Transfer of shares to IEPF- Is the Wait Over ?

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By Pammy Jaiswal & Megha Saraf, (corplaw@vinodkothari.com)

Introduction

It seems that the prolonged postponement for transferring shares to IEPF is over. Ministry of Corporate Affairs (“MCA”) vide its Notification dated 13th October, 2017[1] has added yet another notification on Investor Education Protection Fund (“IEPF”), to its list. The Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Second Amendment Rules, 2017 (“Second Amendment Rules”) has been made effective from 13th October, 2017. Even though the Second Amendment Rules have yet again come out with an extended time line for effecting transfer of shares, some of the operational issues are not yet clarified for effecting such transfer to IEPF.

Further, MCA has also issued a Circular dated 16th October, 2017[2] which provides for certain details on the Second Amendment Rules.

The write-up is therefore, an attempt to put before a clear snapshot of the current picture on transfer of shares to IEPF.

Main Highlights of the Second Amendment Rules

The major highlights of the Second Amendment Rules are:

  • Due Date for Transfer of shares

The Second Amendment Rules have extended the due date to transfer the shares to IEPF till 31st October, 2017 for the cases where the period of seven years has been completed or being completed during the period from 7th September, 2016 to 31st October, 2017.

Accordingly, the last date for completing all the formalities in connection with transfer shall be 30th November, 2017.

  • Transfer of shares is in the nature of transmission of shares

The Second Amendment Rules have clarified that the transfer of shares to IEPF shall take place by following the procedure for transmission of shares. Even though the documentation for such transmission has not been stated in the said rules or the circular, resolution passed by a company for transferring shares seems to a supporting document in this regard.

Further, MCA Circular dated 5th June, 2017[3], had already clarified that transfer of shares to IEPF is not in the nature of transfer but a transmission and hence, the requirement of issuing duplicate share certificate may be done away with.

  • Issuance of “New” share certificates instead of “Duplicate” share certificates

In case of physical shares, the Company shall issue “New” share certificates in Form SH-1 instead of “Duplicate” share certificates. Even though duplicate certificates need not be issued, however, the new certificates issued under the said rules will have the words “Issued in lieu of share certificate no….. for the purpose of transfer to IEPF”.

Further, the requirement entering the details of the certificate issued under the said rule in the register of renewed and duplicate share certificates maintained in Form No. SH-2 has been done away with.

  • Opening of Demat Account of IEPF Authority with Punjab National Bank

IEPF Authority has opened its Demat Account with Punjab National Bank (‘PNB’) and SBICAP Securities Limited (‘SBICAP’) for the purpose of making any transfer of shares.

  • Reporting of non-compliances to Central Government

Any non-compliance of the IEPF rules shall be reported by the IEPF Authority to the Central Government.

  • Appointment of a Nodal Officer

MCA has given a time period of 15 days to all the companies for nominating a Nodal Officer for coordinating with IEPF Authority and the details of such officer shall be displayed on the website of the company.

  • Rejection of claim in e-Form IEPF-5 in certain cases
  1. The current IEPF Rules provide that the company shall be required to provide a verification report to the Authority within a period of 15 days of receiving the claim. The Second Amendment Rules provides that in case the Authority does not receive requisite documents with a period of 90 days from the date of filing e-Form IEPF-5, the claim is liable to get rejected in the hands of the Authority.

However, before rejecting such claim, the Authority shall allow a further time of 30 days to furnish the requisite documents.

  1. In cases where the claim is incomplete or not approved and communication in this regard has been sent to such claimant and company, IEPF may reject such application if rectified documents are not filed within a period of 90 days. However, prior to such rejection, a time of further 30 days in this regard.

