Private Placement to National Land Neighbours


Ministry of Corporate Affairs, with effect from 5 May 2022, amended the Companies (Prospectus and Allotment of Securities) Rules, 2014.

The newly inserted Fifth Proviso to Rule 14(1) states:

“No offer or invitation of any securities under this rule shall be made to a body corporate incorporated in, or a national of, a country which shares a land border with India, unless such body corporate or the national, as the case may be, have obtained Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and attached the same with the private placement offer cum application letter.”

According to Rule 6 of The Foreign Exchange Management (Non-debt Instruments) Rules, 2019, an entity of a country which shares a land border with India or a beneficial owner of an investment into India who is situated in or is a citizen of any such country, shall only with the Government Approval. A person who is a citizen of Pakistan or is an entity incorporated in Pakistan shall invest only with prior government approval. In a few sectors, there is an explicit prohibition.

India shares land borders with Bangladesh, Bhutan, China, Myanmar, Nepal, and Pakistan. However, these rules do not apply to Indonesia, Thailand, Maldives and Sri Lanka, as these are Maritime Neighbours not sharing a land border with India.

For this Purpose, A tick declaration is inserted into the Form PAS – 4, which is the private placement offer cum application letter.

Form PAS – 4, Part – B, serial Number (viii):

“Tick whichever is applicable

  • The transferee is not required to obtain the Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 prior to the transfer of shares; or
  • The transferee is required to obtain the Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 prior to the transfer of shares, and the same has been obtained and is enclosed herewith.”.

This will help the company to ascertain prior compliance with the Foreign Exchange Management (Non-debt Instruments) Rules, 2019.

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Declaration on Securities Transfer Form


Transfer of shares or other securities under the Companies Law is a pretty simple affair.

In the case of listed securities, you can click the sell button on the online platform of your service provider without interacting with the buyer. When the sell and purchase orders are linked, the system will affect the transfer without your further action. Even concerned companies are not required to take any further action to accept time to time supervision and audit. In the case of other dematerialised securities, the security transfer transaction went smoothly, except the seller took steps to find a buyer, and the company will confirm the sale. For dematerialised transactions, there are strict KYC Norms for Depositories Participants.

In the case of the unlisted securities, securities transfer occurs with specific paperwork. Where a non-resident or foreign person is involved,  the paperwork increases manifold. There is a reporting procedure with the Reserve Bank of India in such cases. In certain cases, the transferee requires prior approval from the Government of India.

According to Rule 9 of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, a person resident outside India not being a non-resident Indian, or an overseas citizen of India or erstwhile overseas corporate body may transfer by way of sale or gift the equity instruments of an Indian company or units held by him to in any person resident outside India. However, for companies in specific sectors, prior government approval is required.

According to Rule 6, an entity of a country which shares a land border with India or a beneficial owner of an investment into India who is situated in or is a citizen of any such country shall invest only with the Government Approval. A person who is a citizen of Pakistan or is an entity incorporated in Pakistan shall invest only with prior government approval. In a few sectors, there is an explicit prohibition.

India shares land borders with Bangladesh, Bhutan, China, Myanmar, Nepal, and Pakistan. However, this rule does not apply to Indonesia, Thailand, Maldives, and Sri Lanka, as these are Maritime Neighbours and do not share a land border with India.

To give effect these rules, the Ministry of Corporate Affairs amended the Form SH-4 of the Companies (Share Capital and Debentures) Rules, 2014, to enable the companies to have prior information.

The Companies (Share Capital and Debentures) Amendment Rules, 2022, with effect from 4 May 2022, inserted the following declaration in the Form:

“Declaration:

  • The transferee is not required to obtain the Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 prior to the transfer of shares; or
  • The transferee is required to obtain the Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 prior to the transfer of shares, and the same has been obtained and is enclosed herewith.”.

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E-Auction Notice: VGA Developers Pvt Ltd in Liquidation


E-AUCTION SALE NOTICE
[Regulation 32 and 33 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016]
Sale of Assets and Properties owned by and forming part of Liquidation Estate of VGA DEVELOPERS PRIVATE LIMITED IN LIQUIDATION presently in the possession of the Liquidator, appointed by the Hon’ble National Company Law Tribunal, New Delhi vide order dated 1 September 2021. The sale of properties will be done by the undersigned through the e-auction platform:
<<https://ncltauction.auctiontiger.net>>

VGA DEVELOPERS PRIVATE LIMITED IN LIQUIDATION
CIN: U45400DL2010PTC197841
Last Date to apply and submission of Documents:19 April 2022, 5.00 PM
Date and Time of E-Auction: 22 April 2022, 10.30 AM to 4.30 PM
(With the unlimited extension of 5 minutes each)

Assets detailsReserve PriceEMDIncremental Value
Land and Building: Residential plot under sub-lease with an area of 20,071 Square Meters (approximately 4.95 Acres) along with a partially build Building located at GH-P4 situated at Sector 25, Jaypee Greens Sports City, SDZ, Yamuna Expressway Industrial Development Authority Area, District Gautam Budh Nagar, Uttar Pradesh (as it is)₹ 40,50,00,000 (Forty Crore Fifty Lakhs Rupees Only)₹ 4,05,000 (Four Crore Five Lakh Rupees Only)₹10,00,000
(Ten Lakh Rupees Only)

The terms and conditions of the E-auction are as under:

  1. E-Auction will be conducted on “AS IS WHERE IS’’, “AS IS WHAT IS” and “WHATEVER THERE IS BASIS’’ through approved service provider M/s e-procurement Technologies Limited (Auction Tiger).
  2. The Complete E-Auction process document containing details of the Assets, online e-auction Bid Form, Declaration and Undertaking Form, and General Terms and Conditions of online auction sale are available on the website https://ncltauction.auctiontiger.net.
    Contact Person on behalf of Auction Service Provider:

Mr. Praveenkumar Thevar at +91-9722778828/6351896834/ 079 6813 6855/854 E-mail: praveen.thevar@auctiontiger.net, nclt@auctiontiger.net  /support@auctiontiger.net

Contact Person on behalf of liquidator:

Mr Dharmveer Kumar at +91 95556 66268
Email: cirp.vgadevelopers@gmail.com

 
Date: 5 April 2022
Place: New Delhi
  Mr. Aishwarya Mohan Gahrana
Liquidator IBBI/IPA-002/IP-N00135/2017-18/10351
5 April 2022 Business Standard English New Delhi Page 5
5 April 2022 Business Standard Hindi New Delhi Page 9
5 अप्रैल 2022 बिज़नस स्टैंडर्ड हिन्दी नई दिल्ली पृष्ठ 9

2nd Edition-National Corporate Restructuring Competition


The Centre for Corporate and Competition Law at Symbiosis Law School, Hyderabad is glad to announce that we are conducting the 2nd Edition of the one-of-a-kind National Corporate Restructuring Competition

Through this event, CCCL aims to highlight the importance of corporate restructuring by providing students with an opportunity to expand their knowledge by way of analysis of business situations, in order to build strategies for restructuring. 

About the 2nd National Corporate Restructuring Competition 

With the complexities of the business world and the rapid change that we see around us, it is often necessary to fine-tune learning to address the specific needs of law students.  Almost every Law student in today’s era aims to join the corporate side. The streams in Corporate Law are complex and very recurring. To make the learning of corporate law more interesting and effective through practical exposure, Symbiosis Law School, Hyderabad & Centre for Corporate and Competition Law is coming up with its 2nd National Corporate Restructuring Competition.  

Date: 14th and 15th May 2022

Platform: Zoom

Last day to register: 21st April 2022 before 11.59 p.m.

N.C.R.C. 2.0 Brochure: https://drive.google.com/file/d/1sf0y9JWmyq5K_qKBzrcJHzIBhe5-JfLN/view?usp=sharing

Rules and Procedure: https://drive.google.com/file/d/1TWH6YPb0Z_0z8xW_8wqoFtLLxxPFfHKe/view?usp=sharing

Case Vehicle: https://drive.google.com/file/d/1GJUsU-o5HINleUQWBt_fUZ6nXp-zDT1G/view?usp=sharing

Registration Link: https://forms.gle/soi5FKGS3j9pEmJs9

Who can register?

