Covid 19 cases in India are inching closer to 2 Lakh cases. The Hon’ble PM has made announcement on May 12, 2020 of the special economic package of Rs. 20 lakh Crores (~USD 267 billion) i.e. approximately 10% of India’s Gross Domestic Product (GDP) and the call for building a self-reliant (Atmanirbhar Bharat) India., with the Finance Minister announcing the package allocation aimed at supporting employment, health, education and business during COVID-19, facilitating the ease of doing business and the building of a road map for the public sector to increase participation in economic activity in the country.
CRISIL has forecasted India’s GDP growth to fall off a cliff and contract 5% in fiscal 2021. To catch-up would require average GDP growth to surge to 11% over the next three fiscals, something that has never happened before.
The three pillars for the Corporate World to drive topline and customer trust in light of COVID-19 crisis being talked about are Re-Strategize across sectors & geographies; Re-imagine operating models for new Reality; and Re-define customer value proposition. Digital transformation being the way forward.
The Key synopsis of some of the key amendments/ updates relevant to Corporates in the month of May 2020 is as under:
1. SEBI Advisory on disclosure of material impact of COVID-19 pandemic on listed entities – dated May 20, 2020.
2. Additional compliance relaxations under Listing Regulations like exemption from sending physical /printed copies of Annual Report to shareholders, publication of Financial results in newspapers, notice of Board meetings.
3. Temporary relaxation on applicability of SEBI Circular pertaining to non-compliance of the Minimum Public Shareholding (MPS) requirements of 25%– dated May 14, 2020.
4. Procedural relaxations to facilitate Right Issues, buy backs, Takeovers in Covid times.
1. Permission to Companies to Hold Annual General Meeting through video conferencing or other audio-visual means – dated May 5, 2020;
2. Inclusion of PM CARES Fund in Schedule VII of Companies Act, 2013 – dated May 26, 2020
RBI Circular dated 23 May 2020 relaxing repayment pressures and improving access to working capital by mitigating the burden of debt servicing. Amongst others, permitted banks/ NBFCs for a further 3 month moratorium. i.e. from June 1 to August 31, 2020, on the payment of instalments in respect of term loans outstanding as on March 31, 2020.
Pursuant to the Supreme Court’s directions dated April 06, 2020, several High Courts have issued directions and guidelines regarding the conduct of hearings via videoconferencing (VC) (VC Hearings) for themselves as well their subordinate courts. Until recently, the preferred platform for conducting court proceedings appeared to be ‘Zoom’. However, following the Union Ministry of Home Affairs’ advisory dated 12 April 2020 declaring ‘Zoom’ as unsafe (MHA Advisory), certain High Courts have opted to discontinue the use of ‘Zoom’.
|Sr. No.||Particulars||Amendments – Snapshot (May 2020)|
|I.||MINISTRY OF CORPORATE AFFAIRS (“MCA”) UPDATES|
|1.||Holding of Annual General Meeting through video conferencing or other audio-visual means – dated May 5, 2020||AGMs can be held through VC or OAVM for meetings conducted during calendar year 2020|
|2.||MCA’s reprieve on postal delivery of notices of rights issue to shareholders – dated May 11, 2020||Compliance with sending notice for rights issue through postal or courier services is not mandatory for issues opening upto July 31, 2020|
|3.||Extension of period for names reserved and Resubmission of forms – dated May 21, 2020||Extension with respect to filing of various ROC forms has been provided|
|4.||Inclusion of PM CARES Fund in Schedule VII of Companies Act, 2013 – dated May 26, 2020||Companies can now incur CSR expenditure by way of contribution to PM CARES Fund|
|II.||SECURITIES AND EXCHANGE BOARD OF INDIA UPDATES|
|1.||Relaxations relating to procedural matters – Issues and Listing – dated May 6, 2020||Relaxation in terms of mode of dispatch of offer related documents and institution of mechanism(s) to enable physical shareholders to make an application|
|2.||Securities Exchange Board of India (Payment of Fees) (Amendment) Regulations, 2020 – dated May 8, 2020 (effective from June 1, 2020 to December 31, 2020)||Reduction in fees to be paid with respect to public issue, rights issue, buy-back of securities|
|3.||Additional relaxation in relation to compliance with certain provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 – Covid-19 pandemic – dated May 12, 2020
(effective for a limited time period)
|Relaxation in terms of sending of hard copy of certain documents, proxy forms and publication of advertisement etc.|
|4.||Relaxation on applicability of SEBI Circular pertaining to non-compliance of the Minimum Public Shareholding (MPS) requirements – dated May 14, 2020
(effective for a limited time period)
|SEBI grants relaxation from applicability of requirement of Minimum Public Shareholding for 6 months
