Third amendment to FEMA NDI Rules
The FEMA (Non-Debt Instrument) Rules, 2019 (NDI Rules), notified by the Central Government on October 17, 2019, were recently amended further. The Ministry of Finance issued the NDI (Third Amendment) Rules, 2020 (Third Amendment) vide its notification dated July 27, 2020. At the outset, third amendment seeks to bring about two major changes in NDI Rules, namely granting powers to the Reserve Bank of India (RBI) to administer the NDI Rules and to issue directions or circulars, as it may deem necessary, in this regard and amendment in the entry route and other conditions in relation to air transport services. The major changes have been enlisted below:
- Powers granted to the
- Insertion of rule 2A: Under the NDI Rules, the powers granted to the RBI was exercisable in consultation with the Central Government. Under the Third Amendment, by way of insertion of rule 2A, the RBI has been granted exclusive powers to administer the NDI Rules and to interpret and issue directions, circulars, instructions or clarifications, as it may deem fit, for effective implementation of the provisions of the NDI Rules.
- Amendment to rule 3 and rule 4: In alignment with the insertion of rule 2A, consequent changes have been made in rules 3 and 4 of the NDI Rules, whereby the RBI may, on an application made to it, permit a person resident outside India to make any investment in India subject to such conditions as may be considered necessary; and an Indian entity or an investment vehicle, or a venture capital fund or a firm or an association of persons or a proprietary concern to receive any investment in India from a person resident outside India or to record such investment subject to such conditions as may be considered necessary, without consultation with Central Government.
- FDI in air transport
- Removal of dispensation for OCIs: Under Schedule I of the NDI Rules, FDI by NRIs and OCIs in scheduled air transport service/domestic scheduled passenger airline and regional air transport service was allowed under the automatic route up to 100%. However, the Third Amendment seeks to remove the dispensation provided to OCIs, in this regard. Currently, under the Third Amendment, S. No. 9.3 of Schedule I provides that only foreign direct investment by NRIs in scheduled air transport service/domestic scheduled passenger airline and regional air transport service, shall be allowed under the automatic route up to 100%. Further, 'Air Operator Certificate' (as opposed to Scheduled Operators' Permit under the NDI Rules) to operate scheduled air transport services (including domestic scheduled passenger airline or regional air transport service) shall be granted to such company or a body corporate which is registered and has its principal place of business within India; whose chairman and at least 2/3rd of its directors are Indian citizens; and whose substantial ownership and effective control is vested in Indian nationals.
- Changes in other conditions
for investment in air transport services: FDI in air
transport services is subject to other specific conditions
prescribed in this regard. The Third Amendment seeks to introduce
certain changes in S. No. 9.5 of Schedule I of the NDI Rules, which
include the following:
- Amendments to 9.5 (c): Conditions subject to which foreign airlines shall invest in the capital of Indian companies, operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital has been amended to include limit of 49% shall include the FDI and FII/FPI investment, the investments made hereunder shall be in compliance with relevant regulations of the Securities and Exchange Board of India (SEBI), such as the Issue of Capital and Disclosure Requirements (ICDR) Regulations/Substantial Acquisition of Shares and Takeovers (SAST) Regulations, as well as other applicable rules and regulations and removal of grant of Scheduled Operators' Permit. However, NRIs, who are Indian Nationals shall not be subject to the limit of aforesaid limit of 49%, in which case foreign investments shall be permitted up to 100% under the automatic route.
- Amendments to 9.5 (d): Prior to the third amendment, foreign investments in M/s Air India Ltd, including that of foreign airlines were not permitted beyond 49% (directly or indirectly). However, under the Third Amendment, the aforesaid restriction of 49% shall not be applicable in case of any foreign investments by NRIs who Indian Nationals are, in which case, foreign investments shall be permitted up to 100% under the automatic route.
- Insertion of 9.5 (e): FDI in Civil Aviation shall be subject to the provisions of the Aircraft Rules, 1937, as amended from time to time.
- Other changes: Any
investment by foreign airlines in companies operating in air
transport services, including in M/s Air India Ltd, shall be
subject to the following:
- Such investment shall be in the equity of companies operating cargo airlines, helicopter and seaplane services, as per the limits and entry routes prescribed
- Conditions specified in 9.5(c): FDI limits specified in Sr. No. 9.2 (Airports) and 9.3 (Air Transport Services) of the NDI Rules (as amended from time to time, including the Third Amendment) shall be applicable in cases where there is no investment by a foreign airline.
The Third Amendment aims to clearly shift the powers from the Central Government to the RBI to administer the NDI Rules and issue directions and circulars to give effect to the NDI rules. It also restricts the foreign investment by OCIs in air transport services in India up to 49% of their paid up capital and provide clarity on the relevant SEBI regulations to be complied with, in respect of foreign investment in air transport services and combine foreign investments by FII/FPI and FDI to 49% in scheduled and non-scheduled air transport services in India.
