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last updated on 13 May 2020 | reading time approx. 20 minutes
India has put in place strict restrictions to combat coronavirus. On March 24, 2020 the Government of India took extraordinary measures to further contain the spread of Covid-19 and enforced a complete lockdown across the nation. For many, this lockdown is a “Once In a Lifetime Event” and will severely impact economic activities, small and medium businesses, supply chains, etc. To minimize some of the advert effects of the lockdown and other restraining measures, the Central as well as State Governments introduced new compliances and regulatory changes which shall help the companies to survive this economic shock. The latest tax, legal and compliance changes are summarized below.
The Indian Finance Minister, Mrs. Nirmala Sitharaman has released a Press Note as on March 24, 2020 with various relaxation efforts in order to ease the tensions of missed deadlines under different statutory provisions and schemes. In order to give effect to the announcements made by Indian Finance Minister, the government has brought in an Ordinance on March 31, 2020 which provides for extension of various time limits under the Taxation and Benami Property Acts. It also provides for extension of time limits contained in the Rules or Notification which are prescribed/ issued under these Acts. Some of the important features and time limits which get extended by this Ordinance are as under:
The Ministry of Corporate Affairs (MCA) has released an advisory on March 20, 2020. Through this advisory and with an objective to ensure and generate awareness and confidence on readiness to deal with the situation in India. The MCA has deployed a Web Form for Companies/ Limited Liability Partnerships to confirm their readiness to deal with the threat of COVID-19. The Web Form is named as CAR (Company Affirmation of Readiness towards COVID-19) and was deployed on March 23, 2020 on the portal of MCA. All Companies/ Limited Liability Partnerships are requested to comply and file the Form CAR. The MCA has clarified that filing of the said Form is purely voluntary. As such no penalty or enforcement related action is applicable.
The Ministry of Corporate Affairs issued a notification on March 18, 2020 allowing companies to hold board meetings dealing with matters like approval of financial statements as well as books of accounts, approval of the board’s report, decisions on mergers, amalgamation and takeovers, through video conferencing for a period of three months. Earlier, meetings dealing with the said subject matters were required to be held with directors physically attending the meeting. Due to travel restrictions, it is challenging for the companies to stay compliant, hence, this move of MCA will surely bring huge relief to the companies and they will be able to take important decisions via video conference and stay compliant during these tough times.
The Ministry of Corporate Affairs (“MCA”) vide its Circular dated April 8,2020 has allowed companies to hold Extra Ordinary General Meetings (“EGM”) through Video-Conference or Other Audio Visual Means. In furtherance to the relaxations allowed for holding all the meetings of the Board of Directors through Video Conference, the MCA has now allowed companies to hold EGM through Video Conference or Other Audio Visual Means. However, such EGM should be called only for urgent business matters which cannot be delayed and the same are allowed only till 30th June 2020. The transcripts of such a meeting has to be duly maintained as required in the Circular. All the resolutions passed in such meeting have to be filed with the Registrar of Companies within 60 days of the meeting.
The Ministry of Corporate Affairs (“MCA”) vide its Circular dated April 21, 2020, the companies whose financial year ended on 31st December 2019, have been allowed to hold their AGM by 30th September 2020, instead of 30th June 2020.
The Ministry of Corporate Affairs (“MCA”) vide its Circular dated May 5, 2020 has allowed Companies to hold their Annual General Meetings (“AGM”) through Video Conferencing or Other Audio Visual Means, during the calendar year 2020. In such AGM, apart from the ordinary business, only those items of special business, which are considered to be important by the Board, may be transacted. Further, the requirement of dispatching physical copies of the Annual Return is not required and the Company should share a copy of the Annual Return with all its members and any other stakeholder(s) only through emails.
Since Covid-19 was declared as pandemic by the World Health Organisation and the Government of India treats it as a notified disaster, the Ministry of Corporate Affairs clarified on March 23, 2020 that spending of CSR funds for Covid-19 related relief work is eligible CSR activity. Funds may be spent for various activities related to Covid-19 such as promotion of health care and disaster management.
