exit option to REIT/ INVIT holders

SEBI has vide two identical circulars dated 17th July, 2020 made rules giving exit option to dissenting holders in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INvIT). Dissenting unit holders means those who have not voted in favour of the resolution under regulation 22(6A) or regulation 22(8) of the SEBI (REIT) Regulations or Regulation 22(5C) or Regulation 22(7) of the SEBI (InvIT) Regulations. 

These sub regulations pertain to trustee and investment manager seeking delisting of the units and securing approval of the unit holders for the same AND change in sponsor or designated sponsor or change in control of sponsor or designated sponsor and seeking approval of the unit holders for the same. 

Under both these exit option regulations, detailed provisions have been made in respect of what acquirer and investment manager is required to do in sequential fashion, the escrow account to be created, price to be arrived at, Letter of Offer to be given, meeting to be convened of the unit holders for voting and submission of compliance report thereon. 

Copies of SEBI circular can be found 

InvIT regulations

ReIT Regulations

web based DIR-3-KYC

MCA has vide its notification dated 25th June, 2019 amended the Companies (Appointment and Qualification of Directors), Rules, 2014 as follows:

1) a new system of web based DIR-3-KYC is being introduced. Basically it is for those directors who have already done the form based DIR-3-KYC once before.

2) Any Director who holds a DIN as on 31st March of a financial year shall be required to do the form based DIR-3-KYC on or before 30th September of the next financial year, i.e. those directors who were allotted DIN during the financial year 2018-19 will be required to do a one time form based DIR-3-KYC on or before 30th September, 2019. Once he has done a form based DIR-3-KYC, then he need not do the form based compliance again.  On second and subsequent attempts, it is to be a web based DIR-3-KYC compliance for that financial year. Again for the next year, he will have to do a web based DIR-3-KYC compliance.

3) All those directors who did the form based DIR-3-KYC last year, will be required to do the web based DIR-3-KYC this year.

4) Any director who wants to update his personal e-mail id or mobile no. then it has to be done via a form based DIR-3-KYC only.

5) The fee for the form based DIR-3-KYC or the web based DIR-3-KYC is NIL if it is done within the stipulated date. In case of any delay, then fees of Rs.5000/- will be applicable to both the form based DIR-3-KYC and the web based DIR-3-KYC.

The MCA notifications are available on the MCA site.

Adjudication of Penalties

MCA has vide its notification dated 19th February, 2019 amended the Rule 3 of Companies (Adjudication of Penalties), Rules, 2014. This rule has emanated from section 454 of the Companies Act, 2013 

Section 454 gives powers to the central government to impose penalties on the companies and officers in default for any non compliance of the Act or Rules. 

The salient feature of the new Rule 3 is as follows:

1) central government can appoint officers not below the rank of Registrar as adjudicating officers to adjudge the penalties under the Act;
2) Before adjudging penalty, notice is required to be given to the company/ officer in default;
3) Time period to be given for reply - not less than 15 days and not more than 30 days;
4) Notice to clearly indicate the nature of non compliance, pointing out the relevant penal provisions and the maximum penalty which can be levied;
5) Reply to the notice to be filed in electronic mode only within the time prescribed;
6) Period for reply can be extended by another 15 days for sufficient reasons given;
7) On receipt of reply, if the adjudicating officer feels that physical presence is required, then he shall issue a notice within 10 days of receiving the reply and fix a date for making physical appearance;
8) Physical appearance can be made personally or through authorised representative;
9) If the person has, in his reply, indicated that he would like to make oral representation, then the adjudicating officer shall given him time accordingly;
 10) On the hearing date, the party shall be given a reasonable opportunity of being heard and thereafter the AO shall pass an order recording the reasons in writing;
11) The order shall also be for adjournment of the hearing to another date;
12) The AO may also require the person concerned to submit his reply to certain matters relevant to ascertain the default;
13) The AO shall pass an order within 30 days of the reply received from the person, where no physical appearance is required. Where physical appearance was done, then the period is 90 days from the date of the notice;
14) Every order shall be duly dated and signed and shall clearly state the reasons why physical appearance was required;
15) Copy of the order shall be sent to the company, officer in default, central government and uploaded on the website of the ministry;
16) The AO shall have powers to summon and enforce attendance of any person acquainted with the facts and circumstance of the case;
17) The AO shall also have the powers to order evidence or produce any document which he feels could be relevant to the case;
18) If any person fails or neglects to reply or refuses to appear before the AO, the AO can pass an order imposing a penalty on the said person after recording his reasons in writing;
19) While adjudging quantum of penalty, the adjudicating officer shall have due regard to the following factors, namely:-

