Buzz on Corporate Laws: eNewsletter: April 2014 issue

P. K. PANDYA & CO. Practising Company Secretary

www.pkpandya.com

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BUZZ ON CORPORATE LAWS

April 2014

Contents THE COMPANIES ACT, 2013 ..................................................................................................................... 2

Electronic Voting: Whether decision by e-voting system is final? ........................................................ 2

Some of the actions to be taken under the Companies Act, 2013: ......................................................... 3

New Rules ........................................................................................................................................... 3

Draft Secretarial Standards for public comment: .................................................................................. 4

SEBI ......................................................................................................................................................... 5

SEBI announces new Corporate Governance norms ............................................................................. 5

Standard format of CA certificate under clause 24(i) of equity Listing Agreement: .............................. 7

Approach paper on draft SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2014. 7

Review of Delisting Regulations .......................................................................................................... 8

Reserve Bank of India .............................................................................................................................. 8

Non-Operative Financial Holding Company ........................................................................................ 8

Clarification on Calculation of NOF of an NBFC ................................................................................. 9

Delegation of power of compounding by RBI to its regional offices: .................................................... 9

Comments invited on report on Resolution Regime for Financial Institutions ..................................... 10

Disclaimer: The contents are general information and should not be treated as legal advice or legal opinion by P. K. Pandya & Co. Readers are advised to seek legal advice, refer the applicable law and sole

reliance on the content of this write-up is not recommended. If this write-up is circulated, content of this

disclaimer and credit to P. K. Pandya & Co. shall be retained. © P. K. Pandya & Co. 2014.

P. K. PANDYA & CO. www.pkpandya.com

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THE COMPANIES ACT, 2013

Electronic Voting: Whether decision by e-voting system is final?

Reading of sections 107, 108, 109 and 110

of the Companies Act 2013 („the Act‟) read

with the Companies (Management and

Administration) Rules, 2014 („the Rules‟)

suggest that companies need not hold actual

general meeting and business can be

transacted through postal ballot and/or

electronic voting mechanism.

Very recently, in a Company Summons for

Direction (256 of 2014), dealing with a

scheme of amalgamation proposed between

Wadala Commodities Limited with Godrej

Industries Limited Hon‟ble Bombay High

Court rejected contention that since section

110 of the Act contains non-obstante clause,

quorum requirement need not come in the

way of transacting business only by postal

ballot or e-voting and not transacting

business at actual general meeting.

The Hon‟ble court rejected argument that

non-obstante clause of section 110(1) that

“Nothwithstanding anything contained in

this Act” as not applicable to court convened

meeting under sections 391 and 394 of the

Companies Act 1956. Further, section 110

of the Act speaks of meetings called by the

company. (Para 15)

At para 12 Hon‟ble court observed that: "If

voting is to be done only by postal ballot,

how is that statutory requirement of a

quorum (Section 103) to be met? ..... I find

that hard to accept (non-obstante clause in

section 110" In the same paragraphs court

also questioned that why there is need for

“calling of a meeting” under section 230 of

the Act and “not merely putting the matter to

vote”.

When SEBI Circular dated 17th April 2014

was brought to notice of the Court, it opined

that “Prima-facie it appears that the

provisions of Section 110 of the 2013 Act

cannot and do not extend to any scheme

matters. This is true of all companies,

whether listed or not. Consequently, any

SEBI circulars or guidelines or notifications

that make electronic voting or postal ballot

the exclusive method of voting on such

schemes are clearly unlawful and contrary to

the intent of Sections 230/232 of the 2013

Act and of Sections 391/394 of the 1956

Act. There is no question of matters at a

Court-convened meeting being decided by

postal ballot “instead” of at a general

meeting; the postal ballot and electronic

voting may be permitted or may even be

required in addition to but not in

replacement of an actual general meeting.”

(Para 15)

Further, the Hon‟ble court opined that Rule

26 of the Rules cannot be interpreted to

mean that e-voting cannot be offered at the

actual meeting itself. (Para 19)

Hon‟ble Court held that that where members

cast vote in court convened meeting by

postal ballot or e-voting, they can still attend

the meeting and can also express themselves

at the meeting. However, they cannot vote.

It also held that e-voting facility shall be

extended at the actual (court convened)

meeting also.

