Munmi Phukon, Principal Manager, Vinod Kothari & Company (firstname.lastname@example.org)
The country had witnessed the bulk of show cause notices sent to companies last year seeking evidence on their CSR expenditure, reporting, disclosure etc., though the Ministry’s stand on such notices and replies thereof is not yet known. After CSR, MCA has now seemed to shift its surveillance to the layers of Indian companies and recently started issuing show cause notices to the companies. As claimed in such notice itself, the basis of the same is the annual return filed by the companies. What concerns the most at this time is that, when most of the companies in the country are busy with convening the ensuing AGMs, the preparation/ documentation of bulky reports, aligning themselves with the recent amendments made in the corporate laws, be it the Companies (Amendment) Act, 2017 or the Listing Regulations, the show cause notice is posing as an additional burden. Read more
By Munmi Phukon & Smriti Wadehra (email@example.com)
The Ministry, on 7th May, 2018, 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. Read more
By Pammy Jaiswal (firstname.lastname@example.org),(email@example.com)
MCA vide its notification dated 7th May, 2018 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’).
- 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
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
|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.
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.
By Smriti Wadehra, (firstname.lastname@example.org)
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.
By Pammy Jaiswal & Megha Saraf, (email@example.com)
It seems that the prolonged postponement for transferring shares to IEPF is over. Ministry of Corporate Affairs (“MCA”) vide its Notification dated 13th October, 2017 has added yet another notification on Investor Education Protection Fund (“IEPF”), to its list. The Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Second Amendment Rules, 2017 (“Second Amendment Rules”) has been made effective from 13th October, 2017. Even though the Second Amendment Rules have yet again come out with an extended time line for effecting transfer of shares, some of the operational issues are not yet clarified for effecting such transfer to IEPF.
Further, MCA has also issued a Circular dated 16th October, 2017 which provides for certain details on the Second Amendment Rules.
The write-up is therefore, an attempt to put before a clear snapshot of the current picture on transfer of shares to IEPF.
Main Highlights of the Second Amendment Rules
The major highlights of the Second Amendment Rules are:
- Due Date for Transfer of shares
The Second Amendment Rules have extended the due date to transfer the shares to IEPF till 31st October, 2017 for the cases where the period of seven years has been completed or being completed during the period from 7th September, 2016 to 31st October, 2017.
Accordingly, the last date for completing all the formalities in connection with transfer shall be 30th November, 2017.
- Transfer of shares is in the nature of transmission of shares
The Second Amendment Rules have clarified that the transfer of shares to IEPF shall take place by following the procedure for transmission of shares. Even though the documentation for such transmission has not been stated in the said rules or the circular, resolution passed by a company for transferring shares seems to a supporting document in this regard.
Further, MCA Circular dated 5th June, 2017, had already clarified that transfer of shares to IEPF is not in the nature of transfer but a transmission and hence, the requirement of issuing duplicate share certificate may be done away with.
- Issuance of “New” share certificates instead of “Duplicate” share certificates
In case of physical shares, the Company shall issue “New” share certificates in Form SH-1 instead of “Duplicate” share certificates. Even though duplicate certificates need not be issued, however, the new certificates issued under the said rules will have the words “Issued in lieu of share certificate no….. for the purpose of transfer to IEPF”.
Further, the requirement entering the details of the certificate issued under the said rule in the register of renewed and duplicate share certificates maintained in Form No. SH-2 has been done away with.
- Opening of Demat Account of IEPF Authority with Punjab National Bank
IEPF Authority has opened its Demat Account with Punjab National Bank (‘PNB’) and SBICAP Securities Limited (‘SBICAP’) for the purpose of making any transfer of shares.
- Reporting of non-compliances to Central Government
Any non-compliance of the IEPF rules shall be reported by the IEPF Authority to the Central Government.
- Appointment of a Nodal Officer
MCA has given a time period of 15 days to all the companies for nominating a Nodal Officer for coordinating with IEPF Authority and the details of such officer shall be displayed on the website of the company.
- Rejection of claim in e-Form IEPF-5 in certain cases
- The current IEPF Rules provide that the company shall be required to provide a verification report to the Authority within a period of 15 days of receiving the claim. The Second Amendment Rules provides that in case the Authority does not receive requisite documents with a period of 90 days from the date of filing e-Form IEPF-5, the claim is liable to get rejected in the hands of the Authority.
However, before rejecting such claim, the Authority shall allow a further time of 30 days to furnish the requisite documents.
- In cases where the claim is incomplete or not approved and communication in this regard has been sent to such claimant and company, IEPF may reject such application if rectified documents are not filed within a period of 90 days. However, prior to such rejection, a time of further 30 days in this regard.
Highlights of the General Circular dated 16th October, 2017
- PNB and SBICAP are the DPs with whom the IEPF Authority has opened demat account. These accounts will be fully digital and paperless;
- Format of corporate action will be prescribed by NSDL and CDSL shortly;
- Account maintenance charges will be minimal as per the MoU entered between the IEPF Authority and the NSDL and CDSL. Such MoU will be put up on the website of the of the IEPF Authority;
- Cash benefit arising out of and in the form of the following, shall mandatorily be transferred to the bank account opened with PNB, Sansad Marg, New Delhi.
- dividend from shares already transferred to IEPF;
- proceeds realized on account of delisting of equity shares;
- amount entitled on behalf of a shareholder in case of winding up of a company.
- Amounts mentioned under section 125 (2) shall not be transferred to the aforesaid bank account. Only the amounts mentioned in the above point shall be transferred and nothing else.
Based on the above discussions, one can conclude that IEPF has tried all its might to join the dots and made the transfer of shares become a reality, although it has taken more than a year to fix the operational issues in this regard. Now, the only clarification to be looked out for is the format of corporate action, after which companies can actually complete all the formalities and finally the wait for transferring the shares to IEPF comes to an end.
To read our resources on this subject: click here
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MCA vide its General Circular No. 08/2017 dated July 25, 2017 has issued a clarification regarding applicability of exemptions provided to private companies. Till now MCA has issued two notifications viz., Notification No. GSR 464(E) dated June 05, 2015and Notification No. GSR 583(E) dated June 13, 2017 providing various exemptions to the private companies. Some of the major exemptions are as follows: Read more