Tag Archives: Corporate Law

Out of Sahara Blues


Finally government tries to come out of Sahara Blues. Government earlier was in pressure to put corporate governance in place among private companies and tried well. Thereafter, industry lobby (read as vested interests among “promoters” and “professionals”) started pleaded mercy for all “otherwise honest players”.

Government initiated it journey with exemption notifications and now bring this amendment rules.

The Companies (Audit and Auditors) Second Amendment Rules, 2017 is interesting in more than one way. Statistically, this exemption will benefit only selected big players among private companies in India and their auditors.

Section 139(2) of the Companies Act, 2013 reads, “No listed company or a company belonging to such class or classes of companies as may be prescribed, shall appoint or re-appoint—

(a) an individual as auditor for more than one term of five consecutive years; and

(b) an audit firm as auditor for more than two terms of five consecutive years.”

Rule 5 of the Companies (Audit and Auditors) Rules 2014 before present amendments reads, “for the purposes of sub-section (2) of section 139, the class of companies shall mean the following classes of companies excluding one person companies and small companies:-

(a) all unlisted public companies having paid up share capital of rupees ten crore or more;

(b) all private limited companies having paid up share capital of rupees twenty crore or more;

(c) all companies having paid up share capital of below threshold limit mentioned in (a) and (b) above, but having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more.”

Now, the Companies (Audit and Auditors) Second Amendment Rules, 2017, amend clause (b) of rule 5. The amendment rules reads, “in the Companies (Audit and Auditors) Rules, 2014, in rule 5, in clause (b), for the word “twenty”, the word “fifty” shall be substituted.

This amendment rules increase threshold limit for rotation of auditors for private companies by a good 150%.

As number of companies and auditors is not much, it may not affect stakeholders significantly but our commitment towards corporate governance.

 

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Ease to surrender DIN


Now, Ministry of Corporate Affairs introduced relatively easy and online e – form for surrendering director identification.

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Amendment in Buyback Law


The Ministry of Corporate Affairs bring out two draft notifications to be published in Official Gazette of India to amend the Act by a draft order under proviso to Section 68(2)(d) and by a draft amendment in the Companies (Share Capital and Debentures) Rules, 2014.

Post Buyback Debt – Equity Ratio:

As we discussed earlier here, Section 68(2)(d) read as under:

“The ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not more than twice the paid-up capital and its free reserves:

Provided that the Central Government may, by order, notify a higher ratio of the debt to capital and free reserves for a class or classes of companies;”

Now draft notification read as under:

In exercise of the powers conferred under the proviso to clause (d) of sub-section (2) of section 68 of the Companies Act, 2013, the Central Government has notified that –

The debt to capital and free reserves ratio shall be 6:1 for government companies within the meaning of clause (45) of Section 2 of the Companies Act, 2013 which carry on Non Banking Finance Institution activities and Housing Finance activities.

This order give effect that for all companies post buyback Debt Equity Ratio shall be 2:1 except government companies which are Non banking Finance companies or Housing Finance companies.

Unaudited Accounts limited reviewed:

As we discussed earlier here, Rule 17(1)(n)(iii) of the companies (Share Capital and Debentures) Rules, 2014 read as under:

“That the audited accounts on the basis of which calculation with reference to buy back is done is not more than six months old from the date of offer document;”

The draft of the companies (Share Capital and Debentures) Amendment Rules 2016 insert following proviso to this sub – clause:

“Provided that where the audited accounts are more than six months old, the calculations with reference to buy back shall be on the basis of un-audited accounts not older than six months from the date of offer document which are subjected to limited review by the auditors of the company.”

This is a removal of practical difficulty. Due to present clause, for practical purpose buyback resolution is possible only within six month from date of audited annual account. Now, buyback resolution may be possible any time on the basis of unaudited accounts limited reviewed by the auditors of the company.

Please note: This blog invite readers to share their comments, suggestions, hardship, queries and everything in comment section. This blog post is not a professional advice but just a knowledge sharing initiative for mutual discussion.

Resident and Residential Address


Form – DIR – 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014, asked strange information therein – 5 – Whether (applicant is) resident in India – yes or no (radio button). Any person filing and certifying the form should be confirm what is asked and what is purpose? Whether permanent residential address or present resident address has any relation with resident status? What is definition of these terms; Resident Status, Permanent Residential Address and Present Residential Address?

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NIDHI COMPANIES UNDER COMPANIES LAW


Nidhi is a special class of companies under the Companies Act 2013. Sub – Section (1) of Section 406 define Nidhi. “Nidhi” means a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with such rules as are prescribed by the Central Government for regulation of such class of companies.

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EXEMPTION TO PRIVATE COMPANIES


On 5th June 2015, Ministry of Corporate Affairs posted here a draft notification to be published in Official Gazette announcing some exemption to Private Companies.

As there is no effective date is announced in the Notification, this notification shall come into effect on the date of its publication in the Official Gazette.

[UPDATE 20th June 2015: MCA uploaded copy of Official Gazette dated 5th June 2015, in which this Notification is published. Meaning that; These exemption came into force from that date]

The Notification is issued in exercise of power conferred by Clauses (a) and (b) of Sub – section (1) of 462 read with sub –section (2) of said section of the Companies Act, 2013. A copy of this notification has been laid in draft before both Houses of Parliament as required by sub-section (2) of section 462 of the Companies Act, 2013.

Paragraph 2 of the Notification cast a condition on the Private Companies:

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EXEMPTION TO GOVERNMENT COMPANIES


On 5th June 2015, Ministry of Corporate Affairs posted here a draft notification to be published in Official Gazette announcing some exemption to Not for profit Companies.

As there is no effective date is announced in the Notification, this notification shall come into effect on the date of its publication in the Official Gazette.

[UPDATE 19th June 2015: MCA uploaded copy of Official Gazette dated 5th June 2015, in which this Notification is published. Meaning that; These exemption came into force from that date]

The Notification is issued in exercise of power conferred by Clauses (a) and (b) of Sub – section (1) and sub – section (2) of 462 of the Companies Act, 2013. A copy of this notification has been laid in draft before both Houses of Parliament as required by sub-section (2) of section 462 of the Companies Act, 2013.

Paragraph 2 of the Notification cast a condition on the Government Companies:

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