MCA raises curtain on SBO Rules – Notifies final rules with several changes.

CS Vinita Nair, vinita@vinodkothari.com

CS Nikita Snehil, nikita@vinodkothari.com

Vinod Kothari & Co. | June 14, 2018

Amendment to Section 89 and 90 is one of the key amendments proposed in Companies (Amendment) Act, 2017 (Amendment Act). While, the Amendment Act is being enforced in phases, stakeholders were given the option to provide the public comments on the draft rules[1] in relation to Significant Beneficial Ownership (SBO), which was issued by MCA on Feb 2, 2018. Thereafter, on June 6, 2018, MCA vide its Notification, has enforced the provisions of amended Section 90 of the Companies Act, 2013 and also issued the Companies (Beneficial Interest and Significant Beneficial Interest) Rules, 2018[2] (‘Final Rules’) in relation to SBO. This is one of the most onerous provision rolled out by MCA. The purpose of this Section is to ask companies ‘Parde ke peeche kaun hai? Saamne aao!’. The present Article explains the provisions of the amended Section 90 and the Final Rules. Read more

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

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