Category: Blog Posts

Benefits of Sustainable and Systematic Approach to Compliance Management

Every businessman knows that unless you can simplify a process for the customer, your product will not last. No customer wants a product that will complicate or increase his/her work. Thinking about this more deeply, this concept of simplification and ‘this process complicates everything. Thus, it will not work’ should apply to all aspects of a company. Not just externally for the customers, but internally as well. Compliance Management is a tedious and long process. Each person has certain responsibilities that he/she must complete. When an employee is already busy with his/her work, Compliance Management just adds on to the burden and a lot of steps get missed out in the way. This can be prevented if there is a systematic, step-by-step approach to Compliance management. There are many more benefits of a systematic approach to Compliance Management:  
  • Prevention of repetition:

A systematic approach is always well planned. It maps put the entire process from beginning to end. Thus, any places where there is a repetition of work will be checked over and the overlap and repetition will be removed.

  • Reduction in time consumed:

Compliance is not the first priority for any employee. They have been hired to do a particular job and compliance is an added responsibility. It does not make sense to make the employee use that valuable time in doing compliance-related work. A systematic approach will ensure that the employee spends the least amount of time on compliance. It will also reduce the compliance-related work as much as possible.

  • Prevention of oversights:

Many people by nature or need are list-makers. Be it grocery shopping, packing for a vacation or even meeting deadlines. The reason behind this is the list ensures that a person does not miss out or overlook any work that they were supposed to do. The list is a way for people to become more systematic. In the same way, a systematic approach to Compliance will reduce oversights. If executed properly, at no level will employees miss out steps and cause blunders that could be easily avoided.

  • Prevention of legal issues:

Compliance Management, by definition, is ensuring that a company adheres to all laws, regulations, policies and orders by the government. Thus, if comprehensive and systematic compliance management is followed, there will not be many legal issues. Good Compliance Management and Legal issues and costs are inversely proportional to one and other.

  • Reduction in Costs:

As mentioned above, a systematic approach will reduce time, repetition of work, and prevent legal issues and costs. Thus, a systematic approach to compliance management will reduce costs.

  • Increased efficiency and accuracy:

Accuracy is doing the work perfectly and efficiency is completing the work in as less time and with as less effort and money as possible. A combination of accuracy and efficiency is the goal of any business, process or product. A systematic approach will prevent oversights, which will make compliance more accurate. It will also prevent the repetition of work and reduce effort, time and costs thus making the compliance management more efficient as well.

Compliance Management is an ongoing task that will last for as long as the company is standing. Thus, any change to the compliance management will not be very useful unless it lasts. This is where Sustainability comes in. As we already explained above, simplification is the key to sustainability and a systematic approach aims for simplification. Thus, as long as a company maintains this systematic and sustainable approach, the company will automatically make constant updates to its compliance management process and the result will be a flawless, effective, efficient and smoothly functioning Compliance Management.

Need and Benefits of Effective & Efficient Compliance Management

Starting and sustaining a company is not an easy task. There are a few common but very important questions that every company faces and answers during their journey to become the best.  Is our product/service good? Is the price right for the customers? Are we better than the competition? How do we increase our sales? How do we reduce our costs? However, there are some other questions that the company might need to answer. Why is there no consistency in the work of our employees? Why didn’t they follow the correct protocol? Or when the government asks the company ‘Why didn’t you follow the rules that we laid down for your benefit?’ These questions distract a company from the more important questions and can be avoided very easily using good Compliance management.

Compliance is a set of rules, policies, and conduct of behavior that is enforced upon a company by external parties like the government and is enforced by the company internally upon its employees. It is a task that most people find an unnecessary burden. However, good compliance management gives more to the company in terms of time, reduction in work, good reputation, and many other benefits than it takes from the company.

While the ultimate goals of every company is to be the best, there are 3 broad sub-goals that they have – Increasing Sales, Reducing cost, constantly innovating to be the best in the market. Here is how compliance supports these goals:

Increasing sales:

Social media has made the world smaller. Today, news travels around the globe with the click of a button. This means that any mistake that a company makes reaches its entire customer base almost immediately and every such mistake reduces their trust in the company a little. Customers will not buy a product or service from a company that they cannot trust. Good compliance ensures a reduction in mistakes. It ensures that a company abides by all the rules, disclosures, and audits that the government requires of them. It also provides a proper protocol that each employee has to follow thus reducing mistakes from the employees’ side as well. This builds reputation and ensures trust-building.

