Updates of MCA, SEBI, RBI & IBBI for the month of March 2021

Article contains updates with respect to Notifications, Circulars, Rules, Regulations issued in the Month of March 2021 by Ministry of Corporate Affairs (MCA), Securities Exchange Board of India, Updates of the Reserve Bank of India (RBI), Insolvency and Bankruptcy Board of India (IBBI) and also includes Recent Corporate News. Article attempts to analyses Notifications, Circulars, Rules, Regulations issued in the Month of March 2021 in simple Language for understanding of Readers.Updates of the Ministry of Corporate Affairs (MCA)

Amendment in Company Law Rules

♦ Companies (Incorporation) Third Amendment Rules, 2021:

• The Ministry of Corporate Affairs (MCA) has vide notification dated 5^th March, 2021 notified the Companies (Incorporation) Third Amendment Rules, 2021. Amendments are applicable With effect from 5^th March, 2021
• It shall be noted that now the stakeholders would be in the position to perform the aadhar authentication for GSTIN registration in Form INC-35 AGILE-PRO.

♦ The Companies (Management and Administration) Amendment Rules, 2021:

• The Ministry of Corporate Affairs (MCA) vide its notification dated 5^th March, 2021 amended few provisions of the Companies (Management and Administration) Rules, 2014. Amendments are applicable With effect from 5^th March, 2021.

• Such notification has amended the Rule 11, 12 & 20 of the Companies (Management and Administration) Rules, 2021.
• After such amendment, every company shall file its annual return in Form MGT-7 except One Person Company (OPC) and Small Company. One Person Company and Small Company shall file annual return from the financial year 2020-2021 onwards in Form MGT-7A. It shall be noted that the notification has also provided the format of Form MGT-7 and Form MGT-7A.
• By amending the Rule 20, the said notification also provided definitions of ‘Agency’, ‘Cut-off date’, ‘Cyber Security’, ‘Electronic Voting System’, ‘Remote e-voting’, ‘Secured System’ and ‘Voting by electronic means’.

♦ The Companies (Accounts) Amendment Rules, 2021 and Companies (Accounts) Second Amendment Rules, 2021:

• The Ministry of Corporate Affairs (MCA) vide its notification dated 24^th March, 2021 and 1st April 2021  amended the Companies (Accounts) Rules, 2014.

• Under Rule 3(1) related to “Manner of books of account to be kept in electronic mode”, following proviso shall be inserted and made applicable from 01.04.2022-

“Provided that for the financial year commencing on or after the 1st day of April, 2021, every company which uses accounting software for maintaining its books of account, shall use only such accounting software which has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled.”

• In Rule 8(5) which states “Matters to be included in Board’s report”, new clauses Rule 8(5)(xi) and Rule 8(5)(xii) has been inserted with effect from 01.04.2021, namely:

“(xi) the details of application made or any proceeding pending under the Insolvency and Bankruptcy Code, 2016 (31 of 2016) during the year along with their status as at the end of the financial year.

(xii) the details of difference between amount of the valuation done at the time of one time settlement and the valuation done while taking loan from the Banks or Financial Institutions along with the reasons thereof.”     

♦ The Companies (Audit and Auditors) Amendment Rules, 2021 and Companies (Audit and Auditors) Second Amendment Rules, 2021:

• The Ministry of Corporate Affairs (MCA) has notified the Companies (Audit and Auditors) Amendment Rules, 2021 so as to broaden the scope of reporting by Auditors in the Audit Report.
• In the Companies (Audit and Auditors) Rules, 2014, in Rule 11, after clause (d), the clauses shall be inserted  with effect from 01.04.2021 except last clause which is applicable from 01.04.2022-

√ Firstly, Whether the management has represented that, to the best of it’s knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the company to or in any other person(s) or entity(ies), including foreign entities (“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

√ Whether the management has represented, that, to the best of it’s knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been received by the company from any person(s) or entity(ies), including foreign entities (“Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the company shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

√ Based on such audit procedures that the auditor has considered reasonable and appropriate in the circumstances, nothing has come to their notice that has caused them to believe that the representations under sub-clause (i) and (ii) contain any material mis-statement.

√ Secondly, whether the dividend declared or paid during the year by the company is in compliance with section 123 of the Companies Act, 2013.

√ Lastly, whether the company has used such accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has been operated throughout the year for all transactions recorded in the software and the audit trail feature has not been tampered with and the audit trail has been preserved by the company as per the statutory requirements for record retention. (Applicable from 01.04.2022)

Notifications under Companies Act, 2013

♦ Amendments to Schedule V of the Companies Act, 2013:

• The Ministry of Corporate Affairs (MCA) has amended the Schedule V of the Companies Act, 2013 through notification dated 18^th March, 2021 With effect from 18^th March, 2021.

