Checkpoints for filing e-form DIR 3 KYC

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By Simran Jalan (corplaw@vinodkothari.com)

Introduction:

Pursuant to the Rule 12A and 11(2) and (3) of the Companies (Appointment and Qualification of Directors) Rules, 2014, every individual who are holding DIN/DPIN shall submit an e-form DIR 3 KYC to the Central Government on or before 31st August, 2018 for the purpose of updating the personal identification details of the director concerned.

Accordingly, the MCA is conducting KYC for all DIN/DPIN holders. The same has to be updated on or before 31st August, 2018 and thereafter annually.

Listed below are some of the important points to be considered before filing DIR 3 KYC.

For filing the form:

  • Nationality and citizenship are two different things. A person can choose “India” as its nationality but if he is holding two citizenships then he may/may not check yes in the field ‘Citizen of India’.
  • ‘Send OTP’ button will get enabled once the form is pre-scrutinized i.e., after affixing DSC.
  • The OTP is valid for 15 mins
  • In permanent address field, if the applicant is the resident of India then he has to write his Indian address but if he is resident outside India then he will have to write his foreign address.
  • Personal Mobile number and personal id may include the id of the company but it should be used only by the applicant.
  • DSC must be associated with the same PAN, as mentioned in the form for citizens of India and for foreign citizens the name on the DSC and the applicant’s name should match.
  • Signatories under DIR 3 KYC: Applicant (DIN/DPIN holder) and Professional.
  • For non-resident directors, their foreign address and foreign numbers shall be inserted in the ‘permanent address field’.
  • The DIN/DPIN holder is responsible for filing the form. He will have to fill in the OTP, not the professionals.
  • In case of foreign nations, their documents are required to be attested by the authority prescribed i.e., apostilled/notarized documents.

Attachments:

  • Aadhaar is mandatory for a citizen of India.
  • Copy of PAN is not compulsory to provide.
  • Proof of Address will be as per Rule 16 of the Companies (Incorporation) Rules, 2014 which states:

“(n) Residential proof such as Bank Statement, Electricity Bill, Telephone / Mobile Bill: 

Provided that Bank statement Electricity bill, Telephone or Mobile bill shall not be more than two months old; “

  Thus, an applicant is not required to attach his Aadhaar card twice.

  • Attachment of Aadhaar and passport is mandatory if selected yes in the required fields.
  • If you have a Driving License/Voter ID card then it is recommended to provide the same in the Form.
  • The name in the DIN and PAN must be the same.

Other Information:

  • Disqualified directors are also required to file DIR 3 KYC but filing of the same will not remove their disqualification.
  • If DIR 3 KYC is filed within due date, then no fee is applicable. If it is filed after due date then fine of Rs. 5000 is applicable.
  • Penalty/Fine for not filing is on individual directors.
  • A person cannot file DIR 3 KYC more than once.
  • For every subsequent F.Y. 30th April is the due date for updating their DIR 3 KYC.
  • If there is any discrepancy in any of the information, then first DIR 6 is required to be filed for updating the information and then the Form DIR 3 KYC should be filed.

Consequence of not filing DIR 3 KYC:

If any DIN/DPIN holder fails to file DIR 3 KYC within the stipulated time i.e. 31st August, 2018, then the DIN of such director or DPIN of such designated partner will be de-activated. The re-activation of such de-activated DIN/DPIN can be done only after filing DIR 3 KYC along with a fee of Rs. 5000.  So, all the DIN/DPIN holders should take steps to file this e-form at the earliest.

Co-lending arrangement between Banks and NBFCs for PSL

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By Simran Jalan (finserv@vinodkothari.com)

Introduction

The Reserve Bank of India (RBI), in its press release on ‘Statement on Developmental and Regulatory Policies’ dated August 1, 2018[1], sets out various policy measures. One of the initiatives introduced relates to co-origination of loans by the banks and NBFCs for lending to the priority sector.

Before delving into the initiative, we shall briefly discuss the concept of priority sector and priority sector lending (PSL).

Categories of priority sector

Priority Sector category includes agriculture; micro, small and medium enterprises; export credit; education; housing; social infrastructure; renewable energy and others.

PSL target

According to the Master Circular – Priority Sector Lending- Targets and Classification[2] issued by RBI, the total priority sector lending (PSL) for domestic scheduled commercial banks (excluding Regional Rural Banks and Small Finance Banks) should be 40% of Adjusted Net Bank Credit or Credit Equivalent Amount of Off- Balance Sheet Exposure, whichever is higher. Further, there are also sub-targets specifically for agriculture, micro enterprises and weaker sections.

