MCA amends MGT Rules- alignment with Companies (Amendment) Act, 2017

By Megha Saraf (megha@vinodkothari.com),(corplaw@vinodkothari.com)

Introduction

Subsequent to the Ministry of Corporate Affairs (“MCA”) notifications dated 9th February, 2018 and 7th May, 2018 through which MCA hadenforced 43 sections and 28 sections of the Companies (Amendment) Act 2017, (“Act, 2017”),it has once again come up with another set of notificationsvide its notification dated 14th May, 2018 bringing 5more sections of Act, 2017 to life and amending corresponding Rules that are prescribed. Read more

Additional items to be taken up in AGM of 2018- recent regulatory changes!

By Munmi Phukon, Principal Manager, Vinod Kothari & Company (corplaw@vinodkothari.com)

MCA vide notification dated May 7, 2018[1] has notified 28 Sections of the Companies (Amendment) Act, 2017 (Amendment Act) in Phase III. The same has been made effective from May 7, 2018[2]. SEBI also, pursuant  to  the  recommendations  made  by  Uday  Kotak  Committee  Report,  notified the SEBI (Listing Obligations and Disclosure Requirements) (Amendment)  Regulations,  2018  (Amendment  Regulations)  on  May  9,  2018. Though the amended sections of the Amendment Act are effective immediately, the applicability of the Amendment Regulations are not immediate but shall be on specific dates provided for specific regulation. The reason behind providing such different applicable dates can be taken as to provide a smooth transitioning period so that the amendments can be complied with or proper mechanism can be put in place before the same comes into force. In view of the same, the companies are required to take up certain actions with immediate effect including obtaining approval of the shareholders. Since the companies are planning to convene their AGMs of FY 2017-18 in next few months, this article covers what all additional items may be taken up to such AGM in view of the recent regulatory changes as aforesaid.

A.     Additional matters under the Companies (Amendment) Act, 2017

In view of the amendment Notification, the following additional matters may be taken up in the AGM 2018:

  1. Considering the amendments made in Section 185, the companies may seek approval of shareholders by way of a special resolution in the ensuing AGM if it is intending to provide loan, including any loan represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by following persons/ entities:
  • any private company of which any such director is a director or member;
  • any body corporate at a general meeting of which not less than twenty five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or
  • any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions o instructions of the Board, or of any director or directors, of the lending company

The explanatory statement to the notice shall disclose the full particulars of the loans given, or guarantee given or security provided and the purpose for which the loan or guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or security and any other relevant fact. Please note the amendment shall not affect the private companies covered under the MCA Notification dated 5th June, 2015 providing exceptions/ exemptions from applicability of certain provisions of the Act.

  1. The companies may further remove the item pertaining to ratification of the appointment of the statutory auditors in view of the omission of the proviso to section 139(1) of the Act.

B.     Additional matters under the Amendment Regulations

In view of the proposed amendments in the Listing Regulations, the following additional matters seem to get included in the notice of the ensuing AGM 2018:

