Additional Requirement - KYC of Company

MCA vide notification dated 21^st February, 2019 amended Companies (Incorporation) Rules, 2014 (Rules).  The amended rules are effective from 25^th February, 2019.

The key highlights of the same are as under:

Applicability

Applicable to – Every Company incorporated on or before 31^st December, 2017, except following companies

• Under process of striking off/struck off
• under process of liquidation
• Dissolved
• Amalgamated

Following Companies are restricted from filing return:

The companies which have defaulted in filing financial statements and Annual return or both (i.e. AOC-4/AOC-4 XBRL and/or MGT-7) shall be restricted from filing e-Form ACTIVE.

However Companies under Management dispute and Registrar has recorded the same on the register can file such form.

Return Filing

Every company shall file the particulars of company and its registered office in e- form ACTIVE (INC-22A) (Active Company Tagging Identities and Verification) on or before 25^th April, 2019. The following particulars are required to be provided in the form:

• Latitude and Longitude details of Registered Office of the Company
• E-mail ID of Company and verification by OTP
• Details of Statutory Auditor and Cost Auditor
• Details of Directors and KMPs of the company
• Details of Annual filing for F.Y.- 2017-18
• Photograph of Registered Office (both Exterior and Interior) along with KMP/Director who is affixing DSC

Consequences of non- filing

If the company does not file e- Form ACTIVE, the said company will face following consequences 

• Company will be marked as ACTIVE – Non compliant
• Company will be liable for action under Sec. 12(9) i.e. physical verification of registered office of the company by ROC
• The ACTIVE-Non Compliant companies won’t be able to file following forms:
• SH-7 (Change in Authorised Capital)
• PAS-3 (Change in paid up capiital)
• DIR-12 (Change in Director except cessation)
• INC-22 (Change in Regd. office)
• INC-28 (Amalgamation/Demerger) 

Late filing Fees

 If a company files e- Form ACTIVE on or after 26^th April, 2019, the late filing fees will be ₹ 10,000. There are no filing fees for e- form ACTIVE filed on or before 25^th April, 2019.

Only Registered Valuer can do Valuation from 1st February, 2019 onwards…

The Companies (Registered Valuers and Valuation) Rules, 2017 (the rules) were notified on 18^th October, 2017

The valuation rules provides for the transitional period which has ended on 31^st January, 2019. Hence, from 1^st February, 2019 onwards the valuation report under the Companies Act, 2013 is required from the registered valuer.

The Registered valuer means a person registered with the IBBI in accordance with the rules prescribed.

As the transition period [1]is ended, entities listed as Registered Valuers with the Insolvency and Bankruptcy Board of India (IBBI) can carry out valuation required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other assets or net worth of a company or its liabilities under the provision of Companies Act, 2013 as well as under Insolvency and Bankruptcy Code

However, in case company has appointed any valuer before 31^st January, 2019 and the valuation has not been completed before such date, the valuer shall complete such valuation within 3 months i.e. by 30^th April, 2019.

Provisions under the Companies Act, 2013 which requires valuation report from a registered valuer are as follows:

Sr. No.	Provision of Companies Act, 2013	Particulars
1.	Section 42 read with rule 14 of Chapter III	For issue of securities through Private placement of securities
2.	Section 54 read with rule 8 of Chapter IV	For issue of Sweat Equity shares
3.	Section 62 read with rule 13 of Chapter IV	For issue of shares on Preferential Allotment
4.	Section 73 read with Rule 2(1)(c)(ix)	Valuation of assets to determine their market value to check whether the amount of secured debentures with a charge on the company exceeds such market value.
5.	Section 192(2)	For valuing assets involved in arrangement of non-cash transactions involving directors
6.	230(2)(c)(v)	Valuation report in respect of the shares and the property and all assets, tangible and intangible, movable and immovable, of the company under the scheme of Corporate debt Restructuring
7.	230(3) & 232(2)(d)	In case of a compromise or arrangement between members or with creditors, a valuation report in respect of shares, property or assets, tangible and intangible, movable and immovable of the company, or a swap ratio report
8.	232(2)(h)	Under the scheme of Compromise/ Arrangement in case the Transferor company is Listed Company and the Transferee- company is an unlisted Company - Valuation report is required to be made by the tribunal for exit opportunity to the shareholders of transferor Company –
9.	236(2)	For valuing equity shares held by Minority Shareholders
10.	281(1)(a)	For valuing assets for submission of report by Company liquidator
11.	305(2)(d)	For report on the assets of the Company for preparation of declaration of solvency under voluntary winding up
12.	319(3)(b)	For valuing the interest of any dissenting members of the transferor company in case of liquidation

 

Under Insolvency Code and Insolvency and Bankruptcy Board of India Regulations, 2016

