NBFC - Systemically Important Non-Deposit taking - Investment and Credit Companies – eligible as Authorised Dealer

Systemically Important Non-Deposit taking Investment and Credit Companies are now eligible for Authorized Dealer- Category II (AD- Cat II) license. However, NBFCs offering such services would be eligible subject to meeting the following conditions:

• Minimum investment grade rating.
• Should have in place a board-approved policy on:
• managing the risks, including currency risk, if any, and ;
• handling customer grievances arising out of such activities; 
• A monitoring mechanism, at least at monthly intervals, shall be put in place for such services.

The move by Reserve Bank of India (RBI) is taken in order to increase the accessibility and efficiency of services extended to the members of the public for their day-to-day non-trade current account transactions as a large segment of population is increasingly getting connected with forex transactions on individual accounts.

The eligible NBFCs desirous of undertaking AD-Cat II activities shall approach the Reserve Bank of India, Foreign Exchange Department, Central Office, Mumbai for the AD-Cat II license.

Manufacturing Activities in LLP – Restriction withdrawn by MCA

The LLP is preferred form of organization due to its hybrid nature of being Body Corporate with limited liability of its partners. Further, the LLP has less compliance and cost effective for small and medium scale enterprises.

Recently, CRC office of Ministry of Corporate Affairs (MCA) was raising objection on  incorporation of LLP with manufacturing activity stating that manufacturing activities does not fall under the definition of business as per “Limited Liability Partnership Act, 2008”(Hereinafter referred as “the Act”).

Definition of Business as per LLP Act, 2008 

Sec. 2(e) "business" includes every trade, profession, service and occupation;

Business means commercial activity with the intention of profit 

Occupation means - a person's usual or principal work or business, especially as a means of earning a living;

The definition of “business” is inclusive in nature, not comprehensive. As the Definition of business is inclusive in nature, it does not restrict/exclude manufacturing activities. Further, no restriction is provided in the provisions of the Act or Rules made thereunder as well. If the manufacturing activities are restricted in the LLP form, it would have been unnecessary hindrance.

Considering this and various representations received by Ministry (MCA), the restriction of manufacturing and allied activities in LLPs has been withdrawn with immediate effect.

Source: http://www.mca.gov.in/

Stovec Industries Ltd settles case with SEBI pertaining to SAST disclosure lapse

1)  Stovec Industries Ltd (“Stovec”) suo motu filed an application proposing to settle, without admitting or denying the guilt for alleged delayed compliance of SAST (Substantial Acquisition of Shares and Takeovers) norms. It pertained to Reg 8(3) of SEBI (SAST) Regulations 1997.

2)   Stovec failed to make the requisite disclosures within the stipulated time on three occasions and the disclosures were made subsequently after a delay 14 days, 105 days and 2 days, respectively. The due date for all the three occasions was 30th April 2007.

3)  Stovec was called for an internal committee meeting on March 29, 2019, and was given an option of preferring a summary settlement procedure.

4)  It opted for the settlement route and agreed to pay Rs5,84,350 towards settlement charges within the stipulated time, which was subsequently approved by the regulator's panel of whole-time members, the regulator said in an order on Monday.

5) Stovec Industries is a subsidiary of Netherland-based SPG Prints and manufactures textile and graphic printing machines in India.

A copy of SEBI order is available on below link:-

https://www.sebi.gov.in/enforcement/orders/apr-2019/settlement-order-in-respect-of-stovec-industries-limited-_42719.html

SEBI bars Kashyap Technologies Ltd and six others from Securities market for five years 

1)  In a recent crackdown on GDR violations, SEBI has barred Kashyap Technologies Ltd (“KTL”) and six others from securities market for five years. This is a one of the various orders which SEBI has passed recently.

2)   In case of KTL, SEBI investigated the GDR issue made by KTL during December 2007. It was found that firm issued 0.49 million GDRs worth $16.5 million on the Luxembourg Stock Exchange.

3)   During the investigation it was observed by SEBI that entire 0.49 million GDRs were subscribed by only one entity (viz. Clifford Capital Partners).

4)   The subscription amount for GDRs was paid by Clifford Capital Partners after securing a loan from Lisbon-based bank (viz. Banco Efisa).

5)   However, the Clifford Capital Partners had pledged the GDR proceeds to the bank against the loan given to it for subscription of GDRs.

6)   Besides, the firm gave a false and misleading corporate announcement that its GDR issue was successfully allotted whereas the same was subscribed by only one entity.

