Contribution to disaster relief is now an eligible CSR activity

Munmi Phukon, Principal Manager
Vinod Kothari & Company


The Ministry of Corporate Affairs, on 30th May, 2019 issued a Notification amending Schedule VII of the Companies Act, 2013 (Act) which seeks to include disaster management, including relief, rehabilitation and reconstruction activities under CSR activities. The amendment is very crucial considering the recent history of natural disaster the country had witnessed and this was always an expectation of the corporate sector from the Government.

Provisions of law

The Act through Section 135 puts a social obligation on certain class of companies on the basis their turnover and net profits to spend 2% of the average net profits of past 3 years in the activities mentioned in the Schedule. However, the contribution to any disaster management/ relief activities was not specifically covered in the Schedule except for Prime Minister’s National Relief Fund. This was an insufficiency of law due to which the companies were, in a way, forced to restrict themselves to the PM’s Fund despite of their wish to contribute in other funds or to decline the benefit which the society deserves in such circumstances.

The two- fold benefit

Seemingly, the amendment has come out with a relief to the corporates as well as to the society at large. Therefore, the benefit is said to be a two- fold benefit which, in one hand, will ensure welfare of the society and the environment in need and in the other, it will help the corporates deployment of the minimum allocated CSR fund in needy areas in a more effective way.

Decoding “large number” in case of Group Governance Policy under LODR

By CS Megha Saraf (


The Securities Exchange Board of India (“SEBI”) formulated a Corporate Governance Committee (“CG Committee/ Committee”) under the Chairmanship of Shri Uday Kotak to amend/insert new provisions in the existing SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”). With a vision to enhance the standards of corporate governance of listed entities, several recommendations were made by the CG Committee in its Report dated October 2017 which were kept open for public comments/ suggestions. Out of the several recommendations made by the Committee, many of them were accepted with or without modifications and necessary amendments were brought in the Listing Regulations vide SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018 dated 9th May, 2018 enforcing them in tranches.

However, certain recommendations though accepted, were left with SEBI for implementation by way of circulars from time to time. In view of this, SEBI Circular SEBI/HO/CFD/CMD/CIR/P/2018/79 dated 10th May, 2018 (“Circular”) was issued requiring the listed entities having subsidiaries to adopt a Group Governance Policy in order to enhance the standards of corporate governance at a group level. Group Governance Policy is required when there is a “large number” of subsidiaries in a group.

This article seeks to lay down rules/guidance as to how to decipher the meaning of the “large number” in context of a group. In essence, whether there may be numerical number, which may, in absolute terms, be regarded as large, or whether the determination of large number is relative, and will depend on various factors. If so, what are those factors? In short, this article gets into the unclear question of how to determine whether a particular group has a large number of subsidiaries.

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MCA requires reporting of ‘what is not a deposit’!

–updated as on 4th May, 2019

By Munmi Phukon- Principal Manager, Vinod Kothari & Company


The Ministry on 22nd January, 2019, issued a Notification[1] prescribing certain amendments in the Companies (Acceptance of Deposits) Rules, 2014  effective from the same date which have further been amended vide another Notification[2] dated 30th April, 2019 (Subsequent Notification). Undoubtedly, the amendments are of much significance. However, what remained unrevealed is, the intent.

What do these amendments talk about?

The amendments are requiring reporting of the following by the companies with the Registrar-

  1. A one- time return which will give the details of the outstanding receipt of money or loan which have not been considered as deposits as per Rule 2(1)(c) of the Rules. For this, the period of such receipt of money or loan has to be considered from 1st April, 2014 till 31st March, 2019 (earlier this date was the date of publication of the Notification in the Gazette i.e. 22nd January, 2019) and which are outstanding as on the said date. The reporting has to be made within 90 days from 31st March, 2019 as per the subsequent Notification.
  2. A periodic return which will give the details of particulars of transactions which are not considered as deposits as per Rule 2(1)(c) of the Rules within 30th June of every year containing details as on 31st

Which all companies will get hit by the amendments?

Seemingly, the amendments will hit almost all companies irrespective of the status thereof i.e. public or private, as it is almost impossible to not having any receipt of money which will not fall under the list of Rule 2(1)(c). However, the same exclude a Government company from the reporting requirement.

Whether the amendments will apply to banking companies, NBFCs etc.?

In regard to banking companies and NBFCs, these companies are not required to observe the compliance of the provisions related to acceptance of deposits in terms of the proviso to Section 73(1) of CA, 13. Furthermore, apart from these two categories, Rule 1(3) of the aforesaid Rules exempts an HFC from the applicability of the Rules. Though the amendments prescribe reporting requirements for every company other than a Government company, since the parent provisions are not applicable to these companies, the amendments shall also not apply to them.

