In the year 2024, the corporate and financial landscape of India underwent transformative regulatory changes, aiming towards enhancing transparency, efficiency, and growth in various sectors From the mandatory dematerialisation of securities to significant updates in competition law and abolition of contentious angel tax, these reforms are poised to modernize and fortify India’s business sector, fostering a more resilient economy. These amendments are not just administrative updated, but they will have profound and far-reaching implications for companies, investors and regulatory bodies alike. Let us dive into the major regulatory changes introduced this year.
MANDATORY DEMATERIALIZATION OF SECURITIES
The Ministry of Corporate Affairs (MCA) vide notification dated 27th October 2023, introduced an amendment by adding Rule 9B to the Companies (Prospectus and Allotment of Securities), 2023. The changes formalized through the Second Amendment Rules 2023 (PAS Amendment Rules) marks a significant step towards modernizing the handling of securities in India.
The addition of Rule 9B makes it mandatory for all private companies to issue their securities in dematerialised form. All existing securities shall be converted into dematerialised fromat by 30th September 2024, marking a shift towards a fully digital ecosytem. However, small companies (as on 31st March 2023) are exempted from this mandate. “A small company means a company other than a public company, whose paid-up share capital does not exceed Rupees two crore or such higher amount which shall not be more than rupees ten crore and whose turnover does not exceed rupees two crore or such higher amount which shall not be more than rupees one hundred crore.” This amendment was made to streamline Securities transfers, mitigate fraud, and significantly boost transparency in corporate transactions which can help increase investor confidence and operational efficiency.
COMPETITION COMMISSION OF INDIA (GENERAL) AMENDMENT REGULATIONS, 2024
The Competition Commission of India (General) Amendment Regulations, 2024 has introduced several important updates to the 2009 regulations. This new amendment has introduced a most significant provision redefining the approach of handling confidential information during the proceedings before the Competition Commission of India (CCI), safeguarding sensitive corporate data. Under this, any party seeking confidentiality for information, or any documents is required to self-certify such data is not in the public domain and that appropriate measures have been taken to ensure its secrecy , and that such information must remain unobtainable by the unauthorised parties.. This certification has been elevated from a simple undertaking to a formal affidavits, underscoring the seriousness with which confidentiality is to be treated under the new regulations.
Moreover, the amendment has also formalized the process of ‘confidentiality rings’, as a structured mechanism which allow representatives of all parties to access such confidential information, ensuring transparency and fairness during investigation. With this new amendment, Parties can request the establishment of such ring within 10 days of receiving the non-confidential version of the investigation report, through an affidavit. The members of the confidentiality ring can then within 7 days apply for document inspection, and the inspection must be completed within 21 days, streamlining the flow of sensitive information while maintaining rigorous oversight. This amendment will simplify the submission of confidential information and the creation of confidentiality rings, ensuring the disposal of cases in a more effective and timely manner.
ANGEL TAX ABOLITION
The abolition of controversial angel tax in the 2024 budget has brought a significant shift in the India’s burgeoning startup ecosystem. This move has removed the tax on investment received by startups from angel investors, alleviating a significant financial burden and allowing startups to focus more on innovation and growth. This elimination is expected to catalyze early-stage funding among startups, encouraging encourage more domestic investors to support the startups without any fear of excessive taxation. By fostering a more favourable investment environment, this could stimulate growth of the new businesses, promote innovation, and will increase job opportunities in the startup sector.
IMPACT ON BUSINESSES
Collectively, these regulatory changes are set to transform India’s business landscape, potentially reshaping the operational strategies of businesses operating in India. Mandating dematerialization of securities will simplify operations for private companies, reducing excessive paperwork and associated risks of fraud, while enhancing transparency which will make the transactions smoother. Since this is a digital process, it may initially require more time to adjust to, but this adjustment will ensure that record-keeping process becomes efficient and ease the transfer process. While there are no specific consequences or penalties for non-compliance of this dematerialisation mandate, general penalties covered under Section 450 of the Companies Act can potentially become applicable for such non-compliance. The penalties include:(i) restricting the defaulting company from issuing or allotting any securities including bonus shares in any form, (ii) Restriction on selling shares or subscribing to additional shares, (iii) the defaulting company has to face penalty of INR 10,000 along of INR 1,000 for each day the violation continues, up to INR 200,000, (iv) each officer of the defaulting company faces the same penalty as above with a maximum of INR 50,000.
The amendment to the CCI regulations is to expediate and clarify the process of filing and protecting the confidential information, making it not only faster but also more transparent and accessible to all parties involved.. The amendment has introduced a system for establishment of confidentiality rings, wherein companies engaged in the CCI proceedings will particularly get benefit from confidentiality rings, as they facilitate document inspection and response without compromising the security of the sensitive information.
Additionally, the abolition of angel tax is also expected to encourage a surge in funding from angel investors, boosting opportunities for startups and driving innovation within the ecosystem.. This reform is likely to have a cascading effect on the broader Indian economy, as increased opportunities in the startup sector could lead to more innovation, job opportunities and economic growth.
Conclusion
The regulatory reforms introduced in 2024 mark a pivotal moment in India’s corporate governance and financial market structure. They demonstrate a concerted effort of the Indian Government to address long-standing issues while preparing the country for future economic challenges and opportunities. As these new regulations take effect, they are expected to foster a more transparent, efficient, and dynamic business ecosystem, potentially attracting more investments and promoting innovation across various sectors. However, the true impact of these reforms will unfold over time, requiring ongoing assessment and potential adjustments to ensure they meet their intended objectives in India’s economy.
