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Lockdown 4.0 – MHA Guidelines

The National Disaster Management Authority (NDMA) issued Order Number 1-29/2020 -PP on 17 May 2020, by virtue of its power under Section 6(2)(i) of the Disaster Management Act, 2005 (Act) directing the National Executive Committee (NEC) to continue to implement lockdown measures in all parts of the country, to contain the spread of COVID-19.

Such lockdown measures to contain the spread of COVID-19 were first imposed by the NDMA on 24 March 2020, and has now been imposed for the fourth time, until 31 May 2020.

In furtherance of the NDMA orders, the NEC in exercise of its powers under Section 10(2)(l) of the Act, had issued corresponding orders on lockdown measures on 24 March 2020, 29 March 2020, 14 April 2020, 15 April 2020 and 01 May 2020 along with respective addendums (NEC Orders).

Pursuant to the NDMA order on 17 May 2020, the Ministry of Home Affairs (MHA) vide Order No. 40-3/2020-DM-I(A) dated 17 May 2020 (Order), has issued guidelines on the measures to be taken by Ministries/ Departments of Government of India, State/ UT Governments and State/ UT Authorities for containment of COVID-19 in India, up to 31 May 2020.

On and from 18 May 2020, all the previous orders issued by the NEC in exercise of its powers under Section 10(2)(l) of the Act, including the NEC Orders, shall cease to have effect, unless expressly excepted under this Order.

Demarcation of Zones:

  1. The delineation of Red, Green and Orange zones will be decided by the respective State/ UT Governments, after taking into due consideration the parameters issued by the Ministry of Health and Family Welfare (MoHFW).
  2. Further, within the Red and Orange zones, Containment zones and Buffer Zones will be demarcated by the District Authorities, after taking into consideration the guidelines issued by the MoHFW.
  3. In the Containment Zones: (i) only essential activities shall be allowed. (ii) there shall be no movement of people in or out of the zones except for medical emergencies and for maintaining supply of essential goods and services; (iii) there shall be intensive contact tracing, house-to-house surveillance and other clinical interventions, as required.
  4. In other zones, all other activities except those specifically prohibited hereunder, are permitted.

Prohibited activities throughout the country:

  1. All domestic and international air travel, except for medical and security purposes.
  2. Metro rail services.
  3. School, colleges, educational, training and coaching institutions. Online/ distance learning is permitted.
  4. Cinema halls, shopping malls, theatres, parks, gyms, swimming pools, bars, assembly halls and auditoriums.
  5. Sports complexes and stadia are permitted to be open, however, spectators will not be allowed.
  6. Social, political, sports, entertainment, academic, cultural, religious functions and gatherings.
  7. Religious places, places of worship and religious congregations.
  8. Hotels, restaurants and other hospitality services, except, those meant for housing health, police, government officials, healthcare workers, stranded persons, tourists, quarantine facilities and running of canteens at bus depots, railway stations and airports.
  9. Restaurants shall be permitted to operate kitchens for home delivery of food items.

Movement of persons, except in Containment zones:

  1. Inter-state movement of passenger vehicles and buses with mutual consent of the States/UTs involved.
  2. Intra-state movement of passenger vehicles and buses as decided by the States/UTs.

Curfew:

  1. Irrespective of the zones, the Order prohibits all movement of individuals between 7.00 pm to 7.00 am, except for essential activities.
  2. The local authorities shall invoke appropriate provisions of law and issue such orders as it deems fit to ensure strict compliance of the curfew.
  3. Persons above 65 years of age, persons with co-morbidities, pregnant women and children below 10 years of age have been directed to stay at home, except for essential and health purposes.

Movement of certain persons and goods that are permitted:

  1. Inter-State and Intra-State movement of medical professionals, nurses, para-medical staff, sanitisation personnel and ambulances are permitted without any restrictions.
  2. Inter-State movement of all types of goods/ cargo, including empty trucks.
  3. Movement of any type of goods/ cargo for cross land-border trade under Treaties with neighbouring countries.

Standard Operating Procedures:

The Order directs strict adherence to the following Standard Operating Procedures for movement of persons:

  1. SOP for transit arrangements for foreign nationals in India issued vide Order dated April 02, 2020.
  2. SOP on movement of stranded labour within States/ UTs, issued vide Order dated April 19, 2020.
  3. SOP on sign-on and sign-off of Indian seafarers, issued vide Order dated April 21, 2020.
  4. SOP on movement of stranded migrant workers, pilgrims, tourists, students and other persons, issued vide Order dated April 29, 2020 and Order dated May 01, 2020.
  5. SOP on movement of Indian Nationals stranded outside the country and of specified persons to travel abroad, issued vide Order dated May 5, 2020.
  6. SOP on movement of person by train, issued vide Order dated May 11, 2020.

The Order further allows the States/ UTs, to prohibit certain other activities/ impose restriction, in the various zones as deemed necessary, based on their assessment of the situation.

Extending the lockdown till 31 May 2020, the Government of Tamil Nadu and Maharashtra, the states with leading count of active cases, have issued fresh guidelines for restrictions and relaxations of activities in the states.
Gujarat, the state with second highest number of cases, is yet to issue guidelines in this regard.

Use of Aarogya Setu Application (App):

To provide timely medical attention and to ensure safety in offices and workplaces, the Order directs employers to ensure that the App is installed by all employees, on a best effort basis.

Key relaxations provided by SEBI from the disclosure obligations under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

In view of the COVID 19 pandemic, the Securities and Exchange Board of India (“SEBI”) has provided certain relaxations to listed entities, from compliance with certain provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI LODR Regulations”) vide its circulars, most recent of which is the circular dated May 12, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/79), which provides for (i) additional relaxations in line with clarifications released by the Ministry of Corporate Affairs (“MCA”) dated April 8, 2020 and April 13, 2020; and (ii) further extension to certain relaxations already provided by SEBI vide its circulars dated March 19, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/38), March 26, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/48), April 17, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/63) and April 23, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/71.

Set out below are the key relaxations to the SEBI LODR Regulations provided:

1. Extension of timelines for submission of certificates

In terms of the SEBI LODR Regulations, listed entities are required to file certain compliance certificates with the stock exchanges, indicating compliance with regulatory requirements. These include

(a) Certificate on maintenance of share transfer facility as per Regulation 7 (3) which is to be filed within one month of the end of each half of the financial year.

Pursuant to the SEBI circular dated March 19, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/38), the due date for the submission of the compliance certificate for the half year ended March 31, 2020 has been extended from April 30, 2020 to May 31, 2020.

(b) Secretarial compliance report for listed entities and their material unlisted subsidiaries in terms of Regulation 24A, which is to be annexed to the annual report.

This requirement has been relaxed vide the SEBI circular dated March 19, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/38) from May 30, 2020 to June 30, 2020 for the financial year ended March 31, 2020.

(c) Certificate from practicing company secretary on share certificates as per Regulation 40(9) to be submitted within one month of the end of each half of the financial year, certifying that all certificates have been issued within thirty days of the date of lodgement for transfer, sub-division, consolidation, renewal, exchange or endorsement of calls/allotment monies and submit the same with the stock exchange.

SEBI vide its circular dated March 26, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/48), has extended the due date for submission of the aforementioned certificate, for the half year ended March 31, 2020, from April 30, 2020 to May 31, 2020.

2. Financial results

As per Regulation 33(3)(c) of the SEBI LODR Regulations, a listed entity is required to submit with the stock exchange, its standalone and consolidated (if applicable) quarterly financial results within 45 days of the end of the particular quarter. This requirement has been relaxed for the quarter ended March 31, 2020 pursuant to SEBI circular dated March 19, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/38). The due date for submission of the aforementioned financial results is revised from May 15, 2020 to June 30, 2020.

Further, as per Regulation 33(3)(d) of the SEBI LODR Regulations, a listed entity is required to submit with the stock exchange, its standalone and consolidated (if applicable) annual audited financial results within sixty days of the end of the financial year. This requirement has been relaxed for the quarter ended March 31, 2020 pursuant to SEBI circular dated March 19, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/38). The due date for submission of the aforementioned financial results is revised from May 30, 2020 to June 30, 2020.