In and around third week of March, 2020 Supreme Court as well as High Courts in several states, including Bombay High Court, notified that they will take only urgent matters. The litigants have to explain and justify the urgency, otherwise the Court can penalize the party (Bombay High Court imposed penalty of INR 15,000 on litigant for insisting on listing of non-urgent matter). There is no end date to the said notifications. However, on March 23, 2020, the Supreme Court of India issued an order stating that the period of limitation for all court proceedings shall be extended with effect from March 15, 2020 till further order by the Court. Thereby, it is expected that the pendency of litigations in India is going to further increase in coming months. Therefore, it is advisable for the companies to revisit their litigation strategy and analyse the impact of delay in dispute resolution.
India is invoking a century old law to combat wilful spreading of COVID 19. The wife and father of the Covid-19 infected Google employee in Bangalore have been booked by the police under the Epidemic Disease Act, 1897 for lying to health officials. Additionally, a Police action is also initiated against them under Indian Penal Code sections 269 (negligent act likely to spread infection of disease dangerous to life) and 270 (malignant act likely to spread infection of disease dangerous to life). Similarly, two people were arrested in State of Jammu & Kashmir, on March 19, 2020, for spreading rumours on social media regarding the death of a man due to Covid-19 in town.
On February 19, 2020, the Indian Government issued Office Memorandum, stating that coronavirus shall be considered as natural calamity and Force majeure clause may be invoked wherever necessary. It is common practise in India to add Force majeure clause in commercial contracts. Therefore, it is high time for businesses to evaluate all commercial contracts with Force majeure clause and initiate appropriate action under the said clause if it is evident that Covid-19 situation will hamper the capacity of either of the parties to contract, to fulfil their legal obligation on time. Options of triggering of Material Adverse Change (MAC) clauses, possibility of re-negotiating contracts for prices/ volume of supply may also be analysed. Further, the financing documents of organisations needs to be checked with a fine tooth comb to identify any covenants which require action/ intimation to lender(s), should the company apprehend a material adverse impact on its financial performance. The present situation may also impact ongoing Mergers & Acquisitions transactions. This necessitates a requirement for the contracting Parties to revisit the transaction documents and take appropriate measures.
Companies should review the specific insurance cover to identify if mitigating for business losses on account of this pandemic is covered in their insurance policies. If yes, appropriate steps may be taken in this regard including intimation to insurance company.
Amidst the ongoing outbreak of COVID-19 and increasing concerns raised regarding masks (2 ply and 3 ply surgical masks, N95 masks) and hand sanitizers which are either not being available in the market or available at exorbitant prices, the Central Government (i.e. the Department of Consumer Affairs) as on 13th March, 2020 notified an order under the Essential Commodities Act , 1955 (EC Act) to declare these items as Essential Commodities up to 30th June, 2020.
The said notified order known as the Essential Commodities Order 2020 is passed to bring the masks including (2ply and 3ply surgical masks, N95 masks) and hand sanitizers to be included in the Scheduled list of essential items as attached under the EC Act up to 30th June, 2020. The main intent behind this to empower the Indian government and authorities to regulate the production, quality, distribution of these items in the market to ensure smooth sale and availability of these items in the market to the consumers. Most importantly, the present order empowers the government and authorities to curb unfair profiteering tactics adopted by many in terms of over pricing hoarding and black marketing of these items due to increased demand of these items in view of the outbreak of this pandemic. The state government/ authorities therefore may proceed to take strict action under EC Act and Prevention of Black-marketing and Maintenance of Supplies of Essential Commodities Act, 1980 (PBMMSEC Act). An offender under the EC Act may be punished with an imprisonment up to 7 years or fine or both and under the PBMMSEC Act, he can be detained for maximum of 6(six) months.
