Category Archives: company law

investor protection

https://pib.gov.in/PressReleasePage.aspx?PRID=1771138

In a major step towards the mission and vision of Government of India of Ease of Living and Ease of Doing Business, Ministry of Corporate Affairs (MCA) has further simplified claim settlement process through rationalization of various requirements under Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.

For claimants, requirement of Advance Receipt has been waived off, requirement of Succession Certificate/ Probate of Will/ Will has been relaxed up to Rs 5,00,000 (five lakh) both for Physical & DEMAT shares, notarization of documents has been replaced with self-attestation and requirements of Affidavits and Surety relatively have been eased.

For companies, requirement of attaching documents related to Unclaimed Suspense Account has been eased and companies have been given flexibility to accept transmission document viz. Succession Certificate, Will etc. as per their internal approved procedures and Newspaper Advertisement requirement for loss of physical Share Certificate has been waived off up to an amount of Rs.5,00,000.

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MCA relaxation

MCA has vide its circular no. 17/2021 dated 29th October, 2021 relaxed the additional filing fees in respect of annual filing forms i.e. AOC-4, AOC-4 XBRL, AOC-4 CFS, MGT-7 & MGT-7A for financial year ended 31st March, 2021. Forms will not attract additional filing fees upto 31st December, 2021.

But it was already given this situation because the MCA had earlier on, extended the last date for holding AGM for companies with year ending as 31st March, 2021 from 30th September to 30th November. So under the rules, companies had one month time to file the AOC forms and two months for the MGT forms.

Copy of the said circular can be read here.

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MCA relaxations – covid

Circular no. 6/2021 – Relaxations in levy of additional fees in filing of forms for companies/ LLPs, which fall due for filing between 1st April, 2021 and 31st May, 2021 can now be filed upto 31st July, 2021 without incurring any additional fee. This does not apply to the charge forms i.e. CHG-1, CHG-4, & CHG-9.

Forms which were due for filing before 1st April, 2021 will continue to incur additional filing fees though.

Circular no. 7/2021 – This applies to charge forms i.e. CHG-1 and CHG-9. This applies where the charge has been created or modified on or before 1/4/21 but the timeline for filing of such forms has not expired as on that date or where the creation or modification date is between 1/4/21 to 31/5/21.

In such cases the period between 1/4/21 to 31/5/21 will not be counted for the purpose of calculating no. of days from date of creation/ modification.

Additional filing fees will accordingly be calculated as if the 1st day after creation/ modification i.e 1/6/21.

This will not apply where the timeline for filing the said forms has already expired as on 1/4/21.

This does not also apply to form CHG-4 which is satisfaction of charges.

Circular no. 8/2021 – Gap between two meetings of board of directors which should normally not exceed 120 days between two consecutive board meetings has been allowed to extend upto 180 days for the quarters April – June 2021 and July – September 2021.

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CSR eligibile activity

MCA has vide its circular dated 22nd April, 2021 clarified that CSR spend on setting up makeshift hospitals and temporary covid facilities is an eligible CSR activity.

Companies can therefore do their CSR spend on these activities i.e. setting up makeshift hospitals and temporary covid facilities in collaboration with other parties or with the municipal corporations or health departments of the state.

Copy of the circular can be found at the MCA site.

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Audit report rules amndt

MCA has vide its notification dated 24/3/2021 made some amendment to the Companies (Audit & Auditors), Rules, 2014. These amendments come into effect from 1st April, 2021. Salient features of these amendments are :

The para relating to specified bank notes which was introduced post demonetisation has been removed.

Some new paras have been added which has to find place in the Auditors Report from 1/4/2021 which are as follows:

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Accounts Rules amendment

MCA has vide its notification dated 24th March, 2021 amended the Companies (Accounts) Rules, 2014 as follows:

Effective from 1st April, 2021 every company which uses accounting software for maintaining its books of account shall use only such accounting software which has a feature of recording audit trail of each and every transaction creating an edit log of each change made in the books of account including the date on which they were made and ensuring that the audit trail cannot be disabled.

Two more paragraphs are to be added in the Directors Report made after 1st April, 2021 and they are as follows:

  • details of any application made or pending under the Insolvency and Bankruptcy Code, 2016 and the status at the year end, and
  • details of difference between the amount of valuation done at the time of one time settlement and the valuation done while taking loan from banks & financial institutions and the reasons for the same.

