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January 2018

Corporate Amicus: November 2017

by Pulkit Chaturvedi

Article

Key changes in 2017 FDI Policy for single brand retail trading sector

Foreign Direct Investment upto 100 percent is allowed in single brand retail trade sector. Analysing impact of changes in the 2017 FDI Policy in respect of said sector, the first article in this issue, discusses about changes relating to Committee for examining applications for exemption from 30% local sourcing norms, relaxation for Indian manufacturers from the 70-30 Rule, interpretation of the term ‘manufacture’ in the light of Supreme Court’s decision including the commercial model of Contract manufacturing. According to the author, there are still ambiguities relating to parameters for determining whether a product is ‘state of the art’ and possesses ‘cutting edge’ technology and also whether the norms will be applicable to Indian companies engaged in such trade of products manufactured by them through contract manufacturing.

 

Restriction on number of layers on companies

Ministry of Corporate Affairs has recently notified proviso to Section 2(87) of Companies Act, 2013 along with Companies (Restriction on number of layers) Rules, 2017. According to the provisions, any company, post commencement of these Rules, shall not have more than two layers of subsidiaries. The new provisions seem to have a negative connotation on the working of the corporates because even subsidiaries formed for legitimate reasons will also not be allowed. Even though the Reports of the Companies Law Committee as well as the JJ Irani Committee had recommended that such a restriction should be removed as it creates hindrances in the legitimate functioning of the companies, the Central Government has decided to disregard such recommendations. The author hopes that Companies Amendment Bill, 2016, when it is passed by Rajya Sabha, considers the concerns of the various stakeholders and omits these restrictions.

 

Notifications and Circulars

  • Companies (Registered Valuers and Valuation) Rules, 2017 notified and Removal of Difficulty Order issued to include a reference to an organisation to which a valuer may belong. Further, Insolvency and Bankruptcy Board of India delegated power for registration, recognition and ancillary matters related to valuers.
  • Resolution plans under Insolvency and Bankruptcy Code – Deemed approval of shareholders if plan approved by NCLT
  • Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules - Second Amendment Rules of 2017 notified
  • Pre-paid payment instruments – RBI issues master direction on issuance and operation
  • Non-banking institution carrying on the business of a peer-to-peer lending platform would be designated as an NBFC – RBI
  • Simplified hedging procedures - Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Second Amendment) Regulations, 2017 notified
  • Committee on Corporate Governance submits its report recommending various corporate governance relating to composition and role of Board of directors, role of independent directors and various Board Committees, related party transactions, accounting and audit issues and disclosures to be made
  • Disclosures by listed entities of defaults on payment of interest/repayment of principal amount on loans from banks/financial institutions, debt securities, etc
  • Alternative Investment Funds - Change in reporting norms for Category III AIFs

 

Ratio decidendi

  • ‘Front running activities’ under SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 include ‘non-intermediary front-running’ – Supreme Court
  • Timelines under Insolvency and Bankruptcy Code, 2016 for ascertaining existence of default and admitting or rejecting application, as well as for rectifying defects, are directory, and not mandatory – Supreme Court
  • “Dispute” under Insolvency and Bankruptcy Code, 2016 must consist of a “real dispute” raising a plausible contention requiring further investigation rather than a patently feeble legal argument – Supreme Court

 

November, 2017/Issue-74 November, 2017/Issue-74

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