Tag Archives: Ministry of corporate affairs

Propaganda against Compliance Tools


Politics is claimed to be a dirty game of propaganda in India and the public already accepted it as a reality of life. Unfortunately, Indian professionals start using similar tools against compliance regime and compliance professionals. Role of the media is also come to under strong protest recently. This is evident that Indian media do no research and do not cross verify the facts. Recently published propaganda titled “FM Nirmala Sitharaman urged to waive e-form 22A for firms” published by Deccan Chronicle on 12th June 2019 and copied by few others seems to be published without cross-checking on law and facts.

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The Active Extension


Among practitioners and followers of corporate law in India, the year 2019 brought a surprise in the form of Form INC – 22A. This was claimed to be a form to identify active companies and checking inactive companies. Unlike earlier attempt aim to boost the image of the country and government, this form lost its shine within few hours of its introduction. Unlike earlier, this form had no mention in government communications of success.

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Return about Payment to MSME Suppliers


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

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CONVERSION OF PUBLIC COMPANY INTO PRIVATE COMPANY


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

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

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Shifting Registered Office to another state


[The law stated in this post is valid from 27th July 2017 with an update made in this post with effect from 6th March 2019]

On 27th July 2017, Ministry of Corporate Affairs published a notification in Official Gazette of India amending the rules relating to shifting of registered office of a company from jurisdiction of its present registrar of companies to another registrar of companies. The Companies (Incorporation) Second Amendment Rules, 2017 came into effect from the date of publication. In this post, we will discuss the shifting of registered office of a company to another state or the union territory.

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Shifting Registered Office to different Jurisdiction in same state


On 27th July 2017, Ministry of Corporate Affairs published a notification in Official Gazette of India amending the rules relating to shifting of registered office of a company from jurisdiction of its present registrar of companies to another registrar of companies. The Companies (Incorporation) Second Amendment Rules, 2017 came into effect from date of publication. In present post, we will discuss first aspect of such shifting of registered office – shifting within a state but from one registrar of companies to another registrar of companies.

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Appeal or Application for Restoration of Names of Company


The National Company Law Tribunal (Amendment) Rules, 2017 notified on 6th July 2017 which came into force in same date inserted Rule 87A the National Company Law Tribunal Rules, 2016. In this post, we will discuss newly inserted rules with brief background.

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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.

 

Ease to surrender DIN


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

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Minister Arjun Ram Meghwal


Despite my long standing habit of seeing governments and political leaders, irrespective of party they belong, critically; one political leader, I appreciate is Arjun Ram Meghwal. I know much less about the person, but the information in popular public domain is impressive.

He is a person, who use his cycle (push – bike) to his place of work, Parliament of India at his age of 61. Recently, we husband – wife took inspirations from him to use cycle to place of work though we may not agree with many of his political thoughts.

He belongs to traditional Weaver family (a depressed caste and class in India) of Kismidesar village in Bikaner. He is a “victim” of traditional child marriage system, married at age of 13. He was born on 7th December 1954.

After marriage, he did graduation in Arts, Law and masters thereafter. After marriage, study is quite a hardship for all women or men alike.

He started career as telephone operator, considered as low profile career option and front line of corruption for years till opening of sector for marker competition. He won the elections for the post of general secretary of Telephone Traffic Association.

Thereafter, he passed the examination for Rajasthan State Administrative Service in his second attempt. This is again a good achievement for a child married dalit telephone operator.

But, story not end here, he got promoted (awarded) Indian Administrative Service (IAS). Promotion to PCS (State Administrative Services) to IAS, need hard work, experience, public respect and sometime political connections.

He won the election for Lok Sabha (lower house of Indian  Parliament) in 2009 and 2014.

Now, he is Minister of State for Ministry of Finance and Ministry of Corporate Affairs and will report to his senior in these ministries Sh. Arun Jaitly.

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.

OMNIBUS APPROVAL FOR RELATED PARTY TRANSACTIONS


Ministry of corporate Affairs issued a notification dated 14th December 2015 and published here in the Gazette of India dated 15th December 2015 regarding amendment in the Companies (Meetings of Board and its Power) Rules 2014.

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Meetings of Board and its Power: Second Amendment Rules


Ministry of corporate Affairs issued a notification dated 14th December 2015 and published here in the Gazette of India dated 15th December 2015 regarding amendment in the Companies (Meetings of Board and its Power) Rules 2014.

