RBI grants additional 3 months to FPIs under Voluntary Retention Route

Shaifali Sharma | Vinod Kothari and Company

corplaw@vinodkothari.com

In March, 2019, the RBI with an objective to attract long-term and stable FPI investments into debt markets in India introduced a scheme called the ‘Voluntary Retention Route’ (VRR)[1]. Investments through this route are in addition to the FPI General Investment limits, provided FPIs voluntarily commit to retain a minimum of 75% of its allocated investments (called the Committed Portfolio Size or CPS) for a minimum period of 3 years (retention period).However, such 75% of CPS shall be invested within 3 months from the date of allotment of investment limits. Recognizing the disruption posed by the COVID-19 pandemic, RBI vide circular dated May 22, 2020[2], has granted additional 3-months relaxation to FPIs for making the required investments. The circular further addresses the questions as to which all FPIs are covered under this relaxation and how the retention period will be determined.

This article intends to discuss the features of the VRR scheme and the implications of RBI’s circular in brief.

What is ‘Voluntary Retention Route’?

RBI, to motivate long term investments in Indian debt markets, launched a new channel of investment for FPIs on March 01, 2019[3] (subsequently the scheme was amended on May 24, 2019[4]), free from the macro-prudential and other regulatory norms applicable to FPI investment in debt markets and providing operational flexibility to manage investments by FPIs. Under this route, FPIs voluntarily commit to retain a required minimum percentage of their investments for a period of at least 3 years.

The VRR scheme was further amended on January 23, 2020[5], widening its scope and provides certain relaxations to FPIs.

Key features of the VRR Scheme:

  1. The FPI is required to retain a minimum of 75% of its Committed Portfolio Size for a minimum period of 3 years.
  2. The allotment of the investment amount would be through tap or auctions. FPIs (including its related FPIs) shall be allotted an investment limit maximum upto 50% of the amount offered for each allotment, in case there is a demand for more than 100% of amount offered.
  3. FPIs may, at their discretion, transfer their investments made under the General Investment Limit, if any, to the VRR scheme.
  4. FPIs may apply for investment limits online to Clearing Corporation of India Ltd. (CCIL) through their respective custodians.
  5. Investment under this route shall be capped at Rs. 1,50,000/- crores (erstwhile 75,000 crores) or higher, which shall be allocated among the following types of securities, as may be decided by the RBI from time to time.
    1. ‘VRR-Corp’: Voluntary Retention Route for FPI investment in Corporate Debt Instruments.
    2. ‘VRR-Govt’: Voluntary Retention Route for FPI investment in Government Securities.
    3. ‘VRR-Combined’: Voluntary Retention Route for FPI investment in instruments eligible under both VRR-Govt and VRR-Corp.
  6. Relaxation from (a) minimum residual maturity requirement, (b) Concentration limit, (c) Single/Group investor-wise limits in corporate bonds as stipulated in RBI Circular dated June 15, 2018[6] where exposure limit of not more than 20% of corporate bond portfolio to a single corporate (including entities related to the corporate) have been dispensed with. However, limit on investments by any FPI, including investments by related FPIs, shall not exceed 50% of any issue of a corporate bond except for investments by Multilateral Financial Institutions and investments by FPIs in Exempted Securities.
  7. FPIs shall open one or more separate Special Non-Resident Rupee (SNRR) account for investment through the Route. All fund flows relating to investment through the VRR shall reflect in such account(s).

What are the eligible instruments for investments?

  1. Any Government Securities i.e., Central Government dated Securities (G-Secs), Treasury Bills (T-bills) as well as State Development Loans (SDLs);
  2. Any instrument listed under Schedule 1 to Foreign Exchange Management (Debt Instruments) Regulations, 2019 other than those specified at 1A(a) and 1A(d) of that schedule; However, pursuant to the recent amendments, investments in Exchange Traded Funds investing only in debt instruments is permitted.
  3. Repo transactions, and reverse repo transactions.

What are the options available to FPIs on the expiry of retention period?

Option 1

 

Continue investments for an additional identical retention period
 

 

 

Option 2

 

Liquidate its portfolio and exit; or

 

Shift its investments to the ‘General Investment Limit’, subject to availability of limit under the same; or

 

Hold its investments until its date of maturity or until it is sold, whichever is earlier.

Any FPI wishing to exit its investments, fully or partly, prior to the end of the retention period may do so by selling their investments to another FPI or FPIs.