The Central Government is empowered to specify other companies to whom the provisions of Chapter V shall not apply though no specification in this regard has been brought in till date.

The parent provisions

Section 2(31) of CA, 13 defines the term ‘deposit’ in an inclusive manner which provides that any receipt of money by way of deposit or loan by a company shall be termed as deposit. An extension to this definition has been provided in Rule 2(1)(c) (covered in later part of the article). Further, Sections 73 to 76A of CA, 13 provide the provisions related to acceptance of deposits from members by private companies and from persons other than members by public companies and the procedural requirements for the same have been prescribed by the Ministry through the Rules. Therefore, the reporting requirement comes from the Rules. Rule 16 of the existing set of Rules requires filing of the return of deposits (e- form DPT-3) within 30th of June every year by the companies accepting deposits. Apparently, till date, the reporting requirement was applicable only to those companies which have accepted money considered as deposits as per the definition. Therefore, the reporting by other companies was not required. However, the amendment is seemingly intending to include those other companies too within its purview.

Which all transactions are enlisted in Rule 2(1)(c)?

Rule 2(1)(c) defines the term ‘deposit’ in an exclusive manner and enlists nineteen transactions which are not treated as deposits. Below is the list of the items that are excluded from the term ‘deposit’-

  1. Amount received from CG, SG etc.:

Any amount received from the Central Government or a State Government, or any amount received from any other source whose repayment is guaranteed by the Central Government or a State Government, or any amount received from a local authority, or any amount received from a statutory authority constituted under an Act of Parliament or a State Legislature;

  1. Amount received from foreign Governments/ banks etc.:

Any amount received from foreign Governments, foreign or international banks, multilateral financial institutions (including, but not limited to, International Finance Corporation, Asian Development Bank, Commonwealth Development Corporation and International Bank for Industrial and Financial Reconstruction), foreign Governments owned development financial institutions, foreign export credit agencies, foreign collaborators, foreign bodies corporate and foreign citizens, foreign authorities or persons resident outside India subject to the provisions of Foreign Exchange Management Act, 1999 (42 of 1999) and rules and regulations made there under;

  1. Amount received as loan from banking companies:

Any amount received as a loan or facility from any banking company or from the State Bank of India or any of its subsidiary banks or from a banking institution notified by the Central Government under section 51 of the Banking Regulation. Act, 1949 (10 of 1949), or a corresponding new bank as defined in clause (d) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) or in clause (a) of section (2) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980) , or from a co-operative bank as defined in clause (b-ii) of section 2 of the Reserve Bank of India Act, 1934 (2 of 1934);

  1. Amount received as loan from PFIs:

Any amount received as a loan or financial assistance from Public Financial Institutions notified by the Central Government in this behalf in consultation with the Reserve Bank of India or any regional financial institutions or Insurance Companies or Scheduled Banks as defined in the Reserve Bank of India Act, 1934 (2 of 1934);

  1. Amount raised through issuance of commercial paper:

Any amount received against issue of commercial paper or any other instruments issued in accordance with the guidelines or notification issued by the Reserve Bank of India;

  1. Inter- corporate deposits:

Any amount received by a company from any other company;

  1. Amount received as subscription money for securities:

Any amount received and held pursuant to an offer made in accordance with the provisions of the Act towards subscription to any securities, including share application money or advance towards allotment of securities pending allotment, so long as such amount is appropriated only against the amount due on allotment of the securities applied for;

Explanation.- For the purposes of this sub-clause, it is hereby clarified that –

(a) Without prejudice to any other liability or action, if the securities for which application money or advance for such securities was received cannot be allotted within sixty days from the date of receipt of the application money or advance for such securities and such application money or advance is not refunded to the subscribers within fifteen days from the date of completion of sixty days, such amount shall be treated as a deposit under these rules.

Provided that unless otherwise required under the Companies Act, 1956 (1 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or rules or regulations made thereunder to allot any share, stock, bond, or debenture within a specified period, if a company receives any amount by way of subscriptions to any shares, stock, bonds or debentures before the 1st April, 2014 and disclosed in the balance sheet for the financial year ending on or before the 31st March, 2014 against which the allotment is pending on the 31st March, 2015, the company shall, by the 1st June 2015, either return such amounts to the persons from whom these were received or allot shares, stock, bonds or debentures or comply with these rules.

(b) any adjustment of the amount for any other purpose shall not be treated as refund.