Students duly enrolled and are pursuing 3-year or 5-year undergraduate law courses from any university recognised by the Bar Council of India. 

E-certificates will be provided to all the participants.

Indicative laws to be reviewed
1. Companies Act, 2013, and where applicable, Companies Act, 1956 (minor correction by Aishwarya Mohan Gahrana);
2. Securities and Exchange Board of India Act, 1992; and any other relevant Acts
(inputs added by Aishwarya Mohan Gahrana: Insolvency and Bankruptcy Code, 2016 has good scope for corporate restructuring; all rules and regulations under these Acts; Order of Hon’ble NCLT and above judicial authorities, )

About the Centre for Corporate and Competition Law:

Established in 2018, the Centre for Corporate and Competition Law (CCCL) is a student-run centre aiming to provide a platform for students of the institute to explore and learn more about the nuances of Corporate and Competition Law, and to prepare them for the corporate world. To advance our agenda, CCCL has been successful in conducting multiple landmark events including the first-ever National Corporate Restructuring Competition in 2019. 

Furthermore, CCCL have successfully organised several national webinars, discussions, capsule courses and a National Conference in competition law with over 30 research paper submissions from across the country, of which many of our events were in association with the Competition Commission of India. CCCL have also spread our roots in banking law by conducting a three-day value-added course on the Insolvency and Bankruptcy Code. Over the past two years, CCCL has invited eminent personalities like Mr Dhanendra Kumar, the first Chairperson of the CCI and Dr K. D. Singh, Joint Secretary for Law at CCI to conduct webinars on relevant topics.

Our very recent event was SLSH’s first-ever corporate consultancy competition conducted last month. 

C.C.C.L. Brochure:https://drive.google.com/file/d/14NyJG3C98YPOEkPcxv8fD2Hu_Q2Bd5nv/view?usp=sharing

About Symbiosis International University:

The concept of ‘Symbiosis’ is nurtured by Dr S. B. Mujumdar (Chancellor, Symbiosis International (Deemed University)) on the principles of Vedic thought ‘Vasudhaiva Kutumbakam’ which means ‘World as One Family’.
Symbiosis Law School (SLS) Hyderabad was established in 2014 inheriting splendid novelty, dynamism and excellence under the aegis of Symbiosis International (Deemed University), Pune.

Email us at cccl@slsh.edu.in to clear your queries.
For more details on our activities, you may follow our LinkedIn and Instagram (@cccl_slsh) Pages.

A post was published on request from organizers CCCL.

REPORT ON CORPORATE SOCIAL RESPONSIBILITY


Form CSR – 2, notified vide GSR 107(E) on 11 February 2022, is on our desk to fill and file. If you have missed the information overflow, the last date for filing the same for the financial year ended on 31 March 2021 is 31 March 2022. I am not sure of the mechanism, but it may be an attachment of Form GNL – 2.

It seems next year onward; this will be an addendum, not the attachment, to Form AOC – 4/ AoC – 4 XBRL/ AoC – 4 NBFC (Ind AS).

Notification GSR 107(E) on 11 February 2022

We cannot wait but to prepare the data to fill for all of our valuable clients – every company covered under the provisions of sub-section (1) to section 135. Please refer to the newly inserted Rule 12(1B) of the Companies (Accounts) Rules, 2014.

List of Documents for support:

  • Copies of Audited Balance Sheet of last three financial years;
  • Form AOC – 4/ AoC – 4 XBRL/ AoC – 4 NBFC (Ind AS) filed for the financial year [referred hereinafter as AOC-4];
  • Form MGT – 7 filed for the financial year;
  • Paid Challan for Form AOC – 4/ AoC – 4 XBRL/ AoC – 4 NBFC (Ind AS) filed for the financial year [referred hereinafter as Challan];
  • Latest Board Resolution constituting CSR Committee;
  • Constitution of CSR Committee;
  • Minutes of CSR Committee Meetings held during the financial year [FY 2020-21;
  • Company Website with Compliance menu and CSR Tab thereunder;
  • Impact Assessment Report of each CSR Project;
  • CSR Ledger and CSR Bank Account Statement for the financial year;
  • Bank Statement of Unspent CSR Account for previous three financial years;
  • Annual Action Plan CSR for the last financial year; and
  • The Implementation Reports for each of the CSR Projects as on 31 March of the financial year with minutes of the CSR Committee meeting considering the same [For all projects completed during the last financial year or ongoing as on 31 March of the financial year].

Information to Fill:

The net worth, turnover, and net profit data should be the same as Form AOC – 4 filed for the financial year.

Meeting details of the CSR Committee should confirm the details from the latest Board Resolution constituting the CSR Committee and Minutes of the meeting of CSR Committee held during last Financial Year.

The Impact assessment report should be on your desk for confirmation and on the company’s website at least before you fill out the Form. The weblink should be in working condition. I am not sure if the link’s implication got broken in the future. Therefore, it is advisable to attach the report with the Form.

The set-off amount should be taken from the balance sheet or confirmed by your auditor.

The company should confirm CSR obligation with audited balance sheets of the last three financial years.

Details of each (A) Ongoing project started in previous years completed in Financial year, (B) Ongoing project started in previous years still not completed in Financial year and (C) project initiated and completed during the Financial Year:

  • Project ID;
  • Item number from Schedule VII – CSR Schedule;
  • Name of Project;
  • Local Area – Yes/No;
  • Location of the Project – State and district
  • Project duration in months;
  • Amount spent during the financial year;
  • Mode of implementation – direct or indirect;
  • Name and CSR Registration Number of the Implementation Agency;
  • Amount paid on administrative overhead
  • Amount spent on impact assessment
  • Total amount spent during the year
  • Amount spent more than the obligation;
  • Amount unspent; and
  • Amount transferred to the Scheduled Fund.

Details of Unspent Fund for the financial year:

  • Details of the amount transferred to Unspent CSR Account; and
  • Details of the amount transferred to Scheduled Funds.

Details of the amount spent in the financial year from the unspent fund of previous three financial years

  • Year-wise amount transferred to Unspent CSR Fund;
  • Year-wise balance of the amount transferred to Unspent CSR Fund;
  • Amount spent in the financial year;
  • Amount transferred to Scheduled Fund; and
  • Year-wise Remaining amount for the year.

Initial Impact assessment of CSR-2

The Form is my hate of first sight due to the complication of data required. Please get the filled Form vatted by a qualified professional, including auditors. In addition, the Form is so demanding it will be easier to transfer your social responsibility amount to the Government pet funds listed in Schedule VII.

The government is pretending to promote and protect the MSME Sector. A Company with a turnover of less than 100 Crore and investment in plant and machinery of less than 20 is an MSME company. Good numbers of MSME companies are CSR companies. These companies do not have an efficient mechanism to undertake and implement CSR projects. With the present detailed Form, we are opening gates for tax assessment like monitoring social contribution. With the implementation of burdensome Form, we are forcing MSMEs to transfer funds to certain government-sponsored funds. These funds have doubtful answerability towards constitutional auditors (CAG) and constitutional stakeholders (the parliament).

Tax terrorism must be an ancient term by now. Social services are not voluntary anymore but increasingly subject to regulatory control and reporting.

In continuation of my earlier appeals, I beg ease of doing CSR. Please believe in your people and corporate citizens. But unfortunately, the compliance, reporting, monitoring and prosecution cost will be higher than possible leakage. Therefore, society will not get benefits from being overburdened.

Legitimacy vs Taxation


Whether trading of dead roots of paddy harvest is legal or not? Please mention a law supporting or opposing the legal status of the trade of these dead roots. Nothing is there. You can find burning stubble is punishable under pollution law. Now, whether burning such stubble in your village kitchen after removal from the farm is legal. Please check.

Anything not (expressly) prohibited is permitted unless it is a dictatorial regime. The Virtual Digital Asset (VDA) has the same status. It is allowed as not banned. Regulators issued warnings against trade and investment, but these are just precautionary notes. The Virtual Digital Asset may not always be a financial asset or cryptocurrency.