Highlights of the General Circular dated 16th October, 2017

  • PNB and SBICAP are the DPs with whom the IEPF Authority has opened demat account. These accounts will be fully digital and paperless;
  • Format of corporate action will be prescribed by NSDL and CDSL shortly;
  • Account maintenance charges will be minimal as per the MoU entered between the IEPF Authority and the NSDL and CDSL. Such MoU will be put up on the website of the of the IEPF Authority;
  • Cash benefit arising out of and in the form of the following, shall mandatorily be transferred to the bank account opened with PNB, Sansad Marg, New Delhi.
    • dividend from shares already transferred to IEPF;
    • proceeds realized on account of delisting of equity shares;
    • amount entitled on behalf of a shareholder in case of winding up of a company.
  • Amounts mentioned under section 125 (2) shall not be transferred to the aforesaid bank account. Only the amounts mentioned in the above point shall be transferred and nothing else.

Conclusion

Based on the above discussions, one can conclude that IEPF has tried all its might to join the dots and made the transfer of shares become a reality, although it has taken more than a year to fix the operational issues in this regard. Now, the only clarification to be looked out for is the format of corporate action, after which companies can actually complete all the formalities and finally the wait for transferring the shares to IEPF comes to an end.

[1] http://iepf.gov.in/IEPF/pdf/IEPFNotification_13102017.pdf

[2] http://www.mca.gov.in/Ministry/pdf/GC12TranferofShares_16102017.pdf

[3] http://iepf.gov.in/IEPF/pdf/IEPFGcircular07_05062017.pdf

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IBBI eases norms for setting up of Information Utilities

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Chintan Shah

resolution@vinodkothari.com

IBBI had notified the IBBI (Information Utilities) Regulations, 2017 (‘the regulations’) on 31st March, 2017, which shall come into effect immediately. The amendment has been made in line with easing the norms for Information Utilities (“IU”).

Read more →

GST and CSR Expenditure

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Vallari Dubey

finserv@vinodkothari.com

 

Introduction

Indian companies, especially public and listed companies are actively engaged in Corporate Social Responsibility (“CSR”) activities. Moreover, since the introduction of Companies Act, 2013, the law has mandated compulsory CSR expenditure for a specific class of companies. In the recent months, with the advent of GST, life of corporates has experienced all sorts of challenges in terms of operational flexibility and cost. One such aspect that has not been shed much light on, is the impact of GST on CSR activities and expenditure thereon by the companies. To understand this better, we take a scenario of donating water purifiers as part of a Company’s CSR policy. In this article, we try to detail out the analysis of such scenario by studying the provisions of GST and Companies Act, 2013. Read more →

IBBI amends CIRP and FAST Track Regulations: intends to protect interest of stakeholders

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09.10.2017

Vallari Dubey

resolution@vinodkothari.com

 

IBBI has amended INSOLVENCY AND BANKRUPTCY BOARD OF INDIA (INSOLVENCY RESOLUTION PROCESS FOR CORPORATE PERSONS) REGULATIONS, 2017[1] (“CIRP Regulations”) and INSOLVENCY AND BANKRUPTCY BOARD OF INDIA (FAST TRACK INSOLVENCY RESOLUTION PROCESS FOR CORPORATE PERSONS) REGULATIONS, 2017[2] (“Fast Track Regulations”) vide its notification dated 5th October, 2017. The same shall be effective immediately.

 

Amendment to CIRP Regulations

Following new sub-regulation (1A) shall be added in Regulation 38:

“(1A) A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor.”

 

Amendment to Fast Track Regulations

Following new sub-regulation (1A) shall be added in Regulation 37:

“(1A) A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor.”

 

Analysis

Regulation 38[3] pertains to Mandatory contents of the resolution plan. Accordingly, a resolution plan shall have a specified list of disclosures and contents as per the Regulation. A resolution plan for an indebted entity should address the basic criteria of effective payment structure. The idea of the new amendment seems to be to justify as to how a resolution plan is suiting the requirements of the entity and how it is protecting the interests of stakeholders, especially the financial and operational creditors of the corporate person. The new inclusion of sub-regulation (1A) shall ensure greater transparency and increased protection of the interest of stakeholders.