Sr. No.	Provision of The Insolvency And Bankruptcy Code, 2016	Particulars
1.	Regulation 27 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016	Resolution professional shall appoint two registered valuers to determine the fair value and the liquidation value of the corporate debtor in accordance with Regulation 35
2.	Regulation 35 of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016	In cases not covered under Reg 35 (1), the liquidator shall appoint two registered valuers to determine the realizable value of the assets or businesses under clauses (a) to (f) of regulation 32 of the corporate debtor
3.	Regulation 26 and Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017	The interim resolution professional appoint one registered valuer to determine the liquidation value of the corporate debtor in accordance with Regulation 34
4.	Section 59 read with regulation 3 of Insolvency And Bankruptcy Board Of India (Voluntary Liquidation Process) Regulations, 2017	In case of voluntary liquidation proceedings Corporate Debtor have to file a report of the valuation of the assets of the company prepared by a registered valuer

Conclusion:

Where a valuation is required to be made in respect of any property, stock, shares, debentures, securities or goodwill or any other assets or net worth of the company or liabilities under the provision of Companies Act, 2013, the valuation shall be made by Registered valuer appointed by audit committee or Board of directors of the company as the case may be. 

---

[1] Rule 11 of the Companies (Registered Valuers and Valuation) Rules, 2017

Investment by Foreign Portfolio Investors (FPI) in Debt

Reserve Bank of India (RBI) vide RBI/2018-19/123 A.P. (DIR Series) Circular No. 19 dated 15th February 2019 have made an amendment relating to the investment by Foreign Portfolio Investors (FPI) in Debt.

As per RBI/2017-18/199 A.P. (DIR Series) Circular No. 31 dated June 15, 2018, FPI investment in corporate bonds (under Schedule 5 of FEMA 20(R)/ 2017-RB) shall be subject to the following requirements:

1.  Investment by any FPI, including investments by related FPIs, shall not exceed 50% of any issue of a corporate bond. In case an FPI, including related FPIs, has invested in more than 50% of any single issue, it shall not make further investments in that issue until this stipulation is met.
2. No FPI shall have an exposure of more than 20% of its corporate bond portfolio to a single corporate (including exposure to entities related to the corporate).

RBI has decided to withdraw the point (ii) stated above i.e., limit of FPI investment of 20% of its corporate bond portfolio to a single corporate with effect from 15th February 2019 to encourage a wider spectrum of investors to access the Indian corporate debt market.

Amendment in Companies (Significant Beneficial Owners) Rules, 2018 Rules

The Ministry of Corporate Affairs (MCA) has amended the Companies (Significant Beneficial Owners) Rules, 2018 vide notification dated 8 Feb, 2019. The highlights of the same are as follows:

1. Significant Beneficial Owner:  The definition of Significant Beneficial Owner (SBO) has been made clear so as to avoid confusions of earlier definition. Pursuant to the revised definition, SBO in relation to a reporting company [1] means an individual referred to in section 90(1) of the Companies Act, 2013,  who acting alone or together or through one or more persons or trust possess the following rights/entitlements in reporting company

• Holds indirectly or together with direct holding 10 % or more shares/voting rights
• Right to receive or participate in distributable dividend  or other distributable – 10% or more in a financial year  indirectly or together with direct holding
• Exercises or has Right to exercise significant influence [2] or control in any manner other than direct holdings alone

2. Holding a right or entitlement indirectly:  An individual shall be considered to hold a right or entitlement indirectly in the reporting company, if the individual satisfies any of the following criteria if the member in the reporting is :

Sr. No	Type of Member of the Reporting entity	Which individual shall be said to be holding a right or entitlement indirectly (i.e., who will be considered as SBO)?
1.	Member is an Indian or foreign body corporate (other than LLP)	Such individual (acting together[3]  with any other individuals) who (a) holds majority stake [4]  in that member; or (b) holds majority stake (as explained in footnote) in the ultimate holding company (whether incorporated or registered in India or abroad) of that member; shall be said to have indirect holding in reporting Company.
2.	Member is an Hindu Undivided Family	Karta of such HUF
3.	Member is an partnership firm or Limited Liability Partnership (LLP)	·   Each Individual Partner (irrespective of his % of contribution or % of voting rights or profit sharing ratio) ·     In case of bodies corporate partner - such individual (acting together  with any other individuals) who (a) holds majority stake  (as explained in footnote above in that partner body corporate; or (b) holds majority stake (as explained in footnote above) in the ultimate holding company of that partner body corporate
4.	Member is a Trust	·   In case of Discretionary Trust or charitable Trust – all the Trustees · In case of Specific Trust – all the Beneficiaries ·    In case of revocable Trust – the author or the settlor
5.	Member is a pooled investment vehicle OR an entity controlled by the pooled investment vehicle and those which are based in member State of the Financial Action Task Force on Money Laundering and the regulator of the securities market in such member State is a member of the International Organization of Securities Commissions, and the individual in relation to the pooled investment vehicle.	·     a general partner; or ·     an investment manager; or · a Chief Executive Officer where the investment manager of such pooled vehicle is a body corporate or a partnership entity
6.	Member is a pooled investment vehicle OR an entity controlled by the pooled investment vehicle based in a jurisdiction which doesn’t fulfill the requirements referred to point 5(supra)	The requirements of points 1/2/3/4 as the case may be shall apply