  1. In terms of Regulation 17 (1) (a), the listed companies shall have to appoint woman independent director. Though the requirement was already there in the Act as well as the Listing Regulations earlier, however, the same was limited to only a woman director and such director was not necessarily required to be an independent director too. Therefore, companies having a non- independent woman director shall be required to take up the same in the AGM. The amendment shall be applicable based on the market capitalization of the company i.e. if the company falls under top 500 listed entities then the same shall be effective from April 1, 2019 and if it falls under top 1000 listed entities then w.e.f. April 1, 2020.
  2. Regulation 17 (1) (c) requires top 1000 listed entities to have minimum 6 directors w.e.f. April 1, 2019 and top 2000 listed entities w.e.f. April 1, 2020. Though most of the listed entities shall already be in compliance of this requirement, however, the ones who have 5 or lesser number of directors will be required to appoint in the current FY if such listed entity falls in the list of top 1000 entities.
  3. Regulation 17 (6) (ca) provides the requirement to obtain approval of shareholders by special resolution every year, in  which  the  annual  remuneration payable  to  a  single  non-executive  director exceeds fifty per cent of the total annual remuneration payable to all non-executive directors, giving details of the remuneration thereof. Since the clause uses the  word  ‘payable’,  it seems to indicate  that  listed  entities  who  will  have  payable  to single  NED annual remuneration for FY 2018-19 exceeding 50% of that payable to all other NEDs. Therefore, such listed entities will have to obtain shareholders’ approval by special resolution every year. Since the provision is effective from April 1, 2019, if there is a certainty on the same, the approval shall be obtained in AGM 2018 itself enabling it to make payment to such NEDs for FY 2018-19.
  4. Regulation 17 (1A) requires a special resolution for appointing/ continuing the directorship of any person  as  a  non-executive  director  who  has  attained  the  age of  seventy five  The explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such a person. The provisions shall be effective from April 1, 2019 and also applicable to all listed entities. Since the provision includes continuation of the directorship also, in  case  the  NEDs/  IDs  of  such  listed  entities  are  individuals  who  have already attained the age of seventy  five years or will be attaining the age before April 1, 2019, such listed entities will have to seek approval of shareholders by special resolution in the ensuing AGM itself .
  5. In terms of Regulation 17 (6) (e), if the fee or compensation  payable  to  executive  directors  who  are  promoters  or  members  of promoter group is in excess of the thresholds i.e. rupees 5 crore or 2.5% of the net profits for one such director, whichever is higher and 5% of the net profit in aggregate for all such directors, then the listed entity shall have to obtain approval of shareholders by special resolution. Since the same is effective from April 1, 2019, the approval shall be obtained in the ensuing AGM itself enabling the company to pay remuneration to that extent for FY 2018-19. The listed entities which had already taken approval of the shareholders for payment of remuneration within the limits provided under the Act shall also get covered under this clause if the resolution so passed was not a special resolution.

Apart from the aforesaid, we have separately covered the actionables arising out of the aforesaid amendments. The actionables arising out of the Companies (Amendment) Act, 2017 can be viewed at http://vinodkothari.com/blog/actionables-from-28-notified-sections/ and the actionables arising out of the Amendment Regulations can be viewed at http://vinodkothari.com/blog/actionables-for-lodr-amendment-regulations-2018/.

 


[1] http://www.mca.gov.in/Ministry/pdf/CompaniesAmendmentNoti_07052018.pdf

[2] http://egazette.nic.in/WriteReadData/2018/185193.pdf

Sections not yet enforced of Companies (Amendment) Act, 2017

CS Nitin Bohara

corplaw@vinodkothari.com

Sr. No Companies (Amendment) Act, 2017 Corresponding section of Companies Act, 2013 Amendment pertains to
1. 5 7 an affidavit a declaration from each subscribers to MOA and first directors.

 

2. 6 12 Notice of situation or change of situation of registered office within fifteen thirty days of incorporation/change.

 

3. 10 42 Private Placement of securities.

 

4. 23 (except clauses (iii) & (iv) ) 92 1. Disclosure of indebtedness need not be made in annual return;

 

2. No need to specify additional details of shares held by FIIs;

 

3. CG may prescribe abridged form of annual return for OPC, Small companies and certain other classes of companies;

 

4. Doing away with MGT-9. Placing of annual return on the website and disclosing its link in Board’s report;

 

5. 36 134 1. CEO will be required to sign Board Report irrespective of whether he is a director or not;

 

2. Instead of annexing MGT-9 in Board Report, web address if any to be provided where complete annual return has been placed;

 

3. To disclose the manner in which annual performance evaluation has been carried out;

 

4. Disclosures already made in financial statements need not be provided in Board Report;

 

5. Providing web-link of policies such as CSR, NRC etc.;

 

6. CG may prescribe abridged form of annual return for OPC, Small companies and certain other classes of companies.

6. 37 135 1. Clarification already existed under CSR Rules relating to no appointment of independent director in CSR committee in case appointment of ID u/s 149(4) not applicable to company;

 

2. Rectification relating to areas/ subject specified in Schedule VII;

 

3. To substitute ‘average net profit with ‘net profit’.

 

7. 66 196 Company can make application to CG even if resolution for appointing MD is passed with simple majority instead of special resolution;

 

8. 67 197 Managerial Remuneration – doing away with requirement of seeking approval of Central Government.