3-months investment deadline extended in view of COVID-19 disruption

As discussed above, once the allotment of the investment limit has been made, the successful allottees shall invest at least 75% of their CPS within 3 months from the date of allotment. While announcing various measures to ease the financial stress caused by the COVID-19 pandemic, RBI Governor acknowledged the fact that VRR scheme has evinced strong investor participation, with investments exceeding 90% of the limits allotted under the scheme.

Considering the difficulties in investing 75% of allotted limits, it has been decided that an additional 3 months will be allowed to FPIs to fulfill this requirement.

Which all FPIs shall be considered eligible to claim the relaxation?

FPIs that have been allotted investment limits, between January 24, 2020 (the date of reopening of allotment of investment limits) and April 30, 2020 are eligible to claim the relaxation of additional 3 months.

When does the retention period commence? What will be the implication of extension on retention period?

The retention period of 3 years commence from the date of allotment of investment limit and not from date of investments by FPIs. However, post above relaxation granted, the retention period shall be determined as follows:

FPIS

 

RETENTION PERIOD
*Unqualified FPIs Retention period commence from the date of allotment of investment limit

 

**Qualified FPIs opting relaxation

 

 

Retention period commence from the date that the FPI invests 75% of CPS
Qualified FPIs not opting relaxation

 

Retention period commence from the date of allotment of investment limit

*Unqualified FPIs – whose investments limits are not allotted b/w 24.01.2020 and 30.04.2020

**Qualified FPIs to relaxation – whose investments limits not allotted b/w 24.01.2020 and 30.04.2020 

What will be the consequences if the required investment is not made within extended period of 3 months?

Since no separate penal provisions are prescribed under the circular, in terms of VRR Scheme, any violation by FPIs shall be subjected to regulatory action as determined by SEBI. FPIs are permitted, with the approval of the custodian, to regularize minor violations immediately upon notice, and in any case, within 5 working days of the violation. Custodians shall report all non-minor violations as well as minor violations that have not been regularised to SEBI

Concluding Remarks

The COVID-19 disruption has adversely impacted the Indian markets where investors are dealing with the market volatility. Given this, FPIs are pulling out their investments from the Indian markets (both equity and debt). Thus, relaxing investments rules of VRR Scheme during such financial distress, will help the foreign investors manage their investments appropriately.

You may also read our write ups on following topics:

Relaxations to FPIs ahead of Budget, 2020, click here

Recommendations to further liberalise FPI Regulations, click here

RBI removes cap on investment in corporate bonds by FPIs, click here

SEBI brings in liberalised framework for Foreign Portfolio Investors, click here 

For more write ups, kindly visit our website at: http://vinodkothari.com/category/corporate-laws/

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[1]https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11561&Mode=0

[2]https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11896&Mode=0

[3]https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11492&Mode=0

[4]https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11561

[5]https://rbidocs.rbi.org.in/rdocs/notification/PDFs/APDIR19FABE1903188142B9B669952C85D3DCEE.PDF

[6] https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT199035211F142484DEBA657412BFCB17999.PDF

Resources on MSME financing

Major reforms have been introduced for the MSMEs, providing the required boost to the sector. MSMEs have recently been put into the limelight with several regulatory and financial reforms concerning them.

We have put up this page to provide the access to all relevant resources on the subject at one place, along with our analysis. Hope that the readers find it useful.

Self-dependent India: Measures concerning the financial sector

FAQs on the Economic Stimulus Package- Financial Services

Regulator’s move to repair the NBFC sector

Recent changes in MSME sector

FAQs on delayed payment to MSMEs

Interest subvention scheme for MSMEs

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Snapshot of the initiatives for MSMEs

Transitory liberalisation of asset classification norms for MSMEs

Slew of measures for MSME sector

Help in the hour of need: RBI relaxes asset classification norms for MSME accounts

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Waking up from slumber: Government notifies revival and rehabilitation scheme for MSMEs

Reviving an MSME – The New Way

Will the Companies Act 2013 impede MSMEs from bond markets?

SEBI advocates intimating the impact of disruption caused by COVID 19

Munmi Phukon

corplaw@vinodkothari.com

Introduction

SEBI has issued an Advisory on 20th May, 2020[1] for the listed entities (whose specified securities and/or NCDs or NCRPs are listed) advising them to evaluate the impact of the COVID 19 pandemic on their business and disseminate the same to stock exchanges. SEBI’s concern is that non- disclosure of the impact of the pandemic may lead to distortions in the market due to gaps of information available about the operations of the listed entity.

