Legislation UpdatesNotifications

The Ministry of Corporate Affairs has extended the last date of filing of the Cost Audit Report to the Board of Directors under Rule 6(5) of the Companies (Cost Records and Audit) Rules, 2014 on September 27, 2021.

 

The circular states that if a cost-audit report for the financial year 2020-21 by the cost auditor to the Board of Directors of the companies is submitted by October 31, 2021 then the same would not be viewed as a violation of rule 6(5) of Companies (cost records and audit) Rules, 2014. Therefore, the cost audit report for the financial year ended on March 31, 2021 shall be filed in e-form CRA-4 within 30 days from the date of receipt of the copy of the cost audit report by the company. However, in case a company has got an extension of time for holding Annual General Meeting under section 96(1) of the Act then e-form CRA-4 may be filed within the timeline provided under the proviso to rule 6(6) of the Companies (Cost Records and Audit) Rules, 2014.

 


*Tanvi Singh, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A Coram of Justice Bansi Lal Bhat (Acting Chairperson), Justice Anant Bijay Singh(Judicial Member), Dr Ashok Kumar Mishra (Technical Member) while hearing two clubbed appeals challenging an order by NCLT, upheld the order, and modified the interim relief by directing suspension of the General Committee (GC) and appointment of an Administrator to be nominated by the Union of India to manage the affairs of the Club.

In the instant case, the 107 years old Delhi Gymkhana Club (registered under Section 8 of the Companies Act) was under a dispute involving allegations of mismanagement. The Club had its main objective to promote various sports and pastimes and other objectives set out in the Memorandum of Association and had limited membership. The number of permanent members was 5600. However, the users of the Club were stated to be double the number of permanent members. Following the Complaints from the government, Ministry of Corporate Affairs directed to take penal action against the Club management, auditors of the Club besides revocation of license of the Club, removal of the existing management, the appointment of Government Directors and carrying out a supplementary inspection to take up issues related to allotment of membership, money received from the new applicants as registration fee for membership, accounting treatment of the amount received from new applicants, investments made by the Club from such membership fee and with regard to the processing charges received from the Applicants.

Therefore, the Ministry of Corporate Affairs (MCA) had moved the NCLT alleging that the club’s affairs were being run in a manner “prejudicial to public interest”.

While opining in favour of the State, “Krishan Lal Gera v. State of Haryana (2011) 10 SCC 529 was referred to, which states, “If a chunk of a Government stadium, being prime land in the heart of the city meant for developing sports and 49 athletics is misused or illegally allowed to go into private hands, it cannot be said that no public interest is involved…”.

Certain points were stressed on while deciding the appeal and were remarked as:

“…It is abundantly clear that misuse of the Club meant for pastime and sports activities and denying access of membership even after accepting the enhanced membership fee and putting them in queue for decades together with utilization of the component of interest admissible on their invested membership fee for the benefit of permanent members and users seriously jeopardized interest of such prospective members and involved public interest…”.

“…that induction of two nominees by Central Government as members in the GC to monitor the affairs of Club and give suggestions to the GC is of no consequence as the voice of such nominees, on account of their inferior numerical strength in GC is bound to be lost in the din and the interim relief as granted would become meaningless…”.

[Ministry of Corporate Affairs v. Delhi Gymkhana Club Ltd., 2021 SCC OnLine NCLAT 76, decided on 15-02-2021]

Legislation UpdatesNotifications

S.O. 4638(E)— In exercise of the powers conferred by Section 10A of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central Government hereby notifies further period of three months from the 25-12-2020, for the purposes of the said section.


Ministry of Corporate Affairs

[Notification dt. 22-12-2020]

Legislation UpdatesNotifications

S.O. 4646(E).—In exercise of the powers conferred by Section 1 (2) of the Companies (Amendment) Act, 2020 (29 of 2020), the Central Government hereby appoints the 21-12-2020 as the date on which the following provisions of the said Act shall come into force, namely:-

S. No. Sections
1. Section 1;

 

2 Section 3;

 

3 Sections 6 to 10 (both inclusive);

 

4 Sections 12 to 17 (both inclusive);

 

5 Clauses (a) and (b) of section 18;

 

6 Sections 19 to 21 (both inclusive);

 

7 Clause (i) of section 22;

 

8 Section 24;

 

9 Section 26;

 

10 Sections 28 to 31 (both inclusive);

 

11 Sections 33 to 39 (both inclusive);

 

12 Sections 41 to 44 (both inclusive);

 

13 Sections 46 to 51 (both inclusive);

 

14 Section 54;

 

15 Section 57;

 

16 Section 61; and

 

17 Section 63.

 


Ministry of Corporate Affairs

[Notification dt. 21-12-2020]

COVID 19Legislation UpdatesNotifications

Centre makes amendment to Schedule VII of Companies Act, 2013 to include “PM CARES Fund” as a Corporate Social responsibility.

