Category Archives: company secretary

Insolvency Resolution Process for Corporates

The Insolvency and Bankruptcy Board of India (IBBI) has amended the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 on 5th October, 2017. According to the Amended Regulations, a Resolution Plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the Corporate Debtor.

The Amendments are available at www.mca.gov.in and www.ibbi.gov.in.

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FPI participation in commodity derivatives in IFSC

SEBI has vide circular dated 26th September, 2017 allowed Foreign Portfolio Investors (FPIs) to participate in commodity derivative contracts traded in stock exchanges in International Financial Services Centre (IFSC) subject to conditions, such as

a) Participation would be limited to derivative contracts in non agricultural commodities only;

b) Contracts would be cash settled on settlement price determined on overseas exchanges;

c) All transactions shall be denominated in foreign currency only.

SEBI circular can be found here i.e. http://www.sebi.gov.in/legal/circulars/sep-2017/participation-of-foreign-portfolio-investors-fpis-in-commodity-derivatives-in-ifsc_36081.html

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NCLAT Amendment Rules, 2016

The MCA has vide its notification dated 24th August, 2017, amended the National Company Law Appellate Tribunal Rules, 2016.

Rule 63 which hitherto specified that any party to any proceedings or appeal before the Appellate Tribunal may either appear in person or authorise one or more chartered accountants or cost accountants or company secretaries or legal practitioners or any other person to present his case before the Appellate Tribunal.

Now a sub Rule (2) has been added to the Rule 63, which allows the Central Government or Regional Director or Registrar of Companies or Official Liquidator to authorise an officer or an advocate to represent them in the proceedings before the Appellate Tribunal. If it is an officer, then it shall not be below the rank of junior time scale or company prosecutor.

The amendment is available at

Click to access NCLATAmendmentRules2017_25082017.pdf

 

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Companies (Acceptance of Deposits) Second Amendment Rules, 2017

MCA has brought about an amendment to the Companies (Acceptance of Deposits) Rules vide its Second Amendment Rules of 2017 on 19th September, 2017.

Rule 3(3) of the Rules stated that

“No company referred to in sub-section (2) of section 73 shall accept or renew any deposit from its members, if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal of such deposits exceeds [thirty five per cent] of the aggregate of the [Paid-up share capital, free Reserves and securities premium account] of the company.

[“Provided that a private company may accept from its members monies not exceeding one hundred per cent of aggregate of the paid up share capital, free reserves and securities premium account and such company shall file the details of monies so accepted to the Registrar in such manner as may be specified.”]

It is the proviso to Rule 3(3) that is being amended.

The new proviso allows specified IFSC public company and private company to accept monies from its members not exceeding 100% of the aggregate of paid-up share capital, free reserves and securities premium account and such company shall file details of monies so accepted to the Registrar in form DPT-3.

Explanation to the proviso states that specified IFSC public company is an unlisted public company licensed to operate either by RBI, SEBI, IRDA in an approved international financial services centre located in an approved multi services Special Economic Zone.

Another proviso has been added to this sub-rule viz.

that the maximum limit in respect of deposits to be accepted shall not apply to

  1. private company which is a start-up for 5 years from the date of its incorporation, or
  2. private company which fulfills all the following conditions, viz.

a) which is not an associate or subsidiary of any other company (i.e. a purely private company)

b) the borrowings of such company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or Rs.50 crores, whichever is less (i.e. if the paid up share capital is Rs.1 lakh, then the borrowings should be less than Rs.2 lakhs or Rs.50 crores, whichever is less. So obviously the borrowings in this case should be less than Rs.2 lakhs)

c) company has not defaulted in repayment of such borrowings.

All the three conditions above has to be satisfied in respect of this second clause of this second proviso.

So basically the relaxation in acceptance of deposits is in favour of IFSC public company and start up private company. In respect of a purely private company the relaxations are dependent on its paid up share capital.

The companies accepting deposits should report the same in form DPT-3.

