Author: JSA

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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

A person's hand reaches out to a glowing, digital projection of a globe, which is overlaid with a network of connected points, all set against a blurred city skyline at night.

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/

Amendment to the Companies (Corporate Social Responsibility Policy) Rules, 2014 to include COVID-19 related activities

According to Section 135 of the Companies Act, 2013 (Act), every company having

(i) net worth of rupees five hundred crore or more, or

(ii) turnover of rupees one thousand crore or more, or

(iii) a net profit of rupees five crore or more,

during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee (CSR Committee) of the Board.

Among other functions, the CSR Committee formulates and recommends the Corporate Social Responsibility (CSR) Policy which shall indicate the activities to be undertaken by the company in areas or subject specified in Schedule VII of the Act.

According to the Companies (Corporate Social Responsibility Policy) Rules, 2014 (CSR Policy Rules), Rules 2(e), CSR Policy relates to activities to be undertaken by the company in areas or subject  specified in Schedule VII of the Act and the expenditure thereon, excluding activities undertaken in pursuance of normal course of business of a company. 

Further, Rule 4 and Rule 6 of the CSR Policy Rules, excludes “activities undertaken in pursuance of normal course of business of a company” from the ambit of CSR Policy.

On 24 August 2020, the CSR Policy rules were amended to modify the aforesaid Rules 2, 4 and 6, to allow within the ambit of CSR Policy, companies engaged in research and development activity of new vaccine, drugs, medical devices in their normal course of business to undertake research and development of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22, 2022-23.

This is subject to the condition that, (i) such research and development activities must be carried out in collaboration with any institutes or organisations mentioned in Item (ix) of Schedule VII of the Act; and (ii) details of such activity must be disclosed in the annual report on CSR included in the board’s report.

On 23 March 2020, the Ministry of Corporate Affairs announced that the corporate expenditure on fighting COVID-19 will constitute eligible expenditure towards CSR.  Read more at Corporate Expenditure on COVID-19 to count as eligible CSR Expenditure and COVID-19 related FAQ on CSR.

Restructuring of Corporate Loans under RBI’s Covid Resolution Framework

I. Introduction 

On August 6, 2020, the Reserve Bank of India (“RBI”) promulgated a special regulatory package – Resolution Framework for Covid-19-related Stress (“Covid Resolution Framework”). This package has been introduced because several Indian borrowers have been adversely affected by the pandemic and are facing difficulties in servicing their debt obligations. The moratorium imposed by the RBI has provided some breathing space to such borrowers, but once that expires, several borrowers may need to restructure their debts as they recover from the havoc Covid-19 has created in their businesses. Lenders also need an effective and flexible restructuring tool for Covid-related defaults and the existing Prudential Framework for Resolution of Stressed Assets dated June 7, 2019 (“June 7 Framework”) of the RBI may not cater to their needs arising specifically out of the pandemic. The Covid Resolution Framework applies to personal loans as well corporate loans. However, in this update, we are focussing only on resolution of corporate loans.

II. Hallmarks of the new framework 

The hallmarks of the Covid Resolution Framework are as follows:

• It is exclusively directed towards viable businesses with temporary stress due to the pandemic;

• It is applicable to wider array of domestic financial institutions than the June 7 Framework;

• It endeavours to provide a system of economic incentives and disincentives for implementing a resolution plan within strict timelines and aims to address some intercreditor problems; and

• Unlike the June 7 Framework, this framework enables restructuring without any corresponding asset classification downgrade.

III. Applicability 

(a) Type of Lender: The Covid Resolution Framework has been made applicable to all types of Indian banks, all-India financial institutions and non-banking finance companies (“NBFCs”) including housing finance companies (collectively, “Lending Institutions”). Lending Institutions need to frame a board-approved policy for evaluation of resolution plans and objective criteria to be applied when considering a resolution plan. Participation by other financial players like mutual funds, debenture holders, lenders of external commercial borrowings and alternative investment funds has also been enabled, subject to them agreeing to the terms of the inter-creditor agreement.