7)   Further, it said Clifford had the knowledge of the fact that KTL itself was acting as a security provider for the loan being taken by it for subscribing the GDR issue, hence the claim that it was not a party to the scheme is not acceptable.

8)   Moreover, $ 10.39 million was transferred to Clifford by KTL for default in repayment of loan to the bank.

9)   The regulator found that the Clifford acquired the GDR, to the extent of $ 10.39 million for free and at the cost of investors of KTL which cleared the loan of Clifford from the GDR proceeds.

10)  SEBI has barred the five directors from securities market. SEBI said they were the members of the board of directors who approved the resolution authorizing Banco to use GDR proceeds as a security in connection with the loan given to Clifford Capital Partners and same was acted upon by KTL. Thus It was inferred that they were part of the fraudulent arrangement of facilitating the subscription of its own GDR.

11)  In similar cases relating to GDR violation, SEBI has taken action against Commex Technologies Ltd, Sybly Industries Ltd and Himachal Futuristic Communications Ltd.

12)  In case of Commex Technologies Ltd SEBI debarred the company and its two directors from securities market for a period of five years.

13)  In case of Sybly Industries Ltd SEBI imposed a fine of Rs 40 lakhs on four directors (Rs 10 lakhs for each director) and company paid an amount of Rs 10.30 crores to settle the matter.

14)  With respect to GDR violations in case of Himachal Futuristic Communication Ltd, SEBI has settled the matter with Himachal Futuristic Communication Ltd and its Mr. Vinay Maloo, Director of Himachal Futuristic Communication Ltd for a settlement amount of Rs 1,14,06,356 crores and Rs 1,36,00,000 respectively.

Financial,Operational Creditors recover nearly half of total claims in 88 insolvency cases 

• The Insolvency and Bankruptcy Code (IBC) seeks to offer market-decided decision for pressured property in a time-sure method.
• As per the official data out of the 88 admitted cases uptill the end of February  , claims worth Rs.1.42 lakh crore have been recovered by the Financial and Operation Creditors.
• Of the total admitted claims financial creditors and operational creditors have recovered 48.24 % (Rs.65635 crore ) and 48.41% (Rs.3131 crore) respectively .(The data is with respect to 88 cases, including those whose resolution has been completed for the period till Feb 28)
• In an affidavit submitted to NCLAT ,IBBI a key institution set under IBC the realised amount was more than 100% in some cases .
• As per resolution  plan approved by Committee of Creditors Arcelor Mittal the successful resolution applicant would pay Essar Steel Lenders Rs.41987 crore for total dues of Rs 49,395crore .

Name of the Company and admitted claims	Financial Creditor`s realised value	Operational Creditor`s realised value
Bhushan Steel – Rs.57505.05 Crore	63.49% of the admitted claims	80.94% of the admitted claims
Electrosteel-Rs13598crore	40.38% of the admitted claims	Operational creditors share was nil
Monnet Ispat& Energy – Rs11478.08 crore	26.26%	5.40%

Source ;https://timesofindia.indiatimes.com/business/india-business/financial-operational-creditors-recover-nearly-half-of-total-claims-in-88-insolvency-cases/articleshow/68874903.cms

The Delhi High Court has declared Section 22(3) of the Competition Act, 2002 as unconstitutional and void. It also held that casting vote anathema to rule of law.

Genesis and arguments before the Court:

The genesis of the dispute arose from a CCI order holding all the car manufacturers including the petitioners guilty of anti-competitive practices through agreements for spares and after-sales services. The Petitioners argued that although CCI and the Appellate Authority are tribunals, the procedure under the Competition Act was anathema to judicial decision making and ultra vires Article 14 of the Constitution of India. It was contended that the composition, manner of appointment, executive control over the CCI etc must, therefore, be in consonance with the doctrine of separation of powers and principles of preserving the independence of the judiciary. Challenging the validity of Section 22(3) of the Competition Act, the Petitioners submitted that the section was “ex facie unconstitutional“. Section 22(3) invests the CCI’s President with the power of a ‘casting vote’ when an even member tribunal is equally differing. It was submitted that no judicial tribunal with a multiplicity of members, which decides a lis, permits greater weight to the decision of one or some of its members. Defending the Section, CCI argued that the practice of ‘casting vote’ was an effective and logical working tool as it enabled a majority decision in case of a deadlock.

