LEGAL UPDATE June 2023

Introduction &Disclaimer:

This is only an attempt to keep in pace with the changes in Law. Keeping in mind the varied interest of individuals we have tried to cover as much as possible, however we do not holdout that this update covers all changes in the field of law affected during the period and the reader may exercise discretion in that regard.

The legal update is divided broadly into two sections:

1. Important Decisions;
2. New or Amendment to existing Legislation.

1. Anheuser Busch Inbev India Limited v. Pradeep Kumar Sravanam

The NCLAT held that where the arbitral proceedings and counterclaim for determining the liability and quantum of claim is pending adjudication, the claim could be kept in abeyance by the Resolution Professional, and said claim sum could only be determined with certainty, after the determination of the arbitration proceedings.  

2. Toral Rathod v. Gopalsamy Ganesh Babu

The NCLAT held that IBC is a time bound process, which must be strictly adhered to whereby, the explanation pertaining to laches as given by the appellant, was held to be devoid of being substantial and was not a sufficient cause for delay. 

3. Actioncor Consultants (P) Ltd. v. Viprah Technologies Ltd.

The NCLAT held that, as there is no evidence on record, evidencing that the amount in question was lent by the Corporate Debtor to the Financial Creditor, therefore the same cannot be understood as financial debt. Thus, the NCLAT held that the appellant is at liberty to recover the dues from the sale of the properties given as security. 

4. Trinity Infraventures Ltd. v. M.S. Murthy

The Supreme Court held that an application under Order XXI Rule 97 Civil Procedure Code, 1908, is to be filed by the decree-holder (or purchaser in execution of the decree) as is embodied in the said statutory provision. On the contrary, an application under Order XXI Rule 99 is filed by a person dispossessed of immovable property, by the holder of a decree for possession. The Court further stated, that in a suit for partition, the title to a property cannot be decided in favor of the parties claiming partition qua strangers.  

5. Coal India Limited v. Competition Commission of India

The Supreme Court, emphasized on the power of Section 19(4) of the Competition Act, to empower the CCI to arrive at the conclusion as to whether the enterprise enjoys a dominant position. As set out under Section 19(4)(g), the acquisition of a monopoly or a dominant position, as a result of a statute or by being a Government Company or Public Sector Undertaking, is considered as a relevant factor. Thus, it is clear that the legislator’s intent is to include government companies, public sector companies and bodies under the Statute, to fall under the ambit of the Act. The court further propounded that the exception to the definition of an ‘enterprise’ is merely a Government Department carrying on Government functions, and that a business of mining cannot be considered as a sovereign function. 

6. Ghanshyam v. Yogendra Rathi

The Supreme Court while analyzing Section 54 of the Transfer of Property Act, 1882, reiterated that an agreement to sell does not confer any absolute title over the said suit property. The possession of the respondent is further established by the possession memo on record, which proves that the respondent possesses rights over the suit property in part performance of the agreement to sell. The entry of the appellant over part of the suit property is simply in the capacity of a licensee of the respondent. The appellant does not occupy the property/premises in the capacity of an owner. The Court further held, that the power of attorney executed by the appellant, is inconsequential, as neither the sale deed has been executed, nor any action has been undertaken by the power of attorney holder, that may confer title over the respondent. Therefore, the non-execution of any document by the general power of attorney holder consequentially, renders the general power of attorney useless. The Court concluded, by stating that the will being executed by the appellant was meaningless as the will has no force till the testator or the person making it dies. In that manner, the will shall not be conferring any right upon the respondent. Thus, the court stated that the practice, of considering power of attorney and will as documents of title or documents conferring right in any immovable property is in violation of statutory law. Thus, any such practice would not override the specific provisions of law which require execution of a document of title or transfer and its registration to confer right and title in an immovable property.

7. BL Kashyap and Sons Ltd. v. Mist Avenue (P) Ltd.

The Delhi High Court held that an arbitration clause contained in an agreement which is void ab initio cannot be enforced as the contract itself never legally came into existence.  It further stated, that a validly executed contract can also be extinguished by a subsequent agreement between the parties. If the original contract remains in existence, for the purposes of disputes in connection with issues of repudiation, frustration, breach, etc., the arbitration clause contained therein continues to operate for those purposes.  The Court thus, opined that the arbitrator’s conclusion that the MOU amounted as a novation of the contract was unimpeachable within the limited jurisdiction of the Court under Section 34 of the Act. If a contract is superseded by another, the arbitration clause, being a component part of the earlier contract, falls with it. Where the new contract constitutes a wholesale novation of the original contract, the arbitration clause would also stand extinguished by virtue of the new agreement.

Part-II

NEW RULES/ LEGISLATIONS AND AMENDMENTS TO RULES AND LEGISLATIONS

1. SEBI LODR Regulations The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR” Regulations”)

have been amended and notified, to come into force on the on June 14, 2023. The proposed key changes are as under: 

Key points:

