SEBI’s relaxation inspired by MCA circulars
Link to the circular (12.05.2020)
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:
- Less time consuming process;
- Operating convenience;
- Cost effectiveness;
- Environment friendly;
- 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. |
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For companies which are required to provide the e-voting facility
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| 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
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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.
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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.
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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.
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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. |
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For companies which are not required to provide the e-voting facility
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| 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;
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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
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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.
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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.
- a statement that the AGM shall be convened through VC or OAVM;
- date and time of the AGM;
- availability of notice on the website of the company and stock exchange, if required;
- 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;
- the manner in which the persons can get their email addresses registered;
- 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;
- 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
- 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;
- in case of other companies having share capital, hold at least 75% the paid-up share capital;
- 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/
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- General Meeting by Video Conferencing – recognising the inevitable
- FAQ on general meeting through VC
- Can companies offer VC facility
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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
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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.
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· 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.
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| 2. | IEPF-2 | Statement of unclaimed or unpaid amounts and details of Nodal Officer
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Within a period of 60 days after the holding of AGM.
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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
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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.
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| 3. | IEPF-3 | Form for filing Statement of shares and unclaimed or unpaid dividend not transferred to IEPF
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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
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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.
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· 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
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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.
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| 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.
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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.
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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
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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/
Regulator’s move to repair the NBFC sector
-Mridula Tripathi
The evolving impact on people’s health has casted a threat on their livelihoods, the businesses in which they work, the wider economy, and therefore the financial system. The outbreak of this pandemic is nothing like the crisis faced by the economies in the year 2007-08 and imperils the stability of the financial system. The market conditions have forced traders to take aggressive steps exposing the system to great volatility thereby resulting in crashing asset values. Combating the pandemic and safeguarding the economy, the financial sectors across the globe have witnessed numerous reforms to hammer the aftermaths of the global crisis. Read more →
Restructuring of bonds during COVID-19 crisis
This presentation covers the procedural requirements for restructuring of bonds/debentures during COVID-19 crisis.
Please click below for the presentation:
Part-1:
Please click here for the PPT used in the presentation.
Highlights of SEBI’s temporary relaxations for Rights Issue
Ambika Mehrotra & Ankit Vashishth
In line with various other relaxations introduced by the Securities and Exchange Board of India (‘SEBI’), amid the global pandemic, it has now come up with a Circular dated 21st April, 2020 [1]granting temporary relief under certain provisions of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (‘ICDR regulations’) in respect of Rights Issue. The rights issues opening on or before March 31, 2021 will get benefited from the said Circular.
It goes without saying that during the period of this of economical breakdown, the industrial undertakings are in need of funds for various purposes. In this hour of crisis, SEBI’s move seems to ease out the stringent requirements in the statues which hamper the facility of raising funds by companies especially through rights issue.
The amended provisions broadly serve the intent of having a relatively flexible eligibility criteria for a fast track rights issue and lesser chances of refund of the amount in case of non- receipt of subscription amount.
A snapshot of the relaxations and their impact is enlisted below: –
Eligibility conditions related to Fast Track Rights Issues
| Relevant Regulation
|
Pre- amendment | Post-amendment | Impact Analysis |
| 99(a) | the equity shares of the issuer have been listed on any stock exchange for a period of at least three years immediately preceding the reference date
|
the equity shares of the issuer have been listed on any stock exchange for a period of at least eighteen months immediately preceding the reference date
|
Relaxation in the pre-condition with respect to listing of equity shares from 3 years to 18 months. |
| 99(c ) | the average market capitalisation of public shareholding of the issuer is at least two hundred and fifty crore rupees
|
the average market capitalisation of public shareholding of the issuer is at least one hundred crores
|
Companies with smaller market size i.e. more Rs. 100 crore and above also permitted to enter into Fast Track Issue. |
| 99(f) and its proviso | the issuer has been in compliance with the equity listing agreement or the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as applicable, for a period of at least three years immediately preceding the reference date:
Provided that if the issuer has not complied with the provisions of the listing agrîment or the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as applicable, relating to composition of board of directors, for any quarter during the last three years immediately preceding the reference date, but is compliant with such provisions at the time of filing of letter of offer, and adequate disclosures are made in the letter of offer about such non-compliances during the three years immediately preceding the reference date, it shall be deemed as compliance with the condition; |
the issuer has been in compliance with the equity listing agreement or the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as applicable, for a period of at least eighteen months immediately preceding the reference date:
Provided that if the issuer has not complied with the provisions of the listing agreement or the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as applicable, relating to composition of board of directors, for any quarter during the last eighteen months immediately preceding the reference date, but is compliant with such provisions at the time of filing of letter of offer, and adequate disclosures are made in the letter of offer about such non-compliances during the three years immediately preceding the reference date, it shall be deemed as compliance with the condition;
|
The timeline for being in compliance with listing regulations has been reduced from 3 years to 18 months.
