Govt decriminalises Companies Act to promote greater ease of doing business

Source: Business Standard, Sept 21, 2020

New Delhi: The Companies Bill has decriminalised 48 sections by removing or reducing penal provisions and omitting imprisonment for various offences that were considered procedural and technical in nature, a move that will help corporates in ease of doing business.

The Bill, passed on Saturday in the Lok Sabha, comes at a time when companies are reeling under stress due the Covid-19 pandemic. Finance and Corporate Affairs Minister Nirmala Sitharaman said decriminalisation of various provisions under the companies law will also help small firms by reducing the litigation burden on them.

The Bill has proposed doing away with imprisonment for nine offences, which relate to non-compliance with orders of the national company law tribunal (NCLT). These include matters relating to winding-up of companies, default in publication of NCLT order relating to reduction of share capital, rectification of registers of security holders, variation of rights of shareholders, and payment of interest and redemption of debentures.

In case of corporate social responsibility (CSR), if a company fails to transfer the amount to a specified fund, it shall be liable to a penalty twice the amount required to be transferred or Rs 1 crore, whichever is less. Also, every officer of the company, which is in default, will have to pay a penalty of one-tenth of the amount required to be transferred by the firm, instead of the earlier provision of three years imprisonment and maximum fine of Rs 5 lakh.

“These amendments are in furtherance of the objective of CAB 2020 to eliminate subjectivity in the adjudication process, which exists in such cases because the Act provides the adjudicating officer with the power to order either a punishment of imprisonment or impose a criminal fine, or both,” Pavan Kumar Vijay, founder of Corporate Professionals, said.

The Bill has also omitted the punishment of imprisonment prescribed under Sections 26(9) and 40(5) of the Act relating to the provision of public offering of securities by a company such as matters to be stated in the prospectus. However, the quantum of the monetary penalty under each of these provisions remains unchanged.

Imprisonment for non-compliance with procedure for buyback prescribed under Section 68 of the Act and also for various lapses in financial statements of the company are also to be done away with, according to the Bill. The government has also rationalised several penalties under the Act such as for delay in filing the financial statement with the registrar of companies.

The corporate affairs ministry has decriminalised sections where the complainant can enter into a compromise, and agree to have the charges dropped against the accused.

Such offences include, for instance, default with respect to the section 8 (11), which deals with formation of companies with charitable objects, section 26 (9) regarding matters to be stated in the prospectus. The punishment in these cases includes a fine as well as provision for imprisonment for the company’s directors or other individuals involved.

According to the new penal provision, if any person fails to make a declaration of significant beneficial ownership, the minimum penalty has been reduced by half to Rs 50,000 and in case of continuing failure Rs 1,000 each day up to a maximum level of Rs 200,000.

In the last amendment to the Companies Act, the government had decriminalised 16 sections. Most of them covered lapses such as prohibition on issue of shares at discount or failure to file a copy of financial statement with the registrar.

Lok Sabha passes bill to amend Factoring Regulation Act to support MSMEs

Source: Business Standard, Sept 21, 2020

New Delhi: Lok Sabha on Sunday passed a bill to amend the Factoring Regulation Act that seeks to help micro, small and medium enterprises by providing additional avenues for getting credit facility.

The Factoring Regulation (Amendment) Bill, which was introduced on September 14, was passed by voice vote after a brief discussion.

The Factoring Regulation Act, 2011 was enacted to provide for regulating the assignment of receivables to factors, registration of factors carrying on factoring business and the rights and obligations of parties to the contract for assignment of receivables.

Minister of State for Finance Anurag Thakur said it would greatly help the financial system.

“The amendments are expected to help micro, small and medium enterprises significantly by providing added avenues for getting credit facility, especially through Trade Receivables Discounting System.

“Increase in the availability of working capital may lead to growth in the business of the micro, small and medium enterprises sector and also boost employment in the country,” according to Statement of Objects and Reasons of the bill.

