New ODI Regime-Master Series (Part I)

 

OVERSEAS INVESTMENTS – NEW INDIA

In a bid to enhance the ease of doing business, India's finance ministry on 22^nd August, 2022 notified rules and the Reserve Bank of India brought in revamped regulations for overseas investment by Indian entities.

Investments by Indians and Indian entities outside India is a corporate decision not so common due to RBI rules and regulations yet several companies have presence outside India. Overseas investments by a person resident in India were governed by the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2015.

Now, extant regulations pertaining to Overseas Investments and Acquisition and Transfer of Immovable Property Outside India have been subsumed within the Foreign Exchange Management (Overseas Investment) Rules, 2022 which are accompanied by the Foreign Exchange Management (Overseas Investment) Regulation, 2022 and the Foreign Exchange Management (Overseas Investment) Directions, 2022.

The new mechanism simplifies the existing structure for overseas investment by person’s resident in India by widening the umbrella of approved economic activities and significantly reducing specific approvals requirements.

The core to these Rules & Regulations are three distinct definitions of Overseas Direct Investment (ODI), Overseas Investment(OI) and Overseas Portfolio Investment(OPI).

Overseas Direct Investment (ODI) –

Overseas Portfolio Investment (OPI) -

Means, any investment, other than ODI, in Foreign Securities, not including any investment in Unlisted Debt Instrument OR securities issued by person resident in India not in an IFSC.

Overseas Investment(OI) –

Financial Commitment + OPI, by person resident in India

We at Factum Legal are bringing to you a short series on new ODI Rules, Regulations and related Directions. The series shall be of seven chapters, covering:

i                    Key Points of the Foreign Exchange Management (Overseas Investment) Rules, 2022.

ii.             Key points of the Foreign Exchange Management (Overseas Investment) Regulations, 2022.

iii.                ODI by Indian Entity under new regime.

iv.                 OPI by Indian Entity under new regime.

v.                   OI by Resident Individual under new regime.

vi.            OI person resident in India other than Indian entity and Resident Individual under new regime.

vii.              OI in IFSC by person resident in India under new regime.

 

OIs, ODIs and OPIs shall be now governed in accordance with the FEMA Act, OI Rules and OI Regulations. The investments already made in accordance with the erstwhile ODI Regulations will be deemed to have been made under OI Rules and Regulations.

So to make you understand the new regime and familiarize with the new provisions, we now present to you our first chapter:

 This Article has been Compiled by Divyansh Jaiswal (Associate) and Arun Gupta (Partner). 

  You can direct your queries or comments to the author at info@factumlegal.com

  Disclaimer-

  The contents of this article should not be construed as legal opinion. This article is             intended to provide a general guide to the subject matter. Specialist advice should be     sought about your specific circumstances. We expressly disclaim any financial or other   responsibility arising due to any action taken by any person on the basis of this article.

 

SC view on NCLT power to admit application under Section 7(5)(a) of the Code discretionary

 NCLT’s power to admit application under Section 7(5)(a) of the Code discretionary: SC’s view in Vidarbha Industries Power vs Axis Bank Limited

 Facts of the Case:

The Maharashtra Electricity Regulatory Commission ("MERC") authorised Vidarbha Industries Power Limited ("VIPL"), a power producing business, to enter into a Power Purchase Agreement with Reliance Industries Limited ("RIL"), under which VIPL was required to deliver power to RIL. During the term of the agreement, numerous arguments emerged between VIPL and MERC over increases in operating expenses and rate caps, which were finally resolved by the Appellate Tribunal for Electricity ("APTEL"). APTEL issued a decision granting VIPL INR 1,730.00 crore, in response to which VIPL filed an application with MERC for execution of the APTEL ruling, while MERC filed an appeal with the Supreme Court against the APTEL order. Because of the appeal, VIPL was short on finances and unable to clear its liabilities.