(a) size of the company;

(b) nature of business carried on by the company;

(c) injury to public interest;

(d) nature of the default;

(e) repetition of the default;

(f) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; and

(g) the amount of loss caused to an investor or group of investors or creditors as a result of the default:

20) Penalty can never be less than the minimum penalty imposed under the relevant section of the Act;

21) In case a fixed sum has been prescribed as penalty under the Act, then the AO will impose that fixed sum as a penalty 

22) Penalty has to be paid through the MCA portal;

Cyber Security

The Pension Fund Regulatory Development Authority (PFRDA) has mandated vide its circular dated 7th January, 2019 that all intermediaries who are registered with PFRDA should obtain a certificate on a half yearly basis that they are following the cyber security measures as enumerated in the Cyber Security Policy

The copy of the circular can be found here

PFRDA intermediaries are basically the following: Central Recordkeeping Agency (CRA), Trustee Bank (TB), NPS Trust, Point of Presence (POP) under NPS, NPS-Lite and Atal Pension Yojana, Pension Fund and Custodian involved in the implementation of the NPS.

Secretarial Compliance Report

SEBI has mandated vide their circular dated 8th February, 2019 that listed entities shall submit a Secretarial Compliance Report (SCR) for the year ended within 60 days from the end of the year to the stock exchanges. This report shall be prepared by Practising Company Secretaries (PCS) and submitted to the company and the company in turn will submit the same to the SEs within the said period of 60 days as above.

Secretarial Audit under section 204 of the Companies Act, 2013 shall continue in parallel and this applies to all listed entities and their material unlisted subsidiaries.

A look at the format of the SCR shows that the PCS has to go through the documents, records, filings, submissions, website, and certify that the company has complied with all the relevant and applicable SEBI regulations to the company. The PCS has to report on the non compliances, details of action taken against the company, its directors, promoters etc. in much detail. What action has been taken by the company against any qualified remark in the previous report(s). Whether the listed entity has maintained proper records as required under the various regulations.

It is a very dynamic report and requires lot of effort on the part of PCS to compile this report.

The time frame is also very less as the report has to be submitted by the company to the SEs within 60 days from the close of the financial year.

One has also to wonder why the need for a separate report on virtually the same subject from two different regulators. What was required was amendment of the format issued by MCA so that the points captured by SEBI in their draft SCR could have been encapsulated in the SAR itself. 

Public Interest Directors

SEBI has issued a circular dated 5th February, 2019 regarding the performance review of Public Interest Directors on the Boards of stock exchanges, clearing corporations and depositories. Salient features of this circular are as follows:

1. In respect of Public Interest Directors (PIDs) appointed in the governing board of Stock Exchanges, Clearing Corporations and Depositories (herein after referred as Market Infrastructure Institutions or MIIs), SEBI Board, in its meeting dated June 21, 2018, inter alia, decided that the tenure of PIDs may be extended by another 3 years, subject to performance review in the manner specified by the Board.