Read more

Resources on Virtual AGM

In the present scenario, it is difficult to conduct physical AGM. Considering the disruption caused due to COVID-19, the Ministry of Corporate Affairs vide its circular dated 5th May, 2020 allowed companies to hold AGM through video conferencing.

We have put up this page to provide the access to all relevant resources on the subject at one place, along with our analysis. Hope that the readers find it useful.

Presentation on Virtual AGMs by Ms. Pammy Jaiswal

Presentation on Virtual AGMs

Checklist for AGM by VC for Companies providing e-voting facility

Checklist for AGM by VC for Companies not providing e-voting facility

Pre-notice public advertisement for vitual AGMs

Draft notice of Virtual AGM

Post-notice public advertisement for virtual AGMs

FAQs on conducting AGM through video conferencing

Convening of AGM during COVID-19 crises 

Convening of AGM during COVID-19 crisis

-Will VC mode motivate the companies to call the AGM early?

Bunny Sehgal, corplaw@vinodkothari.com

Background

In view of the COVID-19 outbreak, the Ministry of Corporate Affairs (‘MCA’) had come up with the circular dated April 08, 2020[1] providing certain relaxations from the provisions of Companies Act, 2013 (‘Act’) and rules made thereunder including conducting the extra-ordinary general meeting (‘EGM’ or ‘Meeting’) for passing the resolutions of urgent nature through video conferencing (‘VC’) and other audio visual means (‘OAVM’) till June 30, 2020. Further, in order to provide more clarity on the modalities to be followed by the companies for conducting EGM viz. manner of issuance of notice, voting by show of hands and postal ballot etc., another circular dated April 13, 2020[2] (Collectively referred to as ‘EGM Circulars’) was brought in force. In continuation to the aforesaid circulars and in view of the social distancing norms and other restrictions thereof, MCA provided an extension of 3 months for holding annual general meeting (‘AGM’) for the companies having the calendar year as the financial year vide its circular dated April 21, 2020[3].

Now, considering the representations of various stakeholders, MCA has issued a circular dated May 05, 2020 [4](‘AGM Circular’) in line with the relaxations provided under the EGM Circulars to hold AGMs through VC/ OAVM.

While the AGM Circular will draw its reference from the EGM Circulars in terms of the modalities, however, there are various issues worth discussing to understand the scope, impact and applicability for companies to call AGM during the COVID-19 crisis. This write-up focuses on some of the issues and also provides the comparison between both the EGM Circulars and AGM Circular.

Scope and applicability

The AGM Circular applies to all the AGMs to be called by companies within the calendar year 2020. Generally speaking all the companies will call their AGM for the financial year 2019-2020 in the calendar year 2020 only. Therefore, one may conclude that this AGM Circular can be availed by all the companies without any exception. Having said that, it is also pertinent to mention that a specific condition has been laid down for companies which are not mandated to provide e-voting facility, to call their AGMs under this AGM Circular.

Para B (I) of the AGM circular provides that such companies can conduct their AGM through VC or OAVM only if the company has in its record, the email-ids of at least half of its total number of members, who –

  • in case of a Nidhi, hold shares of more than one thousand rupees in face value or more than one per cent. of the total paid-up share capital, whichever is less;

 

  • in case of other companies having share capital, who represent not less than seventy-five per cent. of such part of the paid-up share capital of the company as gives a right to vote at the meeting;

 

  • in case of companies not having share capital, who have the right to exercise not less than seventy-five per cent. of the total voting power exercisable at the meeting

While the AGM Circular provides three classes of companies, most of the companies fall under the second class where two types of majority has been mentioned. The following flow chart represents the manner in which such classes of companies, as a pre-requisite will need to have the email-ids registered with themselves:

Further, while this AGM Circular is applicable on companies, other entities like public sector banks will not be covered under this circular. Seemingly, SEBI will have to provide some sort of similar relaxation to such entities.

Furthermore, while the AGM circular comes with the time frame to avail the AGM Circular within the calendar year 2020, however, considering the fact that there would be movement restrictions even after the lockdown is lifted, therefore, this added feature, seems to be of a permanent nature for the times to come under Indian legislation. Also, many countries like US and UK already allow this facility and other countries like Hong Kong, Austria, Belgium, Germany and Italy, etc. have started giving this facility post the outbreak of COVID-19.

