CORPORATE LAWS

COMPANIES ACT, 2013

It is proposed that the Government will continue its efforts to remove criminal liability under the Companies Act, 2013.

ELP COMMENTS:

The FM, in her speech said that, the Government is committed to promoting trust and self-governance as one of the key initiatives.

However, one of the constraints that we have seen is claims against the directors and other officers of companies under various laws, even though, such persons may not be directly responsible for the non-compliances.

Under the Companies Act, 2013, the Government has recently made various amendments to de-criminalize certain provisions.

The proposed move indicates that initiatives to decriminalize civil offences would continue not only for the Companies Act, 2013 but for other laws as well.

This is a good initiative to avoid unnecessary harassment and is in line to enhance ease of doing business.

FOREIGN DIRECT INVESTMENT

Specified categories of Government securities which are available to domestic investors are now also proposed to be opened up fully for non-resident investors.

EXTERNAL COMMERCIAL BORROWING

Steps to enable sourcing ECB and FDI in education sector will be initiated, to enhance inflow of finance in higher quality education, for attracting talented teachers, innovate and build better labs.

ELP COMMENTS:

In the current challenging times, the funding gaps and concerns of NBFCs and NPAs have created hurdles for growth in this sector. Both of the aforementioned initiatives with respect to FDI and ECB are a welcome initiative to attract foreign investment, in the education sector, which is in line with the Government's philosophy to attract talent globally.

INVESTMENT CLEARANCE CELL

There has been a proposal to set up an Investment Clearance Cell through a portal that will provide "end to end" facilitation and support, including pre-investment advisory, information related to land banks and facilitate clearances at Centre and State level. This initiative is in line with continuous Government efforts on "ease of doing business" in India.

ELP COMMENTS:

The Government has recently taken various initiatives towards reducing compliances and ease of business. Make in India, Skill in India, Start-up India and similar other initiatives are put in place to attract foreign investment.

Hopefully, this initiative of investment clearance cell would facilitate and attract investment. We will have to wait for the legislation and steps that the Government would announce while implementing this move.

INTELLECTUAL PROPERTY RIGHTS

A digital platform is proposed to be set up to facilitate seamless application and protection of intellectual property rights.

Further, a centre of Institute of Excellence, is proposed to be established that would work on the complexity and innovation in the field of intellectual property.

COMMERCIAL AND OTHER DISPUTES

The Government has constituted various Tribunals and specialized bodies for speedy disposal of commercial and other disputes. In order to attract best talents and professional experts on such Tribunals and specialized bodies it is proposed that a robust mechanism is established for appointment including direct recruitment thereon.

ELP COMMENTS:

Whilst, it is not unknown that one of the reasons for delayed proceedings and the heavy burden on Tribunals and other such forums, has been the lack of adequate number of judges.

The announcement provides hope and the mindset of the Government to work towards speedy disposal of cases.

START UPS

Government proposes to provide early life funding, including a seed fund to support formation and development to early stage start-ups.

Certain tax benefits have been proposed to be introduced to ease burden of tax on ESOPs issued by start-ups. It is proposed that the tax will be paid at the earlier of 5 years, leaving the company or at the time of sale of the shares. Please refer to the Tax section for further details.

ELP COMMENTS:

Employee Stock Ownership Plans (ESOPs) have been one of the significant tools in attracting and retaining talent for many Start-ups in India. However, one disadvantage was the potential tax outflows when the ESOPs are exercised. The deferment of tax is a great incentive in addressing this concern. Similarly, extending the tax allowance period from 7 years to 10 years also addresses the industry's concern that many of the Start-ups do not make adequate profits during their initial years of establishing themselves.

NATIONAL LOGISTICS POLICY

It is proposed that a National Logistics Policy will soon be released with a view to create a single window e-logistics market and focus on generation of employment, skills and making MSMEs competitive.

INDIAN STAMP ACT, 1899

Amendment to the Indian Stamp Act

Pursuant to Finance Act, 2019, a new Section 9A of the Indian Stamp Act, 1899 was proposed to be inserted from April 1, 2020. This new provision levies stamp duty on instruments sold or issued through a depository participant. Section 9A of the Indian Stamp Act, 1899 is proposed to be further amended by which the duty chargeable under Section 9A will not be applicable to the instruments of transaction in stock exchanges and depositories established in any International Financial Services Centre set up under Section 18 of the Special Economic Zones Act, 2005.

