News Summary

FAQs on Social Stock Exchange

As mentioned in our previous issue of newsletter, a new chapter on Social Stock Exchange (“SSEs”) has been included in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. Therefore, the concept of Social Stock Exchange is all set to gain momentum in the country with the securities market regulator having given its nod for laying down a robust framework for the same.

Sreenivasan Narasimhan, Senior Associate has compiled a note on SSEs in the form of FAQs. Give it a read to understand everything about the emerging concept of SSEs.

11 minutes is all it takes to read the note!

Open FAQs on SSE

MCA Updates

Books of Accounts in Electronic Mode

MCA vide Notification dtd August 05, 2022 has notified the Companies (Accounts) Fourth Amendment Rules, 2022. The following changes regarding the manner of maintaining books of accounts in electronic mode have been notified: –

  1. Accessibility – The amended rules requires that the Books of Accounts and other relevant books and papers maintained in electronic mode shall be accessible in India at all times. The words ‘at all times’ have been added which signifies that the companies which are maintaining their books of accounts in electronic mode will have to ensure a robust system is in place.
  2. Periodicity of Back-up – The back-up of Books of Accounts and other relevant books and papers maintained in electronic mode including at a place outside India into the servers located in India should be done on daily basis instead of periodic basis.
  3. Additional Intimation to ROC – Where the service provider is located outside India, the name and address of the person in control of the books of account and other books and papers in India shall be intimated to the Registrar at the time of annual filing in addition to other particulars provided in Rule 3(6) of Companies (Accounts) Rules, 2014.
Open Notification No. G.S.R. 624(E) dtd. August 05,2022

Physical verification of Registered Office by ROC

MCA vide Notification dtd August 18, 2022 has notified the Companies (Incorporation) Third Amendment Rules, 2022. Rule 25B w.r.t physical verification of the Registered Office of the company in terms of the provisions of Section 12(9) of the Companies Act, 2013 has been inserted vide the amendment. The following aspects are covered in the Rules:-

  • manner of conducting the verification by the Registrar of Companies
  • format of verification report
  • the manner for initiating removal of name of the company if the registered office is found to be incapable of receiving and acknowledging all communications and notices.
Open Notification No. G.S.R. 643(E) dtd. August 18,2022

Notice for Strike off of Companies

MCA vide Notification dtd August 24, 2022 has notified the Companies (Removal of Names of Companies from the Register of Companies) Second Amendment Rules, 2022. The notice for strike off issued by ROC in STK-1 and public notices in STK-5 and STK-5A have been amended to include the provisions of Section 12(9) as one of the grounds for strike off of companies by the ROC.

Open Notification No. G.S.R. 658(E) dtd. August 24,2022

RBI Update

Overseas Investment Regulations and Rules

The Foreign Exchange Management (Overseas Investment) Rules, 2022 and Foreign Exchange (Overseas Investment) Regulations,2022 have been notified on August 22, 2022 along with the RBI Foreign Exchange Management (Overseas Investment) Directions, 2022 which contains the significant provisions in the new overseas investment regime. Highlights are as below:-

  • The terms Overseas Direct Investment (“ODI”), Overseas Investment and Overseas Portfolio Investment(“OPI”) have been defined in the rules.

  • Concept of Joint Venture and Wholly Owned Subsidiary substituted with the concept of “foreign entity”

  • Definition of strategic sector introduced to enable overseas investments in certain sectors above the specified limits. Strategic sector includes energy and natural resources sectors such as oil, gas, coal, mineral ores, submarine cable system and start-ups or such other sector as may be notified.

  • The concept of Indian Party where all the investors from India in a foreign entity were together considered as Indian Party has been substituted with the concept of Indian Entity where each investor entity will be considered separately.

