Additional Disclosure Requirement to ROC- Outstanding money or loan received but not considered as deposit

The Ministry of Corporate Affairs issued a Notification prescribing certain amendments in the Companies (Acceptance of Deposits) Rules, 2014 which have been made effective from 22^nd January, 2019.  Pursuant to this amendment - one time return and yearly return in e-form DPT-3 is required to be filed with ROC giving details of outstanding receipt of money or loan received by a company but not considered as deposits.

The form DPT-3 (i.e. return of deposit) is also required to file for following purpose:

Purpose	For the Period	Applicability	Due Date
One time return for disclosure of details of outstanding money or loan received by a company but not considered as deposit in terms of rule 2(1)(c) of Chapter V	From 1st April, 2014 to 22nd January, 2019	Every company to which these rules apply, except Government Company	21st April, 2019
Annually - Return for disclosures of money or loan received by a company but not considered as deposits in terms of rule 2(l)(c) of Chapter V	Information as on the 31st day of March of that year	Every company to which these rules apply, except Government Company	On or before the 30th day of June, of every year

MCA Update

Ministry of Corporate Affairs (MCA) has issued notification u/s Section 405 of the Companies Act, 2013 and has amended various rules under Companies Act, 2013.  The Key highlights of the amendments are as follows:

1. Companies (Acceptance of Deposits) Amendment Rule, 2019

• Amount received by a Company from Real Estate Investment Trusts registered with the SEBI are also now excluded from the purview of definition of Deposit 
• Form DPT-3 is required to file for following purpose:

Purpose	For the Period	Applicability	Due Date
One time return for disclosure of details of outstanding money or loan received by a company but not considered as deposit in terms of rule 2(1)(c) of Chapter V	From 1st April, 2014 till the date of publication of notification in official gazette	Every company to which these rules apply, except Government Company	Within 90 days from the date of publication of notification in official gazette
Annually - Return for disclosures of money or loan received by a company but not considered as deposits in terms of rule 2(l)(c) of Chapter V	Information as on the 31st day of March of that year duly audited by auditor	Every company to which these rules apply, except Government Company	On or before the 30th day of June, of every year

      2. Companies (Prospectus and Allotment of Securities) Amendment Rules, 2019

• Rule 9A of chapter III which deals with Issue of Securities in demat form by unlisted public companies will not apply to 


• a Nidhi;
• a Government company or
• a wholly owned subsidiary

3. Specified Companies (Furnishing of information about payment to micro and  small enterprise suppliers) Order, 2019

• Every Specified company is required to file e-form MSME Form I providing details of  dues to MSME suppliers which are outstanding for more than 45 days in the following manner:
• Initial Return – Within thirty days from date of notification viz., 22 January, 2019 for all the dues existing as on 22 January 2019 
• Regular half yearly return-
• For the period April to September – by 31 October
• For the period October to March – by 30 April

• Specified Companies means all companies, who get supplies of goods or services from micro and small enterprises (MSME) and whose payments to MSME suppliers exceed 45 days from the date of acceptance or the date of deemed acceptance of the goods or services as per the provisions of section 9 of the MSME Development Act, 2006

4. NCLT Rules, 2019

• Rule 71 of NCLT Rule is amended which pertains to Application under proviso to Section 61(1) (b) i.e. the application for obtaining the approval of the tribunal for the consolidation and division of all or any of the share capital into shares of a larger amount than its existing shares which results in changes in the voting percentage of shareholders.

• Copy of documents prescribed in Rule 71 should be served to Regional Director instead of Central Government alongwith Registrar of Companies, SEBI in case of Listed companies and other regulators in case of the company is regulated under other Act

Notification can be downloaded from following links:

1. http://www.mca.gov.in/Ministry/pdf/AcceptanceDepositsAmendmentRule_22012019.pdf
2. http://egazette.nic.in/WriteReadData/2019/195752.pdf
3. http://www.mca.gov.in/Ministry/pdf/MSMESpecifiedCompanies_22012019.pdf
4.http://www.mca.gov.in/Ministry/pdf/NCLTAmendmentRules_18012019.pdf

Proposal for Buy Back of shares of  L&T not  approved by SEBI.

Maintaining of Debt Equity Ratio is one of the requirements under the Buy Back of securities. (Both as per Companies Act and as per the Buy Back  of  Securities . (Both as per Companies Act and as per Buy Back Regulations ).