  1. Amount received from directors/ relative of directors:

Any amount received from a person who, at the time of the receipt of the amount, was a director of the company or a relative of the director of the private company:

Provided that the director of the company or relative of the director of the private company, as the case may be, from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others and the company shall disclose the details of money so accepted in the Board’s report;

  1. Amount raised by issue of secured bonds/ debentures:

Any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pari passu with the first charge on any assets referred to in Schedule III of the Act excluding intangible assets of the company or bonds or debentures compulsorily convertible into shares of the company within ten years:

Provided that if such bonds or debentures are secured by the charge of any assets referred to in Schedule III of the Act, excluding intangible assets, the amount of such bonds or debentures shall not exceed the market value of such assets as assessed by a registered valuer;

  1. Amount raised through issuance of unsecured listed NCDs:

Any amount raised by issue of non-convertible debenture not constituting a charge on the assets of the company and listed on a recognised stock exchange as per applicable regulations made by Securities and Exchange Board of India.

  1. Non-interest bearing security deposit received from employees:

Any amount received from an employee of the company not exceeding his annual salary under a contract of employment with the company in the nature of non-interest bearing security deposit;

  1. Non-interest bearing amount held in trust:

Any non-interest bearing amount received and held in trust;

  1. Advance from customers:

Any amount received in the course of, or for the purposes of, the business of the company,

(a) as an advance for the supply of goods or provision of services accounted for in any manner whatsoever provided that such advance is appropriated against supply of goods or provision of services within a period of three hundred and sixty five days from the date of acceptance of such advance:

Provided that in case of any advance which is subject matter of any legal proceedings before any court of law, the said time limit of three hundred and sixty five days shall not apply:

(b) as advance, accounted for in any manner whatsoever, received in connection with consideration for an immovable property under an agreement or arrangement, provided that such advance is adjusted against such property in accordance with the terms of agreement or arrangement;

(c) as security deposit for the performance of the contract for supply of goods or provision of services;

(d) as advance received under long term projects for supply of capital goods except those covered under item (b) above:

(e) as an advance towards consideration for providing future services in the form of a warranty or maintenance contract as per written agreement or arrangement, if the period for providing such services does not exceed the period prevalent as per common business practice or five years, from the date of acceptance of such service whichever is less;

(f) as an advance received and as allowed by any sectoral regulator or in accordance with directions of Central or State Government;

(g) as an advance for subscription towards publication, whether in print or in electronic to be adjusted against receipt of such publications;

Provided that if the amount received under items (a), (b) and (d) above becomes refundable (with or without interest) due to the reasons that the company accepting the money does not have necessary permission or approval, wherever required, to deal in the goods or properties or services for which the money is taken, then the amount received shall be deemed to be a deposit under these rules:

Explanation.- For the purposes of this sub-clause the amount shall be deemed to be deposits on the expiry of fifteen days from the date they become due for refund.

  1. Amount brought by the promoters:

Any amount brought in by the promoters of the company by way of unsecured loan in pursuance of the stipulation of any lending financial institution or a bank subject to fulfilment of the following conditions, namely:-

(a) the loan is brought in pursuance of the stipulation imposed by the lending institutions on the promoters to contribute such finance;

(b) the loan is provided by the promoters themselves or by their relatives or by both; and

(c) the exemption under this sub-clause shall be available only till the loans of financial institution or bank are repaid and not thereafter;

  1. Any amount accepted by a Nidhi company in accordance with the rules made under section 406 of the Act;
  2. Any amount received by way of subscription in respect of a chit under the Chit Fund Act, 1982 (40 of 1982);
  3. Any amount received by the company under any collective investment scheme in compliance with regulations framed by the Securities and Exchange Board of India;
  4. Amount received by start- up company by way of convertible note:

An amount of twenty five lakh rupees or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person.

Explanation.- For the purposes of this sub-clause,-

  1. “start-up company” means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognised as such in accordance with notification number G.S.R. 180(E) dated 17th, February, 2016 issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry;
  2. “convertible note” means an instrument evidencing receipt of money initially as a debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of the start-up company upon occurrence of specified events and as per the other terms and conditions agreed to and indicated in the instrument.
  3. Amount received from AIFs, VCFs REITs etc.:

Any amount received by a company from Alternate Investment Funds, Domestic Venture Capital Funds, Infrastructure Investment Trusts, Real Estate Investment Funds and Mutual Funds registered with the Securities and Exchange Board of India in accordance with regulations made by it.

Explanation.- For the purposes of this clause, any amount.-

(a) received by the company, whether in the form of instalments or otherwise, from a person with promise or offer to give returns, in cash or in kind, on completion of the period specified in the promise or offer, or earlier, accounted for in any manner whatsoever, or

(b) any additional contributions, over and above the amount under item (a) above, made by the company as part of such promise or offer, shall be treated as a deposit.

