Recent developments in the legal arena in India
A Newsletter by SKAA Advocates and Solicitors, India
I. Criminal Laws
New Indian Criminal Laws- The Indian Penal Code, 1860, Criminal Procedure Code, 1973 and the Indian Evidence Act, 1872 have been replaced by the Bharatiya Nyaya Sanhita (BNS), Bharatiya Nagarik Suraksha Sanhita (BNSS), and Bharatiya Sakshya Adhiniyam (BSA) w.e.f 1st July 2024. These New Criminal Laws apply prospectively and aim to re-vamp the Indian criminal justice paradigm by consolidating the traditional provisions and making them more relevant, reformative, contemporary, and concise.
Some key highlights and their impact
1. New dedicated provisions and penalties for offenses such as organized crime, hacking, identity theft, and online harassment, strict timelines for investigations and trials, introduction of community service as a punishment etc.
2. Integration of Technology in legal procedures- Service of summons, warrants in digital form by Courts, recording of evidences electronically as a mandatory requirement.
3. Statutory recognition of Zero FIR and e-FIR- an FIR can now be registered at any police station irrespective of the location of crime. This eliminates jurisdictional hurdles. An FIR can also be lodged through electronic means, thereby facilitating easy access.
4. Expansive reach- Section 48 of BNS stipulates that abetting a criminal act occurring within India from beyond India, will constitute an offence. The implication of this provision may potentially result in roping in foreign entities/nationals alleged to have had far-off/questionable involvement to crimes committed within India through advice, resources, encouragement etc.
5. Attachment of property for a wider net of offenses- Section 107 of BNSS empowers Indian authorities to issue orders, including ex-parte orders, for attachment of properties derived from commission of any offense under the BNS.
II. Data Protection laws
The Digital Personal Data Protection Act, 2023 (“DPDPA”) received the President of India’s assent on 11th August, 2023, although the effective date is yet to be notified soon. Presently, the Government is in the process of framing major rules under the DPDPA, which are likely to be published soon.
This legislation is slated to replace certain provisions of the existing Information Technology Act, 2000 and the entire Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011.
The DPDPA is triggered when digital personal data is processed within India OR outside India where data is processed for any activity is connection with offering goods/services to subjects within India.
The DPDPA broadly follows a similar model and has some analogous principles as that of the UK’s General Data Protection Regulations (‘GDPR’).
It encapsulates provisions governing Data Fiduciaries and Data Principals (equivalent to Data Controller and Data Subject as per the GDPR respectively), such as ‘legitimate uses’ for processing personal data, consent, rights of data principles, cross border data transfers (with exceptions), etc which have similar features as that of GDPR. However, without the procedural guidance of Rules under the Act, there are some significant gaps as to the steps required to be compliant under this Act.
The penalties for non-compliance under the DPDPA currently range from INR 500 million to INR 2.5 billion.
III. Foreign Exchange Management Law
A. International Trade Settlements in INR
The settlement for export and import of goods in INR was primarily introduced by the RBI in July 2022 as a measure to promote internationalization of the Indian currency and bilateral global trade, with an emphasis on trade from India.
Under this mechanism, trade settlements take place through Special Rupee Vostro Accounts (SRVAs) opened by correspondent banks of the partner trading country, in India.
This arrangement also inter alia permits Indian exporters to receive advance payment in INR and ‘set-off’ of export receivables against import payables in respect of the same overseas buyer and supplier (subject to RBI conditions).
Since its introduction, the significance of this mechanism has only gained more attention, with India completing its first ever import payment, for crude oil purchased from the UAE, in INR. In March 2024, RBI signed a Memorandum of Understanding (MoU) with the Bank of Indonesia for instituting a framework to promote the use of local currencies i.e., Indian Rupees (INR) and the Indonesian Rupiah (IDR) for cross-border transactions.
As on date, RBI has allowed 22 countries to open SRVAs with Authorised Dealer- Category-1 Banks in India, including Belarus, Bangladesh, Fiji, Germany, Israel, Malaysia, Maldives, Mauritius, Oman, Russia, Seychelles, Singapore, Sri Lanka.
B. Amendments to Foreign Exchange Management Rules
- Key amendments to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (‘NDI Rules’)- notified on 16th August 2024
Easing of FDI-ODI swaps- Previously, a Foreign Resident (FR) was eligible to acquire equity instruments of an Indian company by way of a swap of equity instruments of another Indian company only. This meant that swapping Indian securities with foreign securities required RBI approval.
Vide the amendment, it is now permitted to swap for equity capital of a foreign entity subject to compliance with the Foreign Exchange Management (Overseas Investment) Rules 2022 (‘OI Rules’) and regulations specified by RBI.