Thus, the said ruling overrules proviso to

rule 20(3) (vi) and rule 20(3)(xv) supra,

section 110(2) as well as declared that any


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SEBI circulars or guidelines or notifications

that make electronic voting or postal ballot

the exclusive method of voting on such

schemes are clearly unlawful and contrary to

the intent of Sections 230/232 of the 2013

Act and of Sections 391/394 of the 1956

Act.

And in general meetings, other than court

convened meeting also, the Court has

strongly recommended authorities and

companies to allow voting at actual meeting

also besides by postal ballot and e-voting.

(Para 22(b)).

Some of the actions to be taken under the

Companies Act, 2013:

1) Identify related parties and inform the

same to accounts team (ERP/SAP)

2) Return on changes in Top 10

shareholders – within 15 days - under

section 93

3) To obtain positive consent for

receiving documents by email (u/s.101).

Though new share transfer form contains

email address but does not contain positive

consent for receiving documents by email.

4) Obtain certificate of Independence

from Directors under section 149 (7)

5) Terms of reference of Audit committee

–Additional items to be placed before audit

committee at each meeting – under section

177 (4)

6) Nomination & Remuneration policy to

be approved by Board – under section 178

(3) & (2)

7) Terms of reference of Stakeholder

committee – Additional items to be placed

before the Committee – under section 178

(6)

8) Devise Code for independent Directors –

as per Schedule IV

9) Maintain Register of KMPs – under

section170

10) Can pay sitting fees upto Rs. 1 lakh –

under section 197 (5)

11) To devise policy on internal financial

controls - Directors‟ Responsibility

Statement – Clauses (e) and (f) of

section134 (5) have laid down adequate

“internal financial controls” - defined by

way of explanation to Section 143(5)(e).

13) File Board Resolutions passed –

under section 179

14) Every director shall attend at least 1

Board Meeting in 12 months or vacates

office – under section 167 (1) (b)

New Rules

The following new Rules under the

Companies Act, 2013 are notified by MCA

and brought to force from April 01, 2014:

the Companies (Specification of definitions

details) Rules, 2014 [notified in Gazette]

the Companies (Incorporation) Rules, 2014

[Chapter II] [notified in Gazette]

the Companies (Prospectus and Allotment of

Securities) Rules, 2014 [Chapter III]

[notified in Gazette]


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the Companies (Global Depository Receipts)

Rules, 2014 [Chapter III] [notified in

Gazette]

the Companies (Share Capital and

Debentures) Rules, 2014 [Chapter IV]


the Companies (Acceptance of Deposits)

Rules, 2014 [Chapter V] [notified in

Gazette]

the Companies (Registration of Charges)

Rules, 2014 [Chapter VI] [notified in

Gazette]

the Companies (Management and

Administration) Rules, 2014 [Chapter VII]

the Companies (Declaration and Payment of

Dividend) Rules, 2014 [on Chapter VIII]


the Companies (Accounts) Rules, 2014

[Chapter IX] [notified in Gazette]

the Companies (Audit and Auditors) Rules,

2014 [on Chapter X] [notified in Gazette]

the Companies (Appointment and

Qualification of Directors) Rules, 2014

[Chapter XI] [notified in Gazette]

the Companies (Meetings of Board and its

Powers) Rules, 2014 [Chapter XII] [notified

in Gazette]

the Companies (Appointment and

Remuneration of Managerial Personnel)

Rules, 2014 [Chapter XIII] [notified in

Gazette]

the Companies (Inspection, Investigation

and Inquiry) Rules, 2014 [Chapter XIV]


the Companies (Authorised to Registered)

Rules, 2014 [Chapter XXI] [notified in

Gazette]

the Companies (Registration of Foreign

Companies) Rules, 2014 [Chapter XXII]

the Companies (Registration Offices and

Fees) Rules, 2014 [Chapter XXIV]

the Companies (Registration Offices and

Fees) Amendment Rules, 2014 [Chapter

XXIV] [notified in Gazette]

Nidhi Rules, 2014 [Chapter XXVI] [notified

in Gazette]

the Companies (Miscellaneous) Rules, 2014

[Chapter XXIX]

the Companies (Adjudication of Penalties)

Rules, 2014

Draft Secretarial Standards for public

comment:

ICSI invites comments or suggestions on the

Exposure Drafts of on Secretarial Standard

on Meetings of the Board of Directors (SS-

1) and Secretarial Standard Secretarial

Standards on General Meetings (SS-2).