Conclusion by Court:

After hearing the parties, the Court concluded that a casting vote was anathema (a curse) to and destroys the Rule of Law in the context of the Indian Constitution. It opined that the principle of equal weight for the decisions of each participant of a quasi-judicial tribunal is undoubtedly destroyed by Section 22(3). The Court has nevertheless directed that when a case is set down for final hearing, the membership of the CCI should be constant. There would thus be no addition, deletion or substitution in the composition of the bench during the course of the final hearing. If at all, it becomes impossible to continue the hearing before the same bench, the matter would be heard afresh by the new bench even if the composition is partly common with the previous bench. The same has been directed to be assimilated in the form of regulations and followed by the CCI and all its members in all the final hearings. It has directed that no member of the CCI should take a recess individually, during the course of the hearing or take a break to rejoin the proceedings later. To enable the Chairman to ensure that substantial numbers (of at least five) are present at every substantial hearing and final hearing, the Court has directed the Central Government to fill all existing vacancies in CCI within six months. With respect to the contention that CCI was unconstitutional for being in violation of the separation of powers principle, the Court concluded in negative. After perusing the entire scheme of the Act, the Court observed that Section 11 of the Act “sufficiently entrenches the office of the Chairman and the members of the CCI” and insulates them from arbitrary inroads by the executive. It also concluded that the argument with respect to the illegality of the CCI’s procedure, in expanding the scope of inquiry under Section 26(1) was insubstantial as the proceeding at that stage is quasi-inquisitorial. Section 27(b) of the Competition Act and the provision for imposing penalties were also held to be Constitutional. The Court observed that the nature of the proceeding before the CCI and the procedure it adopts to impose any penalty gave sufficient safeguard to parties who were likely to be affected adversely, both as regards findings and the sanctions The Court also granted 6 weeks’ time to the Petitioners to appeal against the CCI order before the Appellate Tribunal, if they wished to do so.

Filing of e-form DIR-3 KYC – Annual Exercise

Every DIN holder is required to file e-Form DIR-3 KYC so as to be aware of information as available and confirm/update the information at the MCA system.

However, the form DIR-3 KYC presently available on MCA website can only be used for filing in respect of DINs allotted as on 31 March, 2018 and whose DIN have been marked as deactivated due to non-filing of DIR-3 KYC.

With the objective of making the form more users friendly, the form is presently being modified to enable pre-filling of data & information so that annual filing of DIR-3 KYC can be done by DIN holders in a simple and user friendly manner.

The DIN holders who had filed DIR-3 KYC form earlier are requested to wait for revised version. The revised form will be deployed shortly and  can be filed without any fee within a period of 30 days from the date of deployment.

Once the system is updated and the revised form is issued by MCA, the e-form DIR-3 KYC will be required to be filed by:

·         DIN  holders who had filed  e-form DIR - 3  KYC earlier

·         DIN holders whose DIN allotted post 31 March 2018

Source: http://www.mca.gov.in/Ministry/pdf/DIR3KYCcompleteMessage_13042019.pdf

MCA KYC Drive

•          In this year MCA has started a KYC drive in a lot of areas

              (1)KYC of Director – DIR 3 KYC

              (2)To find our outstanding to MSME-1

              (3)To find our deposit compliance –DPT 3

•        In DPT 3 Companies were required to identify all the advance or loan received by them on or after 1^st April, 2014 and outstanding as on 22 January 2019.

•       Idea was to check whether the companies have been complying with Companies (Acceptance of Deposit) Rules as on 22 January 2019. This data was required to be uploaded on MCA in e-form DPT -3 by 21 April 2019.

•      Again similar data was required to be uploaded on MCA as at 31^st March, 2019 by 30 June 2019.However relevant e-form DPT-3 was not made available till date.

•      Again similar data was required to be uploaded on MCA as at 31^st March, 2019 by 30 June 2019. However relevant e-form DPT-3 was not made available till date.

•     Now, MCA has notified that, data as at 22 January, 2019 is not required to be uploaded and only data as 31 March, 2019 will be required. Further after relevant e form is made available, within 30 days of that the form will have to be uploaded.

•      DPT-3 form was notified on 22.01.2019, and data wrt deposit as at 22.01.2019 was asked for.

•      Probably idea was to not allow companies to manipulate books and therefore data as at  22.01.2019.

•      However since e- form DPT -3 could not be deployed before due date, MCA has to drop the idea of collating data as at 22.01.2019.

•     Further , MCA has been postponing such dates for e-forms in past  e.g. for form BEN1&2( Significant Beneficial Ownership Disclosure )e form MSME 1 etc. And now what remains to be extended is Annual Return which Auditor has to be file under National Financial Reporting Authority (NFRA) Rules.