It also ensures better documentation that helps the company to get a clear picture of their sales. This data can be very advantageous. It can help them find out where they have low sales and why, which of their policies are increasing their sales, and how to improvise on that.

Reducing Costs:

Compliance saves a company from paying fines for delay or non-compliance of laws and other rules set by the government. The protocols put in place also ensure that a company does not have to bear the costs of unnecessary legal battles.

Since it enforces better documentation, it is easier to find problems, which makes problem-solving much easier. Simple, quick audits might uncover huge frauds or even bring to notice smaller issues like reduced productivity by certain employees.

Constant Innovation:

A company is made by its employees. Talented employees with the drive to excel make all the difference between a good company and the best company. Such employees, however, will not be a part of a company with a bad reputation, bad working conditions, unfair wages or long hours. Good compliance management will prevent all of these.

A company can also use compliance to put in place protocols that will boost the drive of their employees and ensure that they give their best to the company. It will also make administrative procedures simple so that the employees can have a calm and clear mind that will aid in innovation.

Apart from these, good compliance also enhances decision-making. It ensures better documentation, which means that information is clearer and more visible to the decision-makers.

In the midst of chaos and confusion, there can be no clear path. It is easy to get sidetracked from the ultimate goal. Compliance brings order and peace of mind to the employees and companies. Good compliance requires some amount of hard work, time and patience but it smoothens the rough path that every company takes in order to reach its goals.

7 Powerful Tips for Successful Contract Management

As any great business would know – details matter. Small details can make the biggest differences or they can be the beginning of downfall. One such detail is Contract Compliance. Contract compliance is the process of ensuring that all contract parties are upholding the terms set by the contract. It also ensures that the contract is made and followed through in a legal manner Contract compliance need not be a tedious task. Complete and proper procedures and a few tips can make this task a simple one:

1.Maintain a Repository of all contracts:

Maintaining a well-arranged repository of all contracts and providing for easy sharing will make the audit process easier.

2. Standardize processes and contracts:

Having a standard process like a monthly audit, for example, will ensure that the contract compliance is not overlooked and no aspect of this is missed. This stepwise procedure will also ensure consistency throughout the organization.

The standardization of contracts means to have one standard base for all contracts of similar functions like separate contracts for onboarding, sale of goods, and so on. This base contract must be continuously checked and improvised to prevent any mistakes.

3. Constant checks to ensure that the contract parties are following the conditions of the contract:

In most companies, a contract is used as a proof of certain agreement along with the terms and conditions to be fulfilled. The common practice in many places is to make the contract, set in place certain procedures to follow through with their side of the agreement and conditions and forget about the contract. The correct procedure, however, it to regularly check and audit all the contracts to ensure that not only their part of the bargain is upheld, but also that of the other parties as well. This simple procedure can save a company from unnecessary lawsuits and legal action as well as help the company take action against the other contract parties who do not follow through in accordance with the contract.

4. Regular audits:

Regular audits will ensure that the company is following through with all its contract agreements and condition thus keeping the company safe from lawsuits and bad reputation. They also provide more information that is essential to improving the existing contracts as well as procedures. As new rules are constantly coming up and old rules are being changed, regular audits also ensure that the company understands what needs to be changed so that the company always remains compliant with the rules.

5. Have clear audit goals:

An audit can be done for various goals. It can be used to ensure that the company is following through with the conditions of the contract or that other parties are following through or to ensure that the company is upto date in accordance with the rules put in place by the government.

6. Have an Exit Strategy:

It is important to always have a provision for an Exit Strategy or an Escape Route in case the relationship with the contract parties becomes bad. The contract should thus have a provision for a Contract Annulment.

7. Separate team for monitoring the Contract Compliance process:

While contract compliance must be practiced by all employees of the company, having even a small separate team can ensure that all employees are complying with the procedures. Since this team is overlooking the contract compliance in the entire company, they will be better equipped to find out flaws or reduction in efficiency and will be able to provide suggestions to improve the contract compliance process.

