Category Archives: Companies Act 2013

Post written on the provisions of the (Indian) Companies Act, 2013 and matter incidental thereto

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.

Small and Medium Sized Company


My law teacher told me in law class, human is a social animal. Yesterday I found, modern human is social media animal. Last two days, we received a flood of social media messages claiming change in definition of small and medium enterprises. Only a fine reader can point out misunderstanding caused by this statement.

We need to understand interplay of the Companies Act, 2013, Micro, Small and Medium Enterprises Development Act, 2006 and newly notified the Companies (Accounting Standards) Rules, 2021.

No Government can change even a single alphabet in an Act of Parliament by way of notification of a Rule unless power is given specifically. Definition of the small companies is given in the definition clause Section 2(85) of the Companies Act, 2013:

 “Small company” means a company, other than a public company, —

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and

(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees:

Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;

(B) a company registered under Section 8; or

(C) a company or body corporate governed by any special Act.

The definition under this definition clause is applicable wherever word “small company” in the Companies Act, 2013. This definition may be amended by the Companies (Specification of definitions Details) Rules, 2014 or any amendment therein. No amendment in this general definition may be made by the Companies (Accounting Standards) Rules, 2021 or its earlier version.

Rule 2(1)(t) of the Companies (Specification of definitions Details) Rules, 2014 with effect from 1 April 2021 amends the definition of Small Company saying that For the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover of the small company shall not exceed rupees two crores and rupees twenty crores respectively.

The final definition of small company under Section 2(85) read with Rule 2(1)(t) of the Companies (Specification of definitions Details) Rules, 2014 with effect from 1 April 2021 is hereunder:

 “Small company” means a company, other than a public company, —
(i) paid-up share capital of which does not exceed two crores rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and
(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed twenty crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees:
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under Section 8; or
(C) a company or body corporate governed by any special Act.

Any change in the definition of small company, more than ten crore and one hundred crore respectively for paid up capital and turnover shall require an amendment to the Companies Act, 2013.

This definition in the Companies Act, 2013 is applicable for all purposes of the Companies except (a) the accounting practices therein and (b) benefits provided by the Government to MSMEs.

The Companies (Accounting Standards) 2021 deals with the presentation of company accounts.

The term enterprises mentioned in Accounting Standards and the Companies (Accounting Standards) Rules is specific and restricted only to companies not any other form of enterprises. It is not applicable to all industrial undertaking, business concerns or other establishments except companies.

The Companies (Accounting Standards) 2021 defines Enterprises in Rule 2(d):

“Enterprise” means a ‘company’ as defined in clause (20) of section 2 of the Act.

Thereafter the Companies (Accounting Standards) Rules 2021 defines “Small and Medium Sized Company (SMC)” not small and medium enterprises (SME). Definition of small enterprises and medium enterprises is given in the Micro, small and Medium Enterprises Development Act, 2006 as amended time to time. We have already discussed this definition in details here earlier.

The definition of “Small and Medium Sized Company (SMC)” in Rule 2(e) of the Companies (Accounting Standards) Rules 2021 is hereunder:

“Small and Medium Sized Company” (SMC) means, a company-

  • whose equity or debt securities are not listed or are not in the process of listing on any stock exchange, whether in India or outside India;
  • which is not a bank, financial institution or an insurance company;
  • whose turnover (excluding other income) does not exceed two hundred and fifty crore rupees in the immediately preceding accounting year;
  • which does not have borrowings (including public deposits) in excess of fifty crore rupees at any time during the immediately preceding accounting year; and
  • which is not a holding or subsidiary company of a company which is not a small and medium-sized company.

Explanation. – For the purposes of this clause, a company shall qualify as a Small and Medium Sized Company, if the conditions mentioned therein are satisfied as at the end of the relevant accounting period.

For different purposes a company may either be:

  • Small Company or not;
  • Small and medium sized company or not;
  • Micro enterprises or small enterprises or medium Enterprises or none of these three.

It all depends upon relevant definition for the time being in force. One company may fall in one or more or none of these categories. Simple check points are:

Small CompanySmall and Medium Sized CompanyMicro Small and Medium Enterprise
Paid up CapitalTurnoverInvestment in Plant and Machinery
TurnoverBorrowing —

The companies (Accounting Standards) Rules 2021 has limited applicability with respect to applicability of accounting standards in relation to books of account of companies. These rules come into effect from the date of publication which is 25 June 2021 not on its issue date which is 23 June 2021. Further Rule 3(2) made it clear that accounting standards notified under these rules comes into effect retrospectively from 1 April 2021.

