buzz on corporate laws: enewsletter: september 2014 issue

P. K. PANDYA & CO. Practising Company Secretary

www.pkpandya.com

BUZZ ON CORPORATE LAWS September 2014

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Contents

Ministry of Corporate Affairs ................................................................................................................... 2

MCA Circulars: ..................................................................................................................................... 2

Company Law Settlement Scheme, 2014 - General Circular No. 34 dated 12 August 2014: ............ 2

Clarification with regard to Accounting Standard 10 – Capitalization of Cost - General Circular No.

35 dated 27 August 2014:................................................................................................................ 4

Notifications ........................................................................................................................................ 5

Amendment in CSR Rules, 2014 vide Notification No. 644 (E) dated 12th September 2014: ............ 5

Clarification (stand changed!) that salaries to regular CSR staff and company volunteers would

not qualify as CSR expenditure: General Circular no. 36 dated 17 September, 2014: ..................... 5

Amendment in Companies (Appointment and Qualification of Directors) Rules, 2014 vide

Notification No. 671(E) Dated 18 September 2014 (Gazette copy not yet available): ..................... 6

Amendment in Schedule II of the Companies Act, 2013 – vide notification 627 (E) dated 29 August

2014: ............................................................................................................................................... 8

SEBI ....................................................................................................................................................... 10

Offer for sale (OFS) of shares through stock exchange – expanding framework – Circular dated 08

August 2014: ..................................................................................................................................... 10

Revised format of annual disclosure under regulation 30 of Takeover Regulations, dated 25 August

2014: ................................................................................................................................................. 11

Clarification on ICDR Second Amendment – Circular dated 11 September 2014: ............................. 11

RBI ........................................................................................................................................................ 11

ECB in Indian Rupees – flexibility extended – RBI Circular dated 03 September, 2014: .................... 11

Issue of equity shares under the FDI Scheme against legitimate dues – Circular dated 17 September,

2014: ................................................................................................................................................. 12

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Buzz on Corporate Laws: September 2014

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Ministry of Corporate Affairs

MCA Circulars:

Company Law Settlement Scheme, 2014 - General Circular No. 34 dated 12 August 2014:

For companies who have not filed their annual return and audited financial

statements, one of the major hurdles is additional filing fees – which under the new

law is increased. It is also known that non-filing of these annual documents with

the ROC not only leads to prosecution of officers in default but also disqualification

of directors under section 164 of the Companies Act, 2013 (if not filed for a

continuous period of three financial years). Further, penalty amount is increased

under the Companies Act, 2013 and repeated offence is punishable u/s.451 with

twice the amount of fine.

MCA has introduced Company Law Settlement Scheme (CLSS) 2014 thereby

charging a reduced additional fee of 25% of the actual additional fees payable;

condoning the delay in filing specified documents with the ROC and granting

immunity not only from prosecution but also from disqualification of directors

under the said section 164.

Specified document which can be filed under CLSS, 2014:

1. Annual Return in e-form 20B (form 21A for companies not having share

capital)

2. financial statement in e-form 23AC, 23ACA (including XBRL)

3. Compliance Certificate, if applicable, in e-form 66




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4. Intimation of appointment of auditor in e-form 23B

The Scheme is not applicable to:

1. Companies against whom an action initiated by ROC to striking off its name

under section 560 of the Companies Act 1956;

2. Companies who have filed application with ROC to strike its name u/s.560 of

the Companies Act, 1956

3. An application is filed u/s. 455 of the Companies Act, 2013 for declaring it as

dormant company

4. Vanishing companies.

The CLSS also gives an opportunity to inactive companies to either get itself

declared as ‘Dormant Company’ under section 455 of the Act at a reduced fee or

apply for striking off its name by filing e-form FTE at 25% of the fees payable for the

said form.

Cut-off date is 30 June 2014 i.e. if specified documents are not filed though became

due and required to be filed on or before 30th June 2014.

After filing said documents under CLSS 2014, Company need to apply for immunity

(as aforesaid) in e-form CLSS-2014. No filing fees payable for the same.

ROC will withdraw prosecution(s), if any, pending before Companies applying for

indemnity under the CLSS, 2014.

Immunity is not made available to matters in appeal before court of law or in cases

of management dispute pending before court of law or tribunal.




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It is also clarified that companies who have filed documents (as specified above)

after 01 April 2014 but before commencement of CLSS, 2014 i.e. 15 August 2014,

immunity from disqualification u/s.164 (2) of the Companies Act, 2013 is extended

to them as well. [General Circular no. 41/2014 dated 15 October 2014]

The scheme is valid till December 31, 2014 (vide General Circular no.44 dated 14

November, 2014). Originally it was valid till 15 October 2014. Later it was extended

till 15 November 2014 vide General Circular no. 40/2014 dated 15 October 2014.

For a copy of circular, click here.

http://mca.gov.in/Ministry/pdf/circular_34_13082014.pdf

Clarification with regard to Accounting Standard 10 – Capitalization of Cost - General

Circular No. 35 dated 27 August 2014:

It is clarified that only those borrowing cost incurred during extended delay in

commercial production, which increases worth of the fixed assets can be

capitalized.