Contract Compliance is an essential part of any business that is often overlooked or deemed as ‘not important’. It is not as time and resources consuming as it is often perceived and must be practiced by every company.

Labour Laws: The Shield Against Exploitation

Human beings are born with an endless desire for success, growth and expansion. This need, although necessary for the well-being of every individual, most of the time amounts to greed and exploitation. In a world where human beings have not yet learned to live at peace with each other and treat every life on earth equally, the need for laws to curb this exploitative behaviour becomes necessary. Labour laws ensure the safety of employees and impose a duty on employers to take care of their employees’ welfare. Every worker dedicates his time, energy and effort to his employer, in order to make the organization successful. It is the duty of the employer to ensure the personal growth of such workers as well. It is up to him to help his employees reach the top of Maslow’s need hierarchy. Labour laws ensure that every employee, up to some extent his family, is taken care of by the establishment that he is working for. It mandates employers to provide certain benefits to their employees, thus preventing exploitation. Certain special benefits are given to women which puts them on an equal footing as men, enables equal treatment and encourages them to work without any fear. Labour laws have evolved with the changes in society, it prevents discrimination against women and the members of the LGBTQ community, who equally have the right to work and earn their wage to sustain themselves. The Supreme Court in the case of People’s Union for Democratic Rights v. Union of India [1982 AIR 1473] explained that Labour laws are enacted for improving the conditions of workers and employees, imposing small fines on the employers who violate labour laws is no good as such employers do not mind paying trivial fines because the profit that they make by violating labour laws is far exceeding than the fines imposed on such violation. It further insisted on the need for Magistrates and Judges to view the violation of labour laws with strictness and to impose adequate punishments on errant employers. Therefore it is mandatory for every establishment/organization/company to comply with the labour laws, some of them are as follows-
  1. Inter-State Migrant Workmen (Regulation of employment and Conditions of Service) Act, 1979:

This Act was enacted in order to regulate the employment of inter-state migrant workmen, to provide for the conditions of service and other related matters. This Act is applicable to every establishment in which more than five or more inter-state migrant workmen are employed and to every contractor who employs them. Section 2(1)(e) defines an inter-state migrant worker as any person who is recruited by/through a contractor in one state under an agreement for employment in another state without the knowledge of the principal employer of such worker. Every principal employer must register his establishment and obtain a certificate of registration before employing the inter-state migrant workmen. Such an employer must obtain a license issued by the licensing officer appointed by the Central government, before employing inter-state migrant workers. Section 12 imposes certain duties and obligations which the contractor is required to comply with. Sections 25 and 26 of the Act imposes criminal liability on the person who contravenes the provisions under this Act.

  1. The Contract Labour (Regulation and Abolition) Act, 1970:

This Act has been enacted to regulate the employment of contract labourers in certain establishments and to provide for its abolishment in certain circumstances. It applies to every establishment in which 20 or more workmen are employed and to every contractor who employs them.  Sections 16 and 19 of the Act bestow a duty on every contractor to provide restrooms, canteens, first aid facilities and other such facilities. It ensures that the health and welfare of the contract labourer is provided for by the contractor. Section 23 of the Act imposes a penalty on any such contractor who does not comply with the provisions of the Act. Criminal liability is imposed under Section 24 in case of non-compliance.

  1. The Minimum Wages Act, 1948:

This Act ensures that the workmen do not receive any wage which is less than the minimum wage, it was enacted in order to fix minimum rates of wages in certain employments. Non-compliance with the provisions of the Act leads to criminal liability, punishable with imprisonment and fine.

  1. The Maternity Benefit Act, 1961:

Enacted in order to regulate the employment of women in certain establishments for a certain period before and after child-birth, and to provide for maternity benefit, this Act is applicable to every establishment which employs women. Any employer who acts in contravention to the provisions of this Act is punishable with imprisonment and fine.

