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Reducing compliances and uncertainty while providing some boost for investments

A step towards easing compliance and reducing uncertainty is that the time limit for reopening income tax assessments will be restricted to 3 years from the six years currently applicable. Only serious offences beyond a non-compliance threshold of 50 lakhs in a year will be subject to a 10-year window for reopening of assessment. Payment of advance tax to meet tax liability for dividend income can be after the declaration of dividend. Dividends to InVITs and REITs will be exempted from TDS. As an incentive for startups, tax holiday and capital gains exemption has been extended by one more year up to 31 March 2022. 

Quote by Raj Ramachandran.

Securities market code to include SEBI Act – Government securities act and depositories act, Budget 2021

The consolidation of securities laws, existing decriminalisation of offences under the Companies Act and the proposed decriminalisation under the LLP Act marks an important move towards making Indian corporate legal framework, simpler, business friendly and ultimately (hopefully) reducing compliance costs.  The securities market code is in line with previous discussions on the NFRA. It marks a step towards streamlining the multiple laws, ordinances, guidelines and regulations. If drafted and executed in a proper manner, it will be helpful to market participants and remove any possible conflicts in the regulatory framework and will provide clarity in policy making to investors and stakeholders.

Quote by Arka Mookerjee, published in CNBC, Moneycontrol, Indian Express, Fortune India, IIFL Group, Yahoo.com, Firstpost.

JSA viewpoint – Sustainable Development and Climate Change – Economic Survey, 2021

India has made significant and commendable progress towards meeting its sustainability and climate goals. The nation’s commitment to sustainability has been enshrined as a central tenet of governance by the Supreme Court. A sweeping and broad-ranging set of initiatives have been launched, ranging from increasing its renewable footprint to creating a carbon sink to upscaling electric vehicle roll-out. As a result of these efforts, the country has ensured that it ends the decade on a positive note, and has laid a robust foundation to build on these successes in coming years. Of particular note is the rise in the installed capacity of solar power pursuant to the National Solar Mission, with a cumulative capacity of 36.9 GW having been commissioned as of November 2020, around 36 GW in development, and a further 19 GW tendered.

In coming years, thanks to financial support under the FAME scheme, we may expect to see over two lakh electric vehicles traversing India’s roadways, a development that is sure to put India firmly on the path to decarbonising its vehicular fleet. Going forward, it is imperative that India maintains momentum and start taking global centre-stage and leadership through both action and intent. In sync with and taking cue from international best practice, present climate resilience efforts may be bolstered by means of market based tools and instruments to fund, finance and incentivise climate action. It is time for the spotlight to be cast on climate finance to catalyse efforts to tackle climate change and for greening the economy. The Economic Survey has rightly highlighted the many successes, and it is for the budget to build on these foundations.

Viewpoint by Vishnu Sudarsan and Kartikeya GS.

JSA Viewpoint – Infrastructure – Economic Survey

The Economic Survey 2021 strikes the right cords with respect to Indian Infrastructure by highlighting

  • Significance of robust infrastructure for overall economic growth emphasizing that in the absence of adequate infrastructure, the economy operates at a suboptimal level.
  • Ambitious targets of infrastructure investments of Rs.111 lakh crores (US$ 1.5 trillion) during FY 2020 to FY 2025 under the National Infrastructure Pipeline with a projected 79% investment (Rs.87.7 lakh crores) coming from Central and State Governments with 21% (Rs. 23.3 lakh crores) from private sector – 54% being shared by energy and transport (roads and railways).
  • In the past most of the private investment has come through public private partnerships.
  • Recent policy initiatives in terms of the Atma Nirbhar Bharat and cabinet approval of the PSU policy of opening up all sectors of the economy (even sensitive ones) to private sector with an emphasis on disinvestment.
  • ES-2021 acknowledges that gross capital formation has slid from 34% of GDP (in FY-2015) to lowest in past 2 decades at 26.7% of GDP (in FY-2021), identifying this as the single largest contributor to the contraction in GDP in FY-2021.

There are some generic feel-good statements regarding expansion of public investment which is expected to crowd private investors, and deregulation and liberalisation which is expected to unlock entrepreneurial energies and improve private investor’s risk appetite. However, perhaps advisedly it leaves a very important element of how will this infrastructure development get financed unaddressed.

Let us watch this space in the Budget speech for some concrete investment commitments as also reform proposal to address the 4 laggards in Indian regime that is shackling the entrepreneurial spirits – Enforcing Contracts, Registering Property, Starting a Business and Paying Taxes.

Viewpoint by Amit Kapur.

