Article contains update on Amendment to Companies Act, 2013 and its Rules, Amendment to SEBI Law, NCLT Order, Highlights of Consumer Protection Bill, Labour laws, E-commerce guidelines for Consumer Protection ICSI – Recognition to Company Secretaries to act as Arbitrator under the Arbitration and Conciliation (Amendment) Act, 2019, updates on Decisions taken by the Council of the ICSI at its meeting held on 7th August, 2019, RBI circular on External Commercial Borrowings (ECB) Policy , Updates on Insolvency and Bankruptcy Code , and updates on CSR, FDI in Digital Media.

I. MINISTRY OF CORPORATE AFFAIRS UPDATES

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WHAT’S ITS ALL ABOUT
A. Amendment to Companies Act, 2013 and its Rules
1. Amendments to Companies (Share Capital and Debentures) Rules, 2014 Equity Shares with Differential Rights not more than 74%, Share Certificate, ESOPs, Debenture Redemption Reserve
2. Amendment to Schedule III to the Companies Act, 2013 Amendment on format for publication of Financial Statements for NBFCs
3. Amendments to Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 Changes/ streamlining process for reporting/ transfer of funds , E-Verification, Nodal Officer
4. Amendment to Companies (Incorporation) Rules, 2014 e-Forms RD-l and RD GNL-5- Notified
B. MCA Circular/ Notifications
1. Clarification under section 232(6) of the Companies Act, 2013 Clarification on Appointed date
2. Simplification of process of Incorporation of Section 8 Companies Through RUN or Filing SPICe form
3. Notification of sections of Companies (Amendment) Act, 2019 Sections Notified (Prospectus, Register of SBO etc.)
II. SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) UPDATES
A. SEBI Circulars
1. SEBI Circular on Database for Distinctive Number of Shares Action against Non-Compliant Companies for not reporting mismatch in physical and demat capital.
2. SEBI Circular on Streamlining issuance of SCORES Authentication for SEBI registered Intermediaries Generation of SCORES ID and Password automated- for Complaints
3. SEBI Circular on Disclosure of reasons for encumbrance by promoters of listed companies To state reasons for encumbrance in case of excess encumbrance
4. SEBI Circular on Non-compliance with certain provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”) Monetary penalty for delay in Bonus timelines / conversion/ application of Listing etc. by Listed Companies
B. SEBI Informal Guidances
1. Informal Guidance on Regulation 33 (3) (b) of SEBI Listing Obligations and Disclosure Requirements) Regulation 2015 Submission of quarterly consolidated financial results even if company has associates and no subsidiary.
C. SEBI Orders for non-compliances
1. Adjudication Order in the matter of International Conveyers Ltd (ICL) Improper closure of Trading window and acquisition of shares during closure of trading window
2. Settlement Order with respect to Shri Chhabi Lal Prasad in the matter of JHS Svendgaard Laboratories Ltd. Non-compliance of lock-in requirements
3. Exemption order under regulation 11 of SEBI (SAST) Regulations, 2011 in the matter of Patel Engineering Limited Exemption from Open Offer
4. SAT order in the matter of SPL Industries Limited versus BSE Limited Partial compliance of Regulation 33 of Listing Regulations
5. SAT order in the matter of NDTV Limited Non- disclosure of material Tax- demand in Public domain
6. Adjudication order in respect of Swaminathan Muthukrishnan in the matter of Bodhtree Consulting Ltd – no penalty imposed Contra-Trade during prohibited period
D. Outcome of SEBI Board Meeting Informant Mechanism, Buy-Back, Insider Trading, Credit Rating etc.
III. NATIONAL COMPANY LAW TRIBUNAL – ORDERS
1. NCLT: Rejects Deloitte & BSR’s ‘literal’ interpretation plea, holds Sec. 140(5) applies to past auditors. Next Hearing on September 5, 2019
IV. KNOWLEDGE MANAGEMENT UPDATES
1. Highlights on recent Bills passed by Parliament in its 17th session Consumer Protection Bill, Labour laws, E-commerce guidelines for Consumer Protection
V. OTHER REGULATORY UPDATES
1. ICSI – Recognition to Company Secretaries to act as Arbitrator under the Arbitration and Conciliation (Amendment) Act, 2019 Company Secretaries can now act as Arbitrators as well
2. Decisions taken by the Council of the ICSI at its meeting held on 7th August, 2019 Launching of certificate courses on Forensic Audit & Arbitration
3. RBI circular on External Commercial Borrowings (ECB) Policy Rationalisation of End-use Provisions
4. Insolvency and Bankruptcy Code – Updates Resolution Plan/ Corporate Insolvency Process
VI. IN THE NEWS CSR, FDI in Digital Media

I. MINISTRY OF CORPORATE AFFAIRS (“MCA”) UPDATES:

A. AMENDMENT TO THE COMPANIES ACT, 2013 AND ITS RULES:

1. Amendments to Companies (Share Capital and Debentures) Rules, 2014Notification dated 16th August, 2019.

MCA amended Companies (Share Capital and Debentures) Rules, 2014 and same shall be effective on the date of their publication in Official Gazette.