FULL DIGITAL BOARD


This was a long-awaited (maybe hated) one-liner:

“In the Companies (Meetings of Board and its Powers) Rules, 2014, rule 4 shall be omitted.”

In much-hyped digital India and the digital economy, this was a bureaucratic legacy. In the early days of digitalization, neither top government officers nor senior directors were comfortable with the digital display of papers. Even when Indian companies and directors start showing comfort with online meetings, some matters were reserved for physical board meetings. We love a gathering and get-together too.

Rule 4 lists particular items which should be discussed in a physical board meeting only.

Original as on 1 April 2014As on 14 August 2014
(i) the approval of the annual financial statements;
(ii) the approval of the Board’s report;
(iii) the approval of the prospectus;
(iv) the Audit Committee Meetings for consideration of accounts; and
(v) the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.
(i) the approval of the annual financial statements;
(ii) the approval of the Board’s report;
(iii) the approval of the prospectus;
(iv) the Audit Committee Meetings for consideration of financial statement including consolidated financial statement, if any, to be approved by the Board under sub-section (1) of section 134 of the Act; and
(v) the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.

One significant change came into force on 7 May 2018 when relief was granted to attend a board meeting by directors not physically present at the venue, where the quorum is present at the venue of the physical meeting. The provision read:

“Where there is quorum presence in a meeting through the physical presence of directors, any other director may participate conferencing through video or other audiovisual means.”

This relief was drafting or interpretation hardship. What was the position of directors present through video or other audiovisual means? Where they actually or legally present? If yes, will they be counted for quorum? If not counted for the quorum, will they be able to express their opinion? Will they vote?

Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014 was paused on 19 March 2020. Finally, it could not survive from COVID – 19.

Before that, it hoped for a life revival on 30 September 2020, 31 December 2020 and finally on coming 30 June 2020. A stroke of mighty killed it on 15 June 2021.

What now?

Now, the deletion of Rule 4 paved the way for a full digital Board for companies. There is no legal restriction to have a digital meeting.

Soon, board rooms may not be in our corporate houses. Not only that, the hospitality industry may miss some of its frequent visitors. Their meeting rooms may be reshaped as shared offices.

One corporate feature we will not miss surely – a destination board meeting. I hope some of our clients will invite us for a destination board meeting in the year 2022.

FULL DIGITAL BOARD

ANNUAL GENERAL MEETING(S) 2021


At the hight of the cold wave at New Delhi, Ministry of Corporate Affairs suddenly awakens to issue two circulars within hours. We have an interesting observation: the first one published a regular font Arial/Times New Roman (who cares the font) but second used a font called – Comic Sans MS. Use of the font in a law communication communicates. We will read this circular in this post.

http://mca.gov.in/Ministry/pdf/GeneralCircularNo.02_14012021.pdf

The circular may use simpler language. Without a straightforward acknowledgement of the fact, many companies could not convene their Annual General Meeting due to be held in calendar 2020 it provide a bit of relief. 

The circular applies to companies whose Annual General Meetings:

  1. Were due to be held in the year 2020 (but could not be conducted due to whatsoever reason); or
  2. Become due in the year 2021.

The Government decided to allow these companies to conduct their meetings on or before 31 December 2021.

The circular clarifies that such Annual General Meetings may be conducted in accordance with Circular 20/2020. The Circular 20/2020 allows companies to conduct Annual General Meetings through Video Conferencing or any other audiovisual mode.

The first paragraph of the circular may create two confusions:

a. Due date for the Annual General Meeting for Annual General Meeting legally due to be held any time during the year 2020 is extended till 31 December 2021.

b. Due date for the Annual General Meeting for Annual General Meeting legally due to be held any time during the year 2021 is extended till 31 December 2021.

This possible misinterpretation immediately clarified in the second paragraph.

The second paragraph clarifies that no extension is allowed. All these companies should follow legal time-limits or face legal actions.

We consider the circular as an indication of the government understanding of difficulties faced by companies. Same time it clarifies that no extension is coming for AGM missed 31 December 2020 deadline. 

Secondly, the Government is planning a few announcements in the Budget speech. 

The most important take away from the circular is hidden advice: Companies should not take the risk for the year 2021. 

According to the law, any company which missed legal timeline in the year 2020 may opt for compounding but repeated miss in the year 2021. 

I hope the Government will compound the offence of not holding Annual General Meeting timely during the year 2020 with ease.

Government bless us.

[P.S.: I have no interpretation of the font used.]

