Corporate Laws Newsletter: Extension of relaxation for the minimum residence criteria for Directors – Nov 2020

Every company is required to have at least one director to remain in India for a period of not less than 182 days in a financial year. In an attempt to address the inconvenience caused due to the travel restrictions imposed as a result of Covid-19 outbreak in India, the Ministry of Corporate Affairs (MCA) has clarified that the absence of at least one director qualifying for minimum residency requirement of 182 days in a financial year will not be treated as a non-compliance for the financial year 2020-21. This relaxation provided earlier has been extended by the MCA for the entire financial year 2020- 21 thereby providing relief to companies and directors who were struggling to ensure compliance with the minimum residency requirement under the Companies Act, 2013.

Clarification on FDI Policy for uploading/streaming of news and current affairs through Digital Media

The Central Government, vide Press Note 4 of 2019 (“PN4”), liberalized the FDI regime for news digital media sector by allowing FDI up to 26% through the government approval route for entities engaged in uploading/streaming of news and current affairs through digital media. On October 16, 2020, DPIIT issued a clarification on PN4 to address various concerns raised by the stakeholders (“Clarification”).

(a) Ambit of PN4: PN4 is applicable to the following entities registered or located in India:

(i) Digital media entity uploading/streaming news and current affairs on websites, apps or other platforms;

(ii) News agency which gathers, writes and distributes/transmits news, directly or indirectly, to digital media entities and/or news aggregators; and

(iii) News aggregator, being an entity which, using software or web application, aggregates news content from various sources, such as news websites, blogs, podcasts, video blogs, user submitted links, etc. in one location.

(b) Grace Period: The entities are required to align their FDI to 26% with the approval of the Central Government within a period of one year from the date of the Clarification.

(c) Management: The majority of the directors on the board of the entity shall be Indian citizens. The chief executive officer shall be an Indian citizen. Further, entities are required to obtain security clearance of all foreign personnel likely to be deployed for more than 60 days in a year by way of appointment, contract, consultancy, or otherwise for functioning of the entity prior to their deployment. Upon denial or withdrawal of security clearance, the investee entity will ensure termination of the concerned person pursuant to receiving such directives from the Government.

(d) Responsibility of compliance: The investee entity shall be responsible for ensuring compliance with the FDI Policy and the application regulations.

The clarifications are stark contrast to the intention of PN4 aimed at liberalization of the FDI regime in news digital media sector. A wide import has been granted to PN4 which has become a pressing concern for entities who would now be required to align their shareholding with the prescribed FDI threshold of 26%. Interestingly, even entities such as Facebook, Google, YouTube, and inShorts, among various others, may fall within the ambit of PN4 owing to one of their offerings as aggregation of news and a lack of distinction in PN4 relating to news aggregation being a primary function or an auxiliary function. Most of these entities have their presence in India and are, presumably, wholly owned by their parent entities registered in foreign jurisdictions. It remains to be seen how such entities deal with the practical difficulties of having to attain the necessitated compliance. Further, an untouched question that contributes to the amplification of the extant ambiguity pertains to the constituents of ‘news’. A response from the Central Government in this regard is imperative to instil clarity on the contours of the subject matter. At a broader level, this change in policy, whereby the government assumes increased control over the digital news media space could be worrisome for the stakeholders as they are bound to witness an impact on investments.