The Companies (Meetings of Board and its Power) Second Amendment Rules, 2015 (i) inserts a new Rule 6A, (ii) omit present Rule 10 and (iii) amend present Rule 15(3).

We will discuss newly inserted Rule 6A in a future post. In this post we bill discuss other two amendments in very brief way.

Loan to Directors

We have discussed now omitted Rule 10 earlier here. These rules became redundant after the Company (Amendment) Act, 2015 as discussed earlier here. Hence, it is deleted.

Amendment in Rule 15

We have discussed Rule 15 earlier here. There is a minor but very important amendment in Rule 15(3). In rule 15, in sub-rule (3), for the words “special resolution”, wherever they occur, the word “resolution” shall be substituted.

This amendment is in line with the amendment in Section 188 by the Companies (Amendment) Act, 2015 discussed earlier here.

This has a very significant effect and dilutes corporate governance to certain level. This cut power of non – promoter investors whether they are indigenous investors or foreign investors.

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.

REPORTING OF FRAUD


Ministry of corporate Affairs issued a notification dated 14th December 2015 and published here in the Gazette of India dated 15th December 2015 regarding amendment in the Companies (Audit and Auditors) Rules, 2014.

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Remaining Part of Companies Amendment Act became Effective


A gazette notification posted here on official website of the Gazette of India and posted on website of Ministry of Corporate Affairs says that Section 13 and Section 14 of the Companies (Amendment) Act, 2015 came into force with effect from 14th December 2015. The official language of notification read, “The Central Government hereby appoints the 14th day of December, 2015 as the date on which the provisions of section 13 and 14 of the said Act shall come into force.”

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MGT – 7 (v. 17Nov2015)


We live in a changing world; corporate world changing fast and Indian Corporate Law fastest. A draft of the Companies (Management and Administration) third Amendment Rules, 2015 dated 16th November 2015, which is pending for publication in Official Gazette of India amend the version of form MGT -7 once again. Though these amendment rules are not available in official gazette, new version of form MGT – 7 is made available on the MCA21 portal for filing.

Note: MGT – 7 Version 17th November 2015 is being used for writing this post. Earlier posts here and here are only historic relevance now.

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REPRESENTATIVE, PROXY AND WHO ELSE


This is not possible every time for a member to be present in a General Meeting. Members are very much concerned for well being of the company, its management, profit and growth. Corporate law does not permit members to participate members to interfere in day to day management. A member at most may seek certain information or participate in general meetings of the company. Participation in a meeting need a presence; a personal presence of a member. Even in a virtual presence, a member needs to spare time for the purpose.

Representative:

Further, it may also be possible that member is a corporate sole like President of India or Governor of an Indian State who may not be present himself but through representative. President of India and Governor of an Indian State may appoint a person as his representative for a meeting of the company [Section 112(1)]. Where a member is a body corporate, it may also appoint a person as representative [Section 113(1)]

A representative of President or Governor shall be deemed to be a member of such a company and shall be entitled to exercise the same rights and powers, including the right to vote by proxy and postal ballot, as the President or, as the case may be, the Governor could exercise as a member of the company. [Section 112(2)]

A representative of body corporate shall be entitled to exercise the same rights and powers, including the right to vote by proxy and by postal ballot, on behalf of the body corporate which he represents as that body could exercise if it were an individual member, creditor or holder of debentures of the company. [Section 113(2)]

Major difference among representative under Section 112(2) and 113(3) is that representative of President or Governor shall be deemed to be a member but representative of body corporate is a mere representative who may exercise powers as a member. This difference arises from drafting and may not have much practical impact.

 Major similarity among representative under Section 112(2) and 113(3) is that both representatives may vote by proxy and postal ballot.

So now, for the purpose of this post, we may treat all members as individual as corporate sole and body corporate also being represented by individuals exercise same powers in the general meeting.

Proxy:

Where a member may not present, member may appoint a proxy under Section 105 of the Companies Act, 2013 t attend and vote in the meeting. Similar provision was there in earlier Acts also.

A proxy may vote even if member present personally in the meeting until members expressly revoke proxy or vote himself which implicitly revoke the proxy. [Tata Iron & Steel Co. Ltd., In Re., AIR 1928 Bom. 80].