• A vacancy in the office of a listed entity is now required to be filled at the earliest, within 3 months from the date of vacancy, for the following positions: (i) Compliance Officer; (ii) Chief Executive
• Officer [“CEO”); (iii) Managing Director (“MD”); (iv) Whole Time Director; (v) Manager; (vi) Chief Financial Officer; and (vii) Director. 
• In the event of a sale, lease or disposal, of whole or substantially whole of any undertaking of the listed entity, a special resolution is required to be passed by the shareholders, and the majority of public shareholders are required to vote in favour of the resolution. The said principle is not applicable in case of a wholly owned subsidiary of the listed entity, subject to certain conditions. 
• Subsisting from April 1, 2024, for a director to continue in the capacity of a director, a listed entity must take the approval of the shareholders, once every 5 years, counted from the date of their appointment or reappointment, as applicable. 
• As on March 31, 2024, for a director of a listed entity to continue acting in the capacity of a director without having derived shareholder approval over the last 5 years, must do so in the 1^st general meeting held after March 31, 2024 positively. 
• The exceptions herein, are in case: 
  • the director is appointed pursuant to a court or tribunal order;
  • the  matter pertains to reappointment of directors liable to retire by rotation under the Companies Act; 
  • the matter involves a Nominee director of the government of India, or a financial regulator, or a regulated financial institution, or a debenture trustee under a subscription agreement for debentures, as issued by the listed entity. 
• In the quarterly compliance report on corporate governance, the listed entities must disclose details of the cyber security incidents, breaches, loss of data and documents that may have occurred. 
• The materiality threshold for determination of events/information disclosed by a listed entity to the stock exchanges have now been prescribed by SEBI, to include omission of an event or information, whose value or the expected impact exceeds the lower threshold of the following: (Materiality Threshold) :
  • 2% if turnover as per last audited consolidated financial statements
  • 2% of net worth as per last audited consolidated financial statements, except when net worth is negative
  • 5% of the average of absolute value of profit or loss after tax, as per last 3 audited consolidated financial statements. 
• Any continuing event or information that may now qualify as material as per the said thresholds, shall be disclosed within 30 days from the Effective Date. 
• The policy for determination of materiality to be approved by the board of directors shall be as per the materiality thresholds and shall provide a mechanisms for assisting the employees in identifying any potential material event/information and reporting the same to the relevant key managerial personnel. 
• Special rights granted to shareholders of listed entities need to be approved in a general meeting by way of special resolution, once in every 5 years from the date of grant of such special right. The exception thereby, is in case special rights are granted to the shareholder, in a regulated financial institution pursuant to a lending arrangement of the listed entity, and debenture trustee under a subscription agreement for the debentures issued by the listed entity. 
• The listed entities are now required to disclose the material events or information to the stock exchanges in terms of LODR Regulations, within the following timelines: 
  • 30 minutes from the closure of the board meeting where decision pertaining to the event/information has been taken;
  • 12 hours from occurrence of any event or information emanating from within the listed entity
  • 24 hours from occurrence of any event or information not emanating from within the listed entity. 
• The listed entity is required to disclose the communication received from any regulatory, statutory, enforcement or judicial authority, coupled with any event or information, required to be disclosed by the listed entity, as per the LODR Regulations, unless the disclosure of such communication is prohibited by such authority. 
• In the event that the shareholders, promoters and its group entities, related parties, directors, key managerial personnel, employees of the listed entity or its holding, subsidiary or associate company i.e. Executing Parties enter an agreement amongst themselves or in case a listed entity enters into an agreement with a third party, which impacts the management or control of the listed entity, or imposes restriction or creates liability on the listed entity, is required to be disclosed to the stock exchanges, even if the listed entity is not a party to the agreement. Such information, must be communicated within 2 working days of entering such agreement. 
• Further, listed entities are required to disclose to the stock exchanges:
  • any acquisitions which exceed the materiality threshold, 
  • sale or disposal of whole or substantially whole of any undertaking or subsidiary or listed entity,
  • sale of stake in associate company, including an agreement to sell shares or voting rights in a company whereby, the company ceases to be a wholly owned subsidiary, a subsidiary or an associate company, 
  • where amount of sale exceeds materiality threshold, 
  • fraud or financial defaults by the listed entity and its management etc 
  • arrest of the said individuals, or resignation of said individuals which has to be communicated within 7 days of the letter of resignation
  • Voluntary revision of financial statements or board report. 

2. . RBI Guidelines on Default Loss Guarantees (DLG) in Digital Lending

The Reserve Bank of India (“RBI”) had, basis the recommendations of the Working Group on ‘digital lending including lending through online platforms and mobile apps’ (“Working Group Report”), issued a press release on August 10, 2022 (“Press Release”) followed by the “Guidelines on Digital Lending” on September 2, 2022 (the “DL Guidelines”). 

One of the key changes introduced in the DL Guidelines was the restriction imposed on Regulated Entities (“REs”) with respect to the acceptance of first loss default guarantees by REs, commonly known as ‘FLDG’ and to adhere to the provisions of Master Direction – Reserve Bank of India (Securitization of Standard Assets) Directions, 2021 dated September 24, 2021, especially, synthetic securitization contained in Para (6)(c). This had created a lot of concerns owing to the prevalent nature of use of FLDGs issued by business correspondents to REs. 

On June 8, 2023, the RBI issued Guidelines on Default Loss Guarantees (“DLG”) in Digital Lending, covering the implications and restrictions set out by the recommendations being implemented immediately. The guidelines are applicable, on all DLG arrangements entered in relation to Digital Lending Operations undertaken by all commercial banks, primary urban cooperative banks, state cooperative banks, district central cooperative banks, non-banking financial companies, including housing finance companies. These guidelines shall come into force from June 8, 2023. 

• Key Points: 

• DLG would mean a contractual arrangement between an RE and any entity whereby such entity guarantees to compensate the RE for any loss due to default up to a certain percentage of the loan portfolio of the RE, which is specified upfront. This includes any implicit guarantee of a similar nature, linked to performance of the loan portfolio of the RE and specified upfront. 
• The RE can enter into DLG arrangements only with their outsourcing partners, whether Loan Service Providers (“LSPs”) or REs. The LSP who is providing a DLG would need to be incorporated as a company under the Companies Act, 2013. 
• An RE can accept DLG in the form of: 
  • Cash deposited with RE;
  • Fixed deposits maintained with a scheduled commercial bank with a lien marked in favour of RE;
  • Bank Guarantee in favour of RE. 
• The total amount of DLG cover on any outstanding portfolio which is specified upfront should not exceed 5% of the amount of that loan portfolio. For implicit guarantee arrangements, the DLG provided should not bear performance risk of more than 5% of the loan portfolio. The time period for the DLG shall be no less than the longest tenor of the loans in the underlying loan portfolio.
• The guidelines require that all DLG structures be backed with explicit legally enforceable contract, which contains certain specific details such as extent of DLG cover, form in which DLG cover is required to be maintained, timeline for DLG invocation and necessary disclosures as set out in the Guidelines. 
• The RE can invoke the DLG within a maximum overdue period of 120 days, unless made good by the borrower prior to such date. The amount of DLG that can be invoked cannot be set off against underlying individual loans. In case of recovery by RE of any amounts of the underlying loans which have been invoked and realised, such amounts can be shared with the DLG provided, basis the DLG arrangement.
• The Non Performing Asset (“NPA”) classification and consequent provisioning would continue to be the responsibility of the RE as per the relevant RBI regulations. The intent of this is not clear as to whether the underlying loan classification and provisioning obligation shall continue irrespective of invocation of DLG. 
• The RE would be required to ensure that the LSP published on their website, the total number of portfolios and amounts of each portfolio on which DLG has been offered. The RE would need to have a board approved policy which should include eligibility criteria, nature and extent of DLG cover, process of monitoring and reviewing of the DLG arrangement, and details of fees payable to said DLG provider. This policy is required to be in place before entering any DLG arrangement. 
• RE should ensure that when a DLG arrangement is being entered into or renewed, the RE obtains adequate information to satisfy themselves on the ability of the DLG provider to honour the same. For the said purpose, the RE must obtain a declaration from the DLG provider, duly certified by the statutory auditor regarding the aggregate DLG amount that is outstanding, number of REs and number of portfolios against which the DLG has been provided, and past default rates on similar portfolios. 
• The guidelines further clarify, that availing DLG cover by REs would not be construed as a substitute for credit appraisal requirements and credit underwriting standards, which requirements need to be continued in compliance with the REs. Also, the capital computation on individual loan assets in the portfolio, would continue to be governed by existing RBI norms. 

