Restriction on no. of layers

MCA has come out with a new rule with effect from 20th September, 2017 which is called the Companies (Restrictions on Number of Layers), Rules, 2017.

As per this Rule, no company shall have more than two layers of subsidiaries. Exemptions are wholly owned subsidiary or subsidiaries. Companies can however acquire more than two layers of subsidiaries outside India as per the laws of such jurisdiction.

Banking company, NBFC, Insurance company and government company is exempted from the provisions of these Rules.

Rule 3 says that the provisions of this rule shall not be in derogation to proviso to section 186(1) of the Act. That proviso says, in the first part that the company can acquire any other company incorporated outside India, if such foreign company has investment subsidiaries beyond more than two layers as per the laws of such country. The (b) portion of the proviso says that a subsidiary company can have investment subsidiary for the purpose of meeting any requirement under any law or rule or regulation thereto. The (b) proviso pertains to the Indian jurisdiction. So basically investment subsidiaries are outside the ambit of this Rule if they are the 2nd layer of subsidiaries.

Rule 4 specifies that where a company has subsidiaries in excess of the limits specified in these Rules, as on the date the Rules come into force, then it shall, within 150 days of these Rules, file with the ROC a form i.e. CRL-1, disclosing the details specified therein in the said Form. It shall not after the commencement of these Rules, have any additional layer of subsidiaries more than what it had on the date of commencement of these Rules. In case one or more layers are reduced after these Rules come into force, the Company shall keep the layers of subsidiaries at that reduced level or at the maximum level specified in these Rules. For eg. if a company has 4 layers of subsidiaries at the commencement date and subsequently one layer has dropped off, the company cannot increase the layer from 3 to 4 merely because it had 4 layers at the commencement date. It should be kept at 3 levels only.

Rule 5 is the penalty clause whereby the fine is Rs.10,000 for the company and every officer in default and if it is a continuing default, then further fine of Rs.1000 per day during the period the contravention continues.

So basically the Rule allows the companies to retain their level of subsidiaries, but not add to it. As and when the companies delete one or more of their subsidiaries, then they should retain it at that level or upto two layers and not increase it further.

The Rules is available at the MCA site at here 

The Wizard of Lies

The Wizard of Lies - a brilliant movie about the Bernie Madoff Ponzi scheme fraud in 2008, played brilliantly by Robert de Niro. All characters in the film have played solid roles especially the elder son Mark who so tragically commits suicide in 2010. The film does not dwell too much on the victims of the crime or the machinations of the crime, but more on the family and the angst that they had to suffer because of the crime committed by Bernie. Neither his wife Ruth nor his two sons knew anything about the crime, yet they were hounded by the media and would have probably lost all their assets as well. Michelle Pfeiffer as the wife has essayed a brilliant role. That's the central theme of the movie - effect of a crime on the family of the crime perpetrator. Wonder why there has been no movie on the innumerable Indian financial frauds and scams so far.

Online Regn for SEBI intermediaries

http://www.sebi.gov.in/legal/circulars/may-2017/online-registration-mechanism-for-securities-market-intermediaries_34793.html

SEBI has started the process for online registration for all financial market intermediaries. The link for online registration is 

https://siportal.sebi.gov.in/intermediary/index.html

The portal shall include online application for registration, processing of application, grant of final registration, application for cancellation/ surrender, submission of periodical reports, requests for change of address/ name change etc.

The portal is now applicable for the following intermediaries, viz

i) Stock Brokers

ii) Sub-brokers

iii) Merchant Bankers

iv) Underwriters

v) Registrars to an Issue and Share Transfer Agent

vi) Debenture Trustees

vii) Bankers to an Issue

viii) Credit Rating Agency

The portal shall be operational for depository participants from 31^stMay, 2017.

Henceforth all applications for registration/ surrender/ other requests shall be made on the portal only.

However, the applicants will be separately required to send relevant documents viz. declarations/ undertakings required as part of the application process, in physical form but for record keeping purpose only. The online processing will not be impacted.

The applications in respect of stock brokers/ sub brokers/ depository participants shall be continued to be made through stock exchanges/ depositories respectively. Hard copies of documents submitted by these intermediaries shall be retained by the stock exchanges/ depositories and will be produced at SEBI whenever called for.

Net Owned Funds for ARCs

RBI has vide its notification dated 28th April, 2017 stipulated minimum Net Owned Fund (NOF) requirement by Asset Reconstruction Companies (ARCs) at Rs.100 crores on an ongoing basis.

All the ARCs which are already registered with Reserve Bank of India as on the date of the Notification and not having the revised minimum NOF as on date shall achieve a minimum NOF of ₹ 100 crore latest by March 31, 2019. ARCs shall submit a certificate from their Statutory Auditors periodically as evidence of compliance thereof.

NOF shall be arrived at by reducing from Owned Fund (OF), as defined in the Notification DNBR (PD).CC.No.03/SCRC/26.03.001/2015-16 dated July 1, 2015, the amounts representing -

i. investments of the ARC in shares of –

1. its subsidiaries;
2. companies in the same group;
3. all other ARCs; and

ii. the book value of debentures, bonds, outstanding loans and advances made to, and deposits with, -

1. subsidiaries of the ARC; and
2. companies in the same group,

to the extent such amount exceeds 10% of the OF.