According to the definition inserted in the Income Tax Act, it may be a code, number, token, non-fungible token, any other token of similar nature, any other digital asset. It may include cryptocurrency, but in my opinion, it does not central bank digital currency. Central Bank Digital Currency (CBDC), like Digital Rupee, should be defined as currency by their respective issuer countries. It may attract impact later from the Reserve Bank of India under the Foreign Exchange Management Act.
In the budget 2022, the Government announced a tax on the profit earned from trading the virtual digital asset. Is it a progressive step towards the legality of cryptocurrency? No, it is not. Taxation does not determine the legitimacy of a transaction or trade. We have many examples.

Liquor trade attracts tax in India. Is liquor trade legal? There is no perfect yes. In Gujarat and Bihar, it is not legal to trade at all. In Maharastra, no one can purchase it without a licence (even though most of us do not care to have such a licence). So, a sale to a person who does not have a licence may not be good in law. In the rest of India, you cannot purchase beyond a specific limit without an additional license for the party etc. The sale of liquor is not legal if made to a person below a certain age. But, in all cases income of such trade attract tax.

Presently, the lottery is legal to trade in only a few states in India. But, the income from the lottery is lawful all over India and attract a handsome income tax.

Can a person purchase a property in the name of his father or mother? Is it legal? Please read the provision of Benami prohibition law.

These examples show that taxation, the colour of income, and the legality of a transaction are an exciting interplay of transactions and rules – regulations.

It is also premature to say if this crypto tax will attract handsome tax revenue for the Government. The legal status of the transaction is not clear. Otherwise, the lottery tax should have been a jackpot for the Government. After initial cheers, the market interpreted the actual intention to discourage crypto-currency trade.

One reason to announce the tax is an expectation of the ministry to determine the legality of the cryptocurrency trade during the current financial year. The second reason is to track and check these transactions through tax deductions at the source.

PREPARE TO BE A SUBSCRIBER/ FOUNDER OF A COMPANY


To be a good founder, promoter or subscriber of a company to be incorporated, one should at least have a well-documented identity and good financial health. I always suggest an excellent biodata with all supporting documents. There is a functional requirement for well-prepared bio-data. Your list of documents should include:

ParticularSupporting Document
NamePAN Card – Permanent Account Number of Income Tax Department
Father/ Mother NamePAN Card – Permanent Account Number of Income Tax Department
Date of BirthPAN Card – Permanent Account Number of Income Tax Department
Place of BirthPassport or Birth Certificate
PAN Card – Permanent Account NumberPAN Card – Permanent Account Number of Income Tax Department
UID – Unique Identification Number, if anyAadhar Number
DIN – Director Identification Number, if anyDIR Allotment Letter issued by Ministry of Corporate Affairs
Other Identity NumbersAny one of Passport, Driving Licence, Voter Identity Card,
Present AddressElectricity Bill/Telephone Bill/Mobile Bill/Bank Passbook (not more than two months earlier)
Permanent AddressUID/Passport/or other address proof as applicable for present address
Educational QualificationA document showing the highest education obtained
Email Address
(personal not provided by employer)
To be verified by One Time Password (OTP)
Mobile Number
(personal not provided by employer)
To be verified by One Time Password (OTP)
Passport size PhotographNot more than two months earlier
Digital Signature CertificateDSC is an algorithm issued by a certificating authority (CA) licenced by the controller of certifying authorities (CCA) under the Ministry of Information Technology. DSC is based on your documentary proof and issued in pen drive like signature tokens.
Bank BalanceThe subscriber undertakes to have a certain number of shares. If a subscriber could not pay for these subscription shares of the company so incorporated, the company may not commence its business.
List of companies in which you are directorMCA website may be helpful
List of companies in which you have more than 2% shareholdersOne should always have a detail of investments made. Otherwise, Income Tax Annual Information System may have some details

Every person should ensure all these documents have updated address and marital status information.

One common issue in these documents is spelling differences and style differences on different documents. To avoid inconvenience, always check your documents carefully and update them regularly.

No Extension but Facilitation for Late AGM


The General Circular 19/2021 dated 8 December 2021 caused a little confusion among the public. The circular says it is decided to allow the companies whose AGMs are due in the year 2021 to conduct their AGMs on or before 30 June 2022 following the requirements laid in General Circular 20/2020 dated 5 May 2020 that is by video conference or other audio-visual means.

The Circular permits companies to have their AGM for the year 2021 until 30 June 2022 without extending the period. All Registrar of Companies has granted a General Extension for holding Annual General Meeting until 30 November 2021, which date already expired. All Registrar of Companies after that granted case-to-case basis extensions to most companies that applied for additional extensions. Registrar of Companies has no power to extend this period beyond three months ending on 31 December 2021. So, this circular does not extend the period to hold Annual General Meeting.

We have a clear understanding Annual General Meeting of a company is an essential requirement. The law provides a specific period to have an Annual General Meeting and consider the default of the compliance as an offence. But it does not mean that it is impossible or legally unwarranted to have an annual general meeting after the statutory specific period. Not holding Annual General Meeting for three or more years may result in the ending of corporate life. Otherwise, not holding Annual General Meetings or delaying holding Annual general meetings beyond a statutory specific period are offences punishable with a fine. The delay is a compoundable offence.

Present circular facilitates companies that may not hold their annual general meeting within a permitted or extended period. These companies may have their annual general meeting till 30 June 2022 by video conference or other audio-visual means. Where these companies hold their annual general meeting after 30 June 2022, they shall have their annual general meeting in physical mode (unless this period is further extended).

The circular itself clarify this circular shall not be construed as conferring any extension of time for holding annual general meetings by the companies under the Companies Act, 2013. The companies which have not adhered to the relevant timelines shall be liable to legal action.

Thus, companies holding their annual general meetings after 31 December 2021 for the year ended on 31 March 2021, these companies should apply for compounding of offence. Please note, there is one precondition of compounding of offence; a similar offence should not have happened in the last three years.

Many companies hold their annual general meetings for the year ended on 31 March 2020 after extended time expired on 31 December 2020. The Ministry or Registrar of companies has yet not initiated any legal action. It seems the Government is taking a lenient view against these companies. However, by this general circular government signalling companies to have their annual general meeting within time failing which opt for compounding of offence, if possible. Otherwise, the Registrar will take appropriate legal action under the law.

WHERE MEMBER COMPANY REMOVED FROM THE REGISTER OF REGISTRAR


One of the fundamental principles of corporate law is that a company independent existence than the existence of its shareholders. Therefore, all members of a company may die, the company will not.

When I read this principle, admittedly, I had limited vision. I presumed members either as natural persons with life and death or bodies corporate as members, their merger, amalgamation, winding up and liquidation. The removal of the name of the member company from the registrar was not an example suggested then.

There would be no direct impact on the existence of the company if the Registrar of Companies removed the name of a member company under Section 248 of the Companies Act, 2013 from the register of companies. However, for companies with small numbers of members, this is not an ideal situation.

The removal of the name of one or more member companies:

  • quorum in general meetings;
  • holding of company meetings on shorter notice;
  • holder of beneficial interest in a share if in favour of such a member company; and
  • Significant beneficial ownership (SBO) may have interest impacts.

This list is not an exhaustive one.

No, paying dividends to these companies does not bother. On the contrary, it may help to a limited extent. The right issue of shares may also have an exciting twist.

Quorum in general meeting is not a big deal if managed by other members properly. They may calculate the required number of transfers to satisfy the legal number.

Even without such an odd situation, a company may face a hurdle to convene a general meeting on shorter notice. The company may not call an extraordinary public meeting on a shorter period notice, where a member company holds more than 5% shares. Similarly, where the company has less than 20 members, there will not be an annual general meeting on a shorter notice period. In the first case, only a fresh issue of shares may help. In the second case, some well-calculated share transfers by an existing member may help.

In all earlier situations, these shares shall always remain in the hand of companies whose name is not in the register of companies.

I see no direct impact on the holder of the beneficial interests except to comply with an earlier direction given by the actual owner or beneficial owner.

The law related to significant beneficial ownership comes into the picture if the member company has a shareholding of more than the threshold limit of the applicability of these rules. Unlike previous situations here, these shares may land in the hand of the Investor Education and Protection Fund Authority. The company will have to transfer these shares held by such a member company will also be transferred to the Investor Education and Protection Fund Authority in case of declaration of dividend, but with a wait of seven years.

