Category Archives: Companies Act 2013

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

Failure in Physical Verification – Removal of Name

Posted on August 31, 2022 | Leave a comment

In the last post here, we discussed the Companies (Incorporation) Third Amendment Rules, 2022, which inserted Rule 25B with effect from 20 August 2022 (issued on 18 August 2022).

Failure in Physical Verification

In terms of Rule 25B sub-rule (5), based on the physical verification report, the Registrar shall form an opinion on whether the office is capable of receiving and acknowledging all communications and notices. If the Registrar finds the office incapable of receiving and acknowledging all communications and notices, it will send a notice to the company and all the directors:

  • of his intention to remove the name of the company from the register of companies; and
  • requesting them to send their representations along with copies of relevant documents, if any, within thirty days from the date of the notice.

The Registrar may take action under Section 248 of the Act based on the physical verification report and the representations made by the company and its directors.

Notice for Removal of Name

The Ministry of Corporate Affairs, on 26 August 2022, published the Companies (Removal of Names of Companies from the Register of Companies) Second Amendment Rules, 2022 by Notification GSR 658(E) dated 24 August 2022.

This amendment effectively amends the notice for Notice by Registrar for removal of the name of a company from the register of companies in Form STK – 1.

Additional ground for removal of the name of a company from the register of the companies maintained by the Registrar of Companies. Till the amendment following three grounds were there:

  • The company has failed to commence its business within one year of its incorporation;
  • The company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455; and
  • The subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company, and a declaration to this effect has not been filed within one hundred and eighty days of its incorporation under sub-section (1) of section 10A.

Now, a fourth ground is added to the list: “the company is not carrying on any business or operations, as revealed after the physical verification carried out under sub-section (9) of section 12”.

Public Notice of proposed removal of the name of the company from the register of companies under Section 248(1) and 248(2), namely Form STK – 5A and Form STK – 5 are also amended to similar effect.

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Posted in Chapter II - CA2013, Chapter XVIII - CA2013, Companies Act 2013

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Physical verification of the Registered Office of a Company

Posted on August 27, 2022 | 1 comment

“Inspector Raj”, in its whatsoever name and whichever form, is a necessary evil in India.

The Companies (Amendment) Ordinance, 2018, with its 2019 version and final avatar, the Companies (Amendment) Act, 2019, inserted Section 12(9) with effect from 2 November 2018, sown the seed of Physical verification of the Registered Office of a Company.

Despite the Legislative Powers, the Ministry of Corporate Affairs thankfully restrained itself for a long time and tried a self-certification mode. Ministry of Corporate Affairs (MCA) initially notified Rule 25A by way of the Company (Incorporation) Amendment Rules 2019 with effect from 25 February 2019. Surprisingly, this was a one-time exercise in Form INC-22A (Active). The Form Active captured two-dimensional data of the registered office with documents and a photo of one of the directors showing Latitude and Longitude. However, the form might not satisfy the intended purpose of the government. No day-to-day technology presently captures the third dimension of the office – the floor of the building or vertical location of the office from sea level.

While writing on Rule 25A and Form INC-22A (Active) here, I hoped and still wish Form INC-22A (Active) to be an annual exercise as it solves other issues like a failure on the part of management to update the Registered Office Address on Record.

“Fun Fact: Distance between two latitudes is about 111 KM. Distance between two Longitude at the equator is 111 KM while at Poles it is Zero.”

Now, the Ministry of Corporate Affairs, with effect from 20 August 2022 (issued on 18 August 2022) notified the Companies (Incorporation) Third Amendment Rules, 2022 and inserted Rule 25B. (Notification at the official site here)

Photo by Ahmet Polat on Pexels.com

For physical verification, under Section 12(9), the Registrar of Companies should have reasonable cause to believe that the company is not carrying on any business or operations; he may cause a physical verification of the registered office of the company. The belief that the company is not carrying on any business or operation from the Registered office does not form a cause for physical verification. This belief should base upon the information or documents made available on MCA 21. His opinion shall not be based on any complaint, media report or other information.

