Geopolitical changes: India 2019 (3/3)

With this, we bid adieu to 2019 with the third piece of Bills and Regulations of the year round-up of the laws- the upcoming decade is another story.

III. BILLS AND REGULATIONS

1. Occupational Safety, Health and Working Conditions, Code, 2019

2. Code on Social Security Bill, 2019

3. Drug and Cosmetics- notification

4. Personal Data Protection Bill, 2019

5. IBC (Second Amendment) Bill, 2019

6. Fin Tech: RBI Mandates Local Storage of Payment Related Data

7. SEBI and Capital Markets

1.  Occupational Safety, Health and Working Conditions, Code, 2019 (Introduced in LS: July 23, 2019)- something for the workmen.

• The Code seeks to regulate safety and health conditions in establishments, factories, mines and docks with 10 or more workers. It aims to combine 13 legislations, including Factories Act and Contract Labour Regulation Act, into a single legislation. 
• Establishments which are covered under the Code are required to register themselves with registering officers, appointed by the state or central government.
• The Code envisages setting up of Occupational Safety Boards to advise the state and central government on the standards and rules to be framed under the Code. 
• There are certain special provisions for certain classes of employees, such as contract workers and factories or mine workers. Some of these special provisions, especially with regard to contract workers are:

i. Contractors with 20 or more contract workers are required to obtain a five-year license or work-specific licenses.

ii. Employer is required to provide welfare services to contract labour.

iii. Fines have been enhanced and obstructing the inspector in carrying out his duties now attracts imprisonment up to 3 months and fine of INR 1 Lakh and death of employee is punishable with imprisonment up to 2 years or fine up to INR 5 Lakhs.

Points to Ponder: This unification was long awaited, it will reduce the confusion caused due to interpreting multiple labour laws.

2.  Code on Social Security Bill, 2019 (Introduced in LS: December 11, 2019)

• The Code-

i. Subsumes eight laws related to social security including EPF Act and Maternity Benefit Act.

ii. Authorizes the central government to notify various schemes in the interest of workers.

iii. Empowers the central government to notify schemes pertaining to gig or platform workers.

iv. Prescribes different thresholds are prescribed for these schemes. For instance, EPF scheme has a threshold of 20 employees while ESI scheme has a threshold of 10 employees.

v. Proposes to offer gratuity to fixed term employees after 1-year of service on a prorata basis as against the current practice of 5 years.

vi. Prescribes administrative authorities and judicial bodies which will serve as appellate bodies.

vii. Makes Aadhaar mandatory for availing benefits under social security schemes.

viii. Universalization of social security benefits, reduction of EPF monthly contribution by workers in select sectors. 

Points to Ponder: How will the Aadhaar Amendment, which proposes to make Aadhaar consent-based tie-in in with this Code where Aadhaar is proposed, to be made mandatory for availing benefits.

3.  Pharma/Drug and Cosmetics- we are looking at health!

• The Drug Controller General of India (DCGI) and the FSSAI, which administers the FSSA, have decided that multivitamin preparations containing vitamins in a strength lower than 1 RDA would be excluded from the D&C Act.
• Vitamins lower in strength than 1 RDA will be considered as ‘food’ and will be covered under the regulatory ambit of the FSSAI. 
• Currently, multi-vitamins are covered under both FSSAI and the D&C Act. Many pharma companies seek approval under FSSAI to avoid the more stringent D&C Act. This has also led to difference in pricing for the same or similar product, as D&C Act also has price controls. 
• Releasing multivitamins from the D&C Act will end this conflict. 

4.  Personal Data Protection Bill, 2019 (Introduced in LS: December 11, 2019)- it’s a personal affair!

• The Bill-

i. Stipulates the creation of a Data Protection Authority which is responsible for the protection of the interest of individuals, preventing misuse of personal data and ensuring compliance with the Bill.

ii. Bars storing and processing of Personal data without the explicit consent of an individual;

iii. Aims to create a "strong and robust data protection framework for India" as it fixes obligation of data fiduciary (that is entity collecting and processing data) and places restriction on transfer of personal data outside India.

• Data fiduciaries or entities which determine the purpose and means of processing the data have certain obligations such as:

i. Processing the data for clear, lawful and specific purpose,

ii. Processing data in a just, fair and reasonable manner.

iii. Processing data based on consent of individuals.

iv. Sending notice to individuals prior to collecting their data.

v. Ensuring that personal data collected is not erroneous or misleading and

vi. Retaining the data only till the time the purpose for which it was collected does not get fulfilled;