Motivation to conduct AGM through VC/ OAVM

After the enforcement of the AGM Circular, the companies will be motivated to convene the AGM through VC/OAVM mode. The reasons for such a motivations are many, some of them are as follows:

  1. Less time consuming process;
  2. Operating convenience;
  3. Cost effectiveness;
  4. Environment friendly;
  5. Sooner getting the advantage of last audited accounts;

While there are many reasons to conduct the AGM through VC/OAVM mode, the only difficulty seems to be is the completion and audit of the annual accounts. Once the audit is done, the companies may proceed for convening the AGM through this mode.

Will Companies want to convene their AGM early?

This question in our view, should be in affirmative for various reasons as given below:

  • Saving in cost
  • Various provisions under the CA, 2013 and various other laws (especially which are applicable to NBFCs) provide exemptions or benefits to the companies based on the net worth or assets size as per the last audited financial statements. Some them include:
    • NBFCs having asset size is of ₹ 500 cr or more as per last audited balance sheet are considered as systemically important NBFCs;
    • Applicability of CSR provisions under section 135 of the CA, 2013;
    • Appointment of independent and woman director under section 149 of the CA, 2013;
    • Constitution of audit committee under section 177 of the CA, 2013;
    • Applicability of secretarial audit under section 204.
  • Early AGM would mean early declaration of dividend and therefore a step towards shareholder service.
  • The restrictions on gathering may still continue after lifting of the lock-down.

AGM Circular to cover both ‘Ordinary Business’ and ‘Special Business’

Para A(II) and B(IV) of the AGM Circular provides the type of business which will be transacted in the AGM through VC/OAVM. The text of the same is provided below:

“In such meetings, other than ordinary business, only those items of special business, which are considered to be unavoidable by the Board, may be transacted.”

While on the first reading of the para it seems that the AGM Circular will allow to convene the AGM by VC/OAVM only for the unavoidable special business. However, that should not be the intent of the lawmakers as an AGM without the ordinary business will have to be adjourned till such time the ‘Ordinary Business’ items are decided and concluded. Therefore, aforesaid para should be construed and interpreted in a manner to include the unavoidable special business along with the ordinary business items. Accordingly, in the light of aforesaid circular, the company may proceed with to pass the ordinary as well as unavoidable special business in their AGM.

Further, for items requiring right of representation like removal of auditors or directors, etc. cannot be conducted through VC/OAVM as mentioned under EGM Circular.

Meaning of the term ‘Unavoidable’

Both the AGM as well as the EGM Circulars use the term ‘unavoidable’ business matters. The term ‘unavoidable’ means something which cannot be deferred and should not be deferred. If a company is calling and conducting its AGM, there is no reason for the company to unnecessarily defer any item of business and call a separate meeting to deal with them. Therefore, no company would ideally call a separate meeting to decide on matters just because they were not requiring immediate action during the said year. Accordingly, based on the reason of exigency or business urgency, etc., the Board of the company has to decide on the matters which are unavoidable.

Comparison of the Circulars

A meeting of the shareholders’ which is required to be convened by the companies on an annual basis, on account of a statutory requirement is called as AGM. Whereas an EGM is required to be convened by a company when the approval of the shareholders’ is required on urgent matters. The AGM Circular provides that the framework and manner of issuing notices provided in the EGM Circulars shall be applicable mutatis mutandis for conducting the AGM. While both the meetings are of the shareholders only, however called and conducted with different mindset altogether. Accordingly, it is imperative to see the implications of the provisions of EGM Circulars on the AGM. A brief comparison of both circulars is provided below:

Sr. No. Heading Provisions under the EGM Circulars Provisions under AGM Circular
1.       Type of business Only the unavoidable business shall be transacted at the EGM (excluding ordinary business items and matters requiring right of representation). Only the unavoidable business in addition ordinary business shall be transacted at the AGM as discussed above.
2. Notice of the Meeting The notice of the Meeting may be given only through email registered with the company/depository participant/depository. The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
 

For companies which are required to provide the e-voting facility

 

3. Content of the public notice under rule 20  of the Companies (Management and Administration) Rules, 2014 The following contents shall form part of the public notice for e-voting:

i.          a statement that the EGM shall be convened through VC or OAVM;

ii.          date and time of the EGM;

iii.          availability of notice on the website of the company and stock exchange, if required;

iv.          the manner in which the following can cast their votes:

a.      physical shareholders;  and

b.     who have not registered their email addresses with the company;

v.          the manner in which the persons can get their email addresses registered;

vi.          any other detail considered necessary by the company

 

The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
1. Maintenance of recorded transcript The recorded transcript shall be maintained by the company. In case of public company, the recorded transcript shall also be made available on the website of the company. The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
2. Minimum standards of VC/OVAM facility Ensure that the Meeting through VC/OAVM facility allows two way teleconferencing for the ease of participation of the members. The VC/OVAM facility must have a capacity to allow at least 1000 members to participate on first come first serve basis.