Impact of COVID-19, on proposed inclusion of Aviation Turbine Fuel (ATF) under the ambit of Goods and Services Tax (“GST”)

With the aviation sector reeling under the impact of COVID-19, the Government may propose inclusion of Aviation Turbine Fuel (ATF) under the ambit of Goods and Services Tax (“GST”). Since GST is a creditable levy which can be offset against the GST liability suffered by the airlines on their revenues, the move would result in lower tax costs for the airlines and would provide the industry a much-needed relief from high operational costs.

While the proposal would require an approval from the GST Council, the budget may put forth a roadmap for this legislative change and initiate the process for building the consensus amongst Centre and the States on this sensitive matter, which has been a bone for contention for quite some time. This may subsequently pave the roadmap for inclusion of other petroleum products into GST over a period of time, starting with Natural Gas and extending to other petroleum products. “

Pre Budget – JSA Livewire Budget, 2021

With unprecedented times, we see unprecedented budgets –the Indian Government will have to increase the budgetary allocation to the healthcare and the pharma sector to give impetus to the vaccination drive. The negotiations between Indian vaccine manufacturers hint at a ballpark figures of INR 60,000 to 70,000 Crores, merely to procure vaccines for the Indian population. These estimates exclude the storage and the transportation costs. As a reference point, the allocation for the current FY 2020-21 stood at INR 67,000 Crore, and fell short of the target of 2.5% of the GDP. Basis the statistics of the Finance Ministry, the Indian Government has restricted its budget allocation for the health sector between 1.2% to 1.6% of the GDP in the previous decade (2010-20). To counter the pandemic’s effects, the Government will need stretch to its bottom dollar. The Government should also seek to increase the monetary allocations under the PLI Scheme to attract investments, provide faster single-window approvals, reduce/exempt duty on import of inputs and parts of medical devices, and rationalise GST rates on parts used in manufacturing of medical equipment.

Who decides extension of mandate of arbitral tribunals under S. 29A of the Arbitration Act

There is a divergence of views. The Kerala High Court has adopted the literal interpretation that an application for extension of time lies before the Civil Court or the High Court in exercise of original civil jurisdiction. Delhi and Gujarat High Courts have taken a contrary view and interpreted ‘Court’ in S. 29A(4) to mandatorily mean the High Court by adopting a contextual interpretation to the term ‘Court’ premised on the powers of the High Court under S. 11.

Interestingly, the Supreme Court in a recent judgment in HARSAC v. Pan India had occasion to consider grant of extension under S. 29A by Additional District Judge, Chandigarh. While the judgment does not go into the issue of which court will have jurisdiction, the Supreme Court substituted the existing tribunal in exercise of powers under S. 29A(6) without setting aside the extension order itself.

In light of the recent decision Supreme Court decision in Vidya Drolia which affirmed that Patel Engineering has been legislatively overruled by the 2015 and 2019 amendments, ‘Court’ in S. 29A should mean principal Civil Court of original jurisdiction in line with the decision of the Kerala High Court.

Overseas Direct Listing of Indian Companies

Background:

  • Earlier, companies incorporated in India could list their debt securities on international exchanges (Masala Bonds) but their equity share capital could be listed abroad only through the American Depository Receipt / Global Depository Receipt route. Similarly, companies incorporated outside India could access the Indian capital markets only through the Indian Depository Receipt route. Direct listing of the equity share capital of companies incorporated in India was not permitted on foreign exchanges and vice versa.
  • Considering the evolution and internationalization of the capital markets, and to facilitate companies incorporated in India to directly list their equity share capital abroad and vice versa, the Securities and Exchange Board of India (“SEBI”), the capital markets regulator of India, constituted a high-level committee comprising of members of SEBI, top financial institutions, and law firms of India on June 12, 2018. The task of the committee was to submit a report on the direct listing of equity shares of companies incorporated in India on overseas stock exchanges. The committee submitted its report in December 2018[1] (“SEBI Report”) where it strongly batted in the affirmative for direct listing.

 

The companies (amendment) bill, 2020:

  • The following are the stages of introduction of the Companies (Amendment) Bill, 2020 which was introduced in Lok Sabha by the Minister for Corporate Affairs, Ms. Nirmala Sitharaman.
    • Introduced in Lok Sabha- March 17, 2020
    • Passed in Lok Sabha- September 19, 2020
    • Passed in Rajya Sabha- September 22, 2020
  • As per the Government Press Release[2], the Ministry of Finance, in consultation with the Ministry of Corporate Affairs, the Reserve Bank of India (RBI) and SEBI has commenced working on a framework for this purpose.

