Legislation UpdatesRules & Regulations

As a measure which directly benefits Startups & Innovators in the country, especially those who are supplying products & services on e-commerce platforms, and in order to bring in more unincorporated businesses into the organized corporate sector, the incorporation of One Person Companies (OPCs) is being incentivized by amending the Companies (Incorporation) Rules to allow OPCs to grow without any restrictions on paid-up capital and turnover, allowing their conversion into any other type of company at any time, reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and also allow Non-Resident Indians (NRIs) to incorporate OPCs in India.

In addition, the fast track process for mergers under the Companies Act, 2013 has also been now extended to also include mergers of Startups with other Startups and with Small companies, so that the process of mergers & amalgamations is completed faster for such companies.

The amendments to the Rules governing OPCs will cover the following, w.e.f  01st April 2021 (click here for NOTIFICATION 1NOTIFICATION 2):

    1. Previously NRIs were not allowed to incorporate OPCs. Now any natural person, who is an Indian citizen, whether resident in India or otherwise would be allowed to form an OPC.
    2. For being considered as a resident in India, the residency period has been proposed to be reduced to 120 days from 182 days for NRIs.
    3. Rule relating to voluntary conversion unless OPC has completed two years from the date of incorporated is proposed to be omitted and with effect from 01-04-2021, Conversion of One Person Company into a Public company or a Private company shall be permitted anytime. A One Person company may be converted into a Private or Public Company other than a company registered under section 8 of the Act, after increasing the minimum number of members and directors to two or minimum of seven members and three directors as the case may be,
    4. Similarly the limitation of Paid-up capital & turnover presently applicable for OPCs (paid up share capital of fifty lakhs rupees and average annual turnover during the relevant period of two crore rupees) is being done away with so that there are no restrictions on the growth of OPCs in terms of their paid up capital & turnover.
    5. Rationalization of e-forms applicable for OPCs by omitting e-Form No.INC-5 and modification of e-form INC-6 (application for conversion from OPC to a Private company or a Public company and also Private company to OPC or )
    6. Amendment notification issued on 01-02-2021.

Ministry of Corporate Affairs

[Press Release dt. 03-02-2021]

[Source: PIB]

OP. ED.Practical Lawyer Archives

Introduction

Meetings have a very important role to play in the functioning of company where decisions are taken and recorded. In case of companies, whether Board meetings or shareholders’ meetings, there is an exchange of idea, proposal, problems and decision on the further of action. In case of companies, a meeting of members, directors, debenture holders, class shareholders, creditors can be called and conducted. This article is a checklist for preparation and sending of the notice of shareholders’ meeting by a private company or unlisted public company under Sections 101 and 102 of the Act read with the Rules.