Indian Government as a part of its relief package under “Pradhan Mantri Garib Kalyan Yojana” has announced as on 26, March 2020 that it shall pay for both employer and employee’s contribution towards Employees’ Provident Fund (EPF) for the next 3 (three) months. This benefit is extended to only those establishments which are having up to 100 workers and 90% of such workers are earning below INR 15,000/per month. Accordingly the Government of India will pay 24% (i.e. 12% each share of employer and employee) of the monthly salary of low earning workers. However, EPF department has further announced that in order to avail this benefit, all the establishments have to ensure payment of monthly salaries to their workers and make a timely submission of ECR. This is introduced with a view to ensure continued employment of these low earning workers who are at risk of losing their employment and also to provide financial benefit to the organized sectors due to economic disruption caused by Coronavirus pandemic.
As of 25 March 2020, the whole Republic of India has been put in a lockdown for 21 days, which was going to end as on 14 April 2020. However, considering the increasing number of Coronavirus cases nationwide, on 14 April 2020 the Prime Minister of India, Mr. Narendra Modi first announced the extension of the lockdown until 3 May 2020 thereafter further continuing with the lockdown for another two more weeks until 18 May 2020. Previously areas with low risk were allowed to open up for certain specific activities starting from 20th April 2020. The new guidelines of the lockdown issued by the Ministry of Home Affairs, Government of India on 1 May 2020 came along with some relaxations, in particular to balance the financial burden of companies, but at the same time still implement a rather strict curfew for hot spots and contaminated zones. Previously all shops, industrial establishments, commercial establishments, private establishments had to be completely closed or work from home only. Exceptions included only essentials like banks; insurance offices; print and electronic media; telecommunications; internet services; broadcasting and cable services; IT and IT enabled services needed for essential services; e-commerce for delivery of essential goods like food, pharmaceuticals, medical equipment; power generation, transmission and distribution units and services; cold storage & warehousing services; private security services; essential services related to food, groceries. Manufacturing companies where units of essential commodities are being produced were also exempted – all other continuous process production units needed permission from State Government. Starting from April 20 2020 more activities were permitted including movement, loading/unloading of goods and cargo (inter and intra state), supply of essential goods, commercial and private establishments to operate e.g. IT and IT enabled services with up to 50 per cent of staff; Industries/Industrial Establishment which are operation in rural areas, manufacturing in Special Economic Zones and Export Oriented Units; manufacturing units of essential goods, food processing industries, production units with continuous process, manufacturing of IT hardware, coal production, manufacturing units of packing material, jute industries with staffed shifts and social distancing, oil and gas refinery, brick kilns in rural areas as well as construction activities in rural areas and construction activities of all renewable energy projects. Further it is has been made compulsory to wear a mask in all public places and works places. The new guidelines issued by the Ministry of Home Affairs on 1 May 2020 which shall be effective starting from 4th May 2020 extend the previous lockdown for two (2) more weeks. Also it was clarified that districts will be profiled in to risk zones:
The following activities will continue to remain prohibited across the country, irrespective of the zone, for a period of two (2) weeks (unless permitted by the Ministry of Home Affairs otherwise):
Further it was clarified that the movement of individual for all non-essential activities shall be only allowed between 7 am to 7 pm. However, in all zones persons above 65 years or with co-morbidities, pregnant woman and children below the age of 10 years shall stay at home, except for meeting essential requirements. For containment zones strict perimeter and clear exit and entry points shall and other safety precautions shall be implemented. Further only movement of person for maintaining supply of goods and services shall be permitted. Apart from the overall prohibited activities the activities such as Cycle Rikshaws and Auto Rikshaws, Taxis and cab aggregators, Intra-district and Inter-district plying of buses, Barber shops, spas and salons shall not be permitted in Red Zones. The following activities shall be permitted with restrictions in Red Zones:
Apart from the overall prohibited activities Inter district and Intra-district plying of busses shall not be allowed in Orange Zones. In Green Zones buses and bus depots can operate with 50 per cent seating capacity. All other activities shall be permitted activities unless not specifically mentioned in the Guidelines. However, the State Governments and Union Government may only allow selected activities as felt necessary to stop the spread of Covid-19. Failure to comply with this order will invoke criminal proceedings under section 188 of Indian Penal Code (disobedience shall be punished with imprisonment which may extend to six months, or with fine which may extend to one thousand rupees, or with both). Further, all persons violating these containment measures would be liable to prosecuted against as per the provisions of Sec 51 to 60 of the Disaster Management Act, 2005 (fines and imprisonment extending up to 2 years, depending on the offence).