• In Section I of the Schedule V of the Companies Act, 2013, after the words “managerial person or persons”, the words “or other director or directors” shall be inserted.
• Further, in Section II of the Schedule V of the Companies Act, 2013, following Table A has been substituted;

♦ Establishment of a Central Scrutiny Centre (CSC):

• The Ministry of Corporate Affairs (MCA)vide its notification dated 18^th March, 2021 established a Central Scrutiny Centre (CSC) for carrying out scrutiny of Straight Through Processes (STP) e-forms filed by the companies under the Act and the rules made thereunder With effect from 23^rd March, 2021.

• The CSC shall function under the administrative control of the e-governance Cell of the Ministry of Corporate Affairs. The CSC shall carry out scrutiny of the aforesaid forms and forward findings thereon, wherever required, to the concerned jurisdictional Registrar of Companies for further necessary action under the provisions of the Act and the rules made thereunder.

♦ Commencement Notification dated 18^th March, 2021:

• The Ministry of Corporate Affairs (MCA) has appointed 18^th March, 2021 as the date of commencement two sections of the Companies (Amendment) Act, 2020.

• Amendment of section 149(9) of Companies Act, 2013 related to ‘Remuneration of Independent Director In case of absence or inadequate profits’ vide Section 32 of Companies (Amendment) Act, 2020.
• Amendment of section 197 of Companies Act , 2013 related to ‘Overall Maximum Managerial Remuneration and Managerial Remuneration in Case of Absence or Inadequacy of Profits’ vide Section 40 of Companies (Amendment) Act, 2020

♦ Amendments to Schedule III of the Companies Act, 2013:

• The Ministry of Corporate Affairs (MCA) has amended the Schedule III of the Companies Act, 2013 With effect from 1^st April, 2021 through notification dated 24^th March, 2021.
• Schedule III of the Companies Act 2013 contains the general instructions for preparation of Balance Sheet and Statement of Profit and Loss of a Company.

• Following are the changes made in the financials/ notes to accounts on account of amendments in Schedule III brought about by MCA:

√ Now companies have to round off the figures appearing in the financial statements, thereto it was optional. Further, the criteria for rounding off shall be based on “total income” in place of “turnover”.

√ Company shall disclose Shareholding of Promoters.

√ Current maturities of Long term borrowings shall be disclosed separately.

√ Trade Payables ageing schedule to be given.

√ Trade Receivables ageing schedule to be given.

√ Security deposits shall not be disclosed under ‘Long term loans and advances’ but disclosed under ‘Other non-current assets’.

√ The company shall disclose the reason of utilization of funds for the purposes other than for which they were borrowed and shall also disclose the purposes for which the funds were utilized.

√ Company needs to disclose if the books of accounts are tallied with the quarterly or monthly returns filed with banker in cases where company has borrowed funds from banks on the basis securities of current assets, or else a separate reconciliation statement needs to be provided.

√ The company shall provide the details of all the immovable property (other than properties where the Company is the lessee and the lease agreements are duly executed in favour of the lessee) whose title deeds are not held and where such immovable property is jointly held with others, details are required to be given to the extent of the company’s share.

√ In cases where revaluation has been done in case of Property Plant and Equipment, the company shall disclose if the valuation was done by registered valuer.

√ Disclosures to be made where Loans or Advances in the nature of loans are granted to promoters, directors, KMPs and related parties (loans given to promoters as a % of total loans)

√ For Capital-work-in progress, ageing schedule shall be given

√ For Intangible assets under development, aging schedule to be given.

√ Disclosure of any proceedings initiated or pending against the company for holding any benami property under the Benami Transactions (Prohibition) Act, 1988 to be made.

√ Where a company is a declared wilful defaulter by any bank or financial Institution or other lender, details to be given.

√ Disclosure of any transactions with companies struck off

√ Where any charges or satisfaction yet to be registered with Registrar of Companies beyond the statutory period, details and reasons thereof shall be disclosed.

√ Following Ratios to be disclosed:

(a) Current Ratio (b) Debt-Equity Ratio (c) Debt Service Coverage Ratio (d) Return on Equity Ratio (e) Inventory Turnover Ratio (f) Trade Receivables Turnover Ratio (g) Trade Payables Turnover Ratio (h) Net Capital Turnover Ratio (i) Net Profit Ratio (j) Return on Capital Employed (k) Return on investment.

√ Disclosure of Utilization of Borrowed funds and share premium to be given. Explanation is required if there’s change of more than 25% as compare to preceding financial year.

√ Further disclosures shall be made where the company has received funds from any persons or entities including foreign entities to further lend or invest or provide any guarantee, security to third parties.

√ Where a scheme of arrangement has been approved, disclosure shall be made of the effect of the same on the books of accounts and any deviation from the accounting standards for the same.

