Disaster management expenditure can now be claimed as CSR Expenditure

The Ministry of Corporate Affairs (MCA) has amended the Schedule VII of the Companies Act, 2013 (the Act). The Schedule VII of the Act speaks about the Activities which may be included by companies in their Corporate Social Responsibility (CSR) Policies. The schedule is amended by adding point (xii) viz.,

“(xii) disaster management, including relief, rehabilitation and reconstruction activities.”

It means, if the company has spent on recovery relief and management of issues caused by any natural disaster the said expenditure can be claimed as CSR The amendment is effective from the date of its publication in the Official Gazette which is 30 May, 2019.

Though, prior to this amendment, the Companies were also eligible to claim the Disaster relief fund as CSR expenditure under various heads

For example,

1. Medical aid under ‘promoting health care including preventive health care.’
2. Food supply under ‘eradicating hunger, poverty and malnutrition’.
3. Supply of clean water under ‘sanitation and making available safe drinking water’.  

(Source: Point 7 of Annexure to General Circular dated 18.06.2014) 

Source: http://egazette.nic.in/WriteReadData/2019/204898.pdf

SEBI not entitled to recover penalty from Corporate Debtor During Moratorium

Anju Agarwal (RP for Shree Bhawani Paper Mills Ltd.) vs. Bombay Stock Exchange & Ors

• The Resolution Professional (‘Appellant’) of Shree Bhawani Paper Mills Ltd. (‘Corporate Debtor’) challenged NCLT Allahabad order whereby it was held that Regulatory Authorities are not covered under moratorium as provided u/s 14 of the IBC. NCLT had held that BSE is not barred from compelling Corporate Debtor to comply with SEBI’s LODR Regulations.
• Rejecting BSE’s contention, NCLAT elucidated that as per Sec. 14 (1) (a) of IBC, the institution of suits or continuation of pending suits or proceedings against the Corporate Debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority is prohibited. Hence, NCLAT stated that Sec. 28A of the SEBI Act contravened Sec. 14 of IBC.
• Further, on perusing Sec. 238 of IBC which is an overriding provision, NCLAT held that Sec. 28A of SEBI Act is inconsistent with Section 14 of the Code, and Sec. 14 will prevail. NCLAT thus held that SEBI couldn’t recover any amount including penalty from Corporate Debtor, and for the same reason, BSE could not take any coercive steps against Corporate Debtor nor can threaten suspension of trading of shares.
• References given -Maharashtra Seamless Ltd. vs. Shri Padmanabhan Venkatesh & Ors.─Company Appeal (AT) (Insolvency) No. 220 of 2019 .Innoventive Industries Limited vs. ICICI Bank and Another

https://ibbi.gov.in//webadmin/pdf/order/2019/Apr/23rdApril%202019%20In%20the%20matter%20of%20Anju%20Agarwal.%20R.P.%20for%20Shree%20Bhawani%20Paper%20Mills%20Ltd.%20VS%20Bombay%20Stock%20Exchange%20&%20Ors.%20[CA(AT)(Insolvency)%20734-2018]_2019-04-26%2015:08:12.pdf

Introduction of Form for Reconciliation of Share Capital Audit report

Ministry of Corporate Affairs (MCA) vide notification dated 22 May 2019 has amended the Companies (Prospectus and Allotment of Securities) Rules 2014. Pursuant to the amendment, Sub-rule 8 of Rule 9A is amended whereby every unlisted public company to submit the Reconciliation of Share Capital Audit report with the registrar (ROC) in form PAS-6 within sixty (60) days from the conclusion of each half year.

The form is required to be digitally signed by any one of the Directors of the Company and to be certified by a Company Secretary in practice or by Chartered Accountant in practice duly engaged for the purpose of certification of this form. The filing fees of this Form shall be as provided in the Companies (Registration Offices and Fees) Rules, 2014, i.e., as per the Authorized capital slabs of the Company.

Before this amendment, sub-rule 8 of Rule 9A provided that “The audit report provided under regulation 55A of the SEBI (Depositories and participants) Regulations, 1996 shall be submitted by the unlisted public company on the half-yearly basis to the Registrar under whose jurisdiction the registered office of the company is situated.” Since the manner of submission was not clearly given in the Rule, there was lot of confusion among corporates with regard to the format of audit report, a timeline of submission and the e-form in which this report was to be submitted to ROC.

However, as mentioned in the Amendment Notification, this amendment is effective from 30 September 2019.

Probably the intention of this Amendment appears to enforce the requirement of filing this Audit Report with effect from the half-year ending on 30 September 2019. However, by the way, this Amendment Notification is drafted, the amendment will not be effective till 30 September 2019, and hence the current Rule 9A(8) as mentioned above will continue to be in force till then.

Hence, even after this Amendment, whether to submit this audit report for the half year ending 31 March 2019 and manner of submission, if required, is still unclear….

x

Informal Guidance issued in case of ONGC Videsh Ltd

SEBI has given informal guidance by way of an interpretative letter to ONGC Videsh Ltd under the SEBI (Informal Guidance) Scheme 2003 in connection to SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015.