  1. The Employees State Insurance Act, 1948:

Keeping in mind the need to provide certain benefits to employees in case of sickness, maternity and employment injury, this Act has been enacted. It ensures medical care to employed persons and their families in case of any sickness, maternity, death or disablement during the course of employment. Chapter VII of the Act imposes penalties on persons who misuse the benefits, or on any person who acts in contravention to the provisions of the Act.

Other labour laws such as the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, the Equal Remuneration Act, 1976, the Payment of Bonus Act, 1965, the Employee Provident Fund and Miscellaneous Provisions Act, 1952, etc. ensure the safety and welfare of employees. Non- compliance with such labour laws lead to criminal liability upon employers who refuse to provide such benefits to their employees. Labour laws facilitate the equal treatment of human beings and protect them from being exploited. Compliance with such laws ensures the happiness and well-being of employees as well, which in turn reflects in the growth of the organization. Employees are the greatest asset of any organization without which the success of an organization is hard to achieve. Their safety and welfare must be the top priority of every establishment.

Fair Competition in the midst of Pandemic

The Competition law in India is governed by the Competition Act of 2002. The Act promotes fair competition among all the players in the market. This in turn encourages product variation and innovation, providing consumers with a variety of goods and services to choose from. It promotes competition by prohibiting anti-competitive agreements, abuse of dominant position, and by regulating combinations. The term combination includes mergers or amalgamations, and acquisitions. The COVID-19 pandemic has caused serious disruptions in the supply chain. The imposition of lockdowns in the country has indeed brought businesses to a standstill and forced them to evolve in order to survive. It has posed a major threat to non-essential commodities. The main source of survival for a business, during these challenging times, are the essential commodities. Prices of such commodities have been skyrocketing. Many such products have been arbitrarily priced. Businesses have been constantly finding ways to profit at the expense of the general public. Prices of face masks, ventilators and sanitizers have been increased two to three times of their initial price. Whereas consumers, suffering from financial difficulties, are finding it hard to pay for such essential commodities in order to keep themselves safe. The pandemic has indeed posed a major threat to the global economy. Disruption of the supply chain has become inevitable, forcing enterprises to coordinate with each other to ensure continued supply and fair distribution of products. Section 4 prohibits anti-competitive agreements in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which cause an appreciable adverse effect on competition within India. However, this section is not applicable to joint ventures, if such agreements increase efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services. Section 19(3) also requires the Commission to keep in mind the benefits of such agreements to the consumers, improvement in production or distribution of goods or provision of services, and promotion of technical, scientific, and economic development by means of production or distribution of goods or provision of services. Therefore such agreements are not declared void unless all of the above are taken into account. The Commission, through an advisory, dated 19 April 2020, has mentioned that agreements for coordinated conduct made during these extraordinary situations will not be considered as having an appreciable adverse effect on competition as long as it increases its efficiency. It has also cautioned businesses against taking advantage of COVID-19 to act in contravention of the provisions of the Act. Regarding the filing of combination notices, the CCI has allowed such notices to be filed online through its official website. It is important for businesses to bear in mind that it is a challenging time for all other businesses and consumers as well. Therefore no business should act in contravention to the fair competition provisions provided in the Act. It is especially important for businesses to understand the financial difficulties prevailing in such times and avoid taking advantage of such difficulties for their own benefit. Fair competition practices, although inevitable to keep up in the face of COVID-19, must be followed as much as possible. Enterprises that are at a dominant position especially now, should not misuse it at another’s expense.

Stamp Duty Amendments on Securities Transactions Amid COVID-19

Stamp duty is by and large paid on the value of an instrument to be used in various transactions. The Constitution of India lays down that, stamp duty is imposed by the Central and State governments, but the state government with appropriate jurisdiction exclusively have the power to collect. Previously, the Indian Stamp Act exempted the transfer of securities in dematerialized form from the liability of stamp duty. This position has now been changed after the amendment brought forth in the Finance Act, 2019. This amendment to the Stamp Act, 1899, announced in the Finance Bill, 2019, which introduces a centralized system of stamp duty with a unified rate for all financial securities transactions coming to effect from 9th January 2020, later moved to April 1st has now again been shifted to July 1st, its implementation has taken longer than necessary due to Covid-19 related lockdown across the country. But the crux of the matter is that this amendment is being brought about to make doing business simple and bring uniformity to the stamp duty implemented on securities across states thereby building a pan-India securities market, which has been an agenda of the Government all along.