Copy of the notification can be found in the MCA site. i.e. http://www.mca.gov.in

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managerial remuneration

The Ministry of Corporate Affairs, New Delhi has vide its notification dated 18th March, 2021 amended the Schedule V which pertains to conditions of appointment and remuneration payable to managerial person. This schedule V applies specifically where remuneration needs to be paid to managerial person in companies which does not have profits or has inadequate profits.

The amendment has added “other director or directors” to the category of managerial person under this Schedule. Other directors has been defined to mean non-executive directors or independent directors as an explanation.

The remuneration payable to other director(s) in the case of inadequacy of profits has been fixed on the basis of effective capital of the company. For eg. where the effective capital is negative or less than Rs.50 million then maximum Rs.1.2 million can be paid to the other directors.

Similarly the limits have been placed as under:

Where the effective capital is Rs.50 million and above but less than Rs.1 billion – max Rs.1.7 million can be paid to other directors

Where the effective capital is Rs.1 billion and above but less than Rs.2.5 billion – max Rs.2.4 million can be paid to other directors

Where the effective capital is above Rs.2.5 billion – max Rs.2.4 million + 0.01% of the effective capital in excess of Rs.2.5 billion.

Basically this has been done in order to provide some remuneration to independent directors and attract good talent in companies. Presently independent directors and non executive directors are paid a pittance plus there is onerous responsibility cast on them although they are not in the hot seat of management. This will, hopefully, give a fillip to the position of independent directors in India Inc.

Simultaneously the govt. has also amended sections 149 and 197 of the companies act, 2013 to provide for the same.

Copy of the notification can be found at the MCA site. i.e. http://www.mca.gov.in

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annual return for small/ OPC company

MCA has vide its notification dated 5th March, 2021 amended the Companies (Management & Administration) Rules, 2014 as follows:

Rule 11(1) has been amended to provide that every company shall file its annual return of shareholders, directors, loans, etc .in form MGT-7 except small companies and one person companies which shall the same in form MGT-7A. The format of form MGT-7A has been given in the annexure.

Rule 12, which had the heading “Extract of annual return” has been replaced with a new rule having a new heading “Filing of annual return with the Registrar”. The earlier rule 12 required extract of annual return in form MGT-9. That form MGT-9 has ostensibly been eliminated. There is no mention of requirement of posting the contents of MGT-9 in the website of the company. That particular requirement has also apparently been done away with.

The next amendment is in Rule 20 which pertains to voting through electronic means.

A new explanation II has been added to proviso to sub-Rule (2) of Rule 20 which covers basically the definition of agency, cut off date, cyber security, electronic voting system, remote e-voting, secured system, voting by electronic means.

Cut off date means a date not earlier than seven days before the date of the general meeting, for determining eligibility to vote by electronic means or in the general meeting.

Other definitions are technical in nature and therefore not reproduced here.

Copy of the notification can be found on the MCA site. i.e. http://www.mca.gov.in

Simultaneously, the section 92 of the Companies act, 2013 has also been amended vide Companies Amendment Act, 2017 which was notified on 5th March, 2021. Vide this amendment, the requirement of inputting indebtedness of the company as on financial year end date has been removed. Secondly in the case of Foreign Institutional Investors, their names, addresses, countries of incorporation, registration & percentage of shareholding held by them need not be mentioned in the annual return. And then it has brought in a proviso giving powers to the central government to formulate a separate format of annual return for small companies and one person companies.

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producer companies

MCA has vide its notification dated 11th February, 2021 notified section 52 of the Companies (Amendment) Act, 2020.

Section 52 of the Companies Amendment Act, 2020, brings to life a new Chapter XXIA which pertains to producer companies. Earlier these provisions were regulated under the old Companies Act, 1956, but now they have been brought into the Companies Act, 2013 proper.

Sections 378A to 378ZU governs the incorporation & administration of producer companies in India, which are a form of farmer co-operatives in the agriculture sector. They are formed by farmers/ producers of agricultural crops and there are strict guidelines regarding their formation, administration, governance, etc.