2. Based on decisions taken by SEBI Board, the clauses relating to tenure of PID were amended and have been provided in the Regulation 24(3) of Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 [SECC Regulations, 2018] and Regulation 25(3) of SEBI(Depositories and Participants) Regulations, 2018 [SEBI(D&P) Regulations, 2018] as under: Public interest directors shall be nominated for a term of three years, extendable by another term of three years, subject to performance review in the manner as may be specified by the Board:

Provided that post the expiry of term(s) at the recognized stock exchange or the recognized clearing corporation / depository, a public interest director may be nominated for a further term of three years in other recognized clearing corporation or recognized stock exchange, or a depository, only after a cooling-off period of one year:

Provided further that a person may be nominated as a public interest director for a maximum of three terms across recognized stock exchanges / recognized clearing corporations / depositories, subject to a maximum age limit of seventy five years.

3. For complying with the aforementioned regulation, while developing a framework for performance review of PIDs, MIIs need to consider the following: a. Policy for Performance review of PIDs:

i. The Nomination and Remuneration committee (NRC) of the MIIs will be responsible for framing the performance review policy for PIDs.

ii. Such performance review policy shall include criteria for performance evaluation, methodology adopted for such evaluation and analyzing the results, amongst others.

iii. Performance review policy of PID shall include scope for both internal evaluation as well as external evaluation.

iv. Further, as performance review is not a static process and requires periodical review, NRC shall also be responsible for reviewing such performance review policy, at least once in 3 years.

v. Such performance review policy and changes made therein, shall be approved by the governing board of MII.

b. Guiding criteria of Performance Review: As a part of framing performance review policy, NRC shall be primarily responsible for formulation of performance evaluation criteria. The criteria for performance review of PIDs, which shall be considered for both internal evaluation and external evaluation, may be framed by NRC taking into consideration guiding principles provided at Annexure A. These principles would serve as a guidance for MIIs and the same may be adopted by respective MIIs, as considered appropriate, with additional principles, if any.

c. Evaluation mechanism:
i. PIDs shall be subjected to internal evaluation as well as external evaluation, carrying equal weightage.
ii. Internal evaluation: All the governing board members shall evaluate the performance of each PID, on an annual basis at the end of every financial year.
iii. External evaluation: PIDs shall also be subject to external evaluation during their last year of the term in a MII, by a management or a human resources consulting firm. The consultant shall take into consideration the performance of the PID for the entire tenure served in a given MII, at least up to 4 months before expiry of his/ her term. In order to avoid any bias or conflict of interest, external consultant should not be a related party or associated with the MII, the concerned PID or any other governing board members.
iv. Such performance review should be carried out in fair & objective manner and the review should be recorded with clarity and verifiable facts in a standardized format covering all the relevant criteria / aspects.
v. While evaluating conflict of interest of a PID, the governing board of MII shall also take into consideration provisions of Clause 2(d) of Schedule II Part H of SECC Regulations, 2018 and Clause 2(d) of Schedule II Part C of SEBI (D&P) Regulations, 2018 under the head ‘Public Interest Director’; and conflict of interest, if any, of any PIDs should be disclosed to SEBI by the governing board with their comments/ views.

d. Disclosure: Performance evaluation criteria for PIDs shall be disclosed in their annual report as well as on the website of the concerned MII. 

e. Recommendation to SEBI: After taking into account the performance of a PID in the concerned MII, on the basis of internal evaluation and external evaluation both carrying equal weightage, NRC shall consider and recommend extension of his / her tenure to the Governing Board of the MII. The Governing Board of the MII shall in-turn consider and recommend to SEBI if the tenure of the PID is desired to be extended by another term of three years.

f. In addition to the other requirements prescribed in performance review policy of the MIIs along-with norms specified in SECC Regulations, 2018 and SEBI (D&P) Regulations, 2018, the following may be considered by NRCs of MIIs:

i. It shall be ensured that the concerned PID hasn’t remained absent for three consecutive meetings of the governing board and has attended seventy five per cent of the total meetings of the governing board in each calendar year; failing which PID shall be liable to vacate office.

ii. It shall be ensured that PIDs in the governing boards of MIIs are selected from diverse fields of work, in terms of their qualification and experience.