Meanwhile, Axis Bank Limited ("Axis Bank") filed an insolvency petition against VIPL with the National Company Law Tribunal ("NCLT") under Section 7 of the Code. Naturally, VIPL asked the NCLT to halt the insolvency proceedings due to MERC's ongoing Supreme Court appeal, but the request was denied on the grounds that no external matter may impede the quick resolution of bankruptcy proceedings. Furthermore, the NCLT determined that satisfaction on two factors, namely the presence of debt and default by the corporate debtor, are sufficient to initiate CIRP against a corporate debtor. When the NCLT ruling was challenged, the National Company Law Appellate Tribunal supported the NCLT's decision. Following that, an appeal was filed with the Supreme Court to examine whether Section 7(5)(a) is a required or discretionary provision. In other words, is the expression 'may' to be interpreted as 'shall' in light of the facts and circumstances of the case.

Contentions:

The contentions before the Court was that the use of the term ‘may’ in Section 7(5)(a) reflects the legislative purpose that the Adjudicating Authority does not have to accept an application by a financial creditor in every situation.

Held:

The Supreme Court, in its order dated 12 July 2022, held that Section 7(5)(a) of the IBC grants the Adjudicating Authority discretionary power to admit an application of a Financial Creditor ("FC") under Section 7 of the IBC for the initiation of the CIR Process and that factors relating to the borrower's business and liquidity are not external/ anterior factors qua admission of Corporate Debtor into CIR Process. The Supreme Court compared the language of Section 7(5)(a) to Section 9(5) of the IBC and noted the use of the word ‘may’ in Section 7(5)(a) versus ‘shall’ in Section 9(5) to reach the conclusion that fulfilment of twin test requirements merely give FC the right to initiate CIR Process and do not require admission of Corporate Debtor for CIR Process. The Supreme Court ruled that there is no set time restriction for admitting an application under Section 7. The Supreme Court also held that operational creditors and financial creditors have been consciously differentiated in this regard because the nature of the businesses carried out by the two categories of creditors differs, and that non-payment of dues is likely to affect operational creditors far more adversely than financial creditors.

The Supreme Court observed that the existence of debt and default only gave the FC the right to apply for CIRP initiation, and that the Adjudicating Authority was required to consider the 'expediency' of the application for CIRP initiation, taking into account, among other things, the Corporate Debtor's overall financial health and viability.  The Supreme Court further noted that “It is certainly not the object of the Code to penalize solvent companies, temporarily defaulting in repayment of its financial debts, by initiation of CIRP”. The Supreme Court ruled that the Adjudicating Authority must consider the corporate debtor's grounds for refusing admission.

Conclusion:

Thus, Vidarbha Power Industries Limited vs Axis Bank is a landmark case law in which the Hon'ble Supreme Court has given a new ground of defence for corporate debtors for revival of companies that are not at fault and critically evaluating the situation, the Supreme Court has imposed more duty upon adjudicating authority to scrutinise and verify the contentions of the parties and their stance for debt default.

 This Article has been Compiled by Ayushi Misra (Senior Associate) and Arun Gupta (Partner). 

  You can direct your queries or comments to the author at info@factumlegal.com

  Disclaimer-

  The contents of this article should not be construed as legal opinion. This article is             intended to provide a general guide to the subject matter. Specialist advice should be     sought about your specific circumstances. We expressly disclaim any financial or other   responsibility arising due to any action taken by any person on the basis of this article.

 

Cabinet approves transport sector contract between India and France

         Cabinet approves Transport Sector Contract between India and France

On 17^th August 2022, the Union Cabinet, chaired by the Prime Minister, Shri Narendra Modi approved the signing of Contract between the Organisation for Economic Cooperation and Development, France on behalf of the International Transport Forum and the Technology Information, Forecasting and Assessment Council (TIFAC), India. The Contract was entered on 6^th July 2022 with the objective to support the International Transport Forum (ITF) activities on the Indian Transport Sector.