[1] http://www.ibbi.gov.in/CIRP_amndmt_5_oct_2017-10-07_21-32-33.pdf

[2] http://www.ibbi.gov.in/Fast_Track_amndmt_5_oct_2017-10-07_21-31-30.pdf

[3] http://ibbi.gov.in/webadmin/pdf/legalframwork/2017/Sep/Insolvency%20and%20Bankruptcy%20Board%20of%20India%20(Insolvency%20Resolution%20Process%20for%20Corporate%20Persons)%20Regulations,%202016%20(Amended)_2017-09-25%2014:22:35.pdf

SEBI Board approves amendments to REIT Regulations

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By Shreya Routh, (finserv@vinodkothari.com)

Introduction

The SEBI in its Board Meeting on 18th September, 2017[1]approved several changes to the regulations issued for REITs. Before we start discussing the changes approved, let us quickly recap the way in which a REIT operates. REIT is a form of alternative investment vehicle. The working mechanism of a REIT involves purchase of commercial properties and then providing them on rent to tenants. The funding is done through issuance of units to public which are tradable on stock exchanges. The main advantage of a REIT structure is grounded on the tax exemptions that it receives.

Since, REITs mechanism observed a complete downfall and the fact that till date no REIT has been listed with SEBI, the proposed amendments come as a saviour intending to gear up the market for REITs. Read more →

TIME LIMIT PRESCRIBED IN IBC- NOT MANDATORY

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By Richa Saraf, (legal@vinodkothari.com)

In the case of Surendra Trading Company v. JuggilalKamlapat Jute Mills CO. Ltd. &Ors.[1], the Apex Court was concerned with the correctness of the order passed by the National Company Law Appellate Tribunal (NCLAT) whereby it was held that the time of 7 (Seven) days prescribed in proviso to section 9(5) of the Insolvency and Bankruptcy Code, 2016 (IBC), for admitting or rejecting a petition or initiation of insolvency resolution process, is mandatory in nature and the Hon’ble Supreme Court has set aside part of the impugned judgment of NCLAT. The ruling is broadly discussed below. Read more →

Constitutional powers immune of Moratorium under IBC

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In the matter of Canara Bank v. Deccan Chronicle Holdings Limited, NCLAT Principal Bench[1]

25.09.2017

Vallari Dubey

resolution@vinodkothari.com

 

Introduction

Ever since the Insolvency and Bankruptcy Code 2016 (IBC 2016) was enacted, its overriding effect during the moratorium became the talk of the corporate town. It was yet to be tested whether the prohibition of any proceedings against the corporate debtor during the moratorium is a prudent step or not. While the cases started flowing in and came few judgments, it was established that the objective of the Code was to revive the entity at its core and not to be seen as another recovery tool. Under the light of such understanding, it was observed that the moratorium period was very much necessary for the corporate debtor so as to evaluate the possible option and ways for revival of the stressed entity. However, this write-up focusses on the recent judgment pronounced by National Company Law Appellate Tribunal (NCLAT) in the matter of Canara Bank vs. Deccan Chronicle Holdings Limited.

Brief facts of the case

In the present case, an application was filed by Canara Bank (hereinafter known as the ‘Appellant’) under Section 7 of the Code against Deccan Chronicle Holdings Limited (hereinafter known as “the Corporate Debtor”), which was admitted by the Hon’ble Hyderabad bench of National Company Law Tribunal (“NCLT”)[2], declaring Moratorium under Section 14 of the Code on 19th day of July, 2017. However, the Appellant was not content with the order of moratorium pronounced as it specifically excluded proceeding before High Court and Supreme Court from the purview of Moratorium.

Main contentions of the Appellant

The Appellant submitted that the Adjudicating Authority cannot exclude any court from the purview of Moratorium for the purpose of recovery of amount or execution of any judgement or decree, including the proceeding, if any, pending before the Hon’ble High Courts and Hon’ble Supreme Court of India against a ‘corporate debtor’.