4. The application for extension of term of a PID shall be accompanied with the attendance details of PID in the meetings of various mandatory committees and of the governing board of the MII along-with specific reasons for seeking extension of his / her term as a PID. Such specific reasons shall include facts such as whether the concerned PID, during the term served, had identified any important issues concerning any matter which may involve conflict of interest, or have significant impact on functioning of MII, or may not be in the interest of securities market as a whole, and whether the PID had reported the same to SEBI.

5. In terms of SECC Regulations, 2018 and SEBI (D&P) Regulations, 2018, it is clarified that a minimum of two names shall be submitted by MIIs at the time of making request for appointment of PID and extension of the term of existing PID, including appointment of PID for the purpose of broad basing the governing board, against each such vacancy.

6. It is clarified that the aforementioned norms specify the minimum requirements that have to be complied with by MIIs, however the NRCs of MIIs may adopt additional and more stringent norms while framing a policy for performance review of PIDs. With regard to the detailed criteria for performance evaluation, as provided in Annexure A to the circular, the same shall serve as an illustrative guide for MIIs to frame performance evaluation criteria – both for internal as well as external evaluation, and the same may be adopted by MIIs as considered appropriate, with additional criteria, if any.

7. Additionally, with regard to tenure of PID, following is clarified:
a. The term of existing PIDs serving in a MII for more than three years, can be extended, subject to his / her performance review and a maximum tenure of 6 years as PID in that particular MII. .

b. The term of existing PIDs, that have already served for six years or more in a single MII, shall not be eligible for further extension in that MII.

8. MIIs are directed to:
c. take necessary steps to put in place systems for implementation of the circular, including necessary amendments to the relevant bye-laws, rules and regulations;

d. disseminate the provisions of this circular on their websites; and

e. communicate to SEBI, the status of implementation of the provisions of this circular in the Monthly Report.

Guide for MIIs to frame criteria for performance review of PIDs:

a. Qualifications: The PID’s qualification in area of law, finance, accounting, economics, management, administration or an other area relevant to the financial markets, including any recent updates in this regard.

b. Experience: The PID’s prior experience in area of law, finance, accounting, economics, management, administration or any other area relevant to the financial markets, including any recent updates in this regard.

c. Knowledge and Competency: 
Whether the PID has sufficient understanding and knowledge of the entity in which it operates and the applicable regulatory norms. 

Whether the PID has sufficient understanding of the role, responsibilities and obligations of PID under the relevant regulatory norms. 

How the PID fares across different competencies as identified for effective functioning of Board of the concerned MII (The MII may list various competencies and mark all PIDs against every such competency e.g. Constructive and analytical decision making abilities). 

Whether the PID has sufficient understanding of the risk attached with the business structure.

d. Fulfilment of functions: 
Whether the PID understands and fulfils the functions as assigned to him/her by the Board and the regulatory norms. 

Whether the PID gives views and opinion on various regulatory matters when comments are invited by SEBI through various means.

e. Ability to function as a team: 
Whether the PID is able to function as an effective team- member. 
Whether the PID listens attentively to the contributions of others and gives adequate weightage to the views and perception of other Board members. 
Whether the PID shares good interpersonal relationship with other directors.

f. Initiative: 
Whether the PID actively takes initiative with respect to various areas. 

Whether the PID insists on receiving information necessary for decision making.

Whether the concerned PID keeps himself well informed about the functioning of MII and the external environment in which it operates. 

Whether the PID remains updated in terms of developments taking place in regulatory areas. 

Whether the PID has identified any important issues concerning any matter which may involve conflict of interest for the concerned MII, or may have significant impact on their functioning, or may not be in the interest of securities market, and whether the PID reported same to SEBI. 

Whether the PID appropriately deals with critical matters. g. Availability and attendance: 

Whether the PID is available for meetings of the Board and attends the meeting of Governing board and Committees regularly and timely, without delay. It must be ensured that the concerned PID hasn’t remained absent for three consecutive meetings of the governing board and has attended seventy five per cent of the total meetings of the governing board in each calendar year; failing which the PID shall be liable to vacate office.

h. Commitment:
Whether the PID is adequately committed to the Board and the MII.

i. Contribution: 
Whether the PID has contributed effectively to the entity and in the Board meetings. 