3. Ministry of Finance, Expenditure Department Office Memorandum  

Vide Office Memorandum dated June 2, 2023, the Ministry of Finance’s Expenditure Department granted a one-month extension, upto July 31, for Micro, Small, and Medium Enterprises (MSMEs) to submit refund claims for performance or bid security forfeited and liquidated damages deducted during the Covid-19 period. The government seeks to alleviate the burden on MSMEs by offering relief through the ‘Vivad Se VishwasI’ scheme, announced in the 2023-24 Budget by the Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman.

• KEY POINTS:

• The scheme ensures that in cases where MSMEs were unable to fulfil contracts during the Covid-19 period, 95% of the performance security, bid security, and liquidated damages that were forfeited or deducted from MSME firms will be refunded by the government and government undertakings. Effective from April 17, 2023, the scheme was initially set to have a claim submission deadline of June 30. However, the same has been extended to July 31.
• Additionally, certain relief has been granted to MSMEs that faced debarment due to contract execution defaults during the Covid-19 period, extending until March 31, 2022. Contractors or suppliers registered as MSMEs with the Ministry of MSME as of March 31, 2022, are eligible to claim a refund for forfeited amounts related to contracts with an original delivery or completion period between February 19, 2020,
• and March 31, 2022.
• The office memorandum also specifies the amendments made with respect to the eligibility requirements. Firstly, it is clarified that all procurements would be covered under the scheme and not merely those pertaining to procurement of goods and services. Secondly, to be eligible under the scheme, an MSME may be registered for any category, and not necessarily a category of goods and services.
• To facilitate the implementation of this scheme, the Government e-Marketplace (GeM) has established a dedicated web page. Only eligible claims will be processed through GeM, and it applies to all contracts for procurement entered into by Central Government procurement entities including ministries, departments, attached or subordinate offices, autonomous bodies, Central Public Sector Enterprises (CPSEs), Central Public Sector Banks, financial institutions, etc. with MSMEs.

4. Electricity (Rights of Consumers) Amendment Rules, 2023

The Ministry of Power issued the Electricity (Rights of Consumers) Amendment Rules, 2023, specifying the rights and obligations of electricity consumers and standards of service, metering, and payment of bills.  The amended Rules mandate the introduction of time-of-day tariffs, i.e., tariffs that vary based on the time of day) and provide a mechanism for the calculation of bills in case the demand exceeds the sanctioned load. 

• Key Points:

• The amendments mandate introduction of time-of-day tariffs for retail consumers except for agricultural consumers.   This will be effective from: (i) April 1, 2024, for industrial and commercial consumers with maximum demand of up to 10 kilowatts, and (ii) April 1, 2025, for other consumers.  For consumers with smart meters, it will be applicable immediately.  
• Time-of-day tariffs will apply to the energy charges. The time-of-day tariff must not be less than: (i) 1.2 times the normal tariff for industrial and commercial consumers, and (ii) 1.1 times for other consumers. During solar hours, the tariff should be less than the normal tariff by at least 20%.  Peak hours must not be longer than solar hours.
• The 2020 Rules mandate the installation of meters.  The amendments specify that on the installation of a smart meter, no penalty will be levied in case the actual recorded maximum demand is more than the sanctioned load.  For billing, the actual recorded maximum demand will be treated as the sanctioned load.  A higher sanctioned load may attract a higher tariff slab.
• If the monthly maximum demand exceeds the sanctioned load at least three times in a financial year, the sanctioned load will be revised by the distribution company.  The new sanctioned load will be the lowest of the monthly maximum demand.  Accordingly, the distribution company may revise the sanctioned load down if the maximum load decreases.

LEGAL UPDATE May 2023

Introduction &Disclaimer:

This is only an attempt to keep in pace with the changes in Law. Keeping in mind the varied interest of individuals we have tried to cover as much as possible, however we do not holdout that this update covers all changes in the field of law affected during the period and the reader may exercise discretion in that regard.

The legal update is divided broadly into two sections:

1. Important Decisions;
2. New or Amendment to existing Legislation.

• B&T AG v. Ministry of Defense

The Supreme Court in the instant case held that the period of limitation in cases concerned with Article 137 of the Constitution of India is three years, commencing from when the right to apply accrues. The Bench further stated that the cause of action is pertinent for calculating the limitation period for instituting an action. The party must, therefore, be mindful of when a cause of action arises. If a party delays sending a notice seeking reference under the Arbitration Act of 1996 due to a lack of clarity as to when the cause of action arose, the claim can become time-barred. In terms of the cause of action, if an infringement of right occurs at a particular time, the whole cause of action is said to have arisen then and there. Thus, the appointment of arbitrator under Section 11 of the Arbitration and Conciliation Act is not permissible beyond the period of limitation.

• KC Ninan v. Kerela State Electricity Board

The Supreme Court in the instant case held that, while the bar of limitation under Section 56(2) of the Electricity Act, 2003 restricts the remedy of disconnection, the licensee is entitled to recover electricity arrears through civil remedies or in exercise of its statutory power under the conditions of supply.

• IndiaBulls Asset Reconstruction Co. Ltd. v Ram Kishore Arora

The Supreme Court reiterated what the NCLAT had observed, to say that the ‘project-wise resolution’ may be started as a test to measure the success of a resolution. The result of the impugned order was that except for the specified project, all other projects of the corporate debtor were to be kept as ongoing projects and the construction of all other projects were to be continued under the supervision of the IRP with the ex-management, its employees, and workmen.

• Vistra Itcl (India) Ltd v. Dinkar Venkatasubramanian

The Court noted that the Insolvency and Bankruptcy Code (Amendment) Act, 2019 has been introduced to ensure that the operational creditors under the resolution plan should be paid the amount which they are entitled to, in the event of liquidation of the Corporate Debtor under Section 53 of the IBC. The Court held that, the amount payable under the resolution plan to the operational creditors should not be less than the amount payable to them under Section 53, in the event of liquidation of the Corporate Debtor.

• Shree Vishnu Constructions v. Engineer in Chief Military Engineering Service

The Supreme Court held that the law prevailing prior to the Amendment Act, 2015 shall be applicable in a case where the notice invoking arbitration is issued, prior to the Amendment Act of 2015.