The provisions as per SEBI and Companies Act are expressed below:

Chapter II Regulation 4 of SEBI (Buy – Back of Securities ) Regulations ,1988

Conditions and requirements for buy-back of shares and specified securities

The  ratio  of  the  aggregate  of  secured  and  unsecured  debts  owed  by  the company  after  buy-back  shall  not  be  more  than  twice  the  paid-up capital and free reserves.

Provided that  if  a  higher  ratio  of  the  debt  to  capital  and  free reserves for the  Company has been notified under the Companies Act, 2013, the same shall prevail.

One of the condition for buy-back u/s 68 (2) (d) of Companies Act, 2013 is that the :

The ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not more than twice the paid-up capital and its free reserves:

Provided that the Central Government may, by order, notify a higher ratio of the debt to capital and free reserves for a class or classes of companies;

Since each company has to maintain this threshold, probably it has to be ascertained based on companies debt equity (means standalone) and not on consolidated financials.

However ,recently SEBI has denied permission to Larsen & Toubro for its Rs.9000 Core share buy back offer.

Source : 

https://www.financialexpress.com/industry/sebi-nixes-lt-plan-for-rs-9000-crore-share-buyback/1449152/

While turning down the proposal, SEBI has reportedly applied the financial ratio based on the Consolidated Financial Statement of the Company which is not specified anywhere in buyback of securities regulations.

Hence , if the ratio of the aggregate of secured and unsecured debts owned by the company after buy-back (assuming full acceptance ) would be more than twice the paid up capital and free reserves of the company based on consolidated financial statements the buyback offer will be assumed not in compliance with the Companies Act  and SEBI norms.

We will track this further when and if we get official documents in this regards.

Hurdle for company incorporated after 2nd November for commencing business

The President of India has given his assent to the Re-promulgation of the Companies Amendment (Ordinance), 2019 on Friday 12 January 2019.

To amend the Companies Act, the government had first issued The Companies Amendment (Ordinance), 2018 on 2 November 2018 and the same would have ceased to be operational from 21 January 2019. The Lok Sabha passed the Bill on 4 January 2019. Since the Bill to make amendments to the Companies Act, 2013, is pending in the Rajya Sabha, the ordinance has been re-promulgated. The same shall have effect from 2 November 2018.

In the ordinance, an old provision similar to Commencement of business is reintroduced as section 10A. The section is applicable to the companies having share capital incorporated after 2 November 2018.

Pursuant to the Section 10A of the Companies Act, 2013, a Company cannot commence business and exercise borrowing power unless the declaration is filed with the Registrar within a period of 180 days from the date of incorporation in e-Form 20A to the effect that:

• Every subscriber has paid the value of shares as agreed; and
• The registered office is verified by filing a necessary return with the registrar i.e. e-Form INC-22

The Ministry of Corporate Affairs (MCA) has also amended the Companies (Incorporation) Rules on 18 December 2018 to give effect to said amendment. However, the e-form 20A is not yet available on MCA for filing purpose.  

Non- Availability of e-form is major setback against the ease of doing business in India. The Company cannot commence its business and even board cannot exercise borrowing power till the time form is filed with the registrar.  

Any Company incorporated after 2^nd November 2018 should take note of this compliance.  

Amendments in various SEBI Regulations

SEBI had, at its Board meeting held on 12th December 2018, approved certain amendments in certain SEBI Regulations. Accordingly, now SEBI has issued various Circulars and Notifications for amendments to the relevant SEBI Regulations.

In this newsletter, we have covered the amendments in the following Regulations:-

1. Amendment in Framework for Offer for Sale (OFS) of shares through Stock Exchange mechanism
2. Amendment in SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
3. Amendment in SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018

The details of these Amendments are as follows:-

1. Amendment in Framework for Offer for Sale (OFS) of shares through Stock Exchange mechanism – vide SEBI Circular dated 28^th December 2018:

SEBI had released comprehensive guidelines on Offer for Sale through stock exchange mechanism vide its Circular 18^th July 2012. There were certain amendments in these Guidelines vide SEBI’s Circulars dated 25^th January 2013, 30^th May 2013, 8^th August 2014, 12^th November 2014, 1^st December 2014, 26^th June 2015, 15^th February 2016 and 27^th June 2017. 

