Applicability of “Limitation Act”  under Insolvency and Bankruptcy Code, 2016

Insolvency and Bankruptcy Code, 2016 (hereinafter referred as “Insolvency Code”) was an act to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner.  It was a question unanswered for long as to applicability of provisions of Limitation Act for claims filed by creditors under Insolvency and Bankruptcy Code, 2016.

The pace of judiciary authorities to give judgments is at no surprise to us. Recently, National Company Law Appellate Tribunal had passed a judgment to conclude on long awaited question on subject matter.

In case of Neelkanth Township & Construction Pvt. Ltd Versus Urban Infrastructure Trustee Ltd, the light was thrown on provisions of Limitation Act, 2013 and Insolvency and Bankruptcy Code, 2016.

Facts of the case-

In the given case respondent i.e. Urban Infrastructure Trustee Ltd were allotted optionally Fully Convertible Debentures (OFCDs) by Neelkanth Township & Construction Pvt an applicant. The said debentures were allotted in 3 tranches as provided hereinunder-

Sr. No	Particular	Certificate issuance date	Maturity date
1	1,27,000 OFCDs	26.12.2007	25.12.2012
2	1,24,000 OFCDs	15.02.2008	14.02.2013
3	48,49,000 OFCDs	30.09.2009	30.04.2011

Plea-

Considering the maturity dates of OFCDs and date of application made by respondent, it was pleaded by applicant that time period of 3 years, as mentioned in Limitation Act is lapsed, and that the said case shall not be admitted in the ground of barring provisions of Limitation Act.

Judgment-

The view of National Company Law Tribunal (NCLT), Mumbai which was challenged by applicant, was sustained by National Company Law Appellate Tribunal (NCLAT) . While producing the judgment, NCLAT upheld that-

“There is nothing on record that Limitation Act, 2013 is applicable to insolvency Code. Also that the learned counsel for the appellant also failed to lay on hand on any of the provisions of Insolvency Code to suggest that the law of Limitation Act is applicable.

It was held that the Insolvency Code was not an act for recovery of money claim, but was an initiation of Corporate Insolvency Process. That if there was debt which included interest and there was default of debt of having continues course of action, the argument that the claim of money by respondent is barred by limitation cannot be accepted”

Conclusion- Considering the Judgment passed by NCLAT it is well established that the provisions of Limitation Act shall not be applicable to Insolvency Code serving a big relief to creditors to file their claims for liquidation under section 7 or section 59 of the Code.  

Source- http://nclat.nic.in/final_orders/Principal_Bench/2017/insolvency/11082017AT442017.pdf

Duties of promoters under RERA

In our earlier article, we discussed about categories of persons who will fall under definition of promoter as per RERA. Now we will be discussing about what all compliances required to be made under RERA after registration of project with authority.   

Periodicity	Compliances
Duties w.r.t. Real estate project	o   Upon receiving login ID and password, create his webpage on the website of the Authority and enter all details of the proposed project o   To deposit 70% of the amount realized for the project in a separate bank account to be maintained with the scheduled bank to cover the cost of construction and land cost. o   To utilize such amount for that purpose only o   To disclose details of the registration granted by the Authority on website
Every six months from the close of every financial year	o   To get his accounts audited from a CA in practice and shall  produce a statement of accounts duly certified and signed by such CA
Quarterly Disclosure of documents on website	o   the list of number and types of apartments or plots, as the case may be, booked; o   list of number of garages booked; o   the list of approvals taken and o   the approvals which are pending subsequent to commencement certificate; o   status of the project;
Duties w.r.t. allottees at the time of booking and issue of allotment letter	Submit following documents o   sanctioned plans, layout plans, along with specifications, approved by the competent authority o   the stage wise time schedule of completion of the project, including the provisions for civic infrastructure like water, sanitation and electricity. o   obtain the completion certificate or the occupancy certificate or both, as applicable and to make it available to the allottees individually or to the association of allottees o   enable the formation of an association or society or co-operative society, as the case may be, of the allottees, or a federation of the same, under the laws applicable o   execute a registered conveyance deed of the apartment, plot or building, as the case may be, in favour of the allottee along with the undivided proportionate title in the common areas to the association of allottees or competent authority

If the promoter fails to comply with any of the above compliances, he shall be liable to penalty or imprisonment or both under various provisions of RERA.

