018 issued by SEBI;
  • Regulation 74(5) of the SEBI (Depositories and Participants) Regulations, 2018 on Manner of surrender of certificate of security; and
  • Regulation 76 of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 on audits.

 

Please refer to the SEBI circular no. SEBI/HO/MIRSD/RTAMB/CIR/P/2020/59 dated April 13, 2020 for more details.

Government of India announces exemption from Customs Duty for certain medical devices

In the wake of COVID-19 outbreak, and to facilitate the fight to contain its spread, the Government has issued a Notification No. 20/2020-Customs dated April 9, 2020, exempting the following medical devices from all customs duty and health cess:

  1. COVID-19 test kits;
  2. Face masks and surgical masks;
  3. Personal Protection Equipment (PPE);
  4. Artificial respiration or other therapeutic respiration apparatus (i.e. ventilators); and
  5. Inputs required in manufacturing such products provided that importer follows the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017.

This exemption will remain effective until 30 September 2020.

Supreme Court orders in favour of free testing for COVID-19

In a petition filed before it as a public interest litigation seeking to make testing for COVID-19 free of cost, the Supreme Court on 8th April 2020 issued interim directions and ordered that:

  1. The tests relating to COVID-19 whether in approved government laboratories or approved private laboratories shall be free of cost and the government shall issue necessary direction in this regard immediately.
  2. The tests relating to COVID-19 must be carried out in National Accreditation Board for Testing and Calibration Laboratories (NABL) accredited labs or any agencies approved by the World Health Organisation (WHO) or Indian Council of Medical Research (ICMR).

The petition was filed under Article 32 of the Constitution of India seeking a direction to be issued to the government of India providing for free testing facilities of COVID-19, both by private laboratories and government laboratories. It further sought that a direction shall be issued providing that all tests for COVID-19 shall be carried out by only those laboratories which are NABL accredited or approved by WHO or ICMR.

Before this order of the Supreme Court, the charges for screening and confirmation of COVID-19 by private laboratories were capped at INR 4500. However, the testing by government laboratories were being conducted for free.

The Supreme Court agreed with the petitioners submission that, in India, despite of the steps and efforts taken by the government the number of patients and deaths due to COVID-19 were increasing rapidly and in this time of national crisis it may not be feasible for a large part of the population to pay for the testing of COVID-19. It further observed that private hospitals and laboratories shall also play their part in containing the scale of the pandemic and do so on humanitarian grounds. The Supreme Court said that it will be decided later whether the private laboratories conducting free COVID-19 tests are entitled for any reimbursement of expenses incurred by them.

The Supreme Court further agreed with the petitioner that the tests for COVID-19 shall only be conducted by NABL accredited laboratories or any agencies approved by ICMR and it issued necessary orders in this regard as mentioned above.

A clarification/modification order to the above mentioned order was passed by the Supreme Court on 13 April 2020, wherein it was, inter alia, stated that:

  1. Free testing for COVID-19 shall be available only to persons eligible under Ayushman Bharat Pradhan Mantri Jan Aarogya Yojana, and any other category of economically weaker sections of the society as may be notified by the Government.
  2. Government of India may consider as to whether any other categories of the weaker sections of the society are also eligible for the benefit of free testing and may issue appropriate guidelines in the above regard.
  3. Private labs can continue to charge the payment for testing of COVID-19 from persons who are able to make payment of testing fee as fixed by ICMR.
  4. The Ministry of Health and Family Welfare may issue necessary guidelines for reimbursement of cost of free testing of COVID-19 undertaken by private labs.

Relaxation pertaining to passing of ordinary and special resolutions by companies on account of the threat posed by COVID-19

In view of the difficulties faced by the stakeholders on account of the threat posed by COVID-19, the Ministry of Corporate Affairs (“MCA”) issued a clarification on 08 April 2020 relating to passing of ordinary and special resolutions at the companies general meetings (“Circular”). The following clarifications have been issued in this regard, to ease the process of convening general meetings and the manner in which the members may cast their votes in such general meeting(s) held on or before 30 June 2020.