Now, SEBI has issued a Circular dated 28^th December 2018 for making following modifications / clarifications to the framework:-

1. Expansion of list of eligible companies: Till now, OFS mechanism was available to promoters and large shareholders of top 200 companies by market capitalization. Pursuant to SEBI Circular dated 28^th December 2018, now OFS mechanism shall be available for shareholders of companies with market capitalization of Rs.1000 crores and above, with the threshold of market capitalization computed as the average daily market capitalization for six months prior to the month in which the OFS opens
2. Cancellation of OFS: SEBI had vide its Circular dated 15^th February 2016, introduced certain conditions for cancellation of OFS. SEBI has tried to clarify the condition as follows:

If the seller fails to get sufficient demand from non-retail investors at or above the floor price on T day, then the seller may choose to cancel the offer, post bidding, in full (both retail and non-retail) on T day and not proceed with offer to retail investors on T+1 day.

The copy of the SEBI Circular dated 28^th December 2018 in this regard is available on following link:\

https://www.sebi.gov.in/legal/circulars/dec-2018/review-of-offer-for-sale-of-shares-through-stock-exchange-mechanism_41460.html

2. Amendment in SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2014 [“SEBI (SAST) Regulations”]– vide SEBI Notification dated 31^st December 2018:


Under Regulation 29(4) of SEBI (SAST) Regulations, any shares of any listed entity taken by any person / entity by way of encumbrance are treated as Acquisition of shares and shares given upon release of encumbrance are treated as a Disposal of shares under these Regulations. Such acquisition and disposal of shares are to be disclosed by the pledgee to stock exchanges where the entity is listed, within 2 working days from the date of acquisition or disposal, as the case may be.

Till now, such disclosure requirement was not applicable to a scheduled commercial bank or public financial institution as pledgee in connection with a pledge of shares for securing indebtedness in the ordinary course of business.

Now, SEBI has, vide its notification dated 31^st December 2018, amended Regulation 29(4), pursuant to which extended the aforesaid exception to the disclosure requirement is now also applicable to

o  Housing Finance Companies (HFCs), and

o  Systemically Important Non-banking Financial Companies (NBFCs).


   Pursuant to the amendment, shares taken by way of encumbrance or shares given upon release of encumbrance, by the said HFCs and Systemically Important NBFCs shall not be treated as acquisition or disposal, for the purpose of disclosure requirements under Regulation 29 of Takeover Regulations.

   The copy of the SEBI Notification dated 31^st December 2018 for amendment to SEBI (SAST) Regulations, 2011 in this regard is available on following link:

https://www.sebi.gov.in/legal/regulations/dec-2018/securities-and-exchange-board-of-india-substantial-acquisition-of-shares-and-takeovers-third-amendment-regulations-2018_41533.html

  3. Amendment in SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018     [“SEBI (ICDR) Regulations”]– vide SEBI Notification dated 31^st December 2018:

(A) Amendment in Allocation in Net offer Category in case of public issue:

Under SEBI (ICDR) Regulations, one of the conditions of public issue is mentioned under Section 252 that the minimum offer to public shall be as per the provisions of Rule 19(2)(b) of the Securities Contracts (Regulations) Rules, 1957, i.e., minimum 25% of the post offer shareholding should be held by public category investors.

Further, Section 253 of the SEBI ICDR Regulations prescribe subscriber-wise category of allocation in the net offer which is as follows:-

The allocation in the net offer category shall be as follows:

a) not less than thirty five per cent. to retail individual investors;

b) not less than fifteen per cent. to non-institutional investors;

c) not more than fifty per cent. to qualified institutional buyers, five per cent. of which shall be allocated to mutual funds:

Provided that the unsubscribed portion in either of the categories specified in clauses (a) or (b) may be allocated to applicants in any other category:

Provided further that in addition to five per cent allocation available in terms of clause (c), mutual funds shall be eligible for allocation under the balance available for qualified institutional buyers.

Now, SEBI has, vide its notification dated 31^st December 2018, amended Regulation 253 by renumbering the same as Regulation 253(1) and inserting the following as  Regulation 253(2)

253 (2) In an issue made other than through the book building process, the allocation in the net offer category shall be made as follows:

(a) minimum fifty per cent. to retail individual investors; and

(b) remaining to:

1. individual applicants other than retail individual investors; and
2. other investors including corporate bodies or institutions, irrespective of the number of specified securities applied for;

Provided that the unsubscribed portion in either of the categories specified in clauses (a) or (b) may be allocated to applicants in the other category.

