P. K. PANDYA & CO. Practising Company Secretary

www.pkpandya.com

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BUZZ ON CORPORATE LAWS

June 2014

Contents

Launched eBooks on Annotated Bare Act on Companies Act 2013 with Rules – updated till

June 17, 2014 – for Professionals and Students. ................................................................................. 1

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

Status of notification of Rules and Orders .......................................................................................... 2

New Circulars of MCA: .......................................................................................................................... 3

Some of the compliances: ..................................................................................................................... 7

Reserve Bank of India ............................................................................................................................... 7

Investment in debt on repatriation basis by FIIs, QFIs, FPIs, SWFs, etc. ..................................... 7

Pledge of shares for business purposes in favour of NBFCs ..................................................................... 8

Closure of Liaison Office, Branch Office, Project Office ............................................................................ 9

SEBI ............................................................................................................................................................... 9

Circular on public issue of debt securities ................................................................................................ 9

Some highlights of the Maharashtra State Additional Budget 2014-15 ..................................................... 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. Views expressed herein may differ from the position adopted by P. K. Pandya & Co. while advising clients. © P. K. Pandya & Co. 2014.

Launched eBooks on Annotated Bare Act on Companies Act 2013 with Rules – updated till June 17, 2014 – for Professionals and Students.

Purchaser will get updated copy till next March ! Online sale is launched on 20 June 2014.

You can purchase and read more about it (including obtain sample) at

www.prakashpandya.com.

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THE COMPANIES ACT, 2013

Status of notification of Rules and Orders

Following Rules are modified:

1. the Companies (Acceptance of Deposits) Amendment Rules, 2014[Chapter V]

Amendment is to the effect that Companies can accept or renew deposits without obtaining deposit insurance until 31 March 2015.

2. the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2014[Chapter XIII]

New Rule 8A is inserted w.e.f. 09 June 2014 that all companies (public or private) having paid-up share capital of Rs.5 crore or more shall have a whole-time company secretary.

It may be noted that Rule 8 requires following companies to have a whole-time Key Managerial Personnel w.e.f. 01 April 2014:

(a) Listed companies and

(b) Public companies with paid-up share capital of Rs.10 crore or more.

Effect of the amendment is as under:

1. All private companies with paid-up share capital of Rs. 5 crore or more, shall have a whole-time Company Secretary.

2. All public companies with paid-up share capital in the range of Rs. 5 crore or more but less than Rs. 10 crore, shall have a whole-time Company Secretary.

3. All public companies with paid-up share capital of Rs. 10 crore or more, shall have a whole-time Key Managerial Personnel i.e.:

(a) managing director, or Chief Executive Officer or manager and in their absence, a whole-time director;

(b) company secretary; and

(c) Chief Financial Officer.

4. All listed companies, irrespective of paid-up share capital, shall have a whole-time Key Managerial Personnel i.e.:

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(a) managing director, or Chief Executive Officer or manager and in their absence, a whole-time director;

(b) company secretary; and

(c) Chief Financial Officer.

Following rule is proposed to be modified:

The Companies (Declaration and Payment of Dividend) Rules, 2014:

It is proposed to substitute sub-rule (5) of rule 3 as under:

No company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company of the current year.

Comments: the position does not change. Its more clearly worded and is in line with existing practice.

The notified copy of the following are still not made public:

1. the Companies 1st (Removal of Difficulties) Order, 2014 - relates to clarification on section 2(76)(v)

New Circulars of MCA:

General Circular 14: Clarification on Independent Directors

1) Transactions in the ordinary course of business at arm's length price are not exempted under section 188 of the Companies Act 2013. And in view of the same, it should be treated that an Independent Director is having no 'pecuniary relationship' with the company concerned or its holding/ subsidiary/ associate company and certain other categories specified in section 149(6)(c) during the current and last two preceding financial years – so long as the pecuniary relation is at arm's length price and in the ordinary course of business.

Further it is clarified that, 'pecuniary relationship' provided in section 149(6)(c) of the Act does not include receipt of remuneration, from one or more companies, by way of fee provided under sub-section (5) of section 197, reimbursement of expenses for participation in the Board and other meetings and profit related commission approved by the members, in accordance with the provisions of the Act.

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2) Where it is intended to appoint existing an Independent Director (appointed under Companies Act 1956) shall continue as such under the new Act as well, then such appointment shall be made expressly under section 149(10)/ (11) read with Schedule IV of the Act within one year from 1st April, 2014, subject to compliance with eligibility and other prescribed conditions.

It is also clarified that, in view of the specific provisions of Schedule IV, appointment of an Independent Director under the new Act would need to be formalized through a letter of appointment.

3) It is possible to appoint an individual as an Independent Director for a period less than five years. However, it is to be treated as a one term under section 149(10) of the Act. And such a person shall have to demit office after two consecutive terms even if the total number of years of his appointment in such two consecutive terms is less than 10 years. And such person shall be eligible for appointment only after the expiry of the requisite cooling-off period of three years.

For copy of aforesaid circular no.14, click here.

