Can Liquidator’s Outreach Grab Guarantor’s Assets?

/0 Comments/in /by

By Sikha Bansal  & Shreya (resolution@vinodkothari.com)

 

*The Article was first posted on the IndiaCorpLaw Blog (https://indiacorplaw.in/2018/07/can-liquidators-outreach-grab-guarantors-assets.html)

In Punjab National Bank v. Vindhya Vasini Industries Limited, [C.P. ( IB)-1170(MB)] the issue before the National Company Law Tribunal (“NCLT”), Mumbai Bench was whether a property belonging to the guarantor of the corporate debtor can be liquidated in the liquidation proceedings of the corporate debtor. The NCLT referred to section 60(2) of the Insolvency and Bankruptcy Code, 2016 (the “Code”) and held that the assets of the guarantor can be subjected to liquidation by virtue of the said section. The rationale given by the NCLT was that the financial debt in question was intricately linked with the property of the guarantor mortgaged under the same loan agreement on the basis of which the financial debt in question was sanctioned and hence cannot be segregated in the process of liquidation proceedings. Read more →

New KYC norms for directors make a cell-phone, email & DSC mandatory for directors

/0 Comments/in , , , /by

Vinod Kothari

corplaw@vinodkothari.com

 

If you ever thought your life will be much better and tranquil without a cellphone on you, and without an email to stay connected, well, you may be right, but you cannot function as a director in companies. This is the fallout of the new DIR-3-KYC norms brought by the MCA[1]. The Rules require every director to file the KYC form by 31st August, 2018, post which the Directors’ Identification number (DIN) granted to the director shall be “de activated”. The Rules also lay that such de-activated DIN shall be re-activated only after the person has filed the KYC form.

One of the mandatory requisites of the new KYC form is that the director shall provide his cellphone number, his email id and file the eForm with his/her own digital signature (DSC). If you thought you may provide the cellphone number and email id of your children, or your assistants, you are mistaken, because the form goes on to say that the cellphone number and the email id shall be of the director himself.

Section 153 of the Companies Act makes it mandatory for any prospective director to apply for DIN. While there is nothing in the statute to say that on de-activation of the DIN, the director will lose his office as such, technically called vacation of office, it will not be surprised, if the Government, in its recent impetus to weed out shell companies and dummy directors, barges ahead and challenge the very directorship of such directors whose DINs stood deactivated.

Result – you cannot be a director, unless you have a cellphone number and email id. Legal experts may argue that being director in companies is basic freedom to carry business, as the right to carry business includes the right to carry it in corporate form as well, and there is nothing in the law of the land to make a cellphone or an email an existential necessity. Therefore, if there is a law that forces a corporate professional to have a personal cellphone number/ email- id, the law needs to be questioned.

Not having a personal cellphone is neither an evidence of laity nor anachronism. Several people use a limited insulation from communications technology as a way of life. There is no basis to contend that such persons are not fit to be corporate directors.

It may be argued that the qualifications of a director and the circumstances in which a director automatically vacates his office are all well defined in the law. De-activation of the DIN is not one of such circumstances. It may also be argued that there is an assurance in the MCA DIN rules that the DIN once granted has lifetime validity, and the question of its de-activation does not arise at all.

In order to file this eForm, all directors (Indian and foreign national) will have to obtain/ have their own email id, mobile number, specify the OTP in the eForm and sign with their own DSC. The consequence of false declaration is that the Director shall be liable under section 448 of the Act and under relevant provisions of the Indian Penal Code, 1860 and any other law as applicable, if any statement in the application is found to be false or any material fact is found to be have been omitted.

The MCA rules come in the wake of the Government’s resolve to weed out shell companies and dummy directors. It is apprehended that the 10-lakh odd companies have lots of directors who are men of straw, even though the requirement for DIN was introduced sometime in 2006.

[1] Insertion of new rule 12A in Companies (Appointment and Qualification of Directors) Rules, 2014 vide MCA notification dated 5th July, 2018

FAQs on SBO Rules – Version 3

/2 Comments/in , , /by
Loader Loading…
EAD Logo Taking too long?