Whether the PID participates in the proceedings of Board meetings keeping in mind the interests of various stakeholders. 

Whether the PID actively deliberates and contributes on proposed business propositions and strategic decisions taking into consideration pros and cons of such propositions, long term outlook, business goals, cost-benefit analysis, etc.

j. Integrity: 
Whether the PID demonstrates highest level of integrity (including conflict of interest disclosures, maintenance of confidentiality, etc.). 

Whether the PID strictly adhere to the provisions of the SEBI SECC Regulations, 2018, SEBI (D &P) Regulations, 2018 and any other regulatory provision, as applicable, along-with the code of conduct and code of ethics prescribed under other applicable regulatory norms. 

Whether disclosures such as dealing in securities and other regulatory disclosures are provided by the PID on timely basis. 

Confirmation on the PID being a Fit & Proper person.

Commencement of Business

MCA has vide the Companies Ordinance 2019 which has been promulgated on 14th January, 2019 introduced a new section 10A in the Companies Act, 2013 which requires that every company incorporated after the above date and having share capital shall not commence business nor exercise its borrowing powers unless it has filed a declaration within 180 days from the date of incorporation and also filed document pertaining to its registered office.

There is the penalty of Rs.50,000 on the company and Rs.1000 per day on each officer in default subject to a maximum of Rs.100,000/-

Where the aforesaid declaration has not been filed within 180 days of the date of incorporation, then the Registrar may, where he is of the opinion, that the company is not carrying on any business or operations, start proceedings to remove the name of the company from its records. Of course the penalty clause will still be applicable.

Form INC-20A is the form which has been introduced by the MCA and the only mandatory documentation required is the proof that the subscriber has paid in his subscription money for the value of shares which he has agreed to subscribe via the memorandum of association. A copy of the cheque issued by the subscriber and a copy of the bank statement showing the credit in the company's bank account should suffice for the purpose. Which also means that the bank account can be opened by the company but actual business like invoicing etc. cannot commence until this declaration has been filed.

Originally this provision was introduced vide Companies Amendment Ordinance 2018 w.e.f  2nd November, 2018 but this 2019 Ordinance replaces the old one.

So one more compliance for a company after its incorporation in India. 

MSME Return

The Ministry of Micro, Small & Medium Enterprises had vide its notification dated 2nd November, 2018 directed that all companies who get supplies of goods or services from micro and small enterprises and whose payments to micro and small enterprise suppliers exceed 45 days from the date of acceptance or the date of deemed acceptance of the goods or services shall submit a half yearly return to the Ministry of Corporate Affairs stating inter alia the amount of payments due and the reasons for the delay.

So this MSMED notification was to be regulated by the MCA.

Now MCA has vide its order dated 22nd January, 2019 effectuated this notification of MSMED. MCA has gazetted an order called Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers), Order, 2019.

The Order states that every "specified company" shall file in MSME Form 1 details of all outstanding dues to micro or small enterprise suppliers existing on the date of notification of this order i.e. on 22nd January, 2019 within 30 days from the date of publication of this notification i.e. within 21st February, 2019. 

The Order further states that every "specified company" shall file a half yearly return for the period April to September by 31st October and for the period October to March by 30th April, every year. 

So ONE immediate compliance of outstanding micro and small suppliers within 30 days and TWO half yearly returns every year.