(b) Type of Borrower: Loans to almost all types of corporate borrowers can be resolved under the Covid Resolution Framework. The only exceptions are:

(i) debts to medium, small and micro enterprises which are INR 250 million or less; (ii) farm credit; (iii) loans to Primary Agricultural Credit Societies, Farmers’ Service Societies and Large-sized Adivasi Multi- Purpose Societies for on-lending to agriculture; (iv) exposures to financial service providers (as defined under the Insolvency and Bankruptcy Code, 2016 (“IBC”)); (v) exposures to governmental and statutory bodies; and (vi) exposures of housing finance companies where the exposure has been rescheduled under certain provisions, unless another Lending Institution invokes a resolution plan under this framework.

(c) Type of loans: For the loan account to be eligible for resolution under the Covid Resolution Framework, it needs to be: (i) a standard account, (ii) not in default for more than 30 days with any Lending Institution as on March 1, 2020 and (iii) the account should continue to remain standard till the date of invocation.

The reference date that will be considered for the outstanding amount of debt for resolution under thisframework will be March 1, 2020.

(d) Restructuring of ineligible accounts: Accounts that do not fall under the Covid Resolution Framework can continue to be considered for resolution under the June 7 Framework or other relevant frameworks, where the June 7 Framework is not applicable.

IV. Invocation Process and Inter-Creditor Arrangements

(a) Relevant time periods:

A resolution under this Covid Resolution Framework can be invoked until December 31, 2020. Once a resolution is invoked, the same needs to be implemented within 180 days thereafter. The Covid Resolution Framework does not specify when the implementation is deemed completed. In this regard, it would be useful to refer to June 7 Framework which specifies when the implementation is deemed to be completed for different types of resolution plans.

(b) Date of invocation:

The date of invocation will be as follows: (i) in case of sole Lending Institution, the date on which the Lending Institution accedes to a request from the borrower for resolution under the Covid Resolution Framework; and (ii) in case there are multiple Lending Institutions, the date on which 75% of them by value and 60% by number (“Specified Majority”) agree to the invocation.

(c) Execution of an Intercreditor Agreement (“ICA”):

In case of multiple Lending Institutions, within 30 days of the invocation date, all Lending Institutions are required to execute an ICA for cases requiring implementation of a resolution plan. If the Specified Majority does not sign the ICA within the specified 30-day period, then the invocation under the Covid Resolution Framework will be deemed as lapsed. No second invocation is permitted in these cases. Those resolution plans are then governed by the June 7 Framework. The framework permits lenders to the borrower, who are not the Lending Institutions, to also sign the ICA if they desire. Once the ICA is signed, it is binding on them.

(d) Contents of the ICA:

The ICA must specifically provide for: (i) an effective dispute resolution mechanism inter-se the lenders (as the RBI will not interfere in such disputes) and (ii) suitable mechanisms for information sharing amongst Lending Institutions during and after implementation of the resolution plan.

(e) Breach of timelines: If any timelines under this Covid Resolution Framework are breached, then the framework will cease to apply. Thereafter, any resolution plan shall be governed by the June 7 Framework or any specific framework applicable to lenders to whom the June 7 Framework does not apply.

V. Role of Expert Committee

(a) Recommending parameters: The RBI has set up an expert committee under the chairmanship of Mr. K.V. Kamath for recommending financial parameters and sector-specific benchmarks to be factored into the resolution plans.

(b) Approval for certain plans: Further, all resolution plans for accounts where the aggregate exposure is in excess of INR 1500 crores (INR 15 billion) require approval of the expert committee. While the expert committee will check if processes have been followed, it will not interfere with the commercial judgement exercised by the lenders.

