Union Cabinet approves promulgation of IBC( Amendment ) Ordinance ,2019

The Union Cabinet on 24^th December, 2019 approved a proposal to promulgate an ordinance for the amendment of the Insolvency and Bankruptcy Code (IBC).The changes protect the ‘going concern status ‘of a company facing insolvency proceedings while providing protection to last –mile funding in financially distressed sectors.

·       The amendments absolve a corporate debtor of liability for an offence committed before the commencement of the corporate insolvency resolution process.

·       The corporate debtor will not be prosecuted for such an offence from the date the resolution plan has been approved by the adjudicating authority, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not a promoter or in the management or control of the corporate debtor or a related party of such a person.

·       The amendments also propose that the debtor will not be prosecuted if a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted a report or a complaint to the relevant statutory authority or court.

The Insolvency and Bankruptcy Code (Second Amendment Bill), 2019

The proposal to make amendments in the Insolvency and Bankruptcy Code , 2016 through the Insolvency  and Bankruptcy Code ( Second Amendment ) Bill 2019 has been approved by the Union Cabinet. These amendments aim to reduce certain difficulties being faced during insolvency resolution process to realise the objects of the code and to further ease of doing business.

The amendment Bill seeks to amend various sections and introduce a new section 32A in the Insolvency and Bankruptcy Code,2016 .

Key Highlights of the Bill

·     The code to remove bottlenecks, streamline the CIRP and grant protection to last mile funding which will boost investment in financially distressed sectors and ensure that the foundation of the business of corporate debtor is not lost, and it continues as a going concern by clarifying that the licenses, permits concessions clearances etc. cannot be terminated or suspended or not renewed during that moratorium period.

·     Insolvency Commencement date in all cases will mean the date of admission of application for initiating CIRP.

·      Minimum threshold for homebuyers to file insolvency application An application for initiating Insolvency shall be filed jointly by at least 100 allottees under a real estate project or not less than 10% of the total number of allottees whichever is less. Additional thresholds introduced for Financial Creditors represented by authorised representative due to large numbers in order to prevent frivolous triggering of Corporate Insolvency  Resolution Process

·    Clarification regarding initiation of CIRP by Corporate Debtor- The bill seeks to clarify that corporate debtor who is disqualified from making an application for CIRP initiation u/s 11(a) to (d), shall not be prevented from initiating CIRP against another corporate debtor.

·        Resolution Professional’s role after the expiry of CIRP Period-

The Amendment Bill has  clarified that the affairs of the Corporate Debtor during the time-gap between the period of conclusion of CIRP and implementation of the successful resolution plan/ commencement of liquidation shall now be the responsibility of the RP only.

·       A new section 32Ahas been inserted. The section operates on three fronts

i)               Cessation of liability of corporate debtor in respect of offences committed prior to the commencement of the CIRP.

ii)              Prohibition on any action against any property if the corporate debtor covered under the resolution plan.

iii)           Requirement from corporate debtor and other persons to extend assistance and cooperation to any investigating authority .

Highlights of Amendment in Indian Stamp Act, 1899

The Finance Bill, 2019 had proposed certain amendments in the Indian Stamp Act, 2019. The amendments are related to levy and administration of stamp duty on securities market instruments by the states at one place through one agency viz. stock exchanges or it’s clearing corporations or depositories. The agency will share collected stamp duty appropriately with respective states based on the state of domicile of the ultimate buying client.

The Highlights of the same are as follows:

• Inserted certain definition such as allotment list, securities, debentures, market value
• Definition of instruments is broadened to provide for documents in electronic form or otherwise created for a transaction in a stock exchange or depository
• Stamp duty is levied on transfer of securities in demat form.
• Stamp Duty is not applicable in case of Demat or Remat of Securities
• All the transactions (Issue, transfer of securities etc.) through stock exchanges and depositories are now under the purview of stamp duty in addition to issue/transfer of securities held physically.

The stamp duty will be collected by stock exchange/clearing corporation/depositories as the case may be, from issuer/seller at the time of settlement of transactions. The Applicable Rate for various transactions and who will be responsible for paying stamp duty is given in table below:

