Category Archives: regulatory updates

Hike in Minimum Wages for Workers in Shops and Commercial Establishment from April, 2019

The Government of Karnataka vide notification no. P&S-I/CPI/2018-19 dated 1st March, 2019, has enhanced the consumer price index (CPI) for 2019 which has become effective from 1st April, 2019 and shall remain effective till 31st March 2020.

Under the minimum wage notification no. KE/20/LMW/2017 dated 30th December 2017 the payable minimum wages must also include ‘Variable Dearness Allowance’ (“VDA”) which is calculated from 1st of April every year. The calculation of the VDA for all classes of workers and all scheduled employments depends on the change in CPI that year. VDA is calculated for personnel receiving wages on both Daily and Monthly basis.

With the notification dated 1st March, 2019, the CPI for 2019-20 has increased by 731 points from last year. Thus, the VDA payable in addition to the minimum wages also has increased, the VDA to be paid as per the enhanced CPI for year 2019-20 are as follows:

Total VDA

(Daily Wages)

INR 33.74
Total VDA

(Monthly Wages)

INR 877.20

Resultantly, the total payable minimum wages to all workers in shops and commercial establishments in Karnataka stands increased accordingly from April, 2019.

Source:

Notification: Enhanced CPI for 2019 – http://labour.kar.nic.in/labour/Consumer%20Price%20Index%202019.pdf

Minimum Wage Notification dated 30th December 2017 – https://www.rai.net.in/E-Mailers/Advocacy-update/Karnataka-Minimum-Wages-English-and-kannada.pdf

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Withdrawal of restriction on LLPs to carry on Manufacturing activities

The Ministry of Corporate Affairs (the MCA) had earlier issued Office Memorandum (OM) No. to all the Registrar of Companies (the RoCs) dated on 6 March 2019, instructing the RoCs to reject the applications for incorporation of Limited Liability Partnerships (the LLPs) or conversion of entities into LLPs having Manufacturing & allied activities as the business of the LLPs on the ground that manufacturing activities does not fall under the definition of `Business’ as per the Limited Liability Partnership Act, 2008.

Now the MCA has withdrawn the aforementioned OM on such restriction to the LLPs from carrying out manufacturing & allied activities with immediate effect. Consequent to this clarification, LLPs can now carry out the manufacturing & allied activities and entities carrying-out manufacturing & allied activities can also convert themselves into LLP.

Link: http://www.mca.gov.in/MinistryV2/homepage.html

Clarification on KYC updation for holders of Director Identification Number (DIN)

The Ministry of Corporate Affairs (the MCA) on 5 July 2018, had mandated to every Individual who has been allotted a Director Identification Number (DIN) as on 31 March of every year to file the Form DIR 3KYC on or before 30 April. In this regard, stakeholders were facing issues in filing the said Form DIR-3 KYC for the Financial Year 2019-20. The MCA issued a clarification in this regard stating that:

  1. DIN holders are required to file the DIR-3 KYC form every year.
  2. The e-form presently available on the portal does not cater for the filing form on an annual basis and filing in respect of DINs allotted post 31 March 2018.
  3. With the objective of making the form more user-friendly, the form is presently being modified to enable pre-filling of data & information.
  4. The revised form will be shortly available for filing and can be filed without any fee within 30 days from the deployment of the form.

Link: http://www.mca.gov.in/Ministry/pdf/DIR3KYCcompleteMessage_13042019.pdf

National Policy on Software Products, 2019

The Ministry of Electronics and Information Technology released the National Policy on Software Products, 2019 (“the Policy”) aimed at stimulating the software products ecosystem in India. The Policy acknowledges that the Indian IT/ITeS industry is primarily service oriented. The Policy cites NASSCOM’s Strategic Review, 2017 which claimed that the global software products industry was valued at 413 billion USD, while the Indian software products industry’s contribution stood at just 7.1 billion USD.  The Policy aims to develop India as a global software product hub which is driven by innovation. The Policy aims to help start-ups related to software products in conducting their business in India while dealing with regulations and compliances in a hassle-free manner. MeitY had introduced the draft of the Policy back in 2016, which was commended by the industry bigwigs. The salient features of the Policy are summarised below.

The Policy defines a software product as “a programme used or produced by a computer or network which can be stored or transmitted through an electronic medium and offers some form of utility. In addition, such a product can be protected in India through permissible Intellectual Property Right laws and can be commercialized for use through licensing”. In order to determine which companies would be able to avail the benefits under the Policy, an Indian Software Product Company (“ISPC”) is defined as “an Indian company in which 51% or more share-holding is with Indian citizen or person of Indian origin and is engaged in the development, commercialisation, licensing and sale /service of Software products and has IP rights over the Software product(s).

Some key missions of the Policy include:

(a) Achieving a ten-fold increase in India’s contribution towards the global software product industry by 2025.

(b) Nurturing 10,000 tech startups including 1000 such startups in lower tier cities and towns leading to employment of 3.5 million people by 2025.