The International Transport Forum (ITF) at the Organisation for Economic Co-operation and Development is an intergovernmental organisation with 64 member countries. ITF acts as a think tank for transport policy and organises the Annual Summit of transport ministers and it is the only global body that covers all transport modes. One of the main objective of ITF is to promote a deeper and greater understanding of the role transport has in economic growth, environmental sustainability and social inclusion and to raise the public profile of transport policy.

As per the official statement, the activities to be carried out under the above-mentioned contract will lead to the following:

               i.            New scientific results;

              ii.            New policy insights;

             iii.           Capacity building through increase scientific interaction

             iv.            Identification of technology options for decarbonization of transport sector in India.

India and France have traditionally close and friendly ties and there is growing and wide-ranging cooperation in areas such as trade and investment, culture, science and technology and education and the approval of the Cabinet on this aforementioned contract is a step forward deepening the bilateral cooperation between India and France.

Official Announcement: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1852526

 

This Article has been Compiled by Ayushi Misra (Senior Associate) and Arun Gupta (Partner). 

  You can direct your queries or comments to the author at info@factumlegal.com

  Disclaimer-

  The contents of this article should not be construed as legal opinion. This article is             intended to provide a general guide to the subject matter. Specialist advice should be     sought about your specific circumstances. We expressly disclaim any financial or other   responsibility arising due to any action taken by any person on the basis of this article.

NCLAT judgement on exclusion of the time to obtain certified true copy from the limitation period

 

Time to obtain certified copy of the order/judgment will be excluded from limitation period: NCLAT

 The National Company Law Appellate Tribunal (NCLAT) Principal Bench comprising of Justice Ashok Bhushan and Mr. Barun Mitra in Chhote Lal Gupta, Proprietor, Tirupati Enterprises Versus Jai Balaji Jyoti Steels Ltd. (Company Appeal (AT) (Insolvency) No. 955 of 2022) vide Order dated 10.08.2022 ruled on the issue that the time taken for preparation of the certified copy of the order/judgment will be excluded for computation of limitation under Section 61 of the Insolvency and Bankruptcy Code, 2016(“Code”).

Background of the case:

Appeal was filed against the Order dated 13th May, 2022 passed by the National Company Law Tribunal, Cuttack Bench, Cuttack by which the Application of the Appellant was dismissed. The Order was passed on 13th May, 2022, the certified copy was applied on 08th June, 2022 which was made available on 09th June, 2022 and the appeal was filed on 08th July, 2022. The main issue is whether the Appeal is filed in time or not.

Contentions of the Appellant

The Appellant contented that the Order was passed on 13th May, 2022, certified copy was applied on 08th June, 2022 i.e. within 30 days from the date of the Impugned Order which was made available on 09th June, 2022 hence thereafter the Appellant will have 30 days’ time to file this Appeal and having been filed on 08th July, 2022 is within time. The Appellant also relied upon the Judgments of Hon’ble Supreme Court in V. Nagarajan Vs. S.K.S. Ispat and Power Ltd (2022) 2 SCC 244 and National Spot Exchange Limited Vs. Anil Kohli, RP for Dunar Foods Limited”, (2021) SCC OnLine SC 716.

Held

It was held that 13th May, 2022 was the date on which Order was passed by the Adjudicating Authority, Appellant had time to file the Appeal till 12th June, 2022 and further he was entitled for extension of two days limitation i.e. up to 14th June, 2022 and as the appeal was filed on 08th July, 2022, the appeal is time barred. As per Section 61 of the Code, the Tribunal has power to condone the delay of only 15 days and the delay in the present Appeal is more than 15 days. However, it was held that the period for which certified copy was under preparation will be excluded in computing the limitation.

This Article has been Compiled by Ayushi Misra (Senior Associate) and Arun Gupta (Partner). 

  You can direct your queries or comments to the author at info@factumlegal.com

  Disclaimer-

  The contents of this article should not be construed as legal opinion. This article is             intended to provide a general guide to the subject matter. Specialist advice should be     sought about your specific circumstances. We expressly disclaim any financial or other   responsibility arising due to any action taken by any person on the basis of this article.