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 Pammy Jaiswal & Richa Gupta (firstname.lastname@example.org)
Over the past few years, regulatory changes have conspired to re-define and re-examine the corporate structures in order to have an efficient and transparent environment to work in. A very recent and crucial step taken by MCA is with regard to revamping the provisions of section 89 and 90 of the Companies (Amendment) Act, 2017 (‘Amendment Act’). As all the stakeholders were waiting for the clarity to come in by way of rules in this connection, MCA has on 15th February, 2018 come out with the Companies (Beneficial Interest and Significant Beneficial Interest) Rules, 2018 (hereinafter called as “ Draft SBO Rules’’).
Changes under section 89 and Draft SBO Rules
The major change in section 89, was defining the term ‘significant beneficial owner’ which in itself is a vital in terms interpreting the whole section. The scope of the section has been made very broad by covering all aspects of pledge, proxy, power of attorney executed in relation to shares. This was much needed to catch hold of those behind the veil.
The Draft SBO Rules in this regard are slightly different from the existing rules. While the erstwhile MGT-4 , MGT-5 and MGT-6 are now renamed as BEN-1, BEN-2 and BEN-3 respectively, the contents of the declaration and return are same, however, BEN-3 will be filed by the company within 30 days of receiving complete declarations from both the registered and beneficial owners. This has been mentioned by way of an explanation and is relevant because, reference to section 403 has been removed from this section as well. Therefore, even if the gap between date of receiving declaration and filing return is beyond a period of 30 days due to incomplete information in the in respective declaration of the registered as well as the beneficial holder, it seems that the law will allow putting the date on which complete information received such persons in BEN-3.
Changes under section 90 and Draft SBO Rules
Section 90 has been completely re-vamped under the Amendment Act. Looking at the language of law, the intent is very clear that the individual significant beneficial owner (‘SBO’) has to come out of his hideaway. The onus is on such SBO and person who may have the knowledge about such SBO to disclose the nature and extent of significant interest. The company on which such SBO has significant influence is required to to do (i) maintain register of the interest declared by individuals and changes therein, (ii) file return of SBO to the RoC in BEN-5 and (iii) to ask for information from such person on whom the company has reason to believe to have information on such SBOs.
While the intent of law is to identify the individual being the SBO, the Draft Rules in this connection have the following ambiguities:
- BEN-4 (‘declaration by SBO’) contains a filed for writing the particulars of the SBO, which also has place for writing Corporate Identification Number (‘CIN’) of such SBO, being a company. If the intent was to identify corporate SBO, section 89 has a provision to take care of the same. Hence, having such field in BEN-4 seems to be contradictory to the language of section 90.
- The exemption given vide Rule 8 of the Draft SBO Rules is also not in line with the intent of law. The exemption provides that making declaration and maintaining of register of SBO will not apply where the registered holder is equity listed body corporate or a WoS of such body corporate or a foreign listed company. While we try to understand this exemption, the question that comes in our mind is that are we trying to say that listed body corporates do not have SBOs. Well the answer to this question may or may not be positive. Hence, the idea behind such carve out is vague.
Undoubtedly, the Draft SBO Rules’’ were awaited and while they have come out, the same is surely a stepping stone in implementing the changes under section 89 and 90, however, due to some ambiguities in such rules as discussed above, clarity on the grey areas is still required. We are hopeful that MCA will take care of the unclear portions in the said rules when the final version comes to life.
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