Pre-pack scheme: Insolvency resolution time may be cut to just 3-4 months

Source: The Financial Express, Nov 25, 2020

The government is weighing a proposal to reduce by more than a half the time limit for the resolution of stressed assets under a so-called ‘pre-pack’ insolvency scheme. Any such move would not just expedite the resolution of bad debt but also cut costs. The “pre-pack” scheme will require amendments to the Insolvency and Bankruptcy Code (IBC) to take effect, and the government may introduce a Bill to this effect as early as the next session of Parliament, sources said. As reported by FE earlier, the “pre-pack” scheme will be a pre-IBC window for resolution of toxic assets, which will only complement the existing framework but not substitute it.

At present, under the IBC, the corporate insolvency resolution process has to be wrapped up within a maximum of 270 days. Of course, in many cases, especially the large ones recommended by the central bank that included Essar Steel and Bhushan Steel, the resolution process dragged on for months, far exceeding the mandatory time-frame. But that was primarily due to litigation.

While details are being worked out, the “pre-pack” scheme will typically allow a stressed company to prepare a financial reorganisation plan with the approval of its at least two-thirds of creditors (and share-holders). The resolution plan so reached can then be placed before the NCLT for approval and subsequent implementation. However, the fineprint of the scheme will be crucial to its success, analysts have said.

Under the extant IBC norms, a creditor can drag a debtor to the NCLT if the default amount is `1 crore or more. Once the creditor’s application is admitted by the NCLT, the resolution process starts and it has to be wrapped up in 180 days, which can be extended by a maximum of 90 days. “The time limit may be reduced to just 3-4 months under the ‘pre-pack’ scheme. The government is in the process of finalising the changes,” one of the sources said.

Data available with the Insolvency and Bankruptcy Board of India (IBBI) show, of the 2,108 ongoing cases as of June 2020, the resolution of as many as 1, 094 has been dragging on beyond the mandatory 270 days. Analysts have attributed this delay to the legal hurdles posed primarily by defaulting promoters’ dogged pursuit to hold on to their companies.

Earlier, the government had set up a committee under IBBI chairman MS Sahoo to submit a report on ‘pre-pack’ insolvency. The planned amendments are expected to be based on the Sahoo panel report. Since a resolution plan under a “pre-pack” arrangement is already endorsed by the lenders, it will effectively bypass various requirements and interventions by the NCLT at different stages under the usual IBC process, thus, reducing litigation costs and delays. It will also help decongest the over-burdened NCLTs, especially after the lifting of the suspension of insolvency cases against fresh Covid-related defaults. The government has already extended the suspension by three months from September 25, upon the expiry of a six-month deadline last week. The idea was to help cash-strapped firms tide over the Covid impact without the fears of getting dragged to the NCLT.

RBI asks banks not to approve proposals of foreign law firms to open branch office in India

The RBI on Monday asked banks not to approve any proposal of foreign law firms to open a branch office, project office or liaison office in the country under FEMA for the purpose of practicing legal profession.

The RBI has issued a circular in this regard in view of a Supreme Court order wherein the apex court held that advocates enrolled under the Advocates Act, 1961 alone are entitled to practice law in India and foreign law firms or foreign lawyers cannot practice the profession of law.

“… banks are directed not to grant any approval to any branch office, project office, liaison office or other place of business in India under FEMA for the purpose of practicing legal profession in India,” the RBI said.

Further, “they shall bring to the notice of the Reserve Bank in case any such violation of the provisions of the Advocates Act comes to their notice”, it added.

The RBI in October 2015 had advised banks not to grant fresh permissions or renew permissions already granted to any foreign law firm for opening of liaison office in India till the policy in this regard is reviewed based on, among others, final disposal of the matter by the Supreme Court.

The Supreme Court, it said, while disposing of the case, held that advocates enrolled under the Advocates Act, 1961 alone are entitled to practice law in India and that foreign law firms/companies or foreign lawyers cannot practice the profession of law in India.
As such, foreign law firms/companies or foreign lawyers or any other person resident outside India, “are not permitted” to establish any branch office, project office, liaison office or other place of business in India for the purpose of practicing legal profession, the circular said.