In addition to the above, by way of SEBI circular dated May 12, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/79), SEBI took note of the representation from listed entities that are banks and insurance companies with relation to the difficulties faced by them in the preparation of consolidated financial results under regulation 33(3)(b) in view of different accounting standards being followed by companies belonging to same group and the difficulties in restating those financials as per Indian Accounting Standards (“Ind AS”) due to the prevailing circumstances in view of COVID 19 pandemic. The Reserve Bank of India through its notification dated March 22, 2019, has deferred the implementation of Ind AS until further notice to provide relief to scheduled commercial banks.

In light of the above, SEBI in the circular dated May 12, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/79) has clarified that listed entities which are banking and / or insurance companies or having subsidiaries which are banking and / or insurance companies may submit consolidated financial results under regulation 33(3)(b) for the quarter ending June 30, 2020 on a voluntary basis. However, they shall continue to submit the standalone financial results as required under regulation 33(3)(a) of the LODR. If such listed entities choose to publish only standalone financial results and not consolidated financial results, they shall give reasons for the same.

3. Provisions relating to frequency of meetings

As the lockdown has imposed restrictions on physical gatherings and companies have been facing difficulties in conducting meetings completely through electronic audio-visual means, SEBI has provided certain relaxations pertaining to the frequency of meetings to be held by listed entities. It may be noted that certain of these provisions will also require a corresponding relaxation from the MCA, which one can hope will be forthcoming shortly.

(a) As per Regulation 17(2), the board of directors of a listed entity is required to meet at least four times a year, with a maximum time gap of one hundred and twenty days between any two meetings and as per the Regulation 18(2)(a), the audit committee of a listed entity is also required to meet at least four times a year, with a maximum time gap of one hundred and twenty days between any two meetings. SEBI vide its circular dated March 19, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/38) has exempted listed entities from observing the maximum gap between the meetings held or proposed to be held between December 1, 2019 and June 30, 2020. However, it has been clarified that there is no relaxation provided to the board of directors / audit committee from ensuring that they meet four times in a year.

(b) SEBI has vide its circular dated March 26, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/48), extended the time limit provided to listed entities to have one meeting of the nomination and remuneration committee, stakeholders relationship committee and risk management committee as required under Regulation 19(3A), Regulation 20(3A) and Regulation 21(3A), respectively, of the SEBI LODR Regulations. A listed entity is now required to comply with this requirement by June 30, 2020 instead of March 31, 2020.

(c) As per Regulation 44(5) of the SEBI LODR Regulations, the top 100 listed entities by market capitalization, determined as on March 31st of every financial year, shall hold their annual general meetings within a period of five months from the date of closing of the financial year. SEBI vide its circular dated March 26, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/48), has extended the time limit for conducting the annual general meeting from August 31, 2020 to September 30, 2020. Further, SEBI has in its circular dated April 23, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/71 clarified that the extended time limit of up to September 30, 2020 shall also be applicable to the top 100 listed entities by market capitalization, whose financial year ended on December 31, 2020.

4. Provisions relating to publication and dispatch of forms and advertisements

In view of the impact of the current lockdown on postal services and physical newspapers, SEBI has also dispensed with or relaxed requirements relating to postal dispatch of forms or publication in physical newspapers, including:

(a) SEBI vide its circular dated May 12, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/79), has temporarily dispended the requirement of sending proxy forms for general meeting to holders of securities as per Regulation 44(4), in case such meetings are held through electric mode. This relaxation is available for listed entities who conduct their AGMs through electronic mode during the calendar year 2020 (i.e. till December 31, 2020).

(b) Regulation 36 (1)(b) and (c) of SEBI LODR Regulation prescribes that a listed entity shall send a hard copy of the statement containing salient features of all the documents, as prescribed in Section 136 of the Companies Act, 2013 to the shareholders who have not registered their email addresses and hard copies of full annual reports to those shareholders, who request for the same, respectively. Regulation 58 (1)(b) &(c) of the SEBI LODR Regulations extend similar requirements to entities which have listed their NCDs and NCRPS. SEBI vide its circular dated May 12, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/79), has dispensed the aforementioned requirements for listed entities who conduct their annual general meetings during the calendar year 2020 (i.e. till December 31, 2020).

(c) SEBI vide its circular dated March 26, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/48) read with its circular dated May 12, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/79) has exempted publication of advertisements in newspapers, as required under Regulation 47 of SEBI LODR Regulations, for all events scheduled till June 30, 2020, since some newspapers had stopped their print versions due to the COVID 19 pandemic.

5. Timelines for provision of intimation to stock exchanges

In view of the difficulties caused by the pandemic to normal operations of companies, SEBI has provided temporary relaxations regarding certain intimations to be provided to stock exchanges:

(a) As per Regulation 29 (2) of the SEBI LODR Regulations, stock exchanges need to be provided prior intimation about meetings of the board (excluding the date of the intimation and date of the meeting) as follows: (i) at least five days before the meeting if financial results are to be considered; and (ii) two working days in other cases.

SEBI vide its circular dated April 17, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/63) has decided that the above requirement under Regulation 29 (2) of SEBI LODR Regulations of prior intimation of five days / two working days shall be reduced to two days, for board meetings held till July 31, 2020.

(b) As per Regulation 39 (3) of the SEBI LODR Regulation, requires listed entities to submit information regarding loss of share certificates and issue of the duplicate certificates, to the stock exchange within two days of the listed entity receiving information.

SEBI vide its circular dated April 17, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/63) has decided that any delay beyond the stipulated time will not attract penal provisions laid down vide SEBI circular no. SEBI/HO/CFD/CMD/CIR/P/2018/77 dated May 3, 2018. This relaxation is for intimations to be made between March 1, 2020 to May 31, 2020.

6. Use of digital signature and electronic payment methods

(a) SEBI vide its circular dated April 17, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/63) has clarified that authentication / certification of any filing / submission made to stock exchanges under the SEBI LODR Regulations may be done using digital signature certifications until June 30, 2020.

(b) As per Regulation 12 of the SEBI LODR Regulations, issuance of ‘payable at par’ warrants or cheques in case it is not possible to use electronic modes of payment. Further, in case the amount payable as dividend exceeds Rs.1500, the ‘payable-at-par’ warrants or cheques shall be sent by speed post.

SEBI by way of the circular dated May 12, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/79) has clarified that the requirements of this regulation will apply upon normalization of postal services and in cases where email addresses of shareholders are available, listed entities shall endeavor to obtain their bank account details and use the electronic modes of payment specified in Schedule I of the SEBI LODR Regulation.

7. Deferral of effective date of operation of the SEBI circular on standard operating procedure

SEBI vide circular no. SEBI/HO/CFD/CMD/CIR/P/2020/12 dated January 22, 2020 issued the Standard Operating Procedure (“SoP”) on imposition of fines and other enforcement actions for non-compliances with provisions of the SEBI LODR Regulations, the effective date of operation of which is for compliance periods ending on or after March 31, 2020. Pursuant to the SEBI circular dated March 26, 2020 (Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/48), the said circular dated January 22, 2020 shall now come into force with effect from compliance periods ending on or after June 30, 2020. It may be noted that the SoP circular dated May 3, 2018 would be applicable till such date.

SEBI notifies eight entities to carry out e-KYC Aadhar authentication

In view of the COVID-19 pandemic, the Government of India, Department of Revenue had vide Gazette Notification No. G.S.R. 261(E) dated April 22, 2020 (“Notification”) permitted, interalia eight reporting entities to carry out electronic know-your-customer (“e-KYC”) Aadhar authentication by exercising its powers under the proviso to Section 11A of the Prevention of Money-Laundering Act, 2002 (“PMLA”).

Section 11A of PMLA lays down the documents using which a reporting entity must verify the identity of its clients and the beneficial owner. E-KYC using Aadhar authentication is only permitted to banking companies. However, if the Central Government is satisfied that a reporting entity other than a banking company, complies with the standards of privacy and security under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 then it may, post consultation with Unique Identification Authority of India (“UIDAI”) and the appropriate regulator, permit such entity to perform e-KYC using Aadhar authentication.