We have discussed legal provisions related to proxies earlier here and here. We here reproduced only few provisions required for this post.

The instrument appointing a proxy shall be in writing and be signed by the appointer or his attorney. Where appointer is a body corporate, it shall be sealed of body corporate and signed by an officer of attorney. [Section 105(6)] The appointment of proxy shall be in the Form MGT – 11. [Rule 19(3)]

Limitation of Proxy:

Proxy is an agent for the purpose of voting on poll in a general meeting and cannot speak or vote otherwise. [Section 105(1)] What is use of such agent, if the voice of the member could not reach and heard in General Meeting? This limit right of the members to certain manner.

This limited right to appoint is not available to all classes of members. A member of a company not having a share capital shall not be entitled to appoint proxy unless articles provide so. Central Government may also specify companies whose members shall not be entitle to appoint a proxy.  [Proviso to Section 105(1)]

How can a member ensure to coup with such limitation where he could not be represented through proxy? How can a member ensure his voice in general meeting?

Attorney:

The companies Act, 2013 does not give the answer to abovementioned questions. This does not render a member helpless. The Power of Attorney Act, 1882 come to rescue a member in this situation.

A Power of Attorney includes any instrument empowering a specified person to act for and in the name of the person executing it. [Section 1A of the Power of Attorney Act, 1882]

A ‘power-of-attorney’ means a formal instrument by which one person empowers another to represent him, or act in his stead, for certain purposes, usually in the form of a deed poll, and attested by two witnesses. The donor of the power is called the principal or constituent; the donee is called the attorney or agent. [Osborn’s Concise Law Dictionary, 7th Edn.,]

The donee of a power of attorney may execute pr do any instrument or thing in and with his own name and signature, and his own seal, where sealing is required, by authority of the donor of the power; and every instrument and thing so executed and done, shall be as effectual in law as if it had been executed or done by the donee of the power in the name, and with the signature and seal, of the donor thereof. [Section 2 of the Power of Attorney Act, 1882]

However, an attorney may do such act only when the attorney and the donor have capacity to make contract.

Where a Power of Attorney contains the following words “… to appear and to represent me at any meeting of any joint stock company in which I am interested as a shareholder or debenture holder or preference shareholder, or as a member or otherwise and to vote there, and also to grant proxies to any other person …” These words are sufficient for attorney to exercise powers of member in a general meeting. [Tata Iron & Steel Co. Ltd., In Re., AIR 1928 Bom. 80].

A holder of General Power of Attorney shall be treated as member personally present not as a proxy. Accordingly, he will be counted for the purpose of quorum. A General Power of Attorney may include all power of members which it may exercise as members under the Companies Act 2013 and any other law for the time being in force.

However, a power of attorney executed outside India shall be treated in accordance with the law of that that country for the time being in force.

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.

AOC – 4 XBRL (v. 1st October2015)


MCA recently introduced the Companies (Filing of Documents and forms in XBRL) Rules 2015 dated 9th September 2015 for which I have yet to locate published copy in the Official Gazette. These rules shall come into force from the date of publication in Official Gazette. These rules have already discussed earlier here.

Note: AOC – 4 XBRL Version 1st October 2015 is being used for writing this post.

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Counter Puzzle of Auditor Appointment


No doubt the Companies Act, 2013 is not a law but collection of legal puzzle. Compliance of its provisions became hell. This is not just because of poor drafting of law but poor reading of law. We student of the Companies Act, 2013 need to unlearn the Companies Act, 1956 first and finally. We need to know, learn, understand and educate ourselves that the Companies Act, 1956 is now only for reference purpose only.

In last post, we discussed puzzle of ADT – 1 here but every coin have second side also. In that post we start reading form the charging sub – section and in this post we will start reading form the compliance required by the Ministry i.e. ADT – 1 itself.

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Puzzle of Auditor Appointment (ADT – 1)


No doubt the Companies Act, 2013 is not a law but collection of legal puzzle. Compliance of its provisions became hell. This is not just because of poor drafting of law but poor reading of law. We student of the Companies Act, 2013 need to unlearn the Companies Act, 1956 first and finally. We need to know, learn, understand and educate ourselves that the Companies Act, 1956 is now only for reference purpose only.

In this post we will try to solve puzzle of ADT – 1, Rule 4 and Section 139.

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