India – Corporate And Commercial Updates – September 2019

• The foreign direct investment proposals under this rule shall be allowed under the automatic route subject to verification by the Insurance Regulatory Development Authority (“Authority”) and the foreign investment in intermediaries or insurance intermediaries shall be governed by the same terms as provided under rules 7 and 8 of the Indian Insurance Companies (Foreign Investment) Rules, 2015. Provided that where an entity like a Bank, whose primary business is outside the insurance area, is allowed by the Authority to function as an insurance intermediary, the foreign equity investment caps applicable in that sector shall continue to apply, subject to the condition that the revenues of such entities from the primary (non-insurance related) business must remain above 50% of their total revenues in any financial year.

 

The insurance intermediary that has majority shareholding of foreign investors shall undertake the following:

 

(i) be incorporated as a limited company under the provisions of the Companies Act, 2013;

 

(ii) at least one from among the Chairman of the Board of Directors or the Chief Executive Officer or Principal Officer or Managing Director of the insurance intermediary shall be a resident Indian citizen;

 

(iii)shall take prior permission of the Authority for repatriating dividend;

 

(iv) shall bring in the latest technological, managerial and other skills;

 

(v) shall not make payments to the foreign group or promoter or subsidiary or interconnected or associate entities beyond what is necessary or permitted by the Authority;

 

(vi) shall make disclosures in the formats to be specified by the Authority of all payments made to its group or promoter or subsidiary or interconnected or associate entities;

Rajya Sabha passes the Motor Vehicles (Amendment) Bill 2019

 

On September 2, 2019, the Ministry of Finance issued a press release on consolidates circulars for ease of compliance of Start-ups. In order to provide hassle-free tax environment to the Start-ups, a series of announcements have been made by Union Finance & Corporate Affairs Minister Nirmala Sitharaman in her General Budget Speech, 2019, and also on August 23, 2019. To give effect to these announcements, the Central Board of Direct Taxes (CBDT) issued various circulars/clarifications in the matter from time to time. Thereafter, CBDT has consolidated all the circulars/clarifications issued on this subject for the ease of compliance of Start-up entities vide circular dated August 30, 2019. The present circular inter alia highlights the following:

 

(a) Simplification of process of assessment of Start- ups: Circular No. 16/2019 dated 7th of August, 2019 provided for the simplified procedure of assessment of Start-ups recognized by Department for Promotion of Industry and Internal Trade. The circular covered cases under “limited scrutiny”, cases where multiple issues including issue of section 56(2)(viib) were involved or cases where Form No.2 was not filed by the Start-up entity. Detailed process of obtaining mandatory approval of the supervisory authorities for conducting enquiry was also laid down by this circular.

 

(b) Time limit for Completion of pending assessments of Start-ups: The time limit for completion of pending assessments was also specified by CBDT. All cases involving “limited scrutiny” were to be completed preferably by September 30, 2019 and the other cases of Start-ups were to be disposed off on priority, preferably by October 31, 2019.

 

(c) Procedure for addition made u/s 56(2)(viib) of the Income Tax Act, 1961 in the past assessment: Vide clarification issued on August 9, 2019 it was provided that the provisions of section 56(2)(viib) of the Income Tax Act, 1961 would also not be applicable in respect of assessment made before February 19, 2019 if a recognised Start-up had filed declaration in Form No. 2. The timelines for disposal of appeals before CsIT (Appeals) was also specified. Further, the addition made under section 56(2)(viib) would also not be pressed in further appeal.

 

(e) Constitution of Start-up Cell: Vide order dated August 30, 2019, CBDT has constituted a Start-up Cell under the aegis of Member (IT&C), CBDT to redress grievances and to address various tax related issues in the cases of Start-ups. Grievances can also be filed online at startupcell.cbdt@gov.in .

 

Cabinet approves reforms in FDI policy

 

In furtherance of the proposals announced during the budget speech and with a view to attract further foreign direct investment (FDI) to stimulate growth, the Central Government has, in a cabinet meeting, held on 28 August 2019, approved the proposal for review of the FDI policy in relation to a various reforms. The reforms include opening new sectors to FDI and liberalizing FDI related norms in sectors already open for foreign investment. The reforms announced are:

 

(a)  permitting 100% FDI, under the automatic route, in (i) contract manufacturing and (ii) 100% FDI under automatic route for sale of coal, for coal mining activities including associated processing infrastructure. The term “associated processing infrastructure” is defined to include coal washery, crushing, coal handling and separation (magnetic and non-magnetic).

 

(b)  26% FDI, under government route, is now permitted for uploading/ streaming of News & Current Affairs through Digital Media.

 

(c)  easing of FDI related norms in single brand retail trading (SBRT). The following relaxations / amendments have been announced to the policy relating to FDI in SBRT sector:

 

(i) all procurements made from India by the SBRT entity for the relevant single brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported. Further, the current cap of considering exports for 5 years only shall be removed,

 

(ii)The 'sourcing of goods from India for global operations' can be done directly by the entity undertaking SBRT or its group companies (resident or non-resident), or indirectly by them through a third party under a legally tenable agreement,

 

(iii) the entire sourcing from India, and not just the year on year incremental value, for global operations shall be considered towards local sourcing requirement, and

 

(iv) retail trading through online trading can be undertaken prior to opening of brick and mortar stores, subject to the condition that the SBRT entity opens brick and mortar stores within two (2) years from date of start of online retail.

 

This proposal is yet to be notified by way of a press note notification, which would have the effect of amending the extant FDI policy.

 

Clarification under section 232(6) of the Companies Act, 2013

 

The Ministry of Corporate Affairs (“MCA”) has issued a circular on August 21, 2019 thereby clarifying the provisions with respect to “appointed date” to be mentioned in a scheme of merger/ amalgamation of companies in India. The MCA has clarified that the “appointed date” may be either a specific calendar date or may be tied to the occurrence of an event such as grant of license by a competent authority or fulfillment of any preconditions agreed upon by the parties, etc., which are relevant to the scheme. The MCA has further clarified that where the “appointed date” is chosen as a specific calendar date; it may precede the date of filing of scheme of merger/ amalgamation with the National Company Law Tribunal. However, if the appointed date is significantly ante-dated beyond a year from the date of filing of scheme, the justification for the same would have to be specifically brought out in the scheme and it should not be against public interest.

 

Companies (Share Capital and Debentures) Amendment Rules, 2019

 

The Ministry of Corporate Affairs vide its notification dated August 16, 2019 issued the Companies (Share Capital and Debentures) Amendment Rules, 2019 thereby amending the Companies (Share Capital and Debentures) Rules, 2014. The key amendments relates to the issuance of equity shares with differential voting rights, issuance of employee stock options by startup companies and rules with respect to debenture redemption reserve (DRR). Further, the sub rule which required companies to have a consistent track record of distributable profits for last three years in order to issue equity shares with differential rights, has been omitted.

 

Green Channel clearance for Merger & Acquisitions