Procedure and formats issued by SEBI for conducting limited review of all entities considered for Consolidation on quarterly basis

The Securities and Exchange Board of India (SEBI) had vide notification dated 9^th May 2018 amended various provisions of SEBI (LODR) Regulations, 2015 (which were recommended by Kotak Committee earlier). Two of these amendments were the amendment to Regulation 33(3)(b) and insertion of Regulation 33(8) which was effective from 1^st April 2019.

The wordings of these amended Regulations are as follows:-

33(3)(b) In case the listed entity has subsidiaries, in addition to the requirement at clause (a) of sub-regulation (3), the listed entity shall also submit quarterly/year-to-date consolidated financial results.

33(8) “The Statutory auditor of a listed entity shall undertake a limited review of the audit of all the entities/companies whose accounts are to be consolidated with the listed entity as per AS 21 in accordance with guidelines issued by the Board on this matter”.

Prior to this amendment (till the end of financial year 2018-19), the SEBI (LODR) Regulations, 2015 as well as Section 129(3) of the Companies Act, 2013 only mandated the requirement of consolidation of accounts on an annual basis.

As per the amendment to Regulation 33(3)(b) of SEBI (LODR) Regulations, which is effective from 1^st April 2019, i.e., with effect the quarter ending 30^th June 2019, all listed companies having subsidiaries need to prepare and submit consolidated financial results on a quarterly basis.

Further, as per the requirement of newly inserted Regulation 33(8) of SEBI (LODR) Regulations, the Statutory auditor of listed entity needs to undertake a limited review of the audit of all the entities/companies whose accounts are to be consolidated with the listed entity, and it needs to be done with effect from the quarter ending on 30^th June 2019.

For this purpose, SEBI has issued a Circular dated 29^th March 2019, for prescribing the following:-

• Procedure to be followed by Statutory Auditors of Listed entities for conducting limited review of all entities considered for consolidation as per Regulation 33(8).
• Revision in formats of Standalone & Consolidated Limited Review Reports– to be submitted with unaudited financial results
• Revision in formats of Standalone & Consolidated Audit Reports – to be submitted with audited financial results

 A copy of SEBI Circular dated 29^th March 2019 is available on following link:-

https://www.sebi.gov.in/legal/circulars/mar-2019/procedure-and-formats-for-limited-review-audit-report-of-the-listed-entity-and-those-entities-whose-accounts-are-to-be-consolidated-with-the-listed-entity_42537.html

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Highlights of SEBI’s Board meeting Minutes dated on 27th March 2019

The Securities and Exchange Board of India (SEBI) had its Board meeting on 27^th March 2019 wherein following decision was approved:-

1. Amendments to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI (LODR) Regulations, 2015”)  - payment relating to royalty and brand usage:-

SEBI had vide notification dated 9^th May 2018 amended various provisions of SEBI (LODR) Regulations, 2015 (which were recommended by Kotak Committee earlier). One of these amendments was the insertion of Regulation 23(1A) which was effective from 1^st April 2019.

The wordings of Regulation 23(1A) are as follows:-

23(1A) - Notwithstanding the above, a transaction involving payments made to a related party with respect to brand usage or royalty shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceed two percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity

As per Regulation 23(4) of SEBI (LODR) Regulations, 2015, all material related party transactions shall require approval of the shareholders through resolution and no related party shall vote to approve such resolutions whether the entity is a related party to the particular transaction or not

In this regard, various representations were received by SEBI and with a view to analyzing them, SEBI has decided to defer the implementation of this provision for three months i.e. till June 30, 2019.

2. Consultation Paper on Self Regulatory Organizations in Securities Market

SEBI approved the proposal for undertaking a public consultation process to amend the SEBI (Self-Regulatory Organizations) Regulations, 2004 with an objective of defining SRO, rationalising the process of recognition and strengthening the role of Self-Regulatory Organizations in the securities market.

A copy of the Press Release issued by SEBI is available on the following Link:-

https://www.sebi.gov.in/media/press-releases/mar-2019/sebi-board-meeting_42501.html

Clarification issued by SEBI regarding transfer of shares in physical mode

The Securities and Exchange Board of India (SEBI) had its Board meeting held last year, on 28^th March 2018 decided that except in case of transmission or transposition of securities, requests for effecting transfer of securities shall not be processed unless the securities are held in dematerialized form with a depository.