• Union of India v. Deloitte Haskins and Sells LLP

The Supreme Court held that on the principle of joint and severe liability, the auditors and the entire firm including partners shall be liable and therefore can be subjected to Section 140(5) and the consequences mentioned in Section 140(5) of the Act, 2013.

• Maheshwar Pandey v. State of Bihar

The Supreme Court observed that service rendered as work charged after regularization of service under the Work Charged Establishment Revised Service Conditions (Repealing) Rules, 2013 and Circular shall be counted for qualifying service for pension as per Rule 5(v) of 2013 Rules.

• Ritu Chhabaria v. Union of India

The Supreme Court observed that the right of default bail under Section 167(2) of the CrPC was not merely a statutory right, but a fundamental right that flows from Article 21 of the Constitution of India.

• Subhash Chand Gupta v. Bhavesh Texo Fab (P) Ltd

The NCLAT opined that the Adjudicating Authority has committed on error in admitting the Section 9 application as the same has to be considered and decided based on material facts regarding the debt and default In the present case, there is a debt which remained unpaid by the Corporate Debtor to the Operational Creditor.

• Ashwini Kumar Upadhyay v Union of India

The Delhi High Court opined that to ensure that there is a smooth transition of Rs. 2000 denomination banknotes, which continue to be a legal tender till September 2023 i.e., for four months, banks have provided facilities for conversion of these banknotes to other denomination banknotes.

• Rajeev Gupta v. Standard Chartered Bank (Singapore) Ltd.

The NCLAT remarked that once a document has been relied upon and not objected to, it cannot be rejected or ignored.

• Dhananjay Seth v. Union of India

The Patna High Court directed the Banks/Financial Institutions who were respondents in the present case to henceforth, exercise their power to seize and repossess the vehicle only in accordance with the provisions of the SARFAESI Act and the Rules framed thereunder and the RBI guidelines. The Court further directed the Superintendent of Police of all the districts in the State of Bihar, to ensure that within their jurisdiction no recovery agent of the Bank and Financial Institution might take the law into their hands, intercept the vehicles on way and takes possession of the vehicle in default without an order of the competent court of law. Further, the Court stated that since the action of the Banks/Finance Companies were found illegal, the petitioners in the present case should be entitled for the cost of litigation. Accordingly, the Court directed that each of the respondents, that is, Banks/Financial Institutions would be liable to pay a sum of Rs. 50,000 as cost of litigation to the respective petitioners.

• Shapoorji Pallonji And Company Private Limited v. Union of India

The Delhi High Court held that by the time the instant petition was filed before the Court, the respondent had failed to nominate an arbitrator and its right to do so cannot be forfeited since the DRC reported a failure of conciliation only on 02-05-2023. The Court concluded that: It shall be open to the petitioner to address a fresh communication indicating the name of its nominee arbitrator. While doing so, it would also be open to the petitioner to reiterate the name as suggested and contained in its communication of 27-01-2023. Upon receipt of the said intimation, it would be open to the respondent to nominate its arbitrator. The two nominated arbitrators may, in turn, then proceed to appoint a presiding arbitrator. It shall be open to the respondent to nominate an arbitrator who possesses the qualifications as prescribed in Clause 25. However, if it chooses not to do so, the two nominated arbitrators would then be entitled to appoint a presiding arbitrator who meets the qualifications as stipulated in Clause 25.

• NuFuture Digital (India) Ltd. v. Axis Trustee Services Ltd

While dismissing the instant appeal, NCLAT upheld the Adjudicating Authority’s order rejecting the appellant’s plea seeking the dismissal of S. 7 application and held that the S. 7 application is not barred by S. 10-A.  The NCLAT held that the application preferred by the Financial Creditor under S. 7 IBC was not hit by S. 10-A as the defaulted amount included for the calculation in the S. 7 application did not pertain to the period covered by S. 10-A IBC.

Part-II

NEW RULES/ LEGISLATIONS AND AMENDMENTS TO RULES AND LEGISLATIONS

1. CBDT proposes changes to Rule 11UA in respect of ANGEL TAX and proposes to notify Excluded Entities

An amendment to the Finance Act of 2023 has been introduced so as to bring the consideration received from non-residents for issue of shares, under the ambit of Section 56(2)(viib) of the Income-tax Act, 1961. The said provision, provides that, in case a consideration for issue of shares exceeds the Fair Market Value (FMV) to be chargeable to income-tax under the head “Income from other sources.”

The Key points are as follows:

• Proposed changes in Rule 11UA:
  • Currently, Rule 11UA prescribed two valuation methods for valuation of shares, namely: Discounted Cash Flow (DCF) and Net Asset Value (NAV) method for resident investors. Thus, 5 new valuation methods are sought to be added to the list.
  • In terms of consideration received by a company for the purpose of issue of shares from any non-resident entity as notified by the Central Government, the price of equity shares corresponding to such consideration must be as the FMV of the equity shares for resident and non-resident investors.
  • The valuation report by the Merchant Banker herein, would be acceptable provided if it is of a date not more than 90 days prior to the date of issue of shares which are the subject matter of valuation.

2. Competition Amendment Act, 2023

The Ministry of Corporate Affairs notified the enforcement of certain provisions of the Competition (Amendment) Act, 2023 (CAA 23) with effect from 18 May 2023.