The newly inserted Rule has a vital reference to Section 248, “Power of Registrar to Remove Name of Company from Register of Companies”. We expect notification of a supplementary rule in the Companies (Removal of Name of Companies from the Register of Companies) Rules, 2016. [Note: it is notified and published on 26 August 2022].

Process of Verification

  1. The Registrar shall form a reasoned opinion that the company is not carrying on any business or operations;
  2. The Registrar shall issue an authorisation letter for physical verification;
  3. The Registrar shall visit at the address of the registered office of the company;
  4. The Registrar shall ensure the presence of two witnesses of the locality in which the registered office is situated;
  5. If required, the Registrar may also seek the assistance of the local police for the verification;
  6. The Registrar shall carry the documents filed in support of the address of the registered office of the company;
  7. The Registrar shall collect supporting documents of the address duly authenticated from the occupant of the property (self-attested);
  8. The Registrar shall check the authenticity of the documents filed on MCA21 by cross verification with documents so collected;
  9. The Registrar shall take a photograph of the Registered office while causing the verification (it is not clear if he will collect geo-coordinates also);
  10. The Registrar shall note the date and time of the visit and collect self-attested identity proof of the person available at the property; and
  11. The Registrar shall prepare a physical verification report in the given format.

The consequence of the Physical Verification Report

On the basis of the report of the physical verification, the Registrar shall form an opinion on whether the office is capable of receiving and acknowledging all communications and notices. If the Registrar finds the office incapable of receiving and acknowledging all communications and notices, it will send a notice to the company and all the directors:

  • of his intention to remove the name of the company from the register of companies; and
  • requesting them to send their representations along with copies of relevant documents, if any, within thirty days from the date of the notice.

The Registrar may take action under Section 248 of the Act based on the physical verification report and the representations made by the company and its directors.

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Posted in Chapter II - CA2013, Chapter XVIII - CA2013, Companies Act 2013

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Proposed Fee and Expenses Mechanism for Resolution Professionals

Posted on June 18, 2022 | Leave a comment

The Discussion Paper on Remuneration of an Insolvency Professional, dated 9 June 2022, issued by the Insolvency and Bankruptcy Board of India, is a welcome step.

Remuneration and expenditure consume a significant chunk of time during meetings of the Committee of Creditors. After that, Resolution Professionals need to follow up for payment and reimbursement. Every Resolution Professional spent a good portion out of his pocket without a chance for interest payment. Higher the number of members in the Committee of Creditors, there are lesser chances of timely payment or reimbursement. The Discussion Paper rightly mentions litigations for professional fee payment and recovery of expense amount.

Since the first direction issued by the Hon’ble Adjudicating Authority in March 2018 for framing necessary regulations or guidelines regarding fixation of fees and resolution cost, the IBBI waited long for market maturity to settle this issue. Sadly, we lost the well-intentioned time due to the immaturity of the market.

The most unfortunate situation for Resolution Professional is a frequent request for postponement of the resolution for Professional fee at every meeting until the Resolution Professional exhausts most of his available (ideally less than 2500) working hours in the resolution process and loses negotiation power.

Now, we will discuss the proposed amendment.

[Proposed Regulation 34A(1)]: “The applicant, the Adjudicating Authority and the committee shall fix the fee to be paid to interim resolution professional or the resolution professional, as the case may be, under regulation 33 and 34, respectively, in accordance with the Schedule II.”

The reference of the Committee of Creditors is not required here. The Committee shall ratify and/or fix the remuneration under Proposed Regulation 34A(2).

I propose:

“The the applicant or the Adjudicating Authority shall fix or where the applicant or the Adjudicating Authority did not fix a fee, the minimum fee to be paid to the interim resolution professional or the resolution professional, as the case may be, under regulation 33, shall be in accordance with the Schedule II.”

