LEGAL UPDATES FOR THE MONTH FEBRUARY, 2023

Special Events

Central Government Schemes/Policies for Nurturing the Startup Ecosystem in India, 23rd
February, 2023

The team at Ivy Law participated in a session on “Central Government Schemes/Policies for
Nurturing the Startup Ecosystem in India” organized by Confederation of Indian Industry. The
key highlights of the session were discussion on various schemes, incentives and stimulus
packages launched by the Central and State Governments for helping the startup industry in its
growth process. The session emphasized on the repeated concern of the startups in obtaining the
right information and on the nuances of the application of these schemes even though they have
been well thought out, researched and articulated. Further, what the Budget 2023 has to offer for
startups was also discussed exhaustively.

Legal Updates

1. Reserve Bank of India (“RBI”) Gives In- Principal Approval to Entities to Act as Payment
Aggregators (“PAs”)

https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/
PR1726OPACBCF0699A01D481AA31C81AC73D080FA.PDF

RBI, on 15th February, 2023, has granted in-principle approval to over 50 entities for a PA’s
license wherein as many as 32 have already been operating as online PAs, while 19 are new to
the business. All consumers are advised to transact with only those PAs who have been granted
in-principle authorisation, however, an ‘in-principle’ authorisation would not be construed as a
licence unless the entity is granted authorisation under Section 7 (Issue or refusal of
authorisation) of the Payment and Settlement Systems Act, 2007. For the purpose of
‘authorisation’, the entity would have to submit to RBI, a System Audit Report, along with a
certificate from a chartered accountant regarding compliance with the net worth requirement.

2. RBI to Review Arbitrary Penal Charges on Default in Servicing of Loans

RBI Loan Penal Charges Review: RBI to review arbitrary penal charges on loans; to release draft
guidelines soon - The Economic Times (indiatimes.com)

RBI has decided that any penalty for the delay or default in servicing of the loan or any other
non-compliance of material terms and conditions of loan contract by the borrower will be in the
form of ‘penal charges’ in a reasonable and transparent manner and will be issuing draft
 guidelines regarding the same. At present, the penal charges levied by banks are arbitrary i.e.
each bank has its own policy to levy the charges. Further, there are no guidelines regarding how
much penal interest can be charged by a bank. Once the draft guidelines are out, RBI will invite
comments from various stakeholders such as borrowers, banks and other institutions and thereby
issue final guidelines, which will be applicable to all banks, Non-Banking Financial Companies
and other lending institutions.

3. Introduction of Foreign Contribution (Regulation) Act, 2010 (“FCRA)” Related

Transaction Code in National Electronic Funds Transfer (“NEFT”) and Real-Time Gross
Settlement (“RTGS”) Systems For Daily Reporting of Foreign Remittances

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12454&Mode=0

RBI, on 16th February, 2023, made necessary changes in NEFT and RTGS systems for FCRA
related transactions following the Ministry of Home Affairs (“MHA”) mandating State Bank of
India (“SBI”) to report all details of overseas donors including as name, address, country of
origin, amount, currency and purpose of remittances, to MHA on daily basis. Under FCRA,
foreign contributions must be received only in the "FCRA account" of SBI, New Delhi Main
Branch. Further, banks have also been instructed to incorporate necessary changes in their core
banking/ middleware solutions to capture the requisite details while forwarding the foreign
donations through NEFT and RTGS systems to SBI.

4. Union Budget 2023 Propose To Extend Angel Tax Provisions Involving Foreign Investors

Tax Bell Tolls for Foreign Angels (indiatimes.com)

As per the Union Budget, 2023, Central Government (“CG”) has proposed to extend the angel
tax provisions to transactions involving foreign investors wherein the excess premium received
on sale of shares by an Indian unlisted company to a foreign investor will be construed as
“income from other sources” under section 56(2)(viib) (Income from other sources) of the
Income Tax Act, 1961 and therefore will be subject to tax. Earlier, these provisions were
applicable only to local resident investors but now the ambit has been widened to include foreign
resident investors as well in a bid to check tax avoidance. This proposed amendment would mean
that even foreign direct investment (“FDI”) could be taxed via the abovementioned section.