Govt to impose 5% customs duty on import of open cell for televisions from Oct 1, 2020

Source: The Economic Times, Sept 20, 2020

India will impose a 5% customs duty on imports of open cell for televisions from October 1, 2020, as the government seeks to increase local manufacturing and value addition.

Government officials said that price increase due to this duty will not be more than Rs 250 per TV, dismissing claims of substantive price hikes being put forth by the industry.

“For how long such import duty sops can continue? The TV industry is well aware of the basic tenets of phased manufacturing. The sop was offered for a limited period of one year in anticipation that the industry would build capacity for manufacturing critical components in India,” a finance ministry official said.

“Leading brands are importing Open Cell for a basic price of Rs. 2700 for a 32 inch and about Rs. 4000 to Rs. 4500 for a 42 inch television. The impact of 5% duty on Open Cell would, thus, not be more than Rs 150-250 for a television,” the official said, terming claims of price hikes by companies as misleading.

Television makers have argued that prices of fully built panel have risen by 50% and customs duty of 5% on open cell – a major component for TVs – would lead to increase in sale prices by a minimum of Rs. 600 for a 32 inch television and Rs. 1200-1500 for a 42 inch TV and even higher for a large screen televisions.

The customs duty exemption given to open cell for a period of one year will end on September 30, such that industry can move towards value addition from mere assembling, but that has not taken place.
Domestic industry should invest more in local manufacturing since it has been given adequate protection with 20% customs duty on imports of fully made TVs since 2017 and certain categories of TV imports have been put in the restricted category since July this year, a second official said.

He noted that till last year televisions worth Rs 7000 crore were being imported.

“This cannot go on for long as assembly of television does not entail any significant value addition. Deepening of value addition in the domestic market must happen in phased manner,” he added.

The government feels that imports of television parts will rise, from Rs 7500 crore in a year, as imports of fully made TVs is curbed.

“Open cell capacity building in India would also help making panels for mobile phones which is a huge market,” the second official added.

Government extends mandatory BIS norms for toys

Source:, Sept 16, 2020

NEW DELHI: In what has come as a big relief for domestic toy manufacturers, the government on Tuesday extended the mandatory BIS certification by four months. The new norm will be implemented from January 1, 2021. This will allow the manufacturers to dispose of their stocks, which otherwise were not allowed to be sold in the market from September 1.

The government had implemented the mandatory BIS certification for all toys meant for children below 14 years from September 1, which had put the domestic industry in deep crisis as only two toy makers had got the BIS licence and the process was underway for 81 other cases.

This was first published in TOI online on September 13 highlighting how domestic players were more hit due the government decision. Officials had said as per the law, the sale of non-BIS toys manufactured before September 1 was not permitted. “We welcome the government decision to extend the date for implementation of the quality control order (QCO). This is a big relief. We had been demanding this so that industry gets little more time to put the systems in place to comply with the order. We are completely with the government for complying with standards as children safety is our priority,” said Ajay Aggarwal, president of Toys Association of India said.

Representatives of major toy makers associations had told the government that the kicking in of the mandatory standards had hit Indian manufacturers.

Govt moves to tighten regulation of co-op banks

Source: The Hindu Business Line, Sept 14, 2020

New Delhi: The Banking Regulation (Amendment) Bill 2020 to empower the Reserve Bank of India (RBI) to effectively handle the mishaps in private banks without allowing any loss of public confidence and disruption in the financial system was introduced in the Lok Sabha on Monday.

The Bill, which seeks to replace an ordinance issued by the Government in last week of June, will allow the RBI to prepare a reconstruction scheme (for failed banks) without having to first make an order of moratorium on barring deposit withdrawals. This will enable the RBI to find suitors for a stressed bank. It is understood that the recent YES Bank debacle and its subsequent rescue episode had prompted the Government to strengthen the hands of the RBI on this front.

Besides, the Bill also brings certain cooperative banks — urban cooperative banks (UCBs) and multi-state cooperative banks (MSCBs) — under the RBI supervision process applicable to commercial banks as part of efforts to protect the depositors of such cooperative banks.