[Proposed Regulation 34A(2)]: “The committee may ratify an amount higher than the amount fixed under clause (1) of Schedule II, as may be necessary.”

The Committee has two options. It may either ratify the fee fixed by the applicant or the Adjudicating Authority or itself fix the professional fee. The term “ratify” in the proposed draft does not convey the meaning “to fix a fee”. Here, the Committee should have the power to ratify or fix a fee.

I propose:

“The committee may ratify the fee fixed under sub-regulation (1) or may fix a fee to be paid to the interim resolution professional or the resolution professional, as the case may be, under regulation 34, , in accordance with the Schedule II.”

[Proposed Regulation 34A(3)]: An insolvency professional shall submit a statement towards estimate of his fee and fee of the resolution professional in the following manner:
(a) to the applicant immediately on his appointment as an interim resolution professional;
(b) to the Committee at its first meeting and thereafter till the appointment of the resolution professional; or
(c) to the Committee in the first meeting conducted immediately after his appointment as resolution professional.”

I understand this regulation firstly with plain reading and secondly reading with the discussion paper.

How can an Interim Resolution Professional submit a statement towards an estimate of the fee of yet to be appointed the Resolution Professional? At most, he can submit a statement of assuming his own appointment. The reasoning for this proposal is not clear. Usually, Insolvency Professionals give a well-drafted proposal estimating fee and other major expenses with their consent to act IRP or RP. There is no point in having it a recurring exercise.

If I understand it correctly, I propose:

“An insolvency professional shall submit a statement towards estimate of his fee in the following manner:
(a) to the applicant immediately on his appointment as an interim resolution professional;
(b) to the Committee at its first meeting after his appointment as an interim resolution professional; or
(c) to the Committee in the first meeting conducted immediately after his appointment as resolution professional.”

If I refer to the discussion paper again on this point, it talks about an estimate of fees and expenditure on the hiring of other professional and support providers. In such a case, I propose:

“An insolvency professional shall submit a statement towards an estimate of expenditure including his fee in the following manner:
(a) to the applicant immediately on his appointment as an interim resolution professional;
(b) to the Committee at its first meeting after his appointment as an interim resolution professional;
(c) to the Committee in the first meeting conducted immediately after his appointment as resolution professional; and
(d) to the Committee in the next meeting, where there is an upward change in the estimate of expenditure.”

Schedule II

The Discussion Paper proposed a three-tier structure:

  1. The fee of IP in CIRP –Fixed Fee (Minimum) Per Month;
  2. Performance Linked fee structure for timely completion of CIRP; and
  3. Performance-linked fee structure relating to Value Maximization

I have no view on the Minimum fee structure and welcome it as a good start.

The discussion paper suggests performance-linked fee structure for timely completion is a mandatory feature. However, Clause (2) of the Draft Schedule II makes this incentive optional by using the term “may”. I suggest the replacement term “may” with “shall”. This incentive is quite hard to earn but a good morale booster.

The discussion paper suggests an optional performance-linked fee structure relating to Value Maximization. I fear Insolvency Professionals will look for big value corporate debtors with good realization chances. However, best efforts should be incentivized and welcomed. I understand the Committee of Creditors may be the best judge on this.

The amount payable under clauses (2) and (3) is proposed to be capped at ₹ 5 Crore. I could not visualize much difference with or without this cap except for a few high-stake cases.  

Proposed Regulation 34B(1): An insolvency professional shall create an escrow account in the name of corporate debtor, in respect of his fee, and fee for the resolution professional, immediately on his appointment as an interim resolution professional.