As the name of the member company remains there in the register of members despite its removal from the register of companies in the office of the Registrar of Companies, it requires some regulatory step to be taken. I suggest a law to transfer shares belonging to these member companies in favour of the Investor Education and Protection Fund Authority.

Activation of DIN Post Completion of Disqualification Period


On 26 November 2016, the Ministry of Corporate Affairs came out with its first list of directors disqualified under Section 164(2)(a). The Registrar of Companies, Tamil Nādu, Coimbatore, issued a list with a total of 2042 names with disqualification from 1 November 2017 till 31 October 2022.

From September 2017 onwards, various offices of the Registrar of Companies issued different lists of disqualified directors for period 1 November 2014 to 31 October 2019, 1 November 2015 to 31 October 2020 and 1 November 2016 to 31 October 2021, 1 November 2017 to 31 October 2022. All sets of these lists of directors so disqualified may be found here.

Immediately after that, few directors so disqualified approached High Courts under writ jurisdiction. High Court found disqualifications from 1 November 2014 to 31 October 2019 and from 1 November 2015 to 31 October 2020 invalid as the provision under Section 164(2)(a), introduced in the year 2014, and it has prospective effect only.

MCA deactivated the DIN of directors, so disqualified to implement their disqualification. These DIN so deactivated could not be used for any filing purpose on MCA for the period of disqualification.

There is a lengthy debate on the manner of implementation of this law. I was surprised with the way of quick acceptance of disqualification and wrote this long post here. But, these people know how to bow and run the show.

So, the first effective batch of persons disqualified to be a director completed their disqualification period on 31 October 2021. Now, our mighty directors once again keep mum. There is no automatic removal of disqualification on the practical side. The Government, while deactivating the DIN, forgot to place the automatic activation command in the system. Due to technological and bureaucratic excuses, MCA activated deactivated DIN after delays of 20 more days.

Those who support a violation of the human rights of others do not fight for their own human and legal rights (unless huge money involved). This incident is another fine example.

Now, these directors may again enjoy the tag of director on their business cards. However, they need to check their KYC Compliance status. Directors are clients of MCA. Therefore, MCA needs to know who they are. For this, they should check whether they have complied with the annual KYC requirement. (Un)fortunately, due to ignorance of the law, alienation, or professional advice, most people did not file their KYC documents with MCA. Anyway, such KYC non-compliance secure you from unwanted directorship in a company by fraud on you.

Now, these people, if willing to be directors, should file their KYC Documents with MCA.

This compliance may cost:

  1. Digital Signature Certificates;
  2. Filing Fee; and
  3. Professional Charges.

FUNCTIONS AND DUTIES – REGISTRAR OF COMPANIES


The general public has little awareness about the function and duties of the office of the Registrar of companies. In this post, we will have an overview of the functions and duties of the Registrar of companies.

The registrar of companies is an office of a public authority under the administrative control of the Ministry of Corporate Affairs, Government of India. Each office of the Registrar has jurisdiction over the territory allocated by the administrative ministry. These jurisdictional terrorises may be a part of a state and more than one state. Maharashtra and Tamandu have two registrars of companies while the Registrar of Companies Guwahati has jurisdiction over 7 states.

The Registrar of Companies has its jurisdiction over companies and LLPs having registered office in his territory. The Registrar directly reports to the Regional Directors.

The Registrar has duties and functions as the regulatory authority under the corporate law as well as administrator of provision of corporate law.

Processing the documents, returns and forms filed by the companies/LLPs
Functioning as a registry of records relating to the companies/ LLP’s
Facilitating inspection of documents and returns by Public, Investors, Banks and Professionals and other public authorities and supply of certified copies of those documents.
Dealing with the change of names of companies and LLP’s, conversion of status of companies from Private to Public and vice versa, striking off names of companies& LLP’s, action against companies & LLPs for various violations
Monitoring of compliance requirements by companies/LLPs through the mechanisms envisaged under the Act.
Inspection of books of accounts of companies
Redressal of grievances of Investors of those companies
Launching prosecution against companies and their directors for violation of Acts.
Disposal of applications under the Companies Act
Issue of enquiry letters and show cause notices to companies, their directors and Secretaries
Communication with and reporting to the superior offices of the Ministry of Corporate Affairs and other Ministries/Departments and other offices in the Ministry of Corporate Affairs.
Interaction with the Professional bodies and Industry Associations
General administration

Powers and duties of officers of the Registrar office:

Registrar of Companies/Deputy Registrar of Companies/Assistant Registrar of Companies discharges their duties as empowered by the Acts including administering the provisions of the Acts and acting as a regulatory authority of corporate bodies.

Company Prosecutors are appointed for the conduct of prosecutions arising out of the Act. They have all the powers and privileges conferred by the code on Public Prosecutors appointed by the State Governments.

Duties of staff and employees of RoC office

The staff assists the officers in discharging duties of processing the e-forms filed by companies/LLPs, an inspection of books of account of companies, prosecution of defaulting companies, scrutiny of documents filed, an inspection of records and maintenance of records. This includes receipt and processing of:

Documents, returns and applications filed by companies/LLP’s
Investors’ grievances
Applications from shareholders for payment of unpaid dividend
Preparation of reports, enquiry letters, show cause notices etc
Facilitating inspection of documents of companies by Public
Supplying certified copies of documents registered to the applicants
Other works are entrusted to them.

STAKEHOLDERS’ CONSULTATION COMMITTEE IN LIQUIDATION


Stakeholders’ Consultation Committee in liquidation do not have any parliamentary backing but a product of subordinate legislation. This is a committee constituted under Regulation 31A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. To understand the scope of stakeholders’ consultation committee we may refer to Section 35(2) and executive overreach in a legislative mandate.

Power to Consult

Section 35(2) empower the liquidator to power to consult any of the stakeholders entitled to a distribution of proceeds under section 53. This is not a duty of the liquidator but power meaning thereby this consultation is completely optional on part of the liquidator. Under law, any such consultation is not be binding on the liquidator.     However, the law mandate record of such consultation, if it takes place. The records of any such consultation shall be made available to all other stakeholders not so consulted, in a manner specified by the Board. [Section 35(2)]

This is the duty of stakeholders consulted to extend all assistance and cooperation to the liquidator to complete the liquidation of the corporate debtor. [Regulation 8(1)]

For the purpose of Second proviso, the liquidator shall maintain the particulars of any consultation with the stakeholders made under this Regulation, as specified in Form A of Schedule II. [Regulation 8(2)]

Consultation Committee

The above law is the major position under the Insolvency and Bankruptcy Code, 2016 and the Liquidation Regulations.

However, the Insolvency and Bankruptcy Board of India (IBBI) to streamline this consultation process, prescribes the Stakeholders’ Consultation. With the recent amendment, the stakeholder’s consultation committee becomes a significant affair. Still, any stakeholder should not consider it as Committee of Creditors which is powerful to decide the faith the resolution process.

The liquidator shall constitute a Stakeholders’ Consultation Committee within sixty days from the liquidation commencement date (the date of liquidation order). The committee shall be constitute based on the List of stakeholders prepared on the basis of claims received and verified. [Regulation 31A(1)]

Duty of Consultation Committee

Regulation 31A cast a duty on the Stakeholders Consultation Committee to advise the liquidator on matters related to –

  • Appointment of Professionals and their remuneration (power given with effect from 30 September 2021);
  • Sale under Regulation 32, including manner of sale, pre-bid qualifications, reserve price, amount of earnest money deposit, and marketing strategy.

The decision(s) taken by the liquidator prior to the constitution of consultation committee shall be placed before the consultation committee for information in its first meeting. [Proviso to Regulation 31A(1)] The Committee has no power to advise on such decision taken place before the constitution of the Stakeholders’ consultation committee.

The Regulations do not limit the power of the liquidator to consult any of the stakeholder under Section 35(2) in any additional matter.

Constitution

The consultation committee shall have following members [Regulation 31A (2)]:

Secured Financial Creditors: 2 – 4 depends upon percentage of claims to the Liquidation Value;

Unsecured Financial Creditors: 1-2 upon percentage of claims to the Liquidation Value;

Workmen and Employees: 1

Government: 1

Operational Creditors: 1-2 upon percentage of claims to the Liquidation Value;

Shareholder or Partners: 1

No Remuneration

This may be noted that these representatives shall not be entitle to any remuneration or allowance under the Code and these regulations. However, the code do not bar creditors representative by the representative to reimburse the cost but in any case, any cost incurred by these representative shall not form part of the liquidation process cost.