General Circular 15: Clarification on register of investments

The new format of investment register [u/s.186(9)] prescribed vide Form MBP2 shall be used for particulars entered in such registers on and from 1.4.2014.

For copy of aforesaid circular no.15, click here.

General Circular 19: share transfer forms and duplicate share certificates

MCA has clarified that share transfer forms executed before 01 April 2014 shall remain valid (as new share transfer form in form no. SH-4 is prescribed w.e.f. 01 April 2013 under the Companies Act 2013). However, where company receives the same after its validity is over, it may be rejected by giving reasons within one month of its receipt.

For issue of duplicate share certificate, prior approval of Board is required as per Rule 6(a) of the Companies (Share Capital and Debentures) Rules, 2014. MA has clarified that the Board can delegate this power to its committee as the same is permissible under Regulation 71 of Table F in Schedule I to the Act of 2013.

For copy of aforesaid circular no.19, click here.

General Circular 20: e-voting and postal ballot

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Section 108 of the Companies Act, 2013 read with rule 20 of the Companies (Management and Administration) Rules, 2014 (‘the Rules’) requires every listed company or a company having 1000 or more shareholders to provide e-voting facility at general meetings.

This provision is interpreted (and can be interpreted) to mean that there need not be any actual meeting and voting needs to be done by e-voting and in certain cases by postal ballot under rule 22 of the Rules!

Clause 35B of equity listing agreement requires e-voting wherever consent of members by postal ballot is required. The law mandates mandatory postal ballot for several matters.

From 01st October 2014, revised clause 35B becomes applicable and it requires all listed companies to provide e-voting facility in respect of all resolutions in accordance with the Companies (Management and Administration) Rules, 2014.

It may be noted that recently, Hon’ble Bombay High Court has in Company Summons for Direction (256 of 2014) in a scheme of amalgamation proposed between Wadala Commodities Limited with Godrej Industries Limited, inter alia, held that all provisions for compulsory voting by postal ballot and by electronic voting to the exclusion of an actual meeting cannot and do not apply to court-convened meetings. 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.

The Hon’ble court also opined that the shareholder has an inalienable right to ask questions, seek clarifications and receive responses before he decides which way he will vote. And stated that “the effect, interpretation and implication of the provisions of the Companies Act, 2013 and the relevant SEBI circulars and notifications, to the extent that they mandate a compulsory or even optional conduct of certain items of business by postal ballot (which includes electronic voting) to the exclusion of an actual meeting are matters that require a fuller consideration.”

Not only these observations of the Hon’ble court, but wordings of the Rules are also creating confusion on holding general meeting – whether actual or offering only e-voting or both ! Rule 20(1) mandates e-voting for all listed companies and companies with 1000 or more shareholders. However rule 20(3) states company may opt for e-voting. Clearly both provisions, rule 20(1) and rule 20(3) are contrary to each other.

Considering all these, MCA has issued a circular number 20/2014 on 17 June 2014 stating that e-voting related provisions [section 108 and Rule 20 of the Rules] not to be treated as mandatory till 31 December 2014. Since both provision of Statute and Rules are notified, MCA will issue necessary notifications to defer the provisions.

For listed companies, this MCA circular offers no relief as clause 35B of listing agreement mandates e-voting for members if postal ballot is offered.

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For listed companies, this MCA circular will provide relief only from 01st October, 2014 onwards (till 31st December 2014) since revised clause 35B makes reference to the Rules and hence Rule 20 will become inapplicable to listed companies from 01 October 2014 ! And the prevailing clause 35B does not make any such reference to the Rules and hence listed companies will need to offer e-voting facility if voting by postal ballot is offered till 30th September 2014.

Considering new Companies Act 2013 as well as requirement of holding annual general meeting within 6 months of end of financial year (as most companies have 31st March as last date of financial year), many companies (including listed companies) are required to hold annual general meeting of its members by 30th September. Thus, immediate benefit of MCA circular at most will be available to those companies who are having 1000 or more shareholders and whose equity is not listed on stock exchanges.

Notification to be issued:

Audit Committee and Nomination and Remuneration Committee:

Those public companies, which were not required to constitute an audit committee under section 292A of the Companies Act, 1956, are proposed to be given further time, as under to constitute an audit committee under section 177 of the Companies Act 2013:

(a) by 31 March 2015, or

(b) appointment of atleast 2 independent directors,

Whichever is earlier.

Similar time is also given to public companies to constitute Nomination and Remuneration Committee under section 178 of the Companies Act, 2013.

MCA has placed on its website signed copy of notification to be issued. For copy of it, click here.

Deposits: Section 74(2) and (3) notified:

Provisions of section 74(2) AND (3) are brought to force w.e.f. 06 June 2014.

For copy of the notification, click here.

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MCA has delegated powers of Tribunal (NCLT) under section 74(2) to Company Law Board w.e.f. 06 June 2014. Thus, those companies which are required to repay deposits by 31 March 2015 can approach Company Law Board for extension of time.

For copy of the order, click here.

