Change in FDI Policy environment for e-commerce marketplace players
Department of Industrial Policy and Promotion (“DIPP”) released a press note on December 26, 2018 to provide clarity on FDI policy related to e-commerce sector as mentioned in Para 5.2.15.2 of the Consolidated FDI Policy Circular 2017. The new policy will take effect from February 01, 2019.
The new clarification prohibits the e-commerce entity from exercising control or ownership on the inventory of vendors. An inventory will be deemed as controlled by the e-commerce entity if more than 25% purchases of such vendors is done through such e-commerce entity or any of its affiliate companies.
Furthermore, any vendor being controlled directly or indirectly (either through equity participation or common management) by an e-commerce entity or an affiliate of such e-commerce entity, cannot sell products on such e-commerce entity.
E-commerce entities are also prohibited from subjecting vendors to any exclusivity restriction that prevents such vendors from selling products elsewhere.
E-commerce entities are required to furnish a certificate along with a report from a statutory auditors to the RBI confirming compliance with the new policy by September 30 of every year.
Quick Views:
- While this clarification is aimed at abolishing the predatory approach of e-commerce gaints such as the likes of amazon, we believe that January 2019 will present a challenge to all e-commerce players to re-align their business models so as to demonstrate compliace with the requirements of the new policy.
MHA’s order for surveillance challenged in the Supreme Court
Ministry of Home Affairs (“MHA”) issued an order on December 20, 2018 authorising ten security and intelligence agencies to intercept, monitor, and decrypt any information generated, transmitted, received or stored in any computer resource. The said order has been challenged in the Supreme Court of India on the grounds of being illegal, unconstitutional and contrary to public interest.
The petition states that the said order does not provide any reasons for providing the investing agencies with such powers which may allow them to investigate any individual without recording reasons for the same. The petition also points out that such investigation may also violate the provisions of Code of Criminal Procedure as the investigating authorities may take actions without registering a FIR, which is a must in criminal proceedings.
Quick Views:
- The Supreme Court of India in Justice K.S. Puttaswamy judgment had held that the right to privacy is a fundamental right. The petition challenging the MHA order would definitely prove important in developing the jurisprudence of right to privacy in India.
Indian subsidiaries of US-based companies get extension for submitting financial data
Central Board of Direct Taxes (“CBDT”) extended the deadline for Indian subsidiaries of US based technology companies to submit their financial information to March 31, 2019. Earlier the companies were directed to submit their global profit and revenue details by December 31, 2018.
According to some reports India and USA have still not decided on the manner in which such financial information will be shared between the two countries.
Quick Views:
- The earlier direction gave very little time to the companies to furnish the financial information. Now that the deadline is extended, the companies will have more time at their disposal to collate all the required information.
- It can also be expected that the negotiation between India and USA on the information sharing will end by March 2019 and a concrete financial data sharing mechanism will be available.
Personal Guarantor’s right of subrogation can be taken away through a resolution plan: NCLAT
National Company Law Appellate Tribunal (“NCLAT”) in Lalit Mishra v. Sharon Bio Medicine Ltd. decided that the right of subrogation (i.e., the substitution of one person or group by another in respect of a debt ) of the personal guarantor against the corporate debtor can be taken away in a resolution plan.
The National Company Law Tribunal (“NCLT”) Mumbai Bench approved the resolution plan for Sharan Bio Medicine in which the shareholding of the promoters as well as their right as sureties to recover the claims from the company was extinguished. The promoters appealed against this judgment in the NCLAT.
The NCLAT held that the proceedings under Insolvency and Bankruptcy Code (“IBC”) is not a recovery proceeding and therefore, right of surety under the Contract Act will not be available to the promoters of the corporate debtor.
Quick Views:
- The NCLAT judgment does bring a new approach in deciding the rights of the promoters who act as personal guarantors for the corporate debtors. At the same time the judgment is unclear as to whether it will only be applicable on promoters who act as personal guarantors or also on third parties who act as personal guarantors.
Gujarat High Court rejects retrospective application of Section 164(2) of Companies Act, 2013
Gujarat High Court in Gaurang Balvantlal Shah v. Union of India has held that the list of disqualified directors under Section 164(2) of the Companies Act, 2013, published by the Ministry of Corporate Affairs (“MCA”) is illegal. MCA published a list of over 3 Lakh disqualified directors in September, 2017.
Section 164(2) of the Companies Act, 2013 states that a director of private company will be disqualified if there is a default by the company in filing annual returns and statements for a period of 3 consecutive years. The MCA argued that the provision will be in effect from the financial year 2013-14. Gujarat High Court rejected this argument and held that the section will not have any retrospective effect and will be applicable from the financial year 2014-15.
Additionally, the court also clarified that striking off of a company under Section 248 of the Companies Act, 2013 will not lead to deactivation of the Director Identification Number.
Quick Views:
- While the judgment of the Gujarat High Court appears to have a reasonable basis to it, the position of law will be settled if and when this judgment is challenged in the Supreme Court.
Disclaimer: This post has been prepared for informational purposes only. The information/or observations contained in this post does not constitute legal advice and should not be acted upon in any specific situation without seeking proper legal advice from a practicing attorney.