The concept of Deposit

Undoubtedly, deposit is a broader term and includes an advance as well loan. However, one has to evaluate the factual terms for such determination, as a deposit is a money for money transaction and it includes a loan in substance too. A money for money transaction appears when it is apparent that what come in, is money, and what goes out is also in the form of money. Having said so, an advance extended for a specific purpose cannot be treated as deposit, however, an advance without such a specific purpose shall be nothing but a deposit. Similarly, in case of share application money against which shares have not been allotted for long shall take the form of a deposit. Therefore, advance without purpose or share application money pending allotment for long and similar transactions are though not loan per se, but a loan in substance, hence will get covered under the concept of deposit. However, where there is no loan or a loan in substance, the same cannot be a money for money transaction and hence will come out of the purview of being deposits. Seemingly, the list mentioned in Rule 2(1)(c) is an attempt to cover a loan in substance too.

What will be the consequences for non- reporting?

Section 76A and Rule 21 are concerned about the penal consequences. Section 76A provides huge fines on the company as well as on the officers for accepting deposits in contravention of the prescribed manner or conditions in the Chapter and the Rules and also in case of failure in repayment of deposits. Further, in case of officers, the offence is non- compoundable as it involves fine and imprisonment both. The Section provides the following:

  1. On the company: A fine of minimum one crore rupees or twice the amount of deposit so accepted, whichever is lower, which may extend to ten crore rupees; and
  2. On the officers of the Company who is in default: imprisonment upto seven years and with a fine of not less than twenty five lakh rupees which may extend to two crore rupees.

From the above, it can be construed that the penal provisions provided in Section 76A shall apply only to those companies which have accepted money falling under the purview of deposits as per the definition. Therefore, if a company accepted money (e.g. ICD) which falls under the exclusion list shall not be subjected to the penal consequences of Section 76A as ICD is not a deposit.

On the other hand, on a reading of the language, Rule 21 seems to cover any other person also in its purview. The Rule provides fine for any other person apart from the companies covered in Sections 73 and 76, which contravenes any of the provisions of the Rules for which no punishment is provided in the Act. Therefore, for the applicability of Rule 21, one has to see the compliance requirements of the Rules also. Since the new reporting requirement has been made a part of the Rules which applies to every companies (excluding certain categories mentioned above), the consequences of Rule 21 shall apply to those companies also. Rule 21 prescribes a fine which may extend to five thousand rupees and in case of continuing violation a further fine which may extend to five hundred rupees for every day after the first day of such contravention.

Whether NIL reporting shall also be required?

In view of the language of the Rules, the one- time return is required to be filed for the outstanding amounts, if any, with the company. Therefore, where no such amount is outstanding, the company will not be required to file the return. Same rationale shall apply to the annual return also.

Whether filing of two DPT-3 i.e. w.r.t. the one- time return as well as the annual return as on 31st March, 2019 will be required for FY 18-19?

On perusal of the latest version of the e- form that has been made available w.e.f. 1st May, 2019, it is understood that the one- time return requires display of only the aggregate quantum of the exempted deposits [i.e. falling under Rule 2(1)(c)] and not the detailed break-up of the transactions.  Further, this return shall be filed for the amounts accepted on or after 1st April, 2014 till 31st March, 2019 and outstanding as on 31st March, 2019 as required under the newly inserted Rule 16A. On the other hand, the annual return requires the detailed break-up of the exempted deposits as on 31st March, 2019 as per the proviso to Rule 16.

In view of the aforesaid discussions and in absence of any clarification in this regard, it seems that the companies will be required to file two returns, one as the one- time return and the other as the annual return.


The exclusion list as provided in the Rule covers certain items which, in day to day business, are very common for each type of entities irrespective of its size, status etc.. To mention the most common ones are, bank loans, advance from customers, loans from group entities, NCDs, CCDs, shares, share warrants, commercial papers etc. Considering the new reporting requirements, the companies will have to disclose details of all these transactions even though the same are not deposits.

Further, the amendments require reporting of the details of outstanding sums of receipt of money not considered as deposit as per the definition for the period starting from 1st April, 2014 to 31st March, 2019. Evidently, this reporting has to be of the outstanding amounts lying with the company. Therefore, say for example, if the company had accepted money from a company as a loan in the year 2014 which has already been repaid in 2017 shall not require reporting.

As there is no utterance of the intent behind such a reporting requirement, what will the Ministry gain from such reporting also remains a secret. In the recent past also, the Registrars of different jurisdictions have been circulating notices under Section 206 of CA, 13 seeking detailed information related to financial transactions from various companies. The intent for such information also was not being mentioned in those notices. To what extent the Registrars were successful on obtaining the required details through those notices are not known. Probably, by making the new reporting requirements a part of law will benefit them from getting those information on a regular basis at one place.



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Insight on UK Corporate Governance Code- The applicability in Indian Scenario

Alignment of Audit & Auditors Rules with Amendment Act, 2017

Relatives’ interest affecting the independence criteria of IDs

By Munmi Phukon & Smriti Wadehra (


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 (,(


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] 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.



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.





Ready Reckoner –SEBI’s Corporate Governance Report