 

The companies (amendment) act, 2020 (“act”) – overseas direct listing:

The Act provided for amendment an in Section 23[3], Companies Act, 2013 which provides for ‘Public Offer and Private Placement’ whereby the following sub-clause was added:

“(3) Such class of public companies may issue such class of securities for the purposes of listing on permitted stock exchanges in permissible foreign jurisdictions or such other jurisdictions, as may be prescribed.

(4) The Central Government may, by notification, exempt any class or classes of public companies referred to in sub-section (3) from any of the provisions of this Chapter, Chapter IV, section 89, section 90 or section 127 and a copy of every such notification shall, as soon as may be after it is issued, be laid before both Houses of Parliament.”

 

Permissible foreign jurisdiction:

Section 23 (3) (inserted through amendment) under the Act states that public companies may issue such class of securities to be listed on permitted stock exchanges in ‘permissible foreign jurisdiction’. The term ‘permissible foreign jurisdiction’, as per the SEBI Report, may include a jurisdiction which has treaty obligations to share information and cooperate with Indian authorities in the event of any investigation. It was recommended that Permissible Jurisdiction should be defined to mean a jurisdiction:

  • that is a member of the Board of International Organization of Securities Commissions (“IOSCO”), and whose securities market regulator is either a signatory to the IOSCO’s multilateral memorandum of understanding or is a signatory to a bilateral memorandum of understanding with SEBI for information sharing arrangements; and
  • that is a member of the Financial Action Task Force (“FATF”); and
  • that is not identified in the public statement of the FATF as:
  • a jurisdiction having strategic anti-money laundering or combating the financing of terrorism deficiencies to which countermeasures apply; or
  • a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the FATF to address the deficiencies;
  • any other jurisdiction notified by Central Government in consultation with SEBI and / or other regulatory authorities, following an overall review and evaluation of such jurisdiction’s capital markets regulations.

 

The SEBI Report had suggested the following 10 permissible jurisdictions which have strong anti-money laundering laws:

  • United States of America- NASDAQ, NYSE
  • United Kingdom- London Stock Exchange
  • China- Shanghai Stock Exchange, Shenzhen Stock Exchange
  • Japan- Tokyo Stock Exchange, Osaka Securities Exchange
  • Hong Kong- Hong Kong Stock Exchange
  • South Korea- Korea Exchange Inc.
  • Switzerland- SIX Swiss Exchange
  • France- Euronext Paris
  • Germany- Frankfurt Stock Exchange
  • Canada- Toronto Stock Exchange

 

Benefits:

This amendment batted strongly for fewer regulations regarding direct overseas listing for Indian companies, and to a large extent, it had been successful in doing so, but at the same time, the Government or SEBI did not exempt companies from any kind of regulation as it would then facilitate money laundering through a direct listing. This Amendment would give a free hand to companies to raise money through direct listing and requires regulatory measures only where it is necessary, hence improving the ease of doing business in India. The Act facilitates for issuing securities in permissible foreign jurisdictions has various benefits with regard to the ease of doing business, as mentioned hereunder, especially for the start-ups:

  • Financial Stability/Alternate source of capital: Companies incorporated in India can benefit from accessing capital markets outside of their country of incorporation for various reasons. Many of these benefits are attained from a reduction in the cost of capital in advanced economies with developed financial markets. Given inherent inflation and relatively smaller domestic institutional and non-institutional pools of capital, the cost of capital in India is still higher vis-à-vis that for a foreign corporate thereby putting the Indian company at a disadvantage in the marketplace. Thus, a simple and principle-based international listing regime that enables all companies incorporated in India to raise capital in the market which optimizes cost and provides the greatest benefits in terms of value, quantum, quality, and branding is the need of the hour. Raising capital through cross-border listing helps to attain more financial stability and generate a huge volume of capital.
  • Attracts higher and accurate valuations: The markets hit by COVID-19, and the upcoming start-ups will benefit extremely from the overseas listing. Indian unicorn start-ups, like Unacademy and Oyo Rooms, would be allowed to list their shares in the overseas market. The companies would get access to a larger pool of capital. The new rule will allow the Indian companies to compete with foreign entities and attract higher valuations, a broader investor base, and will boost the market globally. Companies listing on foreign stock exchanges with sophisticated asset management infrastructure generally expect to obtain more accurate valuations on their securities than in their domestic capital markets.
  • Better Valuation: Overseas listings enable companies to access specialized industry-specific investor classes, such as high-tech investors, who possess institutional sectoral expertise and are thus better able to value these securities. Listings on foreign stock exchanges can also increase analyst coverage for the listed shares and facilitate clearer comparisons against other peer companies that are listed overseas, each of which contribute toward more accurate benchmarking and valuations.
  • Diversified Investor Base: The diversified investor base will increase the demand for their securities and help in decreasing the cost of capital. Listing on foreign stock exchanges broaden and diversify the pool of investors that can acquire and trade the company’s shares, which increases the demand pool for the company’s shares and helps to decrease the cost of capital. For example, a company incorporated in India listed in the United States would be able to access numerous investment funds that would otherwise be prevented by their internal investment criteria from investing in companies not listed in the United States. Such listings also enable companies to diversify their capital-raising activities rather than being reliant only on their domestic market. Besides, Indian start-up or emerging-growth companies will be able to access capital from investors overseas that may be more receptive to their securities than Indian investors, who have typically focused on companies with proven track records of profitability and growth, and have generally exhibited less appetite for start-up or emerging-growth companies.
  • Other strategic benefits: Additionally, companies incorporated in India may derive benefits from listing on a foreign stock exchange for other strategic reasons, including facilitation of their international employee compensation strategies, increase in their brand awareness and visibility, and by gaining a currency of exchange with which to pursue their international expansion plans.