 

9. 68 198 1. For an investment company premium on shares/ debentures issued/ sold shall form part of the normal profits generated from its ordinary business and not of capital nature;

 

2. In calculation of section 198 profit & free reserves credit shall not be given to unrealized gains, notional gains or revaluation of assets;

 

3. It shall allow the adjustment of b/f losses incurred prior to the Act,2013 .

10. 69 200 1. Approval of CG not required in case of payment of remuneration to managerial personnel;

 

2. The title of the section to be amended as ‘COMPANY TO FIX LIMIT WITH REGARD TO REMUNERATION’

11. 70 201 As requirement of obtaining CG approval has been done away with reference of section 96 shall be inserted;

 

12. 81 406 1. A company will be treated as Nidhi or a Mutual Benefit Society only on declaration made by CG by notification in Official Gazette;

 

2. A copy of every notification proposed to be issued under sub-section (2), shall be laid in draft before each House of Parliament, while it is in session as specified;

 

3. The copies of every notification issued under this section shall, as soon as may be after it has been issued, be laid before each House of Parliament.

Contents of prospectus to be regulated by SEBI-MCA omits Rules under Act, 2013

By Shreya Routh (corplaw@vinodkothari.com)

 The Ministry of Corporate Affairs vide its notification dated 7th May, 2018 notifies further 28 sections of the Companies Amendment Act, 2017 (‘Amendment Act’). With such enforcement, Rules 3, 4, 5 and 6 of the Companies (Prospectus and Allotment of Securities) Rules, 2014[1] (‘PAS Rules) have also been omitted vide MCA notification dated 7th May, 2018[2]. Read more

Alignment of Audit & Auditors Rules with Amendment Act, 2017

Relatives’ interest affecting the independence criteria of IDs

By Munmi Phukon & Smriti Wadehra (corplaw@vinodkothari.com)

Introduction

The Ministry, on 7th May, 2018[1], has come out with certain changes in some of the Rules prescribed under the Companies Act, 2013. One of such changes has been made in the Companies (Appointment and Qualification of Directors) Rules, 2014. The amendment is being made under Rule 5 of the said Rules which pertains to qualification of independent directors (IDs) considering the enforcement of the changes in section 149(6)(d) brought by the Companies (Amendment) Act, 2017 w.e.f the aforesaid date.[2] Read more

Flexible MBP rules come to life pursuant to Amendment Act, 2017

By Pammy Jaiswal (pammy@vinodkothari.com),(corplaw@vinodkothari.com)

Introduction

MCA vide its notification dated 7th May, 2018[1] has enforced another set of 28 sections of the Companies (Amendment) Act, 2017 (‘Amendment Act’). The notification has enforced sections primarily dealing with the definition of associate company, doing away with ratification of auditors, charge registration, delay in filing of returns along with additional fees, annual return, etc.

With the third set of enforcement notification, MCA has made corresponding changes in the following Companies Rules under the Companies Act, 2013 (‘Act, 2013’)[2].

  • Companies (Meeting of the Board and its Powers) Rules, 2014 (‘MBP Rules);
  • Companies (Prospectus and Allotment of Securities) Rules, 2014 (‘PAS Rules’);
  • Companies (Appointment and Qualification of Directors) Rules, 2014 (‘AQD Rules’);
  • Companies (Audit and Auditors) Rules, 2014 (‘AA Rules’);
  • Companies (Share Capital and Debenture) Rules, 2014 (‘SCD Rules’); and
  • Companies (Specification of Definition and Details) Rules, 2014.

This write up compiles the changes brought in the following Companies Rules namely:

1.        MBP Amendment Rules, 2018[3]

 

Sr. No.

