Regulatory Updates: FDI, SEBI Laws, MCA, Labour Laws, Cybersecurity, Trademarks, Bankruptcy and Insolvency, Startup India

  1. Foreign Direct Investment in a Limited Liability Partnership
  2. The Securities and Exchange Board of India (Foreign Portfolio Investors) (Second Amendment) Regulations, 2017
  3. Section 391 (2) Closure of Place of Business by a Foreign Company
  4. The Companies (Transfer of Pending Proceedings) Amendment Rules, 2017
  5. Proliferation of Broadband through public Wi-Fi Networks
  6. Obtaining License to act as Digital Locker Service Providers
  7. Maternity Benefits (Amendment) Bill, 2016
  8. Introduction of Shram Suvidha Portal for Labour Law Compliance
  9. Establishment of Inter-Disciplinary Standing Committee
  10. Insolvency and Bankruptcy Code, 2016
  11. Notification of New Trade Mark Rules 2016
  12. Proposal: To Allocate Loans Upto Rs. 5 Cr Without Collateral to Startups

FDI Update

Foreign Direct Investment in a Limited Liability Partnership

Any Person or Entity (Not being Citizen or Registered in Pakistan and Bangladesh and Not being A Foreign Portfolio Investor or Foreign Institutional Investor or Foreign Venture Capital Investor as per SEBI guidelines) may contribute either by way of capital contribution or by way of acquisition / transfer of profit shares in the capital structure of an LLP.

This investment shall be subject to terms and conditions as specified below:

  1. FDI is permitted under automatic route where in LLP under sector where 100% FDI is allowed through automatic route.
  2. An Indian LLP or an Indian Company having FDI will now be permitted to make investments in other sectors of Indian LLP or Indian Company where 100% FDI is allowed. The onus of compliance shall be with the Indian LLP or Company accepting the investment.
  3. Every Company receiving FDI can now be converted into an LLP provided that FDI received is under automatic route and into sectors which has permitted 100% FDI.
  4. Clauses 1, 2 and 3 above also impose another condition stating that there are no FDI linked performance conditions.
  5. With the new amendments every Body Corporate being a partner in the LLP shall be eligible to appoint a Designated Partner.
  6. Payment mode for FDI investments could be through remittance via any banking channel or either by NRE (Non-Resident External) or FCNR(B) account (Foreign currency non-resident Bank)
  7. All LLP’s receiving any FDI in previous year including current year shall submit an FLA Form (Annual Return on Foreign Liabilities and Assets) as specified by RBI on or before 15th July of every year.



The Securities and Exchange Board of India (Foreign Portfolio Investors) (Second Amendment) Regulations, 2017

SEBI vide its notification no. SEBI/LAD/NRO/GN/2016-17/035 dated 27 February ,2017 has notified the Securities and Exchange Board of India (Foreign Portfolio Investors) (Second Amendment) Regulations, 2017.

The Key highlights of the amended regulation is as below: Now, the Foreign Portfolio Investors (“FPIs”) are eligible to invest in the following securities:

  1. Unlisted corporate debt securities in the form of Non-Convertible Debentures/Bonds issued by Public or Private Indian Companies subject to guidelines issued by the Ministry of Corporate Affairs and Government of India from time to time;
  2. Securitised Debt Instruments as under:
  • Any certificate or instrument issued by a special purpose vehicle set up for securitisation of assets and/ or;
  • Any certificate or instrument issued and listed in terms of the SEBI (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008.


Ministry of Corporate Affairs (MCA)

Section 391 (2) Closure of Place of Business by a Foreign Company

Sub section 2 of section 391 of the Companies Act 2013 (the Act) which states that provisions of Chapter XX (Provisions for Winding Up) shall all to closure of place of business by foreign company. However, the MCA vide its circular no. 01/2017 has clarified further that the 391(2) shall apply to foreign company only if it has issued prospectus or Indian Depository Receipts under the provisions of the Chapter XXII of the Act.


