MCA Update

MCA Vide General Circular No.08/2017 dated 25^th July, 2017 clarified w.r.t. the financial year in respect of applicability of exemption given to certain private companies from requirement of reporting under section 143(3)(i) of the Companies Act, 2013 (Internal Financial Control system).

  

The said exemption shall be applicable to audit reports in respect of financial statements pertaining to financial years commencing on or after 1^st April, 2016, which are made on or after the date of said notification i.e. 13^th June, 2017.

COMPANIES (MEETINGS OF BOARD AND ITS POWERS) RULES, 2014

Ministry of Corporate Affairs vide notification dated 13^th July, 2017 amended Companies (Meetings of Board and its Powers) Rules, 2014. The amended rules may be called as   Companies (Meetings of Board and its Powers) Second Amendment Rules, 2017

Rule	Earlier	Amended
Rule 3 (3)(e)	The director, who desire, to participate may intimate his intention of participation through the electronic mode at the beginning of the calendar year and such declaration shall be valid for one calendar year	Any director who intends to participate in the meeting through electronic mode may intimate about such participation at the beginning of the calendar year and such declaration shall be valid for one year: Provided that such declaration shall not debar him from participation in the meeting in person in which case he shall intimate the company sufficiently in advance of his intention to participate in person
Rule 3(11)(a)	At the end of discussion on each agenda item, the Chairperson of the meeting shall announce the summary of the decision taken on such item along with names of the directors, if any, who dissented from the decision taken by majority	At the end of discussion on each agenda item, the Chairperson of the meeting shall announce the summary of the decision taken on such item along with names of the directors, if any, who dissented from the decision taken by majority and the draft minutes so recorded shall be preserved by the company till the confirmation of the draft minutes in accordance with sub-rule (12)
Rule 6	The Board of Directors of every listed companies and the following classes of companies shall constitute an Audit Committee and a Nomination and Remuneration Committee of the Board- (i) all public companies with a paid up capital of ten crore rupees or more (ii) all public companies having turnover of one hundred crore rupees or more (iii) all public companies having in aggregate, outstanding loans or borrowings or debentures or deposits, exceeding fifty crore rupees or more	Rule 6  and the provisos has been substituted by the following: The Board of directors of every listed company and a company covered under rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 shall constitute an ‘Audit Committee’ and a ‘Nomination and Remuneration Committee of the Board’.

Exemption to Private Companies

Ministry of Corporate Affairs (MCA) vide Notification dated 13^th July, 2017 hereby amends its Notification no. G.S.R 583 (E) dated 13^th June, 2017.

The criteria of having adequate Internal Financial Controls system will not be applicable to the following private companies:

Section	Earlier	Amended
143(3)(i)	Clause (i) shall not be applicable to private companies which is:      One Person Company; or      Small Company; or       Having turnover less than 50   Crores as per latest audited financial statements; or Having aggregate borrowings less than 25 crores from banks or financial institutions or anybody corporate at any point of time during the financial year	Clause (i) shall not be applicable to private companies which is:  One Person Company; or Small Company; or Having turnover less than 50 Crores as per latest audited financial statements; and Having aggregate borrowings less than 25 crores from banks or financial institutions or anybody corporate at any point of time during the financial year

Restore your Dissolved Company

Registrar of Companies (Registrar) has sent notices to the companies and its directors declaring its intention to remove the name of company from the Registrar of Companies and requesting them to represent their case along with relevant documents, if any within a period of 30 days from the date of notice on the following grounds:

a.       A company has failed to commence its business within one year of its incorporation; OR

b.      A company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455.

 On expiry of the time mentioned in notice, the Registrar may, unless cause to the contrary is shown  by the Company, strike off its name from the Register of Companies and publish notice thereof in  official gazette. On such publication, the company stand dissolved.

Recently many companies have been struck off by the Registrar. The only remedy available to restore the Company, if it is operational, is to file an appeal in Form No. NCLT 9 to National Company Law Tribunal (Tribunal) under Section 252 of the Companies Act, 2013.

