INSITE - INDIA - August 2023

INDIA

TELECOM REGULATORY AUTHORITY OF INDIA RELEASED RECOMMENDATIONS ON LEVERAGING ARTIFICIAL INTELLIGENCE AND BIG DATA IN THE TELECOMMUNICATION SECTOR

Sector: Telecommunication

Background: The recommendations are aligned with India’s commitment as a member of the global partnership on AI and consider global regulatory developments in AI as proposed in the EU AI Act, 2023, UK Policy Paper on AI, 2022, Saudi Arabia AI Framework and SDAIA), 2019, Australia AI Ethics Framework, 2019, OECD Principles on AI, 2019, Singapore Advisory Council on Ethical Use of AI, 2018, and the USA Federal Trade Commission Principles, 2020. The recommendations have been placed on TRAI’s website.

Summary: TRAI organised a virtual conference in August 2020 and issued the Consultation Paper (‘CP’) on Leveraging Artificial Intelligence and Big Data in the Telecommunication sector on 5 August 2022. Based on the comments of the stakeholders, TRAI has issued recommendations on leveraging Artificial Intelligence (“AI”) and Big Data in the telecommunication sector on 20 July 2023 (“Recommendations”)

Recommendations in a nutshell: (1) Setting up of a unified regulator who shall create a regulatory framework that enables transparency and accountability for AI use; (2) High-risk use cases that directly impact humans should be regulated through legally binding obligations. (3) DoT(Department of Telecommunication) to support start-ups in holding AI/ML (Artificial Intelligence/Machine Learning) events for demonstration of their ideas, improvising their solutions/products, and reporting bugs in the existing AI/ML systems.

Other recommendations: (1) TRAI has proposed immediate establishment of an independent statutory authority responsible for the development of responsible AI and regulating AI use cases, namely Establishment of Artificial Intelligence and Data Authority of India (AIDAI); (2) AIDAI will be supported by an advisory body comprising representatives from various ministries, industry, academia, legal and cyber experts called Multi Stakeholder Body (MSB); (3) Risk-Based Regulation to include specific AI use cases will be regulated based on a risk assessment, with high-risk applications subject to legally binding obligations; (4) AI Adoption in Telecom: TRAI recommends collaborating with telecom service providers to enhance capabilities through AI and other technologies for real-time data analysis, network security, and customer grievance redressal; and (5) TRAI recommends utilizing the "Digital Communication Innovation Square (DCIS)" scheme to support startups and organizations in AI/ML events and bounty programs for idea demonstration and solution improvement.

Impact Assessment: The establishment of a unified regulator and the regulation of high-risk AI use cases will enhance transparency, accountability, and public trust in AI technologies. Simultaneously, the support provided by the Department of Telecommunication for AI/ML start-ups will foster innovation and collaboration in the AI ecosystem. However, careful attention must be given to striking the right balance between innovation and regulation to maintain a conducive environment for AI development. Regular assessments and updates to the regulatory framework will be crucial to adapting to the dynamic landscape of AI and ensuring its safe and ethical use.

Key links:

https://www.trai.gov.in/notifications/press-release/trai-releases-recommendations-leveraging-artificial-intelligence-and-bighttps://www.trai.gov.in/sites/default/files/PR_No.62of2023.pdf

RECENT AMENDMENTS TO SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS), 2015

Sector: Corporate/Commercial

The Securities and Exchange Board of India (SEBI), on June 14, 2023, amended the SEBI (Listing Obligations and Disclosure Requirements) 2015 (Principal Regulations) vide SEBI LODR (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2023 (Amendment Regulations).

The changes that took effect on July 14 aim to make disclosure and governance rules stronger for listed companies. They modify key parts of the LODR Regulations, including:

(1) Using clear criteria to decide what events/information is significant and shortening the time for disclosures. (2) Revising disclosure and approval rules for special rights given to shareholders. (3) Confirming or denying rumours. (4) Adding new disclosure requirements for specific types of agreements and more.

The SEBI LODR is primarily applicable to entities that have listed their equity shares or convertible securities on recognised stock exchanges. Certain select provisions are also applicable to listed entities that have listed their non-convertible debt securities.

Key Amendments:

Additional criteria for determination of materiality of events/information (Regulation 30(4): SEBI added additional criteria to determine material events/information disclosure. If an event's value or impact is higher than either 2% of net worth or turnover or 5% of the average profit or loss after tax for the last three financial statements, it must be disclosed. This objective test helps decide if an event is considered significant or not. SEBI clarified that even if the specific materiality criteria are not met, an event can still be considered important if the board of directors thinks so. The materiality policy cannot weaken the SEBI LODR rules. It's meant to help employees identify significant events and report them to authorized personnel. This is a subjective approach to assist employees in recognizing material events.

