Defaulting LLPs under the radar of MCA – Clean India Drive Continues!

By Smriti Wadehra, (corplaw@vinodkothari.com)

The recent massive clean-up operation of Ministry, whereby RoCs started issuing public notices in April, 2017 to strike off the name of the companies from the register of companies and to dissolve them unless a cause is shown to the contrary, within thirty days from the date of the notice, has come to centre of focus. Thereafter, on September 5, 2017 the government confirmed that names of over 2.09 lakh companies have been struck off from the Register of Companies for failing to comply with regulatory requirements and was decided that the Directors of such shell companies which have not filed returns for three or more years, will be disqualified from being appointed in any other company as Director or from being reappointed as Director in any of the companies where they had been Directors, thereby compelling them to vacate office. It has been reported that as a result of this exercise, at least two to three lakh of such disqualified Directors has been debarred and Roc wise list of directors was uploaded on MCA website along with MCA circular stating as:

 

“Pursuant to Section 164 (2) (a) of Act, 2013 the directors of the companies  which  have not filed financial statements or annual returns for any continuous period of three financial Years 2014, 2015 and 2016 have been hereby declared disqualified. Accordingly, Directors enlisted in Annexure A attached shall stand disqualified upto 31.10.2021.”

 

Further, pursuant to the action of the Ministry of Corporate Affairs of removing/striking-off and consequent cancellation of the registration of around 2,09,032 shell companies, the Department of Financial Services, Ministry of Finance has directed all the Banks to restrict operations of bank accounts of such companies by the Directors of such companies or their authorized representatives making the clean up operation a massive drive.

 

This drive was undertaken for companies but its seems that Ministry has extended its ambit to include Limited Liablility Partnerships (“LLPs”) registered under Limited Liability Act, 2008 (“Act”) under its scrutiny process. It is being noticed that the Ministry has recently started issuing notices to LLPs individually by way of a reminder notice to make the compliances w.r.t filing of necessary returns/ statements as per the Act failing which the LLP and its designated partners will be liable to prosecution apart from unlimited penalty.

As per the provisions of sections 23 and 34 of the Act read with Limited Liability Partnership (Amendment) Rules, 2017 all the Limited Liability  Partnerships is statutorily required to file:

  • the Initial Agreement constituting the LLP in Form-3 within 30 days of its incorporation;
  • a Statement of Account & Solvency has to be filed in Form-8 within 30 days from the end of six months of the financial year; and
  • Annual Return 11 has to be filed within 60 days of closure of its financial year.

Vide the aforesaid notices, the Ministry has provided a firm reminder to comply with the reporting requirements as aforesaid failure of which may lead to prosecution of defaulting LLPs along with their designated partners,  besides being liable for unlimited penalty on per diem basis.

 

 

RBI now allows ARCs to hold more than 26% shares

By Mayank Agarwal ( finserv@vinodkothari.com )

Introduction

The ever-increasing volume of Non-Performing Assets has paralyzed the Indian banking sector, with the gross NPA figures reported to be around Rs. 8.4 lakh crores at the end of September 2017.[1] Forming around 12% of the total banking advances, the distressed Indian banking situation should have provided the Indian Asset Reconstruction Companies (ARCs) with a vast share of market to cater to and thus yield impressive results. However, the past few years have resulted in the contrary, with the Indian ARCs failing to live up to its expectations.

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Presidential Ordinance makes Amendments to Insolvency and Bankruptcy Code

By Vinod Kothari, (resolution@vinodkothari.com)

The Presidential Ordinance to amend the Insolvency and Bankruptcy Code tries to address a few concerns, which seem to have been noticed in the early stages of resolution plans being approved by creditors’ committees. Essentially, under the scheme of the Code, a resolution plan may be submitted by a “resolution applicant”, who can be any person proposing a resolution alternative. The resolution applicant may, therefore, be the existing management itself, or may be a potential acquirer. Sometimes, the potential acquirer comes with a masked identity, and the true acquirer is hiding somewhere behind the screen. The true acquirer might be the existing promoters themselves, or may be someone else. Read more

State of Indian Capital Markets

By Mayank Agarwal (finserv@vinodkothari.com )

Capital market is the one-stop solution for both companies and investors looking to utilize idle money in the most financially sound manner. While money markets provide short-term (generally less than one year) route of raising money, capital markets provide a much broader avenue. Although businesses rely upon money market sources to address liquidity issues, capital markets are explored with the intention of improving the solvency situation of the businesses.

A healthy and booming capital market is a clear-cut indication that the domestic people have confidence in the financial ecosystem of the country and that they trust the government and financial institutions with their money. Strong capital market volume aids economic growth by mobilization of savings and providing funds to those in need, thus increasing productivity.

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Cautious Approach to be taken by NBFCs while outsourcing activities ancillary to financial services

By Mayank Agarwal & Anita Baid, ( finserv@vinodkothari.com)

The Reserve Bank of India (RBI), on the 9th of November, 2017 released a notification bringing out the Directions on Managing Risks and Code of Conduct in Outsourcing of Financial Services by Non-Banking Financial Companies (NBFCs).[1] (“Directions”) These Directions are a much awaited outcome of the draft guidelines[2] which had been issued long back, in the year 2015. The Directions come in the wake of ever-increasing need to outsource ancillary activities such as applications processing (loan origination, credit card), document processing, marketing and research, supervision of loans, data processing and back office related activities in order to provide the customers best possible services associated with the core business of the company. The Directions have been issued to ensure that there exists no possibility of discrepancy or fallibility that could affect the customer as well as the NBFC in an adverse manner.

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RBI revamps FDI Regulations

By CS Vinita Nair

corplaw@vinodkothari.com

RBI vide notification No. FEMA 20(R)/ 2017-RB dated 7th November 2017 issued Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017[1] (hereinafter referred as ‘Regulations, 2017’) in supersession of Notification No. FEMA 20/2000-RB and Notification No. FEMA 24/2000-RB both dated May 3, 2000, Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (hereinafter referred as ‘Regulations, 2000’). The Regulations, 2017 will be effective from 8th November 2017 (Date of publication in the Official gazette) except proviso (ii) to sub-regulation 1 of regulation 10 of these Regulations and proviso (ii) to sub-regulation 2 of regulation 10 of these Regulations, reproduced hereunder as Annexure 1, which will come into effect from a date to be notified. Read more