5. Foreign Remittances to be Taxed at a Higher Rate

From studying abroad to holidaying overseas: How foreign remittance will be taxed from July 1
- Times of India (indiatimes.com)
 As per the Union Budget 2023, beginning July 1st, 2023, any money sent abroad for anything
other than medical care and education would be subject to a 20% tax collected at source (“TCS”)
on the entire amount as opposed to the current 5% TCS applicable on certain foreign outward
remittances exceeding INR 7 lakhs in a year. The increase in TCS rate under the Liberalised
Remittance Scheme is primarily to target high-value discretionary spending and to dissuade
citizens from sending foreign currency abroad and will cover payments for tours, currency
purchases for trips, gift-giving, and even international stock purchases.

6. Budget 2023 to Ensure Green Growth for India

View: Budget 2023 ensured India is primed for ‘Green Growth’ - The Economic Times
(indiatimes.com)

With the Union Budget 2023, India continues to uphold its promise to spearhead global efforts to
fight climate change, protect biodiversity, and promote sustainable development. The
promised capital outlay of INR 35,000 for high-priority capital projects and policy frameworks
to support a number of particular initiatives are aimed at accelerating the clean transition and
sustainable growth. Further, the Green Hydrogen Mission's investment of INR 19,700 crore
would enable the production of 5 million tonnes of green hydrogen by 2030. The other key
initiatives around the clean energy transition include an investment of INR 20,000 crore for
evacuation and interstate transmission systems of renewable energy.

7. Employees Provident Fund Organisation (“EPFO”) Issues Guidelines for Employees,

Pensioners to Opt for Higher Pension

https://www.epfindia.gov.in/site_docs/PDFs/Circulars/Y2022-2023/
Signed_Circular_SC_Pension_20022023.pdf

EPFO, on 20th February, 2023, has issued guidelines which provide the procedure for eligible
employees to submit their application for higher pension under the Employees’ Pension Scheme,
1995 (“EPS”). Any employee, who was member of Employees' Provident Fund as on 31 st
August, 2014 and did not opt for higher pension under the EPS, has an option to opt for the same
on or before 3rd March, 2023. All those employees and employers who had contributed on salary
exceeding the wage ceiling of INR 5,000 or 6,500 and did not exercise joint option while being
members of EPS may now submit a joint option to the Regional Office. The request has to be
made in such form and manner, as may be specified by the Regional PF Commissioner.

8. Simpler Tax Rules Proposed for Startups Shifting Base in India

https://pib.gov.in/PressReleasePage.aspx?PRID=1894932
 The Economic Survey 2022-23 has suggested simpler tax rules for startups by reducing multiple
layers of tax and tax litigations and simplifying procedures for capital flows by imposing lesser
restrictions on inflow and outflow of capital. The aim is to help Indian owned startups in
“reverse flipping” or shifting domicile from other countries back to India. Reverse Flipping is the
process of shifting the domicile of companies back to India who flipped earlier. Though the
flipping reflects startups venturing out for short-term gains in the dynamic, uncertain geopolitical
world, however, the flip can be reversed with collective action by CG related regulatory bodies
and other stakeholders.

9. Competition Commission of India (“CCI”) Set to Invoke Doctrine of Necessity Principle for
Merger & Acquisition (“M&A”) Deals

CCI to Invoke Doctrine of Necessity Principle for M&A Deals - The Economic Times
(indiatimes.com)

CCI, in the absence of a requisite quorum, has proposed to invoke the 'doctrine of necessity'
principle to examine M&A deals wherein the principle would allow carrying out certain
activities which are not permitted in the normal course. For examining M&As, CCI needs a
quorum of three members, however, currently, CCI has only two members and because of lack
of quorum, many deals are awaiting approvals and therefore, ‘doctrine of necessity’ principle
intends to be invoked. Further, section 15 of the Competition Act, 2002 (Vacancy etc. not to
invalidate proceedings of Commission) also states that a proceeding of the CCI cannot be
considered as invalid merely due to any vacancy in, or any defect in the constitution of the
Commission.

10. CG to Set Up a Committee to Prepare Draft Digital Competition Law

Panel to weigh competition law for digital companies (indiatimes.com)

CG is on the verge of setting up a special committee to examine the need for a separate
competition law for digital companies with the aim to govern anti-competitive behaviour in
digital markets, to prevent the formation of monopolies, to ensure a fair, transparent and
contestable digital ecosystem in the country and to identify systemically important digital
intermediaries. Further, the committee will also review whether existing provisions in the
Competition Act, 2002 and the rules & regulations framed thereunder are sufficient to deal with
challenges that have emerged from the digital economy. The need for an ex-ante regulatory
mechanism for digital markets through a separate legislation will also be taken into
consideration.