Procedure for convening a General Meeting

All decisions of urgent nature requiring members approval (except the items of ordinary business or a business where any person has a right to be heard) shall be taken through postal ballot/e-voting in accordance with the provisions of the Companies Act, 2013 (“Act”) and rules made thereunder, without holding a general meeting, which requires physical presence of the members at a common venue.

However, where holding an extraordinary general meeting (“EGM”) during this time is unavoidable, the following procedure is to be adopted for conducting an EGM on or before 30 June 2020 in addition to the other requirements provided under the Act and rules made thereunder:

For companies that are required to provide the facility of e-voting, or companies which have adopted such a facility:

  1. EGM wherever unavoidable, maybe held through video conferencing (“VC”) or other audio-visual means (“OAVM”) and a recorded transcript shall be maintained in the company’s safe custody. In case of a public company the said transcript shall also be made available on the company’s website, if any;
  2. Before scheduling the meeting, persons positioned in different time zones must be taken into consideration;
  3. Meeting through VC / OAVM facility should allow two-way teleconferencing or WebEx and must have the capacity to allow at least 1000 members to participate on a first-cum-first-served basis. The shareholders holding 2% of more of the share capital of the company, promoters, institutional investors, directors, KMPs, chairpersons of various statutory committees, auditors, etc., may not be subject to the restriction of attending the meeting on first-cum-first served basis. Further, the participants must be allowed to pose questions concurrently or should be given time to submit questions in advance via e-mail;
  4. The facility for joining the meeting shall be open at least 15 minutes prior to the scheduled time of the meeting and shall not be closed till the expiry of 15 minutes after such scheduled time;
  5. The facility of remote e-voting shall be provided prior to the actual date of the meeting and must be in accordance with the provisions of the Act and rules made thereunder;
  6. The quorum shall be reckoned by recording the attendance of the members through VC or OAVM facility;
  7. Voting through e-voting system or by a show of hands shall be allowed only to members who are present in the meeting through VC / OAVM and have not cast their vote on resolution through remote e-voting and are otherwise not barred from doing so;
  8. The chairman for the meeting shall be appointed in the following manner, unless the articles of the company provides for a specific person to be appointed as the chairman for the meeting: (i) Where there are less than 50 members, the chairman shall be appointed in accordance with Section 104 (Chairman of the meeting) of the Act; (ii) In all other cases, he/she shall be appointed by a poll conducted through the e-voting system during the meeting.
  9. The chairman shall ensure that the e-voting facility is available for the purpose of conducting a poll during the VC / OAVM meeting. (i) If there are less than 50 members present at the meeting, voting shall be conducted through e-voting or by show of hands, unless a demand for poll has been made in accordance with Section 109 (Demand for poll), in which case, the voting shall be conducted through the e-voting system; (ii) In all other cases, voting shall be conducted through e-voting system.
  10. The facility for appointment of proxies by members will not be available for such meetings. However, the representative of the members may be appointed for the purpose of voting through remote e-voting facility or for participation and voting in the meeting through VC / OAVM.;
  11. At least 1 auditor or his authorised representative and 1 independent director (where the company is required to appoint one) shall attend such meeting through VC / OAVM.
  12. Institutional investors (if any), must be encouraged to attend and vote in such meetings through VC or OAVM;
  13. Disclosures in the notice for the general meeting shall include: (i) the manner in which the framework provided under this Circular is available for use by members; (ii) clear instructions on how to access and participate in the meeting; (iii) helpline number through the registrar & transfer agent, technology provider, or otherwise for those who need assistance with using the technology before and during the meeting;
  14. A copy of the meeting notice shall be prominently displayed on the website of the company and due intimation shall be made to the exchange in case of a listed entity.
  15. In case if the notice for convening an EGM has been served prior to the date of this Circular the framework proposed in this circular may be adopted for the meeting, in case the consent form the members has been obtained in accordance with Section 101(1) (Notice of a general meeting) of the Act, and a fresh notice of shorter duration with due disclosures in consonance with this Circular is issued consequently.
  16. Th resolution passed in accordance with this mechanism shall be filed with the Registrar of Companies within 60 days of the meeting, clearly indicating that the mechanism provided herein, alongwith the other provisions under the Act and rules were duly complied with during such meeting.

