Five regulatory changes that shook businesses in 2017

From activating RERA to codifying labour laws, here are the five regulatory changes

Layering restrictions, stricter compliance for companies   

As an off-shoot of the drive against the abuse of shell companies, the government decided against relaxations on layering investment companies and subsidiaries. This is despite demands by corporate India and recommendations of a government-appointed committee. A government notification clarified that a company could not have more than two layers of subsidiaries or a maximum of three layers, of which one is wholly-owned. 

Legal experts say many companies will have to restructure to fall in line with this amendment in the company law.

Strengthening the arbitration landscape  

The second time in two years the country’s 21-year-old arbitration law is set for changes. The Union Cabinet recently cleared a Bill on establishing a centre for international arbitration. Legal experts said fresh changes were necessitated in the 2015 law to reduce pendency in courts for private commercial disputes and make enforcing contracts easier. The last amendments in the Arbitration and Conciliation Act, 1996, came into effect on January 1, 2016.

Activating RERA   

In a recent blog Anuj Puri, chairman, Anarock Property Consultants, describes 2017 as “a bad dream come true” for real estate developers. 

The reasons are not hard to find. The sector, reeling from the after-effects of de-monetisation and the goods and services tax (GST), had its first brush with the new regulatory set-up under the Real Estate (Regulation & Development) Act, 2016 (Rera). Rera, notified last year, came into effect nationwide on May 1. 

The Bombay High Court recently upheld the constitutional validity of the Act. The ruling is applicable to all unfinished projects where completion certificates have not been issued. Many states, while notifying the Act, had diluted the norms for under-construction projects. Several states, notably West Bengal and those in the North-East, are yet to notify the Act.

Codification of labour laws  

Labour law reforms finally saw some movement with the government streamlining 38 labour Acts by framing four labour codes — Code on Wages, Code on Industrial Relations, Code on Social Security, and Code on Occupational Safety, Health and Working Conditions. 

The Code on Wages Bill, 2017, introduced in the Lok Sabha in August this year, subsumes four existing laws — the Minimum Wages Act, 1948; the Payment of Wages Act, 1936; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976. 

The codification of the labour laws will remove the multiplicity of definitions and authorities, leading to ease of compliance without compromising wage security and social security, according to the government. Earlier, the Maternity Benefit (Amendment) Act, 2017, enhanced the maximum maternity leave period to 26 weeks from 12 weeks.

Unmasking shell companies  

There is some good news for around 300,000 disqualified directors in non-functional companies or those that have not filed their returns/financial documents in the past three years. In a relief such disqualified directors have been given a window of three months, starting January, to meet all statutory filing requirements under the Companies Act, 2013. Around 200,000 inactive/non-compliant companies had been struck off the Registrar of Companies database. This follows the government’s drive against abuse of shell companies for money laundering and evading tax. 

In a significant amendment, for the first time the Companies Act will recognise the “direct and indirect” rights or entitlement of person while defining the “beneficial interest in a share”. Legal experts say this will help identify the beneficiaries of a shell structure. The securities market regulator has also chipped in by stepping up surveillance and enforcement. The recently-appointed T K Viswanathan Committee on “fair market conduct” is likely to come up with measures to improve surveillance.