♦ Commencement Notification dated 24^th March, 2021:             

• The Ministry of Corporate Affairs (MCA) has appointed 24^th March, 2021 as the date of commencement two sections of the Companies (Amendment) Act, 2020.
• Following is the comparative table of sections;

Updates

♦ Availability of e-form CSR-1:

• The Ministry of Corporate Affairs (MCA) has made available e-form CSR-1 for Registration of Entities for undertaking CSR activities w.e.f. 1^st April 2021.

♦ Postponement of mandatory use of Accounting Software:

• The Mandatory use of Accounting Software which has a feature of Audit trail has been postponed from 1^st April, 2021 to 1^st April, 2022.

Updates of the Securities Exchange Board of India Rules or Regulation

Circulars

♦ Rollout of Legal Entity Template With effect from 10^th March, 2021 vide Circular dated 10^th March, 2021 :

• SEBI vide its circular dated 10^th March, 2021 has directed the Registered Intermediaries (RIs) to ensure that in case any Listed Entity (LE) are accounts opened prior to April 1, 2021, the KYC records are to be uploaded on to CKYCR as and when the updated KYC information is obtained/received from the client.

• Further, to ensure that all existing KYC records of individual clients are incrementally uploaded on to CKYCR, RIs shall upload the KYC records pertaining to accounts of individuals opened prior to August 01, 2016, as and when updated KYC information is obtained/received from the client.

• Where a client, for the purpose of establishing an account based relationship, submits a KYC Identifier to a RI, with an explicit consent to download records from CKYCR, then such RI shall retrieve the KYC records online from CKYCR using the KYC Identifier and the client shall not be required to submit the same KYC records or information or any other additional identification documents or details, unless there is a change in the information of the client as existing in the records of CKYCR.

• Once KYC Identifier is generated by CKYCR, the RIs shall ensure that the same is communicated to the individual/legal entity. The provisions of this circular are not applicable to Foreign Portfolio Investors (FPIs).

♦ Prior Approval for Change in control: Transfer of shareholdings among immediate relatives and transmission of shareholdings and their effect on change in control: Circular Dated 25^th March, 2021- With effect from 25^th March, 2021

• SEBI vide circular No: CIR/MIRSD/14/2011 dated August 02, 2011 addressed to stock exchanges/ depositories and intermediaries specified the procedure for seeking prior approval for change in control from SEBI.

• In this regard, following is clarified with respect to transfer of shareholding among immediate relatives and transmission of shareholding:

♦ Transfer /transmission of shareholding in case of unlisted body corporate intermediary:

In following scenarios, change in shareholding of the intermediary will not be construed as change in control:

√ Transfer of shareholding among immediate relatives shall not result into change in control. Immediate relative shall be construed as defined under Regulation 2(l) of SEBI SAST Regulations which inter-alia includes any spouse of that person, or any parent, brother, sister or child of the person or of the spouse;

√ Transfer of shareholding by way of transmission to immediate relative or not, shall not result into change in control.

♦ Transfer /transmission of shareholding in case of a proprietary firm type intermediary:

In case of an intermediary being a proprietary concern, the transfer or bequeathing of the business/capital by way of transmission to another person is a change in the legal formation or ownership and hence by the definition of change in control, such transmission or transfer shall be considered as change in control. The legal heir / transferee in such cases is required to obtain prior approval and thereafter fresh registration shall be obtained in the name legal heir/transferee.

♦ Transfer /transmission of ownership interest in case of partnership firm type intermediary:

Change in partners and their ownership interest of the partnership firm type intermediary shall be dealt in following manner:

√ Transfer of ownership interest in case of partnership firm:

In case a SEBI registered entity is registered as a partnership firm with more than two partners, then inter-se transfer amongst the partners shall not be construed to be change in control. Where the partnership firm consists of two partners only, the same would stand as dissolved upon the death of one of the partners. However, if a new partner is inducted in the firm, then the same would be considered as a change in control, requiring fresh registration and prior approval of SEBI.

√ Transmission of ownership interest in case of partnership firm:

Where the partnership deed contains a clause that in case of death of a partner, the legal heir(s) of deceased partner be admitted, then the legal heir(s) may become the partner (s) of the partnership firm. In such scenario the partnership firm is reconstituted. Bequeathing of partnership right to legal heir(s) by way of transmission shall not be considered as change in control.

♦ Incoming entities/ shareholders becoming part of controlling interest in the intermediary pursuant to transfer of shares from immediate relative / transmission of shares (immediate relative or not), need to satisfy the fit and proper person criteria stipulated in Schedule II of SEBI (Intermediaries) Regulations, 2008.