Following are the key highlights of the amendments:

Rule Subject Matter Amendment
4(1)(c) Equity Shares with Differential Rights Voting Power in respect of shares with differential rights shall not exceed 74% of total voting power (including voting power in respect of equity shares with differential rights issued at any point of time)
4(1)(d) Rule 4(1)(d) has been omitted The requirement of having consistent track record of distributable profits for the last three years is removed.
5(3) Certificate of Shares (Where Shares are Not in Demat Form) Companies (Share Capital and Debentures) Amendment Rules, 2018 required either two Directors or a Director and Company Secretary to sign the share certificate, however earlier only Directors where permitted to use facsimile signature, MCA has now permitted both permit Director and Company Secretary to affix facsimile signature.
12(1) Issue of Employee Stock Options Unlisted Start -Up Companies (as defined in G.S.R. 127(E), dated 19th February, 2019 issued by the Department for Promotion of industry and Internal Trade) were allowed to grant ESOPs upto 5 years from the date of incorporation to such ‘employees’:

(i) who are Promoter or person belonging to Promoter Group; or

(ii) a director who either himself or through his relative or through any body corporate, directly or indirectly, holds more than ten percent of the outstanding equity shares of the company.

MCA extended the above time limit of 5 years to 10 years thereby permitting Start Ups to grant ESOPs to the above-mentioned persons upto 10 years from date of its incorporation or registration.

18 (7) Debentures Revision in the limits of amount of Debenture Redemption Reserves (DRR) to be created as follows:

(i) No DRR required for public and privately placed debentures issued by Regulated All India Financial Institutions (AIFIs) and Banking Companies;

(ii) DRR for Other Financial Institutions as defined in the Companies Act, 2013 shall be as applicable to Registered NBFCs .

(iii) No DRR required in case of Public as well as Privately placed Debenture by Listed (Other than Registered AIFIs and Banking Companies) to Registered NBFCs, Registered Housing Finance Companies and Other Listed Companies.

(iv) No DRR required in case of Privately placed Debenture by Unlisted Companies (Other than Registered AIFIs and Banking Companies) to Registered NBFCs , Registered Housing Finance Companies.

(v) The adequacy of DRR in case of issue of debentures by Unlisted Companies to other Unlisted Companies – 10% of Outstanding Debentures.

The earlier requirement for maintaining investment/deposits was only in case of companies which are required to create DRR.

However, now the above mentioned Listed and Unlisted companies are required to invest/deposits sum of not less than 15% of the maturing debentures as on 31st March of next year by 30th April each year.

2. Amendment to Schedule III to the Companies Act, 2013 – 23rd August, 2019

Pursuant to amendment to Schedule III to the Companies Act, 2013 vide Notification dated 11th October 2018, Division III has been inserted in respect of Financial Statements for a Non-Banking Financial Company (NBFC) whose financial statements are drawn up in compliance of the Companies (Indian Accounting Standards) Rules, 2015.

The changes to AOC-4 Non-XBRL form necessitated by insertion of Division III in Schedule III of CA 2013 are under development and the revised form exclusively for such class of companies would be made available for filing purposes soon.

3. Amendments to Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (“IEPF Rules”) – Notification dated 14th August, 2019

The MCA, vide its notification dated 14th August 2019 issued Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Second Amendment Rules, 2019:

The key highlights of these rules are as under:

Rules Subject Matter Amendments
2(1) Definitions (d) Definition of “Company” is expanded to include transferee company in respect of the assets and liabilities of transferor company.”

(da) Definition of “Corporate Action” inserted thereby including all the actions taken by the Company relating to the transfer of shares and all the benefits accruing on such shares

(g) Definition of Investor is omitted

3(4)(a) & 3(4)(b)(ii) Funds- Notification of Additional funds to be credited to IEPF. The amount received through disgorgement or disposal of securities, upon order of the Court against the person convicted for personation for Acquisition, etc. of securities, shall also be transferred to Consolidated Fund of India under the Major Head ‘0075- Miscellaneous General Services – 104 – Unclaimed and Unpaid dividends, deposits and debentures etc.’.

Central Government also covered for providing Grants and donations to the Fund

5(1) Amount to be credited to the fund online Any amount required to be credited by the Companies to the Fund shall be remitted online along with a Statement in Form IEPF 1 containing details of such transfer to the Investor Education and Protection Fund (IEPF) Authority within a period of 30 days of such amounts becoming due to be credited.
5 (2), (3) & (4) Omission of the requirement to generate challan The process of remitting the amount due to the fund has been made online, hence provisions w.r.t generation of challan has been omitted.
5(4)(A) Information w.r.t amounts transferred under Section 205C of the Companies Act, 1956 Companies which have transferred the amounts to IEPF Fund under Companies Act, 1956, but have not filed excel sheet as required under Rule 5(1), are required to file Form IEPF-1A along with an excel template within 60 days from the date of notification.
5(6)(c) Maintenance of Records of amounts transferred to the Fund Process of maintaining the records is simplified, as information uploaded in excel file after filing of Form IEPF-1 is to be maintained in same format along with all supporting documents.
5(8) Form IEPF-2- Details of Unpaid and Unclaimed Amounts transferred to IEPF Fund The period for identifying and furnishing statement of unclaimed and unpaid amounts to be as on 31st March (earlier AGM date) separately for each of the previous seven financial years, through Form IEPF-2 is reduced from 90 days to 60 days after the AGM or the date on which AGM should have been held, whichever is earlier.
6(1) Transfer of shares to the Fund

 

In case if the dividend is credited to the bank account of a beneficial owner in last seven years, then the shares should not be credited to the IEPF Demat account.
6(5) Transfer of shares dealt with depository

 

While effecting the transfer to IEPF, the Company shall send a statement to the Authority in Form IEPF-4 within 30 days of the corporate action containing details of such transfer and attach a copy of the public notice published as per Rule 6(3)(a)

All supporting documents of Form IEPF-4 (filed after corporate action for transfer of shares to IEPF) have to be maintained.