The liquidator may facilitate the stakeholders of each class to nominate their representatives for inclusion in the consultation committee. If the stakeholders of any class fail to nominate their representatives, such representatives shall be selected by a majority of voting share of the class, present and voting. [Regulation 31A (3) and (4)].

Record and Information

Representatives in the consultation committee shall have access to all relevant records and information as may be required to provide advice to the liquidator under sub-regulation (1). It means where the liquidator seeks advise on additional matter, the liquidator may at his option provide the information. [Regulation 31A (5)] This record and information may be provided subject to restriction under the Code and Regulations. The Regulations do not provide any restriction; however, the Liquidator may take hint from the CIRP Regulations and should request a non-disclosure undertaking from these Representatives.

Meeting

The liquidator shall convene a meeting of the consultation committee when he considers it necessary and shall convene a meeting of the consultation committee when a request is received from at least fifty-one percent of representatives in the consultation committee. [Regulation 31A(6)] However, it is not clear on what matter the Stakeholders’ consultation Committee shall “forced advise” where the liquidator has not called the meeting.

The liquidator should call meeting at reasonable intervals and keep the committee informed of developments.

The liquidator shall chair the meetings of consultation committee and record deliberations of the meeting. [Regulation 31A(7)]

The consultation committee shall advise the liquidator, by a vote of not less than sixty-six percent of the representatives of the consultation committee, present and voting. The advice of the consultation committee shall not be binding on the liquidator. Where the liquidator takes a decision different from the advice given by the consultation committee, he shall record the reasons for the same in writing and mention it in the next progress report. [Regulation 31A (9) and (10)]

Sale as Going Concern

The liquidator shall place the recommendation of committee of creditors made under sub-regulation (1) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, before the consultation committee for its information. [Regulation 31A(8)]

Under Regulation 39C of those regulations, the committee (of creditors) may recommend that the liquidator (to be appointed) may first explore sale of the corporate debtor as a going concern under clause (e) of regulation 32 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 or sale of the business of the corporate debtor as a going concern under clause (f) thereof, if an order for liquidation is passed under section 33.

Where the committee of creditors has not identified the assets and liabilities under sub-regulation (2) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the liquidator shall identify and group the assets and liabilities to be sold as a going concern, in consultation with the consultation committee. [Regulation 32(3)]

Assignment of not readily realisable assets

A liquidator may assign or transfer a not readily realisable asset through a transparent process, in consultation with the stakeholders’ consultation committee in accordance with regulation 31A, for a consideration to any person, who is eligible to submit a resolution plan for insolvency resolution of the corporate debtor. [Regulation 37A(1)]

AUDIT OF SMALL COMPANIES – MY TAKE


The recent consultation paper issued by the National Financial Reporting Authority (NFRA) generated lot of discussion in media, social media and professional circle. This consultation paper is first serious attempt from regulators to discuss a critical issue of compliance. I have made suggestion to remove requirement of compulsory audit to the Company Law Committee constituted by the Ministry of Corporate Affairs in year 2018, though not considered by the committee. I am sharing my views on this well studied consultation paper in public before submitting it to the NFRA.

Quality Concerns

The quality of statutory audit, cost audit and secretarial audit are not satisfactory because of a valid reason for which blame should be shared by the legislature. Auditors are not investigation agencies but just a watchdog who could not bark just report to Chaukidar aka Regulator. Auditors have to relied on documents, if made available or for rest on management representation letters. He cannot ascertain the truth in the representation so made, even if a suggestive draft is made by him. No such representation is made on an oath under law. The auditor have to assume it as true. Except a few cases of Government audits or regulatory audits, all auditors are appointed and importantly paid by the management of the company – the auditee not by the shareholder or any other stakeholders. None of our paymaster want any thing which may trouble the management, our paymaster.

We have number of tax audits but requirement of assessment, re-assessments and more seriously tax raids, (whatsoever fancy names government call it) are there. Should not the tax computed by the management and confirmed by tax auditor be final. If the government think it is not, these audits are Ponzi scheme of employment generation for benefit of we – the professionals.

Same way we have Satyam, Sahara, Sharada, DHFL, Srei and a long list of corporate fraud. Either auditors were co-accused or helpless. In year 2015, an auditing firm issued a public notice that the client is fraud. That was an interesting case showing helplessness of auditors. All major non-performing assets of Bank are of well audited companies. Almost all cases of non-cooperation under the Insolvency and Bankruptcy Code auditors are one of the helpless respondents. Even Forensic and Transaction Audit do not have satisfactory result. But if audit is there, why should we need so many Forensic and Transaction Audit?

Few years earlier when a reputable law firm was under scanner of law enforcement agency in a scam, private chats were full to claim professionals – Corporate Law firms, Chartered Accountants and Company Secretaries as gurus of fraud not as whistle blower. What MCA data on fraud reporting by these professionals say in relation to corporate fraud in limelight? There is no real power and motivation but pay-cuts, resignations, removal and punishment.

In corporate history the most cited reason of the resignation as position of auditor is personal reason (?), Health (??) old age (?), paucity of time (??) when without any such reason we continue with audit of other companies.

I am happy to note in most reportable frauds we have globally reputable auditing and legal firms to name (and shame?) who have most exhaustive check lists to marks ticks in mechanical manner.

Compliance Concerns

Except a few, promoters have no inbuild intention to comply the law in spirit. Most of the time they do not bother on annual filing of accounts and even taxation considering it as useless cost unless there is a fine, penalty or imprisonment is waiting. Promoters leaves everything to ‘manage’ by the professionals. Only 52.48% companies filed annual account and annual return with MCA for year 2018-19 till the consultation papers while the last date was 30 September 2019. Earlier when the Ministry strike off name of many such companies defaulting in filing of annual accounts and annual returns, the most used ground to seek restoration was lack of professional advice. If you have no idea of the route of business in corporate, why are you on the corporate highway? Promoters need to be responsible from day one. Contrary to the legislative intention, Audit provide them window to shift responsibility and blame.

Compliance Cost

This is interest data shared in the consultation paper: 30.26% companies paid no fees to the auditors, 6.79% companies paid less than Rs. 5,000/-. No professional can devote more than 5 hours on these audit assignments in reality. What assurance these accounts and audit provide to stakeholders? No, I am not raising question on all these companies as professionals give huge discounts to new companies, companies with no turnover or facing troubled time. A good number of these assignment may be attached with a well-paying group company or promoter. In a good number of these companies the auditor himself or their related entity write accounts. However, question remain of the real value of the audit in these companies.

In these cases, the audit is not the actual assignment. The actual assignment is account writing. The audit assignment just ensure that the account writing will not go to a non – professional accounting graduate and may improve the quality of accounts slightly.

Baseline of NFRA Consultation

“A majority of these MSMCs is essentially family-owned enterprises formed as companies for the sake of limited liability, or to get bank loans, bus route permits, mining licences, and the like. They are effectively glorified proprietorships or partnerships. There is no public interest in foisting external audit on them. In any event, it is clear that such audit as is being carried out cannot boast of any quality at all.”

I have no disagreement on this observation except limited liability concept. Limited liabilities of a promoter end in India as soon as a company seek loan. Personal Guarantees of promoters effectively make small companies unlimited liability firm in real sense. (Discussed this aspect earlier here). These promoters do not attract with the limited liability concept. They choose a reputation called director or managing director, which comes with a company. If they have money and big family, they will not choose a private company but public company as in popular terms directorship of limited company bring more reputation than directorship of private limited companies. Same time various rules related loan, license, authorizations, permits and like favor companies than partnerships and proprietor firms. You can choose a good and unique name unlike partnership and proprietor concern which have no mechanism to ensure unique name.

I agree there is no benefit of audit in a family-owned company without any external liabilities. To my understanding all companies with small shareholding should have self-certification from shareholder – directors about the fair and correct accounts. We have such practice in case of limited liabilities firms. They may otherwise made aware not to make such certificate unless they are sure or have counter certificate from a professional.