Reload Reload document
| Open Open in new tab

Download as PDF [1.77 MB]

Investor awareness by BSE & NSE- forceful dematerialization

/0 Comments/in /by

By Munmi Phukon, Smriti Wadehra and Shreya Jain 

corplaw@vinodkothari.com

Currently, the provisions of Regulation 40 of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, facilitate transfer of securities both in physical and dematerialized form. However, SEBI vide its notification dated 8th June, 2018 had notified the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Fourth Amendment) Regulations, 2018[1] by virtue of which it has mandated the processing of transfer of securities only when such securities are held in dematerialised form. The aforesaid amendment shall come into force on the 180th day from the publication of the Amendment Regulations i.e. 5th December, 2018.

Considering the need of the hour, BSE and NSE on 5th July, 2018[2] and 9th July, 2018[3], respectively, has issued two Circulars requiring companies and their RTAs to set up a mechanism for dissemination of information and spreading awareness among various investors about mandatory dematerialization of securities. Though some of the companies have already placed this information in the AGM notices, based on the aforesaid Circulars, the companies are also required to put in place a mechanism including the following in order to spread awareness about the proposed change:

  • The companies through their RTA should send a letter through post to the holders of physical shares and reminding them about the said amendment and also about the impact of the said regulation on transfer of the said physical format shares w.e.f. December 5th, 2018.
  • Atleast two reminders by RTAs is advised to be sent to in a gap of 30 days to the all those shareholders who are holding their shares in physical format, to get it dematerialized.
  • Companies to disseminate such information on their website intimating the investors about the proposed change and provide appropriate guidance on how to dematerialize their shares.
  • Companies should ensure that the signature cards of all the holders of physical securities are handed over to its RTA at the earliest.

It is understood that the intent of the aforesaid Circulars is to provide for the actionable on the part of the companies so as to inform their respective shareholders to convert their physical shares into demat form at the earliest so that the liquidity of the securities does not get affected. Further, though the NSE Circular is silent but BSE may require a reporting to be made by the companies to the effect of compliance of the aforesaid requirements in a specified format to be prescribed by it by end of September 2018.

To conclude we may say that through such automation the burden of compliance shall be reduced on the part of the Company and in this regard SEBI is enhancing the role of depositories in various activities of the Company. Therefore, the companies should take adequate steps to ensure dematerializing the physical shares before the commencement of this Regulation so as to avoid any last minute hassle.

[1] https://www.sebi.gov.in/web/?file=https://www.sebi.gov.in/sebi_data/attachdocs/jun-2018/1528952919510.pdf#page=1&zoom=auto,-23,792

[2] https://www.bseindia.com/corporates/Displaydata.aspx?Id=cd22b184-1153-4b05-8ad9-d04699161f89&Page=cir

[3] https://www.nseindia.com/corporates/content/eq_listcompanies.htm

Corporatisation Prospects for Unregistered Entities – Amendment in Section 366 of the Companies Act, 2013

/2 Comments/in , /by

By Pammy Jaiswal (corplaw@vinodkothari.com)

Partner, Vinod Kothari and Company

Background

By virtue of the enforcement notification of MCA dated 5th July, 2018[1], the proposed change under section 75 of the Companies (Amendment) Act, 2017 (‘Amendment Act’) relating to section 366 of the Companies Act, 2013 (‘Act, 2013’) has been notified with effect from 15th August, 2018. Further, MCA vide its notification dated 5th July, 2018[2] has also brought the Companies (Authorised to Register) Second Amendment Rules, 2018 (‘Amendment Rules’). The said Amendment Rules shall also come into force from 15th August, 2018.

The section deals with registration of unregistered entities like partnership firms, LLPs, cooperative societies and such other entities, as a company under the Act, 2013. The amendment paves way for such entities having two or more members to get themselves registered under the Act, 2013 either as a company limited by guarantee, company limited by shares or unlimited companies. Read more →