Copy of the RBI notification can be found here

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10949&Mode=0

merger/ amalgamations of foreign co with Indian co and vice versa

The Ministry of Corporate Affairs has vide its notification dated 13th april, 2017 amended the Companies (Compromises, Arrangements & Amalgamations) Rules, 2016 by inserting a rule 25A therein. 

Rule 25A provides for merger/ amalgamation of a foreign company with Indian company and vice versa.  In both cases mergers will take place only after obtaining prior approval of the RBI and after complying with the provisions of sections 230 to 232 of the Companies Act, 2013, which deals with mergers and amalgamations. The transferee company, in both cases has to ensure that valuations are done by valuers who are members of recognised professional body in the respective jurisdictions. The valuation should be in accordance with internationally accepted principles on accounting and valuation. 

After obtaining the RBI approval, the companies shall file an application to the Tribunal 

Amendment to Schedule V to the Companies Act, 2013

MCA has vide its notification dated 12th September, 2016 amended the Schedule V to the Companies Act, 2013. The salient features of the amendment are as follows:

1) In Part II, Section II, the limits have been doubled for each slab i.e.

a) where the effective capital is negative or less than Rs.5 crores - Rs.60 lakhs
b) effective capital between Rs.5 crores & above to less than Rs.100 crores - Rs.84 lakhs
c) effective capital between Rs.100 crores & above to less than Rs.250 crores - Rs.120 lakhs
d) effective capital of more than Rs.250 crores - Rs.120 lakhs plus 0.01% of the effective capital in excess of Rs.250 crores.

This is given in section A

2) Section B has been completely changed as follows:

Section B says that in case of a managerial person who is functioning in a professional capacity, no approval of Central Government is required is he is not having any shareholding interest in the company or its holding or subsidiary company directly or indirectly or through any structures and not having any interest or related to directors or promoters of the company or its holding or subsidiary company at any time within two years before his date of appointment. He should also be a graduate with specialisation and expertise in the field in which the company operates. There is a proviso however which states that he does not become disqualified merely because he is allotted shares under ESOP or directors' qualification shares and which is not more than 0.5% of the share capital of the company.

The Section II begins with "where in any financial year during the currency of tenure of a managerial person, a company has no profits or its profits are inadequate, it may, without Central Government approval, pay remuneration to the managerial person not exceeding the limits given in (A) and (B) given below:"

The existing wording below section II says "not exceeding the higher of the limits under (A) and (B) given below"

While (A) does specify some limits like enumerated above depending upon effective capital, (B) does not mention any limits whatsoever.

The existing (B) in Schedule V did have limits which was 2.5% of the effective capital.

So in absence of any limits mentioned in (B) does it mean that the company is free to give any remuneration even above those enumerated in (A) to a managerial person who is professionally qualified and technically competent for the job. This aspect is not clear.

3) There are other conditions such as Nomination cum Remuneration Committee which is retained as it is.

4) Further the company should not have committed any defaults in repayment of debts (including public deposit), debentures or interest thereon for a continuous period of 30 days during the preceding financial year. However where the company has committed a default, the company has to obtain prior approval from the secured creditors for the proposed remuneration and such fact should be mentioned in the explanatory statement. This is a change from the existing provisions.

5) Further the resolution can be an ordinary resolution or special resolution (in case of doubling of limits) in (A) or special resolution in case of (B), in both cases tenure should not be more than 3 years.

6) Then the explanatory statement should contain details which are more or less same as existing provisions.

GST Council and its Secretariat

PIB press release dated 12th September, 2016

The Union Cabinet under the Chairmanship of Prime Minister Shri Narendra Modi has approved setting up of GST Council and setting up its Secretariat as per the following details:  

(a)          Creation of the GST Council as per Article 279A of the amended Constitution;

(b)         Creation of the GST Council Secretariat, with its office at New Delhi;

(c)          Appointment of the Secretary (Revenue) as the Ex-officio Secretary to the GST Council;

(d)         Inclusion of the Chairperson, Central Board of Excise and Customs (CBEC), as a permanent invitee (non-voting) to all proceedings of the GST Council;

(e)          Create one post of Additional Secretary to the GST Council in the GST Council Secretariat (at the level of Additional Secretary to the Government of India), and four posts of Commissioner in the GST Council Secretariat (at the level of Joint Secretary to the Government of India).

The Cabinet also decided to provide for adequate funds for meeting the recurring and non-recurring expenses of the GST Council Secretariat, the entire cost for which shall be borne by the Central Government. The GST Council Secretariat shall be manned by officers taken on deputation from both the Central and State Governments.

The steps required in the direction of implementation of GST are being taken ahead of the schedule so far.

The Finance Minister has also decided to call the first meeting of the GST Council on 22^nd and 23^rdSeptember 2016 in New Delhi.