BOARD DIVERSIFICATION – PRE – REQUISITE FOR SURVIVING LONGER

Any big company generally has a great board behind, which deals with setting goal, framing strategy, risk monitoring, succession planning and recruitment of best talent. It helps company to move forward.

If we observe the Boards of big listed companies like Tata, Reliance etc., board have a variety of skills, expertises and experiences among directors.

As per Corporate Governance norms, every company is required to frame Board diversity policy to ensure adequate mix at board level.

Why to have diversified board?

·         The company with diversified board, survive longer than others

·         It can deal with Succession planning

·         Enables company to mitigate risk

·         Experts of different fields can give diversified views at Board Meeting

·         Diversified views if moderated well and positively can result in decisions which are sustainable.

·         For e.g. If you want to launch new product, your board should consist experts of various fields such as expert in Market and sales , legal field, finance field, HR field, Environment expert or policy maker etc. Decision taken after deliberation with such experts will be a right decision.   

  

Appropriate Board of Directors should have following composition

Diversified board should also have appropriate mix of Age and gender. The board can have experts from following fields:

1.	Technical Expert
2.	Finance Expert
3.	Legal Expert
4.	Bureaucrat
5.	Human Resource Expert
6.	Other experts required, if any as per nature of your business

INSOLVENCY RESOLUTION PROCESS FOR CORPORATE PERSONS (AMENDMENT) REGULATIONS, 2017

New era of proactive judiciary bodies and government is no more at surprise to us. With rising cases of insolvency and bankruptcy of corporate debtors and shield given to operational and financial creditors it was need of time to give protection to those "other creditors" too.

With rising cases of insolvency, the provisions of insolvency and bankruptcy code, 2016 has now been amended to let the new category of creditors to file claim with interim resolution professional or resolution professional.

Insolvency Board vide its notification dated August 16^th 2017 has introduced Form F to enable new category of creditors to file their claims under the new Code.

Who can file claim under the new amendment?

The code had initially given powers to operational creditors and financial creditors to file claims to recover dues from Corporate Debtor.

Operational Creditor as defined under the code meant a person to whom an operational debt is owed while financial creditor was defined as any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to;

However creditors who were neither operational nor financial, owing debt to Company, were not given any specific power to settle down their claims.

However with the new amendment, the Code has now identified one more class of Creditors who does not fall under the category ofOperational or Financial Creditor. The new class can now file their claims in Form F along with proof of claim to the interim resolution professional or resolution professional in person, by post or by electronic means.

 The existence of the claim of the Creditor referred in amendment can be proved on the basis of

1.                   the records available in an information utility, if any, or

2.                   other relevant documents sufficient to establish the claim, including any or all of the following-

a.       documentary evidence demanding satisfaction of the claim

b.      bank statements of the creditor showing non-satisfaction of claim

c.       an order of court or tribunal that has adjudicated upon non-satisfaction of claim, if any

The notification can be downloaded from the following link:

http://www.ibbi.gov.in/CIRP_Amendment.pdf

This notification shall be effective from 16^thAugust 2017.

Online Registration Mechanism for Custodian of Securities

The Securities and Exchange Board of India (SEBI) vide circular No. CIR/IMD/FPIC/094/2017 dated 09/08/2017 has introduced the process of online registration to submit the applications for registration as a Custodian of Securities under the provisions of SEBI (Custodian of Securities) Regulations, 1996.

All applicants desirous of seeking registration as a Custodian of Securities are now required to submit their applications online only, through SEBI Intermediary Portal at https://siportal.sebi.gov.in. The Custodian of Securities seeking approval as Designated Depository Participant (DDP) in terms of Regulation 11 of SEBI (FPI) Regulations, 2014 shall also apply through this portal. The aforesaid online registration system for Custodians of Securities and approval as DDP has been made operational with immediate effect.

Disclosures by listed entities of defaults on payment of interest or repayment of principal amount on loans from banks or financial institutions, debt securities etc.

SEBI has, vide circular no. CIR/CFD/CMD/93/2017 dated 4^th August, 2017, issued guidelines for listed entities with respect to making disclosures about defaults on payment or repayment of principal amount on loans from banks or financial institutions, debt securities.