Existing Scenario

Commercial banks are required to meet the PSL requirement specified in the aforesaid circular. However, banks neither have the outreach nor the inclination to reach out to the communities living in geographically remote areas. The banks are even unable to perform credit evaluation or credit underwriting of the borrowers falling under the priority sector category due to lack of outreach. Consequently, apart from direct funding, banks have been exploring several options for meeting the minimum requirement:

  1. On-lending: In this structure the loan is sanctioned by banks to eligible intermediaries for onward lending only for creation of priority sector assets.
  2. Direct Assignment: Banks enter into transaction with NBFCs for assignments/ purchase of pool of assets representing loans under various categories of priority sector, as prescribed under the aforesaid circular.
  3. Business Correspondent: Commercial banks intending to increase their outreach have been engaging the services of BCs. Such NBFCs or other eligible entities provide various services such as identification of borrowers, collection, recovery, follow-up and such other ancillary services. The loans under various categories of priority sector are originated in the books of the bank through the assistance of BC.
  4. Co-lending: Both banks and NBFCs enter into a co-lending arrangement, whereby the exposure on the borrower is in a pre-decided ratio.

Though, there are existing regulations on direct assignment as well as appointment of BC, currently the co-lending arrangement is not regulated under any existing guidelines of RBI.

Co-lending regulations awaited

As per the press release, RBI shall be coming up with such guidelines wherein schedule commercial banks (excluding regional rural banks and small finance banks) may co-originate loans with systematically important non-deposit taking NBFC for fulfilling their mandatory priority sector lending requirement.

Under the co-lending arrangement, there would be joint contribution of credit by both lenders at the facility level. The said arrangement shall also involve sharing of risks and rewards between the banks and NBFCs, as per their mutual agreement. The risks and rewards could be shared equally or in a proportion which shall be predefined.

This step is taken by RBI to provide a competitive edge for credit to the priority sector and to mitigate the challenges faced by the banks on priority sector loans. The NBFCs operates on low cost infrastructures and have reach to the remote locations. Coming together with NBFCs shall definitely assist the banks to meet their PSL requirements with ease.

Conclusion

The guidelines have not yet been issued and it is expected that RBI shall come out with its regulations for governing such co-lending arrangement by the end of September 2018. In consequence, there can be a decline in the direct assignment arrangement undertaken by banks. The reason being that in co-lending there is joint origination and the risk and rewards are shared in a mutually agreed proportion, however, in case of direct assignment, the NBFC transfers the loan portfolio and has no residuary interest left. Such difference can lead to a decline in the direct assignment transactions undertaken by banks with NBFCs.

[1] https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=44637

[2] https://rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=9857

Abridged Board’s Report for Small Companies and OPC

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By Simran Jalan (corplaw@vinodkothari.com)

Background:

MCA vide its notification dated July 31, 2018[1] has brought the Companies (Accounts) Amendment Rules, 2018 which broadly deals with two changes:

  1. Additional disclosures for companies other than small companies and OPCs;
  2. Abridged list of contents for small companies and OPCs

Even though the aforesaid amendment in the said Rules have been brought in line with the proposed changes in section 134 of the Companies Act, 2013 (‘CA, 2013’) under the Companies (Amendment) Act, 2017, however, the said amended section has not been enforced till date.

Additional disclosures for companies other than small companies and OPCs:

The additional disclosures required to be made are with respect to:

  • Maintenance of cost records in accordance with section 148(1) of the CA, 2013 in case the same is applicable on such company.
  • A statement on constitution of Internal Complaints Committee under the Sexual Harassment of the Women at workplace (Prevention, prohibition and Redressal) act, 2013.

Relief for small companies and OPCs:

The Rules state that small companies and OPCs are not required to make the disclosures stated under Rule 8. Instead, as per Rule 8A of the aforesaid Rules, an abridged list of disclosures have been given for small companies and OPCs, which are as follows:

  • The web address of the company, where the annual return has been placed;
  • Number of meetings of the Boards;
  • Director’s Responsibility Statement;
  • Details of frauds s reported by auditors to Central Government as per section 143(12) of the CA, 2013;
  • Explanations or comments by Board on every observation made by the auditor in his report;
  • The state of the Company’s affairs;
  • The financial summary or highlights;
  • The material changes in the nature of business and its effect on the financial position of the Company;
  • The details of appointment/resignation of directors;
  • Details of material orders passed by regulators/courts/tribunals which can impact the going concern status of the company and its operations in future;
  • The Board’s Report shall also include the particulars of the contract or arrangements entered with related parties as per section 188(1) of the CA, 2013 in the Form AOC-2.

Conclusion:

Following the aforesaid change, there are basically three categories of board’s report:

Category I Category II Category III
Listed Company and Public Company with PUSC[2] of Rs.25 crores or more Unlisted Company and every public company with PUSC of less than Rs. 25 crores Small Companies and OPCs
All the matters in the Board’s report as specified in Section 134(3) of the CA, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014 (‘Account Rules’). All matters in the Board’s report as specified under section 134 (3) of the CA, 2013 read with Rule 8 of the Accounts Rules except for the following:

 

  •  Section 134 (3) clause(p)

“a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors;”

 

  • Rule 8 sub-rule (4) of the Accounts Rules

“a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors.”