I welcome the intention. However, there is a practical difficulty in complying with the Draft Regulation. If the Insolvency Professional opens an escrow account in the name of the Corporate Debtor, Banks asks PAN, Address Proof and Incorporation Documents of the Corporate Debtor. Most of the time, one or more of these documents are not readily available due to non-cooperation. IBBI and RBI should discuss waiver of these documentary requirements, and the order of initiation of corporate insolvency may suffice to open this account. Alternatively, the escrow account may be in the name of Interim Resolution Professional. On the appointment of any other person as Resolution Professional, the balance amount should be transferred to the escrow account of the Resolution Professional so appointed.

Secondly, the escrow account is not only for a fee but for expenses also.  

I am not suggesting any change in the draft regarding the name of the account due to a lack of my knowledge and will leave it for future developments. Except for this, I propose the following changes:

An insolvency professional shall create an escrow account, in respect of the estimate of expenditure, including Interim Resolution Professional and Resolution Professional, immediately on his appointment as an interim resolution professional.

Proposed Regulation 34B(2): The applicant or the Committee, as the case may be, shall deposit in the escrow account, or in alternate arrange for interim finance for depositing in the escrow account, the amount fixed under regulation 34A within 72 hours of submission of the statement by the insolvency professional.

I have nothing to discuss or suggest on this point.

Proposed Regulation 34B(3): The interim resolution professional or the resolution professional shall be eligible to withdraw the amount deposited in the escrow account towards his fee and shall provide the details of withdrawals to the Committee in the statement prepared under regulation 34A.

I again submit the escrow account is not only for a fee but for expenses also.

I propose:

The interim resolution professional or the resolution professional shall be eligible to withdraw the amount deposited in the escrow account towards his monthly fee approved by the Committee of Creditors and payment of other expenditures may be made as and when ratified by the Committee of Creditors.

Proposed Regulation 34B(4): The remaining amount, if any, in the escrow account shall be released upon approval of resolution plan under section 31 or passing of an order for liquidation of corporate debtor under section 33.”

I have nothing to discuss or suggest on this point.

I am publishing this on the blog for discussion purposes. I will submit my final thought with IBBI one or two days before the last date.  

Disclaimer: The writer is an Insolvency Professional, and his interest may impact the outcome of this discussion.

Aishwarya Mohan Gahrana, Company Secretary and Insolvency Professional

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Posted in Companies Act 2013, Insolvency and Bankruptcy Code 2016

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E-Auction Notice: VGA Developers Pvt Ltd in Liquidation

Posted on June 6, 2022 | Leave a comment

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: 17 June 2022, 5.00 PM
Date and Time of E-Auction: 20 June 2022, 10.30 AM to 4.30 PM
(With unlimited extension of 5 minutes each)

Assets detailsReserve PriceEMDIncremental Value
Residential plot under sub-lease with an area of 20,071 Square Meters (approximately 4.95 Acres) along with a partially built Building GH-P4, Sector 25, Jaypee Greens Sports City, SDZ, Yamuna Expressway Industrial Development Authority Area, District Gautam Budh Nagar, Uttar Pradesh (as it is)₹ 34,63,00,000
(Thirty-Four Crore Sixty-Three Lakh Only)  		₹ 3,46,30,000
(Three Crore Forty-Six Lakh Thirty Thousand Rupees Only)		₹10,00,000
(Ten Lakh Rupees Only)

Terms and Condition of the E-auction are as under:

  1. 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: 6 June 2022
Place: New Delhi		  Mr. Aishwarya Mohan Gahrana
Liquidator IBBI/IPA-002/IP-N00135/2017-18/10351
Auction Notice of Land and Building of VGA Developers Private Limited under Liquidation, Auction Date 20 June 2022
Business Standard, Delhi, English 6 June 2022 Page 17
Auction Notice of Land and Building of VGA Developers Private Limited under Liquidation, Auction Date 20 June 2022
बिज़नस स्टैंडर्ड हिन्दी, दिल्ली पृष्ठ 10

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CBIC IBC Instruction needs to supplement

Posted on May 29, 2022 | Leave a comment

The Instruction No. 1083/04/2022-CX9 dated 23.05.2022 is a welcome step to the extent it came at least though it came late. This instruction and annexed Standard Operating Procedures (SOP) for the NCLT cases regarding filing claims by authorities under CBIC required to be filed under the Insolvency and Bankruptcy Code (IBC) took almost six years.