|5.||Relaxations relating to procedural matters – Takeovers and Buy-back – dated May 14, 2020 (for open offers and buy-back tender offers opening upto July 31, 2020)||Relaxations pertaining to publishing of letter of offer and tender forms and related advertisements|
|6.||Advisory on disclosure of material impact of COVID-19 pandemic on listed entities – dated May 20, 2020||Advisory on disclosure of material impact of COVID–19 pandemic on listed entities under Listing Regulations|
|7.||Implementation of Circular on ‘Margin obligations to be given by way of Pledge / Re-pledge in the Depository System’ – Extension – dated May 25, 2020||Extension provided upto August 30, 2020, except for implementation of provisions pertaining to POA|
|8.||Press Release a news item regarding use of POA by brokers – dated May 26, 2020||SEBI confirmed that there is no restriction imposed on use of POA by broker.|
|III.||SEBI INFORMAL GUIDANCES|
|1.||Informal Guidance in case of Minda Industries Limited – Amalgamation scheme -Clarification on restatement of financial statements|
|IV.||OTHER REGULATORY UPDATES|
|1.||COVID-19 Regulatory intervention and relief on Corporate borrowings – RBI||Moratorium of 3 months has been provided on payment of all instalments in respect of term loan and others.|
|2.||Fiscal Stimulus – announced by the Prime Minister – ‘Atmanirbhar’ package’||Prime Minister announced special package to build Atmanirbhar / Self Reliant India|
|3.||Implementation of Directions on Hedging of Foreign Exchange Risk-Date – dated May 18, 2020||The said direction will now come into effect from September 1, 2020|
|4.||Extending Master Direction – Know Your Customer (KYC) Direction, 2016 to Housing Finance Companies – dated May 18, 2020||KYC norms are now applicable to Housing Finance Companies|
ANNUAL GENERAL MEETINGS THROUGH VIDEO CONFERENCING
Ministry of Corporate Affairs (“MCA”) vide its Circular dated May 5, 2020, has allowed the Companies to conduct its Annual General Meeting (“AGM”) through Video Conferencing (“VC”) or through other audio-visual means (“OAVM”) during calendar year 2020, in similar way as it had allowed to conduct Extra-ordinary General Meeting (“EGM”) vide earlier circulars dated April 8, 2020 and April 13, 2020.
|Sr. No.||For Companies mandatorily required to provide e-voting & companies who has opted for e-voting||For other companies|
|1.||For Both category of Companies: Framework mentioned in para 3-A & 3-B of EGM Circular – I (dated April 8, 2020) respectively and the manner and mode of issuing notices provided in sub-para (i)-A & (i)-B of EGM Circular – II (dated April 13, 2020) shall be applicable mutatis mutandis for conducting the AGM|
|2.||For Both category of Companies: Other than ordinary business, only those items of special business, which are considered to be unavoidable by the Board, may be transacted.|
|3.||For Both category of Companies: The financial statements (including Board’s report, Auditor’s report or other documents required to be attached therewith), shall be sent only by email to the members, debenture trustees, and to all other persons so entitled (instead of dispatching physical copies).|
|4.||Before sending the Notices and Copies of Financial statements, a public notice by way of advertisement (specifying details as mentioned in the circular) be published at least once in a vernacular newspaper and at least once in English language.||Companies having e-mail addresses of at least 50% of its shareholders on its records, may conduct AGM through VC or OAVM who: –
|2.||In case, the company is unable to pay the dividend to any shareholder by the electronic mode, due to non-availability of the details of the bank account, the company shall upon normalization of the postal services, dispatch the dividend warrant/cheque to such shareholder by post.||The company shall take all necessary steps to register the email addresses of all persons who have not registered their email addresses with the company.|
|3.||In case, the company has received the permission from the relevant authorities to conduct its AGM at its registered office, or at any other place as provided under section 96 of the Act, after following any advisories issued from such authorities, the company may in addition to holding such meeting with physical presence of some members, also provide the facility of VC or OAVM, so as to allow other members of the company to participate in such meeting. All resolutions shall continue to be passed through the facility of e-voting system.||The companies shall make adequate provisions for allowing the members to give their mandate for receiving dividends directly in their bank accounts through the Electronic Clearing Service (ECS) or any other means. For shareholders, whose bank accounts are not available, company shall upon normalization of the postal services, dispatch the dividend warrant/cheque to such shareholder by post.