The Companies (Transfer of Pending Proceedings) Amendment Rules, 2017 

MCA on 28th February, 2017, has amended the Companies (Transfer of Pending Proceedings) Rules,2016. These regulations are called the Companies (Transfer of Pending Proceedings) Amendment Rules,2017.

In sub rule 1 of Rule 5, the words “sixty days” shall be substituted with the words “six months”. In case of transfer of pending proceedings of winding up on the ground of inability to pay debts, the period for submission of all additional information, required for admission of the petition under section 7,8 and 9 of the insolvency code, including details of the proposed insolvency professional to the NCLT, has been extended to six months instead of sixty days from the date of notification of the Companies (Transfer of Pending Proceedings) Rules,2016 i.e., 15/12/2016. Source

Electronics and Telecommunication

Proliferation of Broadband through public Wi-Fi Networks

On March 8, 2017, the Telecom Regulatory Authority of India released its recommendations on the “Proliferation of Broadband through public Wi-Fi Networks”. This is a follow up to a Consultation Paper on the same topic, that had been released by TRAI on July 13, 2016. The purpose of the Consultation Paper was to explore the regulatory and commercial constraints that were restricting the growth of scalable and ubiquitous Wi-Fi in India. This is an important part of the Government’s plan to increase internet penetration across the country, by making Wi-Fi accessible in public spaces, and to a larger number of citizens (for example, Wi-Fi networks available at airports around the country). As part of the various recommendations, the TRAI has proposed to:

  1. Remove the requirement for authentication through a One-Time-Password at each instance of access of a public Wi-Fi, and replace it with authentication through eKYC or other electronic methods.
  2. Reduce the import duty on Wi-Fi access point equipment, which will enable Wi-Fi service providers to install and provide Wi-Fi services at more locations; and
  3. Set up Public Data Offices, which will be responsible for providing public hotspots and increasing the proliferation of Wi-Fi services.


Obtaining License to act as Digital Locker Service Providers

The Ministry of Electronics and Information Technology has invited applications to license entities to become Digital Locker Service Providers.

The Digital Locker is a system created by the Government to provide citizens with real time access to dematerialized documents issued by various Government and Private Agencies (such as Aadhaar Card, Driving Licence, Vehicle Registration etc.). To obtain a license, apart from showcasing its ability to provide the services, the applicant should have a minimum paid-up capital of INR 5 crores (or a minimum combined investment of the same amount in case of a partnership), a minimum net worth of INR 50 crores, and can have a maximum foreign/NRI shareholding of 49%. Source

Labour Laws

Maternity Benefits (Amendment) Bill, 2016

After the Rajya Sabha had approved the Maternity Benefits (Amendment) Bill, 2016, on August 11, 2016, the Lok Sabha passed the Bill on March 9, 2017. The Bill is a significant change and step forward in the rights of women at the workplace, and seeks to provide safeguards in order to improve the participation of women in the labour workforce and economic development of the country. The Bill includes:

  1. An increase in maternity benefit leave period from 12 weeks to 26 weeks for the first 2 children, that a woman gives birth to;
  2. Provision of a 12-week maternity benefit leave for mothers giving birth to their 3rd or more children, or adopting mothers;
  3. Provision of work-from-home facilities for women, on the mutual consent of the employer and employee (this is irrespective of whether the woman is giving birth to a child or not); and
  4. Creation of a compulsory crèche facility in organisations/companies having 50 or more employees. Further, mothers should be allowed to visit their children at least 4 times a day at this crèche.
  5. An Employer is obligated to inform in writing to every woman newly appointed within the organization about the benefits available under the Maternity Benefit Act.


