MCA Notification – Site Title

Gist of regulatory changes in Companies Act,2013 in the month of March 2015

31.03.2015

Delegation of powers to RDs u/s 94(5) read with section 458 of CA, 2013 Regional Directors can direct an inspection of registers and returns and authorize extracts required to be taken from the registers and returns of a company. This notification shall come into effect from the date of its publication in the official Gazette.

31.03.2015 The Companies (Acceptance of Deposits) Amendment Rules, 2015

Share application money received prior to April 1, 2014 will not be considered as deposits if They have been disclosed as such in the balance sheet for the financial year ending prior to March 31, 2014, and The company either allot shares or returns the money before June 1, 2015
Companies may accept deposits without deposit insurance contract till 31 March, 2016 or till the availability of a deposit insurance product, whichever is earlier.

30.03.2015

General Circular No.05/2015 Amount received by private companies from their members, directors or their relatives before 1st April, 2014 – Clarification regarding applicability of Companies (Acceptance of Deposits) Rules, 20l4

Clarified that these amounts shall not be treated as deposits subject to the private company disclosing in its notes to financial statement for the financial year commencing on or after April 1, 2014 the figure of such amounts and the accounting head in which such amounts have been shown in the financial statement.

Any renewal or acceptance of fresh deposits from 1st April, 2014 shall be in accordance with the provisions of Companies Act, 2013 and rules made thereunder.

24.03.2015

Appointment of RoCs as adjudicating officers with jurisdiction and their appellate authorities’ u/s 454 of CA 2013. Registrars of Companies appointed as adjudicating officers for penalties under the provisions of the Companies Act 2013 for their respective jurisdictions.

19.03.2015

The Companies (Management and Administration) Amendment Rules, 2015 Provisions for E-voting made applicable only for companies with 1000 or more members Further clarifications provided on E-voting and its implementation. The provisions of this rule are applicable to all General meetings for which notices are issued from the date of commencement of this rule.

18.03.2015

Companies (Share Capital and Debentures) Amendment Rules, 2015

Where there is a contradiction or conflict between regulations framed by SEBI and MCA, SEBI regulations shall prevail for listed companies and MCA regulations will apply for unlisted public companies and private companies.
Where a Company Secretary is appointed, any person authorised by the Board or Secretary can sign the share certificate.
Time limit for issue of duplicate share certificates is extended from 15 days to 45 days.
Employee includes employees of a subsidiary and holding company for the purpose of ESOP and for this purpose the employees of the associate company shall not be considered. 5. Rule 13, a new provision introduced. In case of any preferential allotment made by a company to its existing members, there is no requirement of making open offer in Form PAS 4 and filling thereof with the ROC/SEBI. However, complete record of private placement offers in Form PAS 5 is required to be maintained.
Security for the debenture can be created on any specific movable property or specific immovable property wherever situated or whatever interest. In case of nonbanking financial company, the charge or mortgage may be created on any movable property, it need not be specific.
Issue of debentures by a government company which is fully secured by the guarantee given by the Central Government or one or more State Government or by both, the requirement for creation of charge under this subrule shall not apply.
Where any loan is availed by a subsidiary company from any bank or financial institution, its holding company is allowed to offer its property as security.The time period allotted for creating a trust deed is extended from 60 days to three months from the date of allotment
A new sub clause added to Rule 18 which deals with debentures by which these rules are made not applicable to funds raised by issue of commercial paper or any other similar money market instruments or FCCB or FCB.
Format of Form SH 13 and Form SH14 has been revised – now it includes details of nominee, in case minor nominee dies before attaining age of majority.

18.03.2015

The Companies (Meetings of Board and its Powers) Amendment Rules, 2015 The following decisions which were required to be taken only at a meeting of the Board of Directors are now permitted to be passed as circular resolutions:

to take note of appointment(s)or removal(s)of one level below the Key Management Personnel;

to take note of the disclosure of director’s interest and shareholding;

to buy, sell investments held by the company (other than trade investments), constituting five percent or more of the paid up share capital and free reserves of the investee company;

to invite or accept or renew public deposits and related matters;

to review or change the terms and conditions of public deposit; 6. to approve quarterly, half yearly and annual financial statements or financial results as the case may be.