The Companies referred above, shall ensure that all other compliances associated with the provisions relating to general meetings viz; making of disclosures, inspection of related documents/registers by members, or authorizations for voting by bodies corporate, etc as provided in the Act and the articles of association of the company are made through electronic mode.
The Companies which are not covered in General Circular No. 18/2020, dated April 21, 2020 and are unable to conduct their AGM in accordance with the frame provided in this Circular are advised to prefer applications for extension of AGM at suitable point of time before the concerned Registrar of Companies under section 96 the Act.
Link to the circular:
Rights issue is governed by the provisions of Section 62 of the Companies Act, 2013. Section 62(2) provides for dispatching for notice of rights issue consisting of letter of offer through registered post or speed post or through electronic mode or courier or any other mode having proof of delivery.
MCA has also clarified vide its Circular dated 11th May 2020 that in case of rights issues opening upto 31st July 2020, in case of listed companies, which comply with the aforementioned SEBI Circular dated 6th May 2020, inability to send the notice of rights issue consisting of letter of offer through registered post or speed post or courier would not be viewed as violation of section 62(2) of the Companies Act, 2013.
The said relaxation/ clarification was provided by Ministry of Corporate Affairs (“MCA”) vide circular dated May 11, 2020, in view of difficulties faced by companies in sending notices through postal or courier services on account of threat posed by COVID-19. There is little bit of ambiguity in the circular since it doesn’t clarify on what steps are to be taken if the letter of offer be dispatched only by email especially to the shareholders whose emails are not registered with the Company.
Link to the circular:
Ministry of Corporate Affairs (“MCA”) has further extended the period for names reserved and resubmission of forms which is specified as follows:
|S. No.||Issue description||Period/Days of Extension|
|1.||Names reserved for 20 days for new company incorporation. SPICe+ Part B needs to be filed within 20 days of name reservation.||Names expiring any day between March 15, 2020 to May 31, 2020 would be extended by 20 days beyond May 31, 2020.|
|2.||Names reserved for 60 days for change of name of company. INC-24 needs to be filed within 60 days of name reservation.||Names expiring any day between March 15, 2020 to May 31, 2020 would be extended by 60 days beyond May 31, 2020.|
|3.||Extension of RSUB validity for companies.||SRNs where last date of Resubmission (RSUB) falls between March 15, 2020 to May 31, 2020, additional 15 days beyond May 31, 2020 would be allowed. However, for SRNs already marked under NTBR, extension would be provided on case to case basis.
Note: Forms will not get marked to (Not to be taken on Record) ’NTBR’ due to non-resubmission during this extended period as detailed above. It also includes IEPF Non-STP eForms (IEPF-3, IEPF-5 and IEPF-7)
|4.||Names reserved for 90 days for new LLP incorporation/change of name. FiLLiP/Form 5 needs to be filed within 90 days of name reservation.||Names expiring any day between March 15, 2020 to May 31, 2020 would be extended by 20 days beyond May 31, 2020.|
|5.||RSUB validity extension for LLPs.||SRNs where last date of resubmission (RSUB) falls between March 15, 2020 to May 31, 2020, additional 15 days would be allowed from May 31, 2020 for resubmission. However, for SRNs already marked under NTBR, extension would be provided on case to case basis.
Note: Forms will not get marked to (Not to be taken on Record)’NTBR’ due to non-resubmission during this extended period as detailed above.
|6.||Extension for marking IEPF-5 SRNs to ‘Pending for Rejection u/r 7(3)’ and ‘Pending for Rejection u/r 7(7)’
|SRNs where last date of filing eVerification Report (for both Normal as well as Re-submission filing) falls between March 15, 2020 to May 31, 2020, would be allowed to file the form till Sep 30, 2020. However, for SRNs already marked under ‘Pending for Rejection u/r 7(3)’ and ‘Pending for Rejection u/r 7(7)’, extension would be provided on case to case basis.
