Companies (Management & Administration) Rules Amendment

MCA has vide its notification dated 13th June, 2018 amended the Companies (Management and Administration) Rules, 2014 as follows:

1) Rule 13 has been deleted - Rule 13 pertained to return of changes in the shareholding position of promoters and top 10 shareholders for listed companies. They were required to intimate changes of 2% or more in their shareholdings within 15 days of such change. A form MGT-10 was required to be filed for this purpose.

This has been done away with which is good

2) Rule 15(6) has been omitted. - Rule 15 pertains to preservation of register of members and annual return etc. Rule 15(6) specified that the special resolution which is proposed to be filed under section 94(1) should be filed one day before the general meeting of the company. Section 94(1) says that the registers and returns are to be kept at the registered office of the company. Proviso to section 94(1) says that such registers or returns can also be kept at any other city where more than 1/10th of the members reside, provided special resolution has been passed at a general meeting of the company.

So its a kind of a roundabout provision, which has been done away with. It should not have been in the statute books in the first place.

3) Explanation after Rule 18(3)(ix) has been omitted. - Rule 18 pertained to notice of meeting and how it can be sent via electronic route and the precautions to be taken thereunder and electronic records to be maintained. The explanation below Rule 18(3)(ix) said that "for the purpose of this rule, it is hereby declared that the extra ordinary general meeting shall be held in India". This is a totally redundant explanation which should not have been there in the first place.

So now extra-ordinary general meeting can be held anywhere in India. That was the provision in the 1956 Act, but somehow this explanation got mischievously embedded in the aforesaid Rules.

4) Amendment to Rule 22 - Rule 22 pertains to procedure to be followed for conducting business through postal ballot. Rule 22(16) gives a list of items for which business shall be transacted only by means of voting through postal ballot. Now a proviso has been added below this Rule 22(16) and this proviso now stipulates that these items of business which is mandatorily required to be transacted only through postal ballot may be transacted by e-voting also.

It is not clear whether companies should give both options i.e. postal ballot and e-voting or one to the exclusion of another.

I guess one more amendment will be required for that!! Sigh!!

new DIR-3 form

MCA has vide its notification dated 12th June, 2018 released the new DIN form in DIR-3. The new DIN form now allows DIN to be obtained for a designated partner in an existing LLP. But it still does not solve the problem of two completely fresh entrepreneurs coming together to form a LLP. That is because the existing new LLP name reservation form and LLP incorporation form i.e. form 1 LLP and form 2 LLP still asks for DIN of the proposed director.

So there is an anomaly still persisting. Hope MCA looks into it because LLP is the preferred form for doing business these days. LLP incorporation has been stuck for so many months. This is not ease of doing business by the MCA. 

The Boat

The Boat is a true story of survival of Walter Gibson at sea for a whole month in a small boat meant to carry only 28 passengers but in which 135 people clung on in the hope that rescue will come. Days pass, weeks go on and one by one people start dying in horrendous conditions. Its is a miracle of a story that Walter survives with another Chinese girl Doris Lim. This was about the time when the Japs were invading Singapore, Malaysia and taking prisoners. Its is a simple story, and the narrative is good, fast paced and riveting. Its unfortunate that so many horrors were taking place due to war. But as the title suggests, there is only instance of cannibalism in the entire narrative. Goodreads 5/5 

CSR spends - MCA clarification

The Ministry of Corporate Affairs has vide its notification dated 28th May, 2018 clarified that the CSR (Corporate Social Responsibility) spend shall be preferably made in the local area or areas around which the company operates. The notification says that the provision need to be followed in letter and in spirit.

Very strange notification this one and probably for the first time that i am seeing such a thing but shows the seriousness of the government in tackling the under development issue. CSR could be a game changer if the private sector expertise is brought into creating much needed social assets, generate employment, give skills training etc. to sectors where the government cannot enter due to its inherent defects such as size, inefficiency, bureaucracy etc.

Let's hope private sector energies are channelled into this much needed areas such as education, health, rural development, agriculture, sports, environment etc.  

Insolvency and Bankruptcy Amendment Ordinance 2018

The President today gave assent to promulgate the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018.

The Ordinance provides significant relief to home buyers by recognizing their status as financial creditors.  This would give them due representation in the Committee of Creditors and make them an integral part of the decision making process.  It will also enable home buyers to invoke Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016 against errant developers.   Another major beneficiary would be Micro, Small and Medium Sector Enterprises (MSME), which form the backbone of the Indian economy as the biggest employer, next only to the agriculture sector.  Recognizing the importance of MSME Sector in terms of employment generation and economic growth, the Ordinance empowers the Government to provide them with a special dispensation under the Code.  The immediate benefit it provides is that, it does not disqualify the promoter to bid for his enterprise undergoing Corporate Insolvency Resolution Process (CIRP) provided he is not a willful defaulter and does not attract other disqualifications not related to default.  It also empowers the Central Government to allow further exemptions or modifications with respect to the MSME Sector, if required, in public interest.

In order to protect the sanctity of the CIRP, the Ordinance lays down a strict procedure if an applicant wants to withdraw a case after its admission under IBC 2016.  Henceforth, such withdrawal would be permissible only with the approval of the Committee of Creditors with 90 percent of the voting share.  Furthermore, such withdrawal will only be permissible before publication of notice inviting Expressions of Interest (EoI).  In other words, there can be no withdrawal once the commercial process of EoIs and bids commences. Separately, the Regulations will bring in further clarity by laying down mandatory timelines, processes and procedures for corporate insolvency resolution process.  Some of the specific issues that would be addressed include non-entertainment of late bids, no negotiation with the late bidders and a well laid down procedure for maximizing value  of assets. 