However, in the audit may be conducted without requirement of filing audit report to the Government, where:

  1.  article require audits;
  2. a shareholding or investment agreement require audit;
  3. there is a contractual requirement of audit;
  4. the board of director opt for audit;
  5. Shareholders with a simple majority opted for audit of one or more year;

In following cases, there audit report should be filed with the Government:

  1. Any enforcement agency requested an audit for ono or more year;
  2. One or more scheduled bank require audit with filing of such requisition to MCA by such bank. In such case, the auditor appointed in first requisition shall conduct audit. In case of any subsequent request, report of auditor appointed in first request be made available to all banks having exposure.
  3. Where there is a repayment default for three continuous months or four months in a financial year, an audit including a forensic and transaction audit be conducted with prior intimation by banks to RBI and MCA.
  4. The company made an erosion of net worth of more than 10% after 3 years from incorporation, on application by shareholders with more than 1% shares, the Registrar of Companies may direct companies to have an audit.
  5. Where company fail to file its self-declaration accounts and annual return for more than two financial years.

Whether or not my suggestion accepted, I will strongly suggest no statutory audit in first five years for a small company.

NFRA requests views/comments

NFRA QuestionMy Draft Reply
Do you think that Micro, Small and Medium Companies (MSMCs) depending upon some criteria and threshold should be exempted from the mandatory statutory audit under Companies Act, 2013?
If not, why not and if yes, what would be the criteria and thresholds for exemption?
Yes. All MSMCs which are private companies with less than 10 members having voting powers should be exempted from mandatory statutory Audit. All MSMCs which are wholly owned subsidiaries may also be exempted. In case of all contractual requirement of audit, filing should not be required. In case of certain well enumerated defaults or requisitions, the Registrar of Companies may order audit for one or more years being year not earlier than 3 years from the date of such order. Such audit report may be required to be filed with the Registrar and be a public document.  
Do you think there is a requirement for a separate set of auditing standards for MSMCs as it exists for accounting standards? If no, why not and if yes, what should be the basis for the same?I do not think so. All companies should have accounting and audit on same pattern, where require to have audit. This will help companies to follow same set of internal and external audit upon growth. This will also help investors, present and future
The cost of conducting an audit as per the prescribed standards is an important input for the responses to Questions 1 and 2. Do you agree with the approach for estimating standard cost of audit computed by NFRA? If not, which areas/ assumptions need changes?The cost of conducting an audit should not be prescribed and should be leaved to the market forces. However, where it is unreasonable low or high, the auditor should explain.  
Do you think the current exemption thresholds for CARO, ICFR and statutory audit applicability need to be standardised and made uniform? If no, why not and if yes, what would be the criteria and thresholds?Other than exemption to MSMCs, no change is required as of now. All companies where CARO, ICFR and Statutory Audit is not applicable, there should be a corresponding self-declaration to file with the Registrar signed on behalf of the Board and be placed in the General Meeting for adoption.  

NATIONAL DISCUSSION ON ‘CHALLENGES IN ONLINE CONTRACTS: AN INTERNATIONAL PERSPECTIVE’ – 17th October, 2021


About the institute:

The concept of ‘Symbiosis’ is nurtured by Dr. S. B. Mujumdar (Chancellor, Symbiosis International (Deemed University)) on the principles of Vedic thought ‘Vasudhaiva Kutumbakam’ which means ‘World as One Family’.

Symbiosis Law School (SLS) Hyderabad was established in 2014 inheriting splendid novelty, dynamism and excellence under the aegis of Symbiosis International (Deemed University), Pune.

About the Centre:

Established in 2018, the Centre for Corporate and Competition Law (CCCL) is a student-run centre aiming to provide a platform for students of the institute to explore and learn more about the nuances of Corporate and Competition Law, and to prepare them for the corporate world. To advance our agenda, CCCL has been successful in conducting multiple landmark events in the history of our institute, which has carved a niche corner for our centre within the legal fraternity. Amongst others, CCCL conducted our flagship event, the first-ever National Corporate Restructuring Competition in India in 2019. We have also spread our roots into banking law by conducting a three-day value-added course on Insolvency and Bankruptcy Code. Over the past two years, we have invited eminent personalities like Mr. Dhanendra Kumar, first Chairperson of the CCI and Dr. K. D. Singh, Joint Secretary for Law at CCI conduct webinars on relevant topics.

About the event:

The centre is conducting a national discussion on ‘challenges in online contracts: an international perspective”, 17th October, 2021.The event aims to provide a platform for the participants to have an intellectual discussion on the given theme amongst themselves. This event will have a total maximum of 20 participants, including students and professionals, who will come together to express their views on the given topic. Selected participants are expected to do thorough research on the subject and associated topics. The panellist will be facilitating the discussion and proving insights wherever requires. She shall also guide the participants and assess their performance. 

To register for the national discussion fill in the google form attached below. 

Theme: “Challenges in Online Contracts: An International Perspective”

Date: 17th October, 2021.

Time: 12:30p.m. to 2:00 p.m. 

Platform: Will be intimated on confirmation of participation. 

Last day to register: 11th October 2021 before 11.59 p.m.

Registration Link: https://forms.gle/G5bCgANKUYaCvfUP6

About the Panelist:

Dr. P. Sree Sudha is the Assistant Professor at Damodaram Sanjevayya National Law University (DSNLU), Visakhapatnam. She has completed her LL.D (2016) from National Law School of Indian University, Bangalore. Her areas of specialization are International Trade Laws, E-commerce Law, Intellectual Property Law and Tax Law. She has been the recipient of Four gold medals from Andhra Pradesh University for scoring the highest marks in B.L. Addition to this she has also been a visiting faculty to GITAM School of International Business, GITAM University and has been the Assistant-editor for Journal Academy of Jursitical Studies. 

You can check her profile at: https://dsnlu.ac.in/faculty/dr-p-sree-sudha-associate-professor-of-law-ll-m/

Who can Attend?

Professionals and students from the Legal fraternity. E-certificates will be provided to all the participants.

Email us at cccl@slsh.edu.in to clear your queries.

For more details on our activities, you may follow our LinkedIn and Instagram (@cccl_slsh) Pages.  

CCCL Brochure: https://drive.google.com/file/d/14NyJG3C98YPOEkPcxv8fD2Hu_Q2Bd5nv/view?usp=sharing

Filing of Claims during Liquidation


In an earlier post here, we have discussed filing of claims during corporate insolvency resolution process. In this post, we will discuss filing of claims during liquidation process of corporate persons. During liquidation process for a corporate debtor following forms of the IBBI (Liquidation Process) Regulations 2016 are prescribed to file claims by creditors:

  • Operational Creditors –Form C
  • Financial Creditors – Form D
  • Workmen and Employees (individually) – Form E
  • Workmen and Employees (for All) – Form F
  • Claims by other stakeholders – Form G

Most fields of these forms are identical. In case your claim is complicated or have a good amount of money involved, it is advisable to seek help of a good professional. 

The liquidation process starts after failure of the resolution process of corporate person. In the liquidation process, a creditor is required to file claims within 30 days from the date of the liquidation order. Practically, a creditor may have not more than 14-21 days from the receipt of information of the initiation of liquidation process.

Liquidation Order: Day 0

Receipt of the copy of order by Liquidator – Day 3-5

Public Announcement of Liquidation and Invitation of Claims – Day 5-10

Last Day of filing Claims – Day 30

The liquidator has no power to accept claims after 30 days. All creditors failed to file claims within these 30 days must apply the Adjudicating Authority (National Company Law Tribunal) to condone delay.

All these claim amount shall be calculated as on Liquidation Commencement Date.

The affidavit with the claim form shall be attested by Notary Public.

Common points in these Forms

Common FieldsSource of Information
Name and address of LiquidatorForm Public Announcement
Name and Address of ClaimantYour identity proofs/ loan agreements/Invoices

Certificate of Incorporation/GST details
Identification Number of ClaimantPAN/ GSTN / CoI / UID (Aadhar)
Address of ClaimantLatest Bank Statement/ Telephone or Mobile Bill/ UID (Aadhar)
Email of ClaimantIf you are not a frequent user of email, please provide your most used email address as you need to check this email address almost daily to stay updated.
  