In this regard, SEBI had amended Regulation 40 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI (LODR) Regulations, 2015”) vide an Amendment dated 8^th June 2018 by insertion of a proviso to this effect. This Amendment was effective from 180^th day of the date of notification of that amendment, i.e., with effect from 5^th December 2018.

Thereafter, due to various representations received from shareholders of various listed companies, SEBI had again issued another Notification for making this proviso to Regulation 40 of SEBI (LODR) Regulations, 2015 effective from 1^st April 2019.

Subsequently, SEBI had again received representations from various shareholders for extension of the date of compliance. In view of the same, SEBI has vide a Press Release dated 27^th March 2019 clarified the following:

1. The above decision does not prohibit the investor from holding the shares in physical form; investor has the option of holding shares in physical form even after April 01, 2019.

2. Any investor who is desirous of transferring shares (which are held in physical form) after April 01, 2019 can do so only after the shares a dematerialized.

3. The transfer deed(s) once lodged prior to deadline and returned due to deficiency in the document may be re-lodged for transfer even after the deadline of April 01, 2019.

The above decision of SEBI is not applicable for demat of shares, transmission (i.e. transfer of title of shares by way of inheritance / succession) and transposition (i.e. re-arrangement / interchanging of the order of name of shareholders) cases.

A copy of the Press Release issued by SEBI is available on following Link:-

https://www.sebi.gov.in/media/press-releases/mar-2019/transfer-of-securities-held-in-physical-mode-clarification_42503.html

Establishment of Branch Office (BO) / Liaison Office (LO) / Project Office (PO) or any other place of business in India by foreign entities

Reserve Bank of India (RBI) vide RBI/2018-19/154 A.P. (DIR Series) Circular No. 27 [1]dated March 28, 2019 have amended the opening of a Branch Office (BO) / Liaison Office (LO) / Project Office (PO) or any other place of business in India provisions for applicants falling under Defence, Telecom, Private Security and Information and Broadcasting sector.

Extant Regulation	Revised Regulation
Prior approval of the Reserve Bank of India, for opening of a BO / LO / PO or any other place of business in India, where the principal business of the applicant falls in the Defence, Telecom, Private Security and Information and Broadcasting sector	No prior approval of the Reserve Bank of India shall be required if Government approval or license/permission by the concerned Ministry/ Regulator has already been granted for opening of a BO/LO/PO or any other place of business in India, where the principal business of the applicant falls in the Defence, Telecom, Private Security and Information and Broadcasting sector. For the above point, it is clarified that the term “permission” used in the Notification does not include general permission, if any, available under Foreign Direct Investment in the automatic route, in respect of the above four sectors i.e., Defence Sector, Telecom Sector, Private Security Sector and Information and Broadcasting Sector.
Proposal for opening a PO relating to defence sector, no separate reference or approval of Government of India shall be required if the said non-resident applicant has been awarded a contract by/entered into an agreement with the Ministry of Defence or Service Headquarters or Defence Public Sector Undertakings.	Same as in extant Regulation.

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[1] https://rbidocs.rbi.org.in/rdocs/notification/PDFs/APDIR27763286B8263F49EBBBE59065635213F9.PDF

Have you constituted Internal Committee in Compliance with POSH?

Every employer of workplaces  that have 10 employees or more are required to constitute an Internal  Committee (“IC”), as per the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (POSH) to hear and redress grievances pertaining to sexual harassment. Further, if the offices or administrative units of the workplace are located at different places or divisional or sub-divisional level, the IC shall have to be constituted at all administrative units or offices.

If a workplace has less than 10 employees, then it need not form an IC.  All complaints in those cases will go to the local complaints committee (LCC) set up as per POSH by district officers of each district. Also, in a case where a complaint has to be filed against the employer himself, the local complaints committee has to be approached.

Members of the Internal Committee: The Committee shall consist of the following:

1.    A presiding officer – who will have to be a woman at a senior level in the office

2.    Two members from the amongst employees preferably committed to the cause of women or who has experience in social work or have legal knowledge

3.    One member from an NGO or association committed to the cause of women or person familiar with issues relating to sexual harassment.