The Insolvency and Bankruptcy jurisprudence and environment are still in a nascent stage. This instruction is a minor step to remove one of the main hurdles. Insolvency Professionals feel duty-bound to inform the Government Authorities about the Tribunal order for insolvency resolution and their appointment, moratorium, invitation of claims and public announcement. The information of insolvency was usually taken as lightly as a waste paper by authorities armed with the power to attach any property and assets of assesses and accused.

These Government Authorities faced several legal and ego issues:

  1. How could Government Authorities, a legal and sovereign superpower, fall in the category of operational creditors? NOIDA is still facing the same dilemma and running post to pillar to satisfy its legal soul and ego. After losing on judicial fronts, they are pleading to Parliament for an amendment to the Code.
  2. How could a private person, the Insolvency Professional, ask a government authority to file the claim before himself? How could such a person claim the status of a court officer or legal jurisdiction over government authority?
  3. How could a government authority with the power to issue notice, summon someone, and assess tax liabilities suddenly run to the office of a private person, the Insolvency Professional, for approval of their claims? It hurts when an Insolvency Professional declines to receive claim paper (post ninety days), accepts claims, seeks bulky clarification or counters the claim based on his own wisdom.

This particular instruction dated 23.05.2022 is not without discrepancies and practical difficulties. The instruction correctly claims:

“3. One of the reasons for such delay in filing the claims is that concerned zonal offices have not received information regarding initiation of the process in a timely manner. Accordingly, it has not been proposed that IBBI would share the details of the public announcement on a regular basis to an identified office/office or a centralised system and hence it has been requested that such office/officer/system I CBIC need to be identified and intimated to the IBBI for implementing the system for sharing of information.”

This assertion indicates a pathetic situation.

Government Authorities and other persons may receive first-hand information on the insolvency or liquidation or bankruptcy orders directly from National Company Law Tribunal. Theses Instructions rely upon communication from the IBBI. The IBBI itself got this information with a 3-5 days delay.

There is a little time gap in IBBI Communication, which is required to be plugged.

In a practical scenario, within three days of appointment as an Interim Resolution Professional or Liquidator, the Insolvency Professionals issue public notices in newspapers and then send a copy to upload on the IBBI website. In addition, all insolvency professionals send information about the commencement of the insolvency resolution process by email and, if possible, by speed post to all potential claimants, including government authorities, tax authorities, suppliers, and bankers, subject to information received from the corporate debtor or gathered from secondary sources.

There may be a centralised nodal email address of authorities under CBIC. Insolvency Professionals could send an email about the commencement of the insolvency resolution process. Such email may have a standard subject line like <CIRP/Liquidation> <Company Name> <Company CIN> <Company PAN> <State> <Last date of filing Claim> for easy understanding and communication.

These Instructions issued by CBIC do not facilitate Insolvency professionals to communicate with powerful tax authorities directly. If CBIC does not enable Insolvency Professionals, it does not help CBIC authorities to file claims timely.

IBBI has a proper mechanism of email communication of daily development on the public announcement, invitation of claims, invitation of resolution plans and auction notices. Anyone can subscribe to the same. Point No. iv of SOPs annexed with this instruction must have mentioned it more clearly.

However, there is a little time gap in such IBBI Communication, which is required to be plugged. The copy of the public notice does not upload automatically on the IBBI website without their internal approval. Therefore, public notices may display on the IBBI website and communicate with a delay. IBBI may permit such public notices to be uploaded automatically with a copy of the NCLT order as soon as the concerned IRP/Liquidator drafts and upload the same on the IBBI website. This way, it may appear on the website and in newspapers on the same day.