Tax sops announced to help developers, woo homebuyers

Source: Financial Express, Nov 13, 2020

The government on Thursday provided income tax relief to help builders clear their inventory as well as boost demand from homebuyers.

Simply put, now the differential limit between circle rate and market rate has been doubled to 20%, which means no income tax will be levied on the developers and the homebuyers for transactions made up to 20% below the circle rate. This limit was 10% till now.

This relief is from the date of announcement till June 30, 2021.

However, this benefit has been limited to houses with prices of up to Rs 2 crore and only for primary sales. Though developers welcomed the move, they also pointed out that by putting a price cap, a lot of inventory in central locations of Mumbai and National Capital Region will be out of the purview of this benefit.

At present, the homebuyers and developers have to pay tax if the differential between the circle rate and transaction value is more than 10% as that is seen as income under Section 43CA of the income tax Act. With this limit now being raised to 20% on properties up to Rs 2 crore, inventory in the mid-income segment (Rs 75 lakh to Rs 2 crore) is likely to get cleared.

According to ANAROCK Research, there are around 5.45 lakh unsold units across the top seven cities priced up to Rs 1.5 crore while another 49,290 are priced between Rs 1.5 crore and Rs 2.5 crore.

HDFC vice-chairman and CEO Keki Mistry told CNBC TV18 that this is a positive move as reckoner prices (circle rates) do not necessarily reflect the true value of the property in any particular location and many transactions happen lower than the ready reckoner price.

He further said while the move will benefit most projects, the limit of Rs 2 crore may make it not so attractive for a place like Mumbai or Delhi where prices are high. “While you will get properties for Rs 2 crore in the suburbs, in central and south Mumbai and in Delhi the properties of Rs 2 crore will be a rarity. Also, prices have fallen more in the high-end markets compared with the lower segments of the market,” he said.

Motilal Oswal Real Estate CEO Sharad Mittal said, with the softening of prices across markets, this price difference was in excess of 10% in some cases which kept some of the home buyers at bay. “While the move of increasing the differential from 10% to 20% will certainly help the real estate sector liquidate inventory as it brings more homebuyers to the fore, the impact will be limited as unsold inventory is highest in Mumbai and NCR markets where property values are higher than Rs 2 crore,” he said.

There is another reason that the measure may have limited scope. Liases Foras founder and MD Pankaj Kapoor explained that there are not too many regions where circle rates are higher than the prevailing market rate. “In most regions, the circle rates have been lower than the prevailing market rate. However, this provision provides a scope to the developers to reduce prices. This may also open up the scope of absorbing some black money in real estate,” he said.

Credai national president Satish Magar said while the industry had asked for a complete abandonment of 43CA, the increase to 20% is also a good enough move. “If someone wants to sell below the ready reckoner price, he has a margin of 20% to sell now. Being in an extraordinary situation if someone wants to liquidate their inventory, this is a good measure for that,” he said.

Sunteck Realty CMD Kamal Khetan said, “Property value in many parts of India has already gone down below the ready reckoner rates. The move to hike the differential to 20% will help developers offload the inventory and homebuyers to proactively buy properties without any tax liability.”

Naredco president (national) and Assocham president Niranjan Hiranandani said the cap of Rs 2 crore will result in most projects in metro cities not being able to take advantage of this. “It has consistently been pointed out by industry bodies that price points in metro cities need to be kept in mind while offering any such relaxation,” he said.

Meanwhile, partner at Nangia Andersen LLP Sandeep Jhunjhunwala pointed out that by limiting the total value of consideration for residential units to Rs 2 crore will give respite only to the middle income group feeling the heat of cash and liquidity crunch in the pandemic-ridden environment.

As Disney+ booms in India, company hopes to make it its biggest market

Source: Business Standard, Nov 13, 2020

The growth of Walt Disney Co.’s streaming service in India and Indonesia has been staggering, with the countries now accounting for more than a quarter of its 73.7 million customers globally.

What’s less staggering is the price most of the subscribers pay: Even the premium plan is just $20 a year. That’s a fraction of the $70 that U.S. customers shell out and illustrates the challenge the company faces as it takes its streaming platform to more countries.

The growth of Disney+, which launched a year ago, has far exceeded the expectations of both Wall Street and the company itself. It was a bright spot in Disney’s latest quarterly results, released Thursday. But keeping up its pace will mean tapping markets with less spending power.