6(7) Maintenance of statements filed under Rule 6(5)
6(8) Benefits accruing on shares transferred to IEPF Form IEPF-4 shall be filed within 30 days of corporate actions for all the benefits accrued on shares like bonus shares, split, consolidation, fraction shares and the like except right issue.
7(2) Refund to claimants from Fund – Verification of claims by Nodal Officer of the company Form IEPF-5 filed by claimant of shares transferred to IEPF shall be transmitted online to the Nodal Officer of the Company for verification of claim.
7(2A) Appointment of Nodal Officer The companies required to credit or deposit amounts or shares to the fund, shall nominate a Nodal Officer, who shall either be a Director or Chief Financial Officer or Company Secretary of the company (earlier not specified), for the purposes of verification of claims and co-ordination with IEPF.

In case of failure to appoint Nodal Officer, every director of the company shall be deemed to be Nodal Officer and be liable for any failure to comply with requirement of said Rules.

7(2B) Filing of details of Nodal Officer/ Deputy Nodal Officer Details of the Nodal Officer required to be filed with MCA in Form IEPF-2 and uploaded on website of the Company, within 15 days from the date of publication of these rules.
7(3) E-verification Report to be submitted Extension in time e-verification of claims lodged under Form IEPF-5 to 30 days as against 15 days
7(7)

 

Call for Further information by IEPF

 

In case of any defects or incompleteness of Form IEPF-5, or in case of requirement of further information, IEPF may call for information via an e-mail.

The claimant shall file Form IEPF-5 and shall send such documents as called for within 15 days to the Nodal Officer of the concerned company.

The company shall send a revised verification report along with such documents as called for within 30 days.

7(8) Submission of additional documents as per Schedule II by the claimant In claimant to ensure submission of self-attested scanned copy online in Form IEPF-5 and original to the to the Nodal Officer for verification (earlier referred to the transmission process), as under:

If Claimant is a legal heir, successor, administrator or nominee of the registered share holder – documents as specified in Schedule II;

Loss of securities held in physical form – documents as specified in Schedule III

7(9) Letter of entitlement sent to claimant to be attached with e-verification report The letter issued to the claimant indicating his entitlement to the said security to be attached to the e-verification report.
7(10) Filing of one consolidated claim for a FY The requirement of filing only one consolidated claim in respect of a company by a claimant in a financial year is omitted. Consequently, the claimant may lodge Form IEPF-5 more than one time in a Financial Year, the claim for the securities or other amounts transferred to IEPF.
8 (1) & (2) IEPF-6 has been omitted The requirements to file Form IEPF-6 and statement to IEPF stating therein the reasons of deviation, if any, of amounts detailed in sub-rule (1) and actual amounts transferred to the Fund, is omitted.

4. Companies (Incorporation) 7th Amendment Rules, 2019- MCA Notification dated 28th August, 2019

  • Forms RD-l – Form for filing application to Regional Director- For rectification of Name, Change in financial year, for conversion of Public Company to Private Company and Others
  • RD GNL-5 – Form for filing addendum for rectification of defects or incompleteness

B. CIRCULARS / NOTIFICATIONS ISSUED BY MCA

1. Circular on clarification under section 232(6) of the Companies Act, 2013 – 21st August, 2019

MCA vide its circular clarified that section 232(6) enables companies to choose “appointed date” which may be a specific calendar date or may be tied to the occurrence of an event such as grant of license by a competent authority or fulfilment of any preconditions agreed upon by the parties, etc.

The appointed date so identified shall also be deemed to be the “acquisition date” and date of transfer of control for the purpose of conforming to accounting standards (including Ind-AS 103 (Business Combinations).

However, if the ‘appointed date’, chosen as a specific calendar date, is significantly beyond a year from the date of filing of scheme with NCLT, the same shall be justified and specifically bought out in the scheme.

In case of event based “appointed date” the same shall be indicated in the scheme itself and upon occurrence of which the scheme would become effective. However, in case such event date is a date subsequent to the date of filing of order, company shall file an intimation of the same with Registrar within 30 days of such scheme coming into force.

2. Simplification of process of Incorporation of Section 8 Companies

Section 8 Companies can be incorporated by either reserving names through Run and filing SPICe thereafter or by directly filing SPICe.

Licence No. for a section 8 company will henceforth be allotted at the time of incorporation itself.

3. Sections of Companies (Amendment) Act, 2019 notified – Notification dated 14th August, 2019.

MCA notified the following Sections of Companies (Amendment) Act, 2019 w.e.f. 14th August 2019:

Section No. of the Companies Amendment Act, 2019 Section No. of the Companies Act, 2013 Subject Matter
6 26 Matters to be Stated in Prospectus
7 29 Public Offer of Securities to be in Dematerialised Form
Subsection (i) (iii) (iv) of Section 14 90 (4) (9) (11) Register of significant beneficial owners in a company
20 132 Constitution of National Financial Reporting Authority.
31 212 Investigation into Affairs of Company by Serious Fraud Investigation Office
33 241 Application to Tribunal for Relief in Cases of Oppression, etc.
34 242 Powers of Tribunal
35 243 Consequence of Termination or Modification of Certain Agreements
37 272 Petition for Winding Up
38 398 Provisions Relating to Filing of Applications, Documents, Inspection, etc., in Electronic Form

II. SECURITIES AND EXCHANGE BOARD OF INDIA UPDATES:

A. SEBI CIRCULARS

1. SEBI Circular on Database for Distinctive Number (DN) of Shares – Action against non-compliant companies – Circular dated – 1st August, 2019

SEBI vide circular dated 1st August, 2019 issued directions to depositories and stock exchanges in case Company(s) have not complied with the following:

a) Regulation 75 of the SEBI (Depositories and Participants) Regulations, 2018 which mandates issuer or its agent to daily reconcile the records of dematerialized securities with all securities issued by them, and

b) SEBI circular CIR/MRD/DP/10/2015 dated June 05, 2015 directing the Issuers/RTAs to update Distinctive Number (DN) information in respect of all physical share capital and overall DN range for dematerialized share capital for all listed companies and take necessary steps if there is mismatch in the DN information.

