SIGNIFICANT BENEFICIAL OWNER


The law stated in this post is valid from 8th February 2019. The earlier post on the subject here was valid from 14th June 2018 till 7th February 2019.

Note: Earlier Section 90 {Invesigation of Beneficial Ownership} as applicable form 1st April 2014 to 13 June 2018 was discussed here.

Section 90 of the Companies Act 2013 substituted by a new set of law. It is a drastic change to understand and need urgent attention for all companies. Amended Section 90 and rules made thereunder has been notified with effect from 13th June 2018 and 14th June 2018. However, the Companies Amendment Ordinance, 2018 as well as The Companies Amendment Act, 2019 amended Section 90 with effect from 2nd November 2018.  Thereafter, the Companies (Significant Beneficial Owners) Amendment Rules, 2019 amended the Companies (Significant Beneficial Owners) Rules, 2018 with effect from 8th February 2019.

In this post, we will discuss what constitutes Significant Beneficial Ownership under the amended law.

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REGISTERED OFFICE OF THE COMPANY


The government of India promulgated a temporary law called the Companies (Amendment) ordinance 2018 on 2nd November 2018 to by parachute landing of few more reform measure. To continue the law government later promulgated the Company(Amendment) Ordinance, 2019

Readers may read this post as a law applicable with effect from 2nd November 2018 till passing the law by the Parliament. These provisions may continue in force after parliamentary approval. In this post we will discuss, the laws related to registered office in brief post the companies (Amendment) Ordinance 2018 and 2019.

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Return of Loans, Deposits and a “not a Deposits”


After the recent amendment dated 22nd January 2019, Form DPT – 3 which has its legal name as “Return of Deposit” shall be used for filing return of deposit or particulars of a transaction not considered as deposit or both. It includes Loan but excludes capital and day to day business receipts. We will discuss seriously latest amendment in these “no longer only the Deposits Rules, 2014”.

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Return about Payment to MSME Suppliers


Ministry of Corporate Affairs and Ministry of Micro, Small and Medium Enterprises came together to protect interests of micro, small and medium enterprises. We will discuss in this post two recent notifications issued by these ministries.

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PROCEDURE UNDER THE SARFAESI ACT, 2002


Shreesh Chadha
4th Year BALLB Student,
Jindal Global Law School
Sonipat

In the Statement of Object and Reasons of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act,2002(hereinafter SARFAESI,2002 or Act,2002), it is stated that the recovery of loans was a slow process which consequently resulted in the “mounting levels of Non-Performing Assets”. This act provides for the realization of any security interest in the favour of any secured creditor “without the intervention of the court or tribunal”[1]. This has resulted in a speedy recovery of Non- Performing Assets.

Under this act secured creditors (banks or financial institutions) have many rights for enforcement of security interest under S. 13 of SARFAESI Act, 2002. If the borrower of financial assistance makes any default in repayment of the loan or any instalment and his account is classified as Non-Performing Asset by a secured creditor, then secured creditor may require before the expiry of the period of limitation[2]by written notice. The Impugned Act, does not cover a certain class of assets, for example, any asset other than a non-performing asset, or unsecured loans, loans below ₹100,000 or where remaining debt is below 20% of the original principals stated in S. 31 of the SARFAESI Act,2002.

WHAT IS THE PROCEDURE FOR SALE/AUCTION THAT THE SECURED CREDITOR NEEDS TO FOLLOW?

The procedures laid down in the SARFAESI Act,2002, as well as the Security Enforcement (Rules), 2002, are mandatory, and no divulgence from the same is permitted, as held by the Hon’ble Supreme Court of India.[3] The procedures to be followed under the Act,2002 are stated hereinbelow.

Procedure of Physical Possession of the secured asset:

  • If the borrower defaults in repayment, under S. 13(2) a demand notice is to be sent by Secured Creditor to the borrower to discharge his liabilities. Such notice persists for 60 days. The demand notice shall contain details and amounts of the amount payable by the borrower.[4] This demand notice can also be objected to by the borrower, which should be replied by the secured creditor within 15 days, and the reply should enumerate the reasons for non-acceptance of such objection. This position was clarified by the Hon’ble Supreme Court of India[5]and later amended into the SARFAESI Act, as S. 13 (3A).
  • When the 60 day period concludes, without any discharge by the Borrower, actions can be taken by the Secured Creditor as enumerated under S. 13 (4)- wherein they can take possession of the secured assets, take over the management of the asset, appoint any person to manage the secured asset, require any person who has acquired any of the assets from the borrower to pay the secured creditor.
  • The actions under S. 13 (4) are appealable as enumerated in S. 17- 18. Therefore, the borrower can appeal the actions of the secured creditor in Debt Recovery Tribunal, DRAT, writ in High Court and SLP in Supreme Court.

