IMPACT OF COVID-19 ON CORPORATE AND ALLIED LAWS

Prior to the manifestation of the
Covid-19 pandemic, most of us would have heard about a disaster recovery plan
or business continuity plan as part of the risk management plans. Such disaster
recovery plans would seldom have envisaged a situation of countrywide, or even
global, lockdowns which most of the world is currently experiencing. Therefore,
it is unwise to expect that such a well-thought-out disaster recovery or
continuity plan would have been prepared for a country as a whole. No doubt,
there are certain legislations like the Disaster Management Act, 2005 and the
Epidemic Diseases Act, 1897 which have come handy to the government in this
unprecedented calamity.

Coming to the specific subject of
the impact of Covid-19 on the Corporate and Allied Laws, we need to briefly
touch base with the typical limitations that all of us are suffering from. The
current situation of countrywide lockdown and social distancing norms is making
most of us feel handicapped at not being able to attend office as we would
generally do, have free access to the enabling office environment of accessing
computers, the internet, physical records, printing and scanning documents, DSCs
and all other tools that create a smooth working environment and enable the
ease of working. For most of our working lives easy availability of such basic
office infrastructure has been taken for granted and we did not pause and think
even for a minute what would happen if the easy availability of such office
infrastructure is interrupted for any length of time.

These aspects are highlighted to
pinpoint the limitations which business enterprises are facing today as far as
operational aspects are concerned. Apart from these operational limitations or
micro issues, there are many substantive effects or macro issues which Covid-19
has triggered globally. Therefore, in the context of Corporate and Allied Laws
we would need to dissect the Covid-19 impact from two broad perspectives, viz.,
(1) Operational or micro issues; and (2) Substantive or macro issues.

Various operational or micro
issues are more to do with operational difficulties currently faced by
corporates causing hindrances in timely and adequate compliances for the short
time span during the ongoing lockdown. On the other hand, the substantive or
macro issues would require a much deeper understanding of certain provisions of
the Corporate and Allied Laws in the context of the unique environment created
by Covid-19 and its possible effects, which would have a long-lasting impact on
Indian corporates in the medium to long term, say over a period of six to 18
months.

Many relaxations announced
address the operational or micro issues under the Companies Act, 2013, FDI
norms to check opportunistic takeovers of Indian companies and reducing the
post buyback period for raising further capital from 12 months to six months
under SEBI Regulations amongst others. Therefore, as the Indian corporates
battle the disruptions caused by Covid-19 and endeavour to revive and
streamline business operations post relaxations of the lockdown measures, there
would be a greater need to evaluate the Corporate and Allied Laws provisions
which could create hindrances or pose substantive or macro limitations to
effective recovery and announce enabling relaxations to provide a free runway
for a smooth take-off.

Most of us would be aware about
these relaxations by now given the quick spread of such updates on social media
platforms (even faster than coronavirus). Therefore, without getting into the
details, I would like to briefly summarise most of the relaxations as a quick
refresher for ease of reference.

I.   Companies Act, 2013 and related rules

1. Board meeting permitted through video conferencing or other
audio-visual means in respect of certain matters for which mandatory
physical meeting is otherwise required, which includes approval of financial
statements, Board’s report, prospectus and matters relating to mergers,
amalgamations, demergers, acquisitions and takeovers – up to 30^th
June, 2020.

2. Maximum time gap between two consecutive Board meetings
relaxed from the existing 120 days to 180 days for the next two quarters, i.e. till
30^th September, 2020.

3. Non-holding of at least one meeting of Independent Directors in
a financial year without the attendance of Non-Independent Directors will
not be treated as violation for F.Y. 2019-20.

4. Non-compliance of residency in India for a minimum period
of 182 days by at least one director of every company will not be treated as
violation for F.Y. 2019-20.

5. Implementation of reporting by auditors as per the Companies
(Auditor’s Report) Order, 2020 deferred by one year to F.Y. 2020-21.

6. The time limit for (i) creating Deposit Repayment Reserve of
20% of deposits maturing during F.Y. 2020-21; and (ii) making specified
investment or deposit of at least 15% of the amount of debentures maturing during
F.Y. 2020-21 extended from 30^th April to 30^th June,
2020.

7. The time limit for filing of declaration for commencement of
business by newly-incorporated companies extended from 180 days to 360
days.

8. Contribution to newly-formed PM CARES Fund covered
under CSR spending of corporates and FAQs released in relation to CSR
spending in view of the peculiar situation of the Covid-19 pandemic.

9. Conduct of Extraordinary General Meetings through video
conferencing or other audio-visual means permitted till 30^th June,
2020 in unavoidable cases, subject to certain safeguards and protective
mechanisms as detailed in MCA Circular No. 14/2020 dated 8^th April,
2020 as further clarified by MCA Circular No. 17/2020 dated 13^th
April, 2020.

10. Extension of due date of AGM to 30^th September, 2020
for companies whose financial year has ended on 31^st December,
2019, i.e. time limit extended from six months from the end of the
financial year to nine months.

