Insolvency and Bankruptcy Law
- MCA has notified Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 which provides for the procedure of making an application to the Insolvency and Bankruptcy Board of India by a financial creditor, operational creditor etc. relating to corporate insolvency resolution process, which shall be applicable from 1 December 2016.
- With effect from 1 December 2016, SO. 3594(E) DATED 30 NOVEMBER, 2016, certain sections of the Insolvency and Bankruptcy Code, 2016, shall come into force:
- Section 2 – Applicability of the Act: The provisions Insolvency and Bankruptcy Code, 2016 to any company incorporated under the Companies Act, 2013 & Companies Act 1956, Limited Liability Partnerships, Partnership firms and Individuals and other government body.
- Sections 4 to 32 – Dealing with applicability of matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees; Application for initiation of corporate insolvency resolution process by operational creditor; Initiation of corporate insolvency resolution process by corporate applicant; Time-limit for completion of insolvency resolution process; Appointment and tenure of interim resolution professional; Appeals etc.
- Sections 60 to 67 - Relating to Adjudicating Authority for corporate persons; fraudulent trading or wrongful trading etc.
- Section 198 - Provisions relating to condonation of delay in filing application under code.
- Section 231 - Bar on jurisdiction. No civil court shall have jurisdiction in respect of any matter in which the Adjudicating Authority is empowered by, or under, this Code to pass any order and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any order passed by such Adjudicating Authority under this Code
- Section 236 to section 238 [both inclusive] - Override provisions of the Act
- Section 239(2)(f)(a) -Power to make laws by Insolvency Board.
- Hon’ble Minister for Finance and Corporate Affairs, Shri Arun Jaitley, handed over certificates of registration, PRESS RELEASE DATED 28 NOVEMBER, 2016, to two Insolvency Professional Agency (IPA) companies namely:
- Indian Institute of Insolvency Professionals of ICAI. (led by Institute of Chartered Accounts of India)
- ICSI Insolvency Professionals Agency. (led by Institute of Company Secretaries of India)
With the notification of Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, the IPAs can start enrolling the professional members from 29 November 2016. This is one step closer to implementation of the Insolvency and Bankruptcy Code, 2016.
- In order to remove the transitory difficulties of moving the winding up cases from the High Court to NCLT (Tribunal), MCA vide Notification No. S.O. 3676 (E) has provided that only such proceedings relating to cases other than winding-up, for which orders for allowing or otherwise of the proceedings which are not reserved by the High Courts shall be transferred to the Tribunal. (NCLT). However all proceedings under the Companies Act, 1956 other than the cases relating to winding up of companies that are reserved for orders for allowing or otherwise such proceedings or the proceedings relating to winding up of companies which have not been transferred from the High Courts shall continue be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959
Company Law / Ministry of Corporate Affairs
- The Ministry of Corporate Affairs provided clarification regarding the due date of transfer of shares to Investor Education and Protection Fund (IEPF) authority. The said circular mentioned that on receipt of representation letters from stakeholders for simplification of share transfer process under IEPF (Accounting, Audit, and Transfer and Refund rules 2016) and extension of due date for share transfer of such shares. The IEPF authority is examining the representations and are likely to revise the process and\ due date for transfer of shares to IEPF authority.