SEBI has given the following directions w.e.f. 1st August 2019, except in the specific cases where moratorium on enforcement proceedings has been provided for under any Act, Court/ Tribunal Orders, etc:

  • Depositories shall freeze all the securities held by the promoters and directors of the non-compliant companies until the companies comply with the above-mentioned provisions.
  • Depositories shall not effect any transfer, by way of sale, pledge, etc., of any of the securities, held by the promoters and directors of such non-compliant companies.
  • Depositories shall freeze all related corporate benefits on the Beneficiary Owner a/c frozen as above.
  • The names of non-compliant companies shall be disseminated on the website of the exchanges / depositories.
  • Prior to revocation of suspension of trading of shares of any company, exchanges should ensure compliance by the company with the abovementioned circular and ensure availability of updated details of company’s promoters (especially their PAN) and directors (especially their PAN and DIN), apart from ensuring compliance with other applicable regulatory norms.

The circular is available at: –

https://taxguru.in/sebi/distinctive-number-shares-sebi-freeze-securities-promoters-directors.html

2. SEBI Circular on Streamlining issuance of SCORES Authentication for SEBI registered intermediaries – Circular dated 2nd August, 2019

SEBI vide circular dated 2nd August, 2019, partially modified Circular No. CIR/OIAE/1/2014 dated December 18, 2014 where-in SEBI had directed all Listed Companies and SEBI registered intermediaries (excluding Stock Brokers and Depository Participants) to send their details in order to obtain SCORES user id and password.

Now, generation of SCORES user id and password has been automated for all new SEBI registered intermediaries. Hence, these details shall be sent to such intermediaries, through an auto-generated e-mail, upon completion of process of online grant of registration by SEBI.

The SCORES user id and password details shall be sent to the e-mail id of the Contact Person/Compliance Officer as provided in the online Registration Form. In view of the same, newly registered intermediaries are no longer required to submit Form-B, as provided in Circular No. CIR/OIAE/1/2014 dated December 18, 2014, to SEBI.

The primary e-mail address in SCORES is the e-mail ID where all notifications related to SCORES complaints are sent to the SEBI registered intermediary. All existing and new SEBI registered intermediaries will now be able to update their primary e-mail address and registered address on their own.

All listed companies will continue to follow the process, as provided in CIR/OIAE/1/2014 dated December 18, 2014, for obtaining SCORES user id and password.

The circular is available at:-

https://taxguru.in/sebi/sebi-automates-generation-scores-user-id-password.html

3. SEBI Circular on disclosure of reasons for encumbrance by promoter of listed companies- Circular dated 7th August, 2019

  • SEBI vide its circular laid down additional disclosures to be made by the Promoter and PACs in case their combined encumbrance equals or exceeds:
    • 50% of their shareholding in the Company; OR
    • 20% of Total Share Capital of the Company.
  • Encumbrance to include pledge, lien, negative lien, non -disposal undertaking etc. or any other covenant, transaction, condition or arrangement in the nature of encumbrance.
  • In case existing combined encumbrance exceeds the above-mentioned limits as on 30th September, 2019, Initial Disclosure giving detailed reasons for encumbrance is to be made in the format prescribed in the circular by 4th October, 2019 to every stock exchange where shares are listed and to the Listed Company.
  • Stock Exchanges will maintain and disseminate separately the above disclosures on their website promptly.
  • Listed Entities shall also disclose the above disclosure on their website within 2 working days of receipt of such disclosure.

The provisions of this circular shall come into effect from 1st October, 2019.

The circular is available on website at: –

https://taxguru.in/sebi/disclosure-reasons-encumbrance-promoter-listed-companies.html

4. SEBI Circular on Non-compliance with certain provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”) – Circular dated 19th August, 2019

SEBI superseded an earlier circular bearing CIR/CFD/DIL/57/2017 dated June 15, 2017 and specified fines to be imposed by stock exchanges for non-compliance of certain ICDR Regulations as under:

Sr. No. Violation Regulation/ Schedule Fine
1. Delay in completion of a bonus issue:

Within 15 days from the date of approval of Board of Directors in case where shareholders’ approval for capitalization is not required OR Within 2 months from the date of the Board meeting wherein decision to announce bonus issue was taken subject to shareholders approval.

295(1) ₹ 20,000 per

day of non-compliance till the date of Compliance

2. Failure in completing the conversion of convertible securities and allotting the shares, within 18 months from the date of allotment of convertible securities. 162
3. Failure to make an application for listing, from the date of allotment, within such period as may be specified by the Board from time to time, to one or more recognized stock exchange(s)”.

In regard to above, it is specified that Issuer shall make an application to the exchange/s for listing in case of further issue of equity shares from the date of allotment within 20 days (unless otherwise specified).

Schedule XIX Listing of securities

on Stock Exchanges.