(c) “Upskilling” a million IT professionals, motivating 100,000 students and producing 10,000 leaders for the Indian industry.

(d) Developing 20 strategically located clusters to support software product companies with ICT infrastructure, R&D and mentorship.

For achieving the goals envisaged in the Policy a National Software Product Mission (“NSPM”) would be established under the aegis of MeitY. The NSPM would be responsible for designing strategies for the development of the industry, monitoring of the special funds created under the Policy and facilitating Government agencies in the promotion of Software Products.

Ecosystem Development

The Policy envisages the creation of an Indian software product registry to provide a trusted trade environment and conception of an environment that allows software product companies to participate in the capital market. A single window platform would be established to allow the industry to deal with regulatory issues pertaining to imports/exports and incorporation/dissolution of ISPCs. ISPCs would also be able to set off any taxes payable with respect to R&D. For the classification of software products in a logical fashion, a model Harmonised System Code would be created.

Promotion of Entrepreneurship, innovation and Employment

A “fund of funds” called Software Product Development Fund (“SPDF”) with a corpus of Rs. 1,000 crore would be created for participation in venture fund to promote the scaling up of market ready products, with the ultimate goal of having at least 100 ISPCs with a valuation of Rs 500 crore or employing more than 200 employees. An incubation program would be initiated to provide startups with adequate mentoring, seed fund, R&D and testing facilities and marketing support. Rs. 500 crore would be set aside by the Government to support innovation and research in institutes of higher learning, with the objective to support industry-academia research. 20 dedicated challenge grants would be initiated to encourage the industry to tackle issues related to pressing societal needs such as sanitation and healthcare. A centre of excellence would be set up to specifically promote design and development of software products. The Policy envisions the creation of an “upgradable” infrastructure to help software product startups to identify and tackle cyber vulnerabilities.

Human Resource Development

Considering the pace with which technology is changing, the Policy wishes to enable Indian students and professionals to have future-ready skills. The Policy acknowledges that the existing course curriculum needs to be revised. Further, short term skill development programs and national level competency tests would be developed.

Promotion of Trade

The software product registry (discussed earlier) would be integrated with Government e-market[i]. The Policy states that the industry would be encouraged to create and use open APIs for improving interoperability of Indian software products and enable incremental innovation. Indian software products would be given preference vis-à-vis Government procurement in accordance with the Public Procurement (Preference to Make in India) Order, 2017. Indian software products would be showcased abroad through various events and specialised infrastructure to be set up in India and abroad. Further, Indian software products would be integrated in India’s foreign aid programs. The industry would be encouraged to develop products which would help people overcome language barriers, so that all sections of the Indian populace are included in this digital boom.

 

Sources:

  1. https://gem.gov.in/
  2. National Policy on Software Products (2019)- https://www.meity.gov.in/writereaddata/files/national_policy_on_software_products-2019.pdf

 

Regulatory Update: MCA amends Incorporation Rules in relation to Shifting of Registered Office and Incorporation fee for companies

As part of Government’s efforts to make India a startup hub and continuous efforts of ease of doing business in India, the Ministry of Corporate Affairs (the MCA) has issued notification dated 6 March 2019. With this notification following changes will come into effect:

Sl No Category Before Amendment After Amendment Effect of this amendment
1. Shifting of Registered Office from One State to Another The Companies desirous to shift their Registered office from one state to another state shall advertise the notice of shifting the registered office in a vernacular newspaper in the principal vernacular language in the district and in the English language in an English newspaper with the widest circulation in the State in which the registered office of the company is situated.

 

 

 

 

The Companies desirous to shift their Registered office from one state to another state can advertise the notice of shifting the registered office in a vernacular newspaper in the principal vernacular language in the district and in the English language in an English newspaper with the wide circulation in the State in which the registered office of the company is situated.

 

 

This will remove the confusion among the stakeholders with respect to publication of notice in the newspaper and they can choose the newspapers with minimum circulation as well.

 

Prior to amendment if any Company choose to publish in 2nd widest circulation newspaper, then the application would be rejected and this entails to start shifting process a fresh and this would take additional 3-5 months to complete.

 

With this relaxation, companies can choose among various newspapers which has wide circulation.

2. Fee on Incorporation of a Company The companies incorporated with a nominal capital of less than or equal to rupees ten lakhs, fee on INC-32 (SPICe) shall not be applicable. The companies incorporated with a nominal capital of less than or equal to rupees fifteen lakhs, fee on INC-32 (SPICe) shall not be applicable with effect from 18 March 2019. Earlier the Companies with initial authorised capital up to INR 10 lakh was exempted from any MCA fee on Incorporation and only stamp duty was applicable.

 

Now the exemption limit has been increased to INR 15 lakh. Therefore, Companies to be incorporated with nominal capital up to 15 lakh is exempted from MCA fee and stamp duty shall continue to be applicable.

