Corporate Law Brief-January 2024

On February 1, 2024, the Union Finance Minister presented the Interim Budget 2024-25. The key highlights are as follows:

• • no changes in tax rates are proposed, the existing tax rates will remain unchanged for both direct taxes and indirect taxes including import duties;
  • withdraw such outstanding direct tax demands up to Rs. 25000/- pertaining to the period up to financial year 2009-10 and up to Rs. 10,000/- for financial years 2010-11 to 2014-15;
  • extension of tax benefits to startups, certain investments made by sovereign wealth funds, and exemption for businesses housed in the International Financial Services Centre (IFSC) in GIFT City is proposed for an additional year until March 31, 2025;
  • emphasis was laid on enhancing physical infrastructure, including the announcement of new rail corridors and the development potential of the ‘India-Middle East-Europe trade corridor’ unveiled at the G20 Summit in 2023;
  • corporate tax rate has been decreased from 30 % to 22 % for existing domestic companies and to 15 percent for certain new manufacturing companies; and
  • to reduce the compliance burden for small businesses and professionals, it was proposed to increase the threshold of gross turnover/gross receipts for presumptive taxation of business from INR 2 crore to INR 3 crore.

On January 8, 2024, the Supreme Court called for responses from both the Centre and the GST department regarding petitions filed by e-gaming companies Head Digital Works and Games 24/7 and other such companies challenging the retrospective implementation of a 28% tax on all forms of online gaming. The GST Council imposed a flat 28% tax on the face value for online gaming, casinos, and horse racing last year, effective from October 1, 2023.  Gaming companies argue the tax applies only from October 1, while the government enacted it retrospectively.

The Insurance Regulatory and Development Authority of India (IRDAI) has issued a notification dated January 05, 2024, specifying that insurers must submit an Advance Reinsurance Programme (ARP) in a specified format to the IRDAI as required as per Regulation 3A of IRDAI (Reinsurance) Regulation 2018, at least 45 days before the commencement of the financial year. Insurers are required to submit a certificate signed by the CEO and CFO, confirming the accuracy of the information in the ARP.

The Central Government’s recent announcement indicates forthcoming amendments to existing cyber laws through the introduction of the Digital India Bill. Consequently, the Ministry of Electronics and Information Technology (Meity) is poised to notify significant amendments to the Information Technology Rules 2021 (Rules). These amendments are intended to introduce rules governing artificial intelligence companies and generative AI models. The proposed amendments may mandate bias-free AI algorithms, with a focus on preventing biases related to caste, religion, community, and national security. Additionally, the amendments may introduce rules for deepfake, synthetic content, and provide explicit instructions for platforms, especially those related to loan applications.

The Union Health Ministry vide notification dated January 06, 2024, revised the ‘Schedule M’ of the Drugs and Cosmetics Act, 1940 which outlines the ‘Good Manufacturing Practices’. Pharmaceutical companies are now required to report drug recalls of defective products and also report product defects, deterioration, or faulty production. The timeline to comply with such revision large manufacturers with turnover exceeding INR 250 crore has a 6-month window, while Micro, Small, and Medium Enterprises (MSMEs) with turnover less than INR 250 crore have 12 months to comply.

The Central Consumer Protection Authority (CCPA) on January 08, 2024, conducted its first meeting to prepare the draft of the guidelines applicable to all coaching institutions to curb misleading advertisements. These guidelines apply to both online and physical platforms, prohibiting false claims regarding success rates and student selections. The guidelines also outline conditions for advertisements to be considered misleading, including the concealment of essential information about courses chosen by successful candidates.

The Ministry of Commerce is planning to introduce an online platform called the ‘Trade Connect ePlatform’. This platform will offer complete information for potential exporters, about details on customs duties. It will also provide insights into different regulations, market access, sectors, export trends, and the convenient utilization of benefits under Free Trade Agreements (FTA). Additionally, it will enable access to sector-specific events and offer a feature to pose trade-related questions to officials in the Government of India and associated entities, facilitating expert advice.

Ministry of Finance

The Ministry of Finance (MoF) vide notification dated January 18, 2024, has expanded the scope of activities of financial services offered by the units of International Financial Services Centre (IFSC) regulated by the International Financial Services Centres Authority (IFSCA) by including 4 major services namely book-keeping, accounting, taxation, and financial crime compliance.

On January 24, 2024, the MoF has amended the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 by notifying Foreign Exchange Management (Non-debt Instruments) Amendment Rules, 2024  to enable direct listing of equity shares by an  Indian companies on the ‘India International Exchange’ and the ‘NSE International Exchange’ located in Gujarat International Finance Tec-City, GIFT-IFSC. Similarly, the Ministry of Corporate Affairs, has introduced the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024.