Not less than half of the IC Members shall be women.

Powers of the Internal Committee: The POSH provides that while inquiring into a complaint of workplace sexual harassment, the IC have the same powers as vested in a civil court under the Code of Civil Procedure, 1908 when trying a suit in respect of:

1.    summoning and enforcing the attendance of any person and examining him on oath;

2.    requiring the discovery and production of documents; and

3.    any other matter which may be prescribed.

Trade Credit Policy- Revised Framework

Reserve Bank of India (RBI) vide RBI/2018-2019/140 A.P. (DIR Series) Circular No. 23 dated March 13, 2019 have introduced revised framework for Trade Credit Policy .The amended Trade Credit policy will come into force with immediate effect. 

Meaning of Trade Credit (TC) - It refer to the credits extended by the overseas supplier, bank, financial institution and other permitted recognised lenders for maturity for imports of capital/non-capital goods permissible under the Foreign Trade Policy of the Government of India. TCs include suppliers’ credit and buyers’ credit from recognised lenders.

Highlights of the revised framework:

Parameters	FCY denominated TC	INR denominated TC
Forms of TC	Buyers’ Credit Suppliers’ Credit	Same as FCY denominated TC
Eligible borrower	Person resident in India acting as an importer	Same as FCY denominated TC
Amount under Automatic route	For oil/gas refining & marketing, airline and shipping companies - Up to USD 150 million or equivalent per import transaction.  For others, up to USD 50 million or equivalent per import transaction.	Same as FCY denominated TC
Recognised lenders	For suppliers’ credit: Supplier of goods located outside India.  For buyers’ credit: Banks, financial institutions, foreign equity holder(s) located outside India and financial institutions in International Financial Services Centres located in India.	Same as FCY denominated TC
Period of TC	For import of capital goods-The period of TC, reckoned from the date of shipment, shall be up to three years. For non-capital goods, this period shall be up to one year or the operating cycle whichever is less. For shipyards / shipbuilders, the period of TC for import of non-capital goods can be up to three years.	Same as FCY denominated TC
All-in-cost ceiling per annum	Benchmark rate plus 250 bps spread.	Same as FCY denominated TC
Exchange rate	Exchange rate shall be the rate prevailing on the date of the agreement between the parties concerned for such change or at an exchange rate, which is less than the rate prevailing on the date of agreement, if consented to by the TC lender	Exchange rate shall be the rate prevailing on the date of settlement.
Hedging provision	Entities raising TC are required to follow the guidelines for hedging, if any, issued by the concerned sectoral or prudential regulator in respect of foreign currency exposure. Entities shall have a board approved risk management policy.	Entities can hedge the exposure in Rupee through permitted derivative products with AD Category I banks in India. The investors can also access the domestic market through branches / subsidiaries of Indian banks abroad or branches of foreign banks with Indian presence on a back to back basis.
Change of currency of borrowing	Change of currency is freely permitted	Change of currency is not permitted.

Have you charged interest on Loan given to employees?

The provisions of section 186 of the Companies Act 2013(the Act) apply to giving loan/guarantee/security by the Company to any person.

Section 186 of the Act prescribes certain conditions to be complied with while giving loans/guarantee/security.

Pursuant to Section 186(2) of the Act, the amount given by way of loan/guarantee/security should not exceed the following limits:

• 60% of its paid-up share capital plus free reserves plus securities premium account; or
• 100% of its free reserves plus securities premium account

Pursuant to the Companies Amendment Act, 2017, an explanation is inserted in this subsection which states that “person" does not include any individual who is in the employment of the company for this sub-section.  It means that, loan given to employees should not be considered while calculating aforesaid limits. The company is required to comply with other requirements under section 186 of the Act with respect to a loan to employees as the employees will not be covered for the Sub-section (2) only.

One of the requirements under section 186(7) of the Act is that the Company is required to charge interest on the loan at the rate not less than the prevailing yield of one year, three years, five years or ten years Government Security closest to the tenor of the loan. And therefore, the Company while giving a loan to employees are also required to comply with this provision.