MCA also clarified that cost incurred during the extended delay in commencement

of commercial production after the plant is otherwise ready does not increase the

worth of the fixed assets and hence such cost, shall not be capitalized. It is also

clarified that AS 16 and AS 10 shall be applicable to all Power Projects “Cost Plus

Projects” and “Competitive Bid Projects”

For copy of circular, click here.









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Notifications

Amendment in CSR Rules, 2014 vide Notification No. 644 (E) dated 12th September

2014:

Rule 4(6) is amended to provide that administrative overheads shall also be

considered while calculating upper limit of 5% of total CSR Expenditure that a

company make in one financial year.

For copy of notification, click here.

http://mca.gov.in/Ministry/pdf/NCA_Rules_12092014.pdf

Clarification (stand changed!) that salaries to regular CSR staff and company

volunteers would not qualify as CSR expenditure: General Circular no. 36 dated 17

September, 2014:

As per CSR Rules, 2014 notified on 27.02.2014, companies were allowed to build

CSR capabilities of their personnel as well as those of their implementing agencies

through institutions with an established track records of at least three (3) financial

years. And expenditure for the same were capped at five per cent. (5%) of the total

CSR expenditure of the company in one financial year.

MCA vide notification dated September 12, 2014 included overhead and

administrative expenses within the limit of (5%) five per cent cap that companies

are allowed to spend on CSR capabilities.

MCA Circular No. 21 of 2014 dated 18th June, 2014 issued few clarifications relating

to provisions of section 135 of the Companies Act, 2013 and CSR Rules, 2014. As

per clause (iv) of the said circular, salaries paid by the companies to regular CSR

staff as well to volunteers of the companies (in proportion to company’s






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time/hours spent specifically on CSR) were qualified as CSR expenditure towards

CSR project.

However MCA has now clarified vide this circular, that the clause (iv) of the circular

stands as deleted and therefore salaries paid by the companies to regular CSR staff

as well as to volunteers of the companies now do not qualify as CSR expenditure

towards the cost of CSR project. Thus, these expense would not attract cap of 5%

total CSR expenditure in a financial year.



Amendment in Companies (Appointment and Qualification of Directors) Rules, 2014

vide Notification No. 671(E) Dated 18 September 2014 (Gazette copy not yet

available):

Certain provisions in Companies (Appointment and Qualification of Directors)

Rules, 2014 has been amended.

While disclosing all the details in the data bank of persons offering to become

independent director, Income-tax PAN shall not be disclosed. Only father’s name is

required to be disclosed, mother’s or spouse name is not required.

Any person who desires to get his name included in the data bank of independent

directors can make an application to agency in any format for the time being, since

Form DIR-1 has been omitted vide this notification.






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Form DIR-3 (Application for DIN) has to be verified before signing the form by the

applicant. There is no requirement of giving verification in Form DIR-4 at the time

for applying DIN since Form DIR-4 has been omitted vide this notification.

New Form DIR-3A has been introduced for those persons who does not have a last

name, then his or her father’s or grandfather’s surname shall be mentioned in the

last name along with the declaration in aforesaid form.

Now, the application number will be generated automatically on submission of

Form DIR-3 on MCA portal. There is no such concept of provisional DIN since DIN

having status as approved is being allotted to the applicant as per new guidelines.

Those companies who cannot file their returns on MCA since the view signatory

details is not updated due to non-filing of Form DIN-2 and DIN-3. MCA vide this

notification has introduced Form DIR-3B and Form DIR-3C in lieu of Form DIN-2 and

Form DIN-3 for those companies to update their view signatory details and update

their filing status.

Every directors who has been appointed on or before the 30th June, 2007 and who

has not yet intimated his DIN to such company or companies shall, within 1 month

of the receipt of DIN from the Central Government, intimate his DIN to the

company or all companies wherein he is a director in Form DIR-3B and the company

shall within 15 days of receipt of Form DIR-3B intimate the DIN to ROC in Form DIR-

3C

The particulars in Form DIR-3 (Application for DIN) and DIR-6 (Intimation of change

in particulars of DIN Application) has been changed. Verification in Form DIR-7 is

not required to be given at the time of filing Form DIR-6.




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Application for surrender of DIN has to be made in Form DIR-5 along with the

required fees.



Amendment in Schedule II of the Companies Act, 2013 – vide notification 627 (E)

dated 29 August 2014:

Schedule II to the Act relates to useful lives for computing depreciation.

(a) Amendment in paragraph 3 in Part A – sub-para (i) substituted.

It is amended to provide that “The useful life of an asset shall not ordinarily be

different from the useful life specified in Part C and the residual value of an asset

shall not be more than 5% of the original cost of the asset.

