deposits rules - amendment

MCA has vide its notification dated 22nd January, 2019 amended the Companies (Acceptance of Deposits), Rules, 2014. The salient features of the amendments are as follows:

1) Any amount received by a company from Real Estate Investment Trusts will be treated as exempt deposits as per amendment to 2(1)(c)(xviii);

2) In Rule 16, an explanation has been added which says that form DPT-3 shall be used for filing return of deposit or particulars of transaction not considered as deposit, or both, by every company, other than government company.

This means that particulars of exempted deposits such as unsecured loans from directors, their relatives, shareholders (within the limit), inter-corporate borrowings etc. all need to be reported in this format.

Further, fail to understand why government companies are exempted from this requirement. If the government is serious about corporate governance, then in my view even government companies should have been asked to comply.

Rule 16 pertains to a return of deposits to be filed with the Registrar in form DPT-3.

3) Rule 16A has been amended by inserting a sub-rule (3), which states that every company, other than a government company,  shall file a one time return of outstanding receipt of money or loan by a company but not considered as deposits, from 1st April, 2014 to the date of the notification of this amendment i.e. 22nd January, 2019 in form DPT-3 within 90 days from the date of publication of this notification alongwith fees.

Rule 16A pertains to disclosures in the financial statements and Rule 16 pertains to return of deposits. Unable to comprehend why this amendment has been carried out in Rule 16A rather than Rule 16 which is the correct rule for this subject matter, which is yet another return. Especially when they have made an amendment to Rule 16 giving an explanation as above, amendment of this item in the Rule 16 would have been apt. Another feature I have observed is the bad drafting in the sub-rule (3). They have mentioned "outstanding receipt of money or loan by a company" it should have been "outstanding receipt of money or loan received by a company."

It is also not clear, "outstanding" as on what date - 22nd January, 2019 or the last audited financial year ended date i.e. 31st March, 2018.

It is also not clear whether this one time return is required to be audited by the auditors of the company as normally DPT-3 is required to be so audited if filed every financial year.

Here also unable to comprehend why the government companies are exempt from this requirement. Frankly, if the Indian government is serious about corporate governance then they should make an example out of  the government companies in asking them to comply equally with non government companies.

So another one time return to be filed by all the companies in India along with the requisite fees. So an added one time compliance like the KYC one which came in August- September, 2018. This form DPT-3 to be filed within 90 days i.e. on or before 21st April, 2019. Its going to be mayhem in India Inc. because the 2nd round of KYC compliance will start from 1st April, 2019 onwards and that will run for a month and then this compliance will simultaneously run in April 2019. Knowing the tendency and propensity of companies to sleep until the last minute, its going to be mayhem in April, 2019

So much for ease of doing business in India.

filing of resolutions

MCA has amended section 117(2) of the Companies Act, 2013 vide Companies Ordinance 2019 which has been gazetted on 12th January, 2019.

The amended section 117(2) reads as follows:

"(2) If any company fails to file the resolution or agreement under sub-section (1) before the expiry of the period specified therein, such company shall be liable to a penalty of Rs.100,000 and in case of continuing failure, with a further penalty of Rs.500 for each day after the first during which such failure continues subject to a maximum of Rs.25 lakhs and every officer of the company including the liquidator of the company, if any, shall be liable to a penalty of Rs.50,000/- and in case of continuing failure, with a further penalty of Rs.500 for each day after the first during which such failure continues subject to a maximum of Rs.5 lakhs."

What has changed is that earlier the phrase was "shall be punishable with fine", now it is replaced with "shall be liable to penalty". There must be some implications for this change.

Earlier the penalty on the company was ranging from Rs.1 lakh to Rs.25 lakhs, now it is fixed as Rs.100,000/-. The provision of continuing failure penalty has been brought in, which was not there earlier.

Similarly, the penalty for the officer in default was ranging from Rs.50,000/- to Rs.5 lakhs, but now it has been fixed at Rs.50,000/- and here also the continuing failure provision has been introduced.

Section 117 pertains to filing of special resolutions and agreements which is required for key important matters such as special resolutions passed in general meetings, Board resolution for appointment, re-appointment, or renewal of appointment or variation in terms of appointment of managing director. Resolution which requires the company to be would up voluntarily and resolutions passed in pursuance to section 179(3) - these are Board resolutions for important items such as borrowings, buy-back, issue of securities, making calls on shareholders, investment, grant loans or give guarantee or provide security in respect of loans, approve financial statement & Board report, diversify the business, amalgamation, merger, reconstruction, take over etc.