Reserve Bank of India (RBI) Updates:

The RBI has issued a Master Direction – Reserve Bank of India (Commercial Paper and Non-Convertible Debentures of original or initial maturity up to one year) Directions, 2024 which will come into effect from April 1, 2024. The said directions aim to fortify the framework for short-term debt instruments, thereby enhancing transparency and investor protection. The key factors of the directions are as follows:

• • Applicability: These directions are applicable to eligible entities (include companies, NBFCs, REITs, AIFIs, and other corporates meeting specific criteria) issuing Commercial Papers ( CPs) and Non-Convertible Debentures (NCDs) with a maturity of up to 1 year;
  • Eligible Investors: Both residents and non-residents (as permitted under FEMA and its regulations framed thereunder) are eligible to invest in all CPs and NCDs except issued by their related parties;
  • Issuance and Investment Conditions: CPs and NCDs must be issued in dematerialized form, with a minimum denomination of Rs. 5 lakhs and adhere to specific tenor limits (minimum 7 days in case of CPs and 90 days in case of NCDs). Individual subscription including HUFs  shall not exceed 25% of the total amount issued. Besides, CPs and NCDs cannot be underwritten or co-accepted and options (call and put) are not permitted;
  • Credit Enhancement and Rating Requirements: Banks and AIFIs are allowed to provide credit enhancement. CPs and NCDs must have a minimum credit rating of ‘A3’;
  • Repayment and Default Management: No grace period is provided for repayment, and procedures for handling defaults and buybacks are detailed;
  • Reporting Requirements: Timely reporting of primary issuances, secondary market transactions, buybacks, and defaults is mandated; and
  • Roles and Responsibilities: Responsibilities of Issuing and Paying Agents, Debenture Trustees, and Credit Rating Agencies are outlined.

RBI has issued updated Master Directions on Risk Management and Inter-Bank Dealings – Hedging of foreign exchange risk on hedging, which shall come into effect from April 05, 2024. The revised directions now encompass regulations pertaining to various foreign exchange transactions, encompassing cash, tom, and spot transactions. Additionally, the said directions will now extend to cover a broader spectrum of financial instruments, including foreign exchange derivative contracts, leverage derivatives, exchange-traded currency derivatives, and over-the-counter derivatives.

RBI vide its notification Credit/Investment Concentration Norms – Credit Risk Transfer dated January 15, 2024 in , has permitted middle-layer Non-Banking Financial Companies- Middle Layer (NBFC-ML) to use credit risk transfer instruments. Basis, this modification in the credit norms NBFC-ML will be allowed to access credit risk transfer instruments like cash margin/caution money/security deposit, central government and state government guaranteed claims. Earlier, the Large Exposures Framework was only applicable on upper layer of NBFCs. In addition to current exemptions, credit concentration norms will not apply to certain exposures, including those to the Government of India and eligible state governments with a 0% risk weight under NBFC capital regulations, and to exposures with full guarantees on both principal and interest by the Government of India.

Securities Exchange Board of India (SEBI) Updates:

SEBI vide circular dated January 11, 2024 revised the norms for Alternative Investment Funds (AIFs) in order to align with updated thresholds for determining ‘beneficial ownership’ under Prevention  of Money Laundering (Maintenance of Records) Rules, 2005.

On January 12, 2024, SEBI, vide its circular, proposed a framework on “Ease of Doing Investments by Investors- Facility of voluntary freezing/ blocking of Trading Accounts by Clients” that shall allow investors to voluntarily freeze clients’ trading accounts which shall help address issues of any suspicious activities. SEBI directed the stock exchanges to ensure that the guidelines provided under this framework are implemented by the trading members from July 1, 2024.

Foreign Portfolio Investors (FPIs) are required to reveal the true identities of all holders of Overseas Derivative Instruments (ODIs) once these funds surpass exposure levels set by the SEBI. Currently, FPIs have to share the names of ODI holders with SEBI on a monthly basis, following the Know Your Customer rules under anti-money laundering regulations. These strict disclosure rules apply when an FPI’s exposure to Indian equities goes beyond INR 25,000 crores or if it invests 50% of its Indian assets under management in stocks of companies from a single corporate group. However, certain FPIs, such as sovereign funds and pension funds, are exempt from these detailed disclosure requirements.

Tax Updates:

The Central Government is in the process of reviewing the entire gamut of withholding tax regulations, in accordance with the nation’s broader vision of simplifying the tax system to facilitate ease of doing businesses and minimize tax related disputes.

