Recent Amendments Under Companies Act, 2013 And Insolvency And Bankruptcy Code, 2016

Further to the official announcements made by the Hon’ble Finance Minister of India, Smt. Nirmala Sitharaman during the press conference held on the 24th day of March 2020, Ministry of Corporate Affairs and Ministry of Law and Justice, has notified certain amendments to vide notifications issued on the 5th day of June 2020.

The details of the said amendments are as under:

Ministry of Law and Justice

As due to Covid-19, both the houses of parliament are not in session and it was expedient to suspend section 7, 9 and 10 of the Insolvency and Bankruptcy Code, 2016 (Code) to prevent corporate persons who are experiencing distress on account of the unprecedented situation, being pushed into insolvency proceedings, the President of India has passed an ordinance amending the Code by insertion of Section 10A and substituting section 66(2) of the Code thereby suspending section 7, 9 and 10 of the Code as under:

Section 7: A financial creditor either by himself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.”

Section 8: An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed.

Section 9: After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.

Any application for initiation of corporate insolvency resolution process of a corporate debtor shall not be filed for any default arising on or after 25th day of March 2020 for a period of 6 (six) months or such further period not exceeding 1 (one) year from such date as may be notified in this behalf.

Provisions of this new section 10A shall not apply to any default committed before the 25th day of March 2020.

Further, any resolution professional shall not file any application in respect of such default for which initiation of corporate insolvency resolution process has been suspended as per section 10A.

Ministry of Corporate Affairs (MCA)

1. Amendment in Companies (Share Capital and Debentures), Rules, 2014:

MCA has notified the Companies (Share Capital and Debentures), Amendment Rules, 2020 to amend provisions of Rule 8(4) and Rule 18 (7) as under:

A. Rule 8(4) Provision – Issue of Sweat Equity shares

Present Position: A startup company, as defined in notification number GSR 180(E) dated 17th February 2016 issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India, is allowed to issue sweat equity shares up to 50% of its paid-up capital up to 5 years from the date of its incorporation or registration.

Revised Position: The reference of notification number has been replaced with “G.S.R. 127(E), dated the 19th February 2019 issued by the Department for Promotion of Industry and Internal Trade], Ministry of Commerce and Industry, Government of India”. Further, the period of 5 years for startup companies to issue sweat equity shares has now been enhanced to 10 years.

B. Rule 18 (7) (b) (V)- Debentures

Present Position: Before the amendment, below class of companies (except banking companies and All India Financial Institutions regulated by RBI) were required to create Debenture Redemption Fund on or before 30th day of April in each year, of an amount equivalent to 15% of debentures maturing during the year ending on 31st March of the next year:

(i). Listed NBFCs companies and Housing Finance Companies registered with National Housing Bank were required to create a Debenture Redemption Fund irrespective of whether that they are coming up with the issuance of debt securities on a private placement basis or by way of the public issue.

(ii). Other listed companies irrespective of whether that they are coming up with the issuance of debt securities on a private placement basis or by way of the public issue.

(iii). All unlisted companies except unlisted NBFCs companies and Housing Finance Companies registered with National Housing Bank.

Revised Position: Post amendment, below the class of companies, are exempt from Creation of Debenture Redemption Fund on or before 30th day of April in each year of an amount equivalent to 15% of debentures maturing during the year ending on 31st March of the next year:

(i). Listed NBFCs registered with RBI under the RBI Act, 1934, and Housing Finance Companies registered with National Housing Bank and coming up with the issuance of debt securities on a private placement basis.

(ii). Other listed companies coming up with the issuance of debt securities on a private placement basis.

(iii). Unlisted NBFCs registered with RBI under the RBI Act, 1934, and Housing Finance Companies registered with National Housing Bank coming up with debt securities on private placement.

(iv). All India Financial Institutions and Banking Companies coming up with the issuance of debt securities on the public issue/ private placement.

2. Clarification regarding Extra-Ordinary General Meetings (EGM) to be held via Video Conferencing or any other audiovisual means:

Owing to the extraordinary situation of a pandemic caused by COVID-19, prevailing in the country, there have been several requests from various stakeholders for extension of time for holding EGM via Video Conferencing or any other audiovisual means.

In this regard, MCA has vided it’s General Circular no. 22/2020 dated 15th June 2020 has extended the time period for holding EGM for the purposes of passing urgent ordinary and special resolutions via Video Conferencing or any other audiovisual means and by postal ballot/e-voting (except items of ordinary business and items where any person has a right to be heard), from 30th June 2020 to 30th September 2020.

All other requirements as mentioned in the General Circular no. 14/2020 dated 8th April 2020 and General Circular no. 17/2020 dated 13th April 2020 with regard to recording of proceedings, proxies, registration of email ids of shareholders, sending of notices by emails, etc. remain unchanged.

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