Note: Status of IEPF-5 SRN will not change to ‘Pending for Rejection u/r 7(3)’ and ‘Pending for rejection u/r 7(7)’ till 30th Sep’20.
Link to the circular: https://taxguru.in/company-law/extension-names-reserved-resubmission-forms-mca.html
Synopsis: Ministry of Corporate Affairs (“MCA”) had vide its FAQs dated April 10, 2020, clarified that the contribution made to Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund)’ will be admissible as a CSR expenditure.
MCA has now inserted the said contribution to PM CARES Fund in Schedule VII (Activities which may be included by companies in their Corporate Social Responsibility Policies) of Companies Act, 2013 vide its notification dated May 26, 2020.
Link to the notification:
In view of the impact of the COVID-19 pandemic and the lockdown measures undertaken by Central and State Governments, Securities Exchange and Board of India (“SEBI”) had vide circular dated May 6, 2020, granted with immediate effect the following one time relaxations from strict enforcement of certain regulations of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, pertaining to Rights Issue opening upto July 31, 2020:
|1.||Mode of Dispatch
of Abridged letter of offer, application form and other issue
material to shareholders
√ Adequate steps to be taken to reach out to its shareholders through other means such as ordinary post or SMS or audio-visual advertisement on television or digital advertisement, etc.;
√The issue related advertisement shall contain additional details as regards the manner in which the shareholders who have not been served notice electronically may apply;
√ All the above documents and advertisement should be published on the websites of the company, registrar, stock exchanges and lead managers to the rights issue (advertisements can be made in television channels, radio, internet etc.).
|2.||In case of physical shareholders who do not have a demat account or have not communicated the demat details to Issuer/ RTA||The following conditions needs to be adhered by the issuer along with the lead manager(s) and other intermediary to enable physical shareholders to submit their application:
|3.||Institution of an optimal mechanism (non cash mode only) by issuer along with lead manager(s) to the issue, the registrar, and other recognized intermediaries||For enabling all eligible shareholders to apply to rights issue during COVID-19 pandemic a mechanism in this regard to be instituted and no third party payments shall be allowed in respect of any application.
|4.||Mechanism as mentioned in point 1 & 2 above||
|5.||Relaxations granted for all offer documents filed until July 31, 2020
Link to the circular:
Securities and Exchange Board of India (“SEBI”) has notified on May 8, 2020 the SEBI (Payment of Fees) (Amendment) Regulations, 2020, which shall come into force on June 1, 2020 and will be effective till December 31, 2020 with respect to the following. The relevant amendments are as under:
> SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018:
For Public Issue – Fees to be paid along with draft offer document/ draft letter of offer or offer document in schedule III after the existing table in clause 2(a):
|Size of the issue, including intended retention of over-subscription||Amount / Rate of fees||Amount / Rate of fees for filing within one year after expiry of SEBI Observation letter|
|Less than or equal to Rs. 10 crores||A flat charge of Rs. 50,000||A flat charge of Rs. 25,000|
|More than Rs. 10 crores but less than or equal to Rs. 5000 crores||0.05 per cent. of the issue size.||0.025 per cent of the issue size.|
|More than Rs. 5000 crores||Rs. 2,50,00,000 plus 0.0125 per cent. of the portion of the issue size in excess of Rs. 5000 crores||Rs. 1.25 crores plus 0.00625 per cent. of the portion of the issue size in Rs. 5000 crores|
For Rights Issue – Fees to be paid along with draft offer document/ draft letter of offer or offer document in Schedule III after the existing clause 2(b):
|Size of the issue, including intended retention of over-subscription||Amount / Rate of fees||Amount / Rate of fees for filing within one year after expiry of SEBI Observation letter|
|Less than or equal to Rs. 10 crores#||A flat charge of Rs. 25,000||A flat charge of Rs. 12,500|
|More than Rs. 10 crores#||0.025 per cent. of the issue size.||0.0125 per cent of the issue size.|
|# to be read as Rs. 25 crores with effect from April 21, 2020 as SEBI through its circular granted following relaxation from filing of draft offer document for right issue that open on or before March 31, 2021:
Listed entities raising funds upto INR 25 crores in a rights issue will not be required to file draft offer document. The existing threshold in this regard is INR 10 crores.