What is "Specified company" is not clarified in any of the notification but it is safe to assume that it means that all companies who supplies of goods or services from micro or small enterprises.  

travails of a professional - Ep 2

Today I will narrate a story about another client of the friend of mine. This client did not have any big business, he had a couple of buses which he had leased out to projects in Kalamboli and that was also in "not so good" financial situation. He had his residence in santacruz. So he was basically a failed businessman which is surprising considering the fact that he belonged to the predominantly business community from the western part of India. He had his accountant, a non descript guy who incidentally had an extra finger dangling from one of his thumbs, don't know left or right. Anyways, as the story goes, my friend had a long relationship with these guys and the payments were generally late only and after much persuasion and follow up. So around 2016 the failed businessman's mother expired. His wife had divorced him taking her kid(s) with her. So the bugger was basically loner and failed marriage keeper as well. So on the expiry of his mother he had something compliance to be done with the regulatory authorities which was duly done. But the faggot was refusing to pay for the services rendered to him. Professional's knowledge and time is what is important which unfortunately many business persons in India fail to comprehend. The measly accountant was dilly dallying with some silly excuses which the friend understood what their game plan was. So the matters came to such an ugly pass that it ended in a heated exchange of words and the relationship ended then and there. I hope for my friend's sake that both these faggots suffer all the ills of nature for the fraud and deception they have played on my friend.  

violation at traffic signal

Today when i was coming to office by BEST bus, the bus stopped at a  traffic signal well before the parallel lines before the zebra crossing. There was one motorbike also similarly standing before the bus but well within the zebra crossing line. Whereupon comes one other motor biker from behind and he was constantly honking to the other motor biker to go ahead. But the guy in front totally refused to go ahead. Again the biker came and shouted at the front biker to move ahead. Whereupon the first biker told him of the zebra crossing rule and pointed to the CCTV installed up there on the opposite side. Some altercation took place between the two, the second biker moved ahead regardless. We were watching all these from the BEST bus. There's compliance for you, technology in the form of CCTV forces compliance on some, but some do not bother. I am sure the second biker comes into the category of people who will not pay the traffic challan at all when it is automatically issued on the basis of his violation of the specific rule. 

IBBI Information Utilities Regulations

IBBI had notified the IBBI (Information Utilities) Regulations, 2017 on 31^st March, 2017. These regulations provided that ordinarily a person should not hold more than 10% of paid up equity share capital or voting power of an information utility, while allowing certain specified persons to hold up to 25%. These further provided that a person may hold up to 51% of paid-up equity share capital or total voting power of an information utility till the expiry of three years from its registration.

IBBI has amended the IBBI (Information Utilities) Regulations, 2017 on 29th September, 2017. According to the amended regulations, a person may, directly or indirectly, either by itself or together with persons acting in concert, hold up to fifty-one percent of the paid-up equity share capital or total voting power of an information utility up to three years from the date of its registration. Further, an Indian company, (i) which is listed on a Stock Exchange in India, or (ii) where no individual, directly or indirectly, either by himself or together with persons acting in concert, holds more than ten percent of the paid-up equity share capital, may hold up to hundred percent of the paid-up equity share capital or total voting power of an information utility up to three years from the date of its registration. However, these amended provisions are be available in respect of information utilities registered before 30th September, 2018.

The amendment requires that more than half of the directors of an information utility shall be Indian nationals and residents in India.

The amendments are effective from 29^th September, 2017. These are available at www.mca.gov.in and www.ibbi.gov.in

Secretarial standard on Board Meetings

Salient features of revised Secretarial Standards -1 Board Meetings

1)      The SS1 is not applicable to section 8 companies (i.e. not for profit companies). However they are required to comply with the provisions of the Act relating to Board meetings;

2)      Board meetings can be held on National Holidays also, including the adjourned Board meetings;

3)      Proof of sending notice and its delivery shall be kept by the company for a period of not less than three years;

4)      Proof of sending agenda and notes on agenda and their delivery shall be maintained by the company for a period of not less than three years;

5)      Company can send notice and agenda by registered post or speed post apart from e-mail, of course. It cannot send by courier.

6)      Four Board meetings to be held in a calendar year with a maximum interval of 120 days between two consecutive meetings. The requirement of holding one meeting in every calendar quarter has been done away with.

7)      In a private company, interested Director shall be eligible to participate in such item after disclosure of his interest.

