Knowledge Highlights 4 May 2020
Covid-19 in India: Nationwide lockdown
In light of the Covid-19 pandemic, on 24 March 2020 the Government of India (“Government”) announced a 21-day nationwide lockdown under the Indian Disaster Management Act, 2005 which included closure of offices with the exception of essential services. On 14 April 2020, this nationwide lockdown was extended until 3 May 2020. On 1 May 2020, the nationwide lockdown was extended for another two weeks with effect from 4 May 2020.
10 key legal updates for foreign investors on India’s response to Covid-19
(a) Indian Ministry of Home Affairs (“MHA”) guidelines set out penalties for companies in violation of Covid-19 measures
MHA has issued consolidated guidelines for containment of Covid-19 pandemic dated 15 April 2020, which were to be in place until 3 May 2020. These guidelines prescribed national directives for Covid-19 management, allowed certain additional activities to resume with effect from 20 April 2020, and provided the standard operating procedures for social distancing at offices, workplaces, factories and establishments for activities that were allowed to resume. The guidelines also provided for penalties for anyone in violation of lockdown measures in the form of offences under the relevant provisions of the Disaster Management Act, 2005 and Indian Penal Code, 1860 including for any such violation by companies.
On 1 May 2020, MHA issued an order extending the nationwide lockdown measures and containing new guidelines on the measures to be taken for containment of Covid-19 for the extended period of the nationwide lockdown for a further period of two weeks with effect from 4 May 2020. These guidelines prescribe criteria for dividing districts in the country into three zones based on their risk profiles (i.e. red, orange and green) and for identification of containment zones within the red and orange zones. The guidelines allow different levels of activities for each type of zone, with stricter measures in place in containment zones. They also prescribe national directives for Covid-19 management in public spaces and work places and provide for penalties by anyone including companies in violation of the new guidelines under the relevant provisions of the Disaster Management Act, 2005 and Indian Penal Code, 1860.
(b) Government’s interpretation of Covid-19 as force majeure
The general position under Indian law on whether a party can invoke a force majeure clause and successfully argue that its contractual obligations stand deferred on that count, or otherwise terminated due to frustration, impossibility or impracticality under the Indian Contract Act, 1872 based on Covid-19 will depend on the court’s analysis of the facts of the case and language of the contract. For instance, in a recent order of the Bombay High Court dated 8 April 2020, the court took the view that a general reliance on Covid-19 is not sufficient to trigger the force majeure clause, and a party relying on a force majeure clause must demonstrate how Covid-19 affects its ability to perform the contract.
Several departments of the Government have issued memoranda categorising Covid-19 as force majeure, which could be of persuasive value in relation to contracts with the Government. Notably, the Department of Expenditure (Procurement Policy Division) of India’s Ministry of Finance (“MFA”) issued an office memorandum dated 19 February 2020 stating that the disruption of supply chains due to the spread of the coronavirus will be covered by the force majeure clause of the Department’s Manual for Procurement of Goods, 2017 and that such a clause could be invoked following due procedure.
On 17 April 2020, the Indian Ministry of New & Renewable Energy (“MNRE”) issued a memorandum requiring all renewable energy implementing agencies to treat the lockdown due to Covid-19 as force majeure. The memorandum also provides that there will be a blanket extension of time for all milestones, without the need for a case-to-case examination, for renewable energy projects on account of the lockdown due to Covid-19, for the period of the lockdown and an additional 30 days for normalisation after such lockdown. MNRE had earlier issued an office memorandum dated 20 March 2020 directing all renewable energy implementing agencies to treat delay on account of disruption of the supply chains due to Covid-19 as force majeure and consequently to grant suitable extensions of time for projects based on evidence or documents produced by developers to substantiate their claims of such disruption.
(c) Extension of limitation period in all proceedings by Supreme Court of India
The Supreme Court of India (“Court”) took suo moto cognizance of the situation related to Covid-19 and issued an order dated 23 March 2020, extending the limitation period in all proceedings including in all petitions, applications, suits and appeals, under general and special laws, whether condonable or not, with effect from 15 March 2020 till further orders are passed by the Court. The Court noted that it was exercising its powers under Articles 141 and 142 of the Constitution of India and declared that this order would be binding on all courts, tribunals and authorities.
(d) Courts and adoption of technology
The Court issued a circular dated 23 March 2020, stating that the Court would only be hearing matters involving extreme urgency and provided guidelines with the option for lawyers and litigants to attend hearings through video conference. The Court has also issued an order dated 6 April 2020, wherein the Court stated guidelines for video conferencing to be followed by courts during the Covid-19 lockdown. Most courts including tribunals such as National Company Law Tribunals and National Company Law Appellate Tribunal are only hearing urgent cases. High Courts in various Indian states have followed suit by issuing orders and directions for the conduct of hearings, particularly in cases requiring urgent attention.