Timelines for disclosures of material events (Regulation 30(6)): A significant change has been made to the timelines for disclosing material events to the stock exchange. Listed entities must now disclose such events as soon as possible and, at the latest, within the following timeframes: (i) within 30 minutes from the board of directors' meeting where the decision was made, (ii) within 12 hours if the event is from within the entity, and (iii) within 24 hours if the event is external (unless specified otherwise in Part A of Schedule III). These new timelines are a major shift from the previous requirements for material event disclosures.

Confirmation or denial of rumours (Regulation 30(11)): Starting from October 1, 2023, the top 100 listed entities (later increased to the top 250 from April 1, 2024) must promptly respond to any specific material event or information reported in the media that is not of general nature and involves circulating rumours among the public. They must confirm, deny, or clarify the reported event within 24 hours of its reporting. The listed entity must also update on the current stage of such event or information.

Disclosure requirements for certain types of agreements (Regulation 30A): All shareholders, directors, employees, and related parties of a listed entity must inform the listed entity about agreements they enter into, even if the listed entity is not a direct party if these agreements impact the management or control of the listed entity. This disclosure should be made within two working days of entering into such agreements. This applies to non-listed entities as well.

Special rights to shareholders (Regulation 31B): Special rights granted to shareholders of a listed entity must receive shareholder approval (special resolution) every five years. This rule applies to existing special rights as of July 15, 2023, and includes preferential rights like voting rights. However, it does not apply to special rights given to regulated financial institutions or SEBI-registered debenture trustees under specific arrangements. The provision ensures periodic approval for special rights, preventing perpetual privileges without shareholder consent.

Annual Report (Regulation 34(2)(f)): The top one thousand listed companies, based on market capitalization, must include a Business Responsibility and Sustainability Report in their annual report. This report will cover environmental, social, and governance disclosures, following the SEBI-prescribed format. This requirement remains unchanged from before.

Sale or lease of substantial undertaking (Regulation 37A): If a listed company plans to sell, lease, or dispose of its whole or significant part of the business, it must follow these steps:

(a) Obtain approval from shareholders through a special resolution.

(b) Disclose the purpose and commercial reasons for the action and how the proceeds will be used.

The special resolution is valid only if the votes of the 'public shareholders' in favour of the resolution outnumber the votes against it. This process adds new requirements, while the first one (a) already exists under Section 180(1) of the Companies Act 2013.

Continuation of directors (Regulation 17(1D)): Starting from April 1, 2024, directors serving on the board of a listed company will need shareholder approval every five years from their appointment or reappointment. This rule doesn't apply to directors retiring by rotation if shareholder approval for their reappointment or continuation has already been granted.

Impact Assessment: These amendments will have an impact on the future acquisition of shares of listed entities other than through stock exchanges. They improve corporate governance by requiring detailed disclosures from listed entities, promoting transparency, and safeguarding the interests of public shareholders.

Key Links:

https://www.sebi.gov.in/legal/regulations/jul-2023/securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-regulations-2015-last-amended-on-july-4-2023-_74143.html

NEW GST GUIDELINES

Sector: Taxation

Ministry: Ministry of Finance

Summary: From 1 August 2023, it will be mandatory for all businesses with a turnover of ₹ five crores or above to produce e-invoices.

In Detail: According to the new GST (Goods and Services Tax) guidelines, companies with a B2B transaction value of ₹5 crores or more must generate electronic invoices. Previously, this requirement applied to companies with annual revenue of ₹10 crores or above. Starting from 1st August 2023, GST taxpayers with an aggregate turnover exceeding ₹5 crores must follow e-invoicing for B2B supplies or exports.

The CBIC's decision aims to increase tax collections and compliance under the GST regime. Including Micro, Small, and Medium Enterprises (MSMEs) in the e-invoicing system is considered a positive development benefiting both businesses and the government.

Benefits to MSMEs: The addition of MSMEs to the e-invoicing system is viewed as a positive move, likely to boost the sector's growth. Experts predict that this expansion will enhance input tax credit flow and reduce credit-related problems for suppliers. The gradual implementation of e-invoicing has already led to reduced disruptions, improved compliance, and increased revenue. Overall, the move is expected to benefit businesses by lowering costs, minimizing errors, speeding up invoice processing, and reducing commercial disputes in the future.

Lowering the e-invoicing threshold is expected to boost GST revenue and combat tax evasion. The government is using advanced data analytics and AI to track risky taxpayers and share data with law enforcement agencies for targeted intervention against tax evasion.

During the 50th Meeting of the GST Council held on July 11, 2023, they discussed the taxation for online gaming, horse racing, and casinos. Based on the GoM (Group of Ministries) final report, the following decisions were made:

(1) Online gaming and horse racing will be included in Schedule III as taxable actionable claims by amending the law. (2) All three activities (casinos, horse racing, and online gaming) will be taxed at a uniform rate of 28%. (3) Casinos will be taxed based on the face value of chips purchased, horse racing on the full value of bets placed with the bookmaker/totalisator, and online gaming on the full value of bets placed.

However, the effective date for implementing the 28% GST levy is yet to be notified by the government.