RBI Tightens ODI Reporting Norms - Corporates must rectify past violations before making new investments
The Reserve Bank of India (RBI) has issued a critical directive mandating Indian corporates with Overseas Direct Investments (ODIs) to resolve all past reporting violations before making any new foreign investments. Effective August 22, 2025, no fresh ODI will be permitted unless full compliance with prior disclosure requirements under FEMA is demonstrated.
Key Highlights:
Under the Foreign Exchange Management (Overseas Investment) Regulations, 2022, Indian entities must report all financial transactions related to ODIs—such as setting up overseas subsidiaries, acquiring stakes, giving loans or guarantees, and stake sales. Failure to report these constitutes a violation.
Previously, merely initiating the compounding process was enough to proceed with new ODIs. Now, only completed compounding, adjudication, or regularisation through Late Submission Fee (LSF) will be considered valid compliance. LSF is faster (about two weeks), while compounding/adjudication can take up to six months, making early action essential.
Common Violations:
- Inadvertent reporting errors,
- Slack internal compliance mechanisms, or
- Deliberate withholding of financial details—particularly where investments were structured to move or park undisclosed funds abroad or later written off to cover up financial wrongdoing.
RBI has clarified that historic non-compliance will no longer be tolerated. Entities must conduct a full ODI compliance audit, identify lapses prior to August 22, 2022, and use LSF where applicable. Banks have also been instructed to proactively support clients in achieving timely compliance. Non-compliant entities will be barred from new ODIs, risking missed global opportunities and potential regulatory penalties. The RBI's message is clear: compliance is mandatory—not optional—for international expansion. Corporates must act promptly and transparently to regularize past transactions and maintain their eligibility for overseas investments.
Supreme Court upholds validity of employment bond clause & penalty of INR 2 lakhs for premature resignation
On 14 May 2025, the Supreme Court ("SC") upheld the enforceability of an employment bond clause and held that it does not constitute a restraint of trade under Section 27 of the Indian Contract Act, 1872 ("ICA") nor it is opposed to public policy. The recovery of INR 2 lakhs as damages by the employer (a public sector bank) from the employee for resigning prior to completion of 3-year service period mandated under the bond clause of the appointment letter was also held to be valid by the SC.
In the instant case of Vijaya Bank & Anr. Vs Prashant B Narnaware (2025 INSC 691), the Supreme Court re-affirmed the position that restrictive covenants extending beyond the term of employment are violative of Section 27 of ICA whereas restrictive covenants operative during the term of employment are not a restraint of trade unless unreasonable or unconscionable or one-sided.Therefore, exclusivity clauses stipulating minimum service duration operative during employment are legally permissible.
EPFO simplifies PF transfer process
Vide a press release dated April 24, 2025, the Employees Provident Fund Organisation ("EPFO") has announced significant changes to the process of transfer of Provident Fund ("PF") accounts during change of jobs. The key highlights in relation to this are mentioned hereinbelow:
·Simplification of transfer claims:
Previously, transferring PF accumulations involved approvals from both the source office and the destination office.
Now, EPFO has removed the requirement of approval of all transfer claims at the destination office by launching a revamped Form 13 software functionality. Once the transfer claim first gets approved at the source office, the previous account gets transferred to the present account of the member, i.e. at the destination office. This reform is expected to benefit more than 1.25 crore members facilitating the transfer of about INR 90,000 crore (approx. US Dollar 10, 460 million) each year.
·Bifurcation of taxable and non-taxable components:
The new system also provides a clear separation of taxable and non-taxable components of PF accumulations. This will help in the accurate calculation of tax deducted at source on taxable PF interest, ensuring compliance and transparency for the members.
·Bulk generation of UANs Without Aadhaar:
To address issues related to the proper accounting of past accumulations, especially in cases involving exempted PF trusts or recovery proceedings, EPFO now allows for the bulk generation of Universal Account Numbers ("UANs") based on available member information, even without Aadhaar. However, these UANs will remain frozen until Aadhaar is seeded, as a risk mitigation measure.
Karnataka gig workers ordinance 2025: Pioneering protections and employer challenges
On May 27, 2025, the Karnataka Government promulgated the Karnataka Platform Based Gig Workers (Social Security and Welfare) Ordinance, 2025, offering legal protections for gig workers and imposing new obligations on platforms and aggregators.