Matter Description

Prior to Amendment

 

Nature of Amendment

 

Impact of the Amendment

 

1. Participation of directors through VC mode for restricted items Section 173 of the Act, 2013 does not allow the participation of directors in board meetings for discussing certain matters in the nature of unpublished price sensitive information (‘UPSI’). Matters dealing with (i) the approval of annual financial statements; (ii) the approval of the Board’s report; (iii) the approval of the prospectus; and (iv) the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover are required to be approved in a duly convened board meeting without the participation of directors in video-conferencing mode.

 

In view of streamlining the provisions of the Amendment Act, rule 4 of the MBP Rules have been amended to allow the participation of the directors through VC even for the restricted matters provided the directors physically present form the requisite quorum for the meeting.

 

The intent of law for the bringing such amendment is to allow wider participation of directors and provide flexibility in terms of mode of participation.

 

The matters for which VC has now been enabled are matters in the nature of UPSI and therefore, the officer convening the meeting has to ensure that while using such mode of participation, confidentiality of the information is maintained.

 

2. Constitution of the Audit and the Nomination and Remuneration Committee Section 177 and 178 of the Act, 2013 requires the certain classes of companies to constitute audit committee and nomination and remuneration committee with independent directors forming majority and one-half of the total strength respectively. The law requires for constituting such committees for every listed company which also includes private listed companies.

 

However, MCA vide its notification dated 5th July, 2017 had waived the requirement of appointing an independent director in certain public companies viz. JV companies, WoS and a dormant company.

 

 

 

The requirement of constituting an audit committee and a nomination and remuneration committee shall be required for listed public companies only in addition to other classes of public companies.

 

Private companies which have their debt securities listed have now been explicitly exempted from constituting audit committee and nomination and remuneration committee.

 

The amendment is a clarificatory change and allows the private listed companies to uphold their privacy. However, relevant terms of reference of an audit and nomination and remuneration committee will any ways be looked after by the board or any sub-committee so constituted.

3. Passing of prior special resolution in case of crossing limits laid under section 186 Section 186 of the Act, 2013 requires passing of prior special resolution in case the limits laid under the said section are exceeded (60% of the PUSC, free reserves and securities premium account or 100 of free reserves and securities premium account, whichever is more). It further requires to state the upper limit upto which loans, guarantee, security or investment shall be made by the company. The details of such loans, guarantee, security or investment so made is required to be disclosed in the financial statements as well.

 

The amendment has done away with the requirement of obtaining prior special resolution for the said purposed in excess of the prescribed limits.

 

No impact, only the language has been altered.

2.        SCD Amendment Rules, 2018[4]

 

S.no Matter description

 

Prior to amendment Nature of amendment Impact of amendment
1. Issue of sweat equity shares

 

The expression of ‘employees’ for the purpose of issue of sweat equity shares by unlisted companies  meant a permanent employee of the company who had been working in or outside India, for atleast one year.

 

 

The Amendment Act, 2017 omits the requirement for a period of one year to elapse after the commencement of the business for the issue of sweat equity shares.

 

The amendment in the rules is in line with the aforesaid change and does away with the condition for an permanent employee in or outside India to be working for atleast one year.

 

In case of issue of sweat equity shares by unlisted companies they are required to comply with SHD Rules in this regard.

 

The issue of sweat equity shares can now be done to permanent employees working in or outside India, irrespective of their period of employment in the Company.

 

Conclusion

The amendment in the aforesaid rules is a reflex action pursuant to the enforcement of relevant section of the Amendment Act under the third phase (read our write-up here). The amendment under the MBP Rules is a welcome change and allows flexibility in business operations by a company.


[1] http://www.mca.gov.in/Ministry/pdf/CompaniesAmendmentNoti_07052018.pdf

[2] http://www.mca.gov.in/MinistryV2/companiesact2013.html

[3] http://www.mca.gov.in/Ministry/pdf/CompaniesBoardsPowersRules_07052018.pdf

[4]  http://www.mca.gov.in/Ministry/pdf/SharecapitalRule2018_11042018.pdf