Facts of the query

1)      ONGC Videsh Ltd is a wholly owned subsidiary of Oil and Natural Gas Corporation Ltd (“ONGC”). ONGC Videsh Ltd (“Company”) is in the business of exploration and production of oil and gas and other hydrocarbon related activities outside India.

2)      Company has issued NCD’s which are listed on NSE and the equity shares of the company are presently not listed on any stock exchanges in India.

3)      Prior to implementation of IndAS, Company was submitting half-yearly financial results to NSE on both standalone and consolidated basis. Thereafter now Company is submitting only standalone financial results.

Regulatory framework

      1) Regulation 52(1) states as follow, “The listed entity shall prepare and submit un-audited or audited financial results on a half yearly basis in the format as specified by Board within forty five days from the end of the half year to the recognized stock exchange(s)”

                                         

2      2) As per 1^st proviso to Regulation 52(1)(a) of SEBI(LODR) Regulations, “Provided that if the listed entity intimates in advance to the stock exchange(s) that it shall submit to the stock exchange(s) its annual audited results within sixty days from the end of financial year, un-audited financial results for the last half year accompanied by limited review report by the auditors need not be submitted to stock exchange(s)”

        3)   Reg 52 of SEBI (LODR) Regulations requires an entity whose NCD’s and/or NCRPS are listed to submit the half-yearly unaudited financial results within 45 days from the end of half year, or annual audited financial results within 60 days from end of financial year but it does not specify whether the results should be on standalone basis or consolidated basis or both. As against this Regulation 33 of SEBI (LODR) Regulations clearly states that an entity whose equity shares or any convertible securities are listed shall submit quarterly, half-yearly and annual financial results on standalone basis and in the event of any subsidiaries, also on consolidated basis. 

       4) Regulation 4 of SEBI (LODR) Regulations which is applicable to all listed entities provides that a listed entity shall ensure timely and accurate disclosure of all material matters including financial situation in the prescribed standards of disclosure. In this relation, the circumstances in which consolidated financial results may or may not be considered material is not specified where standalone financial results are already published.

Query:

Q1) Whether Company can submit its consolidated financial results over and above standalone financial results to the stock exchange in terms of Regulation 52 of SEBI (LODR) Regulations 2015?  

Ans: Regulations 52(1) of SEBI (LODR) Regulation warrants submission of only standalone financial results.

Copy of the Informal guidance can be viewed by below mentioned link:

https://www.sebi.gov.in/sebi_data/commondocs/may-2019/Informal%20Guidance%20to%20ONGC%20Videsh%20Limited%20SEBI%20letter_p.pdf

Director’s DIN to be marked as ‘Director of ACTIVE non-compliant company – Non-filing of e-form ACTIVE

Ministry of Corporate Affairs (MCA) vide notification dated 16 May, 2019 has amended the Companies (Appointment and Qualification of Directors) Amendment Rules.

Pursuant to this amendment, directors are required to take all necessary steps to ensure that the form e-form ACTIVE is filed within the specified time period. The amendment in rule is as follows:

1. DIN of all the directors associated with Companies which are required to file e-form ACTIVE, shall be marked as “Director of ACTIVE non-compliant company” if the e-form ACTIVE is not filed by due date which is 15 June, 2019 
2. All the above mentioned directors are required to take necessary steps to comply with the filing of e-form ACTIVE in all the companies.
3. The DIN of such director shall be marked as “Director of ACTIVE compliant company” once the e-form is filed by all the Companies in which such director is director.

Lender to Home Buyer cannot claim as Financial Creditor against Developer

Indiabulls Housing Finance Ltd (Appellant/ Financial Creditor /IHFL)Versus Rudra Buildwell Projects Private Ltd ( Respondent/ Corporate Debtor )

The case of the appellant is that as per request of the borrower, Sh Devender Singh and Ms Sushma Rajput, the appellant sanctioned loan of Rs.74,20,160/- on 6thApril, 2015.

The loan agreement was executed between appellant and the borrower on 6th April, 2015 and the aggregate loan amount sanctioned vide said loan agreement dated  6th April, 2015 was for Rs.73, 23,391.

In addition a tripartite agreement was also executed between the appellant, Corporate Debtor and the Borrower.

According to appellant in terms of the tripartite agreement dated 6.4.2015 the borrower and the Corporate Debtor are jointly and severally liable for payment of the Pre-Equated Monthly Instalment interest till commencement of the Equated Monthly Instalment.

It was alleged that the borrowers and the corporate debtor failed to maintain the financial discipline and defaulted in the payment of the Pre-Equated Monthly Installment Interest.


The Adjudicating Authority taking into consideration the aforesaid fact held that the application filed under Section 7 of I&B Code is not maintainable against M/s Rudra Buildwell Projects Private Ltd, the said respondent having not taken loan from the appellant.