For companies which are not required to provide the facility of e-voting under the Act:

In addition to the procedure detailed above in S. No. 1, 2, 4 to 6 and 10 to 16, the following shall be applicable in case of companies that are not required to provide the e-voting facility:

  1. Meetings through VC / OAVM facility should allow two-way teleconferencing or WebEx and must have the capacity to allow at least 500 members or members equal to the total number of members of the company (whichever is lower), to participate on a first-cum-first-served basis. The shareholders holding 2% of more of the share capital of the company, promoters, institutional investors, directors, KMPs, chairpersons of various statutory committees, auditors, etc., may not be subject to the restriction of attending the meeting on first-cum-first served basis. Further, the participants must be allowed to pose questions concurrently or should be given time to submit questions in advance via e-mail;
  2. The chairman for the meeting shall be appointed in the following manner, unless the articles of the company provides for a specific person to be appointed as the chairman for the meeting: (i) Where there are less than 50 members, the chairman shall be appointed in accordance with Section 104 (Chairman of the meeting) of the Act; (ii) In all other cases, he/she shall be appointed by a poll conducted in the manner provided hereunder.
  3. A designated e-mail address of the company shall be provided to all members at the time of sending the notice for the meeting so that the members can convey their vote to such e-mail address, when a poll is required to be taken during the meeting on any resolution.
  4. The company shall ensure confidentiality of passwords. Further, all privacy related issues shall be maintained strictly, by the company at all times and due safeguards with regard to authenticity of e-mail address and other details of the members shall be taken by the company;
  5. During such a meeting where a poll on any item is required, the members shall cast their vote on resolutions only by sending e-mails to the designated e-mail address through their registered e-mail address;
  6. Where less than 50 members are present in a meeting, the chairman may decide to conduct a vote by show of hands, unless a demand for poll is made in accordance with the provisions of Section 109 (Demand for poll) of the Act;
  7. In case the counting of votes requires time, the said meeting may be adjourned and called later to declare the results.

Both, the companies which are required to provide e-voting facilities or have adopted such facility and those which are not required to provide such e-voting facilities under the Act and rules made thereunder, shall ensure that all other compliances associated with the provisions relating to general meetings, including but not limited to, making disclosures, inspection of documents, authorizations for voting by body corporates, etc., as provided under the Act and rules made thereunder; and under the articles of association of the company are made through electronic mode.

Relaxations of compliances under Goods and Services Tax

In view of the COVID-19 outbreak and the nation-wide lockdown, the Government has issued notifications in line with the Taxation and other Laws (Relaxation of certain provisions) Ordinance, 2020, amending the Goods and Services Tax Rules, 2017 (“CGST Rules”) and providing relaxations for compliances to the taxpayer.

Key relaxations under such notifications are summarised below.

1. NIL/reduced rate of interest payable on late payment of taxNotification No. 31/2020-Central Tax dated April 3, 2020
Prescribes NIL or reduced rate of interest for delayed filing of form GSTR-3B for the months of February 2020, March 2020 and April 2020, subject to the condition that form GSTR-3B for the said months are filed within the prescribed due dates. Please refer the below table for the due dates and applicable rates of interest.

Class of registered personRate of interestTax periodDue dates
Taxpayers having an aggregate turnover of more than INR 5 crores in the preceding financial yearNil for the first 15 days from the due date and 9% thereafterFebruary 2020, March 2020 and April 2020June 24, 2020
Taxpayers having an aggregate turnover of more than INR 1.5 crores and up to INR 5 crores in the preceding financial yearNilFebruary  2020 and March 2020June 29, 2020
April 2020June 30, 2020
Taxpayers having an aggregate turnover of up to INR 1.5 crores in the preceding financial yearNilFebruary 2020June 30, 2020
March 2020July 03, 2020
April 2020July 06, 2020

2. Late fees waived on delayed filing of Form GSTR 3BNotification No. 32/2020-Central Tax dated April 3, 2020
Waives the amount of late fee payable on account of delayed filing of form GSTR-3B for the months of February 2020, March 2020 and April 2020, subject to condition that form GSTR-3B for the said months are filed within the prescribed due dates (as mentioned in the above table).