This is in line with the requirement under Regulation 99(a) wrt listing of equity shares for a period of atleast 18 months instead of 3 years. |
| 99(h) | No show-cause notices have been issued or prosecution proceedings have been initiated by the SEBI and pending against the issuer or its promoters or whole-time directors as on the reference date. | No show-cause notices, excluding under adjudication proceedings, have been issued by the SEBI and pending against the issuer or its promoters or whole-time directors as on the reference date.
In cases where against the issuer or its promoters/ directors/ group companies,
i. a show cause notice(s) has been issued by the Board in an adjudication proceeding or
ii. prosecution proceedings have been initiated by the Board; necessary disclosures in respect of such action (s) along-with its potential adverse impact on the issuer shall be made in the letter of offer. |
Regulation 99(h) restricts the company to make fast track rights issue in case there had been any show-cause notices or prosecution proceedings issued/initiated against the company/ its promoters/ WTDs.
The temporary relaxation however allows the company to be eligible for rights issue to the extent where adjudication proceedings or prosecution proceedings in respect of the above as well as the group companies are concerned, on making the required disclosures in this regard and its adverse impact, in the letter of offer |
| 99(i) | the issuer or promoter or promoter group or director of the issuer has not settled any alleged violation of securities laws through the consent or settlement mechanism with the Board during three years immediately preceding the reference date;
|
The issuer or promoter or promoter group or director of the issuer has fulfilled the settlement terms or adhered to directions of the settlement order(s) in cases where it has settled any alleged violation of securities laws through the consent or settlement mechanism with the Board. | Prior to the relaxation, any violation in the securities laws by the issuer/ promoter/ promoter group/ director made the issuer ineligible. This however has now been relaxed to permit the issue in case the above violators, having violated the securities laws at anytime during the past have fulfilled the settlement terms or followed the directions under the settlement order(s) |
| 99(j) | The equity shares of the issuer have not been suspended from trading as a disciplinary measure during last 3 years immediately preceding the reference date. | The equity shares of the issuer have not been suspended from trading as a disciplinary measure during last 18 months immediately preceding the reference date. | In line with Regulation 99(a) and (f) |
| 99(m) | There are no audit qualifications on the audited accounts of the issuer in respect of those financial years for which such accounts are disclosed in the letter of offer | For audit qualifications, if any, in respect of any of the financial years for which accounts are disclosed in the letter of offer, the issuer shall provide the restated financial statements adjusting for the impact of the audit qualifications.
Further, that for the qualifications wherein impact on the financials cannot be ascertained the same shall be disclosed appropriately in the letter of offer. |
Prior to the Circular, any qualification in the audit report led to ineligibility. This condition has now been re-framed to make the companies eligible on providing the restated financial statements adjusting for the impact of the audit qualifications or providing clarifications in case such impact cannot be ascertained |
Relaxation with respect to Minimum Subscription:
| Relevant Regulation
|
Pre- amendment | Post-amendment | Remarks |
| 86(1) | The minimum subscription to be received in the issue shall be at least ninety per cent. of the offer through the offer document. | The minimum subscription to be received in the issue shall be at least seventy five percent of the offer through the offer document.
Provided that if the issue is subscribed between 75% to 90%, issue will be considered successful subject to the condition that out of the funds raised atleast 75% of the issue size shall be utilized for the objects of the issue other than general corporate purpose. |
The minimum subscription amount has been reduced from 90% to 75%.