Transaction	Earlier Stamp Duty	Revised Stamp Duty
Securities other than Debentures
Issue of Security	As per State Stamp Act – 0.1% as per Maharashtra Stamp Act	0.005% [new Article 56A]
Transfer of securities on delivery basis	0.25% as per Indian Stamp Act [earlier Article 62(a)]	0.015%
Transfer of securities on non-delivery basis	0.25% as per Indian Stamp Act [earlier Article 62(a)]	0.003%
Debentures
Issue of Debentures (Marketable)	As per State Stamp Act – As per Maharashtra Stamp Act - Under Article 1 -Acknowledgement of Debt – Rs. 100 for value Rs. 10 lakhs or more	On delivery basis – 0.015% [new Article 56A] On non-delivery basis – 0.003% [new Article 56A]
Issue of Debentures (Non - Marketable)	No stamp duty prescribed
Derivatives
Futures (equity and commodity)	No stamp duty prescribed	0.002%
Options  (equity and commodity)	No stamp duty prescribed	0.003%
Currency and Interest rate derivatives	No stamp duty prescribed	0.0001%
Other Derivatives	No stamp duty prescribed	0.002%
Repo on Corporate Bonds	No stamp duty prescribed	0.00001%
Government Securities	No stamp duty prescribed	0%

Who will be responsible for paying stamp duty?

Transaction	Instrument Chargeable	Who will pay stamp duty?	Who will collect stamp duty?
Sale through Stock Exchange	Clearance List	Buyer	Stock Exchange or Clearing Corporation authorised by it
Transfer of securities by a Depository	delivery instruction slip	Transferor	Depository
Issue of securities, any creation or change in the records of a depository	Allotment list	Issuer	Depository
Issuance of securities otherwise than through a stock exchange or depository	Share Certificate	Issuer	Depository
Sale / Transfer or re-issue of securities with consideration otherwise than through a stock exchange or depository	Share Transfer Deed	Transferor	Depository

The amendments proposed in Stamp Act, 1899 through Finance Bill, 2019 made effective from 9^th January, 2020.[1]

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[1] Notified vide notification no. S.O. 4419(E) dated 10th December, 2019

Disclosures of Defaults in Payment of dues to Banks/Financial Institutions by Listed Entities

                                                                                                                                                             

Disclosures of Defaults in Payment of dues to Banks/Financial Institutions by Listed Entities

1.             Applicability:

This circular is applicable to all listed entities which have listed any of their specified securities (equity and convertible securities), Non-convertible Debt (“NCD”) and Non-Convertible Redeemable Preference Shares (“NCRPS”).

2.             Definition of default for the purpose of this circular:

·         In case of loans from banks/financial institutions or NCD or NCRPS, default will be considered if company fails to pay interest / dividend or principal in full on the pre-agreed payment date.

·         In case of revolving facilities like cash credit from banks/financial institutions, default wound be considered if the outstanding balance remains unpaid continuously for more than 30 days in excess of the sanctioned limit or drawing power, whichever is lower.

3.             Due date of disclosures:

a.       In case of loans from banks/financial institutions:  Disclosure shall be made promptly but not later than 24 hours from 30^th day of default.

b.      In case of revolving facilities like cash credit from banks/financial institutions: Disclosure shall be made promptly, but not later than 24 hours from the 30^th day of such default.

c.       In case of unlisted debt securities: Disclosure shall be made promptly but not later than 24 hours from the occurrence of the default.

4.             Which defaults to disclose:  Disclosure of defaults is to be given in the prescribed format by following entities:

a.       Entities having Equity or convertible securities listed:

a.       default in payment of interest / installment obligations on loans, including revolving facilities like cash credit, from banks / financial institutions and

b.      Default with respect to unlisted NCDs and unlisted NCRPS.

b.      Entities having listed their NCD’s /NCRPS/ Commercial paper:

a.       Disclosure of defaults as are applicable to entities that have equity or convertible securities listed [(i.e. 4(i)(a) and 4(i)(b)] of this newsletter.

b.      Disclosure of default pertaining to listed NCD/listed NCRPS/listed commercial paper to continue as per respective regulations.

5.             Initial Disclosure:  Initial disclosure of default needs to be given on 1^st January 2020 in format C1 and Initial quarterly disclosure for listed entities is to be given by 7^th January 2020 in format ‘C2’.

6.             These initial and quarterly disclosures are to be given if there are outstanding defaulted loans including revolving cash credit facility or outstanding defaulted debt securities as on 31^st December 2019. As far as disclosures pertaining to default of listed NCDs/listed NCRPS/listed commercial paper are concerned, the same would continue to be made as per present SEBI regulations and circulars.

Amendment in threshold limit of Related Party Transactions

The Ministry of Corporate Affairs (MCA) has vide Notification dated 18th November, 2019 amended the Companies (Meetings of Board and its Powers) Rules, 2014 to modify the threshold limits for related party transactions under section 188, which if crossed, will trigger prior approval of members of company.

