Tag Archives: bankruptcy bill

Startup India – announcements of many initiatives

Action Plan on Startup India: A Brief Overview

Startup India Action Plan (“Action Plan”), launched by Prime Minister Narendra Modi on 16 January 2016, is part of a flagship initiative of the Government of India for boosting the startup ecosystem in India that will drive sustainable economic growth, generate large scale employment opportunities. It aims to accelerate spreading the startup movement in existing tier 1 cities to tier 2 / tier 3 cities, semi urban and rural areas, in a wide range of sectors, varying from digital/technology sector to agriculture, manufacturing, social sector, healthcare, education, etc. In the recent years, India has witnessed a dynamic trend of people with no or little business background emerging to be the new age entrepreneurs.  The upsurge has had a massive outreach and the impact has been the launch of the “Startup India: Stand up India” campaign, followed by the detailed 19 point Action Plan that interestingly is an unprecedented move even in comparison to other strong startup ecosystems of the world and as pointed out by Masayoshi Son, Chairman and CEO of Softbank, “this is the beginning of a Big Bang for India”.

The word ‘startup’ has been around for quite some time now and it comes as a relief that the Action Plan, for the first time, defines ‘startup’, albeit for the purpose of government schemes only. The definition reads as follows:-

“Startup means an entity, incorporated or registered in India not prior to five years, with annual turnover not exceeding INR 25 crore in any preceding financial year, working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

Provided that such entity is not formed by splitting up, or reconstruction, of a business already in existence.

Provided also that an entity shall cease to be a Startup if its turnover for the previous financial years has exceeded INR 25crore or it has completed 5 years from the date of incorporation/registration.

Provided further that a Startup shall be eligible for tax benefits only after it has obtained certification from the Inter-Ministerial Board, setup for such purposes.” (Emphasis supplied)

The definition is important in order to understand the eligibility criteria for the various benefits that the Action Plan talks about. However, what remains to be seen is how the definition gets formalized by way of a statute or notification and how the concerned authorities, for example the Inter-Ministerial Board, interprets “working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property” for the purposes of certification. Usage of words such as “new” may open up dialogues on what may be considered as new and what should be the criteria for determining “new”.

Broadly, the Action Plan talks about schemes and initiatives to be undertaken in four major categories:-

(a) Ease of doing business: For easing operational aspects of the workings of a newly incorporated company

  • compliance regime based on self-certification with labour laws and environment laws;
  • no suo motu inspection with respect to labour law compliances for the first 3 years
  • only random checks in ‘white category’ startups with respect to environmental law compliances;
  • mobile app to provide on-going accessibility for registering startups, tracking the status of the registration application, filing for compliances and obtaining information, etc.;
  • legal support and fast tracking patent examinations; 80% waiver of patent filing fees;
  • relaxed norms for public procurement;
  • faster exits,
  • income tax exemption for a period of 3 years,
  • extension of capital gains tax exemption to ‘computer or computer software’)

(b) Funding: For enhancing funding support through a Fund of Funds with an initial corpus of INR 2,500 crore and a total corpus of INR 10,000 crore and through credit guarantee fund via National Credit Guarantee Trust Company/SIDBI with a budgetary corpus of INR 500 crore per year for the next four years; extension of exemption from Section 56(2)(viib) of the Income Tax Act 1961 to investments made by incubators above fair market value; seed funding to potentially successful and high growth startups;

(c)  For promoting visibility through national and international fests and encouraging innovation through national and state level awards; and

(d) Programs and Centres: For structuring and enhancing the startup ecosystem through various programs such as Atal Innovation Mission (AIM), Self-Employment and Talent Utilization (SETU), Innovation core program in schools and establishment of Startup India Hub, 500 tinkering labs, incubators, innovation centers and Research Parks.

In the inaugural speech, the Prime Minister has also made special mention of the lack of patent experts/lawyers as the patent protection remains one of the biggest concern of newly incorporated companies working in the fields of innovation and technology. As such, the Action Plan talks about fast tracking mechanisms to exclusively cater to startup patent applications in order to protect the intellectual property rights of startups at an early stage. Another key highlight of the Action Plan is the panel of facilitators and lawyers to assist startups in filing and disposal of patent applications. Government shall bear the entire fees of the facilitators for any number of patents, trademarks or designs that a startup may file.

Overall, the Action Plan goes a long way in identifying the various problems persistent in the startup ecosystem today and aims to bring thousands of entrepreneurs from across India into this discourse and force the growth of a transformed, diversified and inclusive economy.

Introduction of the Insolvency and Bankruptcy Bill, 2015 (Read more at https://novojuris.com/2015/12/28/bankruptcy-bill-2015/) and recent announcements by the Reserve Bank of India of incentives to ease business norms and drive growth in the ecosystems, which inter alia include:

  • creation of a dedicated mailbox to provide assistance and guidance to the startup sector,
  • permitting receipt of deal value on a deferred basis in case of a transfer of ownership of a startup,
  • accessing rupee loans under the External Commercial Borrowing framework with relaxations, etc., indicate the Government’s existing and ongoing commitment to actualizing the Action Plan.

However, it leaves one wanting for more answers with respect to how the various actions points will be formalized and implemented by the concerned authorities and the timelines that we are looking at, amongst other things. The nuances that may be associated with ‘simple’ form for registering startups and the practical aspects of uploading documents for registration through a Mobile App; executing faster exits in 90 days; allocating funds for the announced rebates; effective management of the Fund of Funds and strategizing rollover of its profits are some of the questions that loom large. However, ambitious times call for ambitious ventures and the Action Plan certainly has opened up a whole new horizon.