Details of documentsList of all relevant documents
Details of any dispute as well as the record of pendency or order of suit or arbitration proceedings
Details of how and when debt incurredPlease write one paragraph summery of the default
FC – why loan taken, securities, loan disbursal,  loan period interest and due dates OC – what goods or services provided and for which period, details of period of default with first and last invoice
real estate buyers – Allotment letter, agreement to sale, details of payment made
Details of any mutual credit, mutual debts, or other mutual dealings between the corporate debtor and the creditor which may be set-off against the claimDetails if any
Details of the bank account to which the amount of the claim or any part thereof can be transferred pursuant to a resolution planPlease check your cheque book: account number, type of account, Bank name and branch address, IFSC Code, Swift Code etc
List of documents attached to this proof of claim in order to prove the existence and non-payment of claim due to the operational creditorThis will be good if proper file is prepared with proper index and page numbering.
Signature of creditor or person authorised to act on his behalfPlease attach proper authorisation.
Address of person signingAddress Proof – UID/Bank statement/ mobile or telephone bill/ Electricity bill
Liquidation commence datePublic Announcement

In the case of company or limited liability partnership, the declaration and verification shall be made by the director/manager/secretary and in the case of other entities, an officer authorised for the purpose by the entity].

Amount of Claim

In case of operational Creditor: please check and attach invoices, ledger, commercial agreement, Memorandum of understanding, contracts etc. Copy of proper ledger is strongly advisable. Where any interest is claim document like MSME registration or agreement should be attached. Interest for MSME operational Creditors 18% after first 45 days.

In case of a claim by financial creditors: Please check and attach sanction letters, loan agreement, inter-corporate loan agreement, RBI – FEMA Documentation in case of loan from foreign country, mortgage agreement, hypothecation agreement, guarantee agreements, property papers, vehicle registration details, information utility documents, ledger or bank statement or loan statement, securitization documents, DRT orders etc, name of guarantors or principal borrowers;

In case of real estate buyers: application, allotment letter, agreement to sale, sale deed, loan documentation, payment details, ledger copy or bank statement or loan agreement, RERA order, calculation sheet for interest calculation. Interest for class of creditors shall be 8% per year.

In case of Employee and workmen: appointment letter/ promotion letters/ increment letter/ latest salary slips/ TDS statement

Action Post filing claims

After filing claims, claimants should wait response from the Liquidator. The Liquidator shall respond upon your claims on or before 67th day of the Liquidation Commencement Date. In case the claimant find a requirement to modify or amend the claim, the claimant can do it within 14 days of filing of the claim.

Please follow instructions of the liquidator seeking additional information or document unless you are going to appeal against instruction. Please submit all information required. The liquidator may reject your claim if he is not satisfied with your claim. In case of rejection of claim you are required to file an appeal within 14 days of receipt of such decision. You cannot file an amendment of claim in such appeal.

Submission of false or misleading proof of claims shall attract penalties.

Filing of Claims during Insolvency Resolution


In an earlier post here, I have discussed the mode for submission of claims by various classes of creditors. During insolvency resolution process for a corporate debtor following forms are prescribed to file claims by creditors:

  • Operational Creditors –Form B
  • Financial Creditors – Form C
  • Class of Creditors (at least 10 FC in the class) – Form CA
  • Workmen and Employees (individually) – Form D
  • Workmen and Employees (for All) – Form E
  • Creditors other than those covered – Form F

Most fields of these forms are identical. In case your claim is complicated or have a good amount of money involved, it is advisable to seek help of a good professional. 

Look after your money

When you have to recover any money, we should follow up and send frequent reminders. If our amount involve is less than threshold limit to file a case of insolvency against the company or to bear the cost of recovery in normal legal process, we should wait but be vigilant. If we think company is unable to pay and not solvent, we should be careful enough to check if there is a case of insolvency against the company. These insolvency matters may be searched from website of National Company Law Tribunal. I frequently check for insolvency status of my client companies and for companies where we have invested any money.

Always look for public announcement section in the IBBI website. This is important as it is prudent to file our claim in case of insolvency within 90 days (actual time permitted is 14 days). If a creditor could not file a case within 90 days, he has to seek condonation of delay form relevant bench of the adjudicating authority.

Common points in these Forms

Common FieldsSource of Information
Name and address of Resolution ProfessionalForm Public Announcement
Name and Address of ClaimantYour identity proofs/ loan agreements/Invoices

Certificate of Incorporation/GST details
Identification Number of ClaimantPAN/ GSTN / CoI / UID (Aadhar)
Address of ClaimantLatest Bank Statement/ Telephone or Mobile Bill/ UID (Aadhar)
Email of ClaimantIf you are not a frequent user of email, please provide your most used email address as you need to check this email address almost daily to stay updated.
  
Details of documentsList of all relevant documents
Details of any dispute as well as the record of pendency or order of suit or arbitration proceedings
Details of how and when debt incurredPlease write one paragraph summery of the default
FC – why loan taken, securities, loan disbursal,  loan period interest and due dates OC – what goods or services provided and for which period, details of period of default with first and last invoice
real estate buyers – Allotment letter, agreement to sale, details of payment made
Details of any mutual credit, mutual debts, or other mutual dealings between the corporate debtor and the creditor which may be set-off against the claimDetails if any
Details of the bank account to which the amount of the claim or any part thereof can be transferred pursuant to a resolution planPlease check your cheque book: account number, type of account, Bank name and branch address, IFSC Code, Swift Code etc
List of documents attached to this proof of claim in order to prove the existence and non-payment of claim due to the operational creditorThis will be good if proper file is prepared with proper index and page numbering.
Signature of creditor or person authorised to act on his behalfPlease attach proper authorisation.
Address of person signingAddress Proof – UID/Bank statement/ mobile or telephone bill/ Electricity bill
Insolvency commence datePublic Announcement

This is advisable to send declaration as proper notary affidavit though term used is declaration not affidavit.

In the case of company or limited liability partnership, the declaration and verification shall be made by the director/manager/secretary and in the case of other entities, an officer authorised for the purpose by the entity].

Amount of Claim

In case of operational Creditor: please check and attach invoices, ledger, commercial agreement, Memorandum of understanding, contracts etc. Copy of proper ledger is strongly advisable. Where any interest is claim document like MSME registration or agreement should be attached. Interest for MSME operational Creditors 18% after first 45 days.

In case of a claim by financial creditors: Please check and attach sanction letters, loan agreement, inter-corporate loan agreement, RBI – FEMA Documentation in case of loan from foreign country, mortgage agreement, hypothecation agreement, guarantee agreements, property papers, vehicle registration details, information utility documents, ledger or bank statement or loan statement, securitization documents, DRT orders etc, name of guarantors or principal borrowers;

In case of real estate buyers: application, allotment letter, agreement to sale, sale deed, loan documentation, payment details, ledger copy or bank statement or loan agreement, RERA order, calculation sheet for interest calculation. Interest for class of creditors shall be 8% per year.

In case of Employee and workmen: appointment letter/ promotion letters/ increment letter/ latest salary slips/ TDS statement

Action Post filing claims

After filing claims, claimants should wait response from the Resolution Professional. Please follow instructions of the resolution professional unless you are going to appeal against instruction. Please submit all information required. The resolution professional may hold your claim till all required documents or information is received.

Please note, all resolution professional collect and collate claims on provisional basis only.  The resolution professional may revise accepted claim amount any time if there is any additional information is made available either by claimant or corporate debtor.

 It is advisable to sent reminder if there is no response in seven to ten days of filing claims. Sometime, the resolution professional may advise you to file an application against him for admission of your claim. This may be for various reason.

CLASS OF CREDITORS – AUTHORISED REPRESENTATIVE


The concept of the class of creditors took shape when thousands of home – buyers fought together up to the highest available courts (judicial and political) in India. 

The class of creditors does not means but includes home-buyers or real estate buyers. Class of creditors is a group of 10 or more financial creditors other than banks and financial institutions or trustees in financial securities or deposits. In practice, we often meet home-buyers or real-estate-buyers as the class of creditors. 

In case of CIRP – corporate insolvency resolution process, appointed interim resolution professional immediately after appointment by the Adjudicating Authority (National Company Law Tribunal), ascertain the existence of a class of creditors if any. If it seems that there is a class of creditors, the interim resolution professional identifies three insolvency professionals willing to act as an authorised representative of creditors in the class. 