4. Failure by Listed entities to make an application for trading approval to the stock exchange/s within 7 working days from the date of grant of listing approval by the stock exchange/s.

The circular is available on SEBI website at:-

https://taxguru.in/sebi/non-compliance-provisions-sebi-issue-capital-disclosure-requirementsregulations2018-icdr-regulations.html

B. SEBI INFORMAL GUIDANCES

1. Informal Guidance on Regulation 33 (3) (b) of SEBI Listing Obligations and Disclosure Requirements) Regulation 2015

INFERENCE:

A listed entity not having any subsidiary but having only an associate is also required to submit quarterly consolidated financial results, consolidating the financials of such associate Company

FACTS:

1. Shriram Transport Finance Limited (“STFC”), a listed company. STFC does not have a subsidiary but an associate company, Shriram Automall India Limited (“SAMIL”), which is an unlisted public company and therefore not required to prepare financial results on quarterly basis as per Listing Regulations.

2. In terms of Regulation 33(3)(b) of SEBI Listing Regulations, the STFC is not required to submit quarterly consolidated financial results as it does not have any subsidiary and also it is not a parent company of SAMIL as per Accounting Standards. Further STFC is not in a position to cause SAMIL to prepare quarterly financial statements in terms of Regulation 33. Also, Auditor being different for both the Companies it would further lead to difficulties to carry out limited review of SAMIL on quarterly basis.

3. The revenue, total assets and profits of SAMIL are less than 20% of consolidated revenue, total assets and profits of STFC.

4. Section 129 requires the Company to prepare consolidated financial statements on annual basis and not on quarterly basis.

QUERIES:

1. Whether STFC is required to prepare and submit unaudited consolidated financial results for the first three quarters i.e. June 30, 2019, September 30, 2019 and December 31, 2019 and for each quarter for subsequent financial years;

2. Whether the submission of unaudited standalone financial results for the first three quarters i.e. June 30, 2019, September 30, 2019 and December 31, 2019 and for each quarter for subsequent financial years would comply with Regulation 33(3)(b) of Listing Regulations.

SEBI’S VIEWS ON THIS MATTER:

Pursuant to the amendment to Regulation 33(3)(b) w.e.f 1st April, 2019, it has become mandatory for listed companies to file consolidated financial results quarterly/year-to-date in accordance with the format as specified in SEBI Circular No. CIR/CFD/FAC/62/2016 dated 5th July, 2016 which specifies consolidation of financial statements of subsidiaries / associates / joint ventures. Accordingly, if the listed company has subsidiaries or associates it will have to submit quarterly/year-to-date consolidated financial results.

C. SEBI ORDERS

1. Adjudication Order in the matter of International Conveyers Ltd (ICL) under SEBI (Prohibition of Insider Trading) Regulation, 1992 and SEBI (SAST) Regulations, 1997 – SYNOPSIS

  • Improper closure of trading window.

In the mentioned case, the Board meeting of International Conveyers Ltd (the Company) was held on June 29, 2009 and announcement about financial results was made on June 29, 2009 whereas for dividend on June 30, 2009 at 12:39:45.

Pursuant to Code of Conduct of the Company, the trading window should have been closed till July 1, 2009 (i.e. 24 hours after the information was made public as Dividend announcement was made on June 30, 2009) however it was closed from June 24, 2009 till June 30, 2009.

  • Acquisition of shares during closure of trading window:

a) The shareholding of RCA Ltd. (Promoter) increased from 4995 shares (0.15%) in quarter ended June 2009 to 1,06,376 shares (3.15%) in quarter ended September 2009. He purchased 235 shares on July 1, 2009 (after closure of trading window).

b) The promoter failed to make necessary disclosure under SAST Regulations as the holding was increased by 2%.

c) The Managing Director traded during June 13, 2009 to June 26, 2009 purchasing 6665 shares during the trading window closure.

Order of SEBI:

Noticee Order Reason Penalty
The Company Under PIT Regulations- Not guilty The Company had put in place the Model Code of Conduct as specified under PIT Regulations, 1992
RCA Ltd (Promoter of the Company) Under PIT Regulations- Not guilty The trading window closure period disclosed by the Company was till 30th June, 2009 and the promoter traded on 1st July, 2009. The promoter was not aware that the trading window closure period was not as per the law.
Under SAST Regulations- Guilty The holding of the promoter crossed 2% of the share capital on 20th July, 2009 which required the promoter to make disclosure under Regulation 7(1A) of SAST Regulations, 1997. Under Section 15A(b) of SEBI Act, 1992-

Rs. 4 lakhs

Mr. Rajendra Kumar Dabriwala (Promoter and Managing Director) Under PIT Regulations- Guilty – The Managing Director is responsible for ensuring compliance of trading window closure. Under Section 15HB of SEBI Act, 1992-

Rs. 4 lakhs

– Trading during the trading window closure period. Under Section 15G of SEBI Act, 1992-

Rs. 45 lakhs.