Further, the following Explanation which was mentioned in the earlier Regulation 253 has been deleted from Regulation 253(1) and mentioned in Regulation 253(2) as follows:-

Explanation - For the purpose of sub-regulation (2), if the retail individual investor category is entitled to more than fifty per cent. of the issue size on a proportionate basis, the retail individual investors shall be allocated that higher percentage.

(B)  Amendment in situations which require filing of fresh draft offer document with SEBI along with fees:

As per Regulation 25(6) read with Schedule XVI of SEBI (ICDR) Regulations, 2018, in case of any increase or decrease in estimated issue size by more than 20%, fresh filing of the offer document with SEBI was required for both Fresh Issue and Offer for Sale.

Now SEBI has, vide its notification dated 31^st December 2018, amended these situations requiring filing of fresh draft offer document with SEBI along with fees as follows:-

(i) In case of a fresh issue: any increase or decrease in estimated issue size by more than twenty per cent. of the estimated issue size; or

(ii) In case of an offer for sale: any increase or decrease in either the number of shares offered for sale or the estimated issue size, by more than fifty per cent.; or

(iii) In case of an issue comprising of both fresh issue and offer for sale: the respective limits as above shall apply.]

 The copy of the SEBI Notification dated 31^st December 2018 for amendment to SEBI (ICDR) Regulations, 2018 in this regard is available on following link:

https://www.sebi.gov.in/legal/regulations/dec-2018/securities-and-exchange-board-of-india-issue-of-capital-and-disclosure-requirements-amendment-regulations-2018_41538.html

Amendments in SEBI Insider Trading Regulations and SEBI(Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 2003

SEBI had constituted a Committee on Fair Market Conduct in August 2017 under the Chairmanship of Shri T.K. Viswanathan, Ex-Secretary General, Lok Sabha and Ex- Law Secretary.

This Committee was mandated to review the existing legal framework to deal with market abuse to ensure fair market conduct in the securities market. The Committee was also mandated to review the surveillance, investigation and enforcement mechanisms being undertaken by SEBI to make them more effective in protecting market integrity and the interest of investors from market abuse. The Committee had submitted its report to SEBI on August 08, 2018, which was placed on the SEBI website for public comments on Aug 09, 2018.

Thereafter, SEBI had, at its Board meeting held on 18^th September 2018, approved certain amendments to SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 2003 (hereinafter referred to as PFUTP Regulations) and SEBI(Prohibition of Insider Trading) Regulations, 2015.

Accordingly, now on 31^st December 2018, SEBI has issued Notifications for the amendment to these two Regulations. The analysis of amendments in these Regulations shall be circulated separately.

The copy of the SEBI Notification dated 31^st December 2018 for the amendment to SEBI (Prohibition of Insider Trading) Regulations, 2018 is available on the following link:

https://www.sebi.gov.in/legal/regulations/dec-2018/securities-and-exchange-board-of-india-prohibition-of-insider-trading-amendment-regulations-2018-dated-december-31-2018_41570.html

The copy of the SEBI Notification dated 31^st December 2018 for the amendment to SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 2003 is available on the following link:

https://www.sebi.gov.in/legal/regulations/dec-2018/securities-and-exchange-board-of-india-prohibition-of-fraudulent-and-unfair-trade-practices-relating-to-securities-market-amendment-regulations-2018-dated-december-31-2018_41569.html 

Due Date extended for FCRA return (Form FC- 4)

As per Rule 18(1) of Foreign Contribution (Regulation) Act 2010 [FCRA, 2010] read with rule 17 (1) of Foreign Contribution (Regulation) Rules 2011, every person registered under FCRA, 2010 are required to submit electronically online their Annual return in form FC-4 every financial year within nine months of the closure of financial year i.e. for FY 2017-2018 latest by 31.12.2018.

The last date of filing Annual Return in Form FC-4 for FY 2017-2018 has been extended from 31.12.2018 to 31.3.2019

Are you reckoning limit of Auditorship …… consider Private companies’ compliance

As per section 141(3)(g) of Companies Act, 2013 (the Act) person shall not be eligible for appointment as an auditor of a company, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies.

