Recent Regulatory Update for March 2020

Facilitation measures undertaken by Regulatory Authorities

In the wake of pandemonium caused by spread of the COVID-19 virus, temporary relaxations in compliance requirements and other facilitation measures are very much needed.

The following measures have been undertaken by both, the Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI) to provide relief to the stakeholders:

A. Measures undertaken by the Ministry of Corporate Affairs:

1. No additional filing fees shall be charged for late filing during a moratorium period from 01st April to 30th September 2020, in respect of any document, return, statement etc., required to be filed in the MCA-21 Registry, irrespective of its due date.

Implication: It will reduce the compliance burden, including financial burden of companies/ LLPs at large, but also enable long-standing non-compliant companies/ LLPs to make a ‘fresh start’. The circular specifying detailed requirement in this regard are issued separately.

2. Gap in Board meetings: The mandatory requirement of holding meetings of the Board of Directors of the Company within prescribed interval provided in the Companies Act, 2013 (120 days) shall be extended by a period of 60 days till next two quarters i.e., till 30th September.

Implication: As a one-time relaxation the gap between two consecutive meetings of the Board may extend to 180 days till the next two quarters, instead of 120 days as required in the Companies Act, 2013.

3. Meetings through video conference– As per rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014 read with the Companies Act, 2013, the following matters cannot be dealt with in any meeting held through video conferencing or other audio-visual means:

a. approval of annual financial statements  

b. approval of the Board’s report

c. approval of the prospectus  

d. audit committee meetings for consideration of financial statements; and 

e. approvals relating to amalgamations, merger, demerger, acquisition and takeover.

On March 19, 2020, Ministry of Corporate Affairs amended the above rules, as per which, from the date of the commencement of the Companies (Meetings of Board and its Powers) Amendment Rules, 2020 till June 30, 2020, meetings on the above-mentioned matters may also be held through video-conferencing or other audio visual means.   

4. CARO extended: Applicability of Companies (Auditor’s Report) Order, 2020(CARO) shall be made applicable from the financial year 2020-2021 instead of from 2019-2020 notified earlier.

Implication: This will significantly ease the burden on companies & their auditors for the financial year 2019-20.

5. Independent Directors’ meeting: As per Schedule IV to the Companies Act, 2013, Independent Directors are required to hold at least one meeting without the attendance of Non-independent directors and members of management. For the year 2019-20, if the IDs of a company have not been able to hold even one meeting, the same shall not be viewed as a violation.

Implication: IDs, however, may share their views amongst themselves through telephone or e-mail or any other mode of communication, if they deem it to be necessary.

6. Deposit repayment reserve: Requirement to create a Deposit repayment reserve of 20% of deposits maturing during the financial year 2020-21 before 30th April 2020 shall be allowed to be complied with till 30th June 2020.

7. Deposit repayment investment: Requirement to invest 15% of debentures maturing during a particular year in specified instruments before 30th April 2020 may be done so before 30th June 2020.

8. Commencement of Business:  Newly incorporated companies are required to file a declaration for Commencement of Business within 6 months of incorporation in the form INC-20A. An additional time of 6 more months shall be allowed.

9. Mandatory resident Director: Non-compliance of minimum residency in India for a period of at least 182 days by at least one director of every company, under Section 149 of the Companies Act, shall not be treated as a violation for the financial year 2019-20.

10. Spending CSR funds for COVID-19 is now eligible as CSR activity– On 23.03.2020, MCA vide its circular allowed companies to use their Corporate Social Responsibility (CSR) spending on measures to fight COVID-19.

B. Relaxations under the Insolvency and Bankruptcy Code, 2016

Due to the emerging financial distress faced by most companies on account of the large-scale economic distress caused by COVID-19, it has been decided to raise the threshold of default under section 4 of the IBC 2016 to Rs. 1 crore (from the existing threshold of Rs 1 lakh).

This will also apply on the existing filed cases which are pending for consideration.

C. Relaxation from compliance with certain provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and certain SEBI Circulars:

1. SEBI has decided to grant the following relaxation from compliance stipulations specified under the SEBI LODR:

a) Extension of timelines for filings such as: 

b) Relaxation of time gap between two Board and Audit Committee meetings:

The Board of Directors and the Audit Committee of a listed entity have been exempted from maintaining time gap of 120 days between two Board Meetings to be held between the period December 1, 2019 and June 30, 2020.

However, the board of directors / Audit Committee shall ensure that they meet at least four times a year, as stipulated under regulations 17(2) and 18(2)(a) of the LODR.

c) Unaudited Financials filing:Extension of timeline for issuance and filings for issuers who have listed / propose to list their Non-Convertible Debentures (NCDs) / Non-Convertible Redeemable Preference Shares (NCRPS)/ Commercial Paper(s).