“If you get enough sheer volume, you can make it work even at a relatively low price per subscriber,” said David Heger, an analyst at Edward Jones.

The company serves India and Indonesia with a product called Disney+ Hotstar, a rebranded platform born out of a business acquired from Fox last year. Those two developing countries now represent 18.4 million Disney+ subscribers.

Hotstar was rechristened with the Disney+ name on April 3 in India. The product launched in Indonesia in September. Since the streaming platform had 33.5 million subscribers globally at the end of March, that means the two countries accounted for almost half of new customers over the past six months.

India, with its massive population, has the potential to become the biggest market for Disney+, Heger said.

“When you look at a country with 1.3 billion people, your potential is significant,” he said.

An additional 270 million people live in Indonesia.

Hotstar originally launched in 2015 as an ad-supported service and later added a subscription component. It features movies, TV shows and sports. The company described itself before the launch earlier this year as having over 300 million monthly active users.

In April, Disney introduced three levels of service: free, VIP and premium. The VIP version, which includes live sports, Indian movies and Disney films dubbed in local languages, costs 399 rupees per year, or about $5.40. The premium version, which features Disney+ originals and English-language content, costs $4 a month or $20 per year.

Disney said its average revenue from Disney+ subscribers is $4.52 per month. Take out the cheaper Disney+ Hotstar plans, and the average jumps to $5.30 per month.

Unlike in the U.S., cricket matches are a big draw for Disney+ in India. The latest season for the India Premier League helped drive subscriptions last quarter, Disney said Thursday.

Paying for those rights has presented its own pricing challenge. In last year’s third quarter, Disney’s Indian media business posted a $60 million loss due to rising costs for cricket.

Govt gifts Rs 1.45-trillion incentive for 10 manufacturing sectors

Source: Business Standard, Nov 12, 2020

New Delhi: In a move that has lifted the industry sentiment in the festival season, the Union Cabinet on Wednesday approved a Rs 1.45-trillion package by extending the production-linked incentive (PLI) scheme to 10 more sectors (see chart). The policy for what the government calls the champion sectors has been tailored to attract investments, boost domestic manufacturing, enable companies to become part of the global supply chain and generate employment opportunities.

The latest approval is in addition to the already announced Rs 51,311-crore PLI for three sectors. With this, the total incentives under the PLI schemes come to Rs 2 trillion.

The government hopes that the PLI schemes would provide 200,000-300,000 direct employment over five years, according to sources in the know.

Among the 10 sectors approved on Wednesday, the largest chunk of the incentives, at over Rs 57,000 crore, would go to automobile and automobile components businesses followed by ACC battery at over Rs 18,000 crore.

Pharma products, for which Rs 15,000-crore PLI was announced, include patented drugs, biopharmaceuticals, phytopharmaceuticals (herbal), drugs not made in India, cell based or gene therapy products and orphan drugs (for very rare diseases) among others.

The scheme will be implemented by the respective ministries and departments.

However, the final proposals of PLI for individual sectors will be appraised by the Expenditure Finance Committee (EFC) and approved by the Cabinet within 45 days, sources said.

While industry players are still waiting for the fine print, many business leaders welcomed the scheme. Pankaj Patel, chairman of Cadila Healthcare, said the scheme was a step in the right direction.

“Pharmaceuticals is a sector of strategic importance and thus any scheme that encourages indigenous research, high value product development is a welcome step.” Uday Kotak, president, Confederation of Indian Industry (CII), called the policy transformational and timely. It would facilitate India becoming a global manufacturing hub, according to Kotak. T V Narendran, managing director, Tata Steel, said with the government extending the scheme to 10 champion sectors, the country’s manufacturing growth was bound to catch more pace.

Savings, if any, from one PLI scheme of an approved sector can be utilized to fund that of another sector approved by the empowered group of secretaries. Any new sector to be included under the PLI scheme will require fresh approval of the Cabinet.

Briefing reporters after the Cabinet meeting, Finance Minister Nirmala Sitharaman said, “We are yet again proving that the policy that we are taking up even in PLI through which we want manufacturers to come to India is clearly to say we want to build on our strength but yet link with the global value chains.”