Aishwarya Mohan Gahrana

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Call for Entries: 8th RMLNLU- Regstreet Law Advisors Conference on International Legal Essay Writing Competition & Conference on Financial Regulatory Laws [March14, 2021]


The Journal Committee (“Committee”) at Dr. Ram Manohar Lohiya National Law University, Lucknow, in collaboration with Regstreet Law Advisors, is organising 8th edition of the RMLNLU International Legal Essay Writing Competition (“RILEC”) along with RMLNLU-Regstreet Law Advisors Conference on Financial Regulatory law on 14 March, 2021.

SUB-THEMES:

  • Regulatory hurdles to the growth of a successful IFSC in india
  • Financial regulations and the innovation in fintech
  • Direct overseas listing
  • Resolution of financial firms
  • Analysis of the stock exchange responses to curb the pandemic caused volatility
  • Social stock exchange
  • Trading member default

ELIGIBILITY:

Authors must be pursuing their 5-year integrated LL.B. (Hons.) course / 3 year LL.B. course / LL.M. from any recognised university in India and equivalent law degree, abroad for the academic year of 2020-2021, to be eligible to participate in the Competition.

STRUCTURE:

All entries will be judged and ranked by the Regstreet Law Advisors and Journal Committee. The last date for submission is 17 January 2021. A maximum of top five entries will be selected for the virtual conference to be organised on 14 March 2021. The participants may adopt any suitable means for presenting the papers including audio-visual aids, such as PowerPoint presentation.

The selected entries will be considered for publication in the next issue of RMLNLU Law Review Journal & the RMLNLU Law Review Blog. The top three essays will be conferred with rewards.

PARTICIPATION GUIDELINES:

  1. Co-authorship of entries (maximum two) among individuals from the same or different institutions is allowed.
  2. Multiple entries for same authors are not allowed.
  3. A participant may submit an entry related to ONE sub-theme ONLY. One may not juxtapose sub-themes in an entry
  4. Entries should be original, unpublished and non-plagiarised.

SUBMISSION GUIDELINES:

  1. Word Limit: 4000-5000 words (excluding footnotes).
  2. Individual Attachments: Name; contact details; current academic status (Year, University etc.); undertaking as to guarantee of originality
  3. Formatting specifications:
  4. Font and size for the essay: Times New Roman | 12
  5. Font and size for footnotes: Times New Roman | 10
  6. Line spacing: 1.5
  7. Citation Style: Uniform style of citation should be followed throughout the essay.
  8. The file name must consist only of the author’s name.
  9. Entries should be emailed to rilec.rmlnlu@gmail.com under the subject title “Entry for 8th RILEC – [Name(s) of Author(s)]” in Microsoft Word (.doc or .docx) format.
  10. The last date for the submission of soft copies is 17th January, 2021.

MISCELLANEOUS RULES:

  1. The copyright for all entries shall vest with the organisers who herewith reserve the right to modify, postpone or defer the competition and its adjudication indefinitely as and when exigencies of an unforeseen nature may arise.
  2. Any attempt, direct or indirect, to contact the panel of judges will be met with the immediate disqualification of the relevant entry.
  3. Any indication of author’s name or university in the entry shall lead to immediate disqualification from the competition.

PRIZES:

  1. Winner – INR 15,000
  2. First Runner Up – INR 10,000
  3. Second Runner Up – INR 5,000

Top three entries will be receiving a ‘certificate of achievement’ and an opportunity to intern at Regstreet Law Advisors.

A ‘certificate of merit’ shall be provided to the selected entries.

Selected entries will be published on ‘The RMLNLU Law Review Blog’.

All participants shall be receiving a ‘certificate of participation’.

CONTACT:

  1. Write us at rmlnlu@gmail.com in case of queries.
  2. You may also reach us through the phone.
  • Agrima Gupta: +91 9810373335
  • Harshit Agrawal: +91 9425429954
  • Anmol Adhrit: +91 8825314318

Click here to know more about the competition.

Click here to read the brochure of the competition.

You can follow us on our Facebook page here.

NEW NORMAL AT NCLT– ONLINE HEARING


The year 2020 is an unprecedented year of unusual era. Technology is helping us to survive. In an earlier post Virtual Reception, Lobby and Meeting Rooms, we discussed the process of online hearing in NCLT and NCLAT. Both Tribunals were till recently hearing urgent matters only. Now, Tribunals are switching to regular cause lists. With new normal, tribunals will hear matters in video conferencing mode.

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Virtual Reception, Lobby and Meeting Rooms


Video conferencing apps are the talk of the earth since COVID-19 lockdown and slowdown. Now Webex, Zoom, Google meet and other such apps are a household name. We all are using these apps for our Board Meetings, General Meetings and court hearings. However, none yet officially recognised WhatsApp as a tool assisting us in the court hearing, but it is doing its role without a celebrity public appearance. 