VI. Resolution Plans

(a) Type of restructuring: In addition to parameters as per the recommendations of the Expert Committee (which must be included in each resolution plan), the resolution plans under this Covid Resolution Framework may have any of the features permitted under the June 7 Framework, other than compromise settlements. These include the following:

(i) regularisation of the account by payment of all over dues by the borrower entity;

(ii) sale of the exposures to other entities / investors;

(iii) change in ownership; and

(iv) restructuring.

(b) Additional financing: The resolution plan may include terms for providing additional finance to the borrowers. However, it should be noted that the framework itself does not provide any priority on repayment to the additional financing providers.

(c) Moratorium: The resolution plan can also provide an extension of the tenor of the loan by up to 2 years, with or without moratorium. Any moratorium granted would come into effect immediately on implementation of the plan.

(d) Conversion of the debt: The resolution plan may provide for conversion of a portion of the debt into equity or other marketable, non-convertible debt securities issued by the borrower. However, the amortisation schedule and the coupon carried by such debt securities should be similar to the terms of the debt held on the books of the Lending Institutions, after implementation of the resolution plan. The holding of such instruments by the Lending Institutions is subject to any applicable existing instructions on investments. The valuation of any equity instruments will be in accordance with the June 7 Framework, and the valuation of the debt securities will be as per existing norms applicable to the specific category of Lending Institutions.

VII. Other features

(a) Credit Evaluation: For borrowers where the aggregate exposure of the Lending Institutions at the time of invocation is INR 100 crore (INR 1 billion), the resolution plans need an independent credit evaluation by one credit rating agency authorised by RBI under the June 7 Framework.

(b) Escrow Mechanism: In case of consortium or multiple banking arrangements, all resolution plans must provide that all receipts, repayments and additional disbursements will be routed through an escrow account that will be maintained with one of the Lending Institutions. Lending Institutions are required to enter into an escrow agreement which details the roles and responsibilities of the escrow agent and an enforcement mechanism that is available to the escrow agent in case any Lending Institution does not service its disbursement obligations on a timely basis.

VIII. Asset Classification

The following asset classification norms apply:

(a) Borrowers’ accounts: If the plan is implemented, then the accounts which are classified as standard can retain such classification, and borrowers’ accounts which may have slipped into the non-performing asset (“NPA”) classification between invocation and implementation may be upgraded as standard.

(b) Additional financing: Any additional finance provided during the implementation phase may be classified as a standard asset regardless of actual performance of the facilities. After the implementation, the asset classification will be based on the actual performance of the additional financing or rest of the facilities, whichever is worse.

IX. Provisioning requirements

(a) Lenders that sign the ICA within 30 days: For such lenders, after implementation, the provision will be the higher of the provisions as per the existing income recognition and asset classification (“IRAC”) norms prior to implementation or 10% of the total residual debt (including debt securities).

(b) Lenders that don’t sign the ICA within 30 days: For such lenders, after the expiry of 30 days, the provision will be the higher of the provisions as per the existing IRAC norms or 20% of the total debt in their books (i.e. the carrying debt). Further, as a greater disincentive, if an implementation lapses because the ICA signing thresholds are not met, then the Lending Institution which agrees to sign the ICA within 30 days but actually does not do so, shall be required to hold 20% provisioning on the carrying debt.

(c) June 7 provisions: Any additional provisions maintained under the requirements of the June 7 Framework may be reversed upon invocation of the resolution process under the Covid Resolution Framework.

(d) Reversal of provisioning by ICA signatories: The provisions maintained by ICA signatories may be reversed in the following manner: (i) 50% upon repayment of 20% of the residual debt; and (ii) the balance 50%, upon repayment of additional 10% of the residual debt, without slipping into the NPA category in each case.

(e) Reversal of provisioning by non-ICA signatories: The provisions maintained by Lending Institutions that did not sign the ICA may be reversed in the following manner: (iii) 50% upon repayment of 20% of the carrying debt; and (iv) the balance 50%, upon repayment of additional 10% of the carrying debt, subject to IRAC provisions being maintained.