Key Provisions:
- Mandatory Registration: All platforms must register with the Welfare Board within 45 days and provide real-time worker data. Non-compliance attracts penalties.
- Welfare Fee: Platforms must contribute 1–5% of each transaction value to a state-run Gig Workers Welfare Fund, increasing operational costs.
- Fair Termination Process: Termination requires written reasons, 14 days' notice, and adherence to natural justice principles.
- Income Security: Gig workers must be paid weekly (at minimum) with clear invoices explaining any deductions.
- Safe Working Conditions: Platforms must ensure a safe, healthy work environment with rest breaks and access to sanitation.
- Algorithmic Transparency: Platforms must disclose automated systems (e.g., performance metrics) to workers and regulators, ensuring human oversight.
- Social Security: Employers must support access to state-notified benefits like healthcare, injury, and maternity cover via a portable Unique ID system.
- Grievance Redressal: Two-tier system for dispute resolution (against platforms and the Board) with a 30-day resolution window.
Employer Impact:
The Ordinance increases compliance and administrative costs, particularly for small platforms. Key risks include legal action and reputational damage. While it formalizes the gig economy and enhances worker protections, many provisions await detailed rules, and the Ordinance remains temporary unless ratified by the legislature. Employers must prepare for tighter oversight and adapt systems to ensure compliance.
Revisiting the scope of section 12A, Commercial Courts Act: Supreme Court affirms prospective application while recognising practical constraints
In M/s Dhanbad Fuels Pvt. Ltd. v. Union of India (May 15, 2025), the Supreme Court reaffirmed that Section 12A of the Commercial Courts Act, mandating pre-institution mediation, is mandatory but applies prospectively—only to suits filed on or after 20 August 2022, per Patil Automation.
Case Background:
A commercial suit filed by the Union of India in 2019 (before Patil Automation) was challenged for noncompliance with Section 12A. The plea for rejection under Order VII Rule 11(d) CPC was dismissed by the trial and High Court. The Supreme Court upheld this view, noting that mediation infrastructure in West Bengal was non-functional in 2019, making compliance impossible.
Key Rulings:
- Prospective Application: Section 12A, though mandatory, cannot invalidate suits filed before 20 August 2022, as the Patil Automation ruling was intended to apply prospectively.
- Infrastructure Matters: Invoking the maxim lex non cogit ad impossibilia (the law does not compel the impossible), the Court ruled that litigants cannot be penalized for non-compliance when mediation mechanisms were not in place.
- Urgent Relief Scrutiny: Claims of urgent interim relief must be genuine; superficial claims won't bypass the mediation requirement.
Implications:
- Pre-institution mediation is now mandatory for commercial suits unless urgency is clearly shown.
- Suits filed before August 2022 are protected from dismissal due to prior non-compliance.
- Courts are encouraged to balance procedure with fairness, especially when systemic support was lacking.
2025 Amendments to CIRP Regulations
The Insolvency and Bankruptcy Board of India (IBBI), through its press release dated May 30, 2025, has outlined the key features of the Fourth Amendment to the Insolvency Resolution Process for Corporate Persons (CIRP) Regulations, 2016, which was notified on May 26, 2025. These amendments are designed to streamline and enhance the effectiveness, transparency, and inclusivity of the corporate insolvency resolution process. Key changes include:
1.Part-wise Resolution Enabled
Resolution professionals can now invite concurrent expressions of interest—for the entire corporate debtor, specific assets, or both. This flexibility encourages more bidders, reduces value erosion, and shortens timelines by salvaging viable business segments.
2.Fair Treatment of Dissenting Creditors
Where payments under a resolution plan are staged, dissenting financial creditors must be paid pro rata and in priority over consenting creditors at each stage. This ensures equitable treatment while enabling phased implementation.
3.Interim Finance Participation
The Committee of Creditors (CoC) can invite interim finance providers to attend meetings as observers (no voting rights), enabling better insight into the debtor's status and more informed funding decisions.
4.All Resolution Plans to be Presented
All resolution plans, even non-compliant ones, must be shared with the CoC. This ensures commercially viable proposals are not prematurely rejected and promotes more informed, inclusive decision-making.
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