Ms. Alka Malpani (Compliance Officer) Under PIT Regulations- Guilty Failed to implement the Code of Conduct Under Section 15HB of SEBI Act, 1992-

Rs. 4 lakhs

The order is available on SEBI website at:

https://www.sebi.gov.in/enforcement/orders/jul-2019/adjudication-order-against-rca-ltd-in-the-matter-of-international-conveyers-ltd_43766.html

2. Settlement Order with respect to Shri Chhabi Lal Prasad in the matter of JHS Svendgaard Laboratories Ltd (“Company”)

Non-Compliance of Lock-In requirements:

  • In the mentioned case, Shri Chabbi Lal Prasad (“applicant”) held 17,927 shares in the Company.
  • Applicant was further allotted 44,748 convertible warrants on January 5, 2016 and hence pre-preferential shares held by him were locked in till December 31, 2016 pursuant to Regulation 78(2) of ICDR Regulations, 2009.
  • Out of the above allotted warrants, applicant converted 24,748 warrants into equity shares on March 3, 2016 and therefore these shares were locked in till April 30, 2017
  • However, the entire pre-preferential holding (17,927+24,748) was to be locked in till April 30, 2017 but the applicant sold 8,727 shares upon expiry of previous lock in for 17,927 shares during the lock in period.
  • Upon realizing breach of lock in requirements, the applicant suo moto filed for settlement and paid settlement amount which was considered by the High Powered Advisory Committee Further SEBI did not initiate any proceedings against the applicant.

The order is available on SEBI website at:

https://www.sebi.gov.in/enforcement/orders/aug-2019/settlement-order-with-respect-to-shri-chhabi-lal-prasad-in-the-matter-of-jhs-svendgaard-laboratories-ltd-_43800.html

3. Exemption order under regulation 11 of SEBI (SAST) Regulations, 2011 in the matter of Patel Engineering Limited

Exemption from Open Offer:

Patel Engineering Limited (“Target Company”) was undergoing Strategic Debt restructuring scheme (SDR), in pursuance to which the members of lenders forum were allotted 51.08% paid up equity shares, thereby decreasing the promoter shareholding from 50.63% to 24.77%.

Due to persistent financial crunch, it was decided to infuse fresh capital through right issue and in case of right issue not being fully subscribed, the Promoters agreed to subscribe to any unsubscribed portion, which would have resulted in the aggregate shareholding of the promoter group to exceed 25% under Regulation 3(1) of the Takeover Regulations.

Hence, the promoters submitted an application for seeking exemption from mandatory open offer in the event of them breaching 25% threshold and the same was granted on the grounds of observations and in the larger interest of the Securities Market.

The order is available on SEBI website at:

https://www.sebi.gov.in/enforcement/orders/aug-2019/exemption-order-under-regulation-11-of-sebi-sast-regulations-2011-in-the-matter-of-patel-engineering-limited_43865.html

4. SAT order in the matter of SPL Industries Limited versus BSE Limited

Partial compliance of Regulation 33 of Listing Regulations

Unintentional Failure on part of the Company to include the Audit Report in the Financial Results in XBRL uploaded on BSE website, for which BSE imposed fine of Rs. 5,54,600. However SAT reduced the penalty to Rs. 2,50,000 on the grounds that there was no deliberate intention to violate the Regulation but an inadvertent mistake, by a human error.

5. Order of SAT in the matter of NDTV Limited and others

Companies should disclose the material events promptly and ensure that they are available in public domain

SAT upheld the order of SEBI penalising the Company and its Directors for non- disclosure of tax demand on the grounds that any information which have effect on the operations of the Company is price sensitive and must be disclosed immediately to the Stock exchange.

However, penalty levied on Compliance Officer was reversed on the grounds that being an employee the Compliance Officer works under the direction of Board/Managers of the Company.

In the same matter SAT inferrred that it is the obligation of the Company to ensure that all the disclosures are available in Public Domain and mere couriering the same to the Stock exchange is not complete compliance.

The order is available on SEBI website at:

http://sat.gov.in/english/pdf/E2019_JO2018150.PDF

6. Adjudication order in respect of Swaminathan Muthukrishnan in the matter of Bodhtree Consulting Ltd

The Independent Director (“Designated Person”) remitted the profits made out of contra trade to SEBI – IPEF A/c – No penalty imposed.

SEBI in the above matter did not impose any penalty on the designated person who entered into contra-trade during the prohibition period as mentioned in the Company’s code of conduct because he remitted the profit out of such contra trade to SEBI IEPF account as a remedial measure provided in the Company’s code of violated the code of conduct.

The order is available on SEBI website at:

https://www.sebi.gov.in/enforcement/orders/aug-2019/adjudication-order-in-respect-of-swaminathan-muthukrishnan-in-the-matter-of-bodhtree-consulting-ltd_44039.html

D. OUTCOME OF SEBI BOARD MEETING

Important decision taken by SEBI in its Board Meeting held on 21st august, 2019:

1. Review of Buy-back

  • Continuation of provision permitting buyback if post buyback debt to equity ratio is not more than 2:1 (except for companies for which higher debt to equity has been notified under the Companies Act, 2013) based on both standalone and consolidated basis.
  • However, If post buy-back debt to equity ratio is not more than 2:1 on standalone basis and exceeding 2:1 on consolidated basis, buy-back would be permitted if:
    • Post buyback debt to equity ratio is not more than 2:1 on consolidated basis after excluding the subsidiaries that are NBFC and HFC and are regulated by RBI or National Housing Bank
    • All such excluded subsidiaries have debt to equity ratio of not more than 6:1 on standalone basis

2. Prohibition of Insider Trading Regulations-Informant Mechanism

SEBI developed an Informant mechanism approving the amendments to SEBI (Prohibition of Insider Trading) Regulations, 2015, salient features of which are as under:

  • Separate office of SEBI will be established wherein an informant can voluntarily submit the form with an undertaking that it is not sourced from SEBI/other regulator with hotline facilities.
  • Identity of the complainant/ informant can be revealed at the time of submission of form or kept anonymously through representatives who should be an advocate. In such cases, advocate to verify the identity of the person;
  • The original Information would be processed by the OIP after establishing the materiality of the information and transferred to the operational department;
  • Reward would be given in case the information provided leads to a disgorgement of at least Rupees one crore. The reward would be 10% of the amount disgorged subject to a cap of Rs one crore.
  • Market participants dealing with UPSI would be required to incorporate in their Code of Conduct, suitable provisions to ensure that no employee who files a VIDF is discharged, terminated, demoted, suspended, threatened, harassed, or discriminated against.
  • While bringing an action against an informant, SEBI may consider the cooperation rendered in determining any enforcement action or settlement application while granting of reward to such informant.