Although loan provided to employees will not be considered while calculating limits, the Company is required to comply with other conditions such as charging interest as per section 186(7) while giving loan to employees.

The violation of provisions of section 186 of the Act is non-compoundable offence.

Voluntary Retention Route’ (VRR) for Foreign Portfolio Investors (FPIs) investment in debt

Reserve Bank of India (RBI) vide RBI/2018-19/135 A.P. (DIR Series) Circular No. 21 dated March 01, 2019 in consultation with Securities and Exchange Board of India (SEBI), introduces a separate channel, called the ‘Voluntary Retention Route’ (VRR), to enable FPIs to invest in debt markets in India. These investments will be free of the macro-prudential and other regulatory norms applicable to FPI investments in debt markets, provided FPIs voluntarily commit to retain a required minimum percentage of their investments in India for a period.

The brief gist of VRR Scheme is highlighted below:

1.      Definitions

     Committed Portfolio Size (CPS), General Investment Limit, Related FPIs, Retention Period, Repo and Reverse Repo, VRR-Corp and VRR-Govt have been defined under the scheme.

2.      Eligible investors

Any FPI registered with SEBI is eligible to participate through this Route. Participation through this Route shall be voluntary.

3.      Eligible instruments

·  For VRR-Govt- Any Government Securities i.e., Central Government dated Securities (G-Secs), Treasury Bills (T-bills) and State Development Loans (SDLs).

·    For VRR-Corp- Any instrument listed under Schedule 5 of FEM (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 dated November 07, 2017, other than dated Government securities/ treasury bills and Units of domestic mutual funds.

·       Repo transactions and Reverse repo transactions 

4.     Features  

•   Investment through this Route shall be in addition to the General Investment Limit. 

•   Cap of Investment through this route for VRR-Govt is Rs.40,000 crore per annum and for VRR- Corp is Rs.35,000 crore per annum, or such higher amount, as may be decided by the Reserve Bank 

• The mode of allotment, allocation to VRR-Govt and VRR-Corp categories and the minimum retention period shall be announced by the Reserve Bank ahead of allotment.

• No FPI (including its related FPIs) shall be allotted an investment limit greater than 50% of the amount offered for each allotment by tap or auction in case there is a demand for more than 100% of amount offered.

• The minimum retention period shall be three years, or as decided by RBI for each allotment.

• FPIs shall invest the amount allocated, called the Committed Portfolio Size (CPS) in the relevant debt instruments and remain invested at all times during the voluntary retention period, subject to the certain  relaxations.

• The provisions for management of portfolio, other relaxations, hedging of exchange rate risk on account of investments made under the Voluntary Retention Route (VRR) have been provided in the circular

5.  The provisions for management of portfolio, other relaxations, hedging of exchange rate risk on account of investments made under the Voluntary Retention Route (VRR) have been provided in the circular[1].

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[1] https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT1351FEEE1395FD24E55842D4968AA7EF9AE.PDF

   

An another step towards ease of business and Make in India – Amendment in incorporation Rules

Ministry of Corporate Affairs vide notification dated 6  March 2019 has amended the Incorporation Rules. The key highlights of this amendment are as follows :

1.  No incorporation fees (ROC fees) on the incorporation of the company if the Authorised capital is up to Rs.15 lakhs. (earlier it was up to Rs. 10 lakhs). It means that ROC fees on e-form INC-32 Spice will be Nil if the authorized capital is up to Rs. 15 lakhs. This amendment is effective from 18 March 2019

2.  In case of shifting of Registered Office from one state to another, a newspaper advertisement is to be given which has wide circulation. (Earlier widest circulation). This is effective from 6 March 2019

Banning of Unregulated Deposit Schemes Ordinance, 2019

Ministry of Law and Justice has promulgated the Banning of Unregulated Deposit Schemes Ordinance, 2019 (Hereinafter referred as the Ordinance). The objective of this ordinance is to have a central legislation to tackle the menace of illicit deposits taking activities in the country.

