The MCA notified the Companies (Appointment and Qualification of Directors) Amendment Rules, 2017[1] (‘Amendment Rules, 2017’) w.e.f July 5, 2017 exempting certain unlisted public companies from the requirement of appointing independent directors. Additionally, MCA has amended Form DIR-5 in relation to cancellation or surrender or deactivation of DIN. Read more →
Inspite of the barrage of notifications, amendments, clarifications, MCA in an attempt to continue the tradition has issued another Notification[1] dated July 5, 2017, amending Schedule IV of the Companies Act, 2013. The Notification will come into force on the date of its publication in the Official Gazette, which we assume will be done soonest. Certain amendments have been made in line with the recommendations made in Company Law Committee Report.
To,
Ms. Richa G. Agarwal
Deputy General Manager
Investment Management Department
Securities and Exchange Board of India
Sub: Representation on the exemptions related to International Securities Identification Number (ISINs) for debt securities issued under the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and clarity on initial reporting.
Ref: SEBI Circular No. CIR/IMD/DF-1/ 67/2017 (‘SEBI Circular’) issued on June 30, 2017.
Dear Madam,
Indian Securitisation Foundation (ISF)
ISF is a not-for-profit entity representing the securitisation industry in India. The membership of the Foundation includes banks, NBFCs, microfinance institutions, other issuers and investors and securitisation professionals for promoting interest of securitisation and fixed income securities in India. As ISF is dedicated to the cause of promoting securitisation, asset-based financing and related areas in India, we humbly submit our recommendations herein below on the captioned subject which may have significant impact on the intent of the circular.
Para 2.2 of the SEBI Circular provides for exemption from applicability of ISINs. The text of the exemption is as follows:
2.2. Exemptions from applicability of ISINs:
The following classes of debt securities issued for raising regulatory capital are exempted from the applicability of provisions of this circular:
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Tier II bonds issued by Non-Systemically Important Non-Deposit taking Non-Banking Financial Company issued as per RBI “Master Direction-Non-Banking Financial Company-Non-Systemically important Non-deposit taking Company (Reserve Bank) Directions, 2016”dated September 01, 2016. (Emphasis Supplied)
Para 6 of the Non-Banking Financial Company -Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 (‘NBFC-ND-SI Direction’) provides that every applicable NBFC shall maintain a minimum capital ratio consisting of Tier I and Tier II capital which shall not be less than 15 percent of its aggregate risk weighted assets on-balance sheet and of risk adjusted value of off-balance sheet items.
Para 46 and 48 of the Non-Banking Financial Company – Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016 (‘NBFC-ND-NSI Directions’) requires every NBFC-IFC (Non-Banking Finance Company – Infrastructure Finance Companies) and NBFC-MFI (Non-Banking Finance Company – Micro Finance Institutions), respectively, to maintain a minimum capital ratio consisting of Tier I and Tier II capital which shall not be less than 15 percent of its aggregate risk weighted assets on-balance sheet and of risk adjusted value of off-balance sheet items.
As evident from the text of the SEBI Circular, only those companies have been exempted from applicability of ISINs which issues debt securities for raising regulatory capital; however, it seems that the SEBI Circular have inadvertently missed adding NBFC-ND-SI within the exemption list.
Therefore, it is a humble request to consider including the following:
“2.2.8. Tier II bonds issued by Systemically Important Non-Deposit taking Non-Banking Financial Company issued as per RBI “Non-Banking Financial Company -Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016” dated September 01, 2016.”
Thanking you
For Indian Securitisation Foundation
Sd/-
(Vinod Kothari)
The Ministry of Corporate Affairs (“MCA”) vide its Notification No. G.S.R. 1119(E) dated December 7, 2016 issued the Companies (Transfer of Pending Proceeding) Rules, 2016 (‘TPP Rules, 2016’) in exercise of the powers conferred under section 431 (1) and (2) of the Companies Act, 2013 (‘Act, 2013’) read with section 239 (1) of the Insolvency and Bankruptcy Code, 2016 (‘Code’). Read more →
Ministry of Finance (MoF) vide notification dated 27th June, 2017 issued the Securities Contracts (Regulation) (Amendment) Rules, 2017 (Amendment Rules)[1] to amend Rule 8 of the Securities Contracts (Regulation) Rules, 1957[2] (Principal Rules).
Rule 8 of the Principal Rules deals with the qualifications for membership of a recognized stock exchange. Read more →
MCA vide public notice dated[1] June 28, 2017 has conveyed its intent of issuing a notification proposing amendments to the Companies (Specification of Definitions Details) Rules, 2014 containing the restriction on layers of subsidiaries beyond prescribed number and has invited suggestions on the draft notification. Comments/suggestions on the draft rules along with justifications in brief may be sent latest by 20th July, 2017 through email at csddar@mca.gov.in in the format prescribed.