Replying to objections raised to the introduction of the Bill in the Lower House on Monday, Finance Minister Nirmala Sitharaman said the Bill is primarily aimed at protecting depositors of cooperative banks and is focused only on those cooperatives that use the word ‘bank’ and therefore receiving and dealing with deposits.

Congress’ objection

On the issue of Congress MP Shashi Tharoor’s point that there has been a legal challenge in some court and therefore the Lok Sabha cannot go ahead with the introduction of the Bill, Sitharaman said there is no interlocutory relief that has been provided in the court and also there are no directions given by the court in the matter against the operation of the ordinance.

She highlighted that cooperative banks in the country have been regulated by the RBI since 1965 and the Bill only seeks to extend the applicability so that some of the banking regulation laws are also going to be applicable to them.

She asserted that State Cooperative laws are not being proposed to be amended. “State cooperative laws are not being touched in this proposed amendment”, she said.

This is being necessitated because cooperative banks are in a weak financial position and depositors are suffering. As many as 277 Urban cooperative banks are reporting losses; 105 UCBs are unable to meet minimum regulatory capital requirements; 47 are having negative net worth and 328 UCB having more than 15 per cent Gross NPA ratio as of March 2019.

“To protect depositors and in public interest, early legislation is required”, she said.

Two other Bills

In a separate move, the Finance Minister also introduced in the Lok Sabha the Factoring Regulation (Amendment) Bill 2020, which will pave the way for certain non-banking finance companies to undertake factoring business as well and also participate as a financier in the TReDS platform. The Bill will also pave the way for the RBI to frame regulations on ‘factoring’ business.

The Bilateral Netting of Qualified Financial Contracts Bill 2020 to help further develop the financial markets was also introduced. The proposed law on bilateral netting will be a significant enabler for efficient margining and the capital saving would enable banks to provide efficiency in offering hedging instruments to businesses in India. It would also help catalyse the corporate bond market through developing the credit default swap market.

Netting enables two counter parties in a bilateral financial contract to offset claims against each other to determine a single net payment obligation due from one counter party to other in the event of default.

From 1 Oct, 5% tax on foreign fund transfer

Source:, Sept 10, 2020

Any amount sent abroad to buy foreign tour packages, and every other foreign remittance made above ₹7 lakh, will attract a tax-collected-at source (TCS) beginning 1 October unless tax is already deducted at source (TDS) on that amount.

While the tax on foreign tour packages will be 5% for any amount, for other foreign remittances the tax will kick in only for the amount spent above ₹7 lakh.

For education-related foreign remittances funded by loans, though, the tax will be just 0.5% for the amount above ₹7 lakh, considering many Indian students take loans to pursue education abroad.

Under the Reserve Bank of India’s liberalized remittances scheme, individuals can remit a maximum of $250,000 abroad every year. The provision to collect tax on remittances was introduced in the Finance Act of 2020 subject to riders and notified on 27 March to take effect from 1 October.

Many financial institutions have communicated the applicability of tax-collected-at source on remittances from October to customers. The Union finance ministry has been extending the scope of both tax-deducted at source and tax-collected at source, and encouraging electronic payments in order to have a better idea of transactions in the Indian economy and to be able to match the spending pattern of assessees with their reported taxable income.

Ministry of corporate affairs eases deposit rules for start-ups

Source: Financial Express, Sept 09, 2020

The ministry of corporate affairs (MCA) has amended the rules related to acceptance of deposits by companies, a move that offers more flexibility to start-ups for raising funds at a time when Covid-19 has severely impacted the economy and businesses, especially MSMEs and start-ups.

The amendment allows start-ups to raise funds through corporate bonds or other convertible instruments for 10 years as against 5 years earlier.

Under the new rule, an amount of up to Rs 25 lakh received by a start-up in a single tranche by way of a convertible note (convertible into equity shares or repayable within a period not exceeding 10 years from the date of issue) in a single tranche, from a person will not be considered ‘deposits’ under company law compliance.