3. Late fees waived on delayed filing of Form GSTR 1Notification No. 33/2020-Central Tax dated April 3, 2020
Waives late fee payable on account of delayed filing of form GSTR-1 for the months of February 2020, March 2020 and April 2020 subject to the condition that form GSTR-1 for the said months are filed by June 30, 2020.

4. Due date for filing Form GSTR 3B for the month of May 2020Notification No. 36/2020-Central Tax dated April 3, 2020
Prescribes staggered due dates for filing form GSTR-3B for the month of May 2020. The due dates are tabulated below for ease of reference.

Class of registered personDue date
Aggregate turnover in the preceding financial year of more than INR 5 croresJune 27, 2020
Aggregate turnover in the preceding financial year upto INR 5 crores, in the states of Chhattisgarh, Madhya Pradesh, Gujarat, Maharashtra, Karnataka, Goa, Kerala, Tamil Nadu, Telangana, Andhra Pradesh, the Union territories of Daman and Diu and Dadra and Nagar Haveli, Puducherry, Andaman and Nicobar Islands or LakshadweepJuly 12, 2020
Aggregate turnover in the preceding financial year upto INR 5 crores in the States of Himachal Pradesh, Punjab, Uttarakhand, Haryana, Rajasthan, Uttar Pradesh, Bihar, Sikkim, Arunachal Pradesh, Nagaland, Manipur, Mizoram, Tripura, Meghalaya, Assam, West Bengal, Jharkhand or Odisha, the Union territories of Jammu and Kashmir, Ladakh, Chandigarh or DelhiJuly 14, 2020

5. Time limits pertaining to various proceedings extended Notification No. 35/2020-Central Tax dated April 3, 2020
Provides relaxation of completion or compliance of any action required to be undertaken by a registered person and/ or a tax authority (such as issuance of notices, orders, etc. and filing replies, appeals, etc.) during the period March 20, 2020 to June 29, 2020, under the provisions of Central Goods and Service Tax Act, 2017 (‘CGST Act’) and CGST Rules, by extending such time limit to June 30, 2020.

However, the said extension will not be available for undertaking compliances pertaining to obtaining registration, issuance of tax paying documents, filing of returns, payment of interest and late fees, power to arrest, liability of partners under Section 90 of CGST Act, levy of penalties for various offences, detention and seizure of goods and generation of e-way bills.

Further, the said notification provides relaxation in relation to e-way bills, by extending the validity of e-way bills expiring during the period March 20, 2020 to April 15, 2020, till April 30, 2020.

6. Relaxation in compliance with Rule 36(4) of CGST RulesNotification No. 30/2020-Central Tax April 3, 2020 and Circular No. 136/06/2020-GST dated April 3, 2020
Provides that restriction prescribed for availing input tax credit as per the provisions of Rule 36(4) of CGST Rules, will not apply to input tax credit availed by the registered persons in form GSTR-3B for the months of February, March, April, May, June, July and August, 2020, however, the same will apply cumulatively for the said period and form GSTR-3B for the month of September, 2020 will be furnished with a cumulative adjustment of input tax credit for the said months in accordance with Rule 36(4) of CGST Rules.

7. Relaxation for dealers opting for composition schemeNotification No. 30/2020-Central Tax dated April 3, 2020
Provides for a relaxed time period for filing intimation under form GST CMP-02 and statement in for GST ITC-03 required for intimating the authorities for opting for composition scheme, for the financial year 2020-21 till June 30, 2020 and July 31, 2020, respectively.

Further, Notification No. 34/2020-Central Tax dated April 3, 2020 prescribes due date for filing statement for payment of self-assessed tax in form GST CMP-08 for quarter ending March 31, 2020 to be July 7, 2020 and due date for filing form GSTR-4 for FY 2019-20 to be July 15, 2020.