Effects:

The stock exchanges now from 1st July shall collect stamp duty for trading in securities at a unified rate & deposit the takings with the Centre, which will then divide it among states in which the trade took place. As the whole point of levying stamp duty is to eradicate evasion of duty and rate shopping but however before the Amendment rates of stamp duty were different in different states. This left a loophole in the regulation which the parties exploited, as it allowed them to execute the instrument in whichever state with lower rates of stamp duty to escape a greater transaction cost. This is evasion is known as rate shopping & the numerous rates that could be implemented on the same instrument just varying as per the different states is the cause for uncertainty and now become a barrier for capital formation. As per this amendment, the states will collect stamp duty on securities market instruments (i.e. sale and purchase) at uniforms rates on transactions of shares, debentures and other securities and distribute the same appropriately depending on the state of domicile of the buyer buying the securities as opposed to previously where, the market participants collected stamp duty at rates fixed by the state where the trade was taking place and deposit it with the local government.

Uniform Stamp Duty:

This unified stamp duty aims to homogenize the collection of stamp duty and plug certain loopholes. Stamp duty will now also be imposed only once & that too on the buyer which was previously implemented on both (buyer & seller) removing the double imposition of stamp duty on buyers and sellers. Stamp duty is payable to the state in which the buyer in these transaction is located for which the states will notify about the new rates, process, and collection agency to avoid any further ambiguity.

Conclusion:

The government’s decision to amend the Stamp Duty Act has been implemented due to the fact that differential rates of stamp duty on securities created ambiguity and gave rise to in brokerages choosing states where the stamp duty rate is lower, hence paying lesser in stamp duty. For that reason bringing a uniform rate will put an end to such practices. However, Individuals in states with higher stamp duty rates will benefit from this but, the traders who had speculatively positioned themselves in low stamp duty states will now pay more. These amendments are in force as of 1st July, 2020 as established by the Ministry of Finance in a press release on 30th June 2020 but only time will now tell the actual impact this will have on the Indian stock market.

Shareholder Activism in India in the Aftermath of COVID-19

COVID-19 has continued to put businesses and Boards, nationally and globally through the ringer and they are repetitively required to react and address the impact on continuity of business. The market is volatile, stock prices have endured substantial losses, annual meetings and financial reporting have been delayed, and floundering companies are left wondering if there will be an ambush of acquisitions by third parties or shareholder activists seeking to take advantage. Activist shareholders are shareholders of a company that endeavour to utilise their equity stake in the company to achieve positive goals. The main objective of activist shareholders is typically to bring about change within or for the company. They alter the actions of a company by exercising their voting power or even by winning over other shareholders. The critical effect of the COVID-19 pandemic on shareholder activism is still essentially ambiguous and has been compared to what ensued after 2008 global financial crisis which are alluring if nothing else, but the questionable aspect is whether the activists may still rely on the same powers that were driving activism prior to COVID-19. Corporate leaders taking a public stand on an opinionated socio-political debate has become progressively common in western democracies, but companies across the globe are now playing significant roles in modelling and shaping public policy and political debates either through funding of political or social campaigns or self-interest lobbying, but the phenomena of shareholder activism is still somewhat new. As it the case that generally, non-controlling shareholders are passive and more concerned above all with the financial aspects of their investments in a company. It may even be considered irrational to anticipate them raising their concerns about corporate responsibility; particularly since it may have adverse effects on their return on investments. The non-controlling passive shareholders are generally ‘realistically uninterested’ in the comprehensive goals of a company. Nevertheless today have been occurrences of activist shareholders who are working closely with companies to guarantee sustainable growth of corporate happiness. Even the 2008 financial crisis and the outpouring in shareholder activism that followed are still considered unchartered waters hence, the ultimate impact of COVID-19 on shareholder activism still remain tentative and ambiguous. Pre-emptive measures to be taken given this ambiguity are as follows:
  1. Companies must contemplate launching activist defence teams responsible for monitoring their shareholder profile for early warning signs of unfriendly accumulations;
  2. Temporary open and hands-on shareholder arrangements on how the company is going to weather this storm as well as bounce back from the crisis;
  3. Consider initiating any anti-takeover measures (such as shareholder rights plan, often referred to as a ‘poison pill’), if they have any such concerns about being in any such cross-hairs;
However in India, there are various concerns about how such kind of activism can be enabled. Particularly in large Indian companies, issues of corporate purpose and sustainability are not debated as actively amongst the shareholders. A primary obstacle in most of the large Indian companies is that their ownership and control is concentrated, significantly decreasing the chance of active shareholder engagement as such engagement is less likely to succeed in companies with higher share concentrations. Additionally, a lack of shareholder activism has made the board of directors fearless and for the reason that directors have not been held answerable to the shareholders on their social responsibility agendas. Though not as established as in the western economies, the spectacle of activist shareholders swaying corporate policies and actions is slowly gaining ground in India they conversely are yet to achieve significant success in India. Some of the policies adopted are having been;
  1. Voting against a resolution in shareholders’ meeting
  2. Initiating litigation against before the National Company Law Tribunal regarding oppression /mismanagement pursuing remedy for erosion of shareholder value
  3. Seeking Board Representation since day-to-day administration and operations of a company is in the hands board of directors of a company, activist investors are seeking to control the structure such boards to safeguard their interests.
Corporate activism in India is still developing and hopefully these recent losses rate do not deter activist shareholders in the future in raising their voices against the majority shareholders as the Indian companies will need clear processes and mechanisms for shareholder engagement to overcome this COVID-19-driven market disruption.