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Company Website


A company website is not a simple affair of contents, design, SEO and brand building. It is more about compliance. A company may choose not to have a website. Once, a company decide to have a website; it should comply essential requirement of laws.

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CHANGE OF NAME OF A DIRECTOR


Change of name of a director may happen due to several reasons. A director must register the change in his name under the Companies Act. In this brief post, we will discuss the same.

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EASE AND CHAOS


Ministry of Corporate Affairs has issued many amendment rules and circulars during the month of September 2020 for the ease of doing business. Though one thing always remains – chaos. In this brief post, we will discuss these ease and remaining chaos briefly.  

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FINALLY GENERAL EXTENSION FOR ANNUAL GENERAL MEETING


Just a few days earlier, we made a case here for a general extension for holding Annual General Meeting. The way Government responded through General Circular 28/2020, (presently not accessible) dated 17th August 2020, was not appreciated by Industry and Professional. Now, the Ministry of Corporate Affairs allowed all Registrar of Companies to pass general orders for a general extension for holding Annual General Meeting. Why am I not truly satisfied with these orders?

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Utopia of Investment


During a call with a startup client, we heard the term investor Nth time. “What is a need for investor or investment? It is a self-sufficient business plan.” These days no promoters of startup interested in sales and services but on investment pouring in. They even do not have a plan of servicing of investment which may pour in.
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DENIAL OF GENERAL EXTENSION FOR ANNUAL GENERAL MEETING


We are living in an era of positive presentation. Here is a news headline by a newspaper considered not so sympathetic to the Government: 

Corp affairs ministry allows companies to extend AGMs for up to 3 months

What the Government did? It did not allow any extension as of now. It has not accepted a request to grant a general extension for holding the Annual General Meeting by companies. The Government, in its clarification, mentioned good reason for denial but missed the single and straightforward reason to grant a general extension. We discuss. 

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Share – an abstract God


There is a common property of the God, Rupee and Shares? I replied. The question was how a share look like. Though it may be hard to believe but these three have an ultimate abstract only. You can see an idol of the God or gods, a note of one rupee or more rupees, a certificate of one or more shares, never the God, Rupee and Share (in a normal life). We will discuss a share in following paragraphs.

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WHOLLY OWNED SUBSIDIARIES – SUMMARY OF THE ANTI-THESIS


The Concept of Wholly Owned Subsidiary is an anti-thesis of the concept of the company. At least two persons are required to form a company which is true for wholly-owned subsidiary – but in case of wholly-owned companies one or more registered shareholder declare that one or more beneficial interests in their shares are with a particular company or body corporate.

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NOMINEE OF HOLDING COMPANY!!


Corporate world every holding company having a wholly-owned subsidiary have one or more person as “nominee” shareholders to on record as a registered shareholder holding a nominal number shares in a wholly-owned subsidiary company to satisfy the requirement of the minimum number of members. Treating these registered shareholders as “nominee” is not the perspective of the Company Law but of the Contract Law as applicable to the contract between the company and these shareholders. Let us discuss.

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POWER OF ATTORNEY BY SHAREHOLDERS


I first time wrote on the matter of the power of Attorney in the year 2015 here. Later, I pointed out the option of power of attorney while discussing on draft guidance note on General Meeting on Secretarial Standard on General Meetings (SS-2). I refereed a 92-year-old case law namely Tata Iron & Steel Co. Ltd., In Re., AIR 1928 Bom. 80, which is still considered as a valid reference law for proxies. Nowadays due to Covid-19 related travel restrictions, the requirement of Attorney is being felt in cases where proxies may not be used like in two-person companies. There is a temporary law made through MCA Circulars which allows for a limited period to conduct a general meeting through video conferencing. As the abovementioned post was brief and received many queries.

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Wholly-owned Subsidiary


The concept of the wholly-owned subsidiary is best understood by layman than a young student of law – particularly of corporate law. The concept practically understood by professional dealing with a wholly-owned subsidiary. A student called me to understand this: “how possible?” I replied, “No, It is not possible in true sense.” Unless one understands it clearly that it is not possible in a true legal sense, only then,  you can understand it. Once understood, you will never believe that a wholly-owned subsidiary is not possible in a true legal sense.

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SECURITIES MARKET – WHAT CHANGED IN 1992?


Guest Post Author: TRISHA SHREYASHI

1992 is a germane year in the history of the Indian securities market but why? That’s something we’ll get to know further in this article paper. From the situation before SEBI Act was legislated to the infamous Harshad Mehta case that led to this legislation to the era post that; all of it has been briefly discussed to give the reader an overview of SEBI Act with regard to (hereafter “w.r.t.”) securities market. Before letting the readers into the details, let’s first get an overview of securities market:-

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