Comments need to be given by 21 May

2014. Based on the public comments

received, these two Standards would be

finalised and sent to the Central Government

for their consideration and subsequent

notification u/s 118(10). Please click here

for the drafts.

http://icsi.edu/portals/0/Covering_hosting%20%281%29.pdf


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SEBI

SEBI announces new Corporate

Governance norms

SEBI vide its circular dated 17th April 2014

substituted clause 49 and clause 35B of

listing agreement. For copy of the circular

click here.

These changes are made applicable from 01

October 2014.

Clause 49 is substituted and made in

consonance with the Companies Act, 2013.

Following are some of the important

changes introduced.

1. Woman Director: Appointment of

at least one woman director on the

Board. Under the Companies Act

2013 a woman director needs to be

appointed by 31 March 2015. Clause

49 does not specify any time limit

for such an appointment.

2. Independent Director:

a. Definition of independent

director is modified by

specifically excluding

nominee director from its

ambit.

b. Limit on number of

directorships of an

independent director:

An individual can serve

as an independent

director in maximum

seven listed companies.

A whole time director of

any listed company can

be an independent

director of maximum

three listed companies.

c. Maximum tenure of

independent directors:

Appointment and re-

appointment for not more

than five consecutive

years

Special Resolution shall

be required

d. Formal letter of appointment

in case of Independent

directors

The company shall issue

a formal letter of

appointment to

independent directors

The letter of appointment

along with the detailed

profile of independent

director shall be disclosed

on the websites of the

company and the Stock

Exchanges not later than

one working day from the

date of such appointment.

e. Performance evaluation of

Independent Directors shall

be laid down by the

Nomination Committee

f. Separate meetings of the

Independent Directors

The independent directors

of the company shall hold

at least one meeting in a

year

g. Suitable training to

Independent Directors to be

provided and the details of

such shall be disclosed in the

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1397734478112.pdf


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Annual Report. The Board

should also encourage

continuing directors (all

directors) training to ensure

that the Board members are

kept up to date.

h. An independent director who

resigns or is removed from

the Board shall be replaced

by a new independent

director, not later than the

immediate next Board

meeting or 3 months from the

date of such vacancy,

whichever is later. Prior

clause 49 provided for 180

days for filling the casual

vacancy of an independent

director.

3. Related Party Transactions:

a. Earlier Related Party

Transaction was defined as

per Accounting Standards 18.

Now it has been elaborately

defined.

All existing material

related party contracts or

arrangements which are

likely to continue beyond

March 31, 2015 shall be

placed for approval of the

shareholders in the first

General Meeting

subsequent to October 01,

2014. However, a

company may choose to

get such contracts

approved by the

shareholders even before

October 01, 2014.

b. Disclosures Related Party

Transactions

Details of all material

related party transactions

shall be disclosed

quarterly along with the

compliance report on

corporate governance.

The company shall

disclose the policy on

dealing with Related

Party Transactions on its

website and in the Annual

Report.

4. Role of Audit Committee has been

broadened by providing for

scrutinizing of inter corporate loans

and investments, valuation of assets,

etc.

5. Nomenclature of Shareholders

grievances committee changed to

Stakeholders Relationship

Committee.

6. Nomenclature of Remuneration

committee changed to Nomination

and Remuneration Committee.

The composition of the

Committee provides that

it shall comprise at least

three directors, all of

whom shall be non-

executive directors and

at least half shall be

independent.

7. Company to disclose the details of

establishment of vigil mechanism

(Whistle Blower Policy) on its

website and in the Board‟s report.

8. While providing the meaning of

‘material subsidiary’ it further


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states that the company shall

formulate a policy for determining

„material‟ subsidiaries and such

policy shall be disclosed to Stock

Exchanges and in the Annual Report.

9. Top 100 listed companies by market

capitalization (as at end of

immediate previous financial year)

need to constitute Risk

Management Committee. No time

frame is prescribed for its

constitution; however as good

practice it shall be done as soon as

possible.

10. Disclosure of resignation of directors

The company shall disclose

the letter of resignation along

with the detailed reasons of

resignation provided by the

director of the company on

its website not later than one

working day from the date of

receipt of the letter of

resignation.

The company shall also

forward to the stock

exchanges not later than one

working day from the date of

receipt of resignation for

dissemination through its

website.

Clause 35B is substituted and made in

consonance with the Companies Act, 2013.

Following are some of the important

changes introduced.