11. Ministry of Corporate Affairs (“MCA”) to Set up a Team to Resolve MCA21 Portal
Glitches
 Set up team to resolve MCA21 portal glitches: FM Nirmala Sitharaman | Business Standard
News (business-standard.com)

The Finance Minister of India has directed MCA to form a special team as well as work with
Larsen and Toubro’s LTIMindtree to look into public grievances arising due to glitches in the
MCA21 portal after many users had reported technical issues at the time of filing of forms. CG is
also taking feedback from professional bodies of chartered accountants and company secretaries
and thereby keeping a close watch on ratios such as debt to turnover, inventory to turnover or
loan to assets as early red flags. Further, an MCA laboratory is being set up, which will consist
of corporate law experts to evaluate the effectiveness of the system.

12. E- Commerce Firms to Display Warning Labels on Unhealthy Foods Choices

Fssai news: Health info with price norm likely for ecommerce companies to curb unhealthy
consumption - The Economic Times (indiatimes.com)

In an effort to reduce consumption of unhealthy foods, the Food Safety and Standards Authority
of India is considering implementing a symbol-based front-of-the-pack nutritional labelling
based on the local research, along with regional and global evidence, and in consideration of
each country’s specific objectives with the aim to inform consumers of goods that are high in fat,
sugar and salt. E-commerce businesses and quick commerce websites may be compelled to
provide the aforementioned information below or next to the market retail price if these rules are
notified. Currently, nutritional facts are shown as a separate picture along with the main display
picture of the products on e-commerce platforms.

13. Ministry of Consumer Affairs, Food and Public Distribution (“Ministry”) to Formulate
Standards for Artificial Intelligence (“AI”) Powered Products

artificial intelligence: Consumer affairs ministry to set standards for 'AI-Powered' claims - The
Economic Times (indiatimes.com)

The Ministry is working on formulating standards for AI and machine learning wherein all the
companies claiming that their products are "AI-enabled" would have to adhere to certain
regulations and guidelines. The idea behind defining AI and machine learning is to stop the
usage of these terms for every other product. Many a times companies have inbuilt AI tools to
force consumers' choice, therefore, post defining AI, such efforts would be discouraged. The
Bureau of Indian Standards (“BIS”) is in the process of reviewing Indian standards, harmonising
them with international standards and thereby creating new standards where necessary.
14. Department for Promotion of Industry and Internal Trade (“DPIIT”) Working on Quality
Standards for Several Products

https://www.business-standard.com/article/economy-policy/dpiit-working-on-quality-control-
orders-for-several-products-official-123021001470_1.html

DPIIT is on the verge of developing quality control orders (“QCOs”) for a variety of products
including lighters, to encourage domestic production of high-quality products and to aid in
containing import of sub-standard goods. DPIIT is constantly engaged with BIS and other
interested parties to identify products for which QCOs might be issued. These QCOs are issued
by DPIIT in consonance with the World Trade Organization Agreement on Technical Barriers to
Trade for industries falling under its domain.

15. Department of Telecommunication (“DoT”) to Ease Compliance Burden in

Telecommunication (“Telecom”) Sector

DoT: Government to ease compliance burden in telecom sector, Telecom News, ET Telecom
(indiatimes.com)

DoT is working towards easing the compliance burden on mid-to-small sized companies entering
into the telecom sector by simplifying the existing license regime as a part of procedural reform.
Currently, DoT is reviewing various legalities and looking to bring in a host of reforms with the
aim to boost ease of doing business, attract FDI and facilitate local telecom companies. The other
set of reforms are under progress and DoT has made references to the Telecom Regulatory
Authority of India regarding satellite communication spectrum pricing and sharing of
infrastructure.

16. Ministry of Electronics and Information Technology (“MeitY”) Bans Over 200 Betting and
Loan Applications (“Apps”) With Chinese Links

Lending Apps Ban: Home Ministry, MeitY, RBI To Decide Next Steps As Industry Seeks
Clarity (inc42.com)

MeitY has blocked around 138 betting and 94 loan apps, including those having Chinese links,
following instructions from MHA. CG considered the banned apps to contain materials
prejudicial to India’s sovereignty and integrity wherein they were involved in predatory lending
by doling out quick funds to people in times of emergency on unfair and abusive terms and
conditions. Therefore, CG exercised its power under Section 69 (Directions of Controller to a
subscriber to extend facilities to decrypt information) of the Information Technology Act, 2000,
which allows its agencies to intercept, monitor and decrypt any digital information in special
circumstances.