Implication: companies proposing to make public issue of debt securities, and issuers who intend to get their CPs listed are required to give the audited financials in the offer document, which are not older than 6 months from the date of prospectus. However compliant listed entities are allowed to disclose unaudited financials with limited review report, instead of audited financials, for the stub period.

d) Conduct of Committee meeting: –

e) Relaxation of the operation of the SEBI circular on Standard Operating Procedure dated January 22, 2020-

SEBI vide circular no. SEBI/HO/CFD/CMD/CIR/P/2020/12 dated January 22, 2020 issued the Standard Operating Procedure(SoP)on imposition of fines and other enforcement actions for non-compliances with provisions of the LODR, the effective date of operation of which is for compliance periods ending on or after March 31, 2020. The said circular dated January 22, 2020 shall now come into force with effect from compliance periods ending on or after June 30, 2020. It may be noted that the SoP circular dated May 03, 2018 would be applicable till such date.

f) Publication of advertisements in the newspapers: –

Regulation 47 of the LODR requires publishing, in the newspapers, information such as notice of the board meeting, financial results etc. It has been brought to the notice of SEBI that some newspapers are not bringing their print versions for a limited period; some newspapers that are still printing are not accepting a ‘e-copy’ of the information to be published which acts as a challenge in ensuring compliance with this regulation. Hence it has been decided to exempt publication of advertisements in newspapers as required under regulation 47 for all events scheduled till May 15, 2020.

D. SAT: Security Appellate Tribunal to remain closed till 31st March, 2020

As per the notification of SAT dated 23.03.2020, since the Government has strictly enforced the lockdown and in view of the closure of public transport, the Tribunal shall remain closed till 31st March, 2020. The matters listed during this period will now be listed in April. The Tribunal and Office of Registry shall function from 01st April, 2020 until further order. In case of urgent matters, parties may contact the Registrar who in turn will place the matter before the Hon’ble Presiding Officers/members for appropriate orders.

E. CCI: Adjourns all matters listed for hearing till March 31, 2020 :-due to coronavirus On 23.03.2020, CCI has vide its notice announced that following shall remain suspended until 31st March, 2020 a) All filings in relation to Section 3 and Section 4 of the Competition Act, 2002 b) All notifications in relation to combination under Section 6 and 20 of the Act; c) All other filings, submissions and proceedings under the Act and regulations made thereunder, including those before the Director General and d) Pre-filing Consultation

Earlier, CCI vide its Circular dated 17th March 2020, has adjourned matters listed from hearing (excluding urgent matters, if any) till March 31, 2020.

F. Supreme Court announced to hear all cases through video conferencing from 23^rd March, 2020

The Apex Court has announced that it shall hear all the cases through video conferencing from 23 March, to avoid a complete shutdown of the legal system. The judges will sit in the court room while the advocates will be appearing and make arguments for the cases through a separate monitoring room in the court premises. It is further notified that the limited number of benches, that are functioning to hear urgent cases, shall hear them via Video Conferencing.

Also, the functioning of the Supreme Court from March 16, 2020 shall be restricted to urgent matters with such number of benches as may be found appropriate. The lawyers who are going to act in the matter, i.e. either for arguments or for making oral submissions or to assist will be permitted in the court room along with 1 (one) litigant only.

G. NCLT shutdown till 14^th April, 2020

a. All NCLT benches shall remain closed from 23.03.2020 till 14.04.2020 for the purpose of judicial work;

b. As to the unavoidable urgent matters, on application by aggrieved through email to the Registry,

c. As regard to the IBC, 2016 matters extension of time, approval of resolution plan and liquidation will not be construed as urgent matters.

H. Measures undertaken by the Reserve Bank of India: –

a. Reduce Repo rate under the Liquidity Adjustment Facility (LAF) by 75 basis points from 5.15 per cent to 4.40 per cent with immediate effect.

b. Reverse Repo rate under the LAF stands adjusted from 4.90 per cent to 4.00 per cent with immediate effect.

c. Bank Rate is revised downwards by 75 basis points from 5.40 per cent to 4.65 per cent with immediate effect.

d. Reduce the minimum daily maintenance of the Cash Reserve Ratio from 90 per cent of the requirement to 80 per cent effective from March 28, 2020. This is a one-time dispensation available up to June 26, 2020.

e. Reduce the Cash Reserve Ratio (CRR) of all banks by 100 basis points from 4.00 per cent to 3.00 per cent of their Net Demand and Time Liabilities (NDTL) with effect from March 28, 2020 for a period of one year, ending on March 26, 2021.

f. Rescheduling of Payments: – In respect of all term loans (including agricultural term loans, retail and crop loans), all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies) (“lending institutions”) are permitted to grant a moratorium of three months on payment of all installments falling due between March 1, 2020 and May 31, 2020. The repayment schedule for such loans as also the residual tenor, will be shifted across the board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.

 Note: Installments will include the following payments falling due from March 1, 2020 to May 31, 2020: (i) principal and/or interest components; (ii) bullet repayments; (iii) Equated Monthly instalments; (iv) credit card dues.

g. defer the implementation of NSFR(Net Stable Funding Ratio) guidelines by six months. These guidelines will now come into effect from October 1, 2020 as against April 1, 2020.