The amendment is available at

Click to access CompaniesAcceptanceofDepositSecondAmendmentRule_22092017.pdf

 

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Restriction on no. of layers

MCA has come out with a new rule with effect from 20th September, 2017 which is called the Companies (Restrictions on Number of Layers), Rules, 2017.

As per this Rule, no company shall have more than two layers of subsidiaries. Exemptions are wholly owned subsidiary or subsidiaries. Companies can however acquire more than two layers of subsidiaries outside India as per the laws of such jurisdiction.

Banking company, NBFC, Insurance company and government company is exempted from the provisions of these Rules.

Rule 3 says that the provisions of this rule shall not be in derogation to proviso to section 186(1) of the Act. That proviso says, in the first part that the company can acquire any other company incorporated outside India, if such foreign company has investment subsidiaries beyond more than two layers as per the laws of such country. The (b) portion of the proviso says that a subsidiary company can have investment subsidiary for the purpose of meeting any requirement under any law or rule or regulation thereto. The (b) proviso pertains to the Indian jurisdiction. So basically investment subsidiaries are outside the ambit of this Rule if they are the 2nd layer of subsidiaries.

Rule 4 specifies that where a company has subsidiaries in excess of the limits specified in these Rules, as on the date the Rules come into force, then it shall, within 150 days of these Rules, file with the ROC a form i.e. CRL-1, disclosing the details specified therein in the said Form. It shall not after the commencement of these Rules, have any additional layer of subsidiaries more than what it had on the date of commencement of these Rules. In case one or more layers are reduced after these Rules come into force, the Company shall keep the layers of subsidiaries at that reduced level or at the maximum level specified in these Rules. For eg. if a company has 4 layers of subsidiaries at the commencement date and subsequently one layer has dropped off, the company cannot increase the layer from 3 to 4 merely because it had 4 layers at the commencement date. It should be kept at 3 levels only.

Rule 5 is the penalty clause whereby the fine is Rs.10,000 for the company and every officer in default and if it is a continuing default, then further fine of Rs.1000 per day during the period the contravention continues.

So basically the Rule allows the companies to retain their level of subsidiaries, but not add to it. As and when the companies delete one or more of their subsidiaries, then they should retain it at that level or upto two layers and not increase it further.

The Rules is available at the MCA site at

Click to access CompaniesRestrictionOnNumberofLayersRule_22092017.pdf

 

 

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Payment of Gratuity Amendment Bill, 2017

PIB Press Release dated 12th September, 2017

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its approval for introduction of the Payment of Gratuity (Amendment) Bill, 2017 in the Parliament.

The Amendment will increase the maximum limit of gratuity of employees, in the private sector and in Public Sector Undertakings/ Autonomous Organizations under Government who are not covered under CCS (Pension) Rules, at par with Central Government employees.

Background:

The Payment of Gratuity Act, 1972 applies to establishments employing 10 or more persons. The main purpose for enacting this Act is to provide social security to workmen after retirement, whether retirement is a result of the rules of superannuation, or physical disablement or impairment of vital part of the body. Therefore, the Payment of Gratuity Act, 1972 is an important social security legislation to wage earning population in industries, factories and establishments.

The present upper ceiling on gratuity amount under the Act is Rs. 10 Lakh. The provisions for Central Government employees under Central Civil Services (Pension) Rules, 1972 with regard to gratuity are also similar. Before implementation of 7th Central Pay Commission, the ceiling under CCS (Pension) Rules, 1972 was Rs. 10 Lakh. However, with implementation of 7th Central Pay Commission, in case of Government servants, the ceiling now is Rs. 20 Lakhs effective from 1.1.2016.

Therefore, considering the inflation and wage increase even in case of employees engaged in private sector, the Government is of the view that the entitlement of gratuity should be revised for employees who are covered under the Payment of Gratuity Act, 1972. Accordingly, the Government initiated the process for amendment to Payment of Gratuity Act, 1972.

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Shifting of regd office within the state

The MCA has vide its notification dated 27th July, 2017 amended the Companies (Incorporation) Rules, 2014. Rule 28 which pertains to shifting of registered office within the same state i.e. from jurisdiction of one Registrar in the state to that of another Registrar within the same state.