These resolutions are filed in form MGT-14 and the normal time for filing the same is 30 days from the date of passing the resolutions.  

annual return

MCA has vide the Companies Ordinance 2019 which has been gazetted on 12th January, 2019 amended section 92 as follows:

Section 92 pertains to annual return to be filed by every company in India. This is one of the two mandatory annual filings to be done by every company in India. It is required to be filed within 60 days from the date of the annual general meeting or where no AGM is held, within 60 days from the last date on which AGM should have been held. It contains details of the Directors, shareholders, debt, managerial remuneration, share transfers, board meetings, general meetings, etc.

Section 92(5) is the penalty section, which has been modified. The amended section 92(5) states as follows:

"If a company fails to file its annual return under sub-section (4) before the expiry of the period specified therein, such company and its every officer who is in default shall be liable to penalty of Rs.50,000/- and in case of continuing failure, with a further penalty of Rs.100 per day during which the failure continues, subject to maximum of Rs.500,000/-."

What has changed is that earlier the company was subject to a penalty of not less than Rs.50,000/- but which may extend to Rs.500,000/- and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 6 months OR fine of Rs.50,000/- which may extend to Rs.5000,000/- or with both.

So the imprisonment has been removed and penalty for both the company and officer in default has been made common i.e. Rs.50,000/-. Penalty for continuing failure has been added, which was not there hitherto.

registration of charges

MCA has made changes to section 77 of the Companies Act, 2013 vide the Companies Ordinance, 2019 which has been gazetted on 12th January, 2019.

Earlier section 77 allowed charges to be filed within 300 days of its creation. Now that 300 days period has been reduced to 60 days. Under the old Companies Act, 1956, the charges were required to be filed within 30 days of its creation failing which the matter has to be settled by filing a extension of time application to the then Company Law Board.

Under the Companies Act, 2013 when it was first enacted, this period was enhanced to 300 days as a measure of ease of doing business.

Now again it has been reduced to 60 days from the date of its first creation.

If the charges are created before the Companies Act Ordinance 2019 then still the charges can be filed within 300 days, but if the charges are created after the Ordinance has come into force, i.e. 12th January, 2019, then 60 days is the time limit. Even for the 60 days, there will be additional filing fees after 30 days.

If the registration is not made within 300 days under the old provision, then it can still be made within 6 months of the Ordinance coming into force with additional filing fees being paid. This means that the government has given sufficient time for filing of the charges, if the charges were created before the Ordinance came into force - 300 days + 6 months after the ordinance

If the charges are created after the Ordinance has come into force and still the form is not filed within 60 days, then on application further 60 days is given, but here the additional fees will be on ad valorem basis. The ad valorem basis will be prescribed by the government.

appointment of KMP

Section 203(5) of the Companies Act, 2013 has been amended vide Companies Ordinance, 2019 as follows:

Section 203(5) after amendment reads as follows:

"If any company makes a default in complying with the provisions of this section, such company shall be liable to a penalty of Rs.500,000 and every director and KMP of the company who is in default, shall be liable to a penalty of Rs.50,000 and where default is a continuing one, with a further penalty of Rs.1000/- per day after the first day, during which such default continues but not exceeding Rs.500,000/-.

The earlier section mentioned penalty of not less than Rs.100,000 on the company, but which may extend to Rs.500,000/- Now it is one figure of Rs.500,000/- All other provisions are the same except the wordings earlier was "shall be punishable with fine" has been replaced with  "shall be liable to penalty".

Unable to comprehend the meaning of this phrase change.

Section 203 pertains to appointment of managing director, CEO or manager, company secretary and chief financial officer in certain specified companies. The specifications are contained in Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 wherein it is stated that every listed company and every public company having paid up share capital of Rs.10 crore or more shall have whole-time key managerial personnel. It also applies to private company having paid up share capital of Rs.5 crores or more and they are required to appoint whole time company secretary.

External Commercial Borrowings

RBI has vide its notification dated 16th January, 2019 rationalised the ECB framework to improve the ease of doing business.

