Non compliance with listing regulations - penalties thereof

SEBI has vide its circular no. CIR/CFD/CMD/12/2015 dated 30th November, 2015 laid down certain uniform fine structure for non compliance with listing regulations regarding non submission of certain periodic disclosures and standard operating procedures for suspension and revocation of suspension of trading of specified securities for such non compliances thereof.

Accordingly for non submission of corporate governance compliance report within the period specified in regulation 27(2) of the listing agreements will entail fine of Rs.1000/- per day of non-compliance till the date of compliance. This is in case of first non compliance. For each subsequent non compliances, it is Rs.2000/- per day of non compliance till the date of compliance.

Similarly it is the same for non submission of shareholding pattern u/r 31 with a further condition specified that if the non compliance continues for more than 15 days, additional fine of 0.1% of the paid up capital of the company or Rs.1 crore, whichever is less.

In case of non submission of the financial results u/r 33 thereof, the fines are Rs.5000/- per day for 1st non compliance and Rs.10000 per day for subsequent non compliances and if the non compliance continues for 15 or more days, then fine structure is as described above.

In case of non submission of annual report u/r 34, if the non compliance continues for five more days, then fine of Rs.1000 per day until the date of compliance for 1st non compliance and Rs.2000/- per day for subsequent non compliances.

Paid up capital is taken as at the beginning of the financial year in which the non compliance occurs.

Further standard operating procedures have been laid down for suspension of trading in case the non compliances under the above mentioned regulations continues for two consecutive quarters and in case of annual report for two consecutive financial years.

The SEBI circular can be found at its website. 

Aadhar based e-KYC process

SEBI vide circular dated October 8, 2013, enabled Aadhaar based e-KYC service offered by UIDAI for KYC verification. Intermediaries have sought clarifications from SEBI on certain operational aspects of the same. It is clarified that for accessing the details enabling client identification and authentication from UIDAI based on client authorisation, on voluntary basis, intermediaries who utilize the services of KYC Service Agencies (KSAs) would be registered as KYC User Agencies (KUA) with UIDAI.

1. For entering into account based relationship, the client may provide the following information to the intermediary: i. Name ii. Aadhaar number iii. Permanent Account Number (PAN)

2. The above information can be provided by the client electronically including through any web enabled device.

3. The intermediary shall perform verification of the client with UIDAI through biometric authentication (fingerprint or iris scanning). Mutual Funds can also perform verification of the client with UIDAI through One Time password (OTP) received on client’s mobile number or on e-mail address registered with UIDAI provided, the amount invested by the client does not exceed Rs. 50,000 per financial year per Mutual Fund and payment for the same is made through electronic transfer from the client’s bank account registered with that Mutual Fund.

4. PAN of such client is to be verified from the income tax website.

5. After due validation of Aadhaar number provided by the client, the intermediary (acting as KUA) shall receive the KYC information about the client from UIDAI through KSA.

6. The information downloaded from UIDAI shall be considered as sufficient information for the purpose of KYC verification. The intermediary shall upload this KYC information on the KRA system in terms of KRA Regulations.

7. In case material difference is observed either in the name (as observed in the PAN vis-a-vis Aadhaar) or photograph in Aadhaar is not clear, the intermediary shall carryout additional due diligence and maintain a record of the additional documents sought pursuant to such due diligence.

8. The records of KYC information so received shall be maintained by the intermediary as per the SEBI Act, Regulations and various circulars issued thereunder.  

HUF/ Karta cannot become partner in LLP

MCA has vide its circular no. 2/2016 clarified that Hindu Undivided Family or its Karta cannot become a partner or a designated partner of a Limited Liability Partnership. As per section 5 of the LLP Act, 2008 only an individual or a body corporate can become a partner in LLPs. Since HUFs are not treated as a body corporate it cannot become a partner in a LLP.