The term "equity capital" under the OI Rules has a broader definition. It includes perpetual capital, or fully convertible instruments of a foreign entity (including LLCs, LLPs, investment funds, etc.).
As a result, this change provides flexible structuring options by facilitating global expansion opportunities to both Indian companies and foreign entities wishing to relocate their structures between India and abroad.
Nevertheless, considerations around eligibility limits etc., for overseas investments would continue to apply notwithstanding this relaxation.
Relaxation of norms for Foreign Portfolio Investors - As per the erstwhile position, Foreign Portfolio investment (FPI) in an Indian Entity under the FDI route was capped at the lower of - 49% of the paid-up capital of an Indian entity OR the sectoral/statutory cap.
Vide the amendment, the said 49% cap has been removed. Now, aggregate FPI in an Indian entity can extend up to the sectoral/statutory cap without needing government approval or sectoral compliance, provided that it does not lead to transfer of ownership and/or control to a person resident outside India. Other investments by a FR, however, shall remain subject to Government approval and compliance of sectoral conditions.
Foreign investment up to 100% under automatic route in white label ATM operations- The Amendment aligns the NDI Rules to the Consolidated FDI Policy of 2020, which permits foreign investment in white label ATM operations (essentially ATMs of non-bank entities) up to 100% subject to adherence of criteria outlined in the NDI rules. - Authorized Dealer Banks can allow Non- Residents to maintain interest-bearing accounts
On 6th May, 2024, the amendments issued by RBI in the Foreign Exchange Management (Deposit) Regulations, 2016 came into force. As per these amendments, Indian Authorized Dealer Banks (ADs) shall be permitted to allow non-residents to maintain interest-bearing accounts in INR or foreign currencies for posting/collecting margin in India for a valid derivative contract as outlined in the Foreign Exchange Management (Margin for Derivative Contracts) Regulations, 2020. - Direct listing on international exchanges
Amendments to the NDI rules and introduction of Companies (Listing of equity shares in permissible jurisdictions) Rules, 2024 (“LEAP Rules”) together provide a legal framework for Indian public companies to issue and list their shares in permitted international stock exchanges, which are, presently, the India International Exchange and the NSE International Exchange. - Scheme for trading and settlement of Sovereign Green Bonds (SGBs) within India’s International Financial Services Centre (IFSC)
With a view to facilitate wider non-resident participation in such instruments, the RBI has, w.e.f 29th August 2024, introduced a Scheme to permit foreign investors to invest in SGBs. Apart from persons residing outside India, International Banking Units (IBUs) of foreign banks are also eligible participants under this Scheme.
The Scheme allows investors to engage in primary auctions and secondary market transactions, following the RBI’s guidelines. Investors can place competitive bids in primary auctions through authorized clearing corporations, which will act as aggregators. The settlement of such securities will be subject to the RBI's prescribed processes to ensure transparency.
IV. Taxation laws
The Union Budget for 2024-25 introduced on 23rd July 2024 by the Finance Minister of India. The Budget places strong emphasis on job creation, skilling for youth, women empowerment and ease of doing business.
On the taxation front, some of the key highlights include-
- Abolition of Angel Tax – An Indian company issuing shares (with subscription price in excess of prescribed value) was liable to pay such tax - deterring their fund-raising capability. The Budget seeks to abolish Angel Tax for all classes of investors.
- Reduction in corporate tax rate for foreign companies- the corporate tax rate is reduced from the existing 40% to 35% to encourage investment.
- Abolition of Equalization Levy (EL)- Currently, a non-resident e-commerce operator is subjected to EL @ 2% from e-commerce services/supply. The Budget proposes to abolish the EL of 2% in such cases, with effect from 1st August, 2024.
- Buy-back of shares to be treated as Dividend- W.e.f 1st October 2024, the Budget proposes to treat buy-back of shares as ‘dividend’ income- taxable at the hands of the shareholders. The Indian company to apply ‘witholding tax’ at applicable rates/beneficial treaty rate in case of non-residents.
V. Bar Council of India proposes to amend rules for foreign lawyers/ firms to practice on Indian soil
The Bar Council of India (BCI) has announced plans to notify amended regulations governing the entry of U.K. lawyers and law firms into the Indian legal market. This move is in pursuance to ongoing dialogue regarding some key issues in the BCI’s Rules for ‘Registration and Regulation of Foreign Lawyers and Foreign Law Firms in India’ notified last year. These rules were introduced with an aim to establish a reciprocal relationship between Indian and foreign legal professionals.
In its statement, the BCI had announced that they have participated in discussions regarding a joint Memorandum of Understanding with the Law Society of England and Wales & Bar Council of England and Wales and that amended regulations are expected to be notified soon.