X. Post Implementation Default

If there is a default by the borrower with any ICA signatories during the “monitoring period”, it triggers a review period of 30 days. If the default continues at the end of the review period, the asset classification of the borrower with all Lending institutions, including those who did not sign the ICA, will be downgraded to NPA. The NPA downgrade will be from the date of implementation of the resolution plan or the date from which the borrower had been classified as NPA before implementation of the plan, whichever is earlier. The “monitoring period” is the period starting from the date of implementation of the resolution plan till the borrower pays 10% of the residual debt, subject to a minimum of one year from the commencement of the first payment of interest or principal (whichever is later) on the credit facility with longest period of moratorium.

XI. Disclosures

All lenders are required to make disclosures regarding details of accounts restructured under this Covid Resolution Framework in their quarterly and/ or half- yearly financial statements.

XII. Conclusion

At a time when proceedings under the IBC have been suspended for defaults that take place between March 25, 2020 to September 24, 2020 (which can be extended upto another six months), the Covid Resolution Framework hopes to provide some respite to lenders and borrowers. While a one-time settlement scheme was most sought after, the RBI in its wisdom has decided against providing that flexibility to borrowers and lenders. However, the economic incentives (and disincentives) provided to the Lending Institutions coupled with a robust escrow mechanism for monitoring inflows and outflows should help mitigate some of the intercreditor issues plaguing restructurings under the June 7 Framework and give an impetus to lenders to effectively use this framework to restructure some of their debts. It would also be important for other financial sector regulators to extend co-operation in making this special package as broad- based and comprehensive as possible.

Unlockdown 4.0: MHA Guidelines

Lockdown measures to contain the spread of COVID-19 has been in force in the country since 24 March 2020.

On 30 May 2020, pursuant to the direction of the National Disaster Management Authority under Section 6(2)(i) of the Disaster Management Act, 2005, the Ministry of Home Affairs (MHA) issued an order enumerating the guidelines for phased re-opening of activities which were prohibited during the lockdown in areas outside the designated containment zones, as Unlockdown 1. This order was to remain in force up to 30 June 2020.

On 29 June 2020, with a view to re-open more activities in the country, in a calibrated manner, in areas outside containment zones, the MHA issued detailed guidelines on Unlockdown 2. The order had also extended the lockdown in containment zones up to 31 July 2020.

On 29 July 2020, MHA had issued guidelines on Unlock 3 which came into effect on 1 August 2020 for further extension of the process of phased re-opening. However, the order also stipulated for strict adherence to lockdown in containment zones up to 31 August 2020.

To provide further relaxations to the prohibited activities MHA issued detailed guidelines for Unlockdown 4 on 29 August 2020 as below:

  1. Activities permitted during Unlock 4 outside the Containment Zones:

All activities except the following are permitted:

(i) Schools, colleges, educational and coaching institutions to continue to remain closed for students and regular class activity up to 30 September 2020. However, the following are permitted:

  1. Online/ Distance learning;
  1. 50% of teaching and non-teaching staff may be permitted to be called to the schools at a time for online teaching/tele-counseling and related work, in areas outside Containment Zones with effect from 21 September 2020 for which SOP will be issued by the Ministry of Health and Family Welfare (MoHFM).
  1. Students of class 9 to 12 may be permitted to visit schools outside Containment Zones only, on voluntary basis, for taking guidance from their teachers. This is subject to the written consent from parents/ guardians, with effect from 21 September 2020 for which SOP will be issued by the MoHFW.
  1. Skill or Entrepreneurship training will be permitted in National Training Institutes, Industrial Training Institutes, Short term training centres registered with National Skill Development Corporation or State Skill Development Missions or other Ministries of the Government of India or State Governments.

National Institute for Entrepreneurship and Small Business Development, Indian Institue of Entrepreneurship and their training providers will also be permitted.

This will be only with effect from 21 September 2020 for which SOP will be issued by the MoHFW.

  1. Higher Education Institutions only for research scholars (Ph.D.) and post-graduate students of technical and professional programmes requiring laboratory/ experimental works. 

