2016 was a year of reforms in corporate law

Vinayak Burman & Vishal MehtaVertices Partners"Reforms are the foundation of building a better country"–Enrique Pena NietoThe year 2016 saw landmark events in the Indian corporate law regime. The Government’s intention to increase investment and promote entrepreneurism was manifested by increasing Foreign Direct Investment (FDI) limits in major sectors and laying the foundation of the start-up initiative which aimed at promoting entrepreneurship. With the landmark legislation, the Insolvency and Bankruptcy Code, 2016 (Code) in its place, the country has now a single comprehensive legislation for dealing with varied facets of insolvency and bankruptcy. Another valiant step taken by the Government was demonetization for the push towards digital economy and to eradicate black money from the system. With respect to corporate actions, India saw the ouster of Cyrus Mistry from Tata Sons making it the most significant event in the Indian corporate governance. Foreign Direct Investment Keeping in line with the Government’s motto of making India an FDI hotspot, the Government has pushed the limits of FDI to lucrative thresholds with the intention of leveraging the maximum potential across varied sectors. The Government allowed 100 percent FDI in single brand retail trading thus allowing global major companies to source goods from India thereby increasing India’s positioning in the global market and promoting make in India, initiative. Apart from this, defence has been another major sector where 100 percent FDI has been allowed. About 49 percent FDI has been allowed under the automatic route beyond which, Government approval would be required. Elimination of minimum capitalisation norms for FDI in NBFCs engaged in 18 specified NBFC activities given that the financial regulators prescribe their own set of capitalisation norms. RBI has encouraged crossborder M&A which gives an impetus to cross border share purchase agreements and simplifies transfer of ownership of a company wherein FDI is involved. Developments in Companies Act, 2013 Constitution of National Company Law Tribunal (NCLT) has been a paradigm shift with respect to expediting corporate justice. The idea of having a specialized adjudicating body for corporate dispute, reflects the Government’s intention of improving the ease of doing business in India. NCLT is a comprehensive adjudicating body which consolidates the Company Law Board, Board for Industrial and Financial Reconstruction along with its appellate body and certain other powers vested with the High Courts in terms of winding up and restructuring. Furthermore, the recently notified merger and amalgamation provision for companies is a significant move towards fast track sanctioning of corporate merger, cross border merger under the Companies Act, 2013.NCLT is thus a welcome move as it provides a specialized forum for resolution of corporate disputes thereby reducing the pressure of courts thus addressing to a faster and efficient adjudication mechanism. The Insolvency and Bankruptcy Code The Code is the first piece of comprehensive legislation, which seeks to address bankruptcy and insolvency regime encompassing all companies, partnerships and individuals apart from financial firms. Under the Code, NCLT has been given the authority to adjudicate insolvency resolution for companies and Debt Recovery Tribunal shall adjudicate insolvency resolution for firms and individuals. The Code would thus be a major game-changer in timely resolving the insolvency disputes. Step Towards Digital Economy The recent demonetisation policy of the Government has affected all sectors of the economy. With the surge in digital payments not only has money come into the system, making it more accountable, but also provides for an increase in the number of tax payers. Start-up Initiative Start-up India is a flagship initiative by the Government which intends to harness the innovation capabilities of start-ups in India. Further, to facilitate External Commercial Borrowing (ECB) for start-ups, on October 27, 2016, the Reserve Bank of India notified that start-ups can leverage ECB up to USD 3 million or equivalent per financial year either in INR or any convertible foreign currency or a combination of both. Corporate Governance Cyrus Mistry’s sudden removal from the chairmanship of Tata Sons has indeed been a landmark event in the corporate governance regime. It becomes pertinent to observe the legal perspective of ouster in a corporate behemoth. Although the corporate battle is yet to unfold in courts, nevertheless this case would become an imperative chapter in the corporate governance of India. The year 2016 has brought about some major reforms with respect to the corporate law and business regime. Although it’s too early to anticipate the long-term benefits of the various initiatives, however, changes such as the flexible FDI norms; the demonetization policy and startup India, are surely going to be pro-economic for the nation per se. Overall, we believe the aforesaid reforms are a dynamic step to integrate the Indian market with the rest of the world for attracting investments, technology, and enhancing India’s position as a destination for foreign investments. Authors are Vinayak Burman, Founder Partner and Vishal Mehta Associate Manager at Vertices Partners