DYNAMISM ATTRIBUTABLE TO REVAMPED CORPORATE LEGISLATION

Anjali Malhotra, Partner, Nangia Andersen LLP, with inputs from Komal Bhola

The global economy has evolved at such a pace that corporate laws too have broadened their horizons to multidimensional levels thereby rationalizing legislation. This constant change in the environment of market and legislation is resulting in new business avenues tied with regulatory challenges.

The last ten years, from 2014 to 2024, have been crucial for the Indian economy. India is now the fifth-largest economy globally and is poised to climb to third place, behind USA and China. This growth is reflected in the country’s rising Ease of Doing Business (EoDB) rankings. Also, according to the Doing Business report of the World Bank published in October 2019, India jumped from 142 to 63 rank in five years only, which is quite remarkable.

For promoting Ease of Doing Business initiatives which requires a business-friendly environment, the Department for Promotion of Industry and Internal Trade (DPIIT) has a significant role to play. DPIIT coordinates with other Ministries, Departments, and States/UTs to lighten compliance requirements for citizens and businesses. The idea is to reduce compliance burden by breaking down process barriers through simplification, rationalization, digitisation and bring in self-governance in order to further accentuate Ease of Doing Business.

Steps focussed towards business easing involve filing of singe application for multiple registrations, such as PAN, TAN, DIN, EPF, ESIC, GSTIN, and establishment of National Single Window System (NSWS) for seeking all necessary approvals for establishment of business enterprises at both state and central levels at one place.
The long-awaited four labour codes are also likely to be implemented soon. The new codes will subsume 29 existing labour laws in India protecting and enhancing workers’ rights & welfare. Till date, 25 out of 28 Indian States and Union Territories have finalised the draft rules.

With regard to Foreign Direct Investment (‘FDI’) in India, DPIIT introduced Press Note 3 (PN3) in 2020 with an objective of curbing opportunistic takeovers and acquisitions of Indian entities. The PN3 mandates prior Government approval in case investment is being made by an entity of a country sharing land border in India, or where the beneficial owner of the investment being made is situated/ is a citizen of such country.

The Government has made progress towards decriminalization of offences for attaining further ease on doing business in India. On 11 August 2023, the Jan Vishwas (Amendment of Provisions) Act, 2023 was notified. The Act decriminalized 183 provisions of 42 Central Acts administered by 19 Ministries/Departments that were previously in force. The Act has a crucial role to play in rationalizing criminal provisions, enabling stakeholders to function without the fear of imprisonment for the violation of minor, technical or procedural requirements. Considering the notion ‘Change is constant’, the existing laws have been refined/ repealed from time to time to create an environment which adapt to the ever-changing needs of business.

Recently in October 2023, MCA made it compulsory for private companies (except small companies) to compulsorily dematerialise its securities. Unlisted public companies were already under the purview of this requirement since 2018. The intent behind such requirement is to restrict fake transfer of shares, back dated allotments & related litigations as well as keep a check on benami transactions. This will eventually help the Government in tracing shell companies and suo-moto striking off their names from the register of companies.

Further, certain provisions of the Competition (Amendment) Act, 2023 were implemented from 10 September 2024. One of the key changes is the reduction of the timeline for the Competition Commission of India (CCI) to approve combinations, from 210 days to 150 days. Additionally, the new “Deal Value” threshold has been introduced. This threshold is an additional criterion alongside the previous ones based on “asset” or “turnover” for acquisitions, mergers, or amalgamations. According to the amended provision, transactions with a deal value exceeding INR 2,000 crore that involve entities with significant business operations in India will require approval from the CCI. This change has been brought in to adapt to rapidly evolving digital markets which generally involves sharing of data, customer base, business approach which may be significant value.

In September 2024, MCA further introduced the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules thereby facilitating ‘reverse flipping’ for companies including start-ups, for entering back to India for taking advantage of local regulatory and tax benefits. With this, India has opened the doors for global companies under merger or amalgamation by way of obtaining prior approval of the Reserve Bank of India.

Another significant initiative by the Government is Product Linked Incentive (‘PLI’) Scheme which was started to encourage domestic players and entrepreneurs by providing them subsidies and incentives from the State/ Central Government for the purpose of boosting local production in specific sectors. This initiative has also led to a boost in the economic growth of the nation.

As we know that corporate law plays a crucial role in governing the activities of both domestic as well as foreign entities which seek to extend their operations in India. In view of the continuous advancements in the economy as well as technological innovations, the phase of corporate law and advisory services is also rapidly evolving and its significance has only upgraded with time. These services which are generally considered as cost centre for businesses are now a crucial part to reduce its costs (including legal penalties) thereby increasing the revenue. The overall approach for changes in various legislations aims at ease of doing business, embrace the changes in global economy and bring transparency.

We, Nangia Andersen, are a top provider of corporate advisory services in India, delivering high-end solutions designed specific to ensure efficiency. Nangia Andersen is a trusted partner for businesses seeking expert guidance and reliable support in managing their compliances effectively. The firm’s dedicated Regulatory Services practice has been working across central and state regulations including Sectoral Regulations, Foreign Direct Investment Policy, Corporate & Secretarial Laws, Exchange Control Regulations, Specific Fiscal Incentives for over twenty years. Its specialist team has the aptitude to cater to needs of the businesses in the regulatory space across sectors and geographies.