Accordingly, in furtherance of the Notification, the Securities and Exchange Board of India (“SEBI”), vide its circular dated May 12, 2020 (circular no. SEBI/HO/MIRSD/DOP/CIR/P/20 has allowed the following eight entities to undertake e-KYC Aadhar authentication of their clients:

  1. BSE Limited
  2. National Securities Depository Limited
  3. Central Depository Services (India) Limited
  4. CDSL Ventures Limited
  5. NSDL Database Management Limited
  6. NSE Data and Analytics Limited
  7. CAMS Investor Services Private Limited
  8. Computer Age Management Services Private Limited

The Central Government had also notified Link Intime India Private Limited for carrying out the authentication of the Aadhaar number of clients using e-KYC authentication facility. However, SEBI is yet to recommend them.

The eight notified entities have to register themselves with UIDAI as KYC user agency post which they shall allow SEBI registered intermediaries / mutual fund distributors to undertake Aadhaar authentication in respect of their clients for the purpose of the KYC. The SEBI registered intermediaries / mutual fund distributors who want to avail the facility of Aadhar authentication will have to enter into an agreement with a KYC user agency as well as get themselves registered with UIDAI as sub KYC user agency. The intermediaries registered as KYC user agencies or as sub KYC user agencies are required to follow the processes set out in the SEBI circular dated November 5, 2019, including obtaining permission from UIDAI for sharing e-KYC data, maintenance of auditable logs of transactions were e-KYC data is shared and mechanisms for monitoring irregular transactions. The process and use of technology for online KYC verification has also been clarified by SEBI by way of circular dated April 24, 2020.

This is a welcome move by SEBI given the lockdown prevailing in the country, as this will allow investors to comply with the applicable KYC requirements using Aadhar authentication and they will not have to physically visit the intermediaries. Moreover, it will lead to ease of investing, customer convenience, increased efficiency and reduced timelines for onboarding of clients. Using the e-KYC Aadhar authentication, one can now complete the KYC requirement of their demat account, brokerage account, trading account, make investments in mutual funds and other securities including applying to new systematic investment plan, systematic transfer plan and, dividend transfer plan, subscribe to overseas direct investments. Resident Indian foreign portfolio investors may also utilise the e-KYC Aadhaar authentication to comply with their KYC requirements. Further, one may now undertake e-KYC using Aadhar authentication with their SEBI registered portfolio managers, asset managers and wealth managers and other SEBI registered intermediaries and mutual fund distributors.

It is to be noted that e-KYC using Aadhar authentication is only optional and investors may continue to use the other officially valid documents as notified by the Central Government to be KYC compliant. Additionally, none of the reporting entities can store a client’s core biometric information or the Aadhar number.

Please refer to the SEBI circular dated May 12, 2020 (circular no. SEBI/HO/MIRSD/DOP/CIR/P/20) for more details.

Economic challenges of pandemic: Indirect tax measures that govt may consider

This article was originally published in Times Now on 13 May 2020. Link to article available here.

As the world deals with the challenges posed by the COVID-19 pandemic, India Inc. struggles to overcome the economic slowdown triggered by unceasing lockdowns. The shutdown of businesses, slowdown in demand, and complete disruption in the supply-chain have wrought a severe liquidity crisis in the economy.


Goods and Services Tax (‘GST’) collections are major source of revenue for the Government and key indicators to the country’s economic health. GST collections in the month of March 2020 stood at a five-month low of Rs. 97,500 crore, falling short of the target of Rs. 125,000 crore. The release of data for the month of April has been deferred due to the lower mop-ups expected on account of the lockdown and extended timelines for return filing announced by the Government. However, the April collections are expected to be significantly lower, as only a few sectors, such as telecom, pharma, food, and fast-moving consumer goods (FMCG), have been operational during the lockdown.


At the same time, GST being a transactions tax has a significant impact on the prices as well as working capital requirements of businesses. Demand slowdown and the liquidity crisis have disrupted the payment cycles, challenging businesses in meeting their GST liabilities, even with the extended timelines prescribed by the Government.


The unfavourable business climate has led to increasing demand for a stimulus package, including GST rate cuts, to stabilize the economy. This compels the Government to be ready for a tightrope walk, as it evaluates the indirect tax measured that may be taken while keeping an eye on managing the increasing fiscal deficit.


GST rate cuts across the board may not be viable in the long run, as they could cause a fund crunch for the Government. At the same time, certain sectors, such as aviation, tourism, and hotels and restaurants, which have borne the brunt of the crisis while being virtually shut down for the last couple of months, need robust support for survival. Government should offer relief to these vulnerable sectors by lowering the GST rates, and possibly suspending GST payments for a couple of quarters until such time that demand picks up again.


With the crude oil prices expected to remain at an all-time low in near future, the time is opportune to revisit the exclusion of petroleum products from the GST ambit. However, considering that transportation fuels contribute to a significant proportion of the Centre and State revenues, a complete inclusion may be strongly opposed. However, the way forward could begin by including aviation fuel under the purview of GST, providing substantial working capital to the airlines and thereby enabling them to claim credits of taxes levied for such fuel procurement. States may be more amenable to include aviation fuels under GST rather than face the threat of larger revenue loss in the event some airlines shut down or curtail their operations.


Another step that may ease industry’s anxiety is to allow businesses to pay GST on a cash basis instead of accruals, as was the norm in the Service tax regime prior to April 2011. This would allow businesses to discharge their GST liability as and when they receive the consideration along with GST charged on invoices instead of from their own pocket. In addition, provisions may be created in the law to claim adjustments in GST payment for bad debts and short realization of invoices.


On the export front, while the Government has issued instructions to clear the pending GST refunds filed by the exporters, in addition it needs to institute an incentive package for exporters to motivate competitiveness and ensure availability of sufficient working capital. To this end, Merchandise Exports from India Scheme (‘MEIS’) and Services Exports from India Scheme (‘SEIS’), which provide incentive to exporters as a percentage of the value of goods and services exported, need to extend the period of their offer as may be necessary to help exporters meet the challenge of the current global slowdown in demand.


As the country prepares to come out of the lockdown, the liquidity crisis and the demand and supply vacuum must be addressed. The measures suggested may provide partial relief to businesses without substantially compromising the fiscal realities for the Government. However, with day-to-day life and the business environment showing no signs of an early return to normalcy, these are merely few of many steps that may be vital to revive the economy.

Further relaxations for compliances under Goods and Services Tax and Customs Laws

In view of the extension of the nation-wide lockdown on account of the COVID-19 pandemic, the Government of India and the State Government of Kerala have issued further relaxations pertaining to extension of due dates for filing returns for Kerala Flood Cess and extension of facility of accepting undertaking in lieu of bonds.
Key relaxations have been summarized below, for ease of reference.

A. Extension of due date for filing of return for Kerala Flood Cess

The Government of Kerala had notified that the due date of filing returns in Form GSTR 3B (i.e. 20th of the succeeding month) will also be applicable to filing returns for Kerala Flood Cess. However, on account of practical challenges in filing the said return due to the unprecedented spread of the COVID-19 pandemic, the due dates for the tax periods from February, 2020 to May, 2020 have been extended vide Notification No. 7/2020-State Tax dated April 28, 2020 as follows:

Class of registered persons Tax Period Extended Date
Taxpayers having an aggregate turnover of more than INR 5 crores in the preceding financial year February 2020, March 2020 and April 2020 June 24, 2020
Taxpayers having an aggregate turnover of more than INR 1.5 crores and up to rupees five crores in the preceding financial year February 2020 and March 2020 June 29, 2020
April 2020 June 30, 2020
Taxpayers having an aggregate turnover of up to INR 1.5 crores in the preceding financial year February 202 June 30, 2020
March 2020 July 3, 2020
April 2020 July 6, 2020
Taxpayers having an aggregate turnover of more than INR 5 crore rupees in the previous financial year May 2020 June 27, 2020
Taxpayers having an aggregate turnover of up to INR 5 crore rupees in the previous financial year May 2020 July 12, 2020

B. Extension of facility of accepting undertaking in lieu of bonds

Central Board of Indirect Taxes & Customs (‘CBIC’) has issued Circular No. 23/2020-Customs dated May 11, 2020 for reviewing Circular No. 17/2020 dated April 3, 2020 on ‘Measure to facilitate trade during the lockdown period- section 143AA of the Customs Act, 1962’. On account of the outbreak of the COVID-19 pandemic, CBIC had issued Circular No. 17/2020 dated April 3, 2020 providing relaxation to the taxpayers, by accepting an undertaking in lieu of a bond required during customs clearance, subject to conditions as underlined in the circular. The facility was extended till May 15, 2020 vide Circular No. 21/2020 dated April 21, 2020. Given the further extension of lockdown, and considering the time required to normalise the situation, this facility will continue for the period till May 30, 2020 and, consequently, the date for submission of proper bond in lieu of the undertaking is now extended till June 15, 2020. This relaxation will be revisited by CBIC at the end of the lockdown.