MCA circular is available here

Compliance Function in Banks

RBI has issued a circular dated 4th March, 2015 emphasising greater importance to compliance function in banks. RBI notification

Areas that require greater oversight in banks from the perspective of compliance is given below:

1. Risk Based Supervision:

a. Certain very specific templates oriented towards compliance assessment have been introduced under the RBS framework. RBI expects Chief Compliance Officers to ensure total compliance with all specified guidelines enlisted in the said template. It may also be noted that regulatory guidelines forming part of such template are neither exhaustive nor static and are expected to be updated on an annual basis. Banks may, therefore, strive to put in an exhaustive compliance framework encompassing all guidelines emanating from RBI, identify potential breaches and remedy them up-front.

b. Examination of compliance rigor prevalent in banks will be suitably factored in the risk assessment process and would go further in evaluating risk scores of banks. As banks may be aware, a similar regime prevails under the CAMELS/CALCS approach as well.

2. Conflict of interest and independence of compliance functions:

Supervisory reviews have, at several times, pointed out significant and unwarranted forays of compliance functionaries on audit committees/Boards and vice versa. In order to ensure that there is no room for conflict of interest and the activities of the compliance function are subject to independent review, the compliance function and the audit function of the bank should necessarily be kept separate.

3. Reviews on compliance functions: Board/ACB/Board level committees/ Internal Audits should regularly review compliance functions in strict accordance with extant guidelines on the subject. Compliance failures may be reviewed by Boards/Management Committees and appropriate remedial measures may be taken.

4. Staffing of compliance Departments:

1. Staffing of compliance departments may be accorded adequate priority in order to ensure that the compliance wings discharge their functions without human resource constraints.
2. Appropriate succession planning may be resorted to, for ensuring that the post of compliance officers does not remain vacant.
3. In certain cases, appointment of compliance officers was not notified to RBI. Such instances may be avoided.
4. Compliance structure, set-up of compliance Department, appointment of compliance officers etc may strictly be done in accordance with Para 5 of the extant guidelines.

5. Compliance with Monitorable Action Plan/ Risk Mitigation Plan: RBI has been placing a lot of emphasis on banks’ adherence and compliance with MAP/RMP prescribed pursuant to the Annual Financial Inspection/Risk Based Supervision process. Compliance units may specifically devise a time-bound strategy to ensure that compliance on all specified points is achieved within the time frame. RBI will continue to expect an adept compliance scenario, where all MAP/RMP points are complied with well before the commencement of the subsequent supervisory cycle and/or within the periods prescribed for fulfilling the requirements of MAP/RMP. As banks may be aware, penal provisions can also be invoked for unsatisfactory compliance with MAP/RMP.

6. Compliance testing: Compliance units in banks may evaluate the compliance risk in each business line at periodical intervals and put up the results to the Board/Management Committee.

7. Submission of Compliance: It has been observed that few banks are submitting compliance to AFI/RBS inspection reports through their Inspection & Audit Department without bringing the same to the notice of the Chief Compliance Officer. Hence, in case compliance to RBI inspection reports is communicated through the Inspection & Audit department of banks to RBI, a copy of the same needs to be endorsed to the Chief Compliance Officer, for information.

8. Promoting a compliance culture: It is important that the need to comply with instructions meticulously is re-emphasized among all the staff in the bank through continuous and mandatory training to all staff on compliance aspects, appropriate disciplinary measures through staff accountability framework/ policies for non compliance etc. Compliance should not be seen as an activity of the compliance department alone but as a culture that should pervade across the banks.

Share Application Moneys

MCA has issued notification on 31st March, 2015 amending the Companies (Acceptance of Deposits) Rules, 2014 to provide that share application moneys which were disclosed as such in the accounts for year ended 31st March, 2014 and pending allotment as on 31st March, 2015 should be either allotted before 1st  June, 2015 or returned therewith to the allottees before the said date.

Further every eligible company i.e. every company which is eligible to receive deposits should obtain credit rating for deposits accepted by it in the manner specified from the specified rating agencies and a copy of the rating report should be furnished to the MCA in form DPT-3. So additional compliance requirement for companies which accept deposits.