“… so this PLI is also aimed at getting investments into the country. These financial incentives will make it attractive to produce in India and the selection of sectors has been based on that,” she said.

PLI in ACs is aimed at cutting down over Rs 15,000 crore worth of import of components annually. Of the Rs 22,000-crore AC market in India, only about 30 per cent value is added locally, according to estimates by industry bodies such as Consumer Electronics and Appliances Manufacturers Association (CEAMA).

However, LED has been a bone of contention between India and China. Nobody manufactures LED panels in India and continues to be imported. This makes up for over 60 per cent of the cost of making any LED TV. With Covid impacting the supply chain, the price of these panels has gone up by up to 120 per cent, adversely affecting companies operating in India (both global and local brands). In fact, all major brands, including Chinese, had to raise prices by 15-20 per cent between July and September.

Kamal Nandi, president of CEAMA and business head & executive vice president of Godrej Appliances, said, “We are committed to promoting domestic manufacturing of appliances and consumer electronics in the country. PLI will assist in the necessary boost to the ‘Make in India’ initiative and support India into becoming a manufacturing hub.”

Textiles players want small companies to be also brought under PLI. Raja N Shanmugam, president of the Tirupur Exporters’ Association, said that giving a thrust to grow the man made fibre (MMF) and technical textiles arena had significant prospects. On food products, PLI worth Rs 10,900 crore will be provided to boost local manufacturing in sectors like ready to eat, ready to cook (RTE/RTC), fruits & vegetables, honey, desi ghee, organic eggs and poultry meat, marine products etc.

Cabinet expands viability gap funding by Rs 2,100 cr for social sector

Source: Business Standard, Nov 12, 2020

New Delhi: The Cabinet Committee on Economic Affairs on Wednesday expanded the viability gap fund (VGF) scheme to social infrastructure, with a total outlay of Rs 2,100 crore over five years.

VGF is given on a public-private partnership model and has been confined to economic infrastructure projects so far. As much as Rs 6,000 crore will be given for economic infrastructure projects as VGF till 2024-25.

The scheme will have two parts.

The first will cater to areas such as wastewater treatment, water supply, and solid waste management. These projects face bankability issues and poor revenue streams to cater fully to capital costs.

The projects eligible under this category should have at least 100 per cent operational cost recovery.

The Centre will provide a maximum of 30 per cent of total project cost (TPC) of the project as VGF and state government/sponsoring central ministry/statutory entity may provide additional support up to 30 per cent of TPC. The rest will come from the private sector, Finance Minister Nirmala Sitharaman told reporters after the Cabinet meeting.

The second part will support demonstration or pilot social sector projects. The projects may be from health and education sectors where there are at least 50 per cent operational cost recovery. In such projects, the Centre and the states together will provide up to 80 per cent of capital expenditure and up to 50 per cent of operation & maintenance costs for the first five years.

The Centre will provide a maximum of 40 per cent of the TPC of the project. In addition, it may provide a maximum of 25 per cent of operational costs of the project in the first five years of commercial operations. Since the inception of the VGF scheme, 64 projects have been accorded final approval, with a total project cost of Rs 34,228 crore and VGF of Rs 5,639 crore. Till the end of 2019-20, VGF of Rs 4,375 crore has been disbursed.

Centre gives green signal to 21 cold chain infrastructure projects

Source: The Hindu Business Line, Nov 09, 2020

New Delhi: The government has approved 29 projects under schemes for integrated cold chain and value addition and creation of backward and forward linkages (BFL).

According to the official statement, Inter-Ministerial Approval Committee (IMAC) meeting chaired by Union Minister for Food Processing Narendra Singh Tomar has approved 21 projects, leveraging investments worth ₹443 crore supported with a grant of ₹189 crore under the Scheme for Integrated Cold Chain and Value Addition have been approved.

Eight additional projects leveraging investment worth ₹62 crore with grants of ₹15 crore under the BFL Scheme were also approved in separate meeting chaired by the Union Minister, the statement added. Tomar said that these projects would benefit farmers and consumers and urged officers to expedite the implementation of the approved projects.