• Key Points:
  • The definition of “relevant product market” now formally recognizes supply-side substitutability as a consideration when delineating relevant markets.
  • A definition of the term “party” has been introduced to refer to a broad set of stakeholders including consumers, trade associations, information providers, opposite parties, and persons or enterprises that may have been impleaded by the CCI to join proceedings.
  • Ahead of the enforcement of the detailed framework for “settlements” and “commitments”, the definition of the terms themselves have been notified.
  • With respect to anti-competitive horizontal agreements under Section 3(3), “hub-and-spoke cartels” have finally received statutory recognition. Now, any party that participates or intends to participate in an anti-competitive horizontal agreement may be found liable under Section 3(3) – irrespective of whether the party is engaged in an identical or similar trade as the remaining participants.
  • The phrase “exclusive supply agreement” under Section 3(4)(b) has been rechristened “exclusive dealing agreement” and the definition has been updated to expand its scope.
  • Agreements between an enterprise and an end-consumer has been explicitly excluded from the scope of vertical agreements under Section 3(4).
  • “Meeting competition” will now be available as a valid defense to justify the imposition of unfair and discriminatory conditions. Reliance on the defense was earlier restricted to cases involving imposition of discriminatory conditions alone.
  • A much-anticipated provision which sets a limitation period of 3 years for filing an information (i.e. complaint) has been enforced. Such limitation period will start from the date on which the cause of action arose, however, delays may be condoned if sufficient cause can be demonstrated.
  • The factors to analyze whether an agreement has caused an appreciable adverse effect on competition (AAEC) in India have also been updated. Now, under Section 19(3)(d), the CCI shall give due regard not only to “benefits” to consumers but also “harm” caused to them.
  • The factors to delineate relevant market have also been revised by the incorporation of certain geographic market considerations such as inclusion of costs associated with switching supply or demand to other areas.
  • As reported earlier, the DG’s powers of investigation have been strengthened significantly by the amendment. The DG, during its investigation, may now depose under oath in-house legal counsels, bankers, and auditors of parties under investigation. The DG may also call for information from any person other than a party and retain relevant documents for a period of at least 180 days.
  • The CCI may now penalize parties which fail to comply with its orders passed under Sections 6, 43, 44 and 45 which deal with the power of the CCI to regulate combinations, and the power to impose penalties for failure to comply with the orders of the CCI or DG.
  • The ceiling limit for penalties under Section 44, which is used to penalize parties for making false statements or for omission to furnish material information, has been increased from INR 10 million (i.e., ~ USD 120,760) to INR 50 million (i.e. ~ USD 603,804).
  • Now, an appeal can be preferred against an order of the CCI before the National Company Law Appellate Tribunal (NCLAT) only after a mandatory deposit of 25% of the penalty imposed by the CCI.
  • Section 22: The right of the Chairperson, CCI to have a casting vote during proceedings has been removed.
  • Section 26(2A): The CCI now has the power to reject / dismiss cases which involve substantially the same facts and issues that have already been decided by the CCI in a previous order.
  • Section 35: Parties may call upon experts from the fields of economics, commerce, international trade or from any other discipline to provide an expert opinion and appear before the CCI in a case.
  • Section 53Q: In case of non-compliance with any of the orders of the NCLAT, the NCLAT can initiate contempt proceedings against the person under Section 53U.
  • Section 59A: Provides for compounding of any offence punishable under the Competition Act, 2002, excluding the offences punishable with imprisonment only or imprisonment with fine by the NCLAT or any other court.
  • Sections 63, 64 and 64A: Provide rule and regulation making power including on the new topics of deal value threshold, exemption to open market purchases, settlements, commitments, meaning of turnover and income for the purposes of calculating penalty, and leniency plus. Section 64A lays down the process of issuing regulations and involves various stages such as – publishing draft regulations for public comments, publishing a statement responding to such public comments and periodically reviewing such regulations.
  • The upper limit of penalty on merging parties who provide materially false statements or omit material particulars has been increased from INR 10 million to INR 50 million. This amplification aligns with the evolving regulatory landscape and underscores the importance of accuracy and transparency in merger transactions.
  • Hub and spoke cartels: Now the definition of cartelizing parties includes facilitators. Previously, only agreements related to price fixing, production control, and collusive bidding between enterprises or persons engaged in identical or similar businesses were presumed to adversely affect competition. However, now common agents (hubs) who control other players (spokes) within the same horizontal level are also covered. This broader scope seeks to address concerns around hub and spoke cartels, ensuring more comprehensive coverage under the Act.
  • Section 3(4) of the Act has been modified to encompass all arrangements between persons and enterprises, extending beyond agreements solely between firms at different stages of the supply/distribution chain. This amendment reflects the CCI’s experience in anti-trust enforcement and promotes fair competition across various vertical arrangements.
  • Limitation Period for information: The CCI, subject to condonation, need not entertain complaints where the cause of action arose prior to 3 years or more from the date of complaint. However, the CCI retains the authority to condone delays in exceptional circumstances. 
  • Pre-deposit requirement for appeals to the NCLAT: Now the parties must make a pre-deposit of 25% of the penalty imposed by the CCI to file an appeal before the National Company Law Appellate Tribunal (NCLAT). This change significantly impacts litigation dynamics, as it raises the stakes and emphasizes the importance of carefully assessing potential penalties before initiating appeals.

3. Companies (Compromises, Arrangements and Amalgamations) Amendment Rules 2023

The Ministry of Corporate Affairs vide its notification dated May 15, 2023, substitute the existing sub-rules (5) and (6) of rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. These amendments imply specific timelines for government authorities such as the registrar of companies and the official liquidator to provide their observations or confirmation to a scheme of merger under section 233 of the Companies Act, 2013 read with rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.

• Key Points:
  • Sub-rule (5): In accordance with section 233 (2) and (3) of CA 2013 read with the substituted sub-rule 5, once the registrar of companies and the official liquidator receive the scheme of merger, they are required to object or provide suggestions to the central government (power delegated to the regional director), within 30 (thirty) days from the receipt of the scheme. Where the objection/suggestion is not received from the registrar and the official liquidator within the said period of 30 (thirty) days and the central government is of the view that the scheme is in the interest of the public or creditors, the central government has been empowered to issue a confirmation order on such scheme within 15 (fifteen) days of the expiry of the said period of 30 (thirty) days. Before the said amendment, there were no time limits specified under sub-rule (5) for the registrar and the official liquidator to provide their objections or suggestions to the scheme.
  • In addition to the above, MCA has also introduced a deemed approval provision under the substituted sub-rule (5), wherein if the central government fails to issue the confirmation order within 60 (sixty) days of the receipt of the scheme, then it will be deemed that the central government has ‘no objection’ to the proposed scheme and accordingly, the central government will be obliged to issue the confirmation order.
  • Sub-rule (6): If the central government is of the view that the objection/suggestion received from the registrar and official liquidator is not sustainable and that the scheme is in the interest of public or creditors, then it will issue the confirmation order within 60 (sixty) days of the receipt of the scheme. However, if the central government is of the view that the scheme is not in the interest of the public or creditors (whether on the basis of such objections or otherwise), then it may file an application before the Tribunal, within 60 (sixty) days of the receipt of the scheme, requesting the Tribunal to move the scheme under section 232 of CA 2013 and not under section 233.
  • MCA has also introduced a deemed approval mechanism under the substituted sub-rule (6), wherein if the central government does not provide any confirmation order or file an application to the Tribunal within 60 (sixty) days of the receipt of the scheme, then it will be deemed that the central government has ‘no objection’ to the scheme and accordingly, the central government will be obliged to issue the confirmation order.

4. Companies (Removal of Names of Companies from the Register of Companies) Second Amendment Rules, 2023.

On 10-5-2023, the Ministry of Corporate Affairs notified the Companies (Removal of Names of Companies from the Register of Companies) Second Amendment Rules, 2023 to amend the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016. The provisions came into force on 10-5-2023.