It is every employer’s duty to provide a safe and hygiene working environment and to do everything reasonably possible to ensure infection prevention. This duty of care is particularly important in times of spread of ovid-19 and after coming back to work premises after working from home. However, as there are no specific rules on what is meant by this duty of care apart of special laws like the Factories Act, 1948, employers should take proactive measures according to daily updated risk assessments. These include, among other things, authorising all employees to work from home wherever feasible and now with the lockdown provisions, it is mandatory. If it is not possible in a company to grant work from home as they are part of the exceptions of the essential services, in addition to the provisions of the Epidemic Disease Act, install safety precautions such as maintaining safety distances between employees, disinfecting and cleaning the workplace regularly, providing safety clothing and masks, keeping temperature checks at the office premises, working in shift and only keeping essential staff available, etc. Guidelines were issued by the Government of India how to implement a safe work environment after the lockdown. The employer should ensure that the employees have the required IT infrastructure to work safely from home, especially regarding data protection regulations. The Ministry of Labour & Employment, Government of India has clarified in their notification dated on March 20, 2020, that all employers may be advised to extend their coordination by not terminating their employees or reducing their wages. If any employee takes leave, he should be deemed to be on duty without any consequential deduction. Further, if the place of employment is to be made non-operational, the employee shall be deemed to be on duty. Further, the Governments of Telangana and Karnataka have clarified that employers shall not terminate their employees or reduce their wages. Employers shall grant their employees Paid Leaves during the lock-down period in case it is not possible for them to work from home. However, it is not clarified yet whether these notifications and circulars are binding or rather a recommendation or advisory. Some of the notifications, orders and circular have been challenged before the Supreme Court through writ petition. The Supreme Court’s decision, which will throw more light on the binding nature of these orders, is still pending. Therefore based on the present situation the same may be interpreted to have a binding effect. Options of employers which might get in a financial tight spot have to be analysed from case to case especially regarding other regulations in Minimum Wage Act,1948, Indian Contract Act, 1872, Industrial Disputes Act, 1947, Employees Provident Fund Scheme etc.
The new guidelines of the Ministry of Home Affairs show the intention of the Government to slowly lift the lockdown, however at the same time health and safety shall remain first priority. Businesses should continue with keeping themselves prepared to adapt with any legal or regulatory change introduced by the Government. In line with other countries, the Indian Government is also expected to announce a larger fiscal stimulus package soon to address the concerns of the economy. It would be prudent for the companies to quickly analyse the contract obligations and determine the exposures due to non-performance, by any of the parties. If the company is not in position to honour the contract due to outbreak of Covid-19 then it should invoke force majeure clause within the prescribed timeframe. Covid-19 threat also exposes business to various labour law related challenges, which can vary as per the nature of business and operation of the company. It is advisable to revisit employment contracts and HR polices to ascertain whether they are properly worded to address the challenges posed for this unusual situation.
The above questions and many more such questions will be faced by companies sooner or later. Therefore, it is advisable to be prepared and compliant in advance.
In addition, constantly changing government regulations must be taken into account. Local notifications are regularly issued on short notice, which must be observed by employers. It is therefore inevitable that every employer keeps up to date and thinks about necessary measures in advance so that the company can respond quickly to new situations.
Coronavirus: What you need to know
Rahul Oza
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Dharm Veer Singh Krishnawat
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