11. Companies Fresh Start Scheme, 2020 (CFSS) has been announced
in order to enable certain eligible defaulting companies to regularise their
filings without payment of additional fees and granting immunity from launching
prosecution or proceedings for imposition of penalty on account of delay
associated with certain filings. The detailed guidelines and operational
procedures have been laid out in MCA Circular No. 12/2020 dated 30^th March,
2020.

12. LLP Settlement Scheme, 2020 (LSS) which was announced through
MCA Circular No. 06/2020 dated 4th March, 2020 has been modified vide MCA
Circular No. 13/2020 dated 30^th March, 2020 keeping in mind the
prevalent situation.

II.  Securities and Exchange Board of India (SEBI)
Regulations applicable to listed companies

A. SEBI (Listing Obligations and Disclosure Requirements) Regulations,
2015 (‘LODR’)

1. The following relaxations, in the form of extension of timeline
for certain compliance requirements / filings by entities whose equity
shares are listed, have been announced (Refer Table A).

Further, vide a separate
circular¹, SEBI has granted similar relaxations to issuers who have
listed their debt securities, non-convertible redeemable preference shares and
commercial papers, and to issuers of municipal debt securities.

2. As per Regulations 17(2) and 18(2)(a), the Board of directors and
the audit committee need to meet at least four times a year, with a maximum
time gap of 120 days between two meetings. The listed entities are exempted
from observing this maximum time gap for the meetings held / proposed to be
held between 1^st December, 2019 and 30^th June, 2020.
However, listed entities need to ensure that there are at least four Board and
audit committee meetings conducted in a year.

3. The effective date of operation of the new SEBI circular on
Standard Operating Procedure (SOP) dated 22^nd January, 2020 in
relation to imposition of fines and other enforcement actions for
non-compliance with provisions of the LODR, has been extended to compliance
periods ending on or after 30^th June, 2020 instead of 31^st
March, 2020. Thus, the existing SEBI SOP Circular dated 3^rd May,
2018 would be applicable till such date.

4. Publication of newspaper advertisements for certain
information such as notice of Board meetings, financial results, etc. as
required under Regulations 47 and 52(8) has been exempted for all events
scheduled till 15^th May, 2020.

Table A

5. Regulation 29(2) specifies that listed entities should give prior
intimation to stock exchanges about Board meeting (i) at least five days
before the meeting wherein financial results are to be considered, and
(ii) two working days for all other matters. This requirement of prior
intimation has been reduced to two days in all cases for Board meetings
to be held till 31^st July, 2020.

6. Any delay in submission of information to stock exchanges
regarding loss of share certificates and issue of duplicate share certificates
within two days of receiving such information as required under Regulation
39(3) will not attract penal provisions for intimations to be made between 1^st
March, 2020 and 31^st May, 2020.

7. In line with the relaxations announced by the MCA for allowing
companies whose financial year ended on
31^st December, 2019 to hold their AGM till 30^th
September, 2020, SEBI has granted similar relaxation to top 100 listed
entities, whose financial year ended on 31^st December, 2019,
for holding their AGM within a period of nine months instead of within a period
of five months from the year-end.

8. SEBI has further clarified that authentication / certification of
any filing / submission made to the stock exchanges under LODR may be done
using digital signature certificate (DSC) until 30^th June, 2020.

Suggested relaxations: Apart from the above
relaxations proactively given by SEBI, the following further relaxations may be
considered by it:

1. There were a few amendments made to the LODR based on the
recommendations of the Kotak Committee which came into effect from 1^st
April, 2020, mostly relating to Board of directors and its meetings. These
include (i) requirement of having at least one Independent woman director by
the top 1,000 listed entities [Reg. 17(1)(a)]; (ii) requirement of having at
least six directors on the Board by top 2,000 listed entities [Reg. 17(1)(c)]
and (iii) a person shall not be a director in more than seven listed entities
(Reg. 17A). While most of these provisions were introduced well before time for
listed entities to be compliant beforehand, the current situation warrants
reconsideration in extending the effective date of these provisions.

2. Regulation 25(3) of LODR requires Independent directors to hold at
least one meeting in a year without the presence of Non-Independent directors
and members of management. Here, too, relaxation should be granted by extending
the due date to 30^th June, 2020 as done for compliance of
Regulations 19(3A), 20(3A) and 21(3A) in respect of committee meetings. It is
worthwhile to recall that the MCA has waived the similar requirements under the
Companies Act as stated above.

B.  SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
2011 (‘SAST’)

The time limit for filing annual
disclosures under Regulations 30(1) and 30(2) by persons holding 25% or more
shares / voting rights in a listed company and by promoters (including persons
acting in concert), respectively, regarding aggregate shareholding and voting
rights held in the listed company, have been extended till 1^st June,
2020 instead of seven working days from the end of the financial year. Further,
a similar time limit extension has been granted for disclosure to be made by
promoters under Regulation 31(4) regarding non-encumbrance of shares held by
them, other than those already disclosed during the financial year.