Ministry of Corporate Affairs (MCA) vide notification dated 5 June 2015 (original notification) has given several exemptions to Private Companies. One of the exemption is granted u/s  141 of the Act which states that One Person Companies (OPCs), Dormant Companies, Small companies, and Private Companies having paid up share capital less than 100 crore rupees will not be included while counting limit of 20 companies as in section 141(3)(g) of the Act.

MCA has issued another notification dated 13 June 2017 amending the original notification. Pursuant to this amendment, exemption given to private companies can be availed only by the Companies which have not committed default in filing its financial statements or annual return with the Registrar. Hence, if the company has not filed financials statements u/s 137 of the Act OR Annual Return u/s 92 of the Act within the stipulated time, all the exemptions given by MCA shall stand withdrawn.

If the private company has made a default in filing financial statement viz., AOC-4/AOC-XBRL/ACO- CFS or Annual Return i.e., MGT-7 within the stipulated time, in that case the defaulting  company will be included/considered  while counting the limit of 20 companies for auditor as prescribed in Section 141(3(g) of the Act.

Therefore, the auditor should take immense care while reckoning limit of auditorship of 20 companies.

Revised ECB Regulations

Reserve Bank of India (RBI) on 17 December 2018 had introduced new regulation namely Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 for borrowing and lending between a person resident in India and a person resident outside India. The said regulation supersedes following regulations:

· Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000

·  Foreign Exchange Management (Borrowing And Lending In Rupees) Regulations, 2000

·  Regulation 21 of Foreign Exchange Management (Borrowing And Lending In Rupees) Regulations, 2000 i.e. pertaining to Foreign Currency Convertible Bonds (FCCBs)

The glimpse of the amendments pertaining to External Commercial Borrowing (ECB) is mentioned below:

1.      Entities which can receive ECB 

i.      “Indian Entity” means a Company incorporated under the Companies Act, 2013, as amended from time to time, or a Limited Liability Partnership (LLPs) formed and registered in India under the Limited Liability Partnership Act, 2008

 ii.      Thus, Companies and LLPs are eligible to receive External Commercial Borrowing. 

2.      Currency: 

ECB can be availed in freely convertible foreign currency as well as in Indian Rupees or any other currency as specified by the Reserve Bank

3.      Form of ECB: 

 Forms as prescribed by RBI.  Certain hybrid instruments, such as optionally convertible debentures, presently covered under ECB, would be governed by specific hybrid instruments’ Regulations

4.      Eligible Borrower:

An entity eligible to receive FDI including start-ups will be recognized as the eligible borrower. Reserve Bank may specify any other entity/sector as the eligible borrower. Thus, Companies and LLPs eligible to receive FDI including start-ups can avail ECB 

5.      Lender:

a.       Resident of Financial Action Task Force (FATF) or International Organization of Securities  Commission’s (IOSCO) compliant country

b.      Multilateral and Regional Financial Institutions where India is a member country will also be considered as recognized lenders. RBI may specify any other lender/ set of lenders.

Resident includes both Company and individual. Thus, a Company which is an eligible borrower can even take the loan from its director/shareholder if the same is resident of FATF or IOSCO compliant country and subject to certain conditions 

6.      Minimum average Maturity: 

Minimum average maturity will be 3 years. RBI may specify different average   maturity for different parameters

7.      All in cost:

For foreign currency denominated ECB- 450 basis point over 6 months LIBOR or 450 basis point over benchmark for the respective currency.  

e.g. 4.5% (Basis point) + 2.87% (6 month Libor as on 28 December 2018) = 7.37

For INR denominated ECB - 450 basis points per annum over the prevailing yield of the Government of India securities of the corresponding maturity. RBI may specify different limits

e.g. 4.5% (Basis point) + 7.26% (10-Year Government Securities Par Yield as on 21 December 2018) = 11.76%

8. End Use:  

• Borrowed funds will not be used for:
• chit fund or Nidhi Company;
• Investment in capital market including margin trading and derivatives;
• Agricultural or plantation activities;
• Real estate activity or construction of farmhouses; and
• Trading in Transferable Development Rights (TDR)

9. Individual Limits on Borrowing:

For Startups - USD 3 million per financial year and for others - USD 750  million per financial year. RBI may prescribe different limits

10. Hedging:

      Not yet specified. RBI may stipulate hedging requirements.