 

The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
3. Time frame for VC/OVAM facility The VC/OVAM facility shall be kept open at least 15 minutes before the scheduled time of the EGM and shall not be closed till the expiry of 15 minutes after the conclusion of the scheduled time for EGM. The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
4. Attendance through VC/OVAM Attendance of members through VC/OAVM shall be counted for quorum under section 103 of the Act. The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
5. Voting by the members present in the Meeting The members who are present in the EGM through VC/OAVM facility and have not casted their vote through remote e-voting shall be allowed to vote through e-voting system. The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
6. Election of chairman Unless the articles require any specific person to be appointed as a Chairman for the Meeting, the Chairman for the Meeting shall be appointed in the following manner:

i.          where there are less than 50 members present at the Meeting, the Chairman shall be appointed in accordance with section 104;

ii.          in all other cases, the Chairman shall be appointed by a poll conducted through the e-voting system during the Meeting.

 

The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
7. E-voting facility during the Meeting The Chairman shall ensure that the facility of e-voting system is available for voting during the Meeting held through VC/OAVM.

 

The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
8. Voting by the authorized representatives The representatives of the members may be appointed for the purpose of voting through remote e-voting or for participation and voting in the Meeting held through VC/OAVM. The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
9. Role of Scrutinizer The company should be required appoint a scrutinizer in accordance with the applicable provisions of the CA, 2013 red with allied rules for enabling transparent voting free from any conflict of interest. Same as for EGM.
10. Attendance of independent director and the auditor At least one independent director (if is required to appointed), and the auditor or his authorized representative, shall attend such Meeting through VC/ OAVM. The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
11. Notice issued prior to the EGM Circulars In case a notice for Meeting has been served prior to the date of the EGM Circulars, the framework proposed in this Circular may be adopted for the Meeting, in case the consent from members has been obtained in accordance with section 101(1) of the Act, and a fresh notice of shorter duration with due disclosures in consonance with this Circular is issued consequently. For companies which have already sent their notices for calling AGM, should be required to send out fresh notices containing the fact that meeting will conducted through VC/OAVM in terms of the AGM Circular.

 

In our view, the length of AGM notices can remain 21 days unless the same is called at a shorter notice.

12. Filing of resolutions All resolutions, passed in accordance with this mechanism shall be filed with the ROC within 60 days of the Meeting, clearly indicating therein that the mechanism provided herein along with other provisions of the Act and rules were duly complied with during such Meeting. The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
 

For companies which are not required to provide the e-voting facility

 

1. Intimation to the members w.r.t the Meeting The company shall contact all the members whose e-mail addresses are not registered with the company over telephone/any other mode, before sending notice to all the members;

 

The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
2. Content of the public notice Where the contact details of any of the members are not available with the company, it shall issue of public notice in vernacular language and vernacular newspaper in which the registered office is situated, & in English language and English newspaper having wide circulation in that district and electronic editions.

 

The following content shall form part of the public notice:

i.          a statement that the EGM shall be convened through VC or OAVM; and the company proposes to send the notice by email  at least 3 days from the date of publication of the public notice;

ii.          the details of the email address along with the phone number on which the members may contact for getting their e-mail addresses registered for participation and voting in the Meeting

 

The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
3. Maintenance of recorded transcript The recorded transcript shall be maintained by the company. In case of public company, the recorded transcript shall also be made available on the website of the company. The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
4. Minimum standards of VC/OVAM facility Ensure that the Meeting through VC/OAVM facility allows two way teleconferencing for the ease of participation of the members. The VC/OVAM facility must have a capacity to allow at least 500 members or members equal to total number of members, whichever is lower to participate on first come first serve basis.