• Key Points:
  • Rule 4 relates to “Application for removal of name of company” which says that an application for removal of name of a company under Section 248(2) will be made to the Registrar, Centre for Processing Accelerated Corporate Exit in Form No. STK-2 along with fee of Rs. 10000.
  • The company cannot file an application unless it has filed overdue financial statements and overdue annual returns up to the end of the financial year in which the company ceased to carry out its business operations.
  • Where the Registrar’s action has already been initiated against the Company, it can only file the application for removal of names, after filing pending financial statements and annual returns.
  • A Company will not be allowed to file an application for removal of names once the Registrar has issued notice for publication.

Monthly Update: May, 2019

Introduction &Disclaimer:

This is only an attempt to keep in pace with the changes in Law. Keeping in mind the varied interest of individuals we have tried to cover as much as possible, however we do not holdout that this update covers all changes in the field of law affected during the period and the reader may exercise discretion in this regard.

The legal update is divided broadly into two sections:

1. Important Decisions;
2. New or Amendment to existing Legislation.

PART-I

Important Decisions

• Hindustan Sanitaryware and Industries Ltd. v. State of Haryana:

Supreme Court in the instant case partly quashed the notification dated 27.06.2007 issued under Section 5(2) of the Minimum Wages Act, 1948 and held that there is no power vested in the Government by the Act to make alterations to the terms of a contract. The Act only confers jurisdiction in Government to fix/revise the minimum rate of wages notwithstanding the contract. It was further stated that such categorization or classification by deeming workmen in one category to belong to another category is in direct contravention of the contract between the employer and the employee and is beyond the jurisdiction of the Government. Hence, the prohibition of segregation of wages into components in the form of allowances in the Notification was found to be impermissible.

• JK Jute Mill Mazdoor Morcha v. Juggilal Kamlapat Jute Mills:

In the instant case, Supreme Court held that the trade union represents its members who are workers, to whom dues may be owed by the employer, which are certainly debts owed for services rendered by each individual workman, who are collectively represented by the trade union and hence trade union would be an operational creditor under the Insolvency and Bankruptcy Code, 2016.

• SBI Insurance Company v. Madhubala:

Bombay High Court in the instant case held that in cases where the policy is cancelled before the accident occurs, then the insurer is not liable to pay compensation to the claimant. However, if the policy is cancelled after the accident happens, then he is so liable. But, in the latter category of cases, the insurer is entitled to recover the amount so paid to the claimant from the insured. It was further held that a contract of insurance between an insurer and an owner of the offending vehicle includes reciprocal promise by both the parties.

• State of Kerala v. Sugunan V.

Kerala High Court held that a retired employee having a criminal case pending against him in Vigilance court is entitled to payment of provisional pension only till such case id disposed off.

• Anjum Hussain v. State of J&K

J&K High Court in the instant case held that an employee can revoke/terminate the permission of resignation from the services during the continuation of service and not when the name was struck off from the list of employees. The Court relied on the judgment of the Supreme Court in Jai Ram v. Union of India, AIR 1954 SC 584 in which it was held that “It may be conceded that it is open to a servant, who has expressed a desire to retire from service and applied to his superior officer to give him the requisite permission, to change his mind subsequently and ask for cancellation of the permission thus obtained; but he can be allowed to do so long as he continue in service and not after it has terminated.”

• Rajesh Goyal v. Chandigarh Industrial Tourism Development Corporation Limited

Punjab and Haryana High Court held that under a license contract, a licensor is entitled to or has power to restrain licensee’s operation in order to make sure that the licensee carries out trade and business in accordance with terms and conditions of the original contract.

• Prayas Projects India Pvt. Ltd., In re

SEBI in the instant case held that if a company issues its shares to more than 50 members for various plans/policies/schemes/ and share/debentures would lead to public equity share. Reference was made to order dated April 28, 2017 of Securities Appellate Tribunal in Neesa Technologies Ltd. v. SEBI, 2017 SCC Online SAT 187 which lays down that “In terms of Section 67(3) of the Companies Act any issue to ‘50 persons or more’ is a public issue and all public issues have to comply with the provisions of Section 56 of Companies Act and ILDS Regulations. Accordingly, in the instant matter, the said provisions were violated and the argument that the appellants have issued the non-convertible debentures in multiple tranches and no tranche has exceeded 49 people has no meaning.

• Jagdish Chander v. Kapoor Jewel Mines (P) Ltd.

In this case, Delhi High Court held that under Section 9 of Negotiable Instruments Act, 1881 ascertaining how the holder of the subject cheques became a holder in due course is an aspect which cannot be pre- judged at the initial stage, and is required to be considered after the evidence is recorded. It was further said that Section 9 of the Negotiable Instruments Act, 1881 defines the ‘holder in due course’ and its import cannot be pre-judged.

• UTV Software Communication Ltd. v. 1337X.to

Delhi High Court, in the first of its kind decision in India, passed a permanent injunction against “rogue websites” from infringing, in any manner, the plaintiff’s copyrighted work. Internet Service Providers and the Government departments concerned were also directed to block access to such rogue websites and “hydra headed websites”. The Copyright Act, 1957 confers a bundle of exclusive rights on the owner of a work and provides for remedies in case the copyright is infringed. The Court was of the opinion that it had ample powers to mould the relief to ensure that the plaintiff’s rights were adequately protected.

• Subal Chandra Ghosh v. State of Tripura

Tripura High Court in the instant case held that the object of notice of dishonor of cheque under Section 138 of Negotiable Instruments Act, 1881 to endorser is not to demand payment, but to indicate to the party notified that his contract arising on the negotiable instrument has been broken and he is liable for payment.

Part-II

New or Amendment to existing Legislation

• Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Amendment Rules, 2019

The Central Government in exercise of its power by Section 125 sub-sections (1), (2), (3), (4), (8), (9), (10) and (11) and Section 124(6) read with Section 469 of Companies Act, 2013 notifies the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Amendment Rules, 2019 to come into force on the date of its publication in the official gazette.

• Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2019

SEBI has made the said regulations i.e. Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2019 to further amend the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 which amends the following:

1. In Regulation 2, clause (md) is inserted after clause (mc) and before clause (mm) which defines “goods” as the goods notified by the Central Government under clause (bc) of Section 2 of the Securities Contracts (Regulation) Act, 1956 and forming the underlying of any commodity derivative;
2. In Regulation 2(q), second proviso is inserted which reads as – “Provided further that mutual fund schemes investing in exchange-traded commodity derivatives may hold the underlying goods in case of physical settlement of such contracts”;
3. In Regulation 7(g), the word “or goods” is inserted after the word “securities” and before the word “or”;
4. In Regulation 26(1), second proviso is inserted which reads as – “Provided also that mutual fund schemes investing in exchange-traded commodity derivatives may appoint a custodian to have custody of the underlying goods in case of physical settlement of such contracts.”;
5. In proviso to Regulation 44(1), the words “save clause 14” therein, after the word schedule is inserted;
6. In Regulation 52(4)(b), a new clause (xiie) is inserted which reads – “in case of schemes investing in exchange-traded commodity derivatives, recurring expenses incurred towards storage and handling of the underlying goods, due to physical settlement of such contracts.”; and
7. In the seventh schedule, the following clause is inserted – “14 A mutual fund scheme may invest in exchange-traded commodity derivatives subject to such investment restrictions as may be specified by the Board from time to time.”

• Securities and Exchange Board of India (Portfolio Managers) (Amendment) Regulations, 2019

SEBI has made the said regulations i.e. Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2019 to further amend the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993 which amends the following:

1. In Regulation 2, clause (af) is substituted as – “(af) “custodian” means a person who has been granted a certificate of registration to carry on the business of custodian under the Securities and Exchange Board of India (Custodian) Regulations, 1996” and definition of “discretionary portfolio manager” was substituted to clause (ag);
2. In Regulation 2, clause (ba) is inserted which defines “goods” as the goods notified by the Central Government under clause (bc) of section 2 of the Securities Contracts (Regulation) Act, 1956 and forming the underlying of any commodity derivative;
3. In Regulation 2(cb), proviso is inserted which reads “Provided that the Portfolio Manager may also deal in goods received in delivery against physical settlement of commodity derivatives”;
4. In Regulation 2, clause (ea) is substituted as – “(ea) “securities” mean securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956” and definition of “securities lending” was substituted to clause (eb); and
5. In Regulation 16B, sub-regulation (3) is inserted as “Every Portfolio Manager who deals in commodity derivatives shall appoint a custodian.”.

• Insurance Regulatory and Development Authority of India (Appointed Actuary) (Amendment) Regulations, 2019

The Authority in exercise of its powers and in consultation with the Insurance Advisory Committee, hereby makes the following amendment to the IRDAI (Appointed Actuary) Regulations, 2017:

1. These Regulations may be called the Insurance Regulatory and Development Authority of India (Appointed Actuary) (Amendment) Regulations, 2019; and
2. In Regulation 6, sub-section © is inserted – “(c): For business continuance, the insurer may need exemption from Regulation 5 for a further period beyond one year. Upon request of the insurer and based on merits of the case, the Chairperson may grant extension for a further period not  exceeding two years”.

• Companies (Appointment and Qualification of Directors) (Second Amendment) Rules, 2019

The Central Government in exercise of its power made Companies (Appointment and Qualification of Directors) (Second Amendment) Rules, 2019 to further amend the Companies (Appointment and Qualification of Directors) Rules, 2014 by inserting Rule 12B which reads as:

“12B. Directors of company required to file e-form ACTIVE– (1) Where a company is governed by Rule 25A of the Companies (Incorporation) Rules, 2014, fails to file the e-form ACTIVE within the period specified therein, the Director Identification Number (DIN) allotted to its existing directors, shall be marked as “Director of ACTIVE non-compliant company”.

• Where the DIN of a director has been marked as “Director of ACTIVE non-compliant company”, such director shall take all necessary steps to ensure that all companies governed by rule 25A of the Companies (Incorporation) Rules, 2014, where such director has been so appointed, file e-form ACTIVE.

• After all the companies referred to in sub-rule (2) file the e-form ACTIVE, the DIN of such director shall be marked as “Director of ACTIVE compliant company.”

Monthly Update: April, 2019

Introduction & Disclaimer:

This is only an attempt to keep in pace with the changes in Law. Keeping in mind the varied interest of individuals we have tried to cover as much as possible, however we do not holdout that this update covers all changes in the field of law affected during the period and the reader may exercise discretion in this regard.

The legal update is divided broadly into three sections:

1. Important Decisions;
2. New or Amendment to existing Legislation; and
3. Policy Announcement/guidelines.

PART-I

Important Decisions

• Union of India v. Parmar Construction Company:

Supreme Court in the instant case held that an arbitrator cannot be independently appointed by a Court in exercise of power under Section 11(6) of the Arbitration and Conciliation Act, 1996 unless the Parties to the dispute have exhausted all the remedies provided in the arbitration agreement. It was also held that the arbitrator so appointed by the Court undersection 11(8) of the Act has to be as per the qualifications required for the arbitrator by the agreement of the Parties and as per other considerations.

• Dharani Sugars and Chemicals Ltd. v. Union of India:

In the instant case, Supreme Court declared the RBI circular issued on 12th February 2018 as ultra vires as a whole and held that it has no effect in law. The said circular dealt with the restructuring process of borrower entities and stated that unless a restructuring process in respect of debts with an aggregate exposure of Rs. 2000 crore is fully implemented on or before 195 days from the reference date or from the date of first default i.e. from 01.03.2018, the lenders will have to file application as financial creditor under the Insolvency and Bankruptcy Code, 2016.

• Nagar Ayukt Nagar Nigam Kanpur v. Sri Mujib Ullah Khan:

The Supreme Court in this instant case held that liberal payment of gratuity is in the interest of the employees and thus gratuity will be payable to the employees of local bodies as well that are governed by state law. It also stated that under Section 1(3) © of the Payment of Gratuity Act, 1972 Central government has published a notification on 08.01.1982 which included Local Bodies with ten or more employees as an establishment to which the Act was applicable.

• Hiralal Govekar v. Sheela Surlakar

Bombay High Court held that simple handing over of cheque does not make a person liable for an offence under Section 138 of Negotiable Instruments Act, 1881 as in the present matter the cheques was merely handed over by the Petitioner and the account no. stated on the cheque did not stand in the name of the Petitioner. In other words, the Petitioner is neither a drawer nor the cheques was issued on his account hence was not liable under Section 138 of the Act.

• G. Dhanasekar v. T.A. Jayaprakash

Madras High Court in the instant case held that if there exists a principal agent relationship between the accused and the complainant, then the presumption under Section 139 of Negotiable Instruments Act, 1881 cannot be made available.

