Legal and regulatory developments in the country included changes to the foreign direct investment policy, changes to the foreign investment regime, and a new platform for sexual harassment complaints by employees. Labour laws were also reformed and simplified, as well as the new trademark rules, which reduced the number of required forms to just eight.
India witnessed the following significant and substantive changes to law in 2017, in keeping with the current government’s aim to reform India’s laws to create a conducive and investor-friendly business environment.
The Supreme Court of India in a landmark decision[1] recognised the right to privacy as a fundamental right guaranteed by the Indian Constitution. The Supreme Court held that the right to privacy is part of the right to life and personal liberty under Article 21 of the Constitution and other fundamental rights in Part III of the Constitution. As a constitutional right, the right to privacy is now an inviolable right against the state and instrumentalities of the state.
Under the 2017 foreign direct investment (FDI) policy, a company or limited liability partnership (LLP) having FDI can respectively convert into an LLP and a company provided it operates in sectors where 100% FDI is permitted under the automatic route (i.e., no prior government approval is required) and there are no FDI-linked performance requirements. In addition, prior approval from the Reserve Bank of India (RBI) is no longer required for the establishment of a branch office, liaison office, or project office if certain conditions are met.
With recent changes to the FDI policy, 100% FDI is now permitted in the defence sector, with 49% FDI being permitted under the automatic route and holdings in excess of 49% FDI permitted under the government route (i.e., prior government approval is required), subject to certain conditions. In the pharmaceutical sector, 100% FDI is now permitted in brownfield projects, with up to 74% FDI being permitted under the automatic route and holdings in excess of 74% FDI under the government route, subject to certain conditions. In the broadcasting sector, 100% FDI is permitted under the automatic route.
The RBI has replaced the Foreign Exchange Management (Transfer and Issue of Security by a Person Resident Outside India) Regulations, 2000 with the Foreign Exchange Management (Transfer and Issue of Security by a Person Resident Outside India) Regulations, 2017 (2017 Regulations). The 2017 Regulations clarify a wide range of issues and ambiguities that existed previously, making clear that foreign venture capital investors are permitted to invest in non-convertible instruments and that only listed companies can issue warrants to non-resident persons. According to the 2017 Regulations, delays in making filings such as Form FCGPR and Form FCTRS in respect of share issuances or transfers will not affect title to the underlying securities, but will only attract late fees, as determined by the RBI.
In a year that saw global outrage against sexual harassment, the Ministry of Women and Child Development (MWC) launched an online platform, SHe-box, where female employees and visitors can raise complaints of sexual harassment in the workplace, be it in the private or public sector. SHe-box is intended to provide an efficient mechanism for redress for victims of sexual harassment.
In 2017 the Indian government simplified labour laws by undertaking several reforms. The Payment of Gratuity (Amendment) Bill, 2017 was approved by the Union Cabinet and seeks to increase the upper ceiling on payment of gratuity under the Payment of Gratuity Act, 1972 (PGA) from the current limit of INR 1,000,000 to INR 2,000,000. The wage ceiling was also enhanced under the Payment of Wages Act, 1936 (PWA), from INR 18,000 per month to INR 24,000 per month. The government also introduced the Labour Code on Wages Bill, 2015, which seeks to simplify and consolidate four critical legislations, namely, the PWA; the Minimum Wages Act, 1984; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976. The Maternity Benefit Act, 1961 was amended to increase the duration of paid maternity leave from 12 weeks to 26 weeks, among other changes.
The Trade Mark Rules, 2017 repealed and replaced the Trade Mark Rules, 2002. The new rules have reduced and simplified the number of required forms/applications from more than 70 forms to just 8 forms. A claim of “prior use” has been made more stringent with the requirement of relevant supporting documents including affidavits. The registration process for a trademark application has been expedited, and making an application for well-known marks is now possible, subject to certain requirements.
The Ministry of Corporate Affairs (MCA) notified Section 234 of the Companies Act, 2013 (2013 Act), which deals with cross-border mergers. Following this notification, India now permits cross-border mergers, where a foreign company merges with an Indian company or an Indian company merges with a foreign company (incorporated in a permitted jurisdiction, as specified in the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016). Prior to this, only the merger of a foreign company with an Indian company was permitted. The MCA has also notified additional exemptions for private companies and startups under the 2013 Act. The 2013 Act seeks to regulate the number of layers of subsidiaries through which investments can be made by companies. In connection with this, the MCA notified the Companies (Restriction on Number of Layers) Rules, 2017, which set out the category of companies which are not permitted to have more than two layers of subsidiaries.
Under the Competition Act, 2002 (2002 Act), parties to a combination were required to file a notification with the Competition Commission of India (CCI) within 30 days of the execution of the trigger documents. Failure to do so elicited a penalty of up to 1% of the higher of the total assets or the turnover of the combination. Following an amendment to this requirement, parties to a combination are now exempt from filing such notification within 30 days, and this exemption is applicable for a five-year period (i.e., until 28 June 2022).
Structural changes to the institutions under the 2002 Act also took place, with the Competition Appellate Tribunal (COMPAT) being made redundant. The COMPAT was previously the appellant body for all appeals from the orders of the CCI. This function has now been transferred to the National Company Law Tribunal.
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[1] Justice K.S. Puttaswamy (Retd.) & Anr.v. Union of India & Ors.,WP (CP) 494 of 2012.