Bankruptcy Bill, 2015

The Government introduced the Insolvency and Bankruptcy Bill, 2015 in Parliament on Monday (21/12/15). The current bankruptcy code in India and contains archaic laws and is spread out over multiple legislations. Due to this, India was ranked as the 136th best country for ease of conducting insolvency proceedings, as per the World Bank ranking earlier in 2015. Further, it is ranked as the 130th best country for ease of doing business, as per the same rankings (out of 180 countries). This Bill seeks to streamline the law according to global standards, making it easier to wind up or liquidate a company (both voluntarily and involuntarily), attract investment, promote entrepreneurship and push India higher in World Bank rankings. It has also been certified as a Money Bill, preventing the Rajya Sabha from stalling it, and providing for its quicker passage (a more detailed explanation of Money Bills is given at the end of the article). The important features of the Bankruptcy Code are as follows:

1.) It will amend and consolidate all bankruptcy laws and rules prevalent in other legislations (Companies Act, 2013, Sick Industrial Companies Act, 1985, and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) to become the overarching bankruptcy law.

2.) It covers individuals, companies, limited liability partnerships and partnership firms.

3.) It lays down a time limit within which the proceedings must be completed – 180 days from the date of admission of the application. This period can be extended by 90 days by the relevant authority, if it determines that “the case is of such complexity that an orderly corporate insolvency resolution process cannot be completed within one hundred and eighty days.”

4.) This time limit can be cut down to 90 days through a fast-track procedure available for some key categories.

5.) It provides for insolvency professionals who will specialize in helping sick companies. It also provides for information utilities that will collate all information about debtors to prevent serial defaulters from misusing the system.

6.) It seeks to establish an Insolvency and Bankruptcy Fund.

7.) It also provides for the creation of an Insolvency and Bankruptcy Board (the Insolvency Regulator) for regulating insolvency professionals, insolvency professional agencies and information utilities.

8.) The above Regulator will be comprised of the following authorities:

  • An Insolvency Adjudicating Authority, which will have the jurisdiction to hear and dispose of cases by or against the debtor;
  • A Debt Recovery Tribunal, which will have jurisdiction over individuals and unlimited liability partnership firms; and
  • A National Company Law Tribunal, formed under the Companies Act, 2013, which will have jurisdiction over companies and limited liability entities (Note: the SC in Madras Bar Association v. Union of India and Anr. (WP(C) No. 1072/2013), decided on May 14, 2015, upheld the constitutional validity of the NCLT and NCL Appellate Tribunal. These Tribunals will replace the Company Law Board, the Board of Industrial and Financial Reconstruction, the Appellate Authority for Industrial and Financial Reconstruction and the Company Courts in the jurisdictional High Courts. However, the NCLT and NCLAT are yet to be constituted).

9.) If any of the above forums fail to complete a process of insolvency before them within the stipulated timeline (clause 3 & 4), then the President of the forum is required to record in writing the reasons for the same.

10.) The “corporate insolvency resolution process” may be initiated by the following:

  • A financial creditor, meaning a creditor for financial facility. In this case, the basis of filing is the fact of a default to any financial creditor. This drastically changes the basis of the current provisions of “sickness” under the Companies Act, which is based on default to a majority in value of the creditors;
  • An operational creditor, meaning a creditor other than a financial creditor. Here, if there is no dispute as to a debt, and it isn’t paid within 10 days, the creditor can initiate an insolvency proves. This creates a level playing field between secured and unsecured creditors; and
  • The corporate debtor himself – the company.

11.) The Code provides for a mandatory moratorium, preventing individual creditors from taking action or selling assets, giving the courts and the company time to attempt rehabilitation. This moratorium lasts for all 180 days of the process. Previously, the Company Law Tribunal could only grant a moratorium of 120 days if it so chose – it was not mandatory.

12.) During the insolvency process, if the creditors and members resolve to voluntarily liquidate the company, then the moratorium does not apply.

Money Bill

Art. 110 of the Constitution of India, 1949, defines a Money Bill. As per this article, a Bill is a Money Bill if it contains only provisions dealing with all or any of six specific matters (Article 110 (1)(a) to (1)(f)), which are broadly related to:

  1. Imposing, abolishing or regulating a tax;
  2. Regulating government borrowings;
  3. The Consolidated and Contingency Funds of India; and
  4. Any matter incidental to any of the matters specified in the previous sub-clauses (Article 110(1)(g)).

A Money Bill can be introduced only in the Lok Sabha (Art. 109(1)), and only with the prior permission of the President. In case any question arises as to whether a Bill is a Money Bill or not, the decision of the Speaker of the Lok Sabha on this matter is final (Art. 110(3)). Once it is passed in the Lok Sabha, the Money Bill goes to the Rajya Sabha for its recommendation (along with a certificate from Speaker stating that it is a Money Bill). Unlike regular/non-money bills, Money Bills are not subject to the approval of both houses. The Rajya Sabha cannot reject or stall the Money Bill, but can only give its recommendations and return the amended Money Bill to the Lok Sabha (Art. 109). Further, as per Art. 109 (5) if the Rajya Sabha does not return the Money Bill to the Lok Sabha within 14 (fourteen) days, it is considered as passed by both houses of Parliament. If the Money Bill returns on time, the Lok Sabha can either incorporate some or all of the changes proposed by the Rajya Sabha, or reject all of them. Once the Money Bill has gone through the Lok Sabha a second time, it is deemed to be passed by both houses. Lastly, the President cannot send the Money Bill back to the Lok Sabha for consideration, as it was initially introduced with his/her permission.