C.  SEBI (Issue of Capital and Disclosure Requirements) Regulations,
2018 (‘ICDR’)

1. Rights Issues: SEBI has proactively announced certain
much-needed relaxations to listed entities in order to create an enabling
environment for fund-raising through rights issues that open on or before 31^st
March, 2021. SEBI, vide a Circular² , has granted relaxations
from strict application of certain provisions relating to rights issues, which
broadly include the following:

a) Eligibility conditions relating to Fast Track Rights Issues:
Certain eligibility conditions have been relaxed, inter alia, in the
form of reduction of certain time periods and monetary caps so that companies
can find it easy to comply with such conditions and come out with Fast Track
Rights Issues for quick fund raising.

b) Relaxation with respect to minimum subscription amount: The
requirement of receipt of minimum subscription amount in a rights issue has
been relaxed from the existing 90% to 75%, provided that such companies
need to ensure that at least 75% of the issue size is utilised for the objects
of the issue other than general corporate purpose.

c) Relaxation with respect to minimum threshold required for
non-filing of draft offer document with SEBI for its observations: The
listed entities with a rights issue size of up to Rs. 25 crores (instead of Rs.
10 crores as earlier applicable) need not file draft letter of offer with SEBI
and can directly proceed to issue letter of offer to shareholders.

2. Validity of Observations issued by SEBI: As per the
existing provisions, a public issue / rights issue may be opened within a
period of 12 months from the date of issuance of Observations by SEBI. This has
been relaxed vide a SEBI Circular³  which provides that the validity of the SEBI
Observations, where the same have expired / will expire between 1^st March,
2020 and 30^th September, 2020 has been extended by six months from
the date of expiry of such Observations, subject to a requisite undertaking
from the lead manager to the issue.

3. Relaxation from fresh filing of offer document with SEBI in
case of increase / decrease in fresh issue size: As per the existing
provisions, fresh filing of the draft offer document along with fees is
required in case of any increase or decrease beyond 20% in the estimated fresh
issue size. This has been relaxed vide a SEBI Circular³
whereby issuers have been permitted to increase or decrease the fresh issue
size by up to 50% of the estimated fresh issue size without the requirement to
file a fresh draft offer document with SEBI subject to fulfilment of certain
conditions. This relaxation is applicable for issues (IPO / Rights Issues /
FPO) opening before 31^st December, 2020.

D. SEBI (Buy-back of Securities) Regulations,
2018 (‘Buy-back Regulations’)

Regulation 24(i)(f) of the
Buy-back Regulations imposes a restriction that companies shall not raise
further capital for a period of one year from the expiry of the buy-back
period, except in discharge of their subsisting obligations. Vide a SEBI
Circular⁴, this restrictive timeframe of one year has been reduced
to six months in line with the provisions of section 68(8) of the Companies
Act, 2013. This relaxation is applicable till 31^st December, 2020.
This is a welcome relaxation, much needed in the current scenario where many
companies had announced buy-back prior to the outbreak of Covid-19 and may now
need capital to survive these difficult times.

III. Insolvency and Bankruptcy Code, 2016 (‘IBC’)

The provisions of the IBC can
play a crucial role to make or break an entity in this turbulent business
environment. It is obvious that many businesses would find it difficult to
honour their financial obligations on time due to loss of business, revenue and
profit, as well as due to lack of liquidity in the market. In this regard, the
government has already announced its intention to put in place requisite
safeguards so that business entities are not dragged to insolvency proceedings
to further worsen the ongoing business crisis. The following few key decisions
/ announcements have already been made or are at an advanced stage of
consideration:

1.    
The threshold limit of debt default for invoking the Corporate
Insolvency Resolution Process (CIRP) has been increased to Rs. 1 crore from Rs.
1 lakh.

2. An amendment has been made to the IBBI CIRP Regulations to provide
that the period of lockdown imposed by the Central Government due to Covid-19
shall not be counted for the purposes of the time-line for any activity that
could not be completed due to such lockdown in relation to a CIRP.

3. As per a news article, the provisions of
sections 7, 9 and 10 relating to initiation of CIRP is proposed to be suspended
for a period of six months which can be extended up to one year through
promulgation of an ordinance.

To conclude,
we must acknowledge the proactive relief measures announced by the government
and Regulators as far as Corporate and Allied Laws compliances are concerned,
which would provide a much-needed breather to India Inc. to successfully sail
through these difficult times. It would be imperative to continuously evaluate
and announce further substantive reliefs that should be provided till business
normalcy is achieved.

Let
me recall the words of Swami Vivekananda, ‘To think positively and
masterfully, with faith and confidence, life becomes more secure, richer in
achievement and experience’ in the hope that all of us would imbibe this
thought in these difficult times; and once we overcome this situation, we will
cherish this novel experience for the rest of our lives.

___________________________________________________

1   SEBI Circular No. SEBI/HO/DDHS/ON/P/2020/41 dated 23^rd March,
2020

2     SEBI Circular No.
SEBI/HO/CFD/CIR/CFD/DIL/67/2020 dated 21^st April, 2020

3     SEBI Circular No.
SEBI/HO/CFD/DIL1/CIR/P/2020/66 dated 21^st April, 2020

4     SEBI Circular No.
SEBI/HO/CFD/DCR2/CIR/P/2020/69 dated 23^rd April, 2020