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definition of listed companies

MCA has vide its notification amended the Companies (Specification of Definition Details), Rules, 2014 by introducing a new rule 2A which defines the companies which need not be considered as listed companies. The rule says

“2A. Companies not to be considered as listed companies.- For the purposes of the proviso to clause (52) of section 2 of the Act, the following classes of companies shall not be considered as listed companies, namely:-
(a) Public companies which have not listed their equity shares on a recognized stock exchange but have listed their –
(i) non-convertible debt securities issued on private placement basis in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008; or
(ii) non-convertible redeemable preference shares issued on private placement basis in terms of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013; or
(iii) both categories of (i) and (ii) above.
(b) Private companies which have listed their non-convertible debt securities on private placement basis on a recognized stock exchange in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008;
(c) Public companies which have not listed their equity shares on a recognized stock exchange but whose equity shares are listed on a stock exchange in a jurisdiction as specified in sub-section (3) of section 23 of the Act.”.

Section 23(3) of the Act pertains to listing in foreign jurisdictions. So basically all the public companies who have listed only their debt securities without listing their equity securities will not be considered as listed entities. Similarly private companies which listed only their debt securities also will be considered as listed entities anymore.

That takes from these entities, the onerous responsibility of complying with the listing regulations stipulated by SEBI.

Government calls it as an ease of doing business, but ideally, this should have been thought about early on itself i.e. such companies should not have been considered as listed entities ab initio itself.

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rights issue

MCA has issued a notification dated 11th February, 2021 wherein they have amended the Companies (Share Capital and Debenture) rules, 2014 by adding a new clause 12A after clause 12.

Basically what the new clause 12A says is that it stipulates that the rights issue offer has to be made for acceptance by the shareholders within 7 days from the date of offer.

Earlier this stipulation was never there in the act or rules. The exact wording of the rule 12A is as follows

12A. Period for notice under sub-clause (i) of clause (a) of sub-section (1) of section 62.- For the purposes of sub-clause (i) of clause (a) of sub-section (1) of section 62, the time period within which the offer shall be made for acceptance shall be not less than seven days from the date of offer.”.

Copy of this notification can be found at the MCA site .i.e. http://www.mca.gov.in

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merger/ amalgamation of small companies

MCA has vide its amendment to the Companies (Compromises, Arrangements & Amalgamations) Rules, 2016 provided for easy merger/ amalgamation between two or more start-up companies or one or more start up company with one or more small company.

This comes under section 233 of the companies act, 2013 which provides for an easy procedure for merger/ amalgamation of small companies without going through the cumbersome process of court/ tribunal etc. The process under clause 25 of the above regulations is by no means easy as it still involves considerable paper work, documentation and procedures but compared to the court/ tribunals, it is relatively easier.

So MCA has introduced a new sub clause 1A under clause 25 of the aforesaid Rules to provide for the said easy merger/ amalgamation.

So this is one more avenue for the company secretaries – to guide small companies/ start-up companies in the merger/ amalgamation under section 233 of the companies act, 2013 and the aforesaid regulations.

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small company

MCA has vide its notification dated 1st February, 2021 changed the definition of small company in the Companies Act, 2013.

Now small company will be a company which has a paid up share capital and turnover of not more than Rs.20 million and Rs.200 million respectively. Hitherto the limits were Rs.5 million and and Rs.2 million respectively.

Note that both the conditions should be satisfied for a company to be a small company ie.. the paid up share capital should not cross Rs.20 million AND the turnover should not cross Rs.200 million. If a company’s paid up share capital is more than Rs.20 million but the turnover is less than Rs.200 million, then it will still remain a small company.

There are a few benefits of a company being a small company under the companies act, 2013 such as

  • No need to prepare Cash flow statement as part of financial statement.
  • Where other companies require providing details of remuneration to directors and key managerial personnel, small companies are required to provide details of the only aggregate amount of remuneration drawn by directors in its Annual Return.
  • Mandatory rotation of auditor not required.
  • An Auditor of small companies is not required to report on the adequacy of the internal financial controls and its operating effectiveness in the auditor’s report.
  • Hold only two board meetings in a year.
  • Annual Return of the company can be signed by the Company Secretary, or where there is no company secretary, by a single director of the company.
  • Lesser penalties for Small Companies.
  • Lesser filing fees for Small Companies.

The lesser filing fees for small companies has not been operationalised yet, but it is expected that MCA will bring that soon.

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de-criminalisation in LLPs

https://pib.gov.in/PressReleasePage.aspx?PRID=1694837

With the object of unleashing the entrepreneurial spirits of our youth and to remove the fear of criminal prosecutions for non- substantive minor and procedural omissions and commissions in the normal course of their business transactions, the Government of India in the Ministry of Corporate Affairs (MCA) decided to initiate the process of decriminalization of compoundable offences under the limited liability partnership (LLP) Act, 2008, for greater ease of doing business for law abiding LLPs.