Every merchant banker while submitting the offer document or a copy of public announcement to SEBI, pay fees as prescribed:
|Offer Size||Fee (Rupees)|
|Less than or equal to Rs. 10 crores||Rs. 2,50,000/-|
|More than Rs. 10 crores but less than or equal to Rs. 1,000 crores||0.25 per cent of the offer size|
|More than rupees Rs. 1,000 crores||Rs. 2.5 crores plus 0.0625 per cent of the portion of offer size in excess of Rs. 1,000 crores|
Synopsis: Ministry of Corporate Affairs (“MCA”) had vide several circulars allowed conducting of Extra-ordinary General Meeting (“EGM”) and Annual General Meeting (“AGM”) (circulated dated May 5, 2020) through Video Conferencing (VC) or through other audio-visual means (OAVM) (hereinafter referred to as ‘electronic mode’) and also dispensed the requirement of printing and despatch of annual reports to the shareholders.
In line with the above, Securities Exchange and Board of India (“SEBI”) also had vide a circular dated May 12, 2020 granted the following additional relaxations from complying with certain provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (“SEBI LODR”), in view of CoVID-19 pandemic:
|Sr. No.||Regulations||Relaxations provided||Applicability|
|1||Regulations 36 (1)(b) and (c) & 58 (1) (b) and (c)||Requirement of sending hard copy of the statement containing salient features of all documents as prescribed in Section 136 of the Companies Act, 2013 to the requisite shareholders, Non-Convertible Preference Shares (NCRPS) and Non-Convertible Debentures (NCDs) has been dispensed.||listed entities who conduct their AGMs during the calendar year 2020 (i.e. till December 31, 2020);|
|Regulation 44(4)||Requirement of sending of proxy forms to holders of securities in all cases mentioning that a holder may vote either for or against a resolution has been dispensed with temporarily.||AGMs conducted through electronic mode only during the calendar year 2020 (i.e. till December 31, 2020)|
|2.||Regulation 47 and 52(8)||Requirement of publication of advertisements in newspaper has been further extended||for all events scheduled till June 30, 2020|
|3.||Regulation 33 (3) (b)||Requirement of publishing of quarterly / year-to-date consolidated financial results for the quarter ending June 30, 2020 has been dispensed, however they shall continue to submit the standalone financial results as required under regulation 33(3)(a). If such listed entities choose to publish only standalone financial results and not consolidated financial results, they shall give reasons for the same.||for certain categories of listed entities such as Banks and Insurance sectors or listed companies having subsidiaries which are banking and / or insurance companies,|
Link to the circular:
Securities Exchange and Board of India (“SEBI”) had vide its circular dated May 14, 2020 granted relaxation from applicability of earlier circular dated October 10, 2017 pertaining to non-compliance with the Minimum Public Shareholding (MPS) requirements (25%) for listed entities for whom the deadline to comply with MPS requirements falls between the period from March 1, 2020 to August 31, 2020.
No penal action as envisaged in SEBI Circular dated October 10, 2017 will be initiated for the said period and penal actions, if any, initiated by Stock Exchanges from March 1, 2020 till date for non-compliance of MPS requirements may be withdrawn.
Link to the circular:
Securities Exchange Board of India (“SEBI”) had vide circular dated May 14, 2020 granted with immediate effect the following one-time relaxation relating to procedural matters pertaining to open offers and buy-back tender offers opening upto July 31, 2020 provided under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereafter “Takeover Regulations) and SEBI (Buy-back of securities) Regulations, 2018 (hereafter “Buy-back Regulations):
1. The acquirer/ Company may service the letter of offer and/or tender form and other offer related material to shareholders by electronic transmission which is already provided under Regulation 18(2) of the Takeover Regulations (pertaining to open offer) and Regulation 9(ii) of Buyback Regulations (Buyback through Tender offer) subject to the following conditions:
i. Publishing of the letter of offer and tender form on the websites of the company, registrar, stock exchanges and the manager(s) to offer;
ii. Steps to be taken to reach out to the/its shareholders through other means such as ordinary post or SMS or audio-visual advertisement on television or digital advertisement, etc. along with lead manager(s);
iii. Make an advertisement in newspaper details containing the dispatch of the letter of offer electronically and availability of such letter of offer along with the tender form on the websites;
iv. They have the flexibility to publish the dispatch advertisement in additional newspapers, over and above those required under the respective regulations;
v. Making use of advertisements in television channels, radio, internet etc. to disseminate information relating to the tendering process. Such advertisements can be in the form of crawlers/ tickers as well;
vi. All the advertisement issued should also be made available on the aforementioned website(s).
