CS Aditi Jhunjhunwala
Anomaly in MGT-10 for disclosure u/s 93 read with Companies (Management and Administration) Rules, 2014
Section 93 requires every listed company to file return in MGT 10 with respect to change in number of shares of promoters and top ten shareholders. Rule 13 of the Companies (Management and Administration) Rules, 2014 requires the reporting to be done in case there is 2% or more increase or decrease in the number of shares. However, this 2% is of 2% of what? Whether 2% of the holding of individual or 2% of the company’s capital- The Act and the Rule both are silent on the same.
The help kit for the form MGT 10 however, seems to suggest that the change of 2% is to be calculated on the shareholding of the shareholder himself and not on the paid up capital of the company. The change to be reported is the change is 2% or more – this should logically mean 2% of the total share capital of the company. More logical interpretation would have been 2% of the company’s capital, because it is then only that the change is significant and requires abrupt reporting.
We are of the view that the intent of section 93 could not be to report 2% change relative to the shareholding of the shareholder himself. The idea is to report material movements in shareholdings. That is to say, a shareholder in promoter category may be holding just 100 shares. So 2% change computed on his shareholding does not make sense at all. The change makes sense only if it is relative to the capital of the company.
Further, since such clarification by means of help kit came into the knowledge of all only on introduction of the form in October 2014, so prior to such introduction companies were filing the information keeping the paid up share capital as the denominator. There have been instances where the limit of 2% did not get triggered until the introduction of MGT 10, wherein due to the formula being calculated by MGT 10 the 2% limit is triggered. Now, under such circumstances companies are facing problem in reporting since they are unable to ascertain which date to take as base date for reporting post introduction of MGT 10 or whether such companies should do revised filing since April 01, 2014. In any event, this is surely not the correct approach to reporting.
Apparently, there has been some gap in interpretation and implementation of the said disclosure in MGT 10 and needs to be revised. Seemingly, MCA needs to revisit the form and make necessary changes. Ideally this could have been taken up by the MCA in the Companies Act Amendment Bill, 2014 itself. Such issues and anomalies continue to exist but are they unfortunately escaping the sight of MCA or the department is acting ignorant towards its haste decision making?
(Author is a Senior Associate with Vinod Kothari & Company and can be reached at aditi@vinodkothari.com)
Provisions of Section-93 of Companies Act,2013 have been omitted as per Companies (Amendment) Act,2017 w.e.f February 12,2018
Fully agree with author…I did not understand one point that the 2% change in shareholding, is to be in one transaction or an accumulation of two or more transactions?? can any one pls clarify..
Ex: say a top ten shareholder sold 1.99% of his holding on 01.01.2016 and subsequently sold 1% more on 10.01.2016. is he required to file MGT 10.
Though i too agree to the author, and yes, practically it should have been linked to the % of Paid up capital of the Company.
Contrary to the aforesaid, i feel the intent / logic of the Ministry is different in introducing the provisions of Section 93.
What the Ministry requires to be disclose (as indicated by the author also) is relative change to the shareholding of the shareholder himself.
This may be because Ministry might had wanted to know any small change in Promoters / Top 10 shareholders ONLY (As top 10 / Promoters are important shareholders of the company they might had wanted any change to be reported).
Though I personally feel the Ministry’s desires are a bit cumbersome to manage this information and professional have to see weekly reports of the Registrars cautiously.
Even other relevant laws requires reporting of change linked to PUC of the Company.
Clarification requested. Till the time all professionals should follow what is written and file MGT-10 in intent.
Fully agree with the views of the author. Further the Companies Management Rules, 2014 the format of MGT 10 has columns to justify the percentage is to the share capital. The Rules prescribed format has columns for % of shares before change and after the change. However in electronic form these columns are missing
Further by the Amendment dated 24.07.2014 omitted explanation to Rule 13. However the MCA toolkit still shows it as a part of Rules.
My views are different. According to me whenever there is a reference to percent, it is to be calculated on what is written after the conjunction “of” “to” “in” etc like percent of……, percent to……. percent in……. Here in Rule 13 they are talking about change of 2 percent in shareholding of shareholder gives impression that the linking to percent is to the existing shareholding and not the share capital of the company.
I am fully agree with Aditi’s interpretation, filing of MGT-10 becomes difficult for listed entities as well. Further,fails to understand what is intention for having such information?? at times for strategic decision, the transfer or sale happens among the promoters or other top members.
Thanks Aditi for your Article…
Thank you…