Lost in Layers: lower threshold for subsidiaries under ODI norms raises concern

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Vinita Nair, Senior Partner | Vinod Kothari & Company | corplaw@vinodkothari.com

It is quite common for entities to have subsidiaries in India and outside India in order to undertake business activities. The norms for incorporating a subsidiary in India is mainly governed by provisions of Companies Act, 2013 (‘CA, 2013’) and also the FDI norms for investment in the non-debt instruments, where the investment is being made by a person resident outside India. Similarly, the norms for incorporating a subsidiary outside India is mainly governed by provisions of CA, 2013 and also ODI norms for investment in the non-debt instruments. Additionally, there is a concept of restriction on layers of subsidiaries, prescribed under CA, 2013 and also under the new regime, which has raised cause of concern as well as confusion among India Inc., which is intended to be addressed by the author in this article. 

RBI, effective from August 22, 2022 notified norms on Overseas Investment (‘OI’) in the form of OI Rules, OI Regulations and OI Directions. Read our article on the overview of the OI norms here. Our presentation can be accessed here.

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Key Takeaways – Conference on Secondary Markets in Distressed Loans | August 24, 2022

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Conference Homepage: https://vinodkothari.com/conference-on-secondary-markets-in-distressed-loans/

Presentation on Securitisation of NPL used during the Conference: https://vinodkothari.com/2022/04/securitisation-of-non-performing-loans/

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Revised ODI Norms: A step towards greater clarity & liberalization?

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FCS Vinita Nair | Senior Partner, Vinod Kothari & Company | corplaw@vinodkothari.com

Investments by Indian entities outside India is a very common phenomenon and several companies have presence outside India by virtue of forming a Joint Venture (‘JV’) and Wholly Owned Subsidiaries (‘WOS’). While the intent is to permit investment overseas, however, with reasonable fetters to ensure that money is not siphoned outside India. Hence, the prescribed limits along with approval and reporting requirements.

With the enforcement of amendment proposed in Finance Act, 2015 in October, 2019[1] powers vested with Central Government (CG) and Reserve Bank of India (RBI) with respect to permissible Capital Account Transaction were revisited. Power to frame rules relating to Non-Debt instruments (‘NDI’) were vested with CG and to frame regulations relating to debt instruments were vested with RBI. The scope of NDI inter alia covers all investment in equity instruments in incorporated entities: public, private, listed and unlisted; acquisition, sale or dealing directly in immoveable property.

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Structured Digital Database: some emerging concerns

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– Corplaw Division, Vinod Kothari & Company (corplaw@vinodkothari.com)

Maintenance of Structured Digital Database (“SDD”) has been mandatory since April 1, 2019 in view of the relevant provisions under the SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’) reproduced below. The provisions inter-alia stipulates the responsibility, the details to be captured in the SDD, manner of maintenance and the preservation period. The entities  have been maintaining for the last 3 years, however, since quarter ending June 30, 2022 the entities are additionally required to submit a compliance certificate, based on the email received from the stock exchanges where its securities are listed, duly certified by the Compliance Officer. We have been given to understand that this submission will be mandated on a quarterly basis and the same will henceforth required to be submitted duly certified by a practising company secretary. As on date, no SEBI circular or Exchange circular has been issued in this regard.

The last date for submission for the immediately preceding quarter was August 9, 2022. Based on the client queries received in this regard, format of the compliance certificate provided by the stock exchange and the views from the representatives of SEBI and stock exchanges as expressed in seminars from time to time, we intend to highlight certain points of concerns for your kind consideration.

Relevant provisions of Law:

Reg. 3 (5) and (6) of PIT Regulations:-

(5) The board of directors or head(s) of the organisation of every person required to handle unpublished price sensitive information shall ensure that a structured digital database is maintained containing the nature of unpublished price sensitive information and the names of such persons who have shared the information and also the names of such persons with whom information is shared under this regulation along with the Permanent Account Number or any other identifier authorized by law where Permanent Account Number is not available. Such database shall not be outsourced and shall be maintained internally with adequate internal controls and checks such as time stamping and audit trails to ensure non-tampering of the database.

(6) The board of directors or head(s) of the organisation of every person required to handle unpublished price sensitive information shall ensure that the structured digital database is preserved for a period of not less than eight years after completion of the relevant transactions and in the event of receipt of any information from the Board regarding any investigation or enforcement proceedings, the relevant information in the structured digital database shall be preserved till the completion of such proceedings.

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Profile of Speakers – Conference on Secondary Markets in Distressed Loans | August 24, 2022

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Conference Home Page can be viewed here: https://vinodkothari.com/conference-on-secondary-markets-in-distressed-loans/

Click here to view the detailed agenda: https://vinodkothari.com/2022/08/agenda-conference-on-secondary-markets-in-distressed-loans/

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Agenda – Conference on Secondary Markets in Distressed Loans | August 24, 2022

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Conference Home Page can be viewed here: https://vinodkothari.com/conference-on-secondary-markets-in-distressed-loans/

Profile of speakers: https://vinodkothari.com/2022/08/speaker-profile-conference-on-secondary-markets-in-distressed-loans/

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Samagrata – July 2022

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FAQs on Digital Lending Regulations

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Updated on February 15, 2023

The RBI had constituted a Working Group on digital lending including lending through online platforms and mobile apps on January 13, 2021[1]. The Working Group (‘WG’) submitted its report and the same was published by the RBI on November 18, 2021[2] (‘Report’).

On August 10, 2022, the RBI issued a press release on implementation of the recommendations of the WG. The press release contains three annexures that are either applicable immediately or may be applicable in due course. Through the press release, RBI seeks to implement the recommendations and suggestions of the WG on digital lending.

Further, the RBI has issued the Guidelines on Digital Lending on September 2, 2022 (‘Guidelines’). The text of the Guidelines is largely similar to the press release, with certain modifications and insertions of footnotes.

We have developed a set of FAQs on the press release and updated the same based on the Guidelines issued by RBI, where we intend to answer some of the critical questions relating to the digital lending regulatory framework.

The following FAQs have also been updated in line with the RBI FAQs dated February 14, 2023.

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Workshop on Digital Lending Regulations: Issues and implementation

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Registration link: https://forms.gle/HpwzTm7upwLPLQKx8

Our write-ups on the topic:

  1. FAQs on Digital Lending Regulations
  2. RBI Regulations on Digital Lending: FLDGs come under regulatory ambit
  3. Debugging the Digital Lending Domain

Governance by technology: The future of corporate governance

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– Pammy Jaiswal, Partner and Payal Agarwal, Senior Executive | corplaw@vinodkothari.com

‘Corporate governance’ (‘CG’) is difficult to define but easy to describe. It is understood by the principles and practices that are comprised in it, under regulations, standards and best practices. Corporate governance continues to evolve, for reasons not difficult to understand. First, companies, over time, have become immensely powerful in an ever-integrated and networked economy. Two, experience with operation of companies over time have given precedents of misuse of managerial power,  conflicts of interest, opacity in reporting, lack of balance in meeting diverse stakeholder needs, and lately, ESG concerns. Every major corporate scandal leads to a fresh thinking on corporate governance principles, which is quite understandable for an adaptive process. The key objectives of corporate governance are accountability, transparency, objectivity, responsibility, etc. Globally, the concept of CG has been explained widely, just as under the OECD Principles on Corporate Governance[1] explains it to be ‘a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.’  Further, the UK Corporate Governance Code 2018[2] also refers to the definition coined by the Cadbury Committee which defined the aforesaid term to mean ‘the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place.’

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