 

 All the matters in the Board’s report as specified under Rule 8A of the Accounts Rules.

 

[1] http://www.mca.gov.in/Ministry/pdf/companisAccountsRules_31072018.pdf

[2] PUSC denotes Paid-up Share Capital

 

Prior approval from NHB for 10% change in foreign shareholding

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By Rajeev Jhawar (rajeev@vinodkothari.com)(finserv@vinodkothari.com)

The National Housing Bank (NHB) came out with a notification on 19th July, 2018[1], (‘Notification’) amending the Housing Finance Companies (National Housing Bank) Directions, 2010 with respect to change in control of housing finance companies.

Scenario prior to the Notification

The original provisions issued on 9th February, 2017[2], were influenced from the RBI regulations for non-banking financial companies (NBFCs). As per the said directions, any HFC undergoing any of the following change would require prior approval of the NHB:

  • Change in control or management of the Company;
  • Change in shareholding of the Company, including progressive changes over time, resulting in change in 26% shareholding of the Company;
  • Change in management resulting in change in 30% of the composition of the Board of Directors of the company.

Scenario post Notification

The latest notification has substituted the second criteria with the following clause:

(b) any change in the shareholding of an HFC accepting/holding public deposits, including progressive increases over time, which would result in acquisition / transfer of shareholding of 10 percent or more of the paid up equity capital of the HFC by/to a foreign investor

or

any change in the shareholding of an HFC, including progressive increases over time, which would result in acquisition / transfer of shareholding of 26 per cent or more of the paid up equity capital of the HFC.

Provided that, prior approval would not be required in case of any shareholding going beyond 10% or 26%, as applicable, due to buyback of shares/reduction in capital where it has approval of a competent Court. However, the same is to be reported to the National Housing Bank not later than one month from the date of its occurrence;

The text of the condition remains, barring the portion highlighted above, which happens to be a new insertion.

As its suggests, if a foreign investor having a shareholding of 10% of total paid up capital or more in HFCs intends to transfer the stake or if a foreign investor intends to acquire shareholding of 10% of paid up capital, the HFCs will be required to get an approval from NHB prior to accepting such change.

The phrase “a foreign investor” could be interpreted as a single foreign investor. However, the term “foreign investor” still holds ambiguity due to absence of any definition. Further, since, the intention behind these provisions seems to regulate change in control over HFCs, one can argue that considering only individual shareholding must not be appropriate and one should also consider the holdings of others persons who are acting in concert with the shareholder.

Further, here the term “progressive increase” would imply that while looking at the quantum of shareholding, we can consider a single instance of change. If there are multiple instances of change within a span of time, all of them must be consolidated to see whether the threshold is breached or not.

The same can be explained by way of an example, say, a foreign investor acquires 5% of paid up equity capital of a HFC at the first instance and acquires 5% of the paid up equity capital at the next instance. In the first instance the person is acquiring only 5% of the paid up equity capital, hence the same is not crossing the threshold. However, in the second instance, even though the shareholder is acquiring only 5%, but in aggregate its shareholding is reaching the threshold; hence, a prior approval of the NHB would be required for the acquisition of 5% of paid up equity capital.

Further, though the provisions require us to consolidate progressive changes over time, however, the same is silent on the duration, which should be considered. In this regard, we can draw parallels from the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011[3], which talks about creeping acquisitions. The concept of creeping acquisition is also similar to these provisions, where the acquisitions over a period of time are considered to see if various thresholds under the Regulations are being breached or not. The time limit that has been set for this purpose under the Regulations is 1 year, it is safe to borrow the same for the purpose of these Directions as well.

Conclusion

The changes have been enforced with immediate effect. One of the significant changes introduced has been to seek approval from NHB, in case a foreign investor having a shareholding of 10% of total paid up capital or more in HFCs intends to transfer the stake or a foreign investor intends to acquire shareholding of 10% of paid up capital. The said change would enable NHB to monitor foreign intrusion and hence, ensure improved governance.

[1] http://nhb.org.in/wp-content/uploads/2016/10/Notification-No.-NHB.HFC_.ATC_.DIR_.2-MDCEO-2018.pdf

[2] Notification No. NHB.HFC.ATC-DIR.1/MD&CEO/2016 dated 09th February, 2017

[3] https://www.sebi.gov.in/legal/regulations/apr-2017/sebi-substantial-acquisition-of-shares-and-takeovers-regulations-2011-last-amended-on-march-6-2017-_34693.html