  • Approval from RBI done away with for following cases:-

    1. deferred payment of consideration;
    2. investment/disinvestment by persons resident in India under investigation by any investigative agency/regulatory body;
      However, a No Objection Certificate from the concerned investigating agency or regulatory body is required to be obtained.
    3. issuance of corporate guarantees to or on behalf of second or subsequent level step down subsidiary (SDS);
    4. write-off on account of disinvestment;
  • Acquisition of foreign securities by way of gift without any limit can be made only from those persons resident outside India who are relatives of resident individual. The provisions of Foreign Contribution (Regulation) Act, 2010 shall apply in other cases of acquisition of foreign securities by way of gift from other persons outside India.
  • ODI in start-ups recognized as per laws of host country can be made only from internal accruals of Indian entity or its group or associate companies in India and from own funds in case of individuals.
  • Scope of definition of Financial Commitment widened and specific provisions for financial commitment by Indian entities other than by way of equity capital.
  • Prohibition on making financial commitment in a foreign entity that has directly or indirectly invested or would invest in India which will result in a structure with more than two layers of subsidiaries. Exemption available to those companies for which the restriction of layers does not apply as per Rule 2(2) of Companies (Restriction on Number of Layers) Rules, 2017.
  • Concept of Late Submission Fee introduced for delay in reporting.
Open RBI Notification No. FEMA 400/2022-RB dtd. August 22,2022

Open Notification No. G.S R 646(E). dtd August 22, 2022

Open RBI Master Direction- RBI/2022-2023/110 dtd August 22, 2022

SEBI Updates

Enhanced Guidelines for Debenture Trustees and Listed Issuer Companies on Security Creation and Initial Due Diligence

SEBI vide Circular dtd August 04, 2022 has revised the requirements relating to encumbrance, creation of security and related due diligence undertaken by Debenture Trustees(“DTs”). Highlights of the enhanced guidelines are covered in the attachment to newsletter.

Open Highlights to Circular

Open SEBI Circular No. SEBI/HO/DDHS/DDHS_Div1/P/CIR/2022/106 dtd August 04, 2022

Framework for restricting trade by Designated Persons

SEBI vide its Circular dtd August 05, 2022 has mandated the implementation of a system-driven framework for restricting trade by Designated Persons (“DPs”) in terms of SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”). As per the circular, the Stock Exchanges and Depositories of listed companies are required to develop and implement a system-driven restriction on trading by DPs by freezing their PAN at security level. The process for implementation of such system is explained in the annexure to the said circular. The provisions of the circular are effective from the quarter ending September 30, 2022 and shall be implemented in a phase wise manner.

In the initial phase, the provisions of the circular will be applicable to :-

  • the declaration of financial results of the listed company that is or was part of benchmark indices i.e., NIFTY 50 and SENSEX from the date of implementation of this circular
  • the restriction on trading shall be for on-market transactions, off-market transfers and creation of pledge in equity shares and equity derivatives contracts (i.e., Futures and Options) of such listed companies.
Open SEBI Circular no. SEBI/HO/ISD/ISD-SEC-4/P/CIR/2022/107 dt August 05, 2022

Guidelines for overseas investment by Alternative Investment Funds (AIFs)/Venture Capital Funds (VCFs)

SEBI vide its Circular dtd August 17, 2022 has released guidelines for overseas investment by AIFs and VCFs. The investment by AIFs/VCFs in securities of companies incorporated outside India will be subject to conditions prescribed by RBI and SEBI from time to time. The requirement of overseas investee company to have an ‘Indian connection’ as specified by SEBI in guidelines issued earlier has been done away with. Other provisions are as follows:-

  1. Application to SEBI for allocation of overseas investment limit in the format specified in annexure to the circular.
  2. Overseas investee company must be incorporated in a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding or has signed bilateral MOU with SEBI.
  3. Prohibition to invest in Overseas investee company which is incorporated in a country identified by Financial Action Task Force as
    1. a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply
    2. a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with FATF to address the deficiencies.
  4. Trustee/Board/Designated Partners of AIFs/VCFs should submit an undertaking to SEBI with respect to the proposed overseas investment in the format specified in annexure to the circular.
  5. Sale proceeds from the liquidation of investment made in overseas investee company previously will be available for reinvestment.
  6. Transfer or sale of investment in overseas investee company shall be subject to provisions under Foreign Exchange Management Act, 1999.
  7. Details of sale/disinvestment of overseas investment to be furnished to SEBI within 3 working days of disinvestment in specified format to email address specified in the circular.
  8. Detail of overseas investment sold/disinvested by AIFs/VCFs till date shall be reported to SEBI in specified format by September 15, 2022.
Open SEBI Circular no. SEBI/HO/AFD-1/PoD/CIR/P/2022/108 dt August 17,2022