- MCA vide Notification S.O (E) dated 07 December 2016 the following provisions of the Companies Act, 2013 come into force wef 15 December 2016:
|Sl.No||Section||Highlight of the section|
|1.||Section 2(23)||Definition of Company Liquidator|
|2.||Section 7(7)(c ) and7(7) (d)||Punishment for filing incorrect details with authority at the time of incorporation|
|3.||Section 8 (9)||Transfer of excess of funds remained after winding up of the such Section 8 company to another Section 8 company.|
|4.||Section 48||Notification of provisions relating to variation of shareholders’ rights|
|5.||Section 66||Notification of provisions relating to reduction of share capital under Companies Act 2013 (erstwhile same was u/s 100 of Companies Act 1956)|
|6.||Section 224 (2)||Provision relating to the actions to be taken in pursuance of inspector’s report made as a part of enquiry and investigation|
|7.||Section226||Powers to Investigation authority not to stop investigation proceedings though the Voluntary winding up of company, etc.|
|8.||Section 230 (Except Sub section 11 and 12) to 233||Power to compromise or make arrangements with creditors and members Much awaited provision regarding compromise or make arrangements with creditors and members has been notified accordingly the section 391-394 of Companies act 1956 stands inoperative and all matters shall henceforth be transferred to NCLT.|
|9.||Sections 235 to 240||Provision relating to power to acquire shares of shareholders dissenting from scheme or contract approved by majority, minority shareholding and Liability of officers in respect of offences committed prior to merger, amalgamation, etc.|
|10.||Sections 270 to 288||Modes of winding up and winding up related provisions.|
|11.||Sections290 to 303||Powers and duties of Company Liquidator and other related provisions|
|12.||Sections 326 to 365||Overriding preferential payments relating provisions and Liquidation relating provisions.|
|13.||Sections 370, 372 to 373 and 375 to 378||Provisions related to Companies authorised to register under this Act|
|14.||Section 391 (2)||The provisions of sections 34 to 36 (both inclusive) shall apply to— The provisions of Chapter XX (Winding Up)shall apply mutatis mutandis for closure of the place of business of a foreign company in India as if it were a company incorporated in India.|
|15.||Section 434 (1)(c )||Transfer of certain pending proceedings to National Company Law Tribunal and Appellate Tribunal|
- Securities Exchange Board of India vide its press number 161/2016 dated 23 November 2016, to develop the alternative investment industry and the start-up ecosystem in India, SEBI, in March 2015, constituted a Committee of experts drawn from the across market participants called the Alternative Investment Policy Advisory Committee (AIPAC) under the Chairmanship of Shri. N.R. Narayana Murthy.
Amendment to SEBI (Alternative Investment Funds) Regulations, 2012 regarding Angel Funds. AIPAC had submitted its report to SEBI with various recommendations:
- The upper limit for number of angel investors in a scheme is increased from forty-nine to two hundred
- The requirements of minimum investment amount by an Angel Fund in any venture capital undertaking is reduced from fifty lakhs to twenty-five lakhs.
- Lock-in requirements of investment made by Angel Funds in the venture capital undertaking is reduced from three years to one year.
- Angel Funds are allowed to invest in overseas venture capital undertakings upto 25% of their investible corpus in line with other AIFs.
We had discussed this topic extensively here and here.
- Amendment to SEBI (Foreign Portfolio Investors) Regulations, 2014, to Permit FPIS to Invest in Unlisted Non-Convertible Debentures and Securitised Debt Instruments: As per SEBI (Foreign Portfolio Investor) Regulations, 2014, investment in unlisted debt securities is permitted only in case of companies in the infrastructure sector. Further, investment by FPIs in securitised debt instruments is currently not permitted. With the new amendments, FPIs shall be permitted to invest in the following:
- Investments in the unlisted corporate debt securities shall be subject to minimum residual maturity of three years and end use-restriction on investment in real estate business, capital market and purchase of land. The expression ‘Real Estate Business’ shall have the same meaning as assigned to it in Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations, 2000 Notification No.FEMA.362/2016-RB dated February 15, 2016.
- Investment by FPIs in the unlisted corporate debt securities and securitised debt instruments shall not exceed INR 35,000 crores within the extant investment limits prescribed for corporate bond from time to time which currently is INR 2,44,323 crores. Further, investment by FPIs in securitised debt instruments shall not be subject to the minimum 3-year residual maturity requirement.
- Corporate Governance Issues in Compensation Agreements:
- SEBI clarifies through PR No. 161/2016 that no employee including key managerial personnel, director or promoter of a listed entity shall enter into any agreement for himself or on behalf of any other person, with any shareholder or any other third party with regard to compensation or profit sharing unless prior approval has been obtained from the Board as well as public shareholders.