This Ordinance, therefore, ensures a comprehensive ban on unregulated deposit taking activity and for its effective enforcement. It aims to prevent such unregulated deposit schemes or arrangements at their inception and at the same time makes soliciting, inviting or accepting deposits pursuant to an unregulated deposited scheme as a punishable offence. The said Ordinance also seeks to put in place a mechanism by which the depositors can be repaid without delay by attaching the assets of the defaulting establishments.

Key Highlights of Banning of Unregulated Deposit Schemes Ordinance, 2019

1. This ordinance is effective from 21 February 2019.
2. The Ordinance is applicable to all persons i.e. individuals, HUF, Private Trust (Registered or unregistered), Public Trust (Registered or unregistered), Company, society, Partnership Firm (Registered or unregistered), Proprietary Concern, LLP, association of persons…
3.  Pursuant to this ordinance following is banned:                                                                           The unregulated Deposit Scheme[1] in all forms  [Sec-3]
   Promotion or issue of any advertisement soliciting participation or enrolment in or accept deposits[2] in pursuance of an unregulated Deposit scheme.  [Sec-3]
   Any fraudulent default in the repayment or return of deposit on maturity or in rendering any specified service promised against deposit pursuant to a regulated Deposit scheme [Sec-4]
   making any statement promise or forecast which is false deceptive or misleading in material facts or deliberately concealing any material facts to induce another person in or become a member or participant of any unregulated deposit scheme [Sec-5]
   A prize chit or money circulation scheme banned under the provisions of the prize Chits and Money circulation scheme (Banning) Act, 1978 shall be deemed to be an unregulated deposit scheme [Sec-6]
4. The ban is not on taking deposit for personal use
5. The definition of Deposit as per Section 2(4) of the Ordinance has certain exclusions as provided above. If any money taken fits in those exclusions then it will not be considered as “deposit”. If it is not considered as “deposit” then there is no ban on accepting such money by any person.  
6. A Company and NBFC were always having the restrictions on acceptance of deposit as per their respective acts. Now, even LLPs, Individuals, HUFs, Firms etc. are also covered under the Ordinance.
7.  The Ordinance has given list of Regulated Deposit Schemes in the First Schedule under Column (3). [Refer Annexure 2]
8. The State Government shall appoint Competent Authority to monitor in each State/Union Territory [Section 7 of the Ordinance].
9. The Central Government may designate an authority which shall create, maintain and operate an online data base for information on deposit takers operating in India [Section 9(1) of the Ordinance].
10.  Every Deposit taker which commences or carries on its business as such on or after the commencement of this ordinance, shall intimate the authority referred to in Section 9(1) of the Ordinance in such form and manner as may be prescribed.
11.  Save as otherwise provided in SARFAESI[3] Act, 2002 and IBC, 2016[4], any amount due to depositors from deposit takers shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the appropriate Govt or local authority [Section 12 of the Ordinance].
12. Save as otherwise provided in SARFAESI Act, 2002 and IBC, 2016, any amount due to depositors from deposit takers, an order of provisional attachment passed by the Competent Authority shall have precedence of attachment [Section 13 of the Ordinance].
13.  Penalty:- Every offence punishable under this Ordinance are cognizable and non-bailable except in case of default in repayment and failure to give details of deposits as required  [Section 21 of the Ordinance]
14. Offences by deposit takers

Act	Imprisonment (min-max)	Penalty (min-max)
Solicits deposits in contravention to sec 3	1-5 years	Rs. 2-10 lacs
Accepts deposits in contravention to sec 3	2-7 years	Rs. 3-10 lacs
Accepts deposits & fraudulently defaults in refund,  in contravention to Sec 3	3-10 years	Rs. 5 lacs -2 times the amount collected
Deposit in contravention to Sec 4	< 7 years	Rs 5 lacs- 25 crore/ 3 times profit w.e. is higher.
Deposit in contravention to Sec 5	1-5 years	< Rs 10 lacs
Repeat offenders	< 5 years	Rs 10 lacs- 50 crore
Failing to give intimation under Sec 10		Rs 5 lacs

[1] Refer Annexure 1 for definition

[2] Refer Annexure 2 for FIRST SCHEDULE
[3]SARFAESI Act, 2002 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002 

[4]IBC, 2016 - Insolvency and Bankruptcy Code, 2016