Thus, any contribution made to the PM-CARES Fund shall qualify as CSR expenditure.


G.S.R. 313(E).—In exercise of the powers conferred by sub-section (1) of section 467 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following further amendment to Schedule VII of the said Act, namely:—

In Schedule VII, item (viii), after the words “Prime Minister’s National Relief Fund”, the words “or Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund)” shall be inserted.

2. This notification shall be deemed to have come into force on 28th March, 2020.


Ministry of Corporate Affairs

[Notification dt. 26-05-2020]

COVID 19OP. ED.Practical Lawyer Archives

Under the extant provisions of the Companies Act, 2013 (“the Act”), approval of the shareholders can be obtained by passing a resolution in general meeting or voting through electronic means (i.e. e-voting) or postal ballot. The Act read with the relevant Rules made thereunder provide for detailed procedures for obtaining shareholders’ approval. Under the extant provisions, only meeting of the board of directors can be held through videoconferencing (VC) and other audio-visual means (OAVM). In view of the current extra-ordinary circumstances due to the pandemic caused by COVID-19 prevailing in the country, requiring social distancing, it is difficult for companies to obtain shareholders’ approval by conducting general meetings. Taking into consideration this situation, the Ministry of Corporate Affairs (MCA) had provided a framework for conducting extra-ordinary general meeting of the company through VC or OAVM[1]. MCA issued another Circular and permitted the companies to hold the annual general meeting through VC or OAVM during the calendar year 2020[2].

This article is an analysis of certain provisions of the MCA directions and also address certain challenges for listed companies in conducting AGM through VC or OAVM.

Rights of shareholders: Before we discuss the procedure for conducting general meetings through VC or OAVM, let us first discuss the rights of shareholders. Chapter II of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the SEBI Regulations) relates to ‘Principles governing disclosures and obligations of listed entity’. According to the provisions, the shareholders shall have the right to participate in, and to be sufficiently informed of, decisions concerning fundamental corporate changes. The shareholders shall also have an opportunity to participate effectively and vote in general shareholder meetings. Shareholders shall be informed of the rules, including voting procedures that govern general shareholder meetings. They shall have an opportunity to ask questions to the board of directors, to place items on the agenda of general meetings, and to propose resolutions, subject to reasonable limitations. Effective shareholder participation in key corporate governance decisions, such as the nomination and election of members of board of directors. The exercise of ownership rights by all shareholders, including institutional investors. Listed entity shall have adequate mechanism to address the grievances of the shareholders.

The SEBI Regulations also provide that the exercise of voting rights by foreign shareholders shall be facilitated and the processes and procedures for general meetings shall allow for equitable treatment of all shareholders. The procedures of listed entity shall not make it unduly difficult or expensive to cast votes. The listed entities shall also ensure the said rights prescribed in the SEBI Regulations are not affected when the AGM of the company is conducted through VC or OAVM.

The highlights of the MCA Circular permitting companies to hold AGMs through VC or OAVM and certain challenges are as follows:

  1. Taking into consideration the difficulties involved in dispatching of physical copies of financial statements (including Board’s Report, Auditor’s Report, or other documents required to be attached), MCA has permitted sending such documents by e-mail to the members, trustees for the debenture-holders, or any other person entitled to receive such documents. The companies are required to give public notice by way of advertisement in vernacular language of the district in which registered office is situated and at least once in English language in English newspaper (preferably both newspapers having electronic editions). Considering this, the cost of conducting general meetings is significantly reduced for such listed companies.
  2. One of the biggest challenges for listed companies is to get the e-mail addresses of the members (holding shares in physical form) registered for sending financial statements. This will also enable the shareholders to cast their vote through remote e-voting or through e-voting during the meeting. Presently, even in the lockdown, the depositories, Registrar and share transfer agents and companies are taking adequate steps for the registration of e-mail addresses of such shareholders. However, for certain listed companies some shareholders are either not traceable or their contact details are not updated.
  3. According to MCA directions, the listed company shall provide two-way tele-conferencing facility or webex for ease of participation of the members and the participants are allowed to pose questions concurrently or given time to submit questions in advance on the e-mail address of the company. Such facility must have a capacity to allow at least 500 members or members equal to the total number of members of the company. According to the principles governing disclosures and obligations of listed entity under the SEBI Regulations (as discussed above), the shareholders shall have right to participate in, and to be sufficiently informed of, decisions concerning fundamental corporate changes. The shareholders shall also have an opportunity to participate effectively and vote in general shareholder meetings. The shareholders shall have an opportunity to ask questions to the board of directors, to place items on the agenda of general meetings, and to propose resolutions, subject to reasonable limitations. Considering the total number of shareholders and their participation, it would be quite difficult for listed companies to provide two-way tele-conferencing facility in the general meetings. Considering the participation of members and question-answer session, such meetings would take a long time to conclude. Presently, the companies/Registrar and share transfer agents are in the process of developing a system to answer/reply to the queries asked in the general meeting through VC or OAVM.
  4. According to the MCA directions, the process for election of Chairman depends upon the members present at the meeting i.e. if members present are less than 50, then the Chairman is appointed in accordance with Section 104 of the Act. And if the members present are more than 50, then the Chairman shall be appointed by a poll conducted through electronic voting system during the meeting. i.e. generally, in the case of listed entities, it will be compulsory to have a system of ‘electronic voting during the meeting’ for members attending electronically (i.e. VC or OAVM). This mandatory agenda item of electing the Chairman would consume a lot of time before discussing the agenda for the meeting. For listed entities (at least for 500-BSE companies), the participation in general meeting would be more than 50 members. The MCA direction with reference to the appointment of Chairman for the meeting directly conflicts with the provision in the Act. It would be quite challenging for the companies to comply with the said provision.
  5. According to the MCA directions, where less than 50 members are present in a meeting, the Chairman may decide to conduct a vote by show of hands (i.e. one member is equal to one vote, irrespective of shareholding), unless a demand for poll (i.e. one share is equal to one vote) is made by any member in accordance with Section 109 of the Act. In the VC system or OAVM system, the listed companies would be required to have a mechanism for demanding poll and the shareholders should be equipped to participate in the demand. Considering that e-voting (i.e. one share is equal to one vote) is open not less than 3 days before the general meeting, the MCA should have provided uniform method of voting for the general meeting through VC or OAVM.
  6. Under the Act, the register of directors and KMP and their shareholding shall be kept open for inspection at every annual general meeting of the company and shall be made accessible to any person attending the meeting. The VC system may have a facility of the company to upload the scanned copy of the register and members during the meeting through VC or OAVM may inspect the same. Similarly, if the articles of association of the company are being amended, the draft articles of association can be made available for inspection in the VC system.
  7. According to the extant provisions of the Act, the annual general meeting of the company shall be called during business hours i.e. between 9 a.m. to 6 p.m. According to the MCA directions, the convenience of different persons positioned in different time zones shall be kept in mind before scheduling the meeting. Listed entities shall balance the two provisions for conducting the meeting, however ensuring convenience of shareholders in different time zones is difficult.
  8. In case of payment of final dividend, MCA has directed companies to pay dividend though electronic clearing service or any other means. Where the company is unable to pay the dividend to any shareholders by electronic mode, due to non-availability of bank details, the company are directed to dispatch the dividend warrant/cheque to such shareholder by post (i.e. upon normalisation of postal services). Post-lockdown and thereafter, if such dividend is not claimed by the shareholder then it may get credited in unpaid dividend account and then investor education and provident fund (IEPF) account which may be more difficult for the shareholders to claim such dividend.
  9. Considering the fact that the member would be attending the general meeting through VC or OAVM, the concept of proxy has become redundant. As per the MCA Circular, such member would be counted for the purpose of reckoning the quorum under the Act.
  10. Atleast an independent director and auditor/representative of auditor are mandated to attend the such meeting through VC or OAVM. Institutional investors are encouraged to attend and vote at the meeting.

Taking into consideration that MCA has permitted companies to hold the general meetings through VC or OAVM, SEBI may also relax certain provisions of the SEBI Regulations in due course. It will be interesting to see the effective implementation of the dynamic amendments introduced to the provisions of general meeting – i.e. calling of meeting, holding and conducting of meeting. Taking into consideration the current extra-ordinary circumstances due to the pandemic caused by COVID-19, for the general meetings for the year 2020 should be more of ‘shareholders co-operation’ than ‘shareholders activism’, except in exceptional circumstances.


*Practising Company Secretary, Pune. He can be reached at gp@csgauravpingle.com

[1] MCA General Circular No. 14/2020 dated April 8, 2020.

[2] MCA General Circular No. 20/2020 dated May 5, 2020.