The acquirer/ company and the manager to offer shall provide procedure for inspection of material documents electronically.
Link to the circular:
Close on heels of steps taken by Stock Exchanges worldwide including NYSE, Euronext, Stock Exchanges of Japan, Tokyo, Combo, Singapore and in order to tighten the system , Securities and Exchange Board of India (“SEBI”) had vide its Circular dated May 20, 2020 issued an ‘Advisory on disclosure of material impact of CoVID–19 pandemic on listed entities under Listing Regulations’, including reference to the disclosure on “Disruption of operations of any one or more units or division of the listed entity due to natural calamity (earthquake, flood, fire etc.), force majeure or events such as strikes, lockouts etc”.
Highlights of the circular:
√ capital and financial resources;
√ liquidity position;
√ ability to service debt and other financing arrangements;
√ internal financial reporting and control;
√ supply chain;
√ demand for its products/services;
The above list is only illustrative and not exhaustive. Further, to have continuous information about the impact of CoVID-19 on operations, listed entities may provide regular updates, as and when there are material developments.
Certain Listed entities have already made certain disclosures with respect to the impact or foreseeable impact of the lockdown on their respective businesses. Also, considering the shutdown scenario since past couple of months, the Circular requires listed companies to revisit and update previous their disclosures already made in this regard substantiating the impact on their business.
Securities and Exchange Board of India (“SEBI”) had vide its circular dated May 25, 2020 provided the following clarifications to all stock exchanges, clearing corporations and depositories:
♦ The specified guidelines issued with regards to Margin obligations to be given by way of Pledge/ Re-pledge in the Depository System will now come into effect from August 1, 2020 instead of June 1, 2020. Further, the trading member (TM) / clearing member (CM) shall be required to close all existing demat accounts tagged as ‘Client Margin / Collateral’ by August 31, 2020.
♦ However, the provision pertaining to holding of Power of Attorney by TM/ CM not to be considered as equivalent to the collection of margin by them in respect of securities held in the demat account of the client, shall be applicable from June 01, 2020 itself.
♦ The client / pledgor shall be required to confirm only once i.e. at the time of initial creation of pledge in favour of TM/ CM through OTP on mobile number / registered e-mail id or other verifiable mechanism.
In a news item in Business Line, it was reported that Securities and Exchange Board of India (“SEBI”) has discontinued the use of Power of Attorney (“POA”) between a client and broker in the equity markets. SEBI had vide Press Release dated May 26, 2020, clarified that there is no restriction imposed on use of POA by broker.
With a view to curbing the misuse of POA given by the clients to the trading member (TM) / clearing member (CM), SEBI, vide its circular dated February 25, 2020 prescribed that margin obligations to be given in form of securities by client shall be by way of pledge / re-pledge in the Depository System and title transfer of securities to the client collateral demat account of the TM/ CM for margin purposes shall not be permitted. In cases where a client has given a POA in favour of a TM / CM, such holding of POA shall not be considered as equivalent to the collection of margin by the TM / CM in respect of securities held in the demat account of the client with effect from June 1,2020.
Even today, systems are in place where broker using POA transfers client securities as margin into his client’s collateral account and then place these securities with Clearing Corporation (CC) by way of Transfer or creation of pledge towards margin. There is no change caused in conditions of POA. Even after June 1, 2020, broker using POA may continue to transfer client securities to his client collateral account towards margin. The only difference would be that now the Broker would not be able to report all securities lying in the demat account of the client as margin collected. In order to post securities as margin, these securities even today are required to be moved out of client demat account to collateral account of CM/CC. Securities lying in the client Demat account are not counted as margin by CM/CC and no exposure is permitted.
It is further envisaged that effective August 1, 2020, by operationalising the pledge and re-pledge mechanism stated in aforesaid SEBI circular, the securities of client will remain in that client’s demat account and entire trail of the securities utilised for margin purposes shall be available. In this mechanism, the TM / CM will not be able to misuse securities of client A towards margin of client B and for also for its own proprietary trades.