 

There are reports that Indian market giants will get listed on overseas platforms in the coming years. Reliance Industries Limited is planning to get its subsidiary Jio Platform listed on NASDAQ by 2021. Several Indian start-ups such as PhonePe, Flipkart, Policybazaar are already preparing to list themselves in the overseas stock market. Walmart Inc-controlled Indian e-commerce firm Flipkart is preparing for an initial public offering overseas as early as 2021. This will help the firm to raise approximately $50 billion.

 

[1] https://www.sebi.gov.in/reports/reports/dec-2018/report-of-the-expert-committee-for-listing-of-equity-shares-of-companies-incorporated-in-india-on-foreign-stock-exchanges-and-of-companies-incorporated-outside-india-on-indian-stock-exchange_41219.html

[2] https://pib.gov.in/PressReleseDetail.aspx?PRID=1605295

[3] 23. (1) A public company may issue securities—

(a) to public through prospectus (herein referred to as “public offer”) by complying with the provisions of this Part; or

*(b) through private placement by complying with the provisions of Part II of this Chapter; or

(c) through a rights issue or a bonus issue in accordance with the provisions of this Act and in case of a listed company or a company which intends to get its securities listed also with the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the rules and regulations made thereunder.

(2) A private company may issue securities—

(a) by way of rights issue or bonus issue in accordance with the provisions of this Act; or

*(b) through private placement by complying with the provisions of Part II of this Chapter.

(3) Such class of public companies may issue such class of securities for the purposes of listing on permitted stock exchanges in permissible foreign jurisdictions or such other jurisdictions, as may be prescribed.

(4) The Central Government may, by notification, exempt any class or classes of public companies referred to in sub-section (3) from any of the provisions of this Chapter, Chapter IV, section 89, section 90 or section 127 and a copy of every such notification shall, as soon as may be after it is issued, be laid before both Houses of Parliament.

Explanation.—For the purposes of this Chapter, “public offer” includes initial public offer or further public offer of securities to the public by a company, or an offer for sale of securities to the public by an existing shareholder, through issue of a prospectus.

Key Highlights of the Draft Industrial Relations (Central) Rules, 2020

The Ministry of Labour and Employment (“MoLE”) has formulated the draft Industrial Relations (Central) Rules, 2020 (“IR Rules”) under the Industrial Relations Code, 2020 (“IR Code”) for seeking public comments. The IR Rules will be applicable to such matters for which the Central Government is the appropriate Government under the IR Code. State Governments which are ‘appropriate Government’ for, amongst others, State PSUs, State owned/ controlled autonomous bodies and private establishments, may draft State-specific rules or adopt the IR Rules to give implement the provisions of the IR Code.

The IR Rules will repeal the Industrial Tribunal (Procedure) Rules, 1949, the Industrial Tribunal (Central Procedure) Rules, 1954, the Industrial Disputes (Central) Rules, 1957 and the Industrial Employment (Standing Orders) Central Rules,1946.