The tax administration has asked Non-Resident Indians (NRIs) to submit signed affidavits to disclose the exact number of days spent in India to determine whether they have avoided paying taxes in certain years. Any inaccurate information or false affidavit by the individuals would result in violating the Indian Penal Code, 1860 besides exposing themselves to the possibility of held accountable under the Income Tax Act, 1961 and the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Social Laws:

The Pension Fund Regulatory and Development Authority (PFRDA) pitched for tax parity with Employee Provident Fund Office (EPFO) concerning the taxation treatment of employer contributions. As of now, the corporate contributions of up to 10% of the basic salary and dearness allowances are exempted from tax for the National Pension System (NPS) contributions, whereas the corresponding exemption for EPFO contributions stands at 12%.

The Employees’ Provident Fund Organization (EPFO) granted a five-month extension to employers for the submission of wage details and related information concerning pensions on higher wages on January 3, 2024. This extension is effective from January 3, 2024, until May 31, 2024.

The Central Government is considering a mandatory national minimum wage increase based on the recommendations from a high-level expert panel led by SP Mukherjee since 2021. The proposed floor wage, addressing the rising cost of living, would be applicable across states under the Code on Wages, 2019.

Upcoming Nuggets:

On January 02, 2024, the Department for Promotion of Industry and Internal Trade (DPIIT) released the draft Trade Marks (1st Amendment) Rules, 2024 and Draft Geographical Indications of Goods (Registration and Protection) (2nd Amendment) Rules, 2024 for public comments for 30 days and  the central government shall consider the comments afterward.

Trade Marks (1st Amendment) Rules, 2024

The key aspects of draft rules are as follows:

• • new definitions has been introduced to streamline the adjudication process;
  • the framework of adjudication of penalties such as falsely representing a trademark  and communication of such penalty under the Jan Vishwas Act, 2023 shall be deemed to be communicated electronically, whether via text message or email;
  • a new Form (TM-D) has been introduced which can be used to file an online complaint; and
  • the rules also prescribe a mechanism for preferring an appeal to the Appellate Authority against the decision of the Adjudicating Officer.

Draft Geographical Indications of Goods (Registration and Protection) (2nd Amendment) Rules, 2024

In the 2^nd amendment rules, two new rules with respect to penalties and appointment of an adjudicating officer, have been introduced. The key features of the amendment are as follows:

• • the amended rules allow any person to report violations of specific sections of the law such as applying for false geographical indications or selling goods with fake indications to the Registrar by filing Form GI-11. This form should include details of the incident and any supporting evidence; and
  • the amendment rules grant the Registrar of Geographical Indications Registry to appoint an adjudicating officer, for holding an inquiry and imposing penalty on any person who has committed the contravention or default. These additions aim to enhance compliance and accountability within the regulatory framework.

On January 11, 2024, the Department of Consumer Affairs (DCA) released Guidelines for Protection of consumer against Greenwashing (Guidelines). It prescribes disclosure requirements to be made by the companies making green claims. Guidelines also stipulate that no person covered under these Guidelines shall engage in greenwashing and vague terms such as ‘green’, ‘eco-friendly’, ‘eco-consciousness’, ‘good for the planet’, or ‘cruelty-free’, without adhering to the disclosure requirements. It also clarified that the penalty for misleading advertisement for greenwashing by the company will be governed as per the Consumer Protection Act, 2019. The draft Guidelines specify that if the net profit for the relevant period includes exceptional or extraordinary profits, or if financial statements are qualified by the statutory auditor for net profit overstatement, these amounts must be deducted to determine the dividend payout ratio.

RBI on January 15, 2024, released a draft circular on Review of Regulatory Framework For Housing Finance Companies (HFCs) and the Harmonization of Regulations applicable to HFCs And NBFCs. Following are the key provisions laid down under the draft circular:

• • all deposit-taking HFCs need to maintain liquid assets to the extent of 15% of the public deposits held by them, by the end of March 31, 2025;
  • if the credit rating drops below the stipulated grade, HFCs can’t renew or accept deposits;
  • the ceiling on HFCs’ public deposits is reduced from 3 to 1.5 times; and
  • HFCs can engage in the credit default swaps market solely as users, using credit protection to hedge corporate bond credit risk.

From the Docket:

In the matter of Prism Scan Express Private Limited & Ors. Versus the Initiating Officer, DCIT (BPU-2) Mumbai, the Appellate Tribunal under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (SAFEMA) held that even if any benami transaction occurred prior to the Benami Transaction (Prohibition) Amendment Act, 2016 came into effect, the involved parties could now face legal consequences if the property or asset in question is still under their control. The Appellate Tribunal further held that ‘The Tribunal or for that even a court cannot ignore the statutory provision and for that to miss any word used in the statute.”

We trust that this edition of our newsletter has proven to be an enlightening and valuable resource for your professional endeavors. If you have any questions about any of these developments or would like to see something different next month, we warmly encourage you to reach out to us at [email protected].