OTHER CIVIL OFFENCES

It is proposed that criminal liability of acts that are civil in nature in certain statutes, to be decriminalized.

DATA CENTRE PARKS

With the intention to take advantage of the changing landscape and legal requirements centred around Data, Analytics, Fintech, and Internet of Things, and to enable Indian firms skilfully incorporate data in every step of their value chain, the Finance Minister has contemplated bringing out a policy to enable private sector players build data centre parks throughout India (Data Parks).

ELP COMMENTS:

The aforesaid announcement of providing a policy enabling the setup of Data Parks (DC Policy) is a step in the right direction. Given that the laws governing Personal Data as well as those governing Non-Personal Data will be introduced, there is a necessity of setting up Data Parks in India which will not only serve the purposes of national security but also for economic reasons, more particularly if India can become a hub for storing data. This may facilitate in creating a value chain for developing new technologies such as Artificial Intelligence, Internet of Things (IOT), Blockchain and Quantum Computing for use of public and social good as well as foreign exchange earnings as a service industry.

The framework under the DC Policy should prescribe standards that are robust, commensurate with international best practices. It will be important from the perspective of promoting private participation, that the DC Policy provides One Window Clearance for land acquisition, utilities as well as taxation benefits.

MISCELLANEOUS

Amendments to FR Act to extend invoice financing to MSMEs

It has been proposed that necessary amendments to the Factor Regulation Act, 2011 will be made to enable Non-Banking Finance Companies to extend invoice financing to MSMEs through Trade Receivables electronic Discount System which help them enhance their economic and financial sustainability.

FINANCIAL MARKETS

PROPOSED CHANGES IN RELATION TO FPIS

It is proposed that investment by FPIs in corporate bonds, will be increased to 15% of the outstanding stock of corporate bonds as against the current limit of 9% of outstanding stock.

ELP COMMENTS:

FPIs are known to have a progressive investment strategy, and we could witness significant participation of the FPIs in the corporate bond market.

DEBT-BASED EXCHANGE TRADED FUND (ETF)

The Government has proposed to float a new debt-based ETF consisting of primarily G-Sec, with a view to provide an avenue to retail investors to G-Sec and attractive investment options for pension funds and long-term investors.

ELP COMMENTS:

  • The retail investors had limited options to invest in G-Sec.
  • The proposed change would enable retail investors to invest in new debt-based ETF with the underlying G-Sec, which is another avenue in addition to the existing avenues, depending on their respective risk appetite.

GIFT (GUJARAT INTERNATIONAL FINANCE TEC CITY) - IFSC

With a view to enable India to enhance its position worldwide, create jobs in India and for better price discovery of gold, the Government has proposed to set up International Bullion exchange(s) in GIFT-IFSC as an additional option for trade by global market participants.

ELP COMMENTS:

  • In recent times, the Government has been trying to incentivize and attract players in GIFT-IFSC, and this move is another step forward in this regard.
  • This is the most positive and progressive proposition of the Government to bring India on the global platform of bullion market.
  • The proposed International Bullion exchange(s) would also attract foreign players and enhance the domestic skill set of the professionals engaged by such foreign players.

NETTING OF FINANCIAL CONTRACTS

The Government has proposed to formulate a legislation, for laying down a mechanism for netting of financial contracts, with an intent to improve investors' confidence and to expand the scope of credit default swaps.

ELP COMMENTS:

  • Defaults in repayment of bonds have negative impacts on the confidence of investors.
  • The move is aimed to protect the credit default swaps.
  • However, the finer details of the proposed legislation will need to be understood to evaluate as to whether such move will or will not improve the investors' confidence.

DISINVESTMENT OF LIC

The Government has proposed to sell a part of its holding in LIC by way of an initial public offer in order to provide access to financial markets, unlock value and to give opportunity to retail investors to participate in the wealth creation.

ELP COMMENTS:

  • The Government has been trying to divest its stake in the Government owned entities (for example, in the Government owned air carrier Air India, Coal India), either to raise money or provide them a lifeline to continue running their business.
  • LIC is one of the most cash rich Government entities and allowing public participation by way of an initial public offer will be a welcome move by the investors.

SALE OF IDBI BANK

In order to address the need for private capital in the banking system, the Government has proposed to sell its balance holding in the IDBI Bank to private, retail and institutional investors through the stock exchanges.