12.03.2015 Inviting applications for filling up the posts of two Members of the Competition Appellate Tribunal.

10.03.2015 General Circular 4/2015: Clarification with regard to section 185 and 186 of the Companies Act, 2013 – loans and advances to employees

Loans and/or advances made by the companies to their employees, other than the Managing Director or Whole Time Directors are not governed by the requirements of Section 186 of the Companies Act, 2013. However such loans and/or advances to employees need to be in accordance with the remuneration policy and in the offer document/ appointment letter.

03.03.2015

General circular 03/2015: Clarification in relation to filing of Form DIR-11& DIR-12 under the CA 2013 In the absence of authorised signatories, even after resignation as a director, the resigned director is permitted to sign DIR-12 (Particulars of appointment of directors and the key managerial personnel and the changes among them) to facilitate compliance.

4 steps to effective interactions between CA-CS for smooth audit

Statutory audit for a business is both a boon and a bane, with only the time horizon separating the two. Even the most favourably disposed will consider going through audit a pain as it involves additional work, requires work discipline and demands explanations for all deviations. Even at a later date benefits do not ‘emerge’, for absence of problems related to the audit period is the only gain.

Audit-pain can grow exponentially when two experts have a differing view on a given compliance issue. Often the difference could be between the company secretary who has implemented a given business decision and the statutory auditors who feels otherwise. These differences can lead to missed timelines, lost business opportunities and additional costs. Pre-empting differences or when differences emerge addressing them at early stages is the most viable way out. In practice this translates to having these four steps in place:

Scheduled meetings at predefined intervals, say each quarter or half-year, without any specific agenda. This can be a good forum for not only strengthening their personal relationship, but also nipping any issues as they crop up.

Identifying potentially contentious issues before taking decision and involving the two professionals in the decision making process. Illustrations of such issues can be private placement of shares, capital restructuring, using new borrowing instruments and affecting managerial compensation changes among others

Once a difference has cropped up, recognize the difference and plan to resolve it. This involves documenting the difference and its implications as a preparatory step to the meeting for resolution.

Prudence demands that a backup plan be agreed on identifying what will be the planned action should the situation turn unfavourable, which is agreed to between the two professionals.

As in all issues involving interpersonal relationship, while processes help avoid or minimize issues, the perfect solution is in the parties involved taking an objective view and use the cushion of personal goodwill to resolve the difference.

Gist of regulatory changes introduced in the Companies Act 2013 in February 2015

03/03/2015- General circular 03/2015: Clarification in relation to filing of Form DIR-11& DIR-12 under the CA 2013 In the absence of authorised signatories, even after resignation as a director, the resigned director is permitted to sign DIR- 12 (Particulars of appointment of directors and the key managerial personnel and the changes among them) to facilitate compliance.

24/02/2015- The Companies (Declaration and Payment of Dividend) Amendment Rules, 2015 Inserts a footnote missed out in the original circular G.S.R 397€ dated 12th June, 2014 24/02/2015 –The Companies (Registration Offices And Fees) Amendment Rules, 2015 Changes made: (a)In rule 10, after sub-rule (6), the following sub-rule shall be inserted, namely:-

“7. Any further information or documents called for, in respect of application or e-form or document, filed electronically with the Ministry of Corporate Affairs shall be furnished in Form No. GNL-4 as an addendum”

(b) In the Annexure, after Form No. GNL- 3, the following Form shall be inserted, namely:-Form No.GNL-4

16/02/2015- The Companies (Indian Accounting Standards) Rules, 2015 Indian Accounting Standard (Ind AS) mandated for companies whose securities are listed in stock exchange and net worth in excess of Rs.500 crores. With effect from FY 2016-17

13/02/2015 -The Companies (Removal of difficulties) Order, 2015 Companies (Removal of Difficulties) Order, 2015 has been released by MCA dated February 13, 2015 to remove the anomaly in definition of small company – Section 2(85) and allow banking company or an insurance company or a housing finance company to acquire securities in its ordinary course of business- Section 186(11)(b)