Link to the press release: https://taxguru.in/sebi/no-restriction-imposed-use-poa-broker-sebi-clarifies.html
Informal Guidance in case of Minda Industries Limited – Amalgamation scheme -Clarification on restatement of financial statements:
SEBI has issued an informal guidance in the matter of Minda Industries Limited (“MIL”) under the provisions of Securities and Exchange Board of India (Informal Guidance) Scheme in relation to clarification under Section 232(6) of Companies Act, 2013.
1. MIL is a public company domiciled and headquartered in India. It was incorporated on September 16, 1992 under the Companies Act, 1956 and its shares are listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).
2. The Company is engaged in the business of manufacturing of auto components including auto electrical parts and its accessories and caters to both domestic and international markets.
Facts of the matter:
1. MIL has filed 2 independent schemes of amalgamation which are as follows:
MIL has filed a composite scheme of its amalgamation with Harita Limited, Harita Venue Private Limited, Harita Cheema Private Limited, Harita Financial Services Limited and Harita Seating Systems Limited [collectively known as ‘Harita Seating’] (the Scheme 1) with appointed date as April 01, 2019 or such other date as may be fixed by NCLT.
MIL has filed a composite scheme of its amalgamation with its 4 wholly owned subsidiaries i.e. M J Casting Limited, Minda Distribution and Services Limited, Minda Auto Components Limited and Minda Rinder Private Limited [collectively known as ‘Transferor companies’] (the Scheme 2) with appointed date as April 01, 2019
2. The accounting treatment of MIL is as per acquisition method and the appointed date as stated in the amalgamation scheme will be considered as the acquisition date for accounting as per Ind AS irrespective of the date of approvals received.
Queries / Clarification sought:
1. With respect to Scheme 1:
a. Whether the Standalone financial results of MIL which was already prepared, should include the effect of amalgamation of Harita seating for the period covering April 2019 till December 2019 or only Q4 results of Harita Seating be included in Q4 results of MIL.
b. Whether MIL is required to restate its financial results for Q3 of FY 2019-20 and financial results of Q1, Q2, Q3 of FY 2020-21 while preparing quarterly standalone financial of FY 2020-21.
2. With respect to scheme 2:
a) Whether the standalone financial results for Q4 2020 of MIL should include the effect of 4 wholly owned subsidiaries till Q3 2020.
b) Is there a need to restate the comparative standalone financial results of Q3 2020 and Q3 2018 -19 (Q3 2019) of MIL after including the results of Q3 2020 and Q3 2019 of 4 wholly owned subsidiaries.
c) While preparing quarterly standalone financial results for FY 2020-21, do the standalone financial results of MIL for the comparative quarters of FY 2019-20 need to be restated.
With regard to financial results, listed entities are required to comply with the regulatory requirements as laid down in Regulation 33 of LODR.
1. As per Ind AS 1 (Presentation of Financial Results) Financial statements shall present a true and fair view of the financial position, financial performance and cash flows of an entity.
2. Section 129 of the Companies Act, 2013 in reference to financial statements states that the financial statements shall give a true and fair view of the state of affairs of the company and comply with the accounting standards notified under section 133.
3. Regulation 48 of LODR provides that listed entities are required to comply with all the applicable and notified Accounting Standards.
4. Regulation 4 (1) (b) of LODR states that the listed entity shall implement the prescribed accounting standards in letter and spirit in the preparation of financial statements taking into consideration the interest of all stakeholders.
Hence, in view of the above mentioned provisions SEBI has clarified that the financial information in the financial statements in respect of prior periods should be restated as if the business combination had occurred from the beginning of the preceding period in the financial statements, irrespective of the actual date of the combination.
In view of intensification of COVID-19 disruptions, Reserve Bank of India (“RBI”) had vide its notification dated May 23, 2020, provided the following relaxations to all the commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, All-India Financial Institutions, and Non-banking Financial Companies (including housing finance companies) (“lending institutions”):
Link to the notification: https://taxguru.in/rbi/covid-19-regulatory-package-rbi.html
Following the Prime Minister’s announcement on May 12, 2020 of a special economic and comprehensive package of INR 20 Lakh Crores (~USD 267 billion) i.e. approximately 10% of India’s Gross Domestic Product (GDP) and the call for building a self-reliant India, the Finance Minister has announced the allocation of fiscal relief in 5 tranches to drive liquidity and provide relief to various sectors. The fifth and the last tranche of the measures was announced on May 17, 2020.