Appointments & TransfersNews

Extension of tenure of BSV Prakash Kumar, Judicial Member, NCLT as Acting President — National Company Law Tribunal.

The extension period has been would come into effect from 05-04-2020 for 3 months to ill joining of new President or until further orders whichever is earlier.

The same was notified by Ministry of Corporate Affairs.


Ministry of Corporate Affairs

[Dated: 02-04-2020]

Legislation UpdatesRules & Regulations

Ministry of Corporate Affairs notified the National Company Law Tribunal (Recruitment, Salary and other Terms and Conditions of Service of Officers and other Employees) Rules, 2020 on 21-01-2020 through Notification No. G.S.R. 42(E).

The said notification has 17 Rules laid down along with 2 Schedules.

Excerpt from the Notification is as follows:

4. Initial Constitution.—The incumbent of the post shown in the column 1 of the said Schedule-I, who is holding such post on regular basis by becoming employee/officer of the Appellate Tribunal on and from dissolution of Company Law Board /Competition Appellate Tribunal shall deemed to have been duly appointed under the Provisions of these rules and service rendered by him/her in said post before the said commencement shall be taken into account for the purpose of rights and privileges as to pension, gratuity and other like benefits.

5. Number of post, classification and level in pay matrix.—The number of post of officers and employees, their classification and level in pay matrix attached thereto shall be as specified in columns (2) to (4) of Schedule-I.

6. Method of recruitment, age-limit, qualifications, etc.—The method of recruitment, age limit, qualifications and other matters relating thereto shall be as specified in columns (5) to (13) of Schedule-I.

7. Appointment.—Appointment of Officers and other employees of Appellate Tribunal shall be made by Appointing Authority, provided that the appointments to the posts in Level 11 or above in Pay Matrix of Seventh Central Pay Commission shall be made with the approval of Central Government.

The detailed notification can be accessed here: NCLT (Recruitment, Salary and other Terms and Conditions of Service of Officers and other Employees) Rules, 2020


Ministry of Corporate Affairs

[Notification dt. 21-01-2020]

Legislation UpdatesRules & Regulations

Ministry of Corporate Affairs notified the amended Companies (Appointment and Remuneration of Managerial Personnel) Rules i.e. the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2020.

ln the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2O14 (hereinafter referred to as said rules), for rule 8A, the following shall be substituted as under:-

“8A. Every private company which has a paid-up share capital of ten crore rupees or more shall have a whole-time company secretary.”

In the said rules, in Rule 9 of the said rules, in sub-rule (1),

(i) after clause (b), at the end the word “or” shall be inserted.

(ii) after clause (b), the following clause shall be inserted, namely:-

“(c) every company having outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more.”.

(iii) the following Explanation shall be inserted, namely:-

“Explanation:- For the purposes of this sub-rule, it is hereby clarified that the paid-up share capital, turnover, or outstanding loans or borrowings as the case may be, existing on the last date of the latest audited financial statement shall be taken into account.”.


Ministry of Corporate Affairs

[Notification dt. 03-01-2020]

Legislation UpdatesRules & Regulations

G.S.R. 351(E).—In exercise of the powers conferred by sub-section (1) and sub-section (2) of Section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules further to amend the National Company Law Tribunal Rules, 2016, namely:-

1. (1) These Rules may be called the National Company Law Tribunal (Second Amendment) Rules, 2019.

    (2) They shall come into force on the date of their publication in the Official Gazette.

2. In the National Company Law Tribunal Rules, 2016 (hereinafter referred to as the principal rules), in Rule 84, after sub-rule

    (2), the following sub-rules shall be inserted, namely: –

“(3) In case of a company having a share capital, the requisite number of member or members to file an application under sub-section (1) of Section 245 shall be –

(i) (a) at least five per cent. of the total number of members of the company; or

    (b) one hundred members of the company, whichever is less; or

(ii) (a) member or members holding not less than five per cent. of the issued share capital of the company, in case of an unlisted company;

     (b) member or members holding not less than two per cent. of the issued share capital of the company, in case of a listed company.

(4) The requisite number of depositor or depositors to file an application under sub-section (1) of Section 245 shall be –

  (i) (a) at least five per cent. of the total number of depositors of the company; or

      (b) one hundred depositors of the company, whichever is less; or;

(ii) depositor or depositors to whom the company owes five per cent. of total deposits of the company.”

3. In the principal rules, in the schedule of fees, serial No. 28 shall be omitted.


[Notification dt. 08-05-2019]

Ministry of Corporate Affairs

Legislation UpdatesRules & Regulations

Ministry of Corporate Affairs has revised the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, 2011 (NVGs) and formulated the “National Guidelines on Responsible Business Conduct “(NGRBC). These guidelines urge businesses to actualise the principles in letter and spirit.