However, the Circular seems to put another restriction on the utilization of atleast 75% of the funds for the objects of the issue other than general corporate purpose if the actual subscription goes beyond 75% but within 90% of the offer. |
Minimum threshold for not filing draft letter of offer
| Relevant Regulation
|
Pre- amendment | Post-amendment | Remarks |
| Applicability of the Regulations:
3(b) |
rights issue by a listed issuer; where the aggregate value of the issue is ten crore rupees or more;
|
rights issue by a listed issuer; where the aggregate value of the issue is twenty-five crores or more;
|
The conditions prescribed in Chapter III of ICDR Regulations shall not apply in case of Rights Issue carrying an issue size of less than Rs. 25 crores. |
|
Proviso to Reg. 3 |
Provided that in case of rights issue of size less than ten crore rupees, the issuer shall prepare the letter of offer in accordance with requirements as specified in these regulations and file the same with the Board for information and dissemination on the Board’s website. | Provided that in case of rights issue of size less than twenty-five crore rupees, the issuer shall prepare the letter of offer in accordance with requirements as specified in these regulations and file the same with the Board for information and dissemination on the Board’s website. | The change is made considering the revised limit of applicability of the Regulations for a rights issue. |
|
60 |
Unless otherwise provided in this Chapter, an issuer offering specified securities of aggregate value of ten crore rupees or more, through a rights issue shall satisfy the conditions of this Chapter | Unless otherwise provided in this Chapter, an issuer offering specified securities of aggregate value twenty-five crore rupees or more, through a rights issue shall satisfy the conditions of this Chapter. | The change is made considering the revised limit of applicability of the Regulations for a rights issue. |
One-time Relaxation on opening of issue
In addition to the above Circular, SEBI has also issued another circular on the same date i.e. April 21, 2019[2] for granting one-time relaxation on the basis of the representations received from various stakeholders with respect to the opening of issue period within 12 months from the date of issuance of the observations by SEBI, for an Initial Public Offer (IPO), Further Public Offer (FPO) or Rights Issue as per Regulation 44, 140 and 85 respectively of the ICDR Regulations, expiring during this period of lockdown i.e. between March 1, 2020 and September 30, 2020 to be extended by 6 months, from the date of expiry of the above-mentioned observations received from SEBI.
However, the extension to this issue opening period shall be granted on obtaining an undertaking from lead manager of the issue confirming compliance with Schedule XVI of the ICDR Regulations with respect to the nature of changes in the offer document which require filing of updated offer document, while submitting the updated offer document to SEBI.
Conclusion
These temporary relaxations will surely bring in a sigh of relief for the stakeholders including the companies intending to raise funds through rights issue, during this interim period of disruption due the outbreak of COVID-19, considering the stagnancy of operations in the country.
Read our related articles below –
SEBI ICDR Regulations, 2018– Snapshot on changes in rights, bonus, QIP and preferential issue;
SEBI (ICDR) Regulations, 2018-Key Amendments;
Covid-19 – Incorporated Responses | Regulatory measures in view of COVID-19.
[1] https://www.sebi.gov.in/legal/circulars/apr-2020/relaxations-from-certain-provisions-of-the-sebi-issue-of-capital-and-disclosure-requirements-regulations-2018-in-respect-of-rights-issue_46537.html
[2] https://www.sebi.gov.in/legal/circulars/apr-2020/one-time-relaxation-with-respect-to-validity-of-sebi-observations_46536.html
The Rise of Stablecoins amidst Instability
-Megha Mittal
The past few years have witnessed an array of technological developments and innovations, especially in Fintech; and while the world focused on Bitcoins and other cryptos, a new entrant ‘Stablecoin’ slowly crept its way into the limelight. With the primary motive of shielding its users from the high volatility associated with cryptos, and promises of boosting cross-border payments and remittance, ‘Stablecoins’ emerged in 2018, and now have become the focal point of discussion of several international bodies including the Financial Standards Board (FSB), G20, Financial Action Task Force (FATF) and International Organization of Securities Commission (IOSCO).
Additionally, the widespread notion that the desperate need of cross-border payments and remittances during the ongoing COVID-crisis may prove to be a defining moment for stablecoins, has drawn all the more attention towards the need of establishing regulations and legal framework pertaining to Stablecoins.
In this article, we shall have an insight as to what Stablecoins, (Global Stable Coinss) are, its modality, its current status of acceptance by the international bodies, and how the ongoing COVID crisis, may act as a catalyst for its rise.