♦ EPF contribution reduced to 10%:
Statutory Provident Fund contribution of both employer and employee will be reduced to 10 percent from the existing 12 percent for all establishments covered by Employee Provident Fund Organization (“EPFO”) for the next 3 months. This will provide relief to 4.3 crore employees and 6.5 lakh establishments covered under EPFO. It will also create liquidity worth Rs 6,750 Crore.
♦ Other Direct Tax Measures:
♦ Reduction in TDS/TCS rate:
To provide more funds at the disposal of the taxpayers, the rates of Tax Deduction at Source (TDS) for non-salaried specified payments made to residents and rates of Tax Collection at Source (TCS) for the specified receipts shall be reduced by 25 percent of the existing rates. The reduction shall be applicable for the remaining part of the FY2020-21. The measure will release liquidity of Rs 50,000 crore.
♦ Enhancement of ease of doing business IBC-related measures:
The minimum threshold to initiate insolvency proceedings raised to Rs 1 crore (from Rs 1 lakh, which largely insulates MSMEs). Suspension of fresh initiation of insolvency proceedings up to one year depending upon the pandemic situation. Special insolvency resolution framework for MSMEs under Section 240A of the Code to be notified soon. Empowering Central Government to exclude COVID 19 related debt from the definition of “default” under the Code for the purpose of triggering insolvency proceedings.
♦ Decriminalisation of violations under Companies Act:
The Centre will decriminalise violations involving minor technical and procedural defaults like shortcomings in CSR reporting, inadequacies in board report, filing defaults, delay in holding AGM. Majority of the compoundable offences sections to be shifted to internal adjudication mechanism (IAM). 58 sections to be dealt with under IAM as compared to 18 earlier. The amendments will de-clog the criminal courts and NCLT.
♦ Ease of doing business for corporates:
Centre to allow direct listing of securities by Indian public companies in permissible foreign jurisdictions. Private companies which list NCDs on stock exchanges not to be regarded as listed companies. Lower penalties for all defaults for Small Companies, One person Companies, Producer Companies and Start Ups.
The government will announce a new, coherent policy where all sectors are open to the private sector while public sector enterprises (PSEs) will play an important role in defined areas. List of strategic sectors requiring the presence of PSEs in the public interest will be notified. In strategic sectors, at least one enterprise will remain in the public sector but the private sector will also be allowed. In other sectors, PSEs will be privatized.
Read more on https://www.moneycontrol.com/news/business/economy/atmanirbhar-bharat-heres-a-complete-list-of-reforms-announced-by-fm-nirmala-sitharaman-under-rs-20-lakh-crore-financial-package-5277891.html
Reserve Bank of India (“RBI”) had vide its circular dated May 18, 2020 clarified to all the Authorized Dealers Category – I, that the Directions on Hedging of Foreign Exchange Risk issued April 7, 2020 will now come into effect from September 1, 2020 instead of June 1, 2020. It further clarified that Directions on the participation of Banks in Offshore Non-deliverable Rupee Derivative Markets issued on March 27, 2020 will come into effect from June 1, 2020, as hitherto.
Link to the circular: https://taxguru.in/rbi/hedging-foreign-exchange-risk-date-implementation.html
Reserve Bank of India (“RBI”) had vide its notification dated May 18, 2020 extended the Master Direction – Know Your Customer (KYC) Direction, 2016 to all Housing Finance Companies.
Master Direction – KYC Direction, 2016, issued by the Bank has consolidated directions on KYC, Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) and is applicable to all Regulated Entities of the Bank. In this connection, vide Press Release dated August 13, 2019 regulation of Housing Finance Companies was transferred to Reserve Bank of India.
Link to the notification: https://taxguru.in/rbi/extending-master-kyc-direction-2016-housing-finance-companies.html
Updates by Mandar Joshi, Vidhi Salot and Nishi Shah under guidance of Brijbala Batwal
Corporate Secretarial Team
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 represent. While efforts are made to bring out gist of various updates, readers are requested to refer to the link given below for the full Circular.