Proviso to Section 2 (87) along with explanation (d) was proposed to be omitted in Companies (Amendment) Bill, 2016. However, in view of reports of misuse of multiple layers of companies, where companies create shell companies for diversion of funds or money laundering , MCA has decided to retain the provisions and commence the aforesaid proviso and explanation. Further, MCA has no intent to exempt private companies from the requirement as well. Similar restriction on number of layers of investment companies has already been in force under Section 186 (1).
It is important to note that even body corporate will get covered as the expression ‘company’ includes body corporate for the purpose of Section 2 (87).
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This write up initially discusses the proposed conditions and thereafter analyses the permitted combinations.
Provisions of the proposed rule 5 shall not apply to following classes of companies, namely:-
(a) a banking company;
(b) a non-banking financial company as defined in the Reserve Bank of India Act, 1934 (2 of 1934) which is registered with the Reserve Bank of India and considered as systemically important non-banking financial company by the Reserve Bank of India; (Nothing specified in relation to housing finance companies/ NBFC CICs).
(c) an insurance company being a company which carries on the business of insurance in accordance with provisions of Insurance Act, 1938 and Insurance Regulatory Development Authority Act, 1999;
(d) a Government company referred to in clause (45) of section 2 of the Act.
It is necessary to extend to exemptions in cases of Housing Finance Companies, Core Investment Companies as well as Non-Operative Financial Holding Company .
The proposed Rule 5 (1) shall not apply to one layer of wholly owned subsidiary. Further, the provisions of this sub-rule shall not affect a holding company from acquiring a subsidiary incorporated in a country outside India if such subsidiary has subsidiaries as per the laws of such country.
Given the intent behind enforcing the provisions, it is necessary to exempt such subsidiaries where there is no fund infusion and mere control of management. Subsidiaries by virtue of Section 2 (87) (i) only and not by virtue of Section 2 (87) (ii) should also be exempted.
The exemption in case of acquiring of subsidiaries incorporated outside India should extend equally to subsidiaries incorporated outside India. There need not be a distinction in acquisition and incorporation of subsidiary outside India.
The holding companies, other than exempted companies, that breach the conditions of layers of subsidiaries as on the date of commencement of provision will be prohibited from incorporating additional layer of subsidiaries.
Such holding companies shall file return in Form SDD-1 with the Registrar within a period of three months from the date of its deployment as an electronic form on the Ministry’s MCA-21 portal. The proposed form requires specifying layer number of the subsidiary and percentage of shares held by holding company.
All the below mentioned structures are permitted and well in compliance
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Case 1:
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In the aforesaid structure, if we consider on as is basis, there exists more than 2 layers of subsidiaries. Therefore, an existing company cannot go beyond ‘D’. Once the provisions are enforced, an existing holding company A will not be able to float ‘D’ unless any exemptions/ relaxations become applicable.
Case 2 – ‘B’/’C’/ ‘D’[2] is a wholly owned subsidiary of ‘A’:
In that case, the structure is permissible.
Case 3 – ‘B’/’C’ is a subsidiary incorporated outside India:
Currently, the wording of draft rule prescribes ‘acquired’ subsidiaries to be exempted. However, the benefit should be extended to subsidiaries incorporated outside India.
Case 4 – ‘B” is a subsidiary acquired outside India while ‘C’ and ‘D’ and subsidiaries of ‘B’ incorporated in India
So ‘A’, ‘C’ and “D’ are companies incorporated in India while ‘B’ is a subsidiary outside India. The exemption cannot be extended to ‘C’ and ‘D’ merely because it’s immediately holding company is a subsidiary acquired outside India. Therefore, the limit is likely to be breached unless ‘B’ or ‘C’ or ‘D’ is a wholly owned subsidiary.
Case 5 – ‘A’/‘B’/’C’ fall under exempted companies:
In that case, the restriction shall not apply.
Case 6 – ‘B’/’C’/ ‘D’ is an LLP:
The expression ‘company’ includes body corporate. Therefore, an existing company cannot go beyond ‘D’. Once the provisions are enforced, an existing holding company A will not be able to float ‘D’ unless any exemptions/ relaxations become applicable.
CS Vinita Nair, corplaw@vinodkothari.com
MCA vide public notice dated[1] June 28, 2017 has conveyed its intent of issuing a notification proposing amendments to the Companies (Specification of Definitions Details) Rules, 2014 containing the restriction on layers of subsidiaries beyond prescribed number and has invited suggestions on the draft notification. Comments/suggestions on the draft rules along with justifications in brief may be sent latest by 20th July, 2017 through email at csddar@mca.gov.in in the format prescribed.