Introduction of Shram Suvidha Portal for Labour Law Compliance

The Ministry of Labour and Employment introduced certain changes and provisions to increase the “Ease of Doing Business” in India, on March 9, 2017. This has been introduced after the Government has been keeping a close eye on the World Bank’s Ease of Doing Business ranking. This notification includes a new online, real-time, free-of-cost EPFO and ESIC registration process for companies/employers, via a common application form (as opposed to physical forms); the creation of a unified Shram Suvidha Portal to allow easy compliance with labour laws at one place; and the provision for companies to file a single online common annual return under 9 different Central Labour Acts (as opposed to filing a separate annual return under each of the legislations)


Cyber Security

Establishment of Inter-Disciplinary Standing Committee

On February 28, 2017, the RBI established an Inter-Disciplinary Standing Committee on Cyber Security to, inter alia, review the threats inherent in the existing/emerging technology; study adoption of various security standards/protocols; interface with stakeholders; and suggest appropriate policy interventions to strengthen cyber security and resilience. This is in response to the recommendation of the Expert Panel on Cyber Security and IT Examination, which had recognised the ingenious nature of cyber-attacks, necessitating a review of the existing cyber security landscape in India with respect to bank and banking-related services.


Insolvency and Bankruptcy Code, 2016

The Insolvency and Bankruptcy Board of India, via a press release dated February 14, 2017, has issued the Draft Regulation on Voluntary Liquidation. The purpose of these regulations is to set out the procedure and rules that will guide the voluntary liquidation of all corporate persons other than companies. Amongst other things, the regulation covers the initiation of the liquidation process, the effect of the same on the corporate person, the appointment, remuneration, powers and functions of the liquidator, as well as the settlement of claims (by the various stakeholders) and the realisation of the assets of the corporate person.

These regulations have come on the back of the Ministry of Corporate Affairs’ Working Group’s recommendations on rules and regulations required to facilitate the speedy implementation of the Code. Prior to this, the Board had already published Regulations relating to the Insolvency Regulation Process for Corporate Persons, and the Liquidation Processes for Corporate Persons, both in 2016. Source

Trade Mark Laws

Notification of New Trade Mark Rules 2016

On March 6, 2017, the Ministry of Commerce and Industry released the new Trademark Rules, 2017, replacing the earlier rules from 2002. The salient features of these Rules are:

  1. The number of forms covering all applications has been brought down from 74 to 8.
  2. The fees for the various trademark registrations have been reduced, in some instances by up to 400%.
  3. Further concessions have been provided for start-ups, individuals and small enterprises (all of which are defined in the Rules);
  4. Trademark owners can apply to the Registry for determination of whether their mark qualifies as a “well-known mark” or not, something that could previously be determined only as a by-product of court proceedings on trademark infringement. The fees for such application is INR 1,00,000/-.
  5. There is a provision for the registration of sound marks as well now.
  6. No party can be given more than two adjournments during any hearing proceedings, significantly speeding up the process;
  7. Further, no opposition to any proceedings/objections will be given an extension of time for filing his/her evidence Failure to file evidence will be assumed to be an acceptance of the other party’s positions.


Startup India

Proposal: To Allocate Loans Upto Rs. 5 Cr Without Collateral to Startups

The Startup’s community have a reason to rejoice again.

The Government of India (GoI) has initiated a fresh Credit Guarantee Scheme further detailing the Startup Action Plan which was announced on January 2016. The said proposal will enable the startups (as established and defined under the Startup Action Plan of India) to take loan under the Credit Guarantee Scheme with upto 80% of the loan being risk-covered collateral free amount Guaranteed by Government. The scheme once approved by the cabinet shall be functional under the supervision and guidance of Department of Industrial Policy and Promotion. The funds shall be sanctioned either by National Credit Guarantee Trust Company or the Small Industries Development Bank of India (SIDBI). The GoI relaxed tax conditions for startups in the budget for FY2017-18, allowing companies incorporated after March 31, 2016, to avail of a three-year tax holiday in the first seven years of their existence. Earlier, this facility could be availed only for the first five years. This move will further help the startups to focus more on achieving their goals and wither away from the hassle of arranging funds for a smoother business operations.

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