  1. Applicability of Provisions.—The said provisions are applicable to annual general meeting or extraordinary general meeting of the members of private company or unlisted public company. A listed company shall also comply with the provisions of the Act and Securities and Exchange Board of India (SEBI) (Issue of Capital and Disclosure Requirements) Regulations, 2018.
  2. Contents of the Notice of Meeting.—Every notice of a general meeting shall specify the place, date, day and the hour of the meeting and shall contain a statement of the business to be transacted at such meeting. The statement of business includes the resolutions that are proposed for the voting of the shareholders of the company. Ordinary business (as referred to in Section 102 of the Act) means: (i) consideration of financial statements and the reports of the Board of Directors and auditors; (ii) declaration of any dividend; (iii) appointment of Directors in place of those retiring; and (iv) appointment of, and the fixing of the remuneration of, the auditors. Any other business shall be considered as “special business”. Necessary reference of type of business (ordinary or special) and type of resolution (ordinary or special) shall be given in the notice of the general meeting.
  3. Contents of the Notice of General Meeting through Videoconferencing (VC).—Ministry of Corporate Affairs has allowed companies to hold the general meeting through VC or other audio-visual means (OAVM). In addition to any other requirement provided in the Act or the Rules, the notice for the general meeting shall make disclosures with regard to the manner in which framework provided in the MCA Circular (i.e. General Circular No. 14/2020 [F. No. 2/1/2020-CL-V] dated 8-4-2020) shall be available for use by the members and also contain clear instructions on how to access and participate in the meeting. The company shall also provide a helpline number through the registrar and transfer agent, technology provider, or otherwise, for those shareholders who need assistance with using the technology before or during the meeting. A copy of the meeting notice shall also be prominently displayed on the website of the company and due intimation may be made to the exchanges in case of a listed company.
  4. Explanatory Statement.—A statement setting out the material facts concerning each item of “special business” to be transacted at a general meeting, shall be annexed to the notice calling such meeting. The statement shall set out the nature of concern or interest, financial or otherwise, if any, in respect of each item of every director, key managerial personnel, manager and their relatives. The explanatory statement shall also include information and facts that may enable members to understand the meaning, scope and implications of the items of business and to take decision thereon.
  5. Length of Notice of Meeting.—A general meeting of a company may be called by giving not less than clear 21 days’ notice. In case of private company, the articles of association may provide for a shorter period for the length of notice of general meeting. In case of companies incorporated under Section 8 of the Act, a general meeting of a company may be called by giving not less than clear 14 days’ notice.
  6. Mode of Sending Notice of General Meeting.—The notice of general meeting can be given either in writing or through electronic mode in such manner as may be prescribed.
  7. Sending of Notice through Electronic Mode.—Rule 18 of the Companies (Management and Administration) Rules, 2014 prescribes detailed procedure for sending notice in electronic mode[1]. A notice may be sent through e-mail as a text or as an attachment to e-mail or as a notification providing electronic link or uniform resource locator (URL) for accessing such notice. The e-mail shall be addressed to the person entitled to receive such e-mail as per the records of the company or as provided by the depository. The subject line in e-mail shall state the name of the company, notice of the type of meeting, place and the date on which the meeting is scheduled. If notice is sent in the form of a non-editable attachment to e-mail, such attachment shall be in. PDF or in a non-editable format together with a “link or instructions” for recipient for downloading relevant version of the software. The company should ensure that it uses a system which produces confirmation of the total number of recipients e-mailed and a record of each recipient to whom the notice has been sent and copy of such record and any notices of any failed transmissions and subsequent resending shall be retained by or on behalf of the company as “proof of sending”. The company’s obligation shall be satisfied when it transmits the e-mail and the company shall not be held responsible for a failure in transmission beyond its control. The company may send e-mail through in-house facility or its registrar and transfer agent or authorise any third-party agency providing bulk e-mail facility. The notice of the general meeting of the company shall be simultaneously placed on the website of the company, if any, and on the website as may be notified by the Central Government.
  8. Opportunity for E-mail Address Registration.—The company shall provide an advance opportunity at least once in a financial year, to the member to register his e-mail address and changes therein. Such request may be made by only those members who have not got their e-mail id recorded or to update a fresh e-mail id and not from the members whose e-mail ids are already registered. If a member entitled to receive notice fails to provide or update relevant e-mail address to the company, or to the depository participant as the case may be, the company shall not be in default for not delivering notice via e-mail.
  9. Shorter Notice Consent for Shareholders Meeting.—A general meeting may be called after giving shorter notice than clear 21 days’ notice (or any other period as mentioned in the articles of association of the company), if consent, in writing or by electronic mode, is accorded thereto:

(i) In Case of an Annual General Meeting (Company with Share Capital or without Share Capital).—By not less than 95% of the members entitled to vote thereat.

(ii) In the Case of Extraordinary General Meeting (for Company with Share Capital).—By members of the company holding majority in number of members entitled to vote and who represent not less than 95% of such part of the paid-up share capital of the company as gives a right to vote at the meeting.

(iii) In the Case of Extraordinary General Meeting (for Company without Share Capital).—By members of the company having, if the company has no share capital, not less than 95% of the total voting power exercisable at that meeting.

  1. Recipients of Notice of Shareholders’ Meeting.—The notice of every meeting of the company shall be given to: (a) every member of the company, legal representative of any deceased member or the assignee of an insolvent member; (b) auditor(s) of the company; and (c) every director of the company.
  2. Accidental Omission to Give Notice of General Meeting.—Any accidental omission to give notice to, or the non-receipt of such notice by, any member or other person who is entitled to such notice for any meeting shall not invalidate the proceedings of the meeting.

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

[1] Here, “electronic mode” means any communication sent by a company through its authorised and secured computer program which is capable of producing confirmation and keeping record of such communication addressed to the person entitled to receive such communication at the last electronic mail address provided by the member.

Case BriefsHigh Courts

Delhi High Court:  Suresh Kumar Kait, J. rejected the bail plea of the petitioner, accused of fraud, after finding him to be at risk of tampering evidence pending against him.

Petitioner a Managing Director and CEO of Religare Enterprises Limited, was found to be accused of fraud worth over Rs 2000 crores by means of extending fraud loans and falsifying books of accounts. He and another member (Anil Saxena) of his Company were arrested on 10th October, 2019, under the course of investigation. Anil Saxena, was further granted bail but Kavi Arora was refused. Hence, he came before the Delhi High court under under Section 439 read with Section 482 of the Code of Criminal Procedure, 1973 seeking the relief of regular bail.

Senior Advocate, Puneet Bali on behalf of the petitioner with Vibhav Jain, Aditya Soni and Mayank Datta, Advocates and the State was represented by Amit Chadha, APP for State.

The petitioner’s case based on two grounds which were, first, that he was chargesheeted on wholly false premises of misconceived facts against him and, second, that on the ground of parity, he should be awarded bail on the fact that Anil Saxena, a co-accused, was granted bail. The respondents argued that the petitioner is trying to mislead the Court and that Anil Saxena was not holding an executive position but petitioner was and by virtue of his position, petitioner was responsible.