(ii) Metro rail will be allowed to operate with effect from 7 September 2020 in a graded manner, by the Ministry of Housing and Urban Affairs/ Ministry of Railways in consultation with MHA. SOP to be issued by the Ministry of Housing and Urban Affairs.

(iii) Social/ academic/ sports/ entertainment/ cultural/ religious/ political functions and other congregations with a ceiling of 100 persons will be permitted from 21 September 2020 with mandatory wearing face masks, social distancing, provision for thermal scanning and hand wash or sanitizer. 

However, marriage related gatherings with number of guests not exceeding 50 and funeral/ last rites related gatherings with number of persons not exceeding 20 will continue to be allowed up to 20 September 2020, after which the ceiling of 100 persons will apply. 

(iv) Cinema halls, swimming pools, entertainment parks, theatres and similar places will remain closed. However, open air theatres will be permitted to open with effect from 21 September 2020.

(v) International air travel of passengers, except as permitted by MHA.

  1. Lockdown limited to Containment Zones:

Lockdown to remain in force in Containment Zones up to 30 September 2020.

District Authorities to demarcate the Containment Zones, on due consideration of the guidelines issued 

by the MoHFW.

Containment Zones to be notified on the websites of respective District Collectors and by the States/ 

UTs and information will be shared by MoHFW.

  1. National Directives for COVID-19 Management:

The MHA order in its Annexure I has also issued revised directives to be followed throughout the 

country:

  1. Compulsory wearing of face cover in public places and work places;
  2. Maintenance of minimum distance of 6 feet in public places;
  3. Shops to ensure physical distancing among customers;
  4. Spitting in public places is punishable with fine as prescribed by the local authorities;
  5. Workplace directives:

(i) Work from home to be practised to the extent possible;

(ii) Staggering of work/ business hours to be followed in workplaces, shops, offices, markets, industrial and commercial establishments;

(iii) Provision of thermal screening, sanitizer, hand wash to be made at all entry and exit points and common areas;

(iv) Frequent sanitization of all points which come into human contact to be ensured;

(v) Practising of social distancing by workers is to be ensured by all persons in charge of workplaces.

  1. States/ UT Governments are prohibited from imposing any local lockdown outside containment

zones without prior consultation of the Central Government.

  1. Inter-State and Intra-State movement:

No restriction has been placed on inter-State and intra-State movement of persons and goods including

those for cross land-border trade under Treaties with neighbouring countries. No separate permission/

approval/ e-permit will be required for such movements.

  1. Movement of persons with SOPs:

The following to continue to be regulated by the respective SOPs issued:

  1. Movement by passenger trains;
  2. Domestic air travel;
  3. Movement of Vande Bharat and Air Transport flights;
  4. Sign-on and sign-off of India seafarers.
  1. Protection of Vulnerable persons:

Persons above 65 years of age, persons with co-morbidities, pregnant women and children below the age

of 10 years are advised to stay at home, except for essential and health purposes.

The order further reiterated the use and purpose of the Aarogya Setu application.

Unlockdown 3.0: Ministry of Home Affairs Guidelines

Lockdown measures to contain the spread of COVID-19 has been in force in the country since 24 March 2020.

On 30 May 2020, pursuant to the direction of the National Disaster Management Authority under Section 6(2)(i) of the Disaster Management Act, 2005, the Ministry of Home Affairs (MHA) issued an order enumerating the guidelines for phased re-opening of activities which were prohibited during the lockdown in areas outside the designated containment zones. This order was to remain in force up to 30 June 2020.

On 29 June 2020, with a view to re-open more activities in the country, in a calibrated manner, in areas outside containment zones, the MHA issued detailed guidelines on Unlockdown 2. The order had also extended the lockdown in containment zones up to 31 July 2020.

On 29 July 2020, MHA has issued guidelines on Unlock 3 which will come into effect on 1 August 2020 for further extension of the process of phased re-opening. However, the order also stipulated for strict adherence to lockdown in containment zones up to 31 August 2020.