3. Individual not considered as SBO: If the individual is not having right/entitlement as mentioned in point(1), he will not be considered SBO

4. Holding a right or entitlement Directly: In case if the individual holds direct right/entitlement or if the individual beneficial interest in the share u/s 89(2) and the declaration has been made, than the individual is out of the purview of SBO

5. Instruments to be considered - For the purposes of SBO, the instruments in the form of global depository receipts, compulsorily convertible preference shares or compulsorily convertible debentures shall be treated as 'shares'.

Exemptions from the compliance requirements under SBO Rules

The disclosure requirements under SBO Rules shall not be applicable with respect to the shares of the reporting company held by,

1. IEPF Authority constituted under section 125(5) of the Companies Act, 2013;
2. Holding reporting company - The details of such holding reporting company shall be reported in Form No. BEN-2.
3. the Central Government, State Government or any local Authority;
4.   (i) a reporting company, or (ii) a body corporate, or (iii) an entity,controlled by the Central Government or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments;
5.  SEBI registered Investment Vehicles such as mutual funds, alternative investment funds (AIF), Real Estate Investment Trusts (REITs), Infrastructure Investment Trust (lnVITs) regulated by SEBI,
6. Investment Vehicles regulated by RBI, or IRDA, or Pension Fund Regulatory and Development Authority

Reporting Requirements: 

1. Disclosure to be made by SBO in form BEN-1 to the reporting company within 90 days from 8 Feb, 2019 i.e., by 9 May, 2019 
2. The Reporting Company is required to file a return with registrar in e- Form BEN- 2 i.e., by 8 June 2019
3. In case of change disclosure is to be made within 30 days and return is to be filed in with registrar for change therein within 30 days. 
4. Reporting Company to maintain a register of the interest declared and any changes therein in Form BEN - 3                   

---

[1] Reporting Company is defined in Rule 2(f) of the SBO Rules to mean a company as defined in clause (20) of section 2 of the Act, required to comply with the requirements of section 90 of the Act

[2] Significant influence is defined in rule 2(i) to mean the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company but is not control or joint control of those policies

[3] As per Explanation V to Rule 2(h) of SBO Rules, individuals shall be deemed to be “acting together” if such individual or individuals acting through any person or trust, act with a common intent or purpose of exercising any rights or entitlements, or exercising control or significant influence, over a reporting company, pursuant to an agreement or understanding, formal or informal.

[4] "Majority Stake" is defined in Rule 2(d) of SBO Rules to mean

(i) holding more than one-half of the equity share capital in the body corporate; or

(ii) holding more than one-half of the voting rights in the body corporate; or

(iii) having the right to receive or participate in more than one-half of the distributable dividend or any other distribution by the body corporate

Informal Guidance issued in case of Jindal Steel & Power Limited

SEBI has issued Informal Guidance to Jindal Steel and Power Limited (hereinafter referred to JSPL) and released on SEBI website on January 28, 2019 clarifying the lock-in related provisions in case of preferential issue of convertible warrants under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 [“SEBI (ICDR) Regulations 2009”], which have been replaced with SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 [“SEBI (ICDR) Regulations 2018”] now.

Facts of the case:

• Whenever any Company whose equity shares are listed on a recognised stock exchange, issues any new equity shares or any securities which are convertible into equity shares in future, it needs to comply with the Chapter on “Preferential Issue” under SEBI (ICDR) Regulations.
  
  

• Many Companies whose equity shares are listed on recognised stock exchange issue share warrants, which are generally unlisted securities. Under SEBI (ICDR) Regulations, these unlisted share warrants must be mandatorily converted into equity shares within a period of 18 months from the date of allotment of warrants, and thereafter the resultant equity shares will be listed on the same recognised stock exchange where existing equity shares are listed, and such stock exchange given Trading Approval for the new shares, post which those can be traded on such stock exchange. 