High Court rejected the plea to grant bail to the petitioner after rejecting the claims of the petitioner. The Court decided, relying on the judgement presented by the respondents, “It is settled law that economic offences are considered to be grave offences especially when public money is involved and that the Courts have to be careful in granting bail in such cases”. It found the investigation to be at a crucial stage and since, the petitioner was at a position where he could influence prosecution witnesses and tamper evidence, the Court rejected the first claim of the petitioner. On the issue of parity, the High Court decided not to intervene in that matter, as the granting of bail to co-accused Anil Saxena was challenged before the Supreme Court and has been disposed. It found that the grant of bail to co-accused cannot be granted to petitioner as precedent/parity to the bail does not apply to other accused. Therefore, the High Court, dismissed the petition. [Kavi Arora v. State, 2020 SCC OnLine Del 768 , decided on 23-07-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A Bench of Justice S.J. Mukhopadhaya, Chairperson, and Justice Bansi Lal Bhat, Member (Judicial), dismissed the interlocutory application preferred by the Registrar of Companies, Mumbai, seeking amendment of the NCLAT’s Judgment dated 18-12-2019 (“earlier judgment”) wherein the removal of Cyrus Mistry from the Chairmanship of Tata Sons was held invalid and conversion of TATA Sons Ltd. from Public Company to Private Company was also held invalid. The Registrar was aggrieved by the observations made at paras 181, 186 and 187 of the earlier judgment.

The Registrar of Companies, Mumbai, while making the order of the change of status of Tata Sons from Public Company to Private Company, relied on Section 43-A(2-A) of the Companies Act of 1956, which was unrepealed t the relevant time. The said provision provides:

“43-A. Private company to become a public company in certain cases.***

(2-A) Where a public company referred to in sub-section (2) becomes a private company on or after the commencement of the Companies (Amendment) Act, 2000, such company shall inform the Registrar that it has become a private company and thereupon the Registrar shall substitute the word `private company’ for the word `public company’ in the name of the company upon the register and shall also make the necessary alterations in the certificate of incorporation issued to the company and in its memorandum of association within four weeks from the date of application made by the company.”

However, noted the NCLAT,sub-section (4) of Section 43-A was not noticed by the Registrar, which says:

“43-A. Private company to become a public company in certain cases.***

“(4) A private company that has become a public company by virtue of this section shall continue to be a public company until it has, with the approval of the Central Government and in accordance with the provisions of this Act, again become a private company.”

Perusing these provisions, the NCLAT explained that Registrar of Companies cannot take advantage of Section 43-A (2-A) on the ground that it has not been repealed because:

“Section 43-A (2A) while empowers a ‘Public Company’ to become a private Company’ on or after commencement of the Companies(Amendment) Act, 2000 by informing the matter to the Registrar for substitution of the word ‘private company’ with the word ‘public company’ in the name of the company upon the register and certificate of incorporation issued to the company and its memorandum of association but under Section 43A (4) such ‘private company’ which has been made public company by virtue of the said provision, will continue to be a public company’ until it has, with the approval of the Central Government and in accordance with the provisions of the said Act, again become a ‘private company’.”

The NCLAT noted that since Tata Sons did not take any approval from the Central Government, as mentioned above, so it shall continue to be a Public Company.

Furthermore, it was not the case of the Registrar that as per Section 14 (alteration of articles) of the Companies Act, 2013, Tata Sons by a special resolution altered its article having the effect of its conversion from a Public Company into a Private Company. It was also not the case of the Registrar that such resolution was produced before it. No approval was taken from the Tribunal (NCLT). It was also noted that Section 18 of the Companies Act, 2013, specifically refers to the conversion of companies already registered.

Thus, there being a specific provision for conversion of companies already registered in terms of Section 18 of the Companies Act, 2013 and alteration of articles in terms of Section 14, the Registrar of Companies could not rely on Section 43-A (2A) of 1956 Act that too without relying on sub-section (4) therein which relates to requirement of approval of the Central government.

Lastly, one of the grievances of the Registrar of Companies was that the observations made in paras 181, 186, 187 of the earlier Judgment cast aspersions on the Registrar of Companies.

On this, the NCLAT found that this was a wrong perception of the Registrar of Companies as no observation had been made against the Registrar of Companies, Mumbai, not anything alleged against him.

Therefore, no ground is made out to amend the Judgment dated 18-12-2019 in the absence of any factual or legal error apparent on the body of the aforesaid Judgment. There is a typographical error at Paragraph 171 wherein un-amended Section 2(68) has wrongly been typed which has been ordered to be corrected. [Cyrus Investments (P) Ltd. v. Tata Sons Ltd., 2020 SCC OnLine NCLAT 1decided on 06-01-2020]