How to restore the company?

·         As per Section 252, any person aggrieved by an order of the Registrar may file an appeal to the Tribunal within a period of three years from the date of the order of the Registrar.

·         If Tribunal is of the opinion that removal of name of the company is not justified in view of the     absence of any of the grounds referred above on which order was passed by the Registrar, it may  order restoration of the name of the company.

·       The Tribunal shall give a  reasonable opportunity of making representations and of being heard to the Registrar, the Company and all the persons concerned

In some of the recent cases filed under Companies Act, 2013, Tribunal have passed the order in favour of company to restore its name subject to fulfilment of the requisite formalities mentioned in report of Registrar.

In Sheikh Nuruzzaman V/s The Registrar of Companies, Kolkata bench[1], the Tribunal had passed an order granting restoration of name of the company only on compliance with the requisite formalities as pointed out in report of Registrar i.e. annual filing for the period of default alongwith prescribed fees within four weeks from the date of order. The similar order was pronounced in Mohit Parikh V/s The Registrar of Companies[2] and Manoj Kumar Agarwal V/s Registrar of Companies[3].

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[1] C.P.No.96/KB/2017 dated 26^th May, 2017

[2] C.P.No.148/KB/2017 dated 26^th May, 2017

[3] C.P.No.97/KB/2017 dated 26^th April, 2017

Amended Companies (Appointment and Qualification of Directors) rules, 2014

Ministry of Corporate Affairs vide notification dated 5^th July, 2017 amended Companies (Appointment and Qualification of Directors) Amendment Rules, 2017(Rule). The amendment is in respect to Insertion of sub-Rule(2) in Rule 4.

As per Rule 4(1), the following classes of companies shall have at least two directors or such higher number of directors as may be required for composition of its audit committee as independent directors –

(i) the Public Companies having paid up share capital of ten crore rupees or more; or

(ii) the Public Companies having turnover of one hundred crore rupees or more; or

(iii) the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees:

By inserting Sub-rule (2), the following classes of unlisted public company shall not be covered in the above provision:

(a) a joint venture;

(b) a wholly owned subsidiary; and

(c) a dormant company as defined under section 455 of the Act.".

Amendment in National Company Law Tribunal Rules, 2016

Ministry of Corporate Affairs (MCA) vide notification dated 5^th July,2017 have amended the National Company Law Tribunal Rules, 2016. The amendment is with respect to inserting the a new Rule after rule 87, (Rule 87 A). The highlights of the same are as follows:

·        An Appeal or application under section 252(1) and (3) of Companies Act, 2013 must be made in the prescribed Form No. NCLT 9.

·        A copy of the appeal or application, shall be served on the Registrar and on such other persons as the Tribunal may direct, not less than 14 days before the date fixed for hearing

·        Tribunal while passing the order, shall direct the following :

o   Deliver certified copy of the order to the Registrar of Companies within 30 days from date of order

o   Registrar shall publish the certified copy of the order in the Official Gazette

o   Appellant/Applicant shall pay costs occasioned by appeal or application to the Registrar

o   Company shall file the pending financials & Annual Returns with Registrar and comply with requirements of Companies Act, 2013 within such time as may be directed by the tribunal

·        An application under second proviso of sub-section (1) of Section 252 shall be in     Form No. NCLT 9.