8)      Quorum for meetings of Committee shall be as specified by the Board. If not specified by the Board then all members of the Committee to be present at the meetings.

9)      Not necessary to maintain separate attendance register for meetings of the Board and Committee;

10)   If attendance register is maintained in loose leaf form, then it shall be binded once in three years;

11)   After a person has ceased to be a Director, he has no right to inspect the attendance register of directors;

12)   The attendance register to be maintained for a period of at least 8 financial years from the last entry made and thereafter destroyed with the approval of the Board.

13)   The company may maintain its minutes in physical or electronic form. No need of timestamp required.

14)   Minutes need not mention the conclusion time of the meeting;

15)   All appointments one level below the KMP level need not be noted by the Board;

16)   Draft minutes need not be sent to the directors who did not attend the Board/ Committee meeting;

Companies (Acceptance of Deposits) Second Amendment Rules, 2017

MCA has brought about an amendment to the Companies (Acceptance of Deposits) Rules vide its Second Amendment Rules of 2017 on 19th September, 2017.

Rule 3(3) of the Rules stated that

“No company referred to in sub-section (2) of section 73 shall accept or renew any deposit from its members, if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal of such deposits exceeds [thirty five per cent] of the aggregate of the [Paid-up share capital, free Reserves and securities premium account] of the company.

[“Provided that a private company may accept from its members monies not exceeding one hundred per cent of aggregate of the paid up share capital, free reserves and securities premium account and such company shall file the details of monies so accepted to the Registrar in such manner as may be specified.”]

It is the proviso to Rule 3(3) that is being amended.

The new proviso allows specified IFSC public company and private company to accept monies from its members not exceeding 100% of the aggregate of paid-up share capital, free reserves and securities premium account and such company shall file details of monies so accepted to the Registrar in form DPT-3.

Explanation to the proviso states that specified IFSC public company is an unlisted public company licensed to operate either by RBI, SEBI, IRDA in an approved international financial services centre located in an approved multi services Special Economic Zone.

Another proviso has been added to this sub-rule viz.

that the maximum limit in respect of deposits to be accepted shall not apply to

1. private company which is a start-up for 5 years from the date of its incorporation, or
2. private company which fulfills all the following conditions, viz.

a) which is not an associate or subsidiary of any other company (i.e. a purely private company)

b) the borrowings of such company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or Rs.50 crores, whichever is less (i.e. if the paid up share capital is Rs.1 lakh, then the borrowings should be less than Rs.2 lakhs or Rs.50 crores, whichever is less. So obviously the borrowings in this case should be less than Rs.2 lakhs)

c) company has not defaulted in repayment of such borrowings.

All the three conditions above has to be satisfied in respect of this second clause of this second proviso.

So basically the relaxation in acceptance of deposits is in favour of IFSC public company and start up private company. In respect of a purely private company the relaxations are dependent on its paid up share capital.

The companies accepting deposits should report the same in form DPT-3.

The amendment is available here

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 

Related Party - clarifications

The Ministry of corporate affairs has vide its clarification letter dated 17th july 2014 clarified a few aspects on the intriguing aspect of related party transactions and the compliances thereof. Really had the Ministry taken a little trouble in drafting the original provisions correctly, the spate of clarifications that they are issuing would not have been necessary.

The clarifications that they have issued vide the above circular are briefly summarised as under :

1) The shareholder who is the related party will not be allowed to vote on the resolution laid before the general meeting only in respect of such contracts/ transactions in respect of which he is the related party. If he is a related party within the general definition of "related party" under the Companies Act, 2013 but he is not concerned or interested in the contract or arrangement which has been put up for approval at the general meeting, then he will be allowed to vote;

2) Corporate restructuring or amalgamations will not be covered under the definition of related party transactions;

3) Related party contracts which have already been approved under the old provisions of Companies Act, 1956 will not need fresh approval until the term of the contract is over. However any alteration or variation in the contracts will need fresh compliances under the Companies act, 2013.

Stay tuned for more such compliance news