Hitherto, the Rules required publication of a notice in the newspaper, serving individual notices to debenture holder, creditor, depositor etc. while making the application for change of regd office as such.

Now the rules are made much more simpler. All that is required is

(a) Board Resolution for shifting of registered office;
(b) Special Resolution of the members of the company approving the shifting of registered office;
(c) a declaration given by the Key Managerial Personnel or any two directors authorised by the Board, that the company has not defaulted in payment of dues to its workmen and has either the consent of its creditors for the proposed shifting or has made necessary provision for the payment thereof;
(d) a declaration not to seek change in the jurisdiction of the Court where cases for prosecution are pending;
(e) acknowledged copy of intimation to the Chief Secretary of the State as to the proposed shifting and that the employees interest is not adversely affected consequent to proposed shifting”.

An application has to be made in form INC-23 alongwith the aforesaid documents for shifting the registered office from one Registrar to another within the same state. The application goes to the Regional Director.

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Disclosures of defaults on loans etc. by listed entities

SEBI has vide circular dated 4th August, 2017 made it mandatory for listed entities to disclose to the stock exchanges where their securities are listed where there is a default in payment of interest/ instalment obligations on debt securities (including commercial paper), Medium Term Notes (MTNs), Foreign Currency Convertible Bonds (FCCBs), loans from banks and financial institutions, External Commercial Borrowings (ECBs) etc.

It applies to all listed entities which have listed any of the following, viz:
specified securities (equity and convertible securities), non-convertible debt securities and non-convertible and redeemable preference shares.

The entities shall make disclosures within one working day from the date of default at the first instance of default in the format specified in Clause C1. This format is given in the circular.

If there is any outstanding amount under default as on the last date of any quarter , then within 7 days from the end of such quarter, additional disclosures are required to be given in format specified in C2.

Listed entities entity shall also separately provide information pertaining to defaults to the concerned Credit Rating Agencies in a timely manner and as may be specified by SEBI from time to time.

This circular shall come into effect with effect from October 1, 2017. This is to enable listed companies to put appropriate systems in place for prompt submission of disclosures as stipulated in this circular.

The circular can be found at

http://www.sebi.gov.in/legal/circulars/aug-2017/disclosures-by-listed-entities-of-defaults-on-payment-of-interest-repayment-of-principal-amount-on-loans-from-banks-financial-institutions-debt-securities-etc_35538.html

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Companies Amendment Bill – section 403

One of the provisions of the Companies Amendment Act, 2017 which has been passed by the Lok Sabha is as follows:
Presently, under Section- 92 (Filing of Annual Return), section 137 (filing of audited accounts) and other sections (filing of other forms) Companies shall be required to file the Annual Return within 60 days of AGM audited accounts by 30 days and other documents by 30 days from the date of event. In the case of auditors appointment and change of registered office it is 15 days from the date of the event.
First proviso to section 403 of the Companies Act, 2013 gives a further 270 days for filing of the said form by paying additional filing fee. Which means effectively companies are given 270 days plus the initial period to complete the filings.

Now under the Companies Amendment Act, 2017, this proviso is being sought to be removed by the following i.e. the additional period of 270 days is being removed from the section.
“Provided that where any document, fact or information required to be submitted, filed, registered or recorded, as the case may be, under section 92 or 137 is not submitted, filed, registered or recorded, as the case may be, within the period provided in those sections, without prejudice to any other legal action or liability under this Act, it may be submitted, filed, registered or recorded, as the case may be, after expiry of the period so provided in those sections, on payment of such additional fee as may be prescribed, which shall not be less than one hundred rupees per day and different amounts may be prescribed for different classes of companies :
 
Provided further that where the document, fact or information,as the case may be, in cases other than referred to in the first proviso, is not submitted, filed, registered or recorded, as the case may be, within the period provided in the relevant section,it may, without prejudice to any other legal action or liability under this Act, be submitted, filed, registered or recorded as the case may be, on payment of such additional fee as may be prescribed and different fees may be prescribed for different classes of companies:
 