Further the requirement of having a deposit insurance has been postponed to 31st March, 2016 or till such deposit insurance product is available on the market whichever is earlier.

Copy of the MCA notification is given below.

http://www.mca.gov.in/Ministry/pdf/Acceptance_Deposits_AmendmentRules_01042015.pdf

MCA filings - Penalties for late filings.

Section 403 of the Companies Act, 2013 is a wake up call for companies in India. Not any more they can afford to relax and file documents months and years after they are supposed to do so.

Section 403(1) provides that documents should be submitted, filed, registered or recorded within the time specified in the relevant section for the same. For eg. most of the forms require to be filed within 30 days of the event, save for a few provisions such as Auditors appointment within 15 days, annual return within 60 days and charge registration/ modification within 300 days of the event.

The first proviso to section 403(1) provides for additional time within which the documents can be filed by paying additional filing fees. This additional period is 270 days beyond the original period of filing. Therefore in most cases a 300 days period is given for filing the document by paying the normal fees and additional filing fees.

The second proviso to section 403(1) provides that such documents can be filed beyond the said 300 days but it says "without prejudice to any other legal action or liability under the Act"

Section 403(2) provides that where the company fails to submit/ deliver the documents within the time specified including the additional time given, the company and every officers of the company shall be liable for penalty or punishment provided under the Act. This is apart from the fees and additional filing fees payable by the company for filing the document.

The various sections give different penalties for delayed filing beyond the normal period and additional period given thereunder, for eg.

1) delayed filing of annual return under section 92 is liable for a penalty of minimum Rs.50,000 but which may extend to Rs.5 lakhs and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than Rs.50,000/- but which may extend to Rs.5 lakhs or with both;
2) for failure to file documents required under section - minimum penalty is Rs.5 lakhs but which may extend to Rs.25 lakhs for the company and every officer of the company who is in default shall be punishable with fine which shall be minimum Rs.1 lakh but which may extend to Rs.5 lakhs;
3) Audited financial statements under section 137 - Fine of Rs.1000/- per day during which the failure continues but which shall not be more than Rs.10 lakhs and MD and CFO (or in the absence of MD/ CFO, any director who is charged by the Board of complying with this section, or in the absence of any such director, all directors of the company) shall be punishable with imprisonment for a term which may extend to six months or with fine, which shall not be less than Rs.1 lakh but which may extend to Rs.5 lakhs or both;

Apparently the system will not allow filings to take place after the period stipulated in section 403 unless the company applies for a an application for condonation of delay with the prescribed authorities which in this case is the REgistar of Companies of the respective jurisdiction.

Therefore Compliance is the Need of the Hour for every company in India. Gone are the days when the companies can sleep for years on end without doing any filings whatever.

Documents reqd for import/ export

The Director General of Foreign Trade in the Ministry of Commerce & Industry has specified the followed documents as mandatory requirement for export and import of goods into India. From a huge list of documents they have specified only three documents for import and export.

The Govt. has issued notification dated 12th March, 2015 in this regard. Gist of the notification reads as under:

2. Para2.53: The following mandatory documents are prescribed for exports and imports of goods
from/into India:

(a) Mandatory documents required for export of goods from India:
1. Bill of Lading/Airway Bill
2. Commercial Invoice cum Packing List*
3. Shipping Bill/Bill of Export

(b) Mandatory documents required for import of goods into India
1. Bill of Lading/Airway Bill
2. Commercial Invoice cum Packing List*
3. Bill of Entry

[Note: *(i) As per CBEC Circular No. 01/15-Customs dated 12/01/2015.
(ii) Separate Commercial Invoice and Packing List would also be accepted.]

(c) For export or import of specific goods or category of goods, which are subject to any
restrictions/policy conditions or require NOC or product specific compliances under any
statute, the regulatory authority concerned may notify additional documents for purposes of
export or import.

(d) In specific cases of export or import, the regulatory authority concerned may
electronically or in writing seek additional documents or information, as deemed necessary to ensure legal compliance.

This notification will come into effect from 1st April, 2015.