The key provisions introduced under the IR Rules include:

  • The manner of choosing members from the employers and the workers for constitution of the Grievance Redressal Committee (“GRC”).
  • The particulars required to be included in an application filed (electronically or otherwise) by an aggrieved worker before the GRC in respect of any dispute/ grievance.
  • Filing of application for conciliation by aggrieved worker against GRC’s decision or for non-resolution of grievance by GRC on the MoLE’s Samadhan Portal, either through the trade union of which he is a member or otherwise.
  • Duty to intimate the concerned Certifying Officer electronically if an employer adopts the model standing order with respect to matters relevant to his industrial establishment or undertaking.
  • Electronic submission of compliance report by employers directed by the Certifying Officer to amend the model standing order adopted by way of addition, deletion or modification.
  • Deemed adoption of the model standing order by an employer if no observation is made by the concerned Certifying Officer within 30 days of intimation by the employer.
  • Requirement to provide additional details such as the name of the industrial establishment, address, e-mail address, contact number and strength of workers employed therein in the statement accompanying the draft standing order submitted for certification.
  • Consultation with the concerned Trade Union, Negotiating Union or Negotiating Council, if any, by group of employers engaged in similar industrial establishment and desirous of submitting a joint draft of standing order.
  • Additional requirement on employer to maintain Certified or Deemed to be Certified or Adopted Model Standing Order in Hindi and in the official language of the State where the industrial establishment is situated.
  • MoLE specifying the procedure for holding of conciliation proceedings on its Samadhan Portal.
  • The Conciliation Officer being required to upload his report on the Samadhan Portal if no settlement is arrived at in the conciliation proceeding within 7 days from conclusion of such proceedings and such report to be accessible to all the parties concerned.
  • Application for adjudication of disputes not settled through conciliation being made to the Industrial Tribunal on the Samadhan Portal.
  • Awards passed by the Industrial/ National Tribunals being electronically notified to the concerned parties and the Central Government apart from being uploaded on the Samadhan Portal.
  • Provision for endorsed copy of notice of strike and lock-out and intimation in respect of such notice, being electronically sent to the concerned labour authorities.
  • Electronic intimation of prescribed notices for retrenchment of workers, re-employment of retrenched workers and closure of industrial establishments.
  • Electronic applications for grant of permission to lay-off/ retrench workers or close down industrial establishment.
  • Prescription of time-limit for electronic transfer of contributions by employers to the Worker Reskilling Fund together with electronic submission of the name of each worker retrenched, 15 days’ last drawn wages of each such worker along with their bank account details to the Central Government.
  • Compounding Officers authorized to send compounding notice through Samadhan Portal to the accused for compoundable offences where no prosecution is instituted and accused required to furnish reply and deposit compounding amount electronically.
  • Requiring accused to apply for Court permission for compounding of offences where prosecution has already been instituted against him.

Authored by Minu Dwivedi
Co-authored by Shreya Chowdhury

Automated renewal of factory license and contractor license

Pursuant to the reforms suggested by Department for Promotion of Industry and Internal Trade (“DPIIT”) towards ease of doing business[1], the Directorate of Industrial Safety and Health, Chennai vide Memorandum No. B1/9391/2020 dated 29 August 2020 (“Memo”) had circulated a memorandum directing the subordinate officers of the directorate to automate the renewal of below mentioned licenses through submission of online applications on an non-discretionary basis:

S.No. License to be renewed under different labour laws. Existing procedure for procuring license renewal. Latest procedure as per Memo to procure license renewal.
1. Factory license under Factories Act, 1948 read with Rule 7 of the Tamil Nadu Factories Rules, 1950. The occupier of every factory licensed under Rule 4, shall submit to the Deputy Chief Inspector of Factories having jurisdiction over the area where the factory is situated, an application in Form No. 2 in triplicate, for the renewal of the license along with demand draft or challan. The applicants could straight away download the renewed licenses on submission application through DISH online portal[2] along with prescribed fees.
2. Contractor license under Contract Labour (Regulation and Abolition) Act, 1970 read with Rule 29 of the Tamil Nadu Contract Labour (Regulation and Abolition) Rules, 1975. Every contractor may submit to the licensing officer in Form No. VII in triplicate not less than 60 days before the date on which the license expires, and if the application is so made, the license shall be deemed to have been renewed until such date when the renewed license is issued.
3. Contractor license under Interstate Migrant Workmen (Regulation of Employment and Condition of Service) Act, 1979 read with Rule 15 of the Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) (Tamil Nadu) Rules, 1983 Every contractor may  apply to the licensing officer in Form No. IX in triplicate not less than 30 days before the date on which the license expires, and if the application is so made the license shall be deemed to have been renewed until such date when the license is renewed.

Memo has paved way for automation of licenses and counters the need to submit physical copy of application and further eliminates physical touchpoint for document submission.

[1] https://eodb.dipp.gov.in/PublicDoc/Download/8

[2] https://dish.tn.gov.in/

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