Job opportunities

“The 21 projects, approved under the Scheme for Cold Chain and Value addition infrastructure, are likely to generate employment for nearly 12,600 people and benefit 2,00,592 farmers. These projects are spread across Andhra, Gujarat, HP, J&K, Kerala, Nagaland, Punjab, Telangana, Uttarakhan, and Uttar Pradesh,” the statement added.

The objective of the scheme is to reduce post-harvest losses of horticulture & non-horticulture produce and providing remunerative price to farmers.

“Eight projects approved in another meeting are likely to generate employment for nearly 2,500 people,” the statement added. The objective of the BFL scheme is to provide effective and seamless backward and forward integration for the processed food industry by plugging the gaps in the supply chain in terms of availability of raw material and linkages with the market, the Ministry stated.

Govt eases norms for ITES sector, new norms to facilitate ‘work from home’

Source: Business Standard, Nov 05, 2020

New Delhi: The government on Thursday announced simplified guidelines for Business Process Outsourcing (BPO) and IT Enabled Services (ITES) players to reduce the compliance burden for the industry and facilitate ‘Work from Home’ and ‘Work from Anywhere’.

The new rules for ‘Other Service Providers’ (OSPs) would create a friendly-regime for ‘Work from Home’ and ‘Work from Anywhere’ while removing several reporting and other obligations for such companies.

OSPs are entities providing applications services, IT enabled services or any kind of outsourcing services using telecom resources. The term refers to BPOs, KPOs (Knowledge Process Outsourcing), ITES, call centres, amongst others.

The new rules are aimed at providing a strong impetus to the industry and positioning India as one of the most competitive IT jurisdictions in the world, an official release said.

The new regulations would boost flexibility for these companies to adopt ‘Work from Home’ and ‘Work from Anywhere’ policies, a development especially relevant at a time when COVID-19 has forced IT/BPO firms to enable employees to work from home.

The new rules also do away with registration requirement for OSPs, while the BPO industry engaged in data related work has been taken out of the ambit of the said regulations.

“India’s IT sector is our pride. The prowess of this sector is recognised globally. We are committed to doing everything possible to ensure a conducive environment for growth and innovation in India. Today’s decisions will especially encourage young talent in the sector!,” Prime Minister Narendra Modi tweeted.

An official release said that under the revamped guidelines, the requirements such as deposit of bank guarantees, requirement for static IPs, frequent reporting obligations, publication of network diagram, and penal provisions have also been removed.

“Similarly, several other requirements, which prevented companies from adopting ‘Work from Home’ and ‘Work from Anywhere’ policies have also been removed,” the release said, adding that additional dispensations to enhance flexibility for the industry have been allowed.

“With an aim to qualitatively improve the Ease of Doing Business of the IT industry particularly Business Process Outsourcing and IT Enabled Services, the government has drastically simplified the Other Service Provider guidelines of the Department of Telecom.

The new guidelines tremendously reduce the compliance burden of the BPO industry,” the release added.

It further said that the new guidelines are aimed at removing “unnecessary bureaucratic restrictions” in order to allow the industry to focus on innovative new products and solutions.

“With this reform, the Government of India sends out a strong signal of its support to the IT industry with a view to encouraging increased investment in the sector.

“The reform will certainly unleash the potential of our talented youth by making India as a preferred destination for Information and Knowledge Outsourcing Industry and would further the vision of ‘AtmaNirbhar Bharat’,” the release added.

Communications and IT Minister Ravi Shankar Prasad tweeted, “Today @narendramodi Govt has taken a major reform initiative to liberalize the regulatory regime for Other Service Provider. This will boost the IT/ ITeS/ BPO industry and create a friendly regime for Work from Home in India.”

Nasscom termed the move as a bold reform for ITES/BPO players.

“These will provide several benefits…India is a global outsourcing hub and the new guidelines will promote outsourcing at scale, bringing in more work to India. With the relaxations in WFH regulations, companies will be able to tap into talent from small towns and remote parts of the country,” Nasscom Senior Director and Public Policy Head Ashish Aggarwal said.

Overall, the new guidelines offer further clarity and will bring in ease of doing business, he added.

Nasscom President Debjani Ghosh tweeted that the “game changing reform” signals start of a new chapter for Indian IT and for India as a leading IT hub for the world. WNS Group CEO Keshav Murugesh tweeted that this “brilliant step” will catapult Indian IT and BPM to the next level of growth, global impact, job creation and development of small towns and cities in tier III and IV locations.