1. Companies to provide e-voting

facility to its shareholders, in respect

of all shareholders' resolutions, to be

passed at General Meetings or

through postal ballot.

2. to enable those shareholders, who do

not have access to e-voting facility,

to send their assent or dissent in

writing on a postal ballot

Standard format of CA certificate under

clause 24(i) of equity Listing Agreement:

Under Clause 24(f) of the equity Listing

Agreement, a company is required,

Approval of the Stock Exchange(s) required

by listed companies for any scheme/petition

proposed to be filed before any Court or

Tribunal under sections 391, 394 and 101 of

the Companies Act, 1956. And under clause

24(i) of the equity Listing Agreement the

company, while filing for approval of any

draft Scheme of amalgamation / merger /

reconstruction, etc. with the stock exchange,

is also required to file an auditors‟ certificate

to the effect that the accounting treatment

contained in the scheme is in compliance

with all the Accounting Standards specified

by the Central Government in Section

211(3C) of the Companies Act, 1956.

Now a standard format of CA certificate is

prescribed. For copy of the cicular, click

here.

Approach paper on draft SEBI (Listing

Obligations and Disclosure

Requirements) Regulations, 2014.

Approach paper can be accessed from SEBI

website. Click here.

Comments in the given format are invited by

SEBI on or before May 30, 2014 either by





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email to [email protected] or sent, by post,

to:

Ms. Harini Balaji

Corporation Finance Department

Securities and Exchange Board of India

SEBI Bhavan

Plot No. C4‐A, ʺGʺ Block

Bandra Kurla Complex

Bandra (East),

Mumbai ‐ 400 051

Ph: +912226449372/26449596

The initial disclosure norms for companies

accessing the capital market in Equity or

debt segment are prescribed in detail in

various regulations, viz.:

1. SEBI (Issue and Listing of Debt

Securities) Regulations, 2008

2. SEBI (Public Offer and Listing of

Securitized Debt Instruments) Regulations,

2008

3. SEBI (Issue of Capital and Disclosure

Requirements) Regulations, 2009

4. SEBI (Issue and Listing of

Non‐Convertible Redeemable Preference

Shares) Regulations, 2013

All the substantive requirements and

enabling provisions of present Listing

Agreements have been specified in the draft

Listing Regulations.

The procedural requirements have been

specified through Schedules to the draft

Listing Regulations.

Certain provisions of Listing Agreements

have been rearranged depending on timing

and frequency of the disclosures to be made.

Review of Delisting Regulations

Public comments on the discussion paper on

'Review of Delisting Regulations'. To

download discussion paper, click here.

Comments in the given format are invited by

SEBI on or before May 30, 2014 either by

email to [email protected] or sent, by

post, to:-

Amit Tandon

Deputy General Manager

Corporation Finance Department

Securities and Exchange Board of India

SEBI Bhavan

Plot No. C4-A, "G" Block

Bandra Kurla Complex

Bandra (East), Mumbai - 400 051

Ph: +912226449373/ +912226449334

Reserve Bank of India

Non-Operative Financial Holding

Company

A separate category of NBFCs, viz., Non-

Operative Financial Holding Company

(NOFHC) created by RBI.

The „Guidelines for Licensing of New

Banks in the Private Sector‟ dated February

22, 2013. It inter alia, state that promoter /

promoter groups will be permitted to set up

a new bank only through a wholly-owned

NOFHC which will hold the bank as well as

all other financial services companies

regulated by RBI or other financial sector

regulators, to the extent permissible under

the applicable regulatory prescriptions.

NOFHC will be registered as a non-deposit

taking non-banking financial company

(NBFC).



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A company seeking registration as an

NOFHC shall first have received an in-

principle approval for setting up a

commercial bank from the Reserve Bank.

For copy of RBI notification, click here.

Clarification on Calculation of NOF of an

NBFC

RBI has observed that in certain cases that

an NBFC while arriving at the NOF figure

did not reckon its investment in group

companies on the ground that investments in

the group companies were made by the

Venture Capital Fund (VCF) sponsored by

the NBFC, although, in term, the

contribution to the funds held by the VCF

had come primarily from the NBFC itself.

It is clarified that while arriving at the NOF

figure, investment made by an NBFC in

entities of the same group concerns shall be

treated alike, whether the investment is

made directly or through an AIF / VCF, and

when the funds in the VCF have come from

the NBFC to the extent of 50% or more; or

where the beneficial owner, in the case of

Trusts is the NBFC, if 50% of the funds in

the Trusts are from the concerned NBFC.