The above decisions are yet to be formalised by SEBI through gazetted notification.

3. SEBI (Credit Rating Agencies) Regulations, 1999

Amid IL & FS Fiasco/ concerns over banks citing ‘client confidentiality’ to resist sharing of information on delayed loan repayments and possible defaults by their borrowers, SEBI has announced new norms to make it mandatory for companies to provide these details to Credit Rating Agencies.

Rating agencies have often sought to shift the blame to companies and lenders by claiming that they find it difficult to get information about delay in meeting bank obligations and payment failures which are considered early indicators of a default.

Enabling provision has been made in the rating agreement between the Credit Rating Agency (“CRA”) and the issuer/ client, providing explicit consent to the CRA to obtain details of the existing and/ or future borrowing of the issuer, its repayment and any delay or default in servicing of such borrowing, either from the lender or any other statutory/ non-statutory organisation maintaining any such information.

4. SEBI (Mutual Fund) Regulations

Approved amendments to prudential norms for Investment and Valuation of Debt and Money Market instruments by Mutual Funds.

Simplify and rationalize the existing regulatory framework for FPIs in terms of easing the operational constraints and compliance requirement

Norms for permitting companies listed on the Innovators Growth Platform with an option to trade under regular category if:

  • Company is listed for 1 year on such platform;
  • Minimum 200 shareholders;
  • Profitability/ net worth track record of 3 years or have 75% of its capital held by QIB;
  • Minimum promoter’s contribution shall be 20% which shall be locked in for 3 years. Period of earlier lock-in of 6 months served at the time of listing on IGP shall be deducted from the stipulated lock-in requirement of 3 years.

III. NATIONAL COMPANY LAW TRIBUNAL (NCLT) – ORDERS/ JUDGEMENTS

1. NCLT : Rejects Deloitte & BSR’s ‘literal’ interpretation plea, holds Sec. 140(5) applies to past auditors

  • The Mumbai bench of the National Company Law Tribunal (“NCLT”) has reiterated its jurisdiction to decide on imposing a ban on audit firms Deloitte and BSR Associates. NCLT ruled against audit firms Deloitte and BSR on their petition challenging the jurisdiction of NCLT over them in IL&FS case, and decisively rejects their key contention that Sec. 140(5) of Companies Act, 2013 only deals with removal/change of an existing auditor and cannot apply to a past Auditor or an Auditor who has resigned during the pendency of the petition before NCLT;
  • NCLT interpretation to Sec. 140(5), was based on SC ruling in Carew & Co. Ltd. vs. Union of India to hold that “only literal interpretation cannot be taken to interpret the statutory provision but a pragmatic approach has to be applied…if the person can escape the liability of Section 140(5) of the Companies Act, only by resigning from the post of auditor then the entire purpose of law will be defeated”;
  • NCLT held that “the intention of the legislature was that the auditor be not eligible to be appointed as an auditor in any company for a period of 5 years, in case the Tribunal is satisfied that the auditor has inter alia acted in a fraudulent manner”;
  • NCLT thus concluded that “This interpretation can’t be accepted that if an Auditor has resigned during the pendency of the petition, then he would be saved from being debarred for five years from being the auditor of any company”.

NCLT to hear MCA’s application seeking a five year ban on these auditors afresh on September 5, 2019.

IV. KNOWLEDGE MANAGEMENT UPDATES

Highlights on recent Bills passed by Parliament in its 17th session

  • The Consumer Protection Bill 2019 (“Bill”) passed by Parliament on August 6, 2019 and being effective on the same date seeks to protect the rights and interests of the consumers by bringing misleading advertisements telemarketing, multi-level marketing, direct selling, e-commerce frauds, unfair trade and unethical business practices under the scanner of the Central Government. It also provides for the timely and effective administration and settlement of consumers’ disputes.
  • The Second National Commission on Labour in its report in June 2002, had recommended that the existing labour laws should be amalgamated, in pursuance to same, it has been decided to amalgamate, simplify and rationalize the relevant provisions of the four central labour enactments. Hence Code on Wages, 2019 was introduced and passed by both Lok Sabha and Rajya sabha in August. It seeks to regulate wage and bonus payments in all employments where any industry, trade, business, or manufacture is carried out.
  • The penalty clauses in definite term employment agreement with no objective reason is valid only for the duration of the agreement.
  • The Ministry of Consumer Affairs, Food and Public Distribution has published draft E-Commerce Guidelines for Consumer Protection 2019 to regulate the e-commerce sector in India (“Guidelines”). The ministry has invited views/comments/suggestions on the Guidelines from stakeholders latest by September 16. The Guidelines are expected to focus on fraud prevention, clamping down on unfair trade practices and to protect the interests of consumers.