Revival and Rehabilitation of Sick Companies under Companies Act 2013

The strength of the industrial sector in any country, by and large, decides the reliability of its economy. And for a developing economy like India which for all intents and purposes cannot afford any growing sickness in industries has been prone to Industrial Sickness that taking place right from the pre-Independence days. The Government tried to combat this sickness with certain measures, the Nationalisation of banks helped, but none of these measures proved to be a permanent solution to this problem. This situation can be credited to colossal wastage of physical, financial and human resources & this presence of resource crisis, industrial sickness is becoming a more distressing status quo. A company is said to be a sick company when on-demand by the secured creditors of a company representing the 50% or more of its outstanding amount of debt and the company has failed to satisfy the secured creditor within 30 days of the demand notice and accumulates losses equal to or more than its net worth. The company must also necessarily have had at least 50 workers on any given day of 12 months prior to the financial year in which sickness has been claimed. Indian companies are on the rise as providers of a wide range of goods and services at global level markets and are providing employment opportunities to people around the world. Hence, when a company claims sickness the first step is to verify if that the company can be revived, by providing financial assistance and in that case, relief and concession is made available to such companies through financial and other institutions. However on the other hand, if it is found that reviving the company is not likely and is not in any position to satisfy its financial responsibilities; action must then be initiated to wind it up. The Reserve Bank of India defines a sick industry as one “which fails to generate an internal surplus on a continuous basis and depends for its survival upon frequent infusion of funds.” The revival & rehabilitation of such companies has now been provided for in The Companies Act 2013, before that the coverage of Sick Industrial Companies Act, 1985 (SICA) was limited to only industrial companies, however, the 2013 Act covers the revival and rehabilitation of all companies. Process to be followed as per the Companies Act, 2013 Industrial Sickness is allied directly with cash flow and the right of majority secured creditors are essentially being protected under this act. As per provisions of this act are;
  1. Firstly, if a company is unable to pay their debt within 30 days of notice to the company; they can file an application with the National Company Law Tribunal (NCLT) for purpose of claiming the company as sick company.
  2. Then if the tribunal is satisfied that the company has become a sick company after in view of all the relevant facts & state of affairs of the case will decide if it is feasible for the company to settle its debts within a reasonable amount of time.
  3. When the tribunal accepts/ determines the sickness of the company, the applicant then has the option to make an application within 60 days of such determination for actions to be adopted for revival and rehabilitation of the company.
  4. However, after the tribunal’s determination the company as sick, if the company has no draft scheme for its revival and rehabilitation, the tribunal can appoint an interim administrator to prepare a report about the possibility of revival and submit the same to the tribunal who may sanction such scheme within 60 days of approval by the creditors.
  5. Or the company will be wound up if the scheme is not approved by the creditors and the administrator will submit the report within 15 days & the tribunal can hence the wind up of the company.
  6. For the commitments of rehabilitation, revival and liquidation of the sick companies there is a provision for ‘Rehabilitation and Insolvency Fund’, managed by the administrator to contain the following items;
    • Grants made by the Central Government for the purposes of the Fund;
    • Amount deposited by the companies as a contribution to the Fund;
    • Amount given to the Fund from any other source;
    • The income from investment of the amount in the Fund.
CONCLUSION: The problem of sickness has been increasing every year in large proportion due to lack of good corporate governance, lack of standard research/Development; some of this can also be accredited to fluctuations in Government policies leading to excessive tax policies & market recession. The magnitude of industrial sickness is an especially dangerous issue in the present scenario due to the COVID-19 pandemic making the future of industries in India very uncertain. Thus, the Companies Act which offers for comprehensive measures for the revival and rehabilitation of the sick companies along with the tribunal is taking all necessary measures for the revival and rehabilitation of the sick companies going as far as to implement a penalty in providing a false statement or violating any order made the tribunal punishable with imprisonment for a term of seven-year or more along with a fine of Rs.1 lakh.