Under the law, the authorised representative can receive up to Rs 25,000/- per meeting of the committee of creditors. Representing a class in a daylong meeting at such remuneration may seem a lucrative job, but a good authorised representative do much work for the class of creditors without remuneration – like queries received from any member of the class he is representing. These queries generate from a lack of financial knowledge, lack of understanding of the insolvency resolution process, market rumours on social media and speculative news published in responsible media. 

Once the interim resolution professional identifies three insolvency professionals as a candidate for the job of an authorised representative, he publishes by way of advertisement a public announcement inviting claims from creditors.

When the interims resolution professional received sufficient claims from creditors in the class, he will file an application for the appointment of the authorised representative. This application shall be filed within two days of verification of claim received within 14 days from the CIRP commencement date.

Please note, there is another provision that allows creditors to file claims till 90 days from the insolvency resolution commencement date, but claims filed after 14 days shall not be considered for the purpose of appointment of the authorised representative. 

Practically, it may not be possible to have an appointed authorised representative in the first meeting of the committee of creditors. Any delay in the appointment of the authorised representative for any class of creditors shall not affect the validity of any decision taken by the committee.

Once the authorised representative is appointed, the resolution professional shall provide a list of creditors in the class to the respective authorised representative appointed by the Adjudicating Authority.

The authorised representative shall use an electronic means of communication between the authorised representatives and the creditors in the class. In practice, the email address of the authorised representative may serve the purpose.

The authorised representative under law shall attend the meetings of the committee of creditors and vote on behalf of each financial creditor to the extent of his voting share. For the purpose of voting, the authorised representative shall rely on pre-instruction voting.

When the authorised representative receives a notice and agenda for the meeting from the resolution professional, he shall circulate the agenda to creditors in a class. He may seek their preliminary views on any item in the agenda to enable him to participate in the committee meeting effectively. Any creditor in the class may submit his preliminary views to the authorised representative within twenty-four hours. These preliminary views are not their voting instructions.

The authorised representative for a class of creditors shall cast his vote on behalf of all the financial creditors he represents in accordance with the decision taken by a vote of more than fifty per cent of the voting share of the financial creditors he represents, who have cast their vote. In a simple language, each class of creditors shall vote as its majority. This is a general majority rule for voting on behalf of a class of creditors. There is an exception to his majority rule.

For a vote to be cast in respect of an application under section 12A, the authorised representative shall cast his vote individually as per each instruction.

The Timelines:

Receipt of appointment order by interim resolution professional – Day zero;

Identifying three potential candidates for the job of an authorised representative – Day 1;

Draft public announcement and got it translated in other languages – Day 2;

Publication of the public announcement – Day 3;

First cut-off day to receive claims – Day 14;

Verification of claims received before first cut-off date – Day 21;

 Application for appointment of an authorised representative – Day 22

MODE FOR SUBMISSION OF CLAIMS


Insolvency and Bankruptcy law is affecting ordinary people outside business houses, including real estate buyers. Mode for submission of claims before the Resolution Professional or liquidators has one of the technical questions.

Under the insolvency and bankruptcy law, claimants before Resolution Professional or liquidator may either be of the following categories:

– Financial Creditors;

– Class of (financial) Creditors (There must be at least 10 Financial Creditors to form a class of creditors);

– Operational Creditors;

– Workmen and Employees (individually);

– Workmen and Employees (for All); or

– other than those covered.

All these categories for creditors should file their claims before the resolution professional or liquidators.

Under the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 prescribed mode to submit a claim is hereunder:

• In Electronic Form

– Financial Creditors – Form C

– Class of Creditors (at least 10 FC) – Form CA 

• By post or by electronic means 

– Operational Creditors –Form B

– Workmen and Employees (individually) – Form D

– Workmen and Employees (for All) – Form E

• In person, by post or by electronic means

– other than those covered – Form F

Please note, this is my presumption that common claims for numerous workers or employees be filed either through post or electronic mode. Unfortunately, the relevant sub-regulation is silent on this aspect.

There are a similar provision under the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

What will happen if a person does not file a claim in the legally mandated mode to submit their claim. Will the resolution professional or liquidator deny accepting these claims? Will it be proper compliance of law on the part of the insolvency professional to accept all claims in person? 

I have no answer. 

To avoid, I prefer submission of claim in electronic mode with a copy of these claims in physical format. Physical format, particularly in case of big bank loan, become bulky, but it helps cross-reference while verifying these claims. Further, it is not easy to notice alterations in soft copies.

I also advise claimants should not send original documents except claim forms and verification undertaking or affidavit.

ORDERED NAME OF A COMPANY


Would you like if the name of your company is not of your choice? Would you like if the name of your company is alphanumeric beyond your control?

New Rule 33A of the Companies (Incorporation) Rules, 2014 may create such a possibility.  The root of the new rule is under Section 16 of the Companies Act, 2013.

Section 16, till this notification, was one of the marginalized provisions of the Companies Act, 2013 ignored by consultants and companies alike.

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Welcome Multidisciplinary Firms


Co-existence is the key to survival. The legal ecosystem for corporate India is no exception. For better survival, we need the help of numerous professionals who, in turn, have multiple qualifications. Chartered Advocates, Accountants, Company Secretaries, Cost Accountants, Insolvency professionals and Registered Valuers and other professionals work together. However, their contractual relationship had no formal legal structure.

8 July 2021 shall be a memorable day for professionals when multidisciplinary firms become legally possible.

There was a beginning when the Institute of Company Secretaries of India (ICSI), on 3 February 2020, amended its regulations (The Company Secretaries Regulations, 1982).

Regulations 165A of CS Regulations permits company secretaries to form multidisciplinary firms:
A member in practice may form a multidisciplinary firm with the member of other professional bodies as prescribed under regulations 168A and 168B in accordance with the regulating guidelines of the Council for functioning and regulation of such multidisciplinary firm.

Regulations of professionals like the Institute of Chartered Accountants of India have similar provisions.

A Company Secretary may share or accept fee, commission, a brokerage in the fee or profit or enter into partnership, or accept work only from members of particular professional bodies or person having specific qualifications. [Clause (2)-(5) of Part I of the First Schedule to Act – ICSI Act and ICAI Act] According to Regulation168B of CS Regulations, A company secretary, other than any other Company Secretary, may enter into a partnership with a member of any of the following professional bodies, namely:

(a)   The Institute of Chartered Accountants of India;

(b)   The Institute of Cost Accountants of India;

(c)   Bar Council of India;

(d)   The Institute of Engineers or Engineering from a University established by law;

(e)   The Indian Institute of Architects;

(f)    The Institute of Actuaries of India; and (g)   Professional bodies or institutions outside India whose qualifications relating to Company Secretary recognized by the Council under Sub-section (2) of Section 38 of the (ICSI) Act.

There is a similar provision in Regulation 53B of CA Regulations. A Chartered Accountants, other than any other Chartered Accountants, may enter into a partnership with a member of any of the following professional bodies, namely:

(a)   The Institute of Company Secretaries of India;

(b)   The Institute of Cost Accountants of India;

(c)   Bar Council of India;

(d)   The Institute of Engineers or Engineering from a University established by law;

(e)   The Indian Institute of Architects;

(f)    The Institute of Actuaries of India; and

(g)   Professional bodies or institutions outside India whose qualifications relating to Company Secretary recognized by the Council under Sub-section (2) of Section 29 of the (ICAI) Act.

The Institute of Chartered Accountants of India has on 8 July 2021, notified a form to establish multidisciplinary firms by substituting its existing Form 18 in Schedule A of its Regulations. This form comes into force from 8 July 2021.

The Institute of Company Secretaries is in the process to finalize relevant forms and guidelines. Present Form1 does not support multidisciplinary firms.

S.No. 3 of Form 18 have two tables: the first for members having qualifications like Chartered Accountants, Company Secretaries and Cost Accountants and the second table for partners holding other qualifications.

Such multidisciplinary firms shall have a name with prior approval of the councils of all institutes or regulatory bodies. This requirement may be a real challenge if all governing bodies require approval of trade name or firm name from these bodies.