- The said announcement curbs the practise of promising the third party (which may include third party) a compensation or profit sharing without the approval of shareholders. The said restriction is likely to have an impact on the stock options /sweat equity given to any employee or allotment of shares for considerations other than cash.
India and Cyprus Double Taxation Avoidance Agreement (DTAA): India and Cyprus on 18 November 2016 signed a new double tax avoidance pact under which capital gains tax will be levied on sale of shares on investments made after 1 April 2017 and aims to be on par with Mauritius in terms of tax treatment. The latest pact would replace the existing Double Tax Avoidance Agreement (DTAA), which was in place the last 22 years (i.e since June 13, 1994.) The key highlight of this DTAA are as follows:
- Provides for a source-based taxation of capital gains arising from alienation of shares, instead of a residence-based taxation. (Earlier the same was residence based taxation)
- This treaty shall be applicable for investments made prior to 1 April 2017, in respect of which capital gains would continue to be taxed in the country of which taxpayer is a resident,” the finance ministry said in a statement.
- The new agreement provides for assistance between the two countries for collection of taxes.
- The new agreement also updates the provisions related to exchange of information which will enable exchange of banking information and allow the use of such information for purposes other than taxation, with the prior approval of the competent authorities of the country providing the information.
- The scope of ‘permanent establishment’ has been widened and the taxation on royalty income may come down.
It is expected that the provisions of new DTAA may come into force after the completion of necessary internal procedures in both the countries. Tax rates on undisclosed income: BILL NO. 299 OF 2016, TAXATION LAWS (SECOND AMENDMENT): Bill No. 299 of 2016, was introduced in Lok Sabha on 28 November 2016. The said bill is proposed further to amend the Income-tax Act, 1961 and the Finance Act, 2016 and is proposed to be named as Taxation Laws (Second Amendment) Act, 2016 The Taxation Laws (Second Amendment) (Bill No-299 of 2016) deals with the consequences in terms of Tax and Penalty in those situations where a person does not avail the benefits of Pradhan Mantri Garib Kalyan Yojna, 2016 voluntarily and his income comprises of income u/s 68 (dealing with credit cards), 69 (unexplained income) 69A (unexplained money), 69B(Investments not disclosed in books), 69C(Unexplained Expenditure) or 69D whether declared in the return of income or Assessed by Assessing Officer for AY 2017-18. Further all income mentioned above shall be taxed at the rate of 60% besides the consequential interest penalty and prosecution. The bill further proposes that, if during the course of the search u/s 132 of Income Tax Act 1961, if a person does not admit undisclosed income and does not specify the manner in which such an income is derived, then the assesse will have to pay tax at the rate of 60% besides the consequential interest and prosecution.
ESIC Approves the Enchancement of Wage Limit: Employees State Insurance Corporation (ESIC) has approved the enhancement of wage ceiling from present Rs. 15,000 per month to Rs. 21,000/-. The draft Rules calling for objections has been published in Gazette of India on 06.10.2016.
Amendment to Master Direction on Know Your Customer: In exercise of the powers conferred under Section 35A of the Banking Regulation Act, 1949, it has been decided to make certain amendments to the Master Direction on Know Your Customer (KYC). The two major changes being notified:
- It has been decided to allow One Time Pin (OTP) based e-KYC subject to certain restrictions
- All Scheduled Commercial Banks (SCBs) are required to invariably upload the KYC data pertaining to all new individual accounts opened on or after 1 January 2017, with Central KYC Records Registry. SCBs are, however, allowed time upto 1 February 2017 for uploading date in respect of accounts opened during January 2017.