Proviso to Section 2 (87) along with explanation (d) was proposed to be omitted in Companies (Amendment) Bill, 2016. However, in view of reports of misuse of multiple layers of companies, where companies create shell companies for diversion of funds or money laundering , MCA has decided to retain the provisions and commence the aforesaid proviso and explanation. Further, MCA has no intent to exempt private companies from the requirement as well. Similar restriction on number of layers of investment companies has already been in force under Section 186 (1).
It is important to note that even body corporate will get covered as the expression ‘company’ includes body corporate for the purpose of Section 2 (87).
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This write up initially discusses the proposed conditions and thereafter analyses the permitted combinations.
Provisions of the proposed rule 5 shall not apply to following classes of companies, namely:-
(a) a banking company;
(b) a non-banking financial company as defined in the Reserve Bank of India Act, 1934 (2 of 1934) which is registered with the Reserve Bank of India and considered as systemically important non-banking financial company by the Reserve Bank of India; (Nothing specified in relation to housing finance companies/ NBFC CICs).
(c) an insurance company being a company which carries on the business of insurance in accordance with provisions of Insurance Act, 1938 and Insurance Regulatory Development Authority Act, 1999;
(d) a Government company referred to in clause (45) of section 2 of the Act.
It is necessary to extend to exemptions in cases of Housing Finance Companies, Core Investment Companies as well as Non-Operative Financial Holding Company .
The proposed Rule 5 (1) shall not apply to one layer of wholly owned subsidiary. Further, the provisions of this sub-rule shall not affect a holding company from acquiring a subsidiary incorporated in a country outside India if such subsidiary has subsidiaries as per the laws of such country.
Given the intent behind enforcing the provisions, it is necessary to exempt such subsidiaries where there is no fund infusion and mere control of management. Subsidiaries by virtue of Section 2 (87) (i) only and not by virtue of Section 2 (87) (ii) should also be exempted.
The exemption in case of acquiring of subsidiaries incorporated outside India should extend equally to subsidiaries incorporated outside India. There need not be a distinction in acquisition and incorporation of subsidiary outside India.
The holding companies, other than exempted companies, that breach the conditions of layers of subsidiaries as on the date of commencement of provision will be prohibited from incorporating additional layer of subsidiaries.
Such holding companies shall file return in Form SDD-1 with the Registrar within a period of three months from the date of its deployment as an electronic form on the Ministry’s MCA-21 portal. The proposed form requires specifying layer number of the subsidiary and percentage of shares held by holding company.
All the below mentioned structures are permitted and well in compliance
|
|
Case 1:
|
In the aforesaid structure, if we consider on as is basis, there exists more than 2 layers of subsidiaries. Therefore, an existing company cannot go beyond ‘D’. Once the provisions are enforced, an existing holding company A will not be able to float ‘D’ unless any exemptions/ relaxations become applicable.
Case 2 – ‘B’/’C’/ ‘D’[2] is a wholly owned subsidiary of ‘A’:
In that case, the structure is permissible.
Case 3 – ‘B’/’C’ is a subsidiary incorporated outside India:
Currently, the wording of draft rule prescribes ‘acquired’ subsidiaries to be exempted. However, the benefit should be extended to subsidiaries incorporated outside India.
Case 4 – ‘B” is a subsidiary acquired outside India while ‘C’ and ‘D’ and subsidiaries of ‘B’ incorporated in India
So ‘A’, ‘C’ and “D’ are companies incorporated in India while ‘B’ is a subsidiary outside India. The exemption cannot be extended to ‘C’ and ‘D’ merely because it’s immediately holding company is a subsidiary acquired outside India. Therefore, the limit is likely to be breached unless ‘B’ or ‘C’ or ‘D’ is a wholly owned subsidiary.
Case 5 – ‘A’/‘B’/’C’ fall under exempted companies:
In that case, the restriction shall not apply.
Case 6 – ‘B’/’C’/ ‘D’ is an LLP:
The expression ‘company’ includes body corporate. Therefore, an existing company cannot go beyond ‘D’. Once the provisions are enforced, an existing holding company A will not be able to float ‘D’ unless any exemptions/ relaxations become applicable.
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[1] http://www.mca.gov.in/Ministry/pdf/Notice_29062017.pdf
[2] Either of ‘B’ or ‘C’ or ‘D’
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[1] http://www.mca.gov.in/Ministry/pdf/Notice_29062017.pdf
[2] Either of ‘B’ or ‘C’ or ‘D’
MCA vide notification dated 22nd June, 2017[1] issued Companies (Audit and Auditors) Second Amendment Rules, 2017, effective immediately from the above date. The Rules are meant to further amend the Companies (Audit and Auditors) Rules, 2014. The amendment pertains to corresponding rule for Section 139(2), regarding rotation of auditors in the Company. Read more →