As per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI LODR Regulations) material events / information are to be disclosed on the stock exchanges by listed entities including specific disclosures with regard to delay / default in payment of interest / principal on debt securities. Presently, this disclosure requirement is applicable in respect of delays / defaults in case of listed Non-Convertible Debentures, listed Non-Convertible Redeemable Preference Shares, Foreign Currency Convertible Bonds (FCCBs) only. However, similar disclosures in cases of delays / defaults were not prescribed for loans from banks and financial institutions.

Now SEBI has stated in this circular that disclosures shall be made to stock exchanges when a listed entity has defaulted in payment of interest or instalment obligations on debt securities, Medium Term Notes (MTNs), Foreign Currency Convertible Bonds (FCCBs), loans from banks and financial institutions, External Commercial Borrowings (ECBs).

This SEBI circular will be applicable to all the listed entities who have listed equity and convertible securities, non-convertible debt securities and non-convertible and redeemable preference shares.

Disclosures shall be made within one working day from the date of default at the first instance of default in the format specified. Listed entities are required to provide all the disclosures also to Credit Rating Agencies also.

Also in the above mentioned circular, SEBI has provided a list of disclosures which the listed entities are required to provide.

The list can be downloaded from the following link:

http://www.sebi.gov.in/legal/circulars/aug-2017/disclosures-by-listed-entities-of-defaults-on-payment-of-interest-repayment-of-principal-amount-on-loans-from-banks-financial-institutions-debt-securities-etc_35538.html

This circular shall be effective from 1^st October, 2017.

Limitation Period for making application for restoration of Company which is striked off by Registrar of Companies (ROC)

Many companies have been struck off by the Registrar from the register of companies.  Many questions have been raised on the clarity on limitation period for filing an appeal to tribunal for restoration of company. So for better understanding and clarity on this subject, we have presented the provisions in tabular form for your ready reference.

(A) Power of Registrar to strike off

Registrar can suo- moto strike off the company or the company can file an application for striking off its name from the Register of Companies.

Section	Provision	Grounds
248(1)	Registrar can suo-moto strike off companies  on the prescribed grounds	1.      Company has failed to commence its business within one year of its Incorporation; or 2.      Company is not carrying on any business or operation for a period of two immediately preceding financial years; and the company has not made any application within such time for obtaining the status of dormant company  under Section 455 of the Companies Act, 2013
248(2)	The company can file an application to the Registrar for striking off on all or any of the prescribed grounds

(B) Appeal to Tribunal for restoration of company

Registrar or any person aggrieved by the order of strike off can make application to tribunal for restoration on the prescribed grounds. The details of the same are mentioned in table below:

Limitation period for making application for restoration	Power to file an appeal for restoration	Grounds
3 years from the date  of order (Under section 252(1))	Registrar of Companies(ROC)	The name of the company has been struck off either 1.      Inadvertently; or 2.      On the basis of incorrect information furnished by the company or its directors
	Any person aggrieved by order	Removal of the name of the company from Register done by ROC is not justified in view of the absence of any of the grounds on which the order was passed by Registrar

Further company or any member, creditor, workman aggrieved by order of strike off can also file an appeal to tribunal for restoration. The details of the same are given in table below:

Limitation period for making application for restoration	Power to file an appeal for restoration	Grounds
20 years from the publication of Notice of strike off in the Official Gazette (Under 252(3))	Company or any member, creditor, workman aggrieved by order of strike off	If the company was carrying on business or in operation at the time of its name being struck off

Conclusion:

It can be concluded that if any company or any member, creditor, workman is aggrieved by the order of strike off, of such company which is carrying on business or in operation at the time of its name being struck off, it is advisable to file an appeal for restoration under Section 252(3) of Companies Act, 2013 for which the limitation period is 20 years rather than filing under Section 252(1) of the Companies Act, 2013 for which the limitation period is 3 years. By applying under Section 252(3), you just need to prove that the Company was carrying out business and Company is not required to prove that Registrar’s action is not justified, which is the requirement if the appeal is made under Section 252(1).

Transfer of shares of listed company to Private Family Trust

Facts of the Case:

·              Triveni Turbine Limited (Target Company) is listed on BSE and NSE.