Need for Technology in Labour Law Compliance Management

India is amongst the few countries in the world with a substantial labour force and labour laws have gotten progressively more and more complicated with time hence, one of the core challenges any corporation faces is in respect to labour compliances as it is challenging for industries to complete all the legal formalities required to stay compliant to the ever-changing & evolving labour laws and regulations. Labour laws are considered a ‘specialised area’ & non-compliance issues related to labour laws brings with it extensive legal repercussions as well as hazards. There are central and state-specific labour laws in India subject to industry & their geographical locations and jurisdictions. Presently, India is still on the verge of compiling a comprehensive legal guideline for corporate risk and compliance management, and primarily compliance with labour laws is gathering massive impetus within the corporate sector. A company in India has to comply with a plethora of laws with regard to labour laws, such as the Industrial Disputes Act 1947; the Employees State Insurance Act 1948; the Employees’ Provident Funds and Miscellaneous Provisions Act 1952; the Payment of Bonus Act 1965; the Factories Act 1948; the Contract Labour (Regulation and Abolition) Act 1970; the Child Labour (Prohibition and Regulation) Act 1986; the Maternity Benefit Act 1961; the Payment of Gratuity Act 1972; and Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013. Beyond these central Acts, there are definite state-specific acts that are also mandatory to be observed by companies, for instance, Professional Tax Act and the Shops and Establishment Act are state-specific acts varying from state to state. Thus to provide consistent support for different industries across India the use of technology has been recommended which will help in operational enforcement of labour laws in the country as well as bring in more transparency and accountability. Former Finance Minister Arun Jaitley pushed for various labour reform measures, especially technology-driven ones that will ensure compliance but reduce the complexity in compliance. A system that can do a continuous assessment of the Labour Laws compliances in organizations provide greater functionality and makes certain that risks associated with non-compliance of these laws are prevented or mitigated beforehand. Numerous employers incorrectly believe they are in compliance just for the reason that they have a workforce management system in place. Nevertheless, countless timekeeping software solutions still only cover the most basic labour law compliance functions. But what the Indian Corporate sector needs is a step towards a technology platform that manages compliance with practically any labour regulation, and is backed by labour regulation experts who keep an eye out for any new or amended laws as well as recognizes the various intricacies of these rules & regulations, the common compliance oversights, etc. European countries nowadays reduce wage flexibility and inequality through a host of labour market regulations, like binding minimum wage laws, permanent unemployment subsidies, firing costs. Knowledge of Labour and Industrial Laws from technological development has now become a must that can incentivise economic growth. SUGGESTIONS Some suggestions that will pave the way for Automated Labour Law Compliance by the use of information technology in India are;
  • Compliance Software– Collection of all central and state laws & schedules frequent compliances in one single platform & perform Internal Checklists Option that can also be customized for each compliance as well as join forces with stakeholders on a single platform.
  • E-Libraries- Access to all the up-to-date Minimum Wages, Rates, List of Holidays, Latest Gazette Notifications, Catalogued Acts, Rules, Forms all states in India.
  • Legal Backing- Experienced legal that will simplify that can simplify tasks and help companies understand the consequences of non-compliance.
  • Database- Comprehensive facts and figures on the compliance requirement, recurrence and penalties for non-compliance.
  • Risk Control- a single platform that provides live scores i.e. giving all stakeholders information on the status of all compliances along with risk scores in the company.