Concerned officials of Government authority and Insolvency Professionals lack clarity on the filing of government claims. Such as; which officer has the authority to sign the claims, make declarations and affidavits, what supporting documents are required in claims by tax authorities and correspondence addresses like email and postal address, the release of properties and assets attached by tax authorities, and vacation of lien on bank accounts and other assets. All these issues and challenges lead to delays in the claim verification and the insolvency resolution process. Therefore, I suggest the next set of instructions and Standard Operating Procedures should have appropriate advisories on these matters. This will certainly assist in reducing litigation.

I have an additional suggestion for CBIC, which affects the microeconomic environment and MSMEs in particular. Unless the management of the corporate debtor under insolvency resolution is cooperating, Insolvency Professionals have no mechanism to have details of suppliers and service providers. All these suppliers and service providers are fellow operational creditors of these tax authorities under Insolvency and Bankruptcy Jurisprudence. CBIC has nation wise data of these suppliers and service providers, including their official email and postal addresses. In case of authorities under CBIC may, please provide such data of the last three years concerning the corporate debtor to concern insolvency professional; it may help better invitation of claims and verification thereof. Authorities under CBIC may also flash a message of public notice to these fellow operational creditors in an automated system.

Aishwarya Mohan Gahrana

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Posted in Companies Act 2013, Insolvency and Bankruptcy Code 2016

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Private Placement to National Land Neighbours

Posted on May 9, 2022 | Leave a comment

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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Posted in Chapter IV - CA2013, Companies Act 2013

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Declaration on Securities Transfer Form

Posted on May 9, 2022 | Leave a comment

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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2nd Edition-National Corporate Restructuring Competition

Posted on March 30, 2022 | Leave a comment

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.

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Posted in Companies Act 2013

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REPORT ON CORPORATE SOCIAL RESPONSIBILITY

Posted on February 19, 2022 | Leave a comment

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.

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Posted in Chapter IX - CA2013, Companies Act 2013

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PREPARE TO BE A SUBSCRIBER/ FOUNDER OF A COMPANY

Posted on January 29, 2022 | Leave a comment

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.

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Posted in Chapter II - CA2013, Companies Act 2013

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No Extension but Facilitation for Late AGM

Posted on December 11, 2021 | Leave a comment

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.

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Posted in Chapter VII – CA2013, Companies Act 2013

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WHERE MEMBER COMPANY REMOVED FROM THE REGISTER OF REGISTRAR

Posted on December 4, 2021 | 3 comments

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.

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Posted in Chapter XVIII - CA2013, Companies Act 2013

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Activation of DIN Post Completion of Disqualification Period

Posted on November 27, 2021 | Leave a comment

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.

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Posted in Chapter XII - CA2013, Companies Act 2013

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FUNCTIONS AND DUTIES – REGISTRAR OF COMPANIES

Posted on October 30, 2021 | Leave a comment

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.

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Posted in Chapter XXIV - CA2013, Companies Act 2013

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AUDIT OF SMALL COMPANIES – MY TAKE

Posted on October 16, 2021 | Leave a comment

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.  

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Posted in Chapter X - CA2013, Companies Act 2013

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

Posted on October 3, 2021 | Leave a comment

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

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Posted in Companies Act 2013

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ORDERED NAME OF A COMPANY

Posted on July 24, 2021 | Leave a comment

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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Posted in Chapter II - CA2013, Companies Act 2013

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Welcome Multidisciplinary Firms

Posted on July 10, 2021 | 1 comment

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.

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Posted in Companies Act 2013, Company Secretary, Institute of Company Secretaries of India - ICSI

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Small and Medium Sized Company

Posted on June 26, 2021 | Leave a comment

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.

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Posted in Chapter II - CA2013, Chapter IX - CA2013, Companies Act 2013

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FULL DIGITAL BOARD

Posted on June 18, 2021 | Leave a comment

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

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Posted in Chapter XII - CA2013, Companies Act 2013

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