Transaction	Old limit	Revised Limit
sale, purchase or supply of any goods or material, directly or through appointment of agent	10% or more of the turnover of the company; or rupees 100 Crore, whichever is lower	10% or more of the turnover of the company
selling or otherwise disposing of or buying property of any kind, directly or through appointment of agent	10% or more of net worth of the company or rupees 100 crore, whichever is lower	10% or more of net worth of the company
leasing of property any kind	10%  or more of the net worth of company or  10% or more of turnover of the company or rupees 100 crore, whichever is lower	10% or more of the turnover of the company
availing or rendering of any services, directly or through appointment of agent	10% or more of the turnover of the company or rupees 50 crore, whichever is lower	10% or more of the turnover of the company

So, to summarise, in the above clauses, instead of keeping two or more threshold limits and making it subjective to a certain amount, MCA has now tried to simplify these threshold limits. This amendment is effective immediately from the date of notification of this amendment, i.e., from 18th November 2019.

Company Law Committee -2019 - Recommendations

The Ministry of Corporate Affairs (MCA) had set up the Company Law Committee (CLC) on 18th September, 2019 to make recommendations to the Government inter-alia on further re-categorisation of certain criminal compoundable offences to civil wrongs carrying civil liabilities and certain other changes to facilitate and promote ease of doing business and ease of living. The report was presented on 18th November, 2019.

This Committee has made certain recommendations for rationalising penalties in respect of 46 compoundable offences in five different manners. As mentioned in report, the proposed recommendations will help further to declog the special courts and the NCLT. It also improves ease of living for the corporates and other stakeholders of the country.

Main recommendations are as follows:

• Re-categorisation of 23 offences in the category of compoundable offences to an adjudication wherein default would be subject to penalty levied by adjudication officer
• 11 Compoundable offences will be limited to fine only (i.e. removed imprisonment part)
• Omission of penal provision from 7 sections which are compoundable in nature
• 5 offences to be dealt with an alternate framework
• Other recommendations are related to ease of doing business and ease of living

Further no changes has been suggested w.r.t any non- compoundable offences under Companies Act, 2013.

The recommendations in details are as follows:

1.      23 offences recommended to be re-categorised to an adjudication mechanism are as follows:

                        

(i). Section 56 - Failure to comply with the procedural requirements in relation to the manner of transfer of securities

(ii). Section 86(1) - Contravention of the provisions of Chapter VI (Reg. of charges)

(iii). Section 88(5) - Failure to maintain members’ register, debenture-holders register and register of other security holders

(iv). Section 89(5) - Declaration in respect of beneficial interest in any share (Failure to make declaration in MGT-4 & MGT-5)

(v). Section 89(7) - Declaration in respect of beneficial interest in any share (Failure to file Form- MGT-6)

(vi). Section 90(10) Declaration of interest by the significant beneficial owner (Failure to make declaration in BEN-1)

(vii). Section 90(11) Declaration of interest by the significant beneficial owner (failure to maintain register of SBO in format of BEN-3)

(viii). Section 92(6) - Contravention of the requirements under this Section by a company secretary in practice certifying annual returns

(ix). Section 105(5) Issuance of invitation to appoint proxies

(x). Section 124(7) - Failure to comply with the requirements given in this Section for dealing with Unpaid Dividend etc.

(xi). Section 134(8) - Contravention of the requirements given in the Section for financial statements and Board reports

(xii). Section 135 - Company which meets the specified financial thresholds shall constitute a CSR Committee and comply with other provisions

(xiii). Section 143(15) - Violation of the obligation to report fraud by auditor, company secretary in practice or cost accountant

(xiv). Section 172 - Punishment for contravention of any provisions relating to appointment and qualifications of directors

(xv). Section 178(8) - Contravention of the provisions relating to Audit Committee, Nomination and Remuneration Committee and Stakeholders Relationship Committee

(xvi). Section 184(4) - Contravention of the provisions mandating disclosure of interest by the director

(xvii). Section 187(4) - Contravention of the provisions regarding holding of investment by a company

(xviii). Section 188(5) - Punishment for contravention of provisions regarding related party transactions by a director or employee of company

(xix). Section 204(4) - Contravention of provisions mandating secretarial audit for certain classes of companies

(xx). Section 232(8) - Punishment for failure to comply with obligations imposed in relation to merger and amalgamation

(xxi). Section 247(3) - Valuation by registered valuers

(xxii). Section 405(4) - Punishment for non-compliance with orders of the Central Government to direct companies to furnish certain information

(xxiii). Section 450 - Contravention of any of the provisions of the 2013 Act or the rules made thereunder, and for which no penalty or punishment is provided elsewhere

2.      11 Compoundable offences will be limited to fine only (i.e. removed imprisonment part)