 

The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
5. Timeframe for VC/OVAM facility The VC/OVAM facility shall be kept open at least 15 minutes before the scheduled time of the EGM and shall not be closed till the expiry of 15 minutes after the conclusion of the EGM. The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
6. Attendance through VC/OVAM Attendance of members through VC/OAVM shall be counted for quorum under section 103 of the Act. The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
7. Designated e-mail address for voting. The company shall provide a designated e-mail address to all members at the time of sending the notice of Meeting so that the members can convey their vote, when a poll is required to be taken during the Meeting on any resolution, at such designated email address. The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
8. Voting through registered e-mail only During the Meeting held through VC/OVAM facility, where a poll on any item is required, the members shall cast their vote on the resolutions only by sending their email addresses which are registered with the company. The said emails shall only be sent to the designated email address circulated by the company in advance. The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
9. Election of chairman Unless the articles require any specific person to be appointed as a Chairman for the meeting, the Chairman for the Meeting shall be appointed in the following manner:

iii.          where there are less than 50 members present at the Meeting, the Chairman shall be appointed in accordance with section 104;

iv.          in all other cases, the Chairman shall be appointed by a poll conducted through the registered e-mail during the Meeting.

 

The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
10. Voting by the authorized representatives The representatives of the members may be appointed for the purpose of voting through registered e-mail or for participation and voting in the Meeting held through VC/OAVM. The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
11. Attendance of independent director and the auditor At least one independent director (if is required to appointed), and the auditor or his authorized representative, shall attend such Meeting through VC/ OAVM. The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
12. Role of Scrutinizer The company may appoint a scrutinizer even though on a voluntary basis for enabling transparent voting free from any conflict of interest. Same as for EGM.
13. Declaration of voting results In case the counting of votes requires time, the said meeting may be adjourned and called later to declare the result. The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.
14. Notice issued prior to the EGM Circulars In case a notice for Meeting has been served prior to the date of the EGM Circulars, the framework proposed in this Circular may be adopted for the Meeting, in case the consent from members has been obtained in accordance with section 101(1) of the Act, and a fresh notice of shorter duration with due disclosures in consonance with this Circular is issued consequently. For companies which have already sent their notices for calling AGM, should be required to send out fresh notices containing the fact that meeting will conducted through VC/OAVM in terms of the AGM Circular.

 

In our view, the length of AGM notices can remain 21 days unless the same is called at a shorter notice.

15. Filing of resolutions All resolutions, passed in accordance with this mechanism shall be filed with the ROC within 60 days of the Meeting, clearly indicating therein that the mechanism provided herein along with other provisions of the Act and rules were duly complied with during such Meeting. The provisions of EGM Circular will be mutatis mutandis apply for convening the AGM.

Additional requirements to be complied with by the companies which are required to provide the e-voting facility:

  • Publication of a notice by way of newspaper advertisement before sending the notices and copies of the financial statements, etc., and specifying in the advertisement the following information.
    1. a statement that the AGM shall be convened through VC or OAVM;
    2. date and time of the AGM;
    3. availability of notice on the website of the company and stock exchange, if required;
    4. the manner in which the shareholders holding shares in physical mode, or who have not registered their email addresses with the company can cast their vote through remote e-voting or through the e-voting system during the meeting;
    5. the manner in which the persons can get their email addresses registered;
    6. the manner in which the members can give their mandate for receiving dividends directly in their bank accounts through the Electronic Clearing Service (ECS) or any other means;
    7. any other detail considered necessary by the company
  • Circulation of the board’s report, financial statements and other documents through e-mail instead of physical copies;
  • Where the company is unable to pay the dividend to any shareholder by the electronic mode, due to non-availability of the details of the bank account, the company shall upon normalization of the postal services, dispatch the dividend warrant/cheque to such shareholder by post;
  • Where the company has been permitted to conduct its AGM at its registered office, or at any other place as provided under section 96 of the Act, the company may in addition to holding such meeting with physical presence of some members, also provide the facility of VC or OAVM, to allow other members of the company to participate in such meeting.
  • The companies shall ensure that all other compliances associated with the provisions relating to general meetings viz making of disclosures, inspection of related documents/registers by members, or authorizations for voting by bodies corporate, etc as provided in the Act and the articles of association of the company are made through electronic mode.