These principles are:

1.      Businesses should conduct and govern themselves with integrity in a manner that is Ethical, Transparent and Accountable.

2.      Businesses should provide goods and services in a manner that is sustainable and safe

3.      Businesses should respect and promote the well-being of all employees, including those in their value chains.

4.      Businesses should respect the interests of and be responsive to all their stakeholders.

5.      Businesses should respect and promote human rights.

6.      Businesses should respect and make efforts to protect and restore the environment.

7.      Businesses, when engaging in influencing public and regulatory policy, should do so in a manner that is responsible and transparent.

8.      Businesses should promote inclusive growth and equitable development.

9.      Businesses should engage with and provide value to their consumers in a responsible manner.

In furtherance to updation of NVGs and formulation of the NGRBCs, the Ministry of Corporate Affairs has constituted the Committee on Business Responsibility Reporting (BRR) to develop BRR formats for listed and unlisted companies. Non financial reporting is increasingly forming the basis for enhancing investor confidence in businesses and increasing their creditworthiness. The Committee is to develop comprehensive yet simple formats situating the various stakeholders at the center so as to not increase or duplicate reporting burden. The proposed formats are to reflect linkages to prevalent non-financial reporting formats, viz, Global Reporting Initiative (GRI), Integrated Reporting (IR) etc., and SDGs from a NGRBC perspective.

The Ministry of Corporate Affairs is also in the process of developing India’s National Action Plan on Business & Human Rights (NAP) in consultation with various Ministries and State Governments by 2020. A Zero Draft of India’s NAP demonstrating implementation of the three pillars of UNGPs has also been released and uploaded on the website of the Ministry.

[SOURCE: PIB]

Ministry of Corporate Affairs

Hot Off The PressNews

Supreme Court: The Bench comprising of CJ Dipak Misra and AM Khanwilkar and Dr DY Chandrachud, JJ., sought centre’s response on the plea seeking court-monitored CBI probe into the alleged suicide of BK Bansal, Ministry of Corporate Affairs’ official.

BK Bansal was the former Director General Corporate Affairs, who had hanged himself along with his son with a suicide note stating the reason to be “harassment” by CBI. Bansal was on bail when he committed suicide.

Further, a notice was issued to Centre in the same regard after the PIL was mentioned.

[Source: PTI]

Hot Off The PressNews

Supreme Court: Admitting the petition against the order giving relief to the directors of the companies struck off by the Registrar of Companies last year, Supreme Court stayed Bombay High Court’s order on the special leave petition filed by the Ministry of Corporate Affairs.

In accordance to the stated order of the Bombay High Court, the companies’ directors who had been disqualified by the Ministry of Corporate Affairs (MCA) no longer stood to be disqualified as had been directed to the Registrar of Companies.

Further, if any other High Court had issued any such order as that of the Bombay High Court, then all of those similar orders would stand stayed in around 2000 cases.

It is pertinent to note that in September last year the Ministry of Corporate Affairs had disqualified more than 3 lakh directors of various companies that failed to file financial statements and annual returns for 3 consecutive years.

[Source: moneycontrol.com]

Foreign Legislation

The Central Government in the exercise of the powers conferred by Section 203 (i) of the Companies Act, 2013 (18 of 2013) read with Section 2 (51) and Section 469 of the said Act, amended the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 to introduce Rule 8A stating that a company other than a company covered under rule 8 which has a paid up share capital of five crore rupees or more shall have a whole-time company secretary.

To read the full notification, click here

Foreign Legislation

The Central Government in exercise of powers conferred by Section 73 and 76 read with Section 469(1); of the Companies Act, 2013 amended the Rule 5(1); of the Companies (Acceptance of Deposits) Rules, 2014 by an amendment called the Companies (Acceptance of Deposits) Amendment Rules, 2014 dated June 6, 2014 wherein the proviso has been inserted that the companies may accept the deposits without deposit insurance contract till the 31st March, 2015.

To read the notification, click here

Foreign Legislation

The Central Government in exercise of the powers conferred under Section 470(1); of the Companies Act, 2013, passed an order called the Companies (Removal of Difficulties) Second Order, 2014 dated June 2, 2014 to the effect that the Company Law Board shall exercise the jurisdiction, powers, authority and functions under Section 74(2) of the Act until a date is notified by the Central Government under Section 434(1); of the Act.

 To read the Order, click here