Funding Landscape for Start-ups during COVID-19

The prevailing COVID-19 pandemic has had a butterfly effect across various sectors, particularly at a time when the Indian economy was under stress and various sectors were looking for incentives and support from the government. The pandemic and the ensuing lock-down having caused a significant disruption in business, trade and movement of cash, paving the way to a worldwide recession. As start-ups find their business plans floundering, it seems to follow that there is an urgent need for low-cost funding options encouraging new businesses. This article explores the avenues of funding available to start-ups and related nuances.


Typically, an early-stage start-up would look for funding from venture capital funds, angel investors or even a “friends and family” round. Such rounds would in most cases, be through the issuance of convertible equity instruments and investors would agree on the valuation, business plan and terms of conversion / dilution. However, the current economic circumstances can make it a challenge to take the first steps towards such a fund raise – creating a business deck and projections and agreeing on the valuation with the investors. Equity investments, therefore, may prove to be difficult for both promoters and investors. Investors may very well see the circumstances as an opportunity to invest in companies at beneficial valuations. However, the market uncertainties may force investors to rethink such investments, since it is not clear how the impact of the pandemic will be felt in various sectors in the short, medium or long terms.


Organizations, particularly start-ups need to urgently put together strategies for survival (and indeed, growth), forcing these businesses to adopt measures such as consolidation mergers, selling off to cash rich businesses or considering scaling down or winding-up.
In cases where dilutive or equity transactions are not preferred, certain modes of non-dilutive funding which could gather steam are considered below:

Crowdfunding
In general terms, crowdfunding most forms of which are known as peer to peer lending, is when a business generates small sums of funding[1] from a large number of people. Peer to peer (P2P) lending is regulated by RBI under the Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017 (NBFC P2P Regulations). P2P funding garnered interest at the height of the cryptocurrency bubble, where investors would receive electronic tokens, which could be traded in a decentralized digital market, in return for the sums of money invested. There are other forms of crowdfunding where the contributors/investors are given certain perks such as the ability to buy future products at a discounted price. In real estate, this could take the form of projects in which ownership of units is shared by people directly, or through a corporate entity

Convertible Note
A convertible note is a funding instrument which is initially structured as debt financing. The Companies (Acceptance of Deposits) Rules, 2014 allows duly recognized startups to issue convertible notes. This instrument can be converted into: i) a specific number of shares in the company upon the occurrence of certain events; or ii) into cash of equal value within a period of five years of the issue of the note. This method of raising finance is particularly useful to a nascent startup, though it has not been as prevalent as it was expected to be when first introduced. The convertible note has a benefit that it is not considered as a debenture and deposits although it gives a fixed return with voting rights. Unlike a commercial paper, the issuer of convertible notes are not required to meet minimum networth requirements

Debt
Borrowing a sum of money by offering a conventional form of collateral such as immovable property is the oldest form of funding. Startup businesses normally stay away from this form of funding due the relatively high capital costs and the difficulties in providing acceptable collateral. However, going forward this may prove to be a reliable means of short-term funding particularly as banks and lenders focus on providing loans structured to help entities tide over the current circumstances. The RBI in order to infuse liquidity in the system has reduced the cash reserve ratio of all banks[2], reduced the Bank rate[3], reduction in the repo rate and the reverse repo rate[4].


SIDBI has set up a Covid-19 Startup Assistance Scheme[5] to provide short term credit assistance to innovative startups that have demonstrated ability to adapt to economic impact from Covid-19 and ensured its employees safety and financial stability. The credit facility is in the form of a term loan of about 36 months and ticket size of not more than INR 2 crores. There are net-worth and minimum revenue requirements that have to be met by the start-up.


SAFE or SIDBI Assistance to Facilitate Emergency response against Corona Virus scheme provides credit facilities to MSEs engaged in the manufacture of masks, gloves, headgear, bodysuits, shoe-covers, ventilators, goggles, testing labs etc. These are loans of up to 50 lakhs at a fixed interest rate of 5% per annum with a 5 year term.
SIDBI has several other credit schemes to provide financial assistance to start-ups such as:·

  • SMILE or SIDBI Make in India Soft Loan Fund for Micro Small and Medium Enterprises available to 25 identified sectors. The loans have a minimum size of 25 lakhs and a term of up to 10 years.

  • SMILE Equipment Finance (SEF)

  • Loan under partnership with OEM

  • SIDBI Trader Finance Scheme

  • SIDBI – Loan for Purchase of Equipment for Enterprise’s Development

Old wine in new wineskin An option which may see increasing favor, is the strategic mergers or acquisitions of start-ups by other companies, competitor or entities in the same or related sectors. However, strategic investments take a great deal of time and finesse to put together, and the structuring requires detailed consideration of the strengths and weaknesses of all of the entities concerned. In some cases, an acqui-hire transaction may make the most sense, whereas asset or business purchases may seem more appropriate for other entities. Such deals, depending on exchange control compliances, may be structured as all-stock deals requiring no cash payments to be made. In fact, all-stock deals were popular even before the pandemic and its impact on the economy were felt.

Deal making trends. While one may argue that the scales of leverages in deal negotiations are heavily tipped in the favour of investors as cash becomes scarce and expensive, investors will be required to make capital calls of their existing portfolio companies, make investments with longer sunset periods as expectation of returns are stretched. Investment negotiations will see greater focus given on drag along clauses. Another trend that we believe would emerge is the requirement of companies to set aside emergency reserve funds. The requirement to create emergency reserve funds will affect valuations and exit returns on account of the pressure to generate revenues and profits with a smaller cash pool. Shares with differential voting rights are also likely to come into pronounced usage as the instrument essentially allows the promoters to garner capital into the company while protecting promoter management rights.
Overall, given the ebbing confidence in the market, the overarching sentiment remains that industries and companies are looking to the governments (Central and state) for lifelines and support.

[1] A lender’s maximum exposure to all borrowers across all P2P platforms is INR 50,00,000 under the NBFC P2P Regulations.
[2] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11841&Mode=0
[3] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11839&Mode=0
[4] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11867&Mode=0
[5] http://sidbivcf.in/files/article/articlefiles/COVID19_Scheme_Details.pdf

Direct Tax relaxations for tackling COVID-19

Various relaxations have been announced in the Income Tax Act, 1961 (“IT Act”) to provide some relief to businesses in the current situation. The relaxations proposed by the Finance Minister on 24th March 2020 have been given effect by way of Ordinance promulgated by the President on 31st March 2020. Central Board of Direct Taxes (“CBDT”) has also provided some relaxations by an order u/s 119 of the IT Act. These relaxations have been discussed below.

A. Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020

1. Time limits for compliance or completion of certain actions[1] under the specified acts[2] (as defined in the Ordinance) whose time limits fall during the period from 20th March 2020 to 29th June 2020[3] has been extended to 30th June 2020[4]. Certain actions whose time limit has been extended are as follows:


1.1. Completion of any proceedings or passing of any order or issuance of any notice, intimation, notification, sanction or approval or such other action by any authority, commission or tribunal under the provisions of the specified act;


1.2. Filing of an appeal, reply or application or furnishing of any report, document, return, statement or such other record under the provisions of the specified Act;


1.3. The following specific actions under the IT Act:


1.3.1. Making of investment, deposit, payment, acquisition, purchase or construction or any such other action for the purposes of claiming any deduction, exemption or allowance under the following provisions:


¾ Sections 54 to 54GB of the IT Act;


¾ Chapter VI-A of the IT Act under the heading “B – Deductions in respect of certain payments”; and


¾ Such other provisions of the IT Act as the Central Government may notify.


1.3.2. Beginning of manufacture or production of articles or thins or providing any services referred to in section 10AA of the IT Act, in a case where the letter of approval has been issued on or before 31st March 2020 in accordance with the provisions of Special Economic Zones Act, 2005 (“SEZ Act”).


Accordingly, the date of the following compliances under the IT Act, as listed in Table-I, has been extended:

 

Table – I
S. No. Relevant sections under the IT Act Compliance
  i.  Section 139(4) Filing of belated return for the Assessment Year (“AY”) 2019-20
  ii.   Section 139(5) Filing of revised return for the AY 2019-20
  iii.   Section 143(1) Sending an intimation after processing of return of income (ITR), if the return is filed:  a) During Financial Year (“FY”) 2018-19 under section 139;  b) During FY 2018-19 in response to a notice issued under section 142(1)
  iv.   Section 149 Time-limit to issue a reassessment notice for the:  a) AY 2015-16 if escaped income is less than Rs. 1 lakh;  b) AY 2013-14 if escaped income is more than Rs. 1 lakh  c) AY 2003-04 if escaped income is related to any asset (including financial interest in any entity) located outside India  d) AY 2013-14, to a person who has been treated as an agent of a non-resident under section 163
  v.   Section 200 Furnishing of TDS Statement:  a) For the fourth quarter of the FY 2019-20  b) For the months of February, March and April 2020   
  vi.   Section 203 Issue of TDS certificate:
a) In respect tax deducted from the salary paid during the FY 2019-20;
b) In respect of tax deducted from payments other than salary for the quarter ending March 31, 2020;
c) In respect of tax deducted under section 194-IA/194-IB/194M during the month of March, 2020 and April, 2020;
  vii.   Section 206C a) Furnishing of TCS Statement for fourth quarter of the FY 2019-20  b) Issue of TCS certificate for the fourth quarter of the FY 2019-20
  viii.   Section 200A & Section 206CB Due date to send the intimation for processing of statement of TDS/TCS filed during the FY 2018-19
  ix.   Section 139A Application for allotment of PAN of non-individual resident person, which enters into a financial transaction of Rs. 2.5 lakhs or more during FY 2019-20 and hasn’t been allotted any PAN
   x.   Section 139AA Linking of Aadhaar number and PAN
   xi.   Section 139AA PAN to be treated as inoperative due to non-linking it with Aadhaar number
  xii.   Section 10AA Commencement of operation by the SEZ units for claiming deduction under section 10AA where necessary approval has been received under the provisions of SEZ Act on or before March 31, 2020
  xiii.   Section 54 to 54GB Making Investments or completing construction / purchase for claiming deduction from capital gains arising during the FY 2019-20.
   xiv.   Chapter VIA (Part B) Making various investments or payments (Section 80C to 80GGC) for the FY 2019-20 such as Section 80C (LIC, PPF, NSC etc.), 80D (Medical claim), 80G (Donations), etc.
  xv.   Section 285BA

 Furnishing of Statement of Financial Transactions (SFT) for the FY 2019-20
  xvi.   Section 3 of Direct Tax Vivad se Vishwas Act, 2020 Non-payment of additional 10% payment of disputed tax

2. In case where any due date specified in, or prescribed or notified under, the specified act for payment of any amount towards tax or levy falls during the period from 20th March 2020 to 29th June 2020[5] and such amount has not been paid within such date but has been paid on or before 30th June 2020[6], the following relaxation has been provided:


2.1. Interest shall be charged only @ 0.75% per month in respect of such amount for the ‘period of delay’[7]; and


2.2. No interest shall be levied and no prosecution shall be sanctioned in respect of such amount for the ‘period of delay’.


Accordingly, interest shall be charged @ 0.75% per month for the following amounts, as listed in Table-II, if they are not paid within the due date but have been paid on or before 30th June 2020:

Table – II
  S. No. Relevant sections under the IT Act Amounts
  i.              234B Payment of advance tax for FY 2019-20
  ii.              234C Payment of first installment of advance tax for the FY 2020-21
  iii.              201 Deposit of tax deducted during the month of  March, April and May, 2020
  iv.              206C Deposit of tax collected during the month of March, April and May, 2020
  v.              Section 170 of Finance Act, 2016 Deposit of equalization levy deducted during the month of March, April and May, 2020 in respect of payment made to a non-resident for online advertisement services
  vi.              Section 104 of  Finance (No. 2) Act, 2004 Deposit of Securities Transaction tax (STT) collected during the month of March, April and May, 2020
  vii.              Section 123 of Finance Act, 2013 Deposit of Commodities Transaction tax (CTT) collected during the month of March, April and May, 2020
  viii.              115-O and 115R Payment of Dividend Distribution Tax (DDT) in respect of dividend declared, distributed or paid by any domestic or mutual fund (which is payable between 20-03-2020 and 31-03-2020)
  ix.              115QA Payment of additional income-tax in respect of buy-back of shares by the company (which is payable between 20-03-2020 and 29-06-2020)

3. The Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES FUND) has been included 80G, thereby making donations to this fund by taxpayers eligible for deduction in computation of the total income.

B. CBDT’s order u/s 119 of the IT Act
CBDT has issued following directions:

Directions with respect to following applications are provided in Table-III:


1.1. Applications of payees u/s 195 and 197 of the IT Act for lower or nil rate of deduction of TDS[8] for FY 2020-21; and


1.2. Applications of buyers/ licensees/ lessees u/s 206C (9) of the IT Act for lower or nil rate of collection of TCS[9] for FY 2020-21.

Table – III
Cases Particulars Direction
Case I a) Taxpayer has filed such application on the TRACES Portal for FY 2020-21;  b) The application is pending for disposal; and  c) Such taxpayer has been issued such certificate for FY 2019-20 Such certificate would be applicable till 30th June 2020 of the FY 2020-21 or disposal of their applications by the Assessing Officer (“AO”) whichever is earlier, in respect of the transactions and the deductor or collector for whom the certificate was issued for FY 2019-20. 
Case II a) Taxpayer could not file such application on the TRACES Portal for FY 2020-21;  b) But such taxpayer has been issued such certificate for FY 2019-20 Such certificate will be applicable till 30th June 2020 of the FY 2020-21. However, such taxpayer will need to apply to the TDS/TCS AO as per the prescribed procedure[1] as soon as normalcy is restored or 30th June 2020, whichever is earlier
Case III a) Taxpayer has not filed such application on the TRACES Portal for FY 2020-21; and  b) Such taxpayer hasn’t been issued such certificate for FY 2019-20 A modified procedure for application and consequent handling by the TDS/TCS Assessing Officer has been laid down[2].  The certificate shall be issued up to 30th June 2020 or earlier date as specified by AO.
Case IV a) Payments to Non-residents (including foreign companies) having Permanent Establishment in India; and  b) Such payment is not covered in Case I and II above Tax on payments made will be deducted @ 10% including surcharge and cess, on such payments till 30th June 2020 of F.Y. 2020-21, or disposal of their applications, whichever is earlier. 

2. Direction[12] with respect to following applications are provided in Table-IV:


2.1. applications of payees u/s 195 and 197 of the IT Act for lower or nil rate of deduction of TDS for FY 2019-20; and


2.2. applications of buyers/ licensees/ lessees u/s 206C (9) of the IT Act for lower or nil rate of collection of TCS for FY 2019-20.

Table – IV
Particulars Direction
a) Taxpayer has filed such application on the TRACES Portal for FY 2019-20; and  b) The application is pending for disposal;  The taxpayer shall intimate the pendency of such application for FY 2019-20 vide an email addressed to the AO along with the required documents and evidences in filing of such application at the TRACES Portal. The AO shall dispose of such application by 27th April 2020 and communicate to the taxpayer regarding the issuance/rejection of the certificate. Such certificate shall be applicable only for the amounts credited/debited during the FY 2019-20 after the date of making such application but remained unpaid till the date of issuance of such certificate by the AO.

3. Direction with respect to submission of Form 15G and 15H to banks, other institutions etc. by some eligible persons for FY 2020-21 is provided in Table-V:

Table – V
Particulars Direction
a) Taxpayer has not submitted Form 15G and 15H to bank and other institutions for FY 2020-21; and  b) Taxpayer had submitted Form 15G and 15H to such bank and other institutions for FY 2019-20. Such Form 15G and 15H will be valid[13] up to 30th June 2020 for FY 2020-21. 

4. Direction with respect to ‘residency’ for individuals u/s 6 of the IT Act


4.1. For FY 2019-20:

Table – VI
Cases Particulars Direction
Case I a) The ‘individual’ has come to India on a visit before 22nd March 2020; and  b)The ‘individual’ has been unable to leave India on or before 31st March 2020. The individual’s period of stay from 22nd March 2020 to 31st March 2020 shall not been taken into account in determination of his residential status u/s 6 of the IT Act.
Case II a) The ‘individual’ has come to India on a visit before 22nd March 2020;
b)The ‘individual’ has been quarantined in India due to Covid-19 on or after 1st March 2020; and
c) The ‘individual’ has either
     – departed on an evacuation flight on or before 31st March 2020, or     – been unable to leave India on or before 31st March 2020.		 The individual’s period of stay from the beginning of his quarantine to his date of departure or 31st March 2020, as the case may be, shall not been taken into account in determination of his residential status u/s 6 of the IT Act.
Case III a) The ‘individual’ has come to India on a visit before 22nd March 2020; and
d) The ‘individual’ has departed on an evacuation flight on or before 31st March 2020		 The individual’s period of stay from 22nd March 2020 to his date of departure shall not been taken into account in determination of his residential status u/s 6 of the IT Act.

4.2. For FY 2020-21:


The CBDT, in its press release, has provided that a circular shall be issued for excluding the period of stay of the ‘individual’ upto the date of normalization of international flight operations in India after the normalization thereof.

C. CBDT’s Interim Action Plan for First Quarter of FY 2020-21


The following directions, among others, have been issued by the CBDT to Income Tax Officers under the Interim Action Plan for the first quarter (April 2020 to June 2020) of the FY 2020-21:

  1. At the outset, it has been directed that no communication with the taxpayer having an “adverse effect” is to be done during this first quarter until the issuance of fresh guidelines by the CBDT.
  2. It has been directed to identify and be prepared for issuance of notice u/s 148 for ‘income escaping assessment’ by 30th June 2020. These notices will be issued to the taxpayers on receiving a fresh communication from the CBDT in this regard.
  3. It has been directed to be prepared for disposal of applications by the taxpayers u/s 154 (rectification of mistake).
  4. It has been directed to check all the pending demands for removal of all the duplicate demands.
  5. It has been directed to dispose of all the applications u/s 12AA or 80G of the IT Act (charitable trusts) for grant of registrations received up to 31st March 2020.
  6. It has further been directed to upload the manual orders u/s 147 (income escaping assessment) and 263 (revision of order prejudicial to revenue) of the IT Act.

[1] These actions do not include payment of any amount towards tax or levy whose due date falls during the period from 20th March 2020 to 29th June 2020 or such other date as the central government may specify by notification. This means that there has been no extension in the due date for payment of such amounts.


[2] It is defined as: (a) Wealth Tax Act, 1957; (b) The Income tax Act, 1961; (c) The Prohibition of Benami Property Transaction Act; (d) Chapter VII of the Finance (No.2) Act, 2004 (Securities Transaction Tax);

(e) Chapter VII of the Finance Act, 2013 (Commodities Transaction Tax);

(f) The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015; (g) Chapter VIII of the Finance Act 2016 (Equalization Levy); and (h) The Direct Tax Vivad Se Vishwas Act, 2020.

[3] The Central Government can extend this time period by a notification.

[4] The Central Government can further extend this date of completion or compliance period by notification. In this regard, the Central Government can specify different dates for completion or compliance of different actions for the purpose of this extension.


[5] The Central Government can extend this time period by a notification


[6] The Central Government can further extend this date for payment of such amount for the purposes of this relaxation.


[7] It means the period between the due date and the date on which the amount has been paid.


[8] Tax Deduction at Source.


[9] Tax Collection at Source.


[10] As laid down in Case III.

[11] Annexure to “Order u/s 119 of The Income Tax Act, 1961 on issue of certificates for lower/nil deduction/collection of TDS or TCS u/s 195, 197 and 206C (9)” dated 31st March 2020 (F.NO.275/25/2020-IT(8))

[12] This direction has been issued to alleviate the hardship caused to the payees and buyers/ licensees/ lessees who have raised invoices in FY 2019-20 but have not received the payment for the same since they were not able to intimate the rate of deduction/collection on such amount to the payer and seller/ licensor/ lessor due to pendency of such application.

[13] The payer, who will not deduct tax on the basis of such extended validity of forms, shall be required to report details of such payments/credits in the TDS statement for the quarter ending 30th June 202 in accordance with the provisions of the prescribed rules.

Key aspects of SEBI’s circular re relaxations relating to procedural matters in issues and listings

Introduction

In light of the recent developments relating to the COVID-19 pandemic (and its ongoing consequent impact on the Indian and global economy), the Securities and Exchange Board of India (“SEBI”), had recently, vide its two circulars, each dated April 21, 2020 (“April Circulars”), granted (a) temporary relaxations from compliance with certain provisions of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended (“SEBI ICDR Regulations”), and (b) one-time relaxation with respect to validity of SEBI observations, in respect of rights issues, with an intent to improve fund raising access to listed corporate entities as well as revive investor confidence in the securities market. With the aforesaid intention in mind, SEBI has issued another circular dated May 6, 2020 (Circular No. SEBI/HO/CFD/CIR/CFD/DIL/67/2020) (“Circular”), for granting relaxation relation to (a) certain procedural matters in relation to rights issues, and (b) authentication of offer documents and inspection of documents electronically for all capital markets issues.

The Circular shall be applicable for all rights issues (including fast track rights issues) opening before July 31, 2020, and for all offer documents filed until July 31, 2020.

Key aspects of the Circular

A. Relaxation in respect of rights issues

i. Availability of letter of offer and other issue materials

Regulation 77(2) of the SEBI ICDR Regulations prescribes that the abridged letter of offer (along with application form), can be despatched either through registered post, speed post, courier service or by electronic transmission to all existing shareholders of the issuer company, prior to the opening of the issue.

However, keeping in mind the various practical challenges that may arise in the COVID-19 era, particularly in relation to engaging courier or postal services, SEBI has now specifically clarified that failure to dispatch the aforesaid offering material through registered post or speed post or courier services, due to prevailing COVID-19 related conditions, will not be treated as non-compliance, for rights issues opening up to July 31, 2020. To supplement the aforesaid relaxation, the following additional steps are required to be undertaken:

  • issuers are required to publish the letter of offer, abridged letter of offer and application forms on its website as well as on the websites of the lead manager(s) to the issue, registrar to the issue and stock exchanges; and

  • issuers as well as the lead manager(s) to the issue are required to undertake adequate steps to reach out to the shareholders through other means, including through SMS, ordinary post, audio-visual advertisements on television, as well as digital advertisements.

 

These measures help issuers negate the difficulties they may face in respect of physical distribution of offering material. The availability of offering material on the internet would ensure that potential investors get access to the same through virtual means. Having said that, digital modes of communication may not be preferred by a select set of investors, who are either not accustomed to such platforms, or may face challenges in receiving uninterrupted internet network connectivity.

Thus, the aforesaid clarification showcases SEBI’s positive intent towards making the Indian capital markets regime a technologically driven and an environment friendly one, and we may hope for increased usage of electronic transmission systems for dispatch of the aforesaid offering materials, not only during the next couple of months, but also in the coming years in the post COVID-19 era.

Further, in light of the Circular and other representations received re provision of clarification on mode of issue of notice (referred to in Sections 62(1)(a)(i) of the Companies Act, 2013 (“Companies Act”) for rights issues by listed companies, in view of difficulties faced by such companies in sending notices through postal/courier services on account of the threat posed by the COVID-19 situation, the Ministry of Corporate Affairs, Government of India, issued a clarificatory circular dated May 11, 2020 (General Circular No. 21/2020) (the “MCA Circular”). The MCA Circular clarified that the inability to dispatch the notice (referred to hereinabove) by listed companies (which comply with the Circular) to their shareholders through registered post, speed post or courier would not be viewed as a violation of Section 62(2) of the Companies Act. The MCA Circular shall be applicable in case of rights issues opening up to July 31, 2020.

ii. Issue-related advertisements

Prior to the opening of the rights issue, the issuer is required to publish advertisement(s) in certain specific newspapers (“Statutory Newspapers”), containing the disclosures mandated under Regulation 84(1) of the SEBI ICDR Regulations (“Statutory Advertisement(s)”). However, given the difficulties in publishing physical advertisements (i.e. in newspapers, hoardings, banners, etc.) and the potential inefficacies with respect to their outreach in the COVID-19 era, SEBI has provided a few additional mechanisms for publication of Statutory Advertisements and other issue-related advertisements:

(a) issuers have the flexibility to publish the Statutory Advertisement confirming dispatch of abridged letter of offer and application form in newspapers other than the Statutory Newspapers;

(b) all such advertisements must also be made available on the websites of the issuer, lead manager(s) to the issue, registrar to the issue, and the stock exchanges; and

(c) issuers are also required to make use of advertisements through other electronic media such as television channels, radio and the internet for disseminating information relating to the application process. Further, for the first time, SEBI has permitted such advertisements to be made in the form of crawlers or tickers as well.

The Circular also requires issuers to disclose additional details in Statutory Advertisement(s), specifically in relation to the application process for shareholders who have not been served notice via electronic modes.

iii. Application by physical shareholders

In 2008, SEBI, while acknowledging the market practice of trading of rights entitlements in physical form, envisaged the establishment of a uniform and exchange driven mode of trading of rights entitlements, and released a paper for receiving public comments on the proposed electronic rights issue process and e-trading of rights entitlements. While the proposal for establishing an e-trading platform for rights entitlements did not see the light of the day, SEBI had issued a circular for streamlining certain aspects of the rights issue process on January 22, 2020 (“January Circular”), with the intention of, among other things, reducing issue timelines and permitting trading of rights entitlements in dematerialized form. Pursuant to the January Circular, rights entitlements would have to be mandatorily credited to the demat account of eligible shareholders in dematerialized form, and physical shareholders were required to provide their demat account details to issuer or the registrar to the issue for credit of rights entitlements (within a period of two working days prior to the issue closing date). However, given certain impossibilities during the COVID-19 era, investors (especially those holding securities in physical form) may face several hurdles while undertaking the process of opening a demat account or communicating their demat account details to the issuer or registrar, prior to the issue closing date. While the January Circular was introduced with an intention of establishing an efficient process of credit of rights entitlements to respective demat accounts (which in turn would facilitate the existence of a robust rights entitlements trading platform), the onset of the COVID-19 pandemic has forced SEBI to offer certain relaxations to shareholders.

Keeping in mind the aforesaid challenges, SEBI has, vide the Circular, allowed physical shareholders to submit their applications re the rights issue, irrespective of whether they are able to open demat accounts or communicate details of the demat accounts in accordance with the requirements prescribed in the January Circular. However, the submission of applications by such physical shareholders would be allowed, subject to (a) the institution of a mechanism by the issuer, lead manager(s) to the issue and other intermediaries for allowing such shareholders to apply in the rights issue, and (b) adequate steps being taken by the issuer and lead manager(s) to the issue for communicating the mechanism described in (a) hereinabove to the aforesaid shareholders prior to opening of the issue. Further, such physical shareholders availing of the aforesaid relaxation shall not be eligible to renounce their rights entitlements, and shall receive shares in dematerialized form only.

In light of the aforesaid, we believe that issuers and intermediaries may need to consider utilizing the issuer’s suspense accounts (including the one opened in accordance with Regulation 39 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended (“SEBI Listing Regulations”)) where such rights entitlements and shares (to be credited to the physical shareholders who have applied for allotment of equity shares), will be kept in abeyance in electronic mode by issuers, until the aforesaid shareholders provide details of their demat account particulars to the issuer or registrar, in accordance with the procedure as prescribed under Regulation 39 of the SEBI Listing Regulations.

iv. Non-cash based application process

Pursuant to the January Circular, all eligible shareholders are mandatorily required to use the application supported by blocked amount (“ASBA”) mechanism while applying for shares in a rights issue. However, the onset of the COVID-19 pandemic may have created certain practical roadblocks with respect to the transition to an ASBA only mechanism.

Shareholders who have not transitioned to using an ASBA account may face hurdles while trying to do so in the COVID-19 era, especially in light of the existence of a nation-wide lockdown. Further, an SCSB, a critical intermediary at the forefront of the ASBA process, may find it difficult to function optimally with reduced staff strength, given the remote working landscape that is now prevalent across industries.

In light of the practical difficulties and systemic challenges faced by both investors as well as intermediaries, SEBI has permitted issuers (along with the lead manager(s), the registrar, and other intermediaries) to institute optional mechanisms (non-cash mode only) to accept the application money from the shareholders. In view of the aforesaid, issuers and other intermediaries may look to establish mechanisms whereby application monies can be paid by way of online transfers into designated accounts. However, the Circular clarifies that no third party payments shall be allowed in respect of any application.

In order to ensure that relaxations provided hereinabove are utilised by the issuer and intermediaries towards achieving investor protection, SEBI has, vide the Circular, imposed a duty on the issuer and the lead manager(s) to the issue to ensure, in respect of the mechanisms referred in points (iii) and (iv) above, that:

(a) the mechanisms shall serve as an additional option, and would not be a replacement of the existing process, and efforts are made to adhere to the existing prescribed framework;

(b) the mechanisms function in a transparent and robust manner (with adequate checks and balances), and the transparency, fairness and integrity of such mechanisms are to the satisfaction of the lead managers and registrar to the issue, without imposing additional costs on investors;

(c) FAQs, a dedicated online investor helpdesk and helpline are created to guide investors through the application process, and to resolve difficulties faced on a priority basis; and

(d) the issuer, lead manager(s), registrar and other intermediaries are responsible for all investor complaints.

B. Relaxations in respect of all offer documents

i. Relaxations in relation to digital signatures and electronic inspection of material documents

In respect of all offer documents filed until July 31, 2020, SEBI has now permitted:

(a) usage of digital signature certifications for authenticating and certifying offer documents; and

(b) the issuer and lead manager(s) to establish a procedure for electronic inspection of material documents.

While the former is an option that may be used by the issuer, the latter appears to be a mandatory requirement. In light of the aforesaid, issuers may now be required to look for cost-effective ways of providing access to these documents, which may be through secured mechanisms, such as password-protected dedicated portal on the issuer’s website (wherein entry may be permitted via communications sent by way of SMS, emails, etc.).

Moreover, on a plain reading of the Circular, it appears that this part of the Circular shall be applicable for ‘all offer documents filed until July 31, 2020’ (and not just limited to rights issues alone), which may mean that inspection of material documents shall only be done electronically in case of all issues wherein the respective offer document (i.e. red herring prospectus, prospectus, shelf prospectus and letter of offer, as the case may be) is filed until July 31, 2020.

Conclusion

In these turbulent times of the COVID-19 pandemic, SEBI is trying to leave no stone unturned to revive Indian capital markets. With the issuance of the April Circulars and the Circular, it is quite evident that SEBI is looking to improve access to real-time fund raising options, with a specific focus on making the rights issue process technology friendly. While SEBI has tried to restore issuers’ and investors’ confidence in Indian capital markets with a slew of relaxations, it has kept in mind investor protection ideals and traditions while offering the same.

However, it must be borne in mind that issuers, lead manager(s), registrars and other market intermediaries may face increased costs in the process of setting up the mechanisms discussed hereinabove. Moreover, it must not be forgotten that advertisements and other publicity materials issued pursuant to these relaxations would still have to pass the rigours of publicity restrictions prescribed under the SEBI ICDR Regulations. Regardless of the aforesaid, the efficacy of these relaxations can be completely examined only after the completion of few rights issues and interaction with market intermediaries.

Please refer to the SEBI circular dated May 6, 2020 (circular no. SEBI/HO/CFD/DIL2/CIR/P/2020/78) for more details.

This blog is authored by Arka Mookerjee, Siddhartha Desai, and Ananth Balaji Sundararaman.

Relaxations for Compliances under Indirect Tax Laws

In view of the nation-wide lockdown on account of the COVID-19 pandemic, the Government of India has issued various notifications to ensure compliances by embracing accessible technology and extending time limits for specified compliances.

Key relaxations provided by way of the notifications are summarised below:

1. GST returns can be furnished through electronic verification code (‘EVC’) – Notification No. 38/2020-Central Tax dated May 5, 2020

  • This notification amends Rule 26(1) of Central Goods and Services Tax Rules, 2017 (‘CGST Rules’), to allow a GST-registered person, registered under the Companies Act, 2013 to, during the period April 21, 2020 to June 20, 2020, furnish returns in Form GSTR 3B, which can be authenticated using an EVC sent to the registered mobile number. Such facility is made effective from April 21, 2020.

  • For an assessee who is required to furnish a Nil return in Form GSTR 3B, a new Rule 67A has been inserted in the CGST Rules, to allow furnishing of such return for a tax period through short messaging service (‘SMS’), verified by a registered mobile number-based one-time password (‘OTP’) facility. Such facility will be made effective from a date to be notified later.

2. Amendment of notification issued in relation to GST compliance by corporate debtors under Insolvency and Bankruptcy Code, 2016 – Notification No. 39/2020-Central Tax dated May 5, 2020

  • Time limit for interim resolution professionals (IRP) or resolution professionals (RP) to obtain new registration as a distinct person of the corporate debtor, has been amended to be 30 days from date of appointment of IRP/ RP or June 30, 2020, whichever is later (effective from March 21, 2020).

  • The class of persons covered under Notification No. 11/2020-Central Tax dated March 21, 2020 will not include corporate debtors who have furnished the GST returns for all tax periods prior to appointment of IRP/RP.

3. Extension of validity of e-way bills – Notification No. 40/2020-Central Tax dated May 5, 2020

  • The validity of e-way bills generated prior to March 24, 2020, and expiring during the period March 20, 2020 to April 15, 2020, has been extended till May 31, 2020.

4. Extension of time limit for filing annual return for FY 2018-19 – Notification No. 41/2020-Central Tax dated May 5, 2020

  • The time limit for furnishing annual returns in Form GSTR 9 and Form GSTR 9C for FY 2018-19 has been extended till September 30, 2020.

5. Due dates for filing return in Form GSTR 3B for the Union territories of Jammu and Kashmir and Ladakh – Notification No. 42/2020-Central Tax dated May 5, 2020

  • The said notification amends the due date for filing of return in Form GSTR 3B for registered persons whose principal place of business is in the Union Territories of Jammu and Kashmir and Ladakh as follows:

This notification is effective from March 24, 2020.

6. Extension of time limit for filing acknowledgement of declaration under Himachal Pradesh (Legacy Cases Resolution) Scheme, 2019 – Notification No. EXN-F-(10)-7/2019- Vol.-I dated April 27, 2020

  • On account of complete lockdown in the country due to COVID-19 pandemic, the time limit for filing acknowledgement of declaration as per the provisions of Himachal Pradesh (Legacy Cases Resolution) Scheme, 2019 has been extended till September 30, 2020.

MCA clarification on holding annual general meeting

In a welcome move, and to soften the blow of the COVID-19 pandemic on companies,  on 05 May 2020, the Ministry of Corporate Affairs (MCA), issued a circular authorising companies to conduct their Annual General Meetings (AGMs) through videoconferencing or other audio-visual means.

This comes on the heels of prior MCA relaxations such as:

  • Circulars dated 08 April 2020 and 13 April 2020 (the EGM Circulars), through which, companies were permitted to hold extraordinary general meetings (EGMs) through videoconferencing or other audio-visual means. The EGM Circulars prescribed detailed procedures for the conduct of such EGMs. (see our previous posts here and here.)
  • Circular dated 21 April 2020, which extended the last date for the conduct of AGM by companies whose financial year ended on 31 December 2019, to 30 September 2020.

Under the Companies Act, 2013, (Act) companies are mandated to hold their AGMs within 6 months from the closure of the financial year (9 months in case of first AGM), and no later than 15 months from the date of preceding AGM. In light of the challenges faced by companies due to the continuing restrictions on the movement of persons, both domestically and internationally, the MCA has now permitted all companies (on fulfillment of prescribed conditions) to conduct their AGM through videoconferencing or other audio-visual means, during the calendar year 2020.

The following are the requirements to be met by companies for conducting such meetings:

A.Companies which are required to provide for the facility of e-voting under the Act (i.e., all listed companies and companies having not less than 1,000 members

1.The framework for holding such meetings and the procedure regarding the issue of notice, as provided under the EGM circulars, shall apply

2.Other than ordinary businesses, only those special businesses which the Board considers to be unavoidable may be transacted at such a meeting.

3.In lieu of physical copies of the financial statements, including board’s report and auditor’s report, electronic/soft copies may be sent via email to the members, debenture-holders and all other persons entitled to receive it under the Act.

4.Before sending the notices and copies of financial statements, a public notice by way of advertisement must be published, at least once, in a vernacular newspaper and at least once, in an English newspaper, in each case being a newspaper having wide circulation in the district in which the registered office of the company is situated, specifying the following:

  •      Statement that the AGM will be convened through videoconferencing or other audio-visual means;
  •       The date and time of such AGM;
  •       Availability of the notice on the website of the company (and, if the company is listed, on the stock exchange);
  •       Manner of e-voting for members who hold physical shares or who have not registered their emails with the company;
  •     Procedure for members to give mandates to receive dividends directly in their bank accounts through electronic clearing system etc.; and
  •       Any other detail which the company thinks necessary.
  1. If the company is unable to pay dividends to its shareholders by electronic mode, due to    non-availability of details of bank account, the company shall dispatch the dividend cheque by post as soon as postal services are normalised.
  1. In case the company has received permission from appropriate authorities for holding the AGM at its registered office, then, after due compliance with the advisories issued by the authorities, and in addition to the physical presence of some members, the company may also provide its members with the option of attending the AGM through video conferencing or other audio-visual means. Members attending the AGM through such facilities shall also be considered for the purpose of quorum for the purpose of the Act, on par with members in physical attendance.

B. Companies which are not required to provide the facility of e-voting under the Act:

1.AGM may be conducted through video conferencing or other audio-visual means only by such companies which in its records, has the email addresses of at least half of its total members, who also:

a.In case of Nidhi companies: hold shares of more than INR 1000 in face value or more than 1% of the total paid-up share capital, whichever is less;

b.In case of other companies having share capital: represent not less than 75% of such part of the paid-up share capital of the company as gives a right to vote at the meeting;

c.In case of companies not having share capital: have the right to exercise not less than 75% of the total voting power exercisable at the meeting.

2.The company shall take all necessary steps to procure and register the email addresses of all persons who have not registered their email addresses with the company.

3.The framework for holding such meetings and the procedure regarding issue of notice, as provided under the EGM circulars, shall apply

4.Other than ordinary businesses, only those special businesses which the Board considers to be unavoidable may be transacted at such a meeting.

5.In lieu of physical copies of the financial statements, including board’s report and auditor’s report, electronic/soft copies may be sent via email to the members, debenture-holders and all other persons entitled to receive it under the Act.

6.The company shall make adequate provisions for allowing members to mandate receipt of dividends directly in their bank accounts through the Electronic Clearing Service (ECS) or any other means. For shareholders whose bank account details are not available, the company shall, immediately upon the normalization of postal services, dispatch the dividend warrant/cheque to such shareholder(s) by post.

Companies are required to ensure that all other related compliances mandated under the Act and/or under its articles of association are made through electronic mode.

The MCA has also clarified that, if any company is not covered by the 21 April 2020 circular, or is unable to hold its AGM under the framework of this 05 May 2020 circular, they may apply to the Registrar of Companies for extension of time to hold their AGM.

Please refer to MCA Circular No. 20/2020.

[i] Section 108 of the Companies Act, 2013, read with Rule 20 of the Companies (Management and Administration) Rules, 2014

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