Additional requirements to be complied with by the companies which are not required to provide the e-voting facility:

  • AGM may be conducted through the VC/OAVM facility only if the company which has the email addresses of at least half of its total number of members, in its records, and
    1. in case of a Nidhi, hold shares of more than 1000 rupees in face value or more than 1% of the total paid-up share capital, whichever is less;
    2. in case of other companies having share capital, hold at least 75% the paid-up share capital;
    3. in case of companies not having share capital, who have the right to exercise not less than 75% of the total voting power exercisable at the meeting.
  • The company shall take all necessary steps to register the email addresses of all persons who have not registered their email addresses with the company.
  • The board’s report, financial statements and other documents will be circulated through e-mail instead of physical copies;
  • The companies shall make adequate provisions for allowing the members to give their mandate for receiving dividends directly in their bank accounts through the Electronic Clearing Service (ECS) or any other means.
  • The company shall upon normalization of the postal services, dispatch the dividend warrant/cheque by post to the shareholders, whose bank accounts are not available.
  • The companies shall ensure that all other compliances associated with the provisions relating to general meetings viz making of disclosures, inspection of related documents/registers by members, or authorizations for voting by bodies corporate, etc as provided in the Act and the articles of association of the company are made through electronic mode.

Application for extension of AGM for certain companies

The companies which do not have calendar year as their financial year and are unable to conduct their AGM in accordance with the framework provided in AGM Circular may apply for the application for extension of AGM before the concerned Registrar of Companies under section 96 the Act.

Conclusion

Many companies which have already approved their AGM notices will have to make suitable changes therein in line with the said circular. Further, post the issue of this AGM Circular, most of the companies will be making their debut in conducting the AGM through VC/ OAVM and it will be interesting to see smooth convening amidst the crisis.

[1] http://mca.gov.in/Ministry/pdf/Circular14_08042020.pdf

[2]  http://www.mca.gov.in/Ministry/pdf/Circular17_13042020.pdf

[3] http://www.mca.gov.in/Ministry/pdf/Circular18_21042020.pdf

[4] http://www.mca.gov.in/Ministry/pdf/Circular20_05052020.pdf

http://vinodkothari.com/2020/04/conducting-general-meetings-through-vc-during-lockdown/

Link to similar articles:

  1. FAQ on conducting AGM through video conferencing
  2. General Meeting by Video Conferencing – recognising the inevitable  
  3. FAQ on general meeting through VC
  4. Can companies offer VC facility 

More articles related to corporate laws available here: http://vinodkothari.com/category/corporate-laws/

Implicit deferral of concomitant actions with IEPF amidst COVID-19?

-Pammy Jaiswal (pammy@vinodkothari.com) & Smriti Wadehra (smriti@vinodkothari.com)

Considering the pandemic, the Ministry of Corporate Affairs (‘MCA’) has relaxed various time specific provisions of Companies Act, 2013 so as to the ease the process of running a Company during the lockdown. One of such relaxation was introduction of ‘Companies Fresh Start Scheme, 2020’ (hereinafter referred to as ‘CFSS’) vide General Circular dated 30th March, 2020 [1]which has permitted delayed filing of various e-forms without any additional fees upto 6 months from the expiry of 30th September, 2020.

In furtherance to the said circular, the MCA on 13th April, 2020[2] clarified that the sanction for delayed filing without additional fees shall also apply for filings made under Section 124 and 125 of the Companies Act, 2013 read with IEPF (Accounting, Audit, Transfer and Refund) Rules, 2016. Pursuant to such relaxation, the due date for filing the e-Forms with the Registrar has been relaxed, however, the fate of concomitant actions which take place even before the filing formalities?

Please note that the CFSS is a one-time settlement scheme which allows belated filings to be cleared by the Company without payment of additional fees. Accordingly, the relaxation provided for IEPF filings is also with respect to belated filings or delayed filings up till 30th September, 2020. It is to be noted that form filing is a post facto activity. There are several pre & post filing compliance requirements which is to be executed by companies. However, when it comes to giving relaxations, the Ministry has identified form filings as the only compliance burden on the Company and did not come out with explicit relaxations on the other aspects of compliance activities connected with such filing.

In this write up, we aim to enlist such incidental activities w.r.t IEPF filings and how to ensure their conduct during the pandemic.

Sl. No. Form No. Details provided in the form Due date of filing Compliances to be ensured by the Company before filing

 

Our Analysis
1. IEPF-1 Statement of amounts credited to IEPF Within a period of 30 days of such amounts becoming due to be credited to the Fund.

 

·   Credit of unclaimed dividend to the IEPF Authority through PNB or MCA;

·   Maintenance of record consisting of name, last known address, amount, folio no. or client ID, certificate no., beneficiary details etc. of the persons in respect of whom unpaid or unclaimed amount has remained unpaid or unclaimed for a period of 7 years and has been transferred to the Fund.

