In the fifth and final allotment of India’s response package aggregating INR 20 lakh crores to help the economy recover from the impact of Covid 19, the Finance Minister announced today (May 17, 2020), a number of significant reform measures. The announcements were in relation to the following seven areas- (i) Mahatma Gandhi National Rural Employment Guarantee scheme, (ii) Health Reforms and Initiatives and Education reforms, (iii) Ease of Doing Business – IBC related reforms, (iv) de-criminalisation of the Companies Act, (v) Ease of Doing Business for Corporates, (vi) Public Sector Enterprises matters and policies and (vii) State Governments and resources related to State Governments. The Government also broke down the figures for arriving at INR 20 lakh crores as the size of the Covid response package.

The FM introduced various measures to help the business sustain the aftermath of this pandemic. Apart from bringing the reforms to help businesses and enterprises sustain during the lockdown, the fifth economic relief package is aiming towards sustainability of business and companies after the lockdown is lifted.

In this update, we have covered, the announcements which are relevant to the businesses:

I. Insolvency and Bankruptcy Code (“IBC”)

Depending upon the pandemic situation, fresh initiation of insolvency proceedings will be suspended for up to one year. This was suspended for up to six months earlier and will now be extended for another six months. The minimum threshold to initiate insolvency proceedings has been raised to Rs. 1 crore (from Rs. 1 lakh).

Further, the Government will soon notify a special insolvency resolution framework for MSMEs under Section 240A of the IBC. It was also announced that the Central Government will be empowered to exclude COVID-19 related debt from the definition of “default” under the IBC for the purposes of triggering insolvency proceedings.

II. De-criminalisation of Companies Act defaults

Violations under the Companies Act, which involve minor technical and procedural defaults such as shortcomings in CSR reporting, inadequacies in board report, filing defaults and delay in holding AGM, will be decriminalized. Further, majority of the compoundable offences sections will also be shifted to internal adjudication mechanism (“IAM”) and powers of the Regional Director for compounding will be enhanced. Accordingly, 58 sections under the Companies Act will be dealt with under IAM as compared to the 18 sections earlier.

Further, seven compoundable offences will be dropped altogether and 5 will be dealt with under alternative framework.

III. Ease of Doing Business

Two key announcements were made as ‘ease of doing business’ measures- the first being to permit direct listing of securities by Indian public companies in permissible foreign jurisdictions; and the second being to permit private companies to list NCDs on stock exchanges without their being regarded as listed companies. The implications of these could be significant depending upon the fine prints that will be released upon these announcements being materialized.

Other announcements include:

(a) Provisions of Part IXA (Producer Companies) of Companies Act, 1956 which related to formation of Producer Companies will be introduced in the Companies Act, 2013

(b) Power to create additional/specialized benches for NCLAT will be granted;

(c) lower penalties for defaults by small companies, one-person companies, producer companies and start-ups will be notified.

IV. Public Sector Enterprise Policy

All sectors will be open to the private sector while public sector enterprises (“PSE”) will play an important role in defined areas. A list of strategic sectors requiring presence of PSEs in public sector will be notified. If a sector is notified, ordinarily there will be only one to four PSEs in such sectors-others will be privatized/merged/brought under holding companies.

This concludes our series of flash update posts on the relief measures announced by the Government over the past week.

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