ARTICLE
16 March 2020

Regulatory Update: Union Cabinet Approvals For Change In Aviation FDI For Air India Disinvestment; Public Sector Bank Consolidation And Companies Act Amendments

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This update provides a summary of the cabinet approvals.
India Government, Public Sector
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On 4th March 2020, the Press Information Bureau (PIB) reported that the Union Cabinet in India has approved key changes regarding foreign direct investment in civil aviation, consolidation in public sector banks, and amendments to the Companies Act, 20131. This update provides a summary of the cabinet approvals.

Amendments in aviation FDI for disinvestment of Air India Limited

The Union Cabinet has approved amendment of extant FDI policy to permit foreign investment in Air India Limited by non-resident Indians, who are Indian nationals, up to 100% under automatic route.

Presently, foreign investment (direct or indirect) in Air India Limited is restricted to 49%, subject to the condition that substantial ownership and effective control of Air India Limited shall continue to be vested in Indian nationals.2 This is in contrast to the permitted FDI in air transport services, of up to 49% through the automatic route (automatic up to 100% for NRIs) and beyond 49% through the government route3. For non-resident Indians (NRIs), up to 100% FDI is allowed through the automatic route subject to the condition that substantial ownership and effective control is vested in Indian nationals, the company/ body corporate is registered and has its principle place of business in India, and the Chairman and at least two-thirds of Directors are citizens of India4.

PIB reports that in view of proposed strategic disinvestment of 100% of Air India Limited by the Government of India, it has been decided that foreign investment in Air India Limited be brought on a level playing field with other scheduled airline operators. Thus, up to 100% foreign investment under automatic route in Air India Limited will be permitted by those NRIs who are Indian nationals.

The amendments to the relevant policy/ rules are however, yet to be notified.

Consolidation of ten Public Sector Banks into four entities

The Union Cabinet has approved merger of ten public sector banks (PSBs) into four, as follows: (a) amalgamation of Oriental Bank of Commerce and United Bank of India into Punjab National Bank; (b) amalgamation of Syndicate Bank into Canara Bank; (c) amalgamation of Andhra Bank and Corporation Bank into Union Bank of India; and (d) amalgamation of Allahabad Bank into Indian Bank.

The Ministry of Finance has also issued gazette notifications on 4th March 2020, notifying the separate schemes for amalgamation of these banks5 which prescribe inter-alia that, on the date of commencement of the respective scheme, i.e. 1st April 2020, the undertakings of the transferor banks shall be transferred to and shall vest in the transferee bank6. The schemes also provide for dissolution of the Boards of the transferor banks, and protection of the interest of the minority shareholders7.

PIB reports that greater scale of the consolidated PSBs would lead to cost benefits enabling them to compete against other banks effectively, both in India and abroad.

Approval of amendments to Companies Act, 2013; notification awaited

The Press Information Bureau reports that the Union Cabinet has approved the Companies (Second Amendment) Bill, 2019 which:

(i) decriminalizes certain defaults in the Companies Act, 2013 that can be determined objectively, and lack an element of fraud or do not involve larger public interest. This is expected to reduce the burden on criminal justice system in India; and

(ii) enables listing of Indian companies on stock exchanges in foreign jurisdictions to increase their competitiveness in terms of access to capital, broader investor base and better valuations.8

The full scope of amendments will be ascertained once the text of the bill is publicly available. However, it has been reported that 72 changes to the Companies Act, 2013 have been approved, which include re-categorization of 23 compoundable offences, omission of 7 compoundable offences and exempting companies with corporate social responsibility (CSR) obligation of less than Rs.50 lakhs from constituting a CSR committee9. The Cabinet approval follows the Finance Minister's statements while presenting the Union Budget 2020 proposing removal of criminal liability for certain civil acts.10

The amendments will be effective only once they are notified and published in the Official Gazette.

Footnotes

1 "Cabinet approves the Foreign Direct Investment policy on Civil Aviation"; "Cabinet approves Mega Consolidation in Public Sector Banks {PSBs} with effect from 1.4.2020, Government transforms PSB landscape with consolidation of ten PSBs into four with effect from 1.4.2020, Amalgamations to enable creation of digitally driven consolidated banks with global heft and business synergies"; "Cabinet approves Companies (Second Amendment) Bill, 2019", 04.03.2020, Press Information Bureau, Government of India

2 See serial no. 9.5 (d) of the table in Schedule I of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019.

3 See serial no. 9.3 of the table in Schedule I of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019.

4 See Clause 1 of Schedule XI to the Aircraft Rules, 1937.

5 See "Amalgamation of Oriental Bank of Commerce and United Bank of India into Punjab National Bank Scheme, 2020", G.S.R. 153(E)., "Amalgamation of Andhra Bank and Corporation Bank into Union Bank of India Scheme, 2020" ,G.S.R. 154(E)., "Amalgamation of Syndicate Bank into Canara Bank Scheme, 2020", G.S.R. 155(E)., and "Amalgamation of Allahabad Bank into Indian Bank Scheme, 2020", G.S.R. 156(E)., Ministry of Finance Notifications, 04.03.2020.

6 See Clause 3 of the respective scheme for amalgamation.

7 See Clause 5 and Clause 6 of the respective scheme for amalgamation.

8 "Companies (Second Amendment) Bill, 2019 would enable the listing of Indian companies on stock exchanges in

foreign jurisdictions", 04.03.2020, Press Information Bureau, Government of India

9"Govt approves 72 amendments to Companies Act to decriminalise offences: FM", 04.03.2020, Business Standard

10 See para 82, "Budget 2020-2021, Speech of Nirmala Sitharaman, Minister of Finance", 01.02.2020

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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