Provided also that where there is default on two or more occasions in submitting, filing, registering or recording of the document, fact or information,it may, without prejudice to any other legal action or liability under this Act, be submitted, filed, registered or recorded, as the case may be, on payment of a higher additional fee, as may be prescribed and which shall not be lesser than twice the additional fee provided under the first or the second proviso as applicable.”;
The import of these amendments is that if the documents are not filed with the specified periods given in the respective sections, then the additional fee shall be Rs.100/- per day and different amounts shall be specified for different classes of companies.
Morever, where there is a default on two or more occasions in filing the documents, the additional fees payable will become higher but not less than twice the additional fee provided above. So it shall be not less than Rs.200/- per day, if there is a default on two or more occasions. There is also a threat of a legal action against the Directors and officers in default.
This bill is still with the Rajya Sabha. After it is passed by the RS, it will go to the President for his assent and then the MCA will notify the provisions of the Amendment Act. Only on notification by the MCA in the official gazette will the amended provisions come into effect.

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Exemptions to section 8 companies

Section 8 companies are those companies which are incorporated on a no profit basis i.e. their income is not given to the shareholders of these companies. They are mostly incorporated for a charitable, social, educational, religious or such other purposes.

MCA had vide its notification dated 5th June, 2015 given a lot of exemptions to private companies from the stringent provisions of the Companies Act, 2013. The Act, when it was made and bought into force from 1st April, 2014 was extremely stringent in terms of compliance & reporting requirements which was hitherto not present in the old Act.

So the notification of 5th June, 2015 gives a lot of exemptions to the private companies. Now the MCA has vide another notification dated 13th June, 2017 amended this notification of 5th June, 2015 to provide that even section 8 companies will enjoy the benefit of these exemptions provided that the said section 8 company has not defaulted in the filing of its statutory annual documents i.e. the audited financial statements and the annual return.

So we have a notification amending another notification, which is getting cumbersome like you get in the Income Tax and Service Tax regime. Why the Government could not have provided for these amendments by way of a Regulation or an amendment to the Act itself is not clear.  Ease of Doing Business includes clarity in the Government circulars, notifications, regulations etc.

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Auditors’ rotation

The Companies Act, 2013 bought in the concept of auditors’ rotation every 5 years. Section 139 of the Act provided that all listed companies and “such other companies” shall rotate their auditors every five years.  For “such other companies” we go to the Companies (Audit and Auditors), Rules, 2014, whereby Rule 5 provided that all unlisted public companies having paid up share capital of Rs.10 crore or more and all private companies having paid up share capital of Rs.20 crore or more and all companies below these two threshold limits but having public borrowings of Rs.50 crores or more are required to rotate their auditors.

Now vide a notification dated 22nd june, 2017 the MCA has enhanced the limit for private companies from Rs.20 crore to Rs.50 crore paid up share capital. Therefore private companies need to rotate their auditors only if their paid up share capital is Rs.50 crore or more.

That takes out all those private companies whose paid up share capital is between Rs.20 crore to Rs.50 crore from the requirement of rotating their auditors.

The notification can be read here.

Click to access CompaniesAuditandAuditorsSecondAmendmentRules2017.pdf

 

 

 

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Annual returns of NGOs

The Government has given one final opportunity to all associations/organizations which have applied for renewal of their registration under the Foreign Contribution (Regulation) Act, 2010 (FCRA) but not uploaded their Annual Returns from Financial Year 2010-11 to 2014-15. All such NGOs can upload their missing Annual Returns along with the requisite documents within a period of 30 days, starting from May 15, 2017 to June 14, 2017. Further no compounding fee will be imposed on them for late filing of Annual Returns during this period.

This exemption is one time measure and available to those associations who upload their missing Annual Returns from FY 2010-11 to FY 2014-15 within this period. The renewal of registration under FCRA cannot be granted unless the Annual Returns are uploaded by the organization.