·         Tarun Sawhney Trust (Acquirer Trust 1) and Nikhil Sawhney Trust (Acquirer Trust 2) are collectively referred as ‘Proposed Acquirers’

·         Proposed Acquirers applied to SEBI for seeking exemption from the applicability of regulation 3 (Substantial acquisition of shares or voting rights) read with regulation 5(1) (Indirect acquisition of shares or control) of SAST regulations, 2011.

·         Acquirer Trust 1 and Acquirer Trust 2 are private family trusts. Acquirer Trusts are entities set up by the Promoters of Triveni Turbine Limited.

·         Present trustees and beneficiaries of Acquirer Trust 1 and Acquirer Trust 2 are also the promoters and family members of the promoters and descendants of the Triveni Turbine Limited.

·         M/s Subhadra Trade and Finance Limited (STFL) is an unlisted company and a declared promoter of the Triveni Turbine Limited.

·         Existing shareholders of STFL i.e. Mr. Dhruv Sawhney and Mrs. Rati Sawhney will transfer 1,29,34,550 shares representing 94.66% of the equity share capital of STFL to Acquirer Trust 1 and Acquirer Trust 2 equally by way of gift/settlement.

·         By virtue of the aforesaid transfer, the Acquirer Trusts would indirectly acquire 8,73,30,417 equity shares (26.46%) in Triveni Turbine Limited.

·         Amalgamation of M/s Umananda Trade & Finance Limited (UTFL), M/s Tarnik Investments & Trading Limited (TITL), M/s Dhankari Investments Limited (DIL), TOFSL Trading & Investments Limited (TOTIL), The Engineering & Technical Services Limited (TETSL),Accurate Traders Limited (ATL) with STFL

·         Demerger of the ‘Investment business of Kameni Upaskar Limited (KUL) with STFL,

·         SEBI advised the Acquirer Trusts to modify its Trust Deed and to include in it an undertaking stating that if there is any change in the trustees/beneficiaries and in the ownership or control of shares or voting rights then the Stock Exchange should be informed accordingly.

·         Application is made by the proposed acquirers before making an open offer.

Findings:

SEBI granted exemptions to Acquirer Trusts under Regulation 3 read with Regulation 5(1) on the following grounds:

Grounds for exemption:

·   The acquisition for which exemption is sought will take place pursuant to a private family      arrangement

·         The proposed indirect transfer of shares of the Target Company is not to any third party but to Private Family Trust(s), whose Trustees and beneficiaries are the family members of the individual Promoters and their bloodline descendants. Transfer of shares will take place by way of gift/settlement.

·         The proposed settlement of 1,29,34,550 equity shares in STFL to the Acquirer Trusts does not in any way result in a change in control or management of the Target Company and there will be no change in the overall promoter shareholding of the Target Company.

·         The undertaking from the Acquirer Trusts stating that (a) any change in the trustees or beneficiaries of the Acquirer Trusts or any change in ownership/control of shares/voting rights held by the Trusts would be disclosed to the concerned stock exchange(s) and (b) the provisions of the SEBI Act and the Regulations framed thereunder will apply on the basis that the ownership or control of shares or voting rights in the Target Company are vested directly or indirectly with the Trustees and beneficiaries of the Acquirer Trusts, is enclosed (with) this application.

Order:

The Takeover Panel recommended grant of exemption to the Proposed Acquirers/Applicants subject to them submitting the registered amended Trust Deeds. Revised trust deed was submitted to SEBI on 13/07/2017.Hence exemption is granted to the Proposed Acquirers but subject to certain conditions.

Conclusion:

Lot of promoters of listed and unlisted companies are inspired to transfer their shares to private family trusts. Following are the objectives behind it:

·         To shield the personal assets and protect it from insolvency

·         To mitigate estate duty on transmission of shares

·         Efficient succession

·         Avoid any demand for partition in the company.

However, for any change in transfer of shares as per provisions of SEBI (SAST) Regulations, 2011, this judgment makes it very clear that SEBI can grant exemption under Regulation 3 and 5(1) on case to case basis. Thus, Promoters can approach SEBI and can claim exemption under Regulation 3 and 5(1) of SEBI (SAST) Regulations, 2011 if transfer of shares is to private family trusts.