Amendments in Schedule IV: Code for Independent Directors

MCA vide Notification dated 5^th July, 2017, amended Schedule IV of the Companies Act, 2013. The amendments are as follows:

Schedule	Earlier	Amended
Paragraph III, sub-para (12)	The independent directors shall— acting within his authority, assist in protecting the legitimate interests of the company, shareholders and its employees;	The independent directors shall— acting within their authority, assist in protecting the legitimate interests of the company, shareholders and its employees
Paragraph VI, sub-para (2)	An independent director who resigns or is removed from the Board of the company shall be replaced by a new independent director within a period of not more than one hundred and eighty days from the date of such resignation or removal, as the case may be.	An independent director who resigns or is removed from the Board of the company shall be replaced by a new independent director within a period of not more than three months from the date of such resignation or removal, as the case may be.
Paragraph VII, sub-para (1)	The independent directors of the company shall hold at least one meeting in a year, without the attendance of non-independent directors and members of management;	The independent directors of the company shall hold at least one meeting in a financial year, without the attendance of non-independent directors and members ofmanagement;
Paragraph VIII	Evaluation mechanism: (1) The performance evaluation of independent directors shall be done by the entire Board of Directors, excluding the director being evaluated. (2) On the basis of the report of performance evaluation, it shall be determined whether to extend or continue the term of appointment of the independent director.	Paragraph VIII is same. Following note is inserted after Paragraph VIII: 'Note: The provisions of sub-paragraph (2) and (7) of paragraph II*paragraph IV*, paragraph V*' clauses (a) and (b) of sub-paragraph (3) of paragraph VII and paragraph VIII shall not apply in the case ofa Governmentcompanyasdefinedunderclause(45)ofsection2oftheCompanies Act,20|3 (18 of 2013), if the requirements in respect of mattersspecified in these paragraphs are specified by the concerned Ministries or Departments of the Central Government or as the case may be the State Governments and such requirements are complied with by the Government companies."

* Paragraph II: Role and Functions of Independent Directors

   Paragraph IV: Manner of Appointment of Independent Directors

   Paragraph V:  Re-Appointment of Independent Directors

MCA amend Companies (Transfer of pending proceedings) Rule, 2014 and Section 434 of Cos. Act 2013 to include 'voluntary winding-up' provisions of former Act

Voluntary winding up

·         The rule 4 is substituted which deals with the pending proceedings relating to voluntary winding up.

Proceedings relating to voluntary winding up where notice of the resolution by advertisement has been given under section 485(1) of the companies act, 1956, but the company have been not dissolved before 1^st day of April, 2017 shall continue to be dealt with in accordance with provisions of the Companies Act, 1956.

·         Third proviso inserted in Section 434 of the companies Act, 2013

Provided also that proceedings relating to cases of voluntary winding up of a company where notice of the resolution by advertisement has been given under sub-section (1) of section 485 of the Companies Act, 1956 but the company has not been dissolved before the 1st April, 2017 shall continue to be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959.

Winding up on ground of inability to pay debts

·         The rule 5 is also substituted which deals with transfer of pending proceedings of winding up on the   ground of inability to pay debts.

Winding up petitions under clause (e) of section 433 of Companies Act, 1956, on ground of inability to pay debts pending before High Court mandates petitioner to file information, other than information forming part of the records transferred in accordance with the rule 7 required for admission of the petition under sections 7, 8 or 9 of the code as the case may be including details of the proposed insolvency professional to the tribunal upto July 15, 2017 failing which the petition shall stand abated. It also provides for filing fresh application under sections 7 or 8 or 9 of Insolvency code after 15^th July, 2017.

It also provides that petitions relating to winding up which have not been transferred to the Tribunal and remain with the High Court and where there is another petition under clause (e) of section 433 of the Act for winding up against the same company pending as on December 15, 2016, such other petition shall not be transferred to the Tribunal, even if the petition has not been served on the respondent:

            MCA vide Removal of Difficulties clarified that since the Insolvency and Bankruptcy Code provides for a substantially different framework for persons who may be appointed as liquidators and for making of an application for dissolution by the liquidator. Proceedings relating to cases of voluntary winding up of a company where notice of the resolution by advertisement has been given under sub-section (1) of section 485 of the Companies Act, 1956 but the company has not been dissolved before the 1st April, 2017 shall continue to be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959.

Strike off – Limited Liability Partnership

In case if the Limited Liability Partnership (LLP) wants to close down its business, it can make an application to the registrar for removing the name of the LLP from its registers of LLP’s.