The timeline for reporting the amounts credited to IEPF has been relaxed till 30th September, 2020. Does this mean that the transfer of unclaimed dividend to IEPF has also been extended?

 

No. The credit of unclaimed dividend to Authority is an online transfer and can be done from anywhere. Therefore, the transfers shall not be delayed/affected due to lockdown. Still, claiming back of shares by investors from IEPF may be delayed or disputed.

 

However, transfer of unpaid dividend by companies to a separate bank account may not be possible during the crisis as the Banks are not fully functional. Subsequently, application for claiming back shares from unpaid dividend account may also be delayed

 

Accordingly, extension is only provided for filing of statement in e-Form IEPF-1 by the Company. However, activities related to such filing has been disregarded.

 

2. IEPF-2 Statement of unclaimed or unpaid amounts and details of Nodal Officer

 

Within a period of 60 days after the holding of AGM.

 

Information to be submitted to Authority:

a)    Names and addresses of person entitled to receive sum

b)   Nature of amount

c)    Amount which the person is entitled

d)   Due date for transfer to IEPF

 

The filing requirement comes post AGM. While the MCA has come out with its General Circular dated 8th and 13th April, 2020 laying down modalities for holding EGM within a time frame till 30th June, 2020, however, no such directions have been brought for holding AGMs. However, for companies whose financial year ends on 31st December have been granted an extended timeline till 30th September, 2020 for holding their AGM. While for rest of the companies there is no such extension, it is implicit that if the AGM is held after their respective due dates, the filing is automatically extended.

 

3. IEPF-3 Form for filing Statement of shares and unclaimed or unpaid dividend not transferred to IEPF

 

Within 30 days of end of FY if company does not transfer the shares and amount to IEPF. a)   Company has to collate the information w.r.t. shares which have restraining orders

b)   Company to inform depository by way of corporate action

c)   Issuance of new certificate in case of physical shares

 

As the filing of such information is extended till 30th September, 2020, the Company may defer incidental activities w.r.t. the said form till the extended date.
4. IEPF-4 Statement of shares transferred to the IEPF Within 30 days of the corporate action containing details of such transfer.

 

·  inform at the latest available address to the shareholder concerned regarding transfer of shares 3 months before the due date of transfer of shares (which shall be 6 years and 9 months) and

·  also simultaneously publish a notice in the leading newspaper in English and regional language having wide circulation informing that the names and folio no/DP id/Client ID of the concerned shareholders are available on the website of the company, and

·  also publish on their website the details of such shareholders and shares due for transfer

 

Since, the Rules are silent on the mode of informing the shareholders, therefore, the Company may opt for sending notices vide email. Subsequently publish the same on its website. The question that might create an issue during the current times is the manner of sending individual notices to those who have not registered their e-mail ids.

 

Further, the notice will also be required to be published in newspapers. Please note that the newspaper services are operational in many parts of the Country, however, large number of people are avoiding purchase of newspapers during the crisis due to fear transmission. Hence, in our view, so as to reach a larger audience, companies may prefer e-version for this purpose.

 

5. E-verification IEPF-5 Application to the Authority for claiming unpaid amounts and shares out of IEPF Company shall, within 30 days from the date of receipt of claim, send an online verification report to the Authority.

 

Submission of online verification report along with all the documents submitted by the claimant along with scanned copy of all the original documents submitted by the claimant in physical form duly certified by its Nodal Officer along with the e-verification report and scanned copy of both sides of original physical share certificate or original bond

 

Further, if there is delay in submission of e-verification report beyond 30 days of filing of the claim the Company shall be liable to pay additional fee of Rs. 50 for every day max- Rs. 2500.

 

E-verification has been extended, hence no comments.
6. IEPF-7 Statement of amounts credited to IEPF on account of shares transferred to the fund

 

Within 30 days of transferring the amount to IEPF or date of modification of Rule.

 

Conclusion

While MCA has kept its focus on granting relaxations for filing requirements, it is to be noted that such extended timelines for a post facto activity should actually be taken as an implicit relaxation, during the current COVID -19 crisis, in fulfilling the concomitant actions in relation thereto.

 

[1] http://www.mca.gov.in/Ministry/pdf/Circular12_30032020.pdf

[2] http://www.mca.gov.in/Ministry/pdf/Circular16_13042020.pdf

 

Our other content may be viewed here- http://vinodkothari.com/corporate-laws/

Our write-ups relating to COVID-19 maybe viewed here- http://vinodkothari.com/covid-19-incorporated-responses/