For this purpose, “beneficial ownership”

would mean holding the power to make or

influence decisions in the Trust and being

the recipient of benefits arising out of the

activities of the Trust.

While calculating their NOF, NBFCs have

been advised to keep the principle in mind

that the substance would take precedence

over form.

For copy of clarification, click here.

Delegation of power of compounding by RBI to its regional offices:

RBI has delegated further powers to its regional offices to compound the following

contraventions will now be vested with the Regional Offices:

Sr.

No.

FEMA Regulation Brief Description of Contravention

1 Paragraph 9(1)(A) of Schedule I to

FEMA 20/2000-RB dated May 3,

2000

Delay in reporting inward remittance received for

issue of shares.

2 Paragraph 9(1)(B) of Schedule I to


2000

Delay in filing form FC(GPR) after issue of

shares.

3 Paragraph 8 of Schedule I to FEMA

20/2000-RB dated May 3, 2000

Delay in issue of shares/refund of share

application money beyond 180 days, mode of

receipt of funds, etc.

4 Paragraph 5 of Schedule I to FEMA

20/2000-RB dated May 3, 2000

Violation of pricing guidelines for issue of shares.

5 Regulation 2(ii) read with

Regulation 5(1) of FEMA 20/2000-

RB dated May 3, 2000

Issue of ineligible instruments such as non-

convertible debentures, partly paid shares, shares

with optionality clause, etc.

6 Paragraph 2 or 3 of Schedule I to Issue of shares without approval of RBI or FIPB

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/CCN374NOF070414.pdf

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/INT070414CIENG.pdf


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2000

respectively, wherever required.

As per the notification, “the above

contraventions can be compounded by all

Regional Offices (except Kochi and Panaji)

without any limit on the amount of

contravention. Kochi and Panaji Regional

offices can compound the above

contraventions for amount of contravention

below Rupees one hundred lakh

(Rs.1,00,00,000/-). The contraventions

above Rupees one hundred lakh

(Rs.1,00,00,000/-) under the jurisdiction of

Panaji and Kochi Regional Offices and all

other contraventions of FEMA will continue

to be compounded at Cell for Effective

Implementation of FEMA (CEFA),

Mumbai, as hitherto.” For copy of

notification, click here.

Comments invited on report on

Resolution Regime for Financial

Institutions

RBI has placed the Report of the Working

Group on Resolution Regime for Financial

Institutions on its website for public

comments. Click here for the report. The

comments, if any, on the recommendations

of the Report, may be e-mailed at

[email protected] or sent by

post to the Principal Chief General Manager,

Reserve Bank of India, Department of

Banking Operations and Development,

12thFloor, Central Office Building, Shahid

Bhagat Singh Marg, Fort, Mumbai – 400

001 on or before May 31, 2014.

Following the lessons learnt from the

financial crisis and the need to have an

effective and credible resolution framework

for distressed financial institutions in India,

the Reserve Bank of India constituted, as

decided by the sub-Committee of the

Financial Stability and Development

Council (FSDC), a high level Working

Group to suggest extensive strengthening of

the resolution regime taking into

consideration the structure of Indian

financial institutions.

A special resolution framework is needed

because the general corporate bankruptcy or

insolvency procedures cannot ensure

sufficient speed of intervention or the

continuation of the critical functions, thus

undermining financial stability.

The special resolution regime must extend to

all financial institutions-banks and non-

banks - and be robust enough to address

failures of small and medium financial

institutions as well as failures of large

complex financial institutions. Moreover,

the resolution regime should also extend to

financial groups/ conglomerates.

The Group emphasizes the need for a

separate comprehensive legal framework

providing the necessary powers and tools to

resolve all financial institutions irrespective

of ownership; and setting up of a single

Financial Resolution Authority (FRA) that is

institutionally independent of

regulators/Government. The Group also

recommends putting in place an early

intervention mechanism in the form of a

Prompt Corrective Action (PCA) framework

with clear trigger levels for regulatory

intervention in the early stages and for

handing over to the resolution authority for

initiating appropriate actions in the last

stage.

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/553APD04042014.pdf

http://rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=767

Buzz on Corporate Laws: eNewsletter: April 2014 issue

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Transcript of Buzz on Corporate Laws: eNewsletter: April 2014 issue