Visit online portal of FCRA Services:

https://fcraonline.nic.in/home/index.aspx

Click here for Public Notice:

https://fcraonline.nic.in/home/PDF_Doc/fc_Notice_12052017_01.pdf

The Annual Returns Submission Status from Financial Year 2010-11 to 2014-15 for the Associations along with their FCRA Registration Number is also available at:

https://fcraonline.nic.in/home/PDF_Doc/fc_list_12052017.pdf

The User guide for submitting Annual Returns is available at:

https://fcraonline.nic.in/home/Documents/Instruction/FC4_returns.pdf

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EPFO payouts in digital mode

The Ministry of Labour, Govt. of India has ensured that payouts from the Employee Provident Fund schemes in the form of EPF benefits, pension disbursement and insurance claims be made by electronic or digital fund transfer method to the beneficiaries. Suitable amendments have been to the relevant social security schemes

(http://www.epfindia.gov.in/site_docs/PDFs/Circulars/Y2017-2018/Manual_Notification_DBT_3004.pdf).

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Merger/ amalgamation of foreign company with Indian company and vice versa

The Ministry of Corporate Affairs has vide its notification dated 13th april, 2017 amended the Companies (Compromises, Arrangements & Amalgamations) Rules, 2016 by inserting a rule 25A therein.

Rule 25A provides for merger/ amalgamation of a foreign company with Indian company and vice versa.  In both cases mergers will take place only after obtaining prior approval of the RBI and after complying with the provisions of sections 230 to 232 of the Companies Act, 2013, which deals with mergers and amalgamations. The transferee company, in both cases has to ensure that valuations are done by valuers who are members of recognised professional body in the respective jurisdictions. The valuation should be in accordance with internationally accepted principles on accounting and valuation.

After obtaining the RBI approval, the companies shall file an application to the Tribunal

 

 

 

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Compulsory Delisting – restrictions on promoters etc.

SEBI has vide its circular dated September 7, 2016 laid down certain conditions on the promoters and whole time directors of compulsorily delisted companies pending fulfillment of exit offers to shareholders.

2. In terms of Regulation 24 of the Delisting Regulations, the company which has been compulsorily delisted, its whole-time directors, its promoters and the companies promoted by any such person, shall not directly or indirectly access the securities markets for a period of ten years from the date of compulsory delisting.

3. Sub-regulation (3) of regulation 23 of the Delisting Regulations provides that pursuant to compulsory delisting of a company, the promoter shall acquire delisted equity shares from the public shareholders, subject to their option of retaining their equity shares, by paying them the fair value, as determined by the independent valuer appointed by the concerned recognised stock exchange.

4. In addition to the restriction imposed under Regulation 24 of the Delisting Regulations, in order to ensure effective enforcement of exit option to the public shareholders in case of compulsory delisting and taking into account the interests of investors, it is felt necessary to strengthen the regulatory mechanism in this regard. Accordingly, it is hereby directed that in case of such companies whose fair value is positive:- a. such a company and the depositories shall not effect transfer, by way of sale, pledge, etc., of any of the equity shares and corporate benefits like dividend, rights, bonus shares, split, etc. shall be frozen, for all the equity shares, held by the promoters/ promoter group till the promoters of such company provide an exit option to the public shareholders in compliance with sub-regulation (3) of regulation 23 of the Delisting Regulations, as certified by the concerned recognized stock exchange; b. the promoters and whole-time directors of the compulsorily delisted company shall also not be eligible to become directors of any listed company till the exit option as stated at 4.a. above is provided.

5. For the aforesaid purposes, “compulsorily delisted company” means a company whose equity shares are delisted by the recognised stock exchange under Chapter V of the Delisting Regulations. 6. The concerned recognised stock exchanges and depositories shall co-ordinate with each other for ensuring compliance of these requirements. SEBI may also take any other appropriate action(s) against the promoters/promoter group and directors of the compulsorily delisted company for non-compliance with sub-regulation (3) of regulation 23 of the Delisting Regulations.

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