MCA has also delegated powers of Tribunal (NCLT) under section 73(4) to Company Law Board w.e.f. 02 June 2014. Thus, where a company fails to repay deposits or interest thereon, the depositors can approach the Company Law Board.

For copy of the order, click here.

Power of CLB to allow different period of financial year:

The Companies Act, 2013 requires all companies to have uniform financial year of 01 April to next 31 March. Indian company which is holding or subsidiary of a company incorporated outside India or a body corporate may approach the Company Law Board for different period as ‘financial year’ if it is required to follow different financial year for consolidation of its accounts outside India.

For copy of the order, click here.

Some of the compliances:

Maintain register of members in new format Form No. MGT-1 by 30 September 2014.

Each entry in register of members shall be authenticated by company secretary or a person authorized by the Board.

Reserve Bank of India

Investment in debt on repatriation basis by FIIs, QFIs, FPIs, SWFs, etc.

An Indian company is permitted to issue non-convertible/redeemable preference shares or debentures to non-resident shareholders, including the depositories that act as trustees for the ADR/GDR holders by way of distribution as bonus from its general reserves under

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a Scheme of Arrangement approved by a Court in India under the provisions of the Companies Act, as applicable, subject to no-objection from the Income Tax Authorities.

Now following are also allowed to invest on repatriation basis, in non-convertible/redeemable preference shares or debentures issued by an Indian company and listed on recognized stock exchanges in India, within the overall limit of USD 51 billion earmarked for corporate debt

registered Foreign Institutional Investors (FIIs),

Qualified Foreign Investors (QFIs) deemed as registered Foreign Portfolio investors,

registered Foreign Portfolio Investors (FPIs),

long term investors registered with SEBI – Sovereign Wealth Funds (SWFs), Multilateral Agencies, Pension/ Insurance/ Endowment Funds, foreign Central Banks.

NRIs may also invest, both on repatriation and non-repatriation basis, in the above securities.

[A.P. (DIR Series) Circular No.140 dated June 6, 2014] For the RBI circular, click here.

SEBI has also issued corresponding circular. For SEBI circular click here.

Pledge of shares for business purposes in favour of NBFCs

Shares of an Indian company held by the non-resident investor can be pledged in favour of a bank in India to secure the credit facilities being extended to the resident investee company for bonafide business purposes subject to the conditions.

Now the AD Category – I banks have been delegated with the powers to allow pledge of equity shares of an Indian company held by non-resident investor/s in accordance with the FDI policy, in favour of the Non - Banking Financial Companies (NBFCs) – whether listed or not, to secure the credit facilities extended to the resident investee company for bona-fide business purposes / operations, subject to the conditions.

[A.P. (DIR Series) Circular No.141 dated June 6, 2014]

For the circular, click here.

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Closure of Liaison Office, Branch Office, Project Office

With a view to smoothen the entire process of closure of Liaison Office (LO), Branch Office (BO), Project Office (PO), it has been decided to delegate the powers relating to transfer of assets of LO/BO/PO to AD Category-I banks subject to compliance with several conditions.

[A.P. (DIR Series) Circular No.142 dated June 6, 2014]

For the circular, click here.

SEBI

Circular on public issue of debt securities

Minimum subscription for public issue of debt securities shall be specified as 75% of the base issue size for both NBFCs and Non NBFC issuers. However, issuers issuing Tax-free bonds, as specified by CBDT, shall be exempted from the above proposed minimum subscription limit.

The Base Issue size for public issue of debt securities shall be minimum Rs 100 crores.

Public issue of NCDs shall provide granular disclosures in their offer document about "Object of the Issue" including the percentage of the issue proceeds earmarked for each of the “object of the issue”. Further, the amount earmarked for "General Corporate Purposes", shall not exceed 25% of the amount raised by the issuer in the proposed issue.

In public issue of debt securities by NBFCs, shall have to disclose in the offer document, the details about the lending done by them, out of the issue proceeds of previous public issues.

Limits has been set for retention of over-subscription.

Additional disclosures required in offer document for public issue of NCDs.

This circular is made applicable for the draft offer document for issuance of debt securities filed with the designated stock exchange on or after July 16, 2014.

For the Circular, click here.

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Some highlights of the Maharashtra State

Additional Budget 2014-15

Maximum Stamp duty payable on instruments executed relating to deposit of tittle deeds, pawn, pledge or hypothecation shall be Rs. 10 lakh. [articles 6(1) (b) and 6(2) (b) of schedule I]

The basic salary exemption limit for liability under Profession Tax Act increased from INR5000 to INR7500.

It is proposed to enhance the turnover limit for compulsory audit report by “Accountant” to Rs. 1 crore from the year 2013-14. This limit shall also be applicable to liquor dealers. The turnover of sales shall however include value of goods transferred to other States otherwise than by way of sales.

Turnover limit for registration of small delaers under VAT increased from Rs. 5 lakh to Rs. 10 lakh. . Dealers whose turnover in the previous year was below Rs. 10 lakh can apply for cancellation of registration certificate up to 30th September 2014. These registration certificates will be cancelled w.e.f. 1st October 2014.