The Competition (Amendment) Bill, 2020
In order to examine whether the Competition Act, 2020 (Act) is in consonance with the current market trend, the Competition Law Review Committee (Committee) was created in 2018. The Committee was established with the aim of suggesting any changes in the current regime taking into account the market trends, best international practices, other governmental policies and regulatory mechanisms that overlap the Competition Act, and any other related competition issues. The Competition (Amendment) Bill, 2020 (Bill) was then drafted based on the recommendations of the Committee. This key changes proposed are as follows:
- Establishment of a governing body: The Committee recognized that the functions performed by the Competition Commission of India (CCI) are diverse. Thus, the Bill introduced the establishment of a governing body, that will consist of ex officio members and part-time members. The rationale behind the introduction of the governing body is to reduce the burden on the CCI, as this governing body will be responsible for carrying out all the quasi-legislative functions and policy decisions.
- Amalgamation of the office of Director General: The Bill aims to amalgamate the office of Director General (DG) constituted under Section 16 of the Act, as an investigative branch of the CCI.
- Recognition of settlement or consent orders: The Bill introduces provisions that recognize the settlement or consent orders, in case of antitrust proceedings. The Bill proposes the introduction of certain provisions that permit an investigated party to offer a settlement or voluntarily undertake certain commitments concerning an anticompetitive vertical agreement or abuse of dominance proceeding. The Bill under these provisions envisions the mechanism to be adopted to permit such commitment or settlement mechanism. The purpose of the adoption of such orders was to enable the CCI to resolve antitrust cases faster, which would, in turn, aid the businesses to avoid lengthy investigation procedure and uncertainty.
- Clear standards of 'material influence': The definition of 'control' under the Act did not define the minimum standards required to establish such control, therefore the CCI would use the ability to exercise 'decisive influence' and 'material influence'. The Bill proposes to recognize the standards of 'material influence'. This can bring consistency and certainty in the decisions and can also ensure that many transactions are scrutinized while an investment-friendly economy is sustained.
- Changes to combinations regulations: The Bill proposes many changes with regard to the regulations of combinations. Some of these are certain specific grounds that would constitute combination as per the Act and the parties involved in such a transaction would be under a duty to inform CCI before the execution of any such agreement. The Bill introduces the power of the central government in consultation with CCI to identify any other ground which would constitute a combination. The Bill further states that this power would also include the power to delist any ground which would otherwise constitute combination. This leads to an increase in the jurisdictional threshold of CCI, which would lead to including several digital transactions that were currently out of the scope of scrutiny of CCI.
- Statutory recognition of the green channel process: The Bill also proposes to recognize the green channel process statutorily. The rationale behind the introduction of such a process is to enable fast-paced regulatory approvals for a vast majority of mergers and acquisitions that may have no major concerns regarding appreciable adverse effects on competition. The goal is to move towards a disclosure-based regime with severe consequences for not providing accurate or complete information. The power of the green channel will also extend to authorize resolutions arrived at in an insolvency resolution process under the IBC.
- Reduction in time limit for preliminary opinions: The Bill also lessens the time within which the CCI has to issue its preliminary opinion on whether a combination would have an adverse effect on competition, from 30 working days to 20 calendar days. Such timelines may help ease the burden on the parties involved in the transactions.
- Inclusion of digital markets in the scope of the Act: The Bill aims at expanding the scope of the Act to include within its scope the digital markets through express inclusion of hub and spoke arrangement and buyer's cartel. The Committee recognized the strategies used by the companies to escape inquiry under the Act and also considered the orders issued by the CCI in Hyundai Motors case and Uber case, and suggested that the element of 'knowledge' or 'intention' should not be considered under such agreements.
- Broadened scope of Section 3 of the Act: The Bill seeks to broaden the scope of section 3 of the Act. It currently restricts the scope of the section to horizontal or vertical agreement leading to an adverse effect on competition. The Bill intends to include other agreements as well, taking into account the decision in Ramakant Kini v. Dr. L.H. Hiranandani Hospital and to expand the scope of the provision to include agreement entered in the digital market.
- Penal powers to DG and CCI: The principal Act did not grant any penal powers to the DG or the CCI, whereas the Bill intends to introduce a wide range of powers to the DG as well as the CCI. The Bill proposes a provision under which any person who fails to produce any documents, information or record; did not appear before the DG or fail to answer any question by the DG and/or fails to sign the note of cross-examination, shall be punishable with imprisonment of term extending up to six months or fine up to one crore rupees.
- Increased penalty on individuals in cartels: The Bill also introduces the highest cap of penalty as 10% of the income of the individual in the preceding three years, in case of the formation of cartels.
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