Salient features of the new ECB framework are as follows:

1. Merging of Tracks: Merging of Tracks I and II as “Foreign Currency denominated ECB” and merging of Track III and Rupee Denominated Bonds framework as “Rupee Denominated ECB”.
2. Eligible Borrowers: This has been expanded to include all entities eligible to receive FDI. Additionally, Port Trusts, Units in SEZ, SIDBI, EXIM Bank, registered entities engaged in micro-finance activities, viz., registered not for profit companies, registered societies/trusts/cooperatives and non-government organisations can also borrow under this framework.
3. Recognised Lender: The lender should be resident of FATF or IOSCO compliant country. Multilateral and Regional Financial Institutions, Individuals and Foreign branches / subsidiaries of Indian banks can also be lenders as detailed in Annex.
4. Minimum Average Maturity Period (MAMP): MAMP will be 3 years for all ECBs. However, for ECB raised from foreign equity holder and utilised for specific purposes, as detailed in the Annex, the MAMP would be 5 years. Similarly, for ECB up to USD 50 million per financial year raised by manufacturing sector, which has been given a special dispensation, the MAMP would be 1 year as given in the Annex.
5. Late Submission Fee (LSF) for delay in Reporting: Any borrower, who is otherwise in compliance of ECB guidelines, except for delay in reporting drawdown of ECB proceeds before obtaining LRN or Form ECB 2 returns, can regularize the delay by payment of LSF as per the laid down procedure.

4. ECB up to USD 750 million or equivalent per financial year, which otherwise are in compliance with the parameters and other terms and conditions set out in the new ECB framework, will be permitted under the automatic route not requiring prior approval of the Reserve Bank. The designated AD Category I bank while considering the ECB proposal is expected to ensure compliance with applicable ECB guidelines by their constituents. Any contravention of the applicable provisions will invite penal action or adjudication under the Foreign Exchange Management Act, 1999.

The copy of the RBI notification can be found here

Cartelisation - Dry Cell batteries market

The Competition Commission of India (‘CCI’) passed a Final Order imposing penalty on Panasonic Energy India Co. Limited (‘Panasonic’) and Godrej and Boyce Manufacturing Co. Limited (‘Godrej’) for colluding to fix prices of zinc-carbon dry cell batteries in India. In respect of Panasonic, CCI granted 100 percent reduction in penalty by invoking the provisions of Section 46 of the Competition Act, 2002 (‘the Act’) read with the Competition Commission of India (Lesser Penalty) Regulations, 2009 (‘Lesser Penalty Regulations’).  

The case was taken-up by CCI suo motu under the provisions of Section 19 of the Act based on the disclosure made by Panasonic under Section 46 of the Act read with the Lesser Penalty Regulations. From the evidence collected in the case, which included an anti-competitive clause in the written agreement entered into between Panasonic and Godrej for supply of batteries, and e-mail communications between the key managerial personnel of the two of them, CCI found existence of a bi-lateral ancillary cartel between Panasonic and Godrej in the market of institutional sales of dry cell batteries. It was found that Panasonic, which had a primary cartel with Eveready Industries India Ltd. and Indo National Limited as established in Suo Motu Case No. 01 of 2016 by CCI, having fore-knowledge about the time of price increase to be affected by this primary cartel, used such fore-knowledge as leverage to negotiate and increase the basic price of the batteries sold by it to Godrej. Further, Panasonic and Godrej, in accordance with the prices of the primary cartel, used to agree on the market price of the batteries being sold by them, so as to maintain price parity in the market.

Based on the above, CCI found that Panasonic and Godrej have indulged in the anti-competitive conduct of price co-ordination, in contravention of the provisions of Section 3 (3) (a) read with Section 3 (1) of the Act. It was observed that such conduct continued from 13.01.2012, when Panasonic and Godrej entered into a written agreement, till 30.11.2014, when Godrej terminated the said agreement.

Considering all the relevant factors, penalty on Panasonic was levied at the rate of 1.5 times of its profit for each year from January 2012 to November 2014 amounting to INR 31.76 crores, and on Godrej at the rate of 4 percent of its turnover for each year from January 2012 to November 2014 amounting to INR 85 lacs. Also, considering the totality of facts and circumstances of the case, penalty leviable on the individual officials of Panasonic and Godrej was computed at the rate of 10 percent of the average of their income for the preceding three years. As to Panasonic, to the officials of Panasonic also, 100 percent reduction in penalty was granted under the provisions of Section 46 of the Act read with the Lesser Penalty Regulations.