  1. Activities permitted outside the Containment Zones:

All activities except the following are permitted:

  •     Schools, colleges, educational and coaching institutions will remain closed till 31 August2020. Online/ distance learning shall continue to be permitted and shall be encouraged.
  •       International air travel of passengers, except as permitted by MHA;
  •       Metro Rail;
  •     Cinema halls, swimming pools, entertainment parks, theatres, bars and auditoriums, assembly halls etc;
  •      Social, political, sports, entertainment, academic, cultural, religious functions and other large congregations.
  •        Yoga institutes and gymnasiums will be allowed to function from 5 August 2020 for which Standard Operating Procedures will be issued by the Ministry of Health and Family Welfare
  1. Protection of Vulnerable persons:

 

Persons above 65 years of age, persons with co-morbidities, pregnant women and children below the age of 10 years are advised to stay at home, except for essential and health purposes.

  1. Lockdown in Containment Zones:
  1. a)The order directs the District Authorities to demarcate the Containment Zones, on due consideration of the guidelines issued by the MoHFW;
  2.   b)It also imposes continuation of the lockdown in such zones until 31 August2020;
  3.   c)Only essential activities are to be allowed in the Containment Zones;
  4.   d)Strict perimeter control shall be imposed in such zones to ensure that there is no movement of people in and out of these zones, except for medical emergencies and maintenance of supply of essential goods and services;
  5.   e)The Order also stipulates intensive contact tracing, house-to-house surveillance, and other clinical interventions.
  6.   f) States and UTs may also identify Buffer zones outside the Containment Zones, where new cases are likely to occur. The Order allows the District authorities to exercise their discretion to impose restrictions within such buffer zones.
  1. Movement of persons/ goods:
  1. a)No restriction has been placed on inter-State and intra-State movement of persons and goods including those for cross land-border trade under Treaties with neighbouring countries. No separate permission/ approval/ e-permit will be required for such movements.
  2. b)Movement of the following persons are required to adhere to the respective SOPs:

(i)        movement of person by train, issued vide Order dated May 11, 2020;

(ii)      movement of Indian Nationals stranded outside the country and specified persons to travel abroad, issued     vide Order dated May 5, 2020;

(iii)    sign-on and sign-off of Indian seafarers, issued vide Order dated April 21, 2020; and

(iv)    domestic passenger air travel issued vide Order dated 21 May 2020.

  1. Independence day functions:

Independence day functions at National, State, District, Sub-Division, Municipal and Panchayat levels and ‘At Home’ functions, wherever held, will be allowed with social distancing and by following other health protocols eg. wearing masks. In this regard instructions issued vide MHA letter shall be followed.

The order also stipulates that the National Directives for COVID-19 Management, as specified in Annexure 1 of the 30 May 2020 order, must continue to be followed throughout the country.

The State/ UTs, based on assessment of the situation, may prohibit certain activities or impose any restrictions as deemed necessary, outside the Containment Zones.

Latest MCA updates on account of COVID-19

1. Companies (Meetings of Board and its Powers) Second Amendment Rules, 2020  to allow board meeting through video conferencing or other audio-visual means for all matters up to 30 September 2020;

2.  Companies (Appointment and Qualification of Directors) Third Amendment Rules, 2020 to amend compliances required by a person eligible and willing to be appointed as an independent director.

3. Extension of timeline up to 30 September 2020 for creation of deposit repayment reserve of 20% under Section 73(2)(c) of the Companies Act, 2013 and to invest or deposit 15% of amount of debentures under Rule 18 of Companies (Share Capital and Debenture) Rules, 2014.

4. Companies (Share Capital and Debentures) Amendment Rules, 2020

5. Scheme for relaxation of time for filing forms related to creation or modification of charges under the Companies Act, 2013.

6. Extension of time up to 30 September 2020 to conduct EGMs through video conferencing and other audio-visual means.

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