Relevant extract of Moratorium

Relevant extract of the Moratorium declared by the Hon’ble Bench which is the theme of the matter of discussion is as follows:

XXX

(c) We hereby declared the following Moratorium by prohibiting the following actions: –

  1. The institution of suits or continuation of pending suits or proceedings except before the Hon’ble High Court (s) and Hon’ble Supreme Court of India, against the Corporate Debtor including execution of any judgement, decree or order in any court of law, Tribunal, arbitration panel or other authority;

XXX

Relevant provisions of the Code

Section 14 (1) (a)

XXX

  1. Moratorium – (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:—

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

XXX

Findings of the Bench

  • On Section 14 – Section 14(1)(a) does not exclude any Court, including the Hon’ble High Courts or Hon’ble Supreme Court of India.

 

  • Recovery suits in High Courts and Supreme Court – There is no provision to file any money suit or suit for recovery before the Hon’ble Supreme Court except under Article 131 of the Constitution of India where dispute between Government of India and one or more States or between the Government of India and any State or States on one side and one or two or more States is filed. Some High Courts have original jurisdiction to entertain the suits, which may include money suit or suit for recovery of money.

 

  • Certain Powers of High Courts and Supreme Court – The Hon’ble Supreme Court has power under Article 32 of the Constitution of India and Hon’ble High Court under Article 226 of Constitution of India which cannot be curtailed by any provision of an Act or a Court.

Judgment passed by the Hon’ble Bench

In view of the above observations, ‘Moratorium’ will not affect any suit or case pending before the Hon’ble Supreme Court under Article 32 of the Constitution of India or where an order is passed under Article 136 of Constitution of India. ‘Moratorium’ will also not affect the power of the High Court under Article 226 of Constitution of India.

However, so far as suit, if filed before any High Court under original jurisdiction which is a money suit or suit for recovery, against the ‘corporate debtor’ such suit cannot proceed after declaration of ‘moratorium, under Section 14 of the I&B Code.

The Hon’ble Bench of NCLAT disposed of the matter by clarifying the language of Moratorium (supra) as declared in the above case, without suggesting any changes therein and neither rejecting nor accepting the appeal filed by the appellant.

Our Analysis

There are few important points of discussion that can be highlighted by this judgment, discussed briefly below:

  • Moratorium declared is within the constitutional ambit of the Code. The Code is a Central Act, passed by the parliament by exercising the powers granted under the Constitution of India.

 

  • There are certain powers directly bestowed upon the High Courts and the Supreme Court of India by the Constitution of India. Such powers with the respective judiciary bodies are immune of any provision of any law in the Country, be it Central law or State law.

 

  • Article 32 gives power to Supreme Court to issue directions, writs or orders with respect to right to constitutional remedy.

 

  • Article 226 gives power to High Courts to issue writs for enforcement of rights given under Part III of the Constitution of India.

 

  • Article 136 of the Constitution deals with the power to allow a special leave to appeal to person who files an application under this article.

 

  • All the above mentioned powers are exclusive to the two judiciary bodies and therefore Moratorium under the Code shall not affect such powers.

 

  • However, even if the Moratorium as declared in this case excludes suits or proceedings with High Courts, the exclusion does not extend to suits or proceedings with a High Court under original jurisdiction where the suits pertains to recovery of money and therefore will be affected by the period of Moratorium.

 

  • Moratorium is a legal right for the benefit of both the Corporate Debtor and the Creditor and also the judiciary to put a temporary hold/stay on everything else and deal with the case in hand, ceteris paribus. The right is however, bestowed by a Central Act; Few powers that are rested upon top two highest judiciary bodies in the country by the supreme law, are untouched of any other right under any other law in the country including the Moratorium period under the Code.

Impact of Judgment and Conclusion

Moratorium is a stay on any action being taken against the Corporate Debtor. On one side, the judgment clarifies the supreme powers of the Supreme Court and High Courts and on the other side, adds more clarity to provisions of Section 14 of the Code. Interestingly, the provisions of Section 14 do not provide any exceptions to Moratorium, as clarified by the judgment in the given case.

NCLT being a quasi-judicial body, formed under an Act of Parliament, cannot override the constitutional powers resting with the Apex judiciary.

[1] http://nclat.nic.in/final_orders/Principal_Bench/2017/insolvency/14092017AT1472017.pdf

[2] http://nclt.gov.in/interim_orders/hyderabad/19.07.2017/1.pdf