Services activity grows for first time since Feb, PMI hits 54.1 in Oct

Source: Business Standard, Nov 05, 2020

Pune: Services sector activity expanded in October for the first time since February, reflecting growth in demand as the government continued to relax Covid-19 restrictions, a report by IHS Markit said on Wednesday.

The Purchasing Managers’ Index (PMI) rose sharply from 49.8 in September to 54.1 in October, with new orders to companies registering an increase over the previous month, reversing a trend that began eight months ago. A PMI index of more than 50 represents expansion, while a figure below 50 means a decline in activity from a month ago.

As the services sector, excluding construction, contributes nearly 60 per cent to the gross value added in the economy, revival may gain speed in the October-December quarter (Q3FY21).

“A sharp rise in factory production was accompanied by a return to growth of services activity,” the note said.

“While a revival of the manufacturing industry began in August, the service sector has started to heal now. Service providers signalled solid expansions in new work and business activity during October,” wrote Pollyanna De Lima, economics associate director at IHS Markit.

The composite index, which includes manufacturing, was at 58 in October, with new orders expanding for the second straight month, bringing the index to its highest level since January 2013 and underlining the speed of revival.

But as in the manufacturing sector, employment declined for successive months in services sector too.

“The pace of job shedding was solid and matched that recorded in September,” said the report.

Private sector employment declined for the eighth consecutive month.

This could mean that the drag on individual incomes will persist for a long time even after corporate finances come back to normal.

“Service providers noted another decline in employment, but anecdotal evidence suggested that efforts to hire had been hampered by labour shortages,” said De Lima.

Companies surveyed indicated that workers who had left after a nationwide lockdown was announced in March had not returned as the fear of Covid-19 contamination was widespread, restricting labour supply.

Input costs for companies rose, with input inflation reached an eight-month high. Fuel expenses, in addition to materials and maintenance, of these companies are slated to be high in Q3.

The data also showed that the growth in demand was from domestic orders of new work, while new orders from abroad declined compared to the previous month. The hopes of output growth in the year ahead were pinned on a possible Covid-19 vaccine, survey participants told IHS Markit.

Government issues ordinance to amend arbitration law

Source: The Economic Times, Nov 04, 2020

New Delhi: The government on Wednesday issued an ordinance to amend the arbitration law to ensure that all stakeholder parties get an opportunity to seek an unconditional stay on enforcement of arbitral awards where the arbitration agreement or contract is “induced by fraud or corruption”.

The ordinance which further amends the Arbitration and Conciliation Act, 1996 also does away with the 8th Schedule of the Act which contained the necessary qualifications for accreditation of arbitrators.

This provision had faced criticism from some quarters that the conditions prescribed in the law came in way of India getting the benefit of having foreign arbitrators.

“But that was not the case and a wrong impression had got created. Still, to do away with that impression, the concerned schedule has been dropped,” a government functionary explained.

Now, the qualifications based on which arbitrators will be accredited will be prescribed by regulations, which will be framed by a proposed arbitration council.

Till recently, an arbitration award was enforceable even if an appeal was filed against it in the court under Section 36 of the law. But the court could grant a stay on the award on conditions as it deemed fit.
As per the latest amendment brought through the ordinance, if the award is being given on the basis of an agreement based on fraud or corruption, then the court will not impose a condition to stay the award and grant an unconditional stay during the pendency of the appeal if it has been challenged under Section 34 of the arbitration law.

The Law Ministry ordinance said the amendment was necessary “to address the concerns raised by stakeholders after the enactment of the Arbitration and Conciliation (Amendment) Act, 2019 and to ensure that all the stakeholder parties get an opportunity to seek an unconditional stay of enforcement of arbitral awards where the underlying arbitration agreement or contract or making of the arbitral award are induced by fraud or corruption.”

In Section 36 of the Arbitration and Conciliation Act, 1996, sub-section (3), after the proviso, a clause has been inserted which states that “Provided further that where the court is satisfied that a prima facie case is made out, (a) that the arbitration agreement or contract which is the basis of the award; or (b) the making of the award, was induced or effected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award.”

The provision will come into effect retrospectively from October 23, 2015, the ordinance states.