• Guardian data fiduciary, are entities which operate commercial sites or online services directed at children, or process large volumes of personal data of children – will be barred from profiling, tracking or monitoring children and undertaking data processing that can cause significant harm to the child. On the personal data of children, the draft legislation proposes that data fiduciaries will have to verify their age, and obtain the consent of parent or guardian before any processing takes place.
• Significant Data Fiduciary- Social media entities with user base above a certain threshold and whose "actions have, or are likely to have a significant impact on electoral democracy, security of the State, public order or the sovereignty and integrity of India," will be notified as 'significant data fiduciary'.
• Every social media intermediary classified as a 'significant data fiduciary' will enable the users in India to voluntarily verify their accounts. Any user undergoing such voluntarily verification will have to be provided with a mark of verification that is visible to all users of the service.
• Stringent ground rules for processing of personal and sensitive information of children, while mandating the processing of 'critical' personal data only in India.
• Central government can frame policy for the digital economy with respect to non-personal data. In particular, it can direct any data processor to "provide any personal data anonymised or other non-personal data to enable better targeting of delivery of services or formulation of evidence-based policies by the Central Government.
• Violations in case of processing of personal data of children will involve a fine of up to ₹15 crore or 4 percent of the global turnover, while 'significant data fiduciary' will have to pay up to ₹5 crore or 2 percent of global turnover for contraventions pertaining to data audits.
• Transfer of sensitive personal data outside India if explicit consent is obtained from the individual. However, such sensitive personal data should continue to be stored in India. What constitutes critical data will be notified by the Centre.  

5.  IBC (Second Amendment) Bill, 2019 (Introduced in LS: December 12, 2019)- this is the Law of era.

• This Bill proposes–

i. To expand the definition of ‘interim finance’ to include, ‘such other debt as may be notified’.

ii. The intent being, including the last mile funding options to prevent insolvency.

• It mandates minimum thresholds for certain class of financial creditors to initiate insolvency resolution process. This means, if a debt is owed to multiple creditors in the same class, the insolvency application should be filed by at least 100 creditors of the same class or 10% of the total creditors in the same class. This means that in effect, a single financial creditor will not be able to initiate the insolvency resolution process.
• It restricts corporate debtors who are undergoing insolvency resolution or corporate debtors who have undergone resolution in the past 12 months form initiating insolvency proceedings. This is to prevent frivolous or unnecessary applications from being filed.
• Any existing licenses, permit, registration, quota, concession, or clearance, given by the government or local authority, will not be suspended or terminated on the grounds of insolvency. However, there should be no default in payment of current dues for use or continuation of such grants. This change in effect translates to a simple rule that if there is default in the payment of current dues, then licenses, permits, etc. granted by the government or local authority may be suspended. 
• Corporate debtors will have immunity against offences committed by them prior to the commencement of the resolution process.
• It also extends the scope of moratorium. 

6.  FinTech: RBI Mandates Local Storage of Payment Related Data- RBI is getting serious on payment data, no one else was.

• The RBI has said-

i. All data related to payment transactions must be stored in the country and that such information, if processed abroad, will have to be brought back within 24 hours.

Payment data is typically sensitive and hence mandating a local storage requirement will enable its protection.

ii. The data should be deleted from the systems abroad and brought back to India not later than one business day or 24 hours from the payment processing, whichever is earlier.

• Payment providers have been lobbying at various levels for free flow of data across borders in order to ensure customer benefits and fraud analysis, are not affected.
• The government has been keen on softer data-localisation guidelines by allowing data mirroring, the RBI has refused, maintaining that India's payments data can only be stored, locally.
• RBI has also said the data stored in India can be accessed or fetched whenever required for handling customer disputes as well as for any other related processing activity, such as chargeback. 
• Under due approval of the RBI, based on the nature and origin of the transaction, the data may be shared with the overseas regulator, if so required. 
• The RBI allows a copy to be stored abroad in case of cross-border transactions. Allowing a copy to be stored abroad, may defeat the very intent of the local storage and deletion requirement. 

Points to ponder: This position by the RBI will require international payments provider to change some of its global processes to ensure that none of the payments data of Indian customers was stored elsewhere, while processing globally.

7.  SEBI and Capital Markets:- DVR- bells to investors.

• Subject to enhanced corporate governance among several other conditions. Capital markets regulator SEBI plans to allow technology companies having superior voting right shares to launch their IPOs, 
• SEBI plans-

i. To issue a new set of norms for differential voting rights to allow listing of firms having some shareholders with superior voting right shares, but not with lower or fractional voting rights.

ii. To help new technology companies with asset light business model, where promoters or founders may be key to the company's success and may need to retain controlling powers even when they prefer equity over debt for raising funds.

• This proposal is currently restricted to only new technology firms that are yet to get listed and are in areas like information technology, intellectual property, data analytics, bio-technology and nano-technology.
• Superior shareholders must be promoters or founders holding executive positions in the company.
• Besides, such shares need to be held for at least six months before filing of the IPO papers, while there would be a sunset clause.
• Except for voting during resolutions, these shares would be treated at par with ordinary shares in all respect, including for dividend, and the total voting rights of all superior right shareholders cannot exceed 74 %.
• In view of the disproportionate voting rights of the promoters vis-a-vis their economic holding, these companies would have to follow enhanced corporate governance requirements.
• At least two-third of their boards and all board committees, except for audit committee, have to be made of independent directors. The audit committee would need to be entirely of independent directors.
• Upon listing, the superior right shares would have same voting powers as the ordinary shares in certain cases such as for appointment and removal of auditors and independent directors, related party transactions, voluntary winding up of company, changes in article of association or memorandum, utilisation of funds for purposes other than business, and other provisions to be specified by SEBI.

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