ELP COMMENTS:

  • It is interesting to note that over the years, the Government has been consistently selling its stake in IDBI Bank and presently LIC is its largest shareholder.
  • It would be interesting to see the timing of the divestment of LIC and IDBI.

LISTING OF SEA PORTS

  • The Government is considering corporatizing at least one major sea port and subsequently its listing on the stock exchanges.

BANKING & FINANCE

NBFCS – EMANCIPATION FROM LIQUIDITY CRISIS

The liquidity crisis which has engulfed NBFCs is one of the reasons provoking the slowdown in the economy. FM in her speech has proposed various steps aiming to salvage NBFCs from the ongoing liquidity crisis.

Reducing the limits of asset size from INR 5,000,000,000 to INR 1,000,000,000 for being eligible to be notified under SARFAESI shall ensure that additional NBFCs may be notified as financial institutions under SARFAESI and the reduction of loan size of INR 10,000,000 to INR 5,000,000 will help NBFCs in invoking rights under SARFAESI for a larger portion of their portfolio thereby ensuring widened recovery net and speedy recovery for NPAs. This may also reduce burden of Courts in India.

PARTIAL CREDIT GUARANTEE

  • Post the Union budget 2019-20 Partial Credit Guarantee Scheme was formulated by the Government which provided a one-time 6 months' partial first loss credit guarantee to the public sector banks for upto 10% for purchase of high-rated pooled assets from NBFCs.
  • FM announced that such Partial Credit Guarantee Scheme will be revised to lend further support to NBFCs and stated that Government would guarantee the securities floated

ELP COMMENTS:

The Government's guarantee would provide confidence and strengthen investor sentiments thereby aiding revival of NBFCs from the liquidity crisis and propelling investments by NBFCs.

NABARD REFINANCING SCHEME

Presently NBFCs are eligible only for long-term refinance from NABARD against the long-term loans provided by them in rural areas to the farmers, SHGs, joint liability groups etc. Proposals of FM to extend the refinancing by NABARD to NBFCs and Co-operatives against all forms of agricultural loans, Viability Gap Funding for setting up warehouses at the block/taluk level etc. would boost the production and holding capacity of farmers and increase interests of NBFCs in rural lending and also ease the liquidity.

MSME – RESTRUCTURING SCHEME EXTENSION

  • Restructuring scheme for MSMEs was announced by RBI on January 1, 2019, with respect to loans to MSME of upto INR 250,000,000 which were stressed but still classified as standard asset at the time of releasing the guidelines. As per the scheme restructuring would not cause downgrade in the asset classification of the accounts.
  • The Government has requested RBI to consider extension of restructuring scheme for MSME for 1 more year (which earlier lasted till March 31, 2020).

ELP COMMENTS:

Such proposals will strengthen the confidence of MSME in Government and will provide a boost to entrepreneurs.

HOLISTIC GROWTH OF THE BANKING AND FINANCE SECTOR

FM emphasized on clean, reliable and robust financial sector being crucial for country's economy. Given the recent events involving Punjab and Maharashtra Co-operative Bank and few commercial banks, FM stated that it is crucial to make the banking and finance system robust and maintain the health of the scheduled commercial banks to ensure that the depositor's money is safe.

Deposit Insurance

  • FM with an aim to boost depositor's confidence mentioned that the Government has a robust mechanism in placeto monitor health of all Scheduled Commercial Banks and that depositors' money is safe.
  • Further, FM announced that Deposit Insurance and Credit Guarantee Corporation (DICGC) has been permitted toincrease Deposit Insurance Coverage for a depositor to INR 500,000 from the present INR 100,000.

Co-Operative Banks

Amendments to the Banking Regulation Act are proposed for increasing professionalism, enabling access to capital and improving governance and oversight for sound banking through the RBI. Such steps would ensure better confidence of the customers of the co-operative banks and help in avoiding episodes akin to Punjab and Maharashtra Co-operative Bank.

Amendment to the Banking Regulation Act, 1949

FM also proposed amendments to the Banking Regulation Act, 1949 in order to strengthen the co-operative banks in the country.

ELP COMMENTS:

The proposals and changes seem to be aiming towards improving governance and ensuring better supervision and control of the co-operative banks by RBI and government.

Please view the detailed Budget book here.

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