MCA amended the Companies (Acceptance of Deposits) Rules, 2014, to change the period of repayment from five to 10 years. A convertible instrument is an investment that can be changed into another form. These generally are convertible bonds and convertible preferred stock, which can be converted into common stocks.

Welcoming the development, Partner at Nangia Andersen, Sandeep Jhunjhunwala said the relaxation in acceptance of deposits norms promotes the ultimate goal of a strong ecosystem for start-ups in India. “With the pandemic causing a mammoth impact on the Indian economy, start-ups are looking for ways to raise funds and revive their business. Flexibility with an extended term of repayment of 10 years provides start-ups registered as a private limited company an alternative opportunity to attract investors and raise funds up to 25 lakhs in one tranche via the option of convertible instruments without facing the risk of being regarded as a deposit, which is otherwise prohibited under the Companies Act,” he added.

Cabinet approves amendments to 3 Labour codes

Source: The Economic Times, Sept 09, 2020

New Delhi: The Union cabinet on Tuesday approved amendments to the labour codes on social security, industrial relations, and occupational safety and health (OSH), which could include pension and medical benefits to gig workers, government officials said.

The codes – to be moved in the forthcoming monsoon session of Parliament – will allow states to introduce significant changes to their labour laws framework, such as rules for retrenchment, through notifications.

“Codes have been approved,” a government official privy to the development said.

The codes are likely to clearly define areas and conditions in which fixed-term employment will be allowed.

The proposed amendments include a clear definition of the ‘appropriate authority’ on occupational safety and removal of distinction between term employees and workers in the Industrial Relations Code, officials said.

The proposed IR Code has suggested special provisions for layoff and retrenchment in establishments employing 100 or more workers or such number as notified by the appropriate government while strengthening the health facilities for workers at factory premises, they said.

These changes will help states such as Gujarat, Madhya Pradesh and Uttar Pradesh push through labour law reforms they introduced recently, including allowing businesses to extend shift hours to 12 hours from eight.

The central government has been working to concise 44 central labour laws into four broad codes on wages, industrial relations, OSH and social security. The codes were introduced in Lok Sabha last year and then sent for scrutiny of the Parliamentary Standing Committee on Labour.PGCIL Asset Monetisation Approved
The Cabinet on Tuesday also approved monetisation of five transmission lines of Power Grid Corporation of India (PGCIL), which is estimated to fetch the power transmission provider around Rs 7,164 crore.

Monetisation of the first block will be done through infrastructure investment trust (InvIT) in the ongoing financial year and its proceeds would be utilised for fresh investment in the transmission network expansion and other capital schemes.

“In the first block, PGCIL would be able to monetise five TBCB (tariff-based competitive bidding) assets of gross block of Rs 7,164 crore (as on September 2019),” the Cabinet Committee on Economic Affairs said in a statement.

A dispute on definition of “intermediary” puts $147 bn IT sector in a tax quandary

Source: The Economic Times, Sept 08, 2020

New Delhi: Country’s $147 billion IT and ITES industry including back offices of several multinationals such as Genpact and WNS Global has sent an urgent request to the government on denial of export status, which has made them liable to 18% goods and services tax (GST).

Industry fears it could cascade into denial of refunds on taxes paid on inputs, audits and investigation and tax recovery notices for tax.

The industry has sought immediate government intervention in the matter.

According to industry estimates, close to 200 plus companies have some form of dispute on the definition of “intermediary” services. There is no GST levied on goods or services exported, but intermediary services are taxed even if supplied to foreign entities. Back office services such as BO were in pre-GST regime treated as exports and not taxed.

GST authorities have started disputing the export status of different streams of revenue and seeking to treat the same as “intermediary” services.

Industry body Nasscom has represented the matter to the finance and commerce ministries for expeditious resolution.
“There are increasing cases where the GST authorities have aggressively interpreted the scope of intermediary services to cover ITeS/ BPM,” it said in a representation, seen by ET.

The implication of treating ITeS/ BPM as “Intermediary”, it said, is that the exports get taxed at 18%. “In the immediate refund claims on input credit of GST are denied. This is resulting in denial of refunds, excessive investigations, litigation and making ITeS/ BPM in India uncompetitive,” it added.