Relaxation in Additional Factor of Authentication (AFA) for payments upto INR 2000/- for card network provided authentication solutions: Reserve Bank of India vide notification number RBI/2016-17/172 relaxed the AFA requirement for transactions upto INR 2000/- for online CNP transactions for the ‘payment authentication solutions’ provided by authorised card networks with the participation of respective card issuing and acquiring banks . Further the said relaxation is subject to following conditions:
- Only authorised card networks shall provide such payment authentication solutions with participation of card issuing and acquiring banks
- Customer consent shall be taken while making this solution available to them
- The relaxation for AFA under such solutions shall be applicable for card-not-present transactions for a maximum value of INR2,000/- per transaction across all merchant categories. Banks and card networks are free to facilitate their customers to set lower per transaction limits,
- Beyond the transaction limit of INR 2,000/-, the card not present transaction has to necessarily be processed as per the extant instructions with mandatory AFA; even for transaction values below this limit, the customer may choose to make payment using other forms of AFA as hitherto,
- Suitable velocity checks (i.e., how many such small value transactions will be allowed in a day / week / month) may be put in place by banks/card networks as considered appropriate. No change in the existing chargeback process.
However in the interest of customer awareness and protection, the banks and authorised card networks offering such solutions are also advised to make customers aware that the solution is an optional facility for card-not-present transactions for values upto INR.2,000/- only and that they are free to make payments using other forms of AFA as hitherto and bear the full liability in the event of any security breach or compromise in the authorised card network.
Copyright on Supreme Court Judgements
Supreme Court Judgement Matter: Claim on copyright of Judgments delivered by the apex court. Case b/w Eastern Book Company (EBC) and Reed Elsevier (whose subsidiary is LexisNexis) Case Number: RS No 134/ 2012- In the Court of District Judge, Lucknow A bench of Justices Shri. Ranjan Gogoi and Shri N V Ramana on Thursday 25 November 2016 observed that no one can claim copyright of judgments delivered by the apex court. The Bench observed that EBC could not claim monopoly over reporting the judgments of the apex court and that any person was free to access and report the same. The court further clarified that LexisNexis was free to rely on any source whatsoever to use the text of the judgment for its law reporting. The matter dates back to 2012, when EBC (which publishes Supreme Court Cases) sought a permanent injunction from the District Judge, Lucknow to prevent their competitors, Reed Elsevier from publishing Supreme Court judgments on grounds of copyright infringement. It is pertinent to note that there exists a specific provision in the Indian Copyright Act, 1957 that excludes judgments and orders of courts from the ambit of copyright infringement. “52. Certain acts not to be infringement of copyright. (q) the reproduction or publication of (iv) any judgment or order of a court, Tribunal or other judicial authority, unless the reproduction or publication of such judgment or order is prohibited by the court, the Tribunal or other judicial authority, as the case may be…” Nevertheless, the trial court ruled in favour of EBC and granted an interim injunction. An appeal was then filed in the Allahabad High Court. In the High Court, EBC argued that an amount of creativity goes into their publications, and that this is enough to constitute copyright. It was argued,“…edition of SCC is based on the Editors reading of the whole judgment and understanding of the question of law and facts involved. They determine whether to label it as “concurring”, “partly concurring”, “dissenting” or “partly dissenting” or “supplementing” etc. In these tasks the Editor uses sound judgment, creativity and legal skill…” Reed Elsevier, on the other hand, argued that EBC was merely reproducing text from judgments that are freely available on the Supreme Court website and other sites. “most of the judgments are procured from the Registry of the Hon’ble Supreme Court, the remaining are sourced from other websites and journals including the website of the Judicial Information System more popularly known as “JUDIS”. The website is easily accessible to all and the information available falls within the public domain. Such insertions are garden variety and absolutely devoid of any modicum of creativity and as such it clearly does not quality the test of minimum creativity. Nothing but a verbatim reproduction of the judgments as are reported by the JUDIS” Therefore, the High Court upheld the trial court’s verdict, which prompted Reed Elsevier to approach the apex court. As of now, the appeal stands disposed of and the suit will continue to be heard in the trial court. During the course of arguments, which have been going on since 2014, Senior Advocates Aryama Sundaram and Pratibha Singh, along with Priyanka Khimani appeared for Reed Elsevier and LexisNexis, while senior counsel Rajeev Datta and KV Vishwanathan represented EBC. Compiled By: Vadiraja P S and Deepanshu Singhi