With a view to encouraging resolution as opposed to liquidation, the voting threshold has been brought down to 66 percent from 75 percent for all major decisions such as approval of resolution plan, extension of CIRP period, etc.  Further, in order to facilitate the corporate debtor to continue as a going concern during the CIRP, the voting threshold for routine decisions has been reduced to 51%.

The Ordinance also provides for a mechanism to allow participation of security holders, deposit holders and all other classes of financial creditors that exceed a certain number, in meetings of the Committee of Creditors, through the authorized representation. 

The existing Section 29(A) of the IBC, 2016 has also been fine-tuned to exempt pure play financial entities from being disqualified on account of NPA.  Similarly, a resolution application holding an NPA by virtue of acquiring  it  in the past under the IBC, 2016, has been provided with a three-year cooling-off period, from the date of such acquisition.  In other words, such NPA shall not disqualify the resolution application during the currency of the three-year grace period.

Taking into account the wide range of disqualifications contained in Section 29(A) of the Code, the Ordinance provides that the Resolution Applicant shall submit an affidavit certifying its eligibility to bid.  This places the primary onus on the resolution applicant to certify its eligibility. 

The Ordinance provides for a minimum one-year grace period for the successful resolution applicant to fulfil various statutory obligations required under different laws.  This would go a long way in enabling the new management to successfully implement the resolution plan.

The other changes brought about by the Ordinance include non-applicability of moratorium period to enforcement of guarantee; introducing the requirement of special resolution for corporate debtors  to themselves trigger insolvency resolution under the Code; liberalizing terms and conditions of interim finance to facilitate financing of corporate debtor during CIRP period; and giving the IBBI a specific development role along with  powers to levy fee in respect of services rendered.

The above mentioned changes are expected to further strengthen the Insolvency Resolution Framework in the country and produce better outcomes in terms of resolution as opposed to liquidation, time taken, cost incurred and recovery rate.

http://pib.nic.in/PressReleseDetail.aspx?PRID=1534497

Birth of Thunder

Birth of Thunder is a 1963 novel written by Robin Cranford. It is a story of an young airman Carraday who is basically an introvert and shy unlike the garrulous ones that you find in the services. He is the butt of jokes in his regiment. He flies a sortie with his team over enemy territory, but unfortunately his plane gets hit, he has to eject into enemy territory in Yugoslavia. He gets captured by a friendly enemy force of locals who are fighting the Germans themselves, a ragtag bunch of brave soldiers with barely fighting experience but brave nevertheless. He gets drawn to a young soldier Jelena and then trouble starts for him all over again. But first he gets some hits against enemies so Carraday becomes strongly confident fighter. How they escape then forms part of the rest of the story.

The narrative by Robin Cranford is absolutely brilliant. I tried to Wiki on Robin, but could find no entry whatsoever anywhere, which is strange, unless this is his pseudonym. The book cover says he was born in South Africa in 1923 and has flown with the South African Air Force    

Monitoring of foreign investment limits in listed entities

Gist of RBI notification dated 3rd May, 2018 follows

Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to Foreign Exchange Management (Transfer or Issue of Security by a person Resident outside India) Regulations, 2017 notified vide Notification No. FEMA 20(R)/2017-RB dated November 07, 2017 and as amended from time to time, in terms of which the onus of compliance with the sectoral/ statutory caps on foreign investment lies with the Indian investee company.

2. Currently, Reserve Bank of India receives data on investment made by Foreign Portfolio Investors (FPI) and Non-resident Indians (NRI) on stock exchanges from the custodian banks and Authorised Dealer Banks for their respective clients, based on which restrictions beyond a threshold limit is imposed on FPI/ NRI investment in listed Indian companies.

3. In order to enable listed Indian companies to ensure compliance with the various foreign investment limits, Reserve Bank in consultation with Securities and Exchange Board of India (SEBI), has decided to put in place a new system for monitoring foreign investment limits, for which the necessary infrastructure and systems for operationalizing the monitoring mechanism, shall be made available by the depositories. The same has been notified by SEBI vide Circular-IMD/FPIC/CIR/P/2018/61 dated April 05, 2018 read with Circular- IMD/FPIC/CIR/P/2018/74 dated April 27, 2018.

4. In terms of para 6 of Annexure A of the circular dated April 05, 2018, all listed Indian companies are required to provide the specified data/ information on foreign investment to the depositories. The requisite information may be provided before May 15, 2018. The listed Indian companies, in non-compliance with the above instructions will not be able to receive foreign investment and will be non-compliant with Foreign Exchange Management Act, 1999 (FEMA) and regulations made thereunder.

5. All Authorised Dealer Banks are advised to instruct their clients and respective Indian companies, about the system requirement at para 4 of this circular.

6. Further, upon implementation of the new monitoring system, all Authorised Dealer banks would be required to provide the details of investment made by their respective NRI clients to the depositories in the format as provided by the depositories/ SEBI. In addition, the reporting to Reserve Bank in the existing system, viz., LEC (NRI) and LEC (FII), would continue.

7. AD Category-I banks may bring the contents of this circular to the notice of their customers / constituents concerned.

8. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

Copy of this notification can also be found here