GST Update

Revision in threshold limits for issuing e-invoice under GST

The threshold limit for issuing e-invoice has been revised from Rs. 20 Crores to 10 Crores.The Central Board of Indirect Taxes and Customs (CBIC) vide Notification dtd August 01,2022 has notified that w.e.f from 1st October, 2022, every registered taxable person whose aggregate annual turnover exceeds Rs. 10 Crores in any financial year since 2017-18 shall issue E-Invoice as specified under the Goods and Services Tax (GST) laws.

The registered person who is required to issue E-Invoice shall upload tax invoice in JSON file on Invoice Registration Portal (IRP) in accordance with e-invoice schema in INV-01 and shall receive digitally signed JSON from IRP with IRN and QR Code.

Open CBIC Notification no. 17/2022-Central Tax dtd August 01,2022

Applicability of GST on liquidated damages, compensation and penalty arising out of breach of contract or other provisions of law

The Department of Revenue under Ministry of Finance has issued a circular clarifying the applicability of GST on liquidated damages, compensation and penalty arising out of breach of contract or other provisions of law as follows:-

Liquidated damages paid for breach of contract.

Not liable to GST if this is charged for :-
(a) not tolerating breach of contract
(b) it is a deterrent for non-performance
(c) money flows from the person causing the breach to the party who suffers loss
(d) it is an event in the course of performance management.

Compensation given to previous allottees of coal blocks for cancellation of their licenses pursuant to Supreme Court Order.

The said compensation cannot be treated as a service of agreeing to or tolerating the cancellation as the compensation was not under the contract of an agreement between the prior allottees and the government but under the provision of statute and in pursuance of Supreme Court order. Hence it is not taxable.

Cheque dishonour fine/penalty charged by a power distribution company from the customers.

Not liable to GST as this is charged as a deterrent for dishonour/bouncing of cheques.

Penalty paid by a mining company to State Government for unaccounted stock of river bed material.

It was clarified vide Circular No. 192/02/2016-Service Tax, dated 13.04.2016 that fines and penalty chargeable by Government or a local authority imposed for violation of a statute, bye-laws, rules or regulations are not leviable to Service Tax. The same holds true for GST also.

Bond amount recovered from an employee leaving the employment before the agreed period.

Salary forfeited, or the bond amount paid by the employee in the event of leaving of employment before the minimum agreed period, is not taxable as consideration for the service of agreeing to tolerate an act or a situation. Further, the employee does not get anything in return from the employer against payment of such amounts.

Late payment charges collected by any service provider for late payment of bills.

Since it is ancillary to and naturally bundled with the principal supply such as of electricity, water, telecommunication, cooking gas, insurance etc., it should be assessed at the same rate as the principal supply.

Fixed charges collected by a power generating company from State Electricity Boards (SEBs) or by SEBs/DISCOMs from individual customer for supply of electricity.

Both fixed and variable charges towards electricity are exempt from GST.

Cancellation charges recovered by railways for cancellation of tickets, etc.

Taxable at the same rate as the principal supply
Open CBIC Circular no. 178/10/2022-GST dtd August 03,2022

Clarification on GST Rates & exemption

Based on the representations received from stakeholders, the CBIC has issued a circular on August 03, 2022 to clarify regarding the rates of GST applicable and exemptions from GST on various transactions. A brief summary of the same is enclosed to the newsletter.

Open Summary

Open CBIC Circular no. 177/09/2022-TRU dtd August 03, 2022