Section 2(85) definition of a small company modified. Small company needs to satisfy all the following criteria:

Other than a public company,
Paid up capital does not exceed fifty lakh rupees (or higher amount prescribed),
Turnover does not exceed two crore rupees (or higher amount prescribed)
Not a holding or subsidiary company of any company (including a private of public company) 5. Not a company registered under Section 8 of this Act
Not a company or body corporate governed by any special Act. Section-186 amended to exclude acquisitions made by a banking company or an insurance company or a housing finance company, making acquisition of securities in the ordinary course of its business from the provisions of Section- 186 (1) related to making investments through more than two layers of investment companies.

03/02/2015- General circular 01/2015: Constitution of a high level committee for the progress of CSR policies by companies under Section 135 High Level Committee constituted to:

Recommend suitable methodologies for monitoring compliance of the provisions of CSR by the Companies.
Suggest measures to be recommended by the Government for adoption by the companies for systematic monitoring and evaluation of their own CSR initiatives.
Make suitable recommendations, if a different monitoring mechanism is warranted for Government Companies undertaking CSR.
Identify strategies for monitoring and evaluation of CSR initiatives through expert agencies.

Veto Rights and Good Governance: Are the two in Sync?

One of the most debatable questions in CimplyFive’s First Survey on Secretarial Practice conducted in July 2016 was on the practice of taking Director’s consent for holding Board Meeting at shorter notice.

Though this is not a statutory requirement, our survey indicated that 81% of the respondents revealed that they took Directors consent for holding Board Meetings at shorter notice. Taking consent from all participants even though it is not mandatory seems to be a desirable practice as it meets the basic yardstick of good governance, which is to enable all the eligible members to participate in the decision making process. The moot question is, does a deeper scrutiny of this practice stand the test of good governance?

When we dig deeper, an unintended implication of this practice has the effect of providing a veto right to each and every director, as the failure of even a single director to give their consent has the effect of deferring the Board Meeting, even if every other director wants to have it.

In this context, it is worth noting an interesting observation made by the Robert’s Rules of Order, first published in 1876 which is considered the Bible of Parliamentary procedures, on getting consent from members. The options available are:

All members, or

All members present, or

All members present and voting.

The Book reasons that getting consent from all the members or all members present has the effect of treating a vote to abstain or inability to vote for whatever reason, as a negative vote. Given this effect, this basis is not to be used unless the matter is of such grave importance that a positive consent from all the members is considered essential. Given this backdrop, it is worth examining how and why veto rights emerged, and is it an appropriate instrument for Corporate Board Meetings.

Veto rights or negative affirmative rights are basically negation of the power of majority to take decisions. This is a right not normally accorded in the statute books, which uphold the principles of democracy and endorses decision made by the majority. The rare exceptions where the rule of majority is negated by the statutes is when the rights of a minority group is adversely affected or a basic principle of their association is being modified, altered or substantially changed.

In sharp contrast, veto rights are a standard feature of private Shareholder Agreements that are used mainly by financial investors taking a stake in start-ups to protect their large financial outlay they bring to the table. Covering areas of Board representation, Approval for Financing plans and CXO appointments, Anti-dilution provisions and Shareholder Reward sharing mechanisms like Right of First Offer (ROFO), Right of First Refusal (ROFR), Tag along rights and Drag-along rights, veto rights have a logical and justified place, as in their absence it will be difficult for start-ups with ideas to attract capital, despite the knowledge that capital without entrepreneurs will remain idle cash. Hence, for dreams to be realized and idle cash to become riches, veto embedded in shareholder agreements is a valuable conduit.

In contrast to shareholder meetings where ownership rights are to be protected, the Corporate Board is more a body of collective wisdom to guide and run the company, which includes some high-end residual powers that involve day to day running of the company like powers to borrow and appoint representatives to present company’s interest. Given the nature of the Corporate Board, it is worth debating if consent from Directors should be obtained for holding Board Meetings at Shorter Notice.