V. OTHER REGULATORY UPDATES

1. Recognition to Company Secretaries to act as Arbitrator under the Arbitration and Conciliation (Amendment) Act, 2019

Company Secretaries having 10 years of experience in Practice can now act as Arbitrator pursuant to amendment to the Arbitration and Conciliation (Amendment) Act, 2019.

Link to the Amendment Act:

 https://taxguru.in/corporate-law/arbitration-conciliation-amendment-act-2019.html

2. Decisions taken by the Council of the ICSI at its meeting held on 7th August, 2019

  • Launching of certificate course on Forensic Audit was approved by the council for the Members and Professional level students of the ICSI. The aim is to acquaint ICSI members with the Forensic Audit domain considering the increase in financial frauds.
  • Launching of certificate course on Arbitration, Conciliation etc. in order to build capacity of members in the area of arbitration and conciliation.

3. Circular on External Commercial Borrowings (ECB) Policy – Rationalisation of End-use Provisions – 30th July, 2019

In pursuance to Master Direction No.5 dated 26th March, 2019 on External Commercial Borrowings (ECB), Trade Credits and Structured Obligations, ECB proceeds were not allowed to be utilised for working capital purposes, general corporate purposes and repayment of Rupee loans except when the ECB is availed from foreign equity holder for a minimum average maturity period of 5 years. Further, on-lending for these activities out of ECB proceeds is also prohibited.

With a view to further liberalise the ECB framework, it has been decided, in consultation with the Government of India, to relax the end-use restrictions.

Accordingly, eligible borrowers will now be permitted to raise ECBs for the following purposes from recognised lenders, except foreign branches/ overseas subsidiaries of Indian banks, subject to limits laid down:

  • ECBs with a minimum average maturity period of 10 years for working capital purposes and general corporate purposes. Borrowing by NBFCs for the above maturity for on lending for the above purposes is also permitted.
  • ECBs with a minimum average maturity period of 7 years can be availed by eligible borrowers for repayment of Rupee loans availed domestically for capital expenditure as also by NBFCs for on-lending for the same purpose. For repayment of Rupee loans availed domestically for purposes other than capital expenditure and for on-lending by NBFCs for the same, the minimum average maturity period of the ECB is required to be 10 years.
  • Eligible corporate borrowers are permitted to avail ECB for repayment of Rupee loans availed domestically for capital expenditure in manufacturing and infrastructure sector if classified as SMA-2 or NPA, under any one-time settlement with lenders. Lender banks are also permitted to sell, through assignment, such loans to eligible ECB lenders, except foreign branches/ overseas subsidiaries of Indian banks, provided, the resultant external commercial borrowing complies with all-in-cost, minimum average maturity period and other relevant norms of the ECB framework.

The prescribed minimum average maturity provision, as above, for the aforesaid end-uses will have to be strictly complied with under all circumstances.

4. Insolvency and Bankruptcy Code – Update:

Insolvency and Bankruptcy (Amendment) Act, 2019 – notified on 16th August, 2019

  • Resolution Plan may now include provisions for the restructuring of the corporate debtor by way of merger, amalgamation and demerger etc.
  • Maximum period for completion of insolvency process of corporate debtor enhanced to 330 days (earlier maximum was 270 days).

VI. IN THE NEWS

1. SEBI asks Stock Exchanges to draw up framework on fines

Market regulator the Securities and Exchange Board of India (Sebi) has asked stock exchanges to come up with a uniform framework to levy penalties on brokers who report incorrect margins. In a circular issued on Thursday, the regulator said the framework should impose higher fines on repeat offenders.

Read more at:

https://economictimes.indiatimes.com/markets/stocks/news/sebi-asks-ses-to-draw-up-framework-on-fines/articleshow/70492111.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

2. Ministry keeps new CSR amendments on hold

Corporate India may have cause for cheer as regards the proposed onerous CSR provisions. This is because the Corporate Affairs Ministry (MCA) has refrained from putting into effect the controversial CSR amendments in the recently enacted Companies (amendment) Act 2019 while going ahead with implementation of all other provisions in the amendment law.

By keeping the implementation of Section 21 (amendments to the CSR provisions in Companies Act 2013) in abeyance, the government has restored status quo ante as regards CSR provisions, say company law experts.

This would mean that not spending the 2 per cent on CSR would not be treated as criminal offence, attracting jail term for company officials.

However, this position will only hold true till the time government takes a call on the recommendations of the high level panel on CSR headed by MCA Secretary Injeti Srinivas, it is learnt. It may be recalled that the Panel report was submitted to Finance Minister Nirmala Sitharaman after Parliament had passed the Companies (amendment) Bill 2019.

Read more at:

https://www.thehindubusinessline.com/economy/policy/ministry-keeps-new-csr-amendments-in-abeyance/article29127073.ece

3. Union Cabinet extends 26% FDI to digital media

Union Cabinet has approved 26% FDI (foreign direct investment) to digital media platforms.

This essentially means, for example that video streaming services like VOOT or ZEE5 that are run by broadcast networks like Zee Entertainment Enterprises Ltd or Viacom18 Media Pvt Ltd may now be listed as separate companies and raise their own investment.

Read more at:

https://www.livemint.com/politics/policy/union-cabinet-extends-26-fdi-to-digital-media-1567003425058.html

Thank you for reading

Released under the overall guidance of Ms. Brijbala Batwal. Collation and Preparation by Sheetal Jain and Supriya Naik with Inputs from Romali Malvankar

Disclaimer: All views in this Newsletter are expressed by the concerned individuals only and are not the views of the Department or the Company they are employed with. Please refer to the legal provisions for details/ before implementation.

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