Section 5(7) of Insolvency & Bankruptcy Code, 2016 defines “financial creditor” whereas Section 5(8) of Insolvency and Bankruptcy Code, 2016 defines “financial debt”.

In terms of Clause 5(8) of I&B Code, if disbursement is made for consideration of time value of money, a person can claim to be a financial creditor with regard to amount paid.

The appellant, IHFL, has disbursed the amount for consideration of time value of money in favour of borrower, Mr. Davender Singh and not to the builder. Therefore, the Adjudicating Authority has rightly held that Rudra Buildwell Projects Pvt Ltd is not the corporate debtor of the appellant and the application under Section 7 of I&B Code is not maintainable.

Amendment in timeline for filing Debenture Trustee’s Certificate in case of certain companies

The Securities and Exchange Board of India (SEBI) has vide notification dated 7^th May 2019, amended certain provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI LODR Regulations”). This amendment was approved by SEBI at its Board meeting held on 1^st March 2019.

The background and implications of this amendment are explained as follows:-

Background –

Under Regulation 33 of SEBI (LODR) Regulations, equity listed entities are required to submit quarterly financial results within 45 days from the end of every quarter (mandatorily within 60 days from end of last quarter/ financial year)

Similarly, under Regulation 52 of SEBI (LODR) Regulations, debt listed entities are required to submit half-yearly and annual financial results within 45 days from the end of half-year (optional within 60 days from end of last half year / financial year)

Under Regulation 52(4) of SEBI (LODR) Regulations, while submitting half yearly / annual financial results, the debt listed entity needs to disclose the following items along with the financial results:

(a) credit rating and change in credit rating (if any);

(b) asset cover available, in case of non-convertible debt securities;

(c) debt-equity ratio;

(d) previous due date for the payment of interest/ dividend for non-convertible redeemable preference shares/ repayment of principal of non-convertible preference shares /non-convertible debt securities and whether the same has been paid or not; and,

(e) next due date for the payment of interest/ dividend of non-convertible preference shares /principal along with the amount of interest/ dividend of non-convertible preference shares payable and the redemption amount;

(f) debt service coverage ratio;

(g) interest service coverage ratio;

(h) outstanding redeemable preference shares (quantity and value);

(i) capital redemption reserve/debenture redemption reserve;

(j) net worth;

(k) net profit after tax;

(l) earnings per share:

Under Regulation 52(5) of SEBI (LODR) Regulations, while submitting the above mentioned information under Reg 52(4), the debt listed entity also needs to submit to stock exchange(s), a certificate signed by debenture trustee that it has taken note of the contents.

Practical Difficulty faced by Companies having listed equity shares on Main Board of stock exchanges as well as listed Debt Securities -

Now, equity listed entities are also governed by Reg 30 of SEBI (LODR) Regulations. Under Regulation 30(6) read with Para A of Part A of Schedule III of the said Regulations, financial results are to be submitted within thirty minutes of the conclusion of the board meeting.

In case of entities having only listed debt securities, the timeline prescribed for submission of financial statements is 45 days from the end of half year / optionally 60 days from end of financial year under Reg 52(1), and there is no specific timeline prescribed after conclusion of board meeting, for submission of financial results to stock exchange.

Hence practically speaking, in case of issuers having both listed equity and debt securities, they had a very short time frame after adoption of financial results by the Board of Directors, for seeking the above mentioned certificate from Debenture Trustees as required under Regulation 52(5).

Amendment in this regard –

Hence, now SEBI has modified Regulation 52 of SEBI (LODR) Regulations as follows:-

1.       A proviso has been inserted in Regulation 52(1) which says that “in case of entities which have listed their equity shares and debt securities, a copy of the financial results submitted to stock exchanges shall be provided to Debenture Trustees on the same day the information is submitted to stock exchanges.”

2.       Regulation 52(5) which prescribed that, the listed entity shall, while submitting the financial results and the above mentioned information about debt securities to stock exchange(s), shall also submit a certificate signed by debenture trustee that it has taken note of the contents, has been amended with respect to the timeline of submission of this certificate.

As per Amended Regulation 52(5), within seven working days from the date of submission of financial results and the above mentioned information about debt securities to stock exchange, the listed entity shall, submit to stock exchange(s), a certificate signed by debenture trustee that it has taken note of the contents.

Accordingly, as per this Amendment,

(a)    the Companies having listed equity shares and listed debt securities are under a compulsion to submit a copy of financial results to the Debenture Trustees on the same day when it is submitted to stock exchange.

(b)   All debt listed companies have now got a period of 7 working days for submission of certificate from Debenture Trustee to stock exchanges, after submission of financial results and other debt securities related information to the stock exchanges.

The copy of the SEBI Notification dated 7th May 2019 for amendment to SEBI (LODR) Regulations, 2015 in this regard is available on following link:

https://www.sebi.gov.in/legal/regulations/may-2019/securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-second-amendment-regulations-2019_42977.html