(e) Changes to Indian Insolvency and Bankruptcy Code, 2016 (“IBC”)
India’s Ministry of Corporate Affairs (“MCA”) issued a notification dated 24 March 2020, which increased the threshold of default under section 4 of the IBC from INR100,000 to INR 10,000,000. The Insolvency and Bankruptcy Board of India (“IBBI”) issued a press release dated 29 March 2020 stating that the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016 have been amended as of 29 March 2020 to provide that the period of lockdown imposed by the Central Government in the wake of the Covid-19 outbreak will not be included towards timelines for any steps in a corporate insolvency resolution process. However, the overall time-limit provided in the IBC continues to apply.
(f) Reserve Bank of India (“RBI”) allows lending institutions to grant three-month moratorium on repayment of loans
On 27 March 2020, RBI issued a Statement on Developmental and Regulatory Policies addressing the stress in financial conditions caused by Covid-19 and a notification titled Covid-19-Regulatory Package. Pursuant to which, the RBI has permitted all lending institutions (including commercial banks, co-operative banks, All-India Financial Institutions and Non-Banking Financial Companies) to grant a three-month moratorium on payment of all installments falling due between 1 March 2020 and 31 May 2020. Further, the RBI has stated that the repayment schedule and the residual tenor for such loans will be shifted by three months after the moratorium period, although interest will continue to accrue on the outstanding amount during the moratorium period.
(g) Corporate compliance relaxations by MCA
MCA issued a notification dated 19 March 2020 providing relaxation of the rules relating to holding board meetings with the physical presence of directors and allowing such meetings to be held through video conferencing or other audio-visual means until 30 June 2020. On 24 March 2020, MCA issued a circular, providing further relaxations from compliance requirements to enable companies to focus on measures to address the impact of Covid-19. In particular, MCA has clarified that for the financial year 2019-20, the requirement for at least one director to ensure minimum residency in India for a period of at least 182 days under section 149 of the Indian Companies Act, 2013 shall not apply.
(h) Relaxation of processing of documents pertaining to Foreign Portfolio Investors (“FPI”) by Securities and Exchange Board of India (“SEBI”)
SEBI issued a circular dated 30 March 2020 allowing a temporary relaxation until 30 June 2020 for compliance requirements for an FPI applicant who is not in a position to send original and/or certified documents as specified in the Operational guidelines for FPIs and Designated Depository Participants (DDPs) under the SEBI (FPI) Regulations 2019. The relaxation allows for submission of the scanned version of signed documents instead of originals and copies of documents which are not certified, subject to certain requirements.
(i) Compliance relaxations by SEBI for listed entities, Real Estate Investment Trusts (“REITs”) and Infrastructure Investment Trusts (“InvITs”)
SEBI has issued circulars dated 19 March 2020, 23 March 2020, 26 March 2020, 17 April 2020, and 23 April 2020 which provide for relaxation of various compliances including filing requirements for listed entities under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. SEBI also issued a circular dated 23 March 2020 providing temporary relaxation from compliance for REITs and InvITs by extending the due date for regulatory filings and compliances for the period ending 31 March 2020 by one month in addition to the timings prescribed under the SEBI (InvITs). Regulations, 2014 and SEBI (REIT) Regulations, 2014 and circulars issued thereunder.
(j) Measures to curb opportunistic takeovers/acquisitions amid Covid-19
On 17 April 2020, the Indian Ministry of Commerce and Industry (“MCI”) issued a press note stating that the Government had reviewed and amended the extant foreign direct investment (“FDI”) policy. As per the revised policy an entity or citizen of a country, which shares a land border with India (i.e. Bangladesh, Pakistan, China, Nepal, Myanmar, Bhutan and Afghanistan) can invest in India only with specific approval of the Government. Further, in case the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, results in the beneficial ownership of an entity or citizen of a neighboring country, such change in beneficial ownership will also require specific approval of the Government. The press note also stated that these amendments would come into effect from the date of the Foreign Exchange Management Act, 1999 (“FEMA”) notification.
The Department of Economic Affairs under the MFA issued a notification dated 22 April 2020 notifying the Foreign Exchange Management (Non-debt Instruments) Amendment Rules, 2020 under FEMA, which put into effect provisions in line with the amendments in the FDI policy.
The situation in India continues to evolve, and the Government and courts are expected to roll out further measures to assist businesses in dealing with the impact of Covid-19 in the weeks ahead.
In addition, we have a cross-disciplinary Covid-19 Legal Task Force consisting of Partners across various practice areas to provide rapid assistance. Should you have any queries, please do not hesitate to get in touch with us at firstname.lastname@example.org.