                      

(i). Section 8(11) Failure of the company to comply with the requirements imposed on Section 8 companies

(ii). Section 26(9) Contravention of matters prescribed to be stated in prospectus

(iii). Section 40(5) Default in complying with the requirements for a public offer

(iv). Section 68(11) Default in complying with requirements for buy-back

(v). Section 128(6) Failure to maintain books of accounts of the company at its registered office and its inspection thereof by any director of the company

(vi). Section 147(1) Default in complying with provisions of Chapter X

(vii). Section 167(2) Punishment for continuing to act as director even upon becoming liable for vacation of office under the Section

(viii). Section 242(8) Powers of the NCLT to pass an order when an application has been made for relief in a case of oppression and mismanagement

(ix). Section 243(2) Default in complying with directions of the NCLT regarding termination or modification of certain agreements

(x). Section 347(4) Contravention of directions of the Central Government in relation to disposal of books and papers of the company which has been wound up

(xi). Section 392 Punishment for contravention of provisions related to foreign companies

3.      Omission of penal provision from 7 sections which are compoundable in nature

           

(i). Section 48(5)- Variation of the rights of shareholders of any class with consent of three-fourth of the holders

(ii). Section 59(5) - Grievance before NCLT regarding entries in register of members

(iii). Section 66(11) - Publication of order of the NCLT confirming reduction of share capital

(iv). Section 71(11) - Non-compliance with order of the NCLT regarding failure to redeem debentures on maturity or in payment of interest

(v). Section 302(4) - Dissolution of company by the NCLT

(vi). Section 342(6) - Prosecution of delinquent officers and members of company

(vii). Section 348(6) - Contravention of provisions regarding information related to pending liquidations by Company Liquidator and 348(7) Punishment for wilful default in contravention of provisions regarding auditing of statement by Company Liquidator

4.      5 offences to be dealt with an alternate framework/Mechanism

              

(i). Section 16(3) - Non-compliance with order of the RD directing change of name of company

(ii). Section 284(2) - Promoters, directors, etc. to cooperate with the Company Liquidator

(iii). Section 302(4) - Dissolution of company by NCLT (liquidator does not serve the order of dissolution to RoC within 30 days)

(iv). Section 441(5) - Non-compliance with order of compounding of the NCLT or the RD

(v). Section 356(2) - Powers of the NCLT to declare dissolution of company void (in case the liquidator does not file the order of the NCLT, declaring the dissolution of a company void, with the RoC)

5.      Other recommendations:

           

(i). definition of a ‘listed company’ under Section 2(52) of the 2013 Act should be amended to exclude certain classes of companies that have listed such securities as may be prescribed by the Central Government in consultation with SEBI

(ii). reduction of timelines for speeding up rights issue under section 62

(iii). amendment in Section 89 to add a new sub-section (11) to allow the Central Government to prescribe class or classes of persons who shall not be required to make a declaration under Section 89(1), (2) or (3).

(iv). extending exemptions for filing of certain resolutions to certain classes of NBFCs under section 117(3)(g)

(v). insertion of suitable provisions in the Section 135(1), which would enable the Central Government to enhance such limits by way of rules.

(vi). enable the Central Government to prescribe classes of bodies corporate (including foreign companies) which would be exempt from applicability of Chapter XXII

(vii). review of penalty for delay in filing the annual return/ financial statement (Sec. 454)

(viii). relaxation of provisions relating to payment of additional fees Under the third proviso to section 403(1)

(ix). new provision to be introduced to empower the Central Government to set up benches of NCLAT, through notification

(x). section 435 of the 2013 Act may be amended to exclude Section 452 from its ambit. The jurisdiction in such cases would be determined in accordance with the CrPC.

(xi). Central Government may consider notifying specialised benches for NCLTs and number of benches of NCLT should be increased substantially for matters under both the statutes, i.e. the 2013 Act as well as the IBC.

(xii). amendment in relevant provisions, including Section 149 and 197, to provide remuneration for non-executive directors.

(xiii). exemption for certain private placement requirements for qualified Institutional placements

(xiv). insertion of Part IXA of 1956 (Producer company) Act into the 2013 Act and Section 465 of the 2013 Act be suitably amended.

(xv). extending applicability of section 446B to producer companies and start-ups

(xvi). rationalisation of quantum of penalties in respect of six Sections (64(2), 92(5), 117(2), 137(3), 140(3), 165(6)) presently under the Adjudication Mechanism.

The report has been placed on the website of Ministry of Corporate Affairs for further public comments. The comments on the recommendations of the Committee along with justifications, in brief, may be sent latest by 25.11.2019.