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It has been quite an active year when it comes to regulatory updates in the country. With a range of changes, right from cleaning up bank balance sheets and enhancing ease of doing business in India, to FDI in e-commerce, there have been a number of changes in the regulatory landscape.
Here are the top ten developments picked up from the Bar & Bench database:
1. Raising thresholds of reporting of combinations
In an effort to improve the ‘ease of doing business’ in India, the Ministry of Corporate affairs issued a notification revising the merger control thresholds under the Competition Act, 2002.
The thresholds provided in Section 5 of the Competition Act, for a combination triggering the requirement of filing notice with the Competition Commission of India (CCI), were increased by 100% with a view to provide relief to certain entities from filing notifications with the CCI .
Uncertainty prevailed as to whether the financial thresholds as provided in the Competition Act have been increased or, whether it is the financial thresholds applicable immediately prior to this notification (i.e., the post- 2011 thresholds) that have been increased. It has been widely accepted that it is in fact the original thresholds as provided for under the Act that have been revised.
2. Companies Amendment Bill, 2016
The second week of March this year saw the introduction of the Companies (Amendment) Bill, 2016 (Bill) in the Lok Sabha to further amend the Companies Act, 2013 (Act). The Bill was based on the suggestions received on the Companies Law Committee Report, published in February, suggesting certain reforms to the Act.
The Bill, inter alia, seeks to simplify the private placement process, remove restrictions on layers of subsidiaries and investment companies, exempt certain classes of foreign companies from compliance requirements under the Act and amend provisions relating to Corporate Social Responsibility to bring in more clarity.
Another important change involves replacing Central Government approval with special resolution approval of shareholders in case the managerial remuneration crosses the prescribed thresholds. The Government is also looking to omit provisions relating to forward dealing and insider trading from the Act.
3. FDI in e-commerce
Till the time Press Note 3 of 2016 was issued, 100% Foreign Direct Investment (FDI) was permitted under automatic route in the B2B e-commerce segment. However, no FDI was permitted in the B2C segment. Pursuant to a Press Note issued by the DIPP on 29 March 2016, 100 % FDI had been permitted in marketplace based model of e-commerce subject to the conditions mentioned therein.
However, FDI is still not permitted in the inventory based model of e-commerce. DIPP said that the e-commerce marketplace may provide support services to sellers in warehousing and logistics. However, such entities will not exercise ownership over the inventory, as such ownership over the inventory will render the business into inventory-based model.
Some of the conditions on marketplace e-commerce companies include:
(Read more at Regulatory Updates)
4. Real Estate (Regulation & Development) Act, 2016
The Ministry of Housing & Urban Poverty Alleviation notified 69 sections, out of the total 92 sections, of the Real Estate (Regulation) Act, 2016 (Act) which have been in force beginning May 1 this year.
The need for such a law was mooted for the first time in January 2009 at the National Conference of Housing Ministers of States and Union Territories in January, 2009 and has finally culminated into the law that it has become today.
As per the notified provisions:
5. Insolvency & Bankruptcy Code
The Insolvency & Bankruptcy Code (IBC), which was notified in May 2016, seeks to create a unified framework for resolving insolvency and bankruptcy in India by implementing an insolvency resolution process which may be initiated by either the debtor or the creditors.
Following its passage, the IBC has repeal the Presidency Towns Insolvency Act, 1990 and Provincial Insolvency Act, 1920. In addition, the IBC has also amended eleven laws, including the Companies Act, 2013 and the Recovery of Debts due to Banks and Financial Institutions Act, 1993 amongst others.
The IBC aims to (i) provide a single comprehensive bankruptcy and insolvency law for reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner, in order to support credit markets and encourage entrepreneurship in India; (ii) provide greater clarity in the law by consolidating bankruptcy and insolvency law under a single legislation and facilitate the application of consistent and coherent provisions to different stakeholders affected either by business failure or inability to pay debt and will address the challenges being faced at present for swift and effective bankruptcy and insolvency resolution; (iii) improve the handling of conflicts between creditors and debtors, avoid destruction of value, distinguish malfeasance vis-a-vis business failure and clearly allocate losses in macroeconomic downturns.
6. On-tap licensing
In June this year, the Reserve Bank of India issued Draft Guidelines for ‘on tap’ Licensing of Universal Banks in Private Sector, which sought to put an end to the existing ‘Stop and Go’ licensing policy. The final guidelines, largely identical to the draft guidelines, were issued on August 1.
While foreign banks are already allowed continuous authorization, for domestic aspirants, RBI used to open up the window for bank licenses periodically but rarely. The Stop and Go policy inevitably lead to a ‘frenzied’ response from large number of competing aspirants, whenever the licensing process is opened up in an ad hoc manner.
What this means is, banks can now apply for a license (instead of waiting for a decade) at any time provided they meet the ‘fit and proper’ criteria.
7. Scheme for Sustainable Structuring of Stressed Assets
As a follow-up to its now publically lauded battle to clean up the balance sheets of Indian banks, on June 13 the Reserve Bank of India (which was subsequently revised in November) issued the Scheme for Sustainable Structuring of Stressed Assets (S4A), with the intent of creating a separate mechanism to allow banks more time to write down debt and make provisions for “large accounts”. The S4A is in addition to the Joint Lenders Forum (JLF) mechanism and is only available for borrowers that fulfil the eligibility criteria prescribed in the S4A.
The S4A prescribes that debt will be considered sustainable if the relevant JLF or lenders conclude, on the basis of an independent techno-economic viability study, that the principal amounts of the borrower’s facilities (both funded and unfunded) from institutional lenders can be serviced over the same tenor as the existing facilities even if the borrower’s future cashflows remain at their current level. For the S4A to apply, 50% of the borrower’s funded facilities should fulfil this test.
8. Opening up of Indian Economy- FDI further liberalised
The Government had overhauled the FDI regime earlier in November 2015, and after the latest announcement in June this year, India has brought almost all sectors under the automatic route. This is one of the manifold measures the government has taken to improve ‘ease of doing business’ in India, and create more jobs.
Through these reforms it allowed 100% FDI in food retail, civil aviation and 74% in private security agency and pharmaceutical businesses.
(Read more here)
9. Angel Funding made easy
The Securities and Exchange Board of India, in its board meeting held in the month of November, introduced amendments to the SEBI (Alternative Investment Funds) Regulations, 2012, thus ushering in a more liberalised and progressive era for fund-raising in start-ups as also enhancing the scope of investment of foreign investors in unlisted debt securities.
Prior to this, stringent rules applied to angel funds, such as not even being recognised under the ambit of Venture Capital Funds. Angel funds can now be viewed as Venture Capital Funds
The main aim of such amendment is to bring about ease of doing business, while making the culture more angel-fund friendly.
10. Debt recovery regime overhaul
In August this year, the Indian Parliament passed the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016 which seeks to amend four laws for expeditious recovery of bad loans by the banks.
The following acts will be amended:
Further, the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) has been finally repealed a decade after the repeal act was enacted. Until the enactment of the Insolvency and Bankruptcy Code, 2016, SICA remained the only statutory rescue mechanism for ‘industrial companies’. Other categories of companies remained remediless, other than mechanisms under certain statutes applicable to banking companies and some State Relief Undertaking Acts.