•         http://www.mca.gov.in/Ministry/pdf/CircularDPT-3Form_12042019.pdf

• In this year  MCA has started a lot of KYC drive like -

• KYC of director - DIR 3 KYC
• To find our outstanding to MSME, - MSME 1
• To find our deposit compliance - DPT3.
• Idea is to strengthen disclosures and ensure compliance of laws. DPT3 form was notified on 22 January 2019, and data wrt deposit as at 22.1.2019 was asked for.
• Probably idea was to not to allow companies to manipulate books and therefore data as at 22.01.2019 was asked by same day notification. 
• However since e form DPT3 could not be deployed before due date, MCA has to drop the idea of collating data as at 22.01.2019.

http://www.mca.gov.in/Ministry/pdf/CircularDPT-3Form_12042019.pdf

Sun Pharma`s senior executives wife settles Insider Trading case with SEBI

• Abhay Arvind Gandhi (who was during the period under review CEO of Sun Pharma Laboratories Ltd a WOS of Sun Pharmaceutical Industries Ltd) and his wife traded in Ranbaxy shares soon after Japanese major Daiichi in 2014 agreed to sell Ranbaxy to Sun Pharma.
• The proposed deal was Unpublished Price Sensitive Information (UPSI) from Feb 14, 2014 to 6^th April, 2014.
• By trading in shares of Ranbaxy during the UPSI period both violated PIT norms. 
• The settlement amount of Rs 35.06 lakh each was approved by a panel of SEBI's Whole Time Members.
• The trend that we can see from Settlement Orders and Adjudication Orders passed by SEBI with respect to Prohibition of Insider Trading , is that whenever there is takeover or potential takeover transactions, SEBI has gone in detail about transactions done by key people in  the respective Companies.
• Under amended PIT regulations (effective from 1 April 2019), every listed Company has to maintain digital database whenever UPSI is shared. And conduct enquiry about any leak or suspected leak of UPSI. 
• Had this incident taken place after 1 April 2019, SUN Pharma would have required to conduct an internal inquiry about suspected leak of UPSI and submit a report to SEBI.

https://www.sebi.gov.in/enforcement/orders/apr-2019/settlement-order-dated-april-11-2019-in-respect-of-kiran-abhay-gandhi-in-the-matter-of-trading-activities-of-certain-entities-in-the-scrip-of-ranbaxy-laboratories-limited_42688.html

https://www.sebi.gov.in/enforcement/orders/apr-2019/settlement-order-dated-april-11-2019-in-respect-of-abhay-arvind-gandhi-in-the-matter-of-trading-activities-of-certain-entities-in-the-scrip-of-ranbaxy-laboratories-limited_42687.html

  

In the matter of Shri Balaji Cycles Private Limited (1^st Appellant) and Shri Suresh Kumar Sharma (2^nd Appellant) Versus The Registrar of Companies (Respondent)

• Applicant Company was incorporated on 30.04.1997
• The Company failed to file statutory documents viz. Annual Return and Balance Sheet as per section159/220 of the Companies Act,1956.
• The Company was struck off by the Registrar of Companies (hereinafter referred to as ROC) vide official Gazette Notification dated 23.06.2007.
• The applicant filed the application with National Company Law Tribunal (hereinafter referred to as NCLT) for restoration of company after almost a decade.
• ROC objected the restoration on the following grounds:
• Company to provide strict proof showing that the company is carrying on business since inception by providing proof such as submitting of income tax returns, viability of running the company, composition of Board of Directors, shareholders, creditors and their consents thereof for the present application for restoration.
• The applicant replied that the company did not receive any show cause notice from ROC for strike off and property adjacent to the appellant has somehow colluded with the postman to prevent any correspondence from reaching the applicant and applicant only came to know about the name of the appellant being struck off only in 2017 and various other reasons such as illness of the directors, paucity of funds etc.
• Despite providing opportunity, the company failed to provide Income Tax Returns and placed on record the true copy of the audited Balance Sheet and Profit & loss Account only for the financial year ending on 31.03.2016.
• Drawing adverse inference – NCLT dismissed the application.
• Aggrieved by the order of NCLT, Applicants filed the application for restoration of company with the Appellant Tribunal.
• During the pendency of application, the company paid the lease rentals to HSID and the same was provided as an additional proof for restoration.
• Appellate Tribunal quashing the applicant reply stated that though the consent of shareholders and creditors is received, the same cannot be considered for this case as they are family members. Further the lease rentals have been deposited only after when the NCLT asked for proof and hence the same cannot be taken a good ground to assert that the company has already been in business or in operation.
• NCLAT also dismissed the application as the appeal has no merits.