The Government treats Honest and Ethical Corporate entrepreneurs as wealth creators and nation builders. The objective of the De-criminalization exercise is to remove criminality of offences from business laws where no malafide intentions are involved. In furtherance of the said objective, an exercise was undertaken to identify those provisions of the Limited Liability Partnership Act, violations of which do not result in injury to public interest but are presently criminal in nature with fine as well as punishment after conviction being provided for in the Act.

Principles adopted for Decriminalization of Compoundable Offences:

  1. Principle 1Offences that relate to minor/ less serious compliance issues, involving predominantly objective determinations, are proposed to be shifted to the In-house Adjudication Mechanism (IAM) framework instead of being treated as criminal offences.
  1. Principle 2: Offences that are more appropriate to be dealt with under other laws, are proposed to be omitted from the LLP Act, 2008.
  1. Principle 3For non-Compoundable offences that are very serious violations entailing an element of fraud, intent to deceive and caused injury to public interest or non- compliance of order of statutory authorities impinging on effective regulation, Status Quo would be maintained.

In all, twelve (12) offences are proposed to be decriminalized and one (1) provision (Section 73) entailing criminal liability is proposed to be omitted. The 12 de-criminalized offences would then get shifted to IAM thereby de-clogging the criminal courts from routine cases.

In addition to the De-criminalization of the Act the Government also proposes Introduction of certain new concepts into the Act for greater Ease of Doing Business:

  1. Small LLP: It is proposed to create a class of LLP called as “Small LLP” in line with the concept of Small Companies. Such Small LLPs would be subject to lesser compliances, lesser fee or additional fee and lesser penalties in the event of default. Thus, lower cost of compliance would incentivize unincorporated micro and small partnerships to convert into the organized structure of an LLP and derive its benefits.
  1. Non-convertible Debentures (NCDs):  It is proposed to allow LLPs to raise capital through issue of fully secured Non-Convertible Debentures (NCDs) (as an alternative to equity participation) from investors who are regulated by SEBI or RBI. This will help deepen the Debt Market and enhance the capitalization of LLPs.

Reduction of Additional Fee: It is also proposed to amend Section 69 of the Act with a view to reduce the additional fee of Rs. 100 per day which is presently applicable for the delayed filing of forms, documents. A reduced additional fee is expected to incentivize smooth filing of records and returns of LLPs and consequently result in an updated registry for proper regulation and policy making.

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OPC company relaxations

MCA has vide their circular dated 1st February, 2021 given some relaxations with respect of One Person Companies (OPCs) in India. These are as follows:

  1. OPC can be incorporated by a natural person who is an Indian citizen and resident in India or otherwise. Which means even non resident Indians can incorporate an OPC.
  2. The term “resident in India” means any person who has stayed in India for 182 days or more is replaced with 120 days or more. But frankly this explanation of the term resident in India should have been knocked off once the government has decided to allow resident or non resident Indians to incorporate OPC. Poor drafting.
  3. Hitherto, OPCs cannot voluntarily convert itself into other forms of company i.e. normal private limited unless 2 years has passed since its incorporation or before this period of two years, it has crossed either of the two thresholds i.e. paid up share capital of Rs.50 lakhs and average annual turnover of Rs.2 crores. Now this has been knocked off, which means that OPC can convert itself voluntarily into a normal private company at any time without considering the time factor (2 years from incorporation) or the threshold factor as above.
  4. Hitherto, OPCs was required to mandatorily convert itself into a private limited company/ public limited company only if it exceeded certain thresholds such as paid up share capital of Rs.50 lakhs and turnover of Rs. crores. Now all that mandatory clause has been knocked off. So OPCs can voluntarily convert itself whenever it wants. Which means that OPCs can exist with whatever share capital or turnover it may have. The procedures have also been simplified. Form INC-6 is required to be filed with few documents required.
  5. Similarly, hitherto private company could be converted into an OPC only if its paid up share capital was less than Rs.50 lakhs and average annual turnover is less than Rs.2 crores during the relevant period. Now these limits have been removed which means that private companies can be converted into OPCs at any level.
  6. In some places, it is “or” and some places it is “and” – which suggests poor drafting;
  7. Ease of doing business for OPCs. But OPCs did not enjoy the recent CFSS scheme, which was extended to other corporates.

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