 

Source: http://egazette.nic.in/WriteReadData/2019/199251.pdf

Ministry of Health and Family Welfare- Draft Amendment Rules to amend the Drugs and Cosmetics Rules, 1945.

The Ministry of Health and Family Welfare vide its notification dated 26th February 2019 has introduced the draft amendment rules to amend the Drugs and Cosmetics Rules 1945 inviting suggestions/comments from the public. The changes proposed are summarised below.

An additional condition has been imposed on certain applicants who wish to obtain licences under the Drugs and Cosmetics Rules, 1945. The applicants shall be required to furnish an undertaking stating that no similar brand names or trade names exist in the market which will lead to any deception or cause confusion in the market. This condition has to be satisfied by the applicants for obtaining the following licences:

  1. a loan licence[i] or renewal of a loan licence from the authority in Form 25, or a licence/ renewal of the licence for the manufacture of drugs included in Schedule X in Form 25-F.
  2. a licence for repacking of drugs, the drugs other than those specified in Schedule C and C(1), or renewal of the licence in Form 25-B.
  3. a loan licence for the manufacture of drugs for sale or for distribution of drugs other than the drugs specified in Schedule C, C(1), and X in Form 25A.
  4. a licence (in Form 28, 28-B or 28-D) to manufacture (or renewal thereof) for drugs specified in Schedules C and C(1), [excluding those specified in Part XB and Schedule X].
  5. a loan licence/ renewal licence (in Form 28A or 28DA) to manufacture for sale or for distribution drugs specified in Schedule C and C1 excluding drugs specified in Schedule X or of Large Volume Parenterals, Sera and Vaccine and recombinant DNA (r-DNA) derived drugs.

Sources:

  1. Explanation to Section 69 (A) (1) of the Drugs and Cosmetics Act, 1940- loan licence means a licence which the Licensing Authority may issue to an applicant who does not have his own arrangements for manufacture but who intends to avail himself of the manufacturing facilities owned by a licensee in Form 25.
  2. Draft Rules – http://egazette.nic.in/WriteReadData/2019/198746.pdf

 

Relaxations to FPIs and Companies under bankruptcy wrt ECB

Regulatory update: RBI’s Bi-Monthly Monetary Policy Statement grants important relaxations to FPIs and Companies under bankruptcy with respect to ECB

The Reserve Bank of India (RBI) on 7 February 2019 has issued its Sixth Bi-monthly Monetary Policy Statement (Monetary Policy Statement), for the current fiscal year 2018-19. The key relaxations announced for foreign investors are as follows:

  1. Relaxation to FPIs investing under the debt route:

Under the extant framework for FPI investment in corporate debt, the RBI’s A.P. (DIR Series) Circular No. 31 dated June 15, 2018 restricted an FPI from having more than 20% exposure of its total corporate bond portfolio, in the corporate debt market in a single corporate (including exposure to entities related to the corporate). Imposed with the aim of incentivizing FPIs to maintain a diverse portfolio of assets, existing FPIs were also given an exemption from this requirement till end of March 2019 to adjust their portfolios. However, the market feedback according to the RBI indicated that FPIs have been constrained by the earlier requirements, and relaxations were needed.

Accordingly, in order to encourage investment in the Indian corporate debt market, the RBI vide the Monetary Policy Statement, removed the abovementioned restriction and has declared that all FPIs shall henceforth again be permitted to invest any portion of its corporate bond portfolio in a single borrower entity. The Monetary Policy Statement indicates that RBI would issue a circular in this regard by mid-February 2019 to make it official.

The Monetary Policy Statement however did not provide any relaxation on the following key restrictions imposed vide the aforementioned A.P. (DIR Series) Circular No. 31 dated June 15, 2018:

  1. Investment by a single FPI or a group of related FPIs shall not exceed 50% of the issue size of a corporate bond; and
  2. At any point of time, a FPI’s investments in corporate / government bonds maturing within one year shall not exceed 20% of the FPI’s total portfolio in corporate / government bonds.
  1. Relaxation ECB framework norms on end-use restrictions for companies under bankruptcy:

Under the extant External Commercial Borrowing (ECB) framework, any borrowing proceeds from an ECB could not be utilized for repayment or for on-lending for repayment of domestic rupee loans. However, cognizant of the prospect that resolution applicants under Corporate Insolvency Resolution Process (CIRP) under Insolvency and Bankruptcy Code (IBC), 2016 might find it attractive to borrow abroad to repay the existing lenders, the RBI has decided to relax the end-use restrictions for resolution applicants under the CIRP.

Further under A.P. (DIR Series) Circular No. 18 also dated 7 February 2019 the resolution applicants, who are otherwise eligible borrowers, have been allowed to raise ECBs from recognised lenders, except the branches/ overseas subsidiaries of Indian banks, for repayment of Rupee term loans of the target company under the approval route.

Sources:

  1. Sixth Bi-monthly Monetary Policy Statement for the current fiscal year 2018-19: https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=46237
  2. P. (DIR Series) Circular No. 18 date February 07, 2019: https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11472&Mode=0