Section 75 of Limited Liability Partnership Act, 2008 (LLP Act, 2008) read with Rule 37 of Limited Liability Partnership rules, 2009 deals with strike off of LLP.

·           LLP is not carrying on any business or operation for a period of two years or more and the Registrar has  reasonable cause to believe the same, for the purpose of taking suo-motu action for striking off the name of the LLP; or

·         LLP is not carrying on any business or operation for a period of one year or more and has made an application in Form 24 to the Registrar, with the consent of all partners of the limited liability partnership for striking off its name from the register

Striking off Name of LLP from the Register by way of an application to Registrar:

Conditions to be satisfied before making an application: 

·         Consent of all partners of LLP

·         Extinguishment of all liabilities

·         LLP desirous to make an application should file overdue returns up to end of the financial year in which LLP ceased to carry on its business or commercial operation.

o   Form 8 (Statement of account and solvency)

o   Form 11 (Annual return of LLP)

This condition is modified w.e.f. 20^th May, 2017 whereby all the returns are required to be filed by the LLP for making application for strike off.

The process for making application to registrar for strike off:

1.  File all overdue returns i.e. form 8 and form 11, if any (up to end of the financial year in which LLP ceased to carry on its business)

2.  Obtain consent of all partners of LLP

3.  Obtain approval of concerned regulatory authority, required if any

4.  Authorizing one partner to make application to Registrar

5.  Make Application to registrar in E- Form 24 with following attachments:

a.       Copy of consent of all partners

b.      Copy of authority to make application duly signed by all partners

c.       Copy of affidavit from all the designated partner  for striking off

d.      Copy of statements of Nil assets and liabilities duly certified by chartered accountant in practice not earlier than 30 days of the date of filing of Form 24

e.       Copy of acknowledgement of latest Income tax return

f.       Copy of the initial LLP agreement

6.  Application  made to be placed on the website of MCA for the information of general public for the period of one month

7.  On expiry of one month, if registrar is satisfied that the name should be struck off from the register, the registrar shall struck off and publish notice in official gazette.

The LLP can make application for strike off, if all the conditions mentioned above are satisfied. If either of the condition is not satisfied the LLP can proceed for winding up of LLP. However, the winding up of LLP is time driven process and complex and requires approval of High Court/NCLT.

SEBI Clarifies on applicability of Lock in period in case of unlisted CCDs issued by way of preferential allotment on private placement basis

SEBI issues informal guidance to PC Jewellers Limited (hereinafter referred to PCJ) under the Informal Guidance Scheme read with SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (SEBI (ICDR) Regulations 2009), clarifies on the lock-in period applicable to the pre-preferential allotment shareholding for convertible securities allotted to DVI Fund (Mauritius) Ltd.

PCJ had proposed issue and allotment of 42,69,984 Compulsorily Convertible Debentures (CCDs) to DVI Fund (Mauritius) Ltd. by way of preferential allotment on private placement basis at a face value of Rs. 1000 each in accordance with Chapter VII of SEBI (ICDR) Regulations, 2009.

Regulation 78 of SEBI (ICDR) Regulations, 2009 deal with Lock-in of specified securities and pre-preferential allotment shareholding of the allottees, if any.

Regulation 2(1)(zj):

“specified securities” means equity shares and convertible securities.

Regulation 78(6) states that:

‘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.’ PCJ queried on the lock-in period applicable to pre-preferential allotment shareholding of DVI Fund (Mauritius) Ltd.

SEBI states that Regulation 78(6) of the ICDR Regulations provides that 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.

SEBI has clarified, where the requirement of trading approval is not applicable to specified securities being CCDs in this case, lock-in period shall commence from the relevant date and end on the expiry of six months from the date of allotment of CCDs and not from the date of trading approval as the CCDs were not listed.

The same shall be applicable for any convertible security to be issued.