The issue arose following a Maharashtra Appellate Authority for Advance Rulings decision in case of VServe Global. The AAAR in February, 2019 upheld an AAR decision that ruled that back-office support services to overseas customers were intermediary services and hence liable to tax and not eligible for tax refunds.

The Central Board of Indirect Taxes and Customs (CBIC) attempted to clarify the issue via a circular in July, 2019, but that created more confusion as interpretation of whether the service would qualify as exports was left to tax authorities.

It led to issuance of a spate of notices and denial of credit by authorities.

The circular was subsequently withdrawn. A revised circular, as announced by the GST Council meeting in September 2019, is yet to be issued.

“NASSCOM has discussed this in detail with the CBIC and they seem to agree with our suggestion, but clarity is still awaited,” said Keshav Murugesh, group chief executive officer of WNS Global Services, a NYSE listed company in the Business Process Management business.

India has more than 500 global in-house delivery centres, employing over 350,000 people. As per industry, an 18% levy on these services will derail the cost dynamics of the back-office model that operates on thin margins and faces competition from other low-cost jurisdictions.

“It’s time due importance is given to ‘Served from India’ as ‘Make in India’ and necessary clarifications are issued to put to rest these disputes,” Bipin Sapra, partner, EY.

Genpact recently filed a writ in Punjab High Court.

“A more permanent solution could be to amend the GST law to carve out the IT-BPM sector in the GST “place of supply” provisions and clarify export status. This has been done recently for the Pharma R&D sector as well,” said Mahesh Jaising, Partner and National Leader Indirect tax, Deloitte India.

A Genpact spokesperson said regulatory clarity will help.

“The IT / BPM industry is a significant employment generator and source of revenue for India. This issue requires clarification, which will go a long way in enabling us to continue to be a country that is easy to do business with and a market of choice for multinational companies,” the spokersperson said.

Govt releases draft guidelines for ads; disclaimers must be clearly visible

Source: Business Standard, Sept 07, 2020

New Delhi: The government has come out with a comprehensive set of draft guidelines on advertising under which ‘disclaimers’ that are not easily noticeable by or legible or easily understandable to an ordinary consumer will be treated as misleading advertisements under the Consumer Protection Act.

The violation of these guidelines would face action by the recently established Central Consumer Protection Authority.

The draft guidelines, on which the Consumer Affairs Ministry has sought public comments by September 18, are applicable to companies whose products or services are advertised as well as to advertisement agencies and endorsers.

According to the draft guidelines, a disclaimer should be clear, prominent enough and legible.

“It should be clearly visible to a normally-sighted person reading the marketing communication once, from a reasonable distance and at a reasonable speed.”

The disclaimers used in advertisements should be in “same language” as the claim of the advertisement, the font should be in the “same font” as the claim and place disclaimers on packaging in a “prominent and visible space”.

If the claim is presented as voice over (VO), then the disclaimer should be displayed in sync with the VO, it said.

That apart, a disclaimer should not attempt to hide material information with respect to the claim, the omission/ absence of which is likely to make the advertisement deceptive or conceal its commercial intent.

A disclaimer should not attempt to correct a misleading claim made in an advertisement, it added.

The draft guidelines also specify that an advertisement should not describe a product or service as “free”, “without charge” or other similar terms, if the consumer has to pay anything other than the cost while purchasing a product or service for delivery of the same.

On those who endorse advertisements, the guidelines propose that they should take due care to ensure that all descriptions, claims and comparisons that they endorse or that are made in advertisements they appear in are capable of being objectively ascertained and are capable of substantiation.

Endorsers should also take due care to ensure that an advert “does not convey … express or implied representations that would be false, misleading or deceptive if made by the trader or manufacturer or advertiser of the relevant product or service.” If an endorsement of a product or service is made through a testimonial, the guidelines propose that such endorsement should reflect the genuine, reasonably current opinion of the endorser, and should be based on either adequate information about or experience with the product or service being endorsed.