Provided that where a company adopts a useful life different from what is specified

in Part C or uses a residual value different from the limits specified above, the

financial statement shall disclose such difference and provide justification in this

behalf duly supported by technical advice”

MCA has clarified vide this notification, that provided proper justification

supported by technical advice is given, the company can adopts a different useful

life of an asset than stated in Part C and can use a different residual value than

stated above.

(b) After Part C, paragraph 4 substituted.






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Useful life specified in Part C of the Schedule is for whole of the asset and where

cost of a part of the asset is significant to total cost of the asset and useful life of

that part is different from the useful life of the remaining asset, useful life of that

significant part shall be determined separately.

MCA vide this notification has clarified that the aforesaid requirement shall be

voluntary in respect of the financial year commencing on or after the 1st April, 2014

and mandatory for financial statements in respect of financial years commencing

after 1st April, 2015

(c) Amendment in Paragraph 7 (b)

Prior to the amendment, the company was mandatorily required to adjust the

carrying value of an asset to opening balance of retained earnings where the

remaining useful life of an asset is nil.

Now, MCA vide this notification has clarified that the company has an option to

adjust the carrying value of an asset to retained earnings. It is not a mandatory

requirement.


http://mca.gov.in/Ministry/pdf/Amendment_Notification_29082014.pdf


http://mca.gov.in/Ministry/pdf/Amendment_Notification_29082014.pdf



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SEBI

Offer for sale (OFS) of shares through stock exchange – expanding framework –

Circular dated 08 August 2014:

OFS mechanism has been successfully used to divest promoter stake. Its guideline

has been modified.

Per modification:

More companies are eligible to use OFS through stock exchange.

Even non-promoter shareholders with 10% or more holding in a company are

allowed to use OFS route. In such case, promoter can bid and purchase offered

under OFS by non-promoter shareholder, subject to compliance of applicable laws,

including SEBI Takeover regulations.

Under OFS, retail participation is reserved – i.e. minimum 10% of OFS shall be

reserved for retail investors (i.e. bid value of Rs. 2 lakh or less across exchanges).

Cut off price shall be determined separately for retail and non-retail category.


http://www.sebi.gov.in/cms/sebi_data/attachdocs/1407495883694.pdf






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Revised format of annual disclosure under regulation 30 of Takeover Regulations,

dated 25 August 2014:

SEBI has revised format of annual disclosure under regulation 30 (1) and 30 (2) of

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.



Clarification on ICDR Second Amendment – Circular dated 11 September 2014:

SEBI at its meeting has approved certain reforms to revitalize the market including

increasing the investment bucket for anchor investor and making certain

amendments to regulations concerning the preferential issue norms.



RBI

ECB in Indian Rupees – flexibility extended – RBI Circular dated 03 September, 2014:

All eligible borrowers are eligible to raise ECB in Indian Rupees from foreign equity

holders as per the extant ECB guidelines.

With a view to providing greater flexibility for structuring of ECB arrangements, it

has been decided that recognised non-resident ECB lenders may extend loans in

Indian Rupees subject to the following conditions:








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a) The lender should mobilise Indian Rupees through swaps undertaken with an

Authorised Dealer Category-I bank in India.

b) The ECB contract should comply with all other conditions applicable to the

automatic and approval routes as the case may be.

c) The all-in-cost of such ECBs should be commensurate with prevailing market

conditions.


http://rbidocs.rbi.org.in/rdocs/notification/PDFs/AP25E030914F.pdf

Issue of equity shares under the FDI Scheme against legitimate dues – Circular dated

17 September, 2014:

An Indian company under the automatic route may issue shares/convertible

debentures to a person resident outside India against lump-sum technical know-

how fee, royalty External Commercial Borrowings (ECBs) (other than import dues

deemed as ECB or Trade Credit as per RBI guidelines) and import payables of capital

goods by units in Special Economic Zones subject to certain conditions like entry

route, sectoral cap, pricing guidelines and compliance with the applicable tax laws.

Now issue of equity shares is permitted against any other funds payable by the

investee company, remittance of which does not require prior permission of the






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Government of India or Reserve Bank of India under FEMA, 1999 or any rules/

regulations framed or directions issued thereunder, provided that:

(i) The equity shares shall be issued in accordance with the extant FDI guidelines on

sectoral caps, pricing guidelines etc. as amended by Reserve bank of India, from

time to time;

Explanation: Issue of shares/convertible debentures that require Government

approval in terms of paragraph 3 of Schedule 1 of FEMA 20/2000-RB dated May 3,

2000 or import dues deemed as ECB or trade credit or payable against import of

second hand machinery shall continue to be dealt in accordance with extant

guidelines;

(ii) The issue of equity shares shall be subject to tax laws as applicable to the funds

payable and the conversion to equity should be net of applicable taxes.

All the other conditions for issuance of equity shares under the automatic route

and Government approval route are unchanged.


http://rbidocs.rbi.org.in/rdocs/notification/PDFs/APD31FDI0914.pdf

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buzz on corporate laws: enewsletter: september 2014 issue

Law

amendment circular

rbi circular

framework circular

legitimate dues circular

csr rules

legal advice

general information

company volunteers