Procedure of Sale and Auction under the SARFAESI Act,2002:

  • A Sale Notice is required in the case of auctioning off of the secured asset if inviting tenders from the public, or by way of public auction. This sale notice shall be published in 2 leading newspapers, on the website of the secured creditor, and as per the Directions of the Ministry of Finance directions, upload the tender notice on tender.gov.in.
  • The sale notice or possession notice should be effectively served, I.e. in 2 newspapers in circulation in the area as provided for in the SECURITY INTEREST (ENFORCEMENT) RULES,2002.
  • More particularly, the procedure for an auction of immovable assets is given in Rule 8, Security Interest (Enforcement) Rules,2002. the methods of sale of the immovable secured assets include:

(a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying such assets; or

(b) by inviting tenders from the public;

(c) by holding public auction; or

(d) by private treaty.[6] (after the possession of the asset by a Bank or Financial Institution, they might be willing to sell it to an appropriate buyer through a private deal with a third party)

Procedure regarding payment by purchaser:

The first step is determining the Reserve Price which is the minimum fair market value of the immovable asset as stipulated by the authorized officer, followed by the relevant notice according to the obligations enumerated in Rule 8 (6). The bidding process for public auction shall be done in accordance with Rule 9, Security Interest Rules, 2002 wherein the bidder shall deposit:

(1) Earnest money deposit (at the time of bidding)

(2) 25 per cent of the accepted sales price (including EMD) after successful bidding

(3) 75 per cent of the balance amount within 15 days of the auction.

Upon completion of the above, the sale certificate shall be issued to him. Otherwise, any sale by any other method other than public auction shall be on terms and conditions as decided by the parties.[7]It is also mandated under the Security Interest Rules,2002 that the amount of sale shall not be less than the reserved price.

 àWHAT ARE THE OTHER REMEDIES AVAILABLE TO SECURED CREDITORS?

Section 14 of the Act, 2002 provides a provision for the assistance of the Chief Metropolitan Magistrate andDistrict Magistrate in taking possession of the property. According to the Hon’ble High Court of Madras has held that this provision should be given a purposive interpretation in consonance with the Statement of Objects and Reasons of the SARFAESI Act,2002. It was held that the purpose of this provision is to aid the secured creditor of obtaining possession of the asset as soon as possible, and convert a Non-Performing Asset into a source of recovery for the amount due, and transfer the secured asset to a willing third party.[8]

However, it is pertinent to mention that all the rights and interests of symbolic and/or physical possession guaranteed to the secured creditor under the Act,2002 extinguish after the sale to the third party is complete. From the date of the registration of the sale deed, the secured creditor does not have any remedy or course of action under S. 13 or S. 14 of the SARFAESI Act,2002.

In instances where the secured creditor is unable to claim possession over the secured asset after the expiry of the period of the demand notice under S. 13(2) of the Act,2002 specifically due to tenancy rights that might exist over the said asset, the rent or any other amount which might become due on the said secured asset from the lessee to the borrower (if any) becomes due to the secured creditor. This position was enumerated in S. 13 (4) of the Act,2002, and was solidified by the Hon’ble Supreme Court [9].

Therefore, within the 4 walls of the Act,2002 the secured creditor is well protected if the correct procedure is followed. The SARFAESI Act,2002 is one such legislation that genuinely removes unnecessary and frivolous litigation from the courts, and provides safeguard against the initiation of such litigation at the option of both, the defaulting borrower as well as the secured creditor.

(Views express in this post are of the author, this blog do not take any responsibility.)

E-mail of auther- shreeshchadha @ gmail.com

[1] S. 13 (1), SARFAESI Act, 2002.

[2] S. 36,SARFAESI Act,2002.

[3]ITC Limited v. Blue Coast Hotels Ltd. &OrsCIVIL APPEAL Nos. 2928-2930 OF 2018.

[4] S 13 (3), SARFAESI Act,2002.

[5]Mardia Chemicals Ltd. v. Union of IndiaTransfer Case (civil)  92-95 of 2002.

[6] Rule 8 (6), Security Interest Rules,2002.

[7] Rule 8(8), Security Interest Rules,2002.

[8]Kathikkal Tea Plantations v. State Bank of IndiaMANU/TN/1926/2009.

[9]Harshad Govardhan Sondgar v. International Asset Reconstruction((2014) 6 SCC 1).

The Companies Amendment Ordinance 2019


The Government of India Promulgated the Companies (Amendment) Ordinance, 2019 on 12th January 2019 to give continuing effect to the Companies(Amendment ) Ordinance, 2018 and to amend the Companies Act, 2013. This is notable that the companies (Amendment) Ordinance, 2019 has a significant difference its precursor.

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CONVERSION OF PUBLIC COMPANY INTO PRIVATE COMPANY


Law stated in this post is as on 20th December 2018.

With effect from 18th December 2018, conversion of a public company into a private company requires approval from the Central Government. Earlier such conversion requires approval from the National Company Law Tribunal. This change was made by the Company Amendment (Ordinance) 2018 with effect from 2nd November 2018 and the Companies (Incorporation) 4th Amendment Rules, 2018 with effect from 18th December 2018.

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