♦ Transfer of business by SEBI registered intermediaries to other legal entity With effect from 26^th March, 2021:

• SEBI has been receiving registration applications pursuant to transfer of business (SEBI regulated business activity) from one legal entity which is a SEBI registered Intermediary (transferor) to other legal entity (transferee). In this regard, following is clarified:

√ The transferee shall obtain fresh registration from SEBI in the same capacity before the transfer of business if it is not registered with SEBI in the same capacity. SEBI shall issue new registration number to transferee different from transferor’s registration number in the following scenario:

√ Business is transferred through regulatory process (pursuant to merger/ amalgamation/ corporate restructuring by way of order of primary regulator /govt / NCLT, etc.) or non-regulatory process (as per private agreement /MOU pursuant to commercial dealing / private arrangement) irrespective of transferor continues to exist or ceases to exist after the said transfer.

√ In case of change in control pursuant to both regulatory process and non-regulatory process, prior approval and fresh registration shall be obtained. While granting fresh registration to same legal entity pursuant to change in control, same registration number shall be retained.

√ If the transferor ceases to exist, its certificate of registration shall be surrendered.

√ In case of complete transfer of business by transferor, it shall surrender its certificate of registration.

√ In case of partial transfer of business by transferor, it can continue to hold certificate of registration.

♦ Reduction in Unblocking/Refund of Application Money With effect from 31^st March, 2021:

• SEBI vide its circular dated March 31, 2021 has reduced the timelines for refund of money to investors as under:

√ In case of non-receipt of minimum subscription – The issuer is mandated to refund all the application monies within a period of four days from the closure of the issue;

√ In case the issuer fails to obtain listing or trading permission from the stock exchanges where the specified securities were to be listed regulation – The Issuer shall refund the entire monies received within four days of receipt of intimation from stock exchanges rejecting the application for listing of specified securities.

Updates of the Reserve Bank of India (RBI)

Notifications

♦ Extension of Cheque Truncation System (CTS) across all bank branches in the country:

Notification on Extension of Cheque Truncation System (CTS) across all bank branches in the country dated 15^th March, 2021 With effect from 15^th March, 2021

• RBI vide its notification dated 15^th March, 2021, with a view to leverage the availability of CTS and provide uniform customer experience irrespective of location of her/his bank branch, has extended CTS across all bank branches in the country.
• To facilitate this, banks shall have to ensure that all their branches participate in image-based CTS under respective grids by September 30, 2021. They are free to adopt a model of their choice, like deploying suitable infrastructure in every branch or following a hub & spoke model, etc. and concerned banks shall coordinate with the respective Regional Offices of RBI to operationalize this.

♦ Annual Closing of Government Accounts – Transactions of Central / State Governments – Special Measures for the Current Financial Year (2020-21):

Notification on Annual Closing of Government Accounts – Transactions of Central / State Governments – Special Measures for the Current Financial Year (2020-21) dated 25^th March, 2021 With effect from 25^th March, 2021

• All government transactions done by agency banks for Financial Year 2020-21 must be accounted for within the same financial year. Accordingly, the following arrangements are put in place to report and account for Government transactions for March 31, 2021.
• All agency banks should keep their designated branches open for over the counter transactions related to government transactions upto the normal working hours on March 31, 2021.
• Transactions through National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) System will continue upto 2400 hours as hitherto on March 31, 2021.
• Special clearing will be conducted for collection of government cheques on March 31, 2021 for which the Department of Payment and Settlement Systems (DPSS), RBI will issue necessary instructions.
• Regarding reporting of Central and State Government transactions to RBI, including uploading of GST / e-receipts luggage files, the reporting window of March 31, 2021 will be extended and kept open till 1200 hours on April 1, 2021.

Updates of the Insolvency and Bankruptcy Board of India (IBBI)

Circulars

♦ Reporting of status of ongoing corporate insolvency resolution processes (CIRPs) through Form CIRP 7:

Circular on Reporting of status of ongoing corporate insolvency resolution processes (CIRPs) through Form CIRP 7 dated 18^th March, 2021 With effect from 18^th March, 2021

• Regulation 40A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‘CIRP regulations’) provides a model timeline for carrying out various activities envisaged in a corporate insolvency resolution process (CIRP).
• Regulation 40B of the CIRP regulations require an interim resolution professional (IRP) / resolution professional (RP) to file a set of forms (CIRP 1 to CIRP 6) within seven days of completion of specific activities to enable monitoring progress of CIRP. This implies that a Form (CIRP 1 to CIRP 6) would not be filed until the related activity is not completed for whatever reason. This makes monitoring of progress difficult. Regulation 40B of CIRP regulations require filing of Form CIRP 7 within three days of due date of completion of any activity stated in column (2) of the table below is delayed, and continue to file Form CIRP 7 every 30 days, until the said activity remains incomplete.

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Disclaimer: The entire contents of this newsletter have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer the relevant existing provisions of applicable laws. The user of this information agrees that the information is not professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. Further, in no event shall I be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.