All posts by CS Samrish Bhanja

Share Application Money under Private Placement

Earlier, under old Companies Act regime, many companies accepted share application money under private placement and utilized the same for the business purpose even without allotment of shares. Only Schedule VI of the Old Companies Act provided the manner to treat the same in the Balance Sheet of the Company.

Now, Section 42 of the Companies Act, 2013 puts prohibition over the said practice. W.e.f 01-April 2014, Companies accepting Share Application money under private placement have to allot the securities against the Share Application money received within 60 days. If the securities are not allotted within a period of 60 days, the whole application money is required to be refunded within 15 days from the date of completion of 60 days. If the company fails to repay the application money within the said 60 days period, it shall be liable to repay that money with interest @ 12% p.a. from the expiry of the 60th day.

Another important point to be noted is that the Company will have to open separate bank a/c to receive share application money and will not be able to utilize the share application money unless shares are allotted.

Penalty: In case a company contravenes the provisions of section 42, the company, its promoters and directors shall be liable to pay a penalty which may extend to the amount involved in the offer or invitation or Rs. 2 crore, whichever is higher. The company shall also refund all amounts collected to the subscribers within a period of 30 days of the penalty order.

Further as per Companies (Acceptance of Deposit) Rules, 2014, if the securities for which application money was received cannot be allotted within sixty days from the date of receipt of the application money and such application money is not refunded to the subscribers within fifteen days from the date of completion of sixty days, such amount shall be treated as a deposit under these rules. Any adjustment of the amount for any other purpose shall not be treated as refund.

FDI: In case the company receives FDI, earlier as per FEMA Regulations, the shares were required to be allotted within 180 days. However, now the time limit has been altered in consonance with the Companies Act 2013 and reduced to 60 days of inward remittance.

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Directors Resignation under Companies Act, 2013

The resignation by a Director is not subject to acceptance by the Board. The resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later. (Section 168 of the Companies Act, 2013)

1. Directors intending to resign?

1.1 The Director intending to resign shall send notice in writing to the Company. They are to intimate the Registrar, about their resignation, by way of filing form DIR-11. However, MCA vide its notification dated 07.05.2018, have made Filling of DIR-11 optional in the hands of the Resigning director, but for disputed matters it is recommended that Directors should file DIR-11.

1.2 Non-Resident (NR) Directors: A NR Director can authorize specified persons to execute and file DIR-11 (form for informing the Regulator about his resignation). He need not file (and sign) himself.  A NR director may authorize a Company Secretary in practice or any other Resident director of the company to sign Form DIR-11 and file the form on his behalf (Rule 16 of Appointment & Qualifications of Directors Rules).

1.3 Liability of the resigning director: The director who has resigned shall be liable even after his resignation for the offences which occurred during his tenure.

2. Companies to do the following (after having received the resignation):

2.1 Take note of the resignation:

The Board to take note of the resignation. However, there is no prescribed timeline for taking note of the resignation.   The company can take note the resignation in its ensuing meeting. It is not necessary to hold a board meeting though. Per our understanding, it can be by way of Resolution by Circulation as well.

Read about Resolution by Circulation

You may also like to read about Meeting by Video conference

2.2 Duty to intimate Registrar:

The law has caste duty upon the Company to intimate the Registrar about the said resignation by way of filing form DIR-12. The following supporting documents shall be attached to the form DIR-12:

  • Notice of resignation
  • Evidence of cessation

The company shall file the said form within 30 days of the date of resignation along with the prescribed filing fees.

2.3 Compliance:

The company shall comply with Section 168 and Rules thereunder and additionally Section 175 (and Secretarial Standard SS-7 if the noting is done by way circular resolution).

3. Resignation by Managing Director

Resignation by a Managing Director is also not subject to acceptance by the Board. However, it primarily depends on the terms of appointment. There is an industry practice that the Managing Directors are appointed with terms mentioned in the resolution and powers clearly laid down in the form of a Power of Attorney.

Noting of resignation of Managing Director or whole-time director or Manager must be done in duly convened Board Meeting as per SS-7. Which means that noting of resignation cannot happen by way of Resolution by Circulation.

 

Related Link: All-directors-resigned-what-to-do


 

 

Post Incorporation Compliances-Companies Act 2013

Congratulations! Now that you got the company registered, what care do you need to take to be on the rightside of the law. It makes a lot of economic sense to stay compliant. It helps in efficient and non- interrupted functioning of the Company. There are some crucial time bound compliances, especially when FDI is involved. There is always an urgency w.r.t opening of bank account but before doing that, Banks needs to be communicated and sensitised when inward remittance is flowing in from the Non-resident subscribers. Timely steps be taken for appointment of Auditors, GST and IEC (Import Export Number) registrations, wherever required (for further information you can visit our blog GST-Registration).

This blog will be of immense help to guide you through post-incorporation compliances.

  • MAINTAIN A REGISTERED OFFICE (MANDATORY): The Companies which have not filed form for registered office (INC 22)at the time of incorporation, they are required to establish their registered office within 15 days of incorporation and file the said form (all within 15 days).

However, in the Companies (Amendment) Bill, 2017  which received the assent of the Hon’ble President of India on 3rd January 2018 it is proposed to extend the time period for intimation of the registered office from 15 days to 30 days.

  • 1ST BOARD MEETING: The first Board meeting is required to be held within in 30 days from the date of incorporation. Mainly, the Board of the company is required to consider the following matters in their first meeting:
    • Approval for opening of a Current Account,
    • Appointment of 1st Statutory Auditors,
    • Authorization for Statutory registrations.
  • LETTER HEADS: Letter heads of the company with registered office name & address, CIN, telephone number, fax number, if any, e-mail and website addresses, if any, shall be printed.
  • AFFIX A BOARD OUTSIDE REGISTERED OFFICE: Every Company shall affix a board outside the office stating its name and registered office address.
  • GST/ IEC REGISTRATIONS: All the statutory registrations like GST IEC (Import Export Code) etc. may be applied for, depending on the type of the Company.
  • BANK ACCOUNT: the company shall open a Current Account with a bank and the promoters shall contribute the subscription money to the said account.
  • INWARD REMITTANCES FROM NON-RESIDENTS: In case the subscribers are non-residents, the share subscription money shall come by way of Inward remittance. KYC and Inward remittance reporting is to be done within 30 days with the Authorized Dealer Bank to RBI. The link for the website has been provided below:

FIRMS Portal – Reporting through Single Master Form (SMF)

  • ISSUE OF SHARE CERTIFICATES: There are no pre-defined timelines to make payment for the subscribedcapital, however, Section 10(2) of the Companies Act 2013envisage that all monies payable by any member to the company under the memorandum or articles shall be a debt due from him to the company and also according to Section 56(4) of Companies Act 2013 provides thatcompany shall issue Share Certificates to the subscribers of Memorandum within 2 (two) months from the date of company incorporation.

Therefore, please ensure that Share subscription money is received before issuing Share certificates through proper banking channel.

Time-limits-for-allotment-and-issue-of-share-certificates

  • FC-GPR (in case of Non-residents): Form FC-GPR is to be filed immediately after reporting of inward remittance. This filing is done online now.
  • STAMP DUTY: Stamp Duty is to be paid within 30 days of Issue of Share Certificates. Stamp Duty varies from State to State and is therefore determined by the place (state) in which the registered office of the Company is situated.
  • PROVIDENT FUND: A company employing more than 20 employees is liable to deduct PF contribution @ 12% of basic salary & ESIC @ 4.75% of salary(As per the latest notification, ESIC has raised the threshold wage limit from 15,000 to 21,000).
  • MAINTAIN STATUTORY REGISTERS, MINUTE BOOKS: Company shall maintain all the statutory books, registers and minute books as stated in the Companies Act, 2013. Non-maintenance shall attract penal provisions.
  • REGISTER OF MEMBERS: The name of the subscribers to be entered in the Register of Member with date of incorporation of the company as the date when subscribers are deemed to have become members of the company.

Recent Amendment

  • MCA vide its notification dated 18th December, 2018 has notified section 10A as inserted by Companies (Amendment) Ordinance, 2018. As per section 10 A, a Company having a share capital shall not commence any business or commence any borrowing powers unless-
  1. Declaration for commencement of business is filed by a director within a period of 180 days from the date of incorporation that every subscriber to the memorandum has paid the value of shares agreed to be taken by him on the date of making of such declaration.
  2. Verification of registered office within 30 days from the date of incorporation.

The above list may not be comprehensive. Any registration requirement, as regards a specific industry, be consulted well in advance to enable timely commencement of operations.


Updated till 3rd January, 2019

DIN (Directors Identification Number) of a Foreign Director

 

DIN of a Non Resident

DIN (Directors Identification Number) is a unique Identