Legal Updates Archives

The Government is serious about enforcement of the Labour Codes. It has meticulously planned to kickstart their implementation process soon. This is reflected in its overall strategy to take up Labour Codes implementation plan with rigour in the forthcoming budget to be announced on 1st February 2025. To make this happen, it has bolstered its efforts in getting Delhi and West Bengal to issue their draft rules by 31st March 2025.

The Wages Code and the Social Security Code will be the first two Labour Codes in the series of four Codes to be enforced. This will ensure that the Labour Codes in general and the Wages and the Social Security Codes in particular gain nationwide acceptance.

These two Codes are intended to be enforced in three phases. Large firms (500 employees and above) may take the lead on mandatory statutory compliances in the first year of the rollout followed by mid-size firms (100-500 employees) in the second year and small organisations (100 employees or less) in the third year. Enforcing two Labour Codes instead of all the four Labour Codes together will lessen the overall compliance burden that primarily rests on the employers. Selecting the Wages and the Social Security Codes to be the first two Codes to be implemented will be a game changer. These two Codes largely benefit the workforce including contingent, gig and platform workers. Hence, both the trade unions and employees are likely to extend cooperation and support their employers in implementation of the Labour Codes. This will test the waters and pave the way for modernizing the Indian labour law regime to suit the modern workplace.

Making compliance of these two Labour Codes mandatory in the first phase for the large corporates will not only lessen the regulatory burden of MSMEs and mid to small-sized organisations but lay the essential groundwork for the remaining organisations to follow suit. Additionally, the large corporates will not only be well-equipped to initiate the implementation process but will help in identifying and removing the potential roadblocks sooner.

The understaffing issue, that currently plagues the efficiency of some of the labour departments, will not adversely impact the enforcement process because the authorities will only need to focus on specific category of employers. These employers will essentially be the GCCs, multinational companies and Indian conglomerates who prioritize corporate governance. Further, proposed shift in the enforcement authority’s role from Labour Inspector to Inspector-cum-Facilitator would fast-track implementation of the new provisions, as they would need to provide compliance guidance to defaulting employers and an opportunity to comply instead of prosecuting them in the first instance.

Such labour law reforms will signal a business-friendly ecosystem in India and aid in achieving a win-win for corporates and their workforce. This will in turn act as a catalyst to boost investor confidence and not only attract new foreign players to India but also encourage existing players to expand their Indian operations. Hence, balancing interests of employers and workers is need of the hour and would go a long way in enhancing workforce participation as India moves towards its goal of becoming a USD 5 trillion economy.

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By: Minu Dwivedi – Partner, Prashaant Malaviya and Purbasha Panda – Associates

In a speech delivered on Friday 2^nd August, SEBI Chairperson Madhabi Puri Buch highlighted the regulator’s ongoing efforts to streamline the capital formation process in India, emphasising the importance of efficient fundraising for the growth of the economy.

India has emerged as the fastest-growing market for capital raising, though the overall size of capital raised still lags behind advanced economies. SEBI is taking several steps to facilitate and expedite the capital-raising process, with a focus on simplifying the procedures and reducing timelines for companies, including an AI backed streamlining process for offer documents.

The initiatives discussed involved the following:

New ECM Product and Performance Appraisal Agency

SEBI has introduced a new Equity Capital Market (ECM) product that combines the features of rights issues and preferential allotments. This product is expected to significantly reduce the timelines for capital raising, and will be available to already listed companies without requiring SEBI’s review process. The compulsory appointment of merchant bankers in this process will also be waived.

Traditionally, a rights issue allows current shareholders to purchase additional shares, while a preferential allotment involves issuing shares or convertible securities to a select group of investors.

The Chairperson explained that under the new framework, if a company receives board approval for a rights issue, it will also have the flexibility to allocate shares preferentially to new investors if a portion remains unsubscribed. This aims to make fundraising more flexible and responsive to market conditions, providing companies with a more efficient pathway to secure capital. This will likely be under the framework provided under S. 62(1)(c) of the Companies Act, 2013.

Additionally, SEBI is setting up a framework for registered performance appraisal agencies to provide investors with simplified assessments of various capital market products. This agency will enable investors to compare products and verify claims of performance made by various intermediaries.

Furthermore, the Chairperson highlighted SEBI’s existing supervisory technology (sup-tech) used in document review and inspection activities. There is also a greater focus on implementing regulatory technology (reg-tech) to streamline compliance processes. SEBI envisions reg-tech enabling companies to fulfill regulatory obligations seamlessly, without disrupting their business operations.

Streamlining the Approval Process

Addressing the growing demand for market access, the Chairperson noted that while the number of documents requiring clearance has increased, this reflects a healthy trend of more companies seeking to enter the capital markets.

SEBI is focusing on the efficiency of the approval process, particularly in terms of the time taken to clear draft offer documents (Draft Red Herring Prospectus or DRHP). According to current SEBI data, only eight draft offer documents have been pending for more than three months, which is largely due to pending regulatory approvals or significant non-compliance issues.

To expedite the approval process, SEBI has adopted a data-driven approach and is returning documents that fail to meet compliance standards. The return of documents will not be on frivolous grounds; only serious issues such as inconsistencies in reported figures, vague objects for use of IPO funds, or incomplete disclosures will warrant a return. This approach aims to prioritise compliant companies and reduce the backlog of pending approvals.

Introducing AI to Simplify Public Offer Documents

In a move towards technological innovation, SEBI is working on implementing an AI tool for processing offer documents. This tool is expected to significantly reduce the time taken for SEBI’s review of draft offer documents, enhancing the overall efficiency of the capital raising process.

This process said to be “Demystifying the Offer Document”, involves a templated document. Possibly in a tabular or ‘fill in the blanks’ format, it is designed to simplify the disclosure process for companies, requiring them to fill in relevant details while addressing specific complexities or unique aspects in a separate section.

Key Performance Indicators (KPIs) and ESG/BRSR Norms

In her speech, the Chairperson also discussed SEBI’s efforts to enhance corporate governance standards.

SEBI is consulting with industry bodies such as ASSOCHAM and FICCI regarding the disclosure of Key Performance Indicators (KPIs). They have outlined its expectations for the KPIs to be disclosed, and the industry’s feedback is awaited.

Additionally, SEBI is planning to strengthen Environmental, and Social Governance (ESG) and Business Responsibility and Sustainability Reporting (BRSR) norms, reflecting a commitment to sustainable and responsible investing.

Conclusion

The SEBI Chairperson’s speech highlights the regulator’s aim to introduce proactive, technologically-driven approach to facilitating capital formation in India, ensuring that the capital markets remain transparent, and accessible to a broader range of companies and investors.

This blog is authored by Partners – Madhurima Mukherjee Saha and Arka Mookerjee.