New Initiatives: Investor Complaint E-form

In our earlier newsletter dated 5^th December 2018, we had discussed about Serious Complaint Form (SCP) which dealt with reporting of serious complaints against a company by filing it on MCA

The Ministry of Corporate Affairs (MCA) has now introduced e-form ICP (Investor complaint eForm).http://www.mca.gov.in/MinistryV2/companyformsdownload.html 

The form was introduced for reporting complaint related to shares, debentures, bonds, fixed deposits, etc. against a company/LLP by filing it on MCA. This is an additional facility to lodge compliant other than handing over a written complaint directly to MCA official in the office of Registrar of Companies.

However, complaints related to complaint/grievances of Non-Banking Finance Company (NBFC), Residuary Non-Banking Company (RNBC) registered with RBI have to be filed with RBI.

Listed companies and also the companies which intend to get their securities listed on any recognized stock exchange can file their complaints related to issue and transfer of securities and non-payment of dividend with SEBI. Other complaints can be filed with MCA.

Chit fund companies and real estate companies can file their complaints with the concerned regulatory authority

Who can file a complaint?

• Shareholder
•  Investor
• Creditor
• Employee (It is unclear why ‘employee’ category is appearing in this form)
•  Deposit holders
•  Others (who do not belong to the above categories)

An illustrative list of Circumstances in which Compliant can be lodged is as under:       

• Complaints relating to non-receipt of various certificates w.r.t. shares, debentures, bonds
• Non-receipt of bonus shares, offer for the right shares, notice for call money, share application money, dividend warrant, etc
•    Non-receipt of interest w.r.t. debentures, bonds and fixed depositsNon- receipt of Redemption amount
• Non-receipt of payment as per Company Law Board (CLB) order
• Non-receipt of Pre-matured payments and matured amount of fixed deposits
• Non-receipt of Annual Report and registration of change in address and other miscellaneous complaints

For details, you can visit http://www.mca.gov.in/MinistryV2/companyformsdownload.html

No fee is prescribed for this form. Further, unlike other forms to be filed on MCA, there is no requirement of having Digital Signature Certificate (DSC). Once the form is filed, an acknowledgment email is sent to the complainant on the email id mentioned in the form

Do you know - anybody can file online complaint against Company?

The Ministry of Corporate Affairs (MCA) has e-form SCP (Serious complaint eForm). The form was introduced for reporting the serious complaints against a company by filing it on MCA. This is an additional facility to lodge compliant other than handing over a written complaint directly to MCA official in the office of Registrar of Companies.

Who can file a complaint?

• Shareholder
• Investor
• Creditor
• Employee
• Deposit holders
• Others (person who do not belong to above categories)

 Circumstances in which Compliant can be lodged are as under: 

•  Cessation of Director
•  Removal of Director
• Management Dispute
• Financial Mismanagement
• Corporate Fraud
• Accounting Fraud
• Oppression of Minority Shareholder
• Others

No fee is prescribed for this form. Further, unlike other forms to be filed on MCA, there is no requirement of having Digital Signature Certificate (DSC).  Once the form is filed, an acknowledgment email is sent to the complainant on the email id mentioned in the form. 

Do you know charge cannot be registered after 120 days?

Highlights on the Companies Amendment (Ordinance), 2018 were circulated by our newsletter dated 5 November 2018. Out of those, one of the significant amendments is related to Charges which is discussed in this article.

Different scenario w.r.t. Creation/Modification of Charges is presented in tables below.

  Charges created/ modified Before 2 November, 2018

Sr. No.	Particulars	Fees
1.	Registration of charges within 30 days of such creation or modification	Normal Fees
2.	Registration of charges after 30 days but within 300 (30+270) days of such creation or modification	Normal Fees + additional Fees
3.	Registration of charges after 300 days of such creation or modification – to be registered within 6 months from 2 November, 2018	Normal Fees + additional Fees

Charges created/ modified after 2 November, 2018

Sr. No.	Particulars	Fees
1.	Registration of charges within 30 days of such creation or modification	Normal Fees
2.	Registration of charges after 30 days but within 60 (30+30) days of such creation or modification	Normal Fees + additional Fees
3.	Registration of charges after 60 days of such creation or modification but within 120 days such creation or modification	Normal Fees + additional Fees + Ad valorem fees
4.	Charge cannot be registered after 120 days*

* Omission/Mis-statement in the Charge created or modified can be registered after 120 days subject to Condonation of Delay

 Other Key points to be pointed:

ü    Unregistered charges are treated as unsecured

ü  In case of willful  furnish  of  false  or  incorrect  information  or knowingly  suppressing  any  material information liable  to  fraud  and attract action under Section 447