Impact of COVID-19 Pandemic on Mergers and Acquisitions (M&A)

COVID-19 pandemic has led to a worldwide lockdown. The sudden halt in activities has led to a disturbance in business transactions and the entire world has seen an economic crisis. The pandemic also impacted Mergers and Acquisitions as the corporations have to take a tough decision between delaying or holding deals still and going ahead with operations. The main reason which impacted mergers and acquisitions are change in business dynamics, liquidity crunch, disruption in supply chains, and re-arrangement of surplus funds. Mergers and Acquisitions are considered to be one of the best modes of business expansion before the COVID-19 pandemic India Inc. saw a great spike in Mergers and Acquisitions deals but due to the outbreak many business owners and managers shifted their focus to core business and Mergers and Acquisitions took a backseat. The aviation, hospitality and tours and traveling sectors have been deeply impacted due to the outbreak, buyers and investors will review and reconsider their decisions and Mergers and Acquisitions deals might be suspended. As buyers and sellers are constantly negotiating acquisition agreements, material adverse effect (MAE) clauses are playing an important role. The MAE clause is a clause in Mergers and Acquisitions agreements that permit buyers to terminate an agreement or transaction, as a result of an event or series of events, which had a significant impact on the financial health and business operations of the target. The bar for proving a MAE clause by the buyer is set pretty high and very often the court of law accepts the excuse as the buyers fail to provide sufficient facts but due to the pandemic, the entire global economy has seen a crisis and such a situation might trigger many MAE clauses. Though MAE clauses do not cover Act of God or pandemics to minimize risk but the current ongoing situation is different and difficult and there are exceptions to certain clauses, the buyers and sellers before reaching a solution will have to assess the risk and challenges and one thing that has to be kept in mind is both parties expectations are being met. The COVID-19 pandemic will not only affect the Mergers and Acquisitions agreements but also buyer-seller relations, corporate governance structure, pricing structures and deal procedures. There will be an increase in delay in Mergers and Acquisitions agreements which were in their initial stage and might be suspended for some time. Global investments might face a back seat as Multi-National Companies will redirect investments and conserve cash owning to the unstable markets. Financial schemes and reliefs such as tax relaxations announced by the Union Budget 2020 and relaxation of schemes by regulatory bodies like SEBI, RBI, and MCA might act as a stimulant and simplify the process of Mergers and Acquisitions. MNCs can find this as an opportunity to acquire stressed companies that might fetch high capital later. The due diligence clauses will be impacted and changed, buyers might suggest to expand due diligence clauses owing to the impact of Covid-19 on the seller’s business, these will include financial and operational suggestions, the buyer might review the accounts of the company, employee strength to resume operations, the debts of the company, the buyer can request to review contracts, with limited physical meetings the buyers has to rely more on virtual data provided by sellers. The COVID-19 era will experience certain changes owning to Mergers and Acquisition agreements, MAE clauses might enlist pandemics and lockdowns; relief measures are constantly being announced by the Government and compliance dates are being relaxed; specified warranties will be provided by sellers to buyers in order to overcome risk and challenges; many regulatory bodies like SEBI, RBI has allowed filings of applications electronically; e-contracts and e-signatures will play a vital role in the execution of agreements and board meeting and approval from shareholders and audit committee will be obtained through video conferences. In the post COVID-19 era businesses will have to identify challenges, the financial markets will take time to stabilize and this will be an opportunity for buyers and sellers to resume the suspended acquisitions agreements. Healthcare, pharmaceutical, and IT sectors might see a major uprise and potential Merger and Acquisition activity can take place.