• Dredging Corporation of India Ltd. v. Visakhapatnam Port Trust

SEBI in this instant matter exempted a consortium of port trusts from making a public announcement of open offer for acquiring shares of a mini-ratna PSU on the basis that the takeover would cause no change in ultimate control of the said PSU. It was further held that the proposed acquisition would not be covered under automatic exemption under Regulation 10(1)(a)(iii) of the Takeover Regulations since the nature of control was being changed in the present case from direct to indirect control. However, since control of the target company continued to remain the same, hence exemption from such public announcement was allowed by the board.

• Nuruddin Latif Naik v. Mahindra and Mahindra Financial Services Ltd.

Bombay High Court held that the onus to show the proper notice of appointment of an arbitrator is on the respondent if it is disputed by the petitioner.

• Goyal Vegoils Ltd. v. Registrar of Companies

National Company Law Appellate Tribunal (“NCLAT”) in the instant case held that as per Section 147(1) of Companies Act, 2013 the company and its directors have to be treated equally when fine is imposed on the company for delay in filing cost audit report.

• Jayaswal Ashoka Infrastructure (P) Ltd. v. Pansare Lawad Sallagar

Bombay High Court in the instant case held that a contract wherein an advocate asks for the fee based on the outcome of the arbitration proceedings, in which the advocate acted in the capacity of a “counsel” for the party and did not appear as an “advocate” will be a valid contract as opposed to Section 23 of the Contract Act, 1872 which holds such contract for a contingent fee to be against public policy and hence void.

• Belarmina Gowda v. Ranjith Nath

Bombay High Court at Goa in the instant case held that the decree cannot be executed against any individual being a director or a person being responsible for the conduct of the business of the Company where the decree is against the Company.

• Kumar Spinning Mills (P) Ltd. v. Employees Provident Fund Appellate Tribunal

Madras High Court held that the provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 is a beneficial legislation which protects the interest of the employees and hence provisions of the Act will necessarily be interpreted in favour of the employees whenever any interpretation is required.

• A.P. Abdul Kareem v. Om Industrial Corporation

National Company Law Appellate Tribunal (“NCLAT”) allowed the shareholder of a corporate debtor to pay the total dues of the operational creditor in discharge of corporate debtor’s liability towards it, after an application was filed against the corporate debtor under Section 9 of the Insolvency and Bankruptcy Code, 2016 and before the Committee of Creditors was constituted and accordingly set aside the order of NCLT admitting Section 9 application against the Corporate Debtor.

Part-II

New or Amendment to existing Legislation

• Companies (Indian Accounting Standards) Amendment Rules, 2019

The Central Government in exercise of its power by Section 133 read with Section 469 of Companies Act, 2013 notifies the Companies (Indian Accounting Standards) Amendment Rules, 2019 to come into force from 01.04.2019.

• Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2019

SEBI has made the said regulations i.e. Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2019 to further amend the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 which amends the following:

1. In Regulation 2(1)(x) definition of “innovators growth platform” was amended to mean the trading platform for listing and trading of specified securities of issuers that comply with the eligibility criteria specified in Regulation 283;
2. In Regulation 2(1)(y) definition of “institutional investor” was amended to include innovators growth platform instead of institutional trading platform;
3. In Regulation 3(i) which deals with the applicability of the regulations, the word  innovators growth platform was substituted in place of institutional trading platform;
4. In the heading of Chapter X, the word “institutional trading platform” was substituted with the word “Innovators growth platform”; and
5. In Regulation 282(3) which deals with applicability of chapter X of the regulations, the words “and not to retail individual investors” were deleted.

Part –III

Policy Announcement/Guidelines/Approvals

1. Insurance Regulatory and Development Authority of India

The IRDAI with approval of Central Government has made the notification dated 04.04.2019 namely “Obligatory Cession for the Financial Year 2019-20”. The salient features of the notification are:

• The notification will be applicable to Indian Re-insurers and other applicable insurers as per the provisions of Section 101A of the Insurance Act, 1938;
• The percentage cession of the sum insured on each General Insurance Policy to be reinsured with the Indian Re-insurer(s) shall be 5% (five percent) in respect of insurance attaching during the financial year beginning from 1st April, 2019 to 31st March, 2020, except the terrorism premium and premium ceded to Nuclear pool, wherein it would be made ‘NIL’. The entire Obligatory Cession is to be placed with General Insurance Corporation of India (GIC Re) only;
• Other terms and conditions include:

a) Notice of information on cession

• There would be no limit on sum insured applicable for the cessions made during the period from 1st April 2019 to 31st March, 2020.
• In view of the above, the Indian Re-insurer may require the ceding insurer to give immediate notice of underwriting information of any cession exceeding an amount as specified by the former. The ceding insurer shall inform the Indian Re-insurer at all times whenever the cession exceeds such specified limits.

b) Commission

Percentage of commission on obligatory cession for different classes of business shall be as follows:

• Minimum 5% for Motor TP and Oil & Energy insurance.
• Minimum 10% for Group Health insurance.
• Minimum 7.50% for Crop Insurance.
• Average Terms for Aviation insurance.
• Minimum 15% for all other classes of insurance business.

Commission over and above, can be as mutually agreed between Indian Re-insurer(s)and the ceding insurer.

c) Profit Commission

The Indian Re-insurer shall share the profit commission, on 50%:50% basis, with the ceding insurer based on the performance and surplus of the total obligatory portfolio of the ceding insurer, after factoring the following:

• Incurred loss % (to be worked at the end of 3 financial years).
• Management Expenses at 2%.
• Profit at 5%.
• Commission at 15%.
• Loss ratio at 50% to 78%.

No profit commission is payable if the loss ratio exceeds 78%. Profit commission shall not exceed 14%.

2. Ministry of Finance

The Central Government in exercise of its power under Section 139 AA sub-section (2) of the Income Tax Act, 1961 notified that every person who has been allotted permanent account number (“PAN”) as on the 1st day of July, 2017, and who is eligible to obtain Aadhaar number, shall intimate his Aadhaar number to the Principal Director General of Income-tax (Systems) or Principal Director of Income-tax (Systems) in the form and manner specified in Notification no. 7 dated 29th of June, 2017 issued by the Principal Director General of Income Tax (Systems) by 30-09-2019. The said notification will not be applicable to those persons or such class of persons or any State or part of any State who/which are/ is specifically excluded under sub-section (3) of Section 139 AA of the Act.

It is also made clear in Circular no. 6 of 2019 that w.e.f. 01.04.2019, it is mandatory to quote Aadhaar number while filing the return of income as required under Section 139 AA (1)(ii) unless specifically exempted as per any notification issued under sub-section (3) of Section 139 AA of the Act. It is also made clear that the returns being filed either electronically or manually cannot be filed without quoting the Aadhaar Number.