• One of the provisions under this Chapter on “Preferential Issue of shares” under SEBI (ICDR) Regulations is regarding Lock-in of existing equity shares as well as new securities being issued to the allottees. As per the provisions of Regulation 78(6) of the SEBI (ICDR) Regulations, 2009 [erstwhile Regulations], the entire pre-preferential allotment shareholding of the allottees, if any, was to be locked-in from the relevant date upto a period of 6 months from the date of trading approval.  

•        In these earlier SEBI ICDR Regulations, 2009, in cases of preferential allotment of convertible warrants (where such warrants are not proposed to be listed), it was not clear about what should be the end date of lock-in of existing pre-preferential allotment shareholding of the allottees, if any, i.e., whether it should be locked in till 6 months from the date on which these warrants are converted into equity shares, and then they get listed and get trading approval of shares? [In such cases, if the warrants are converted in the 18^th month from the date of their allotment, then the existing pre-preferential allotment shareholding of the allottee gets locked-in for about a period of 2 years or so] 
  
  

• Hence, certain companies like Kesoram Industries Limited, PC Jewellers Limited, Balasore Alloys Limited had approached SEBI for seeking its Informal Guidance with regard to the periodicity of lock-in in such cases. SEBI had clarified them, by way of Informal Guidance, that in case of allotment of convertible share warrants, which are not proposed to be listed till the get converted into equity shares, the existing pre-preferential allotment shareholding of the allottees, if any, need to be locked-in only till the completion of 6 months from the date of allotment of these warrants.

•  Now, under SEBI (ICDR) Regulations, 2018, the earlier Regulation 78(6) is numbered as Regulation 167(6). In this Regulation, they have corrected this ambiguity by inserting an additional provision stating that, in case of preferential allotment of convertible warrants (where such warrants are not proposed to be listed), the pre-preferential allotment shareholding of the allottees, if any, shall be locked in from relevant date upto a period of 6 months from the date of allotment of such securities.

• Jindal steel and Power Limited (hereinafter referred as “Jindal”) is a Company listed on National Stock Exchange and Bombay Stock Exchange Limited which had approached SEBI for an Informal Guidance in this regard.

• Jindal had issued 4,80,00,000 warrants to one Opelina Finance and Investment Limited (“Opelina”), which is one of the promoter/promoter group entity of Jindal, on Preferential basis under the provisions of Chapter VII, i.e., “Preferential Issue” under the SEBI (ICDR) Regulations, 2009 on November 10, 2017.

• Warrants allotted to Opelina are unlisted and are convertible into equity shares of the Company at any time before the expiry of 18 months from the date of issue of the Warrants i.e., by May 09, 2019.  

• In view of the ambiguity in end-date of lock-in in case of preferential issue of share warrants (as explained above), Jindal had ensured that the entire pre-preferential allotment shareholding of Opeline is locked-in upto November 30, 2019 (i.e. assuming that the warrants are converted into equity shares on May 9, 2019, and trading approval for the equity shares will be received by May 31, 2019, the 6 months period from the date of trading approval will end on November 30, 2019)

Case / Query:

(1) What shall be the periodicity of Lock–in of pre –preferential allotment shareholding of the allottee in this case, i.e., since the preferential allotment was done under the erstwhile SEBI (ICDR) Regulations, 2009, whether the clarifying provision inserted in the new SEBI (ICDR) Regulations, 2018 be applicable to the preferential issues done prior to the date of enactment of SEBI (ICDR) Regulations, 2018?

(2) Whether the pre-preferential holding of the promoters locked-in for a longer period (as mentioned above) be released after completion of period of 6 months from the date of allotment of warrants, in accordance the above mentioned proviso inserted in Regulation 167(6) and as per the Informal Guidance issued by SEBI to other Companies?

Reply by SEBI: 

1. For the First case / query, i.e., applicability of the new Provision inserted in SEBI (ICDR) Regulations, 2018 for the preferential issue already done under the erstwhile SEBI (ICDR) Regulations, 2018, SEBI has clarified as follows:-

Regulation 78(6) of the ICDR Regulations, 2009 states:

The entire pre-preferential allotment shareholding of the allottees, if any, shall be locked-in from the relevant date upto a period of six months from the date of trading approval.

However, taking the same view as was taken while giving Informal Guidances to the other Companies (mentioned above), SEBI has informed that in case of preferential issue of unlisted convertible share warrants (which are not proposed to be listed), the lock-in period shall commence from the relevant date and end on the expiry of six months from the date of allotment of warrants.

2. For the second case / query, i.e., whether the pre-preferential allotment shareholding of the allottees locked-in for a longer period be released after the completion of 6 months from the date of allotment of warrants, SEBI has only re-iterated that since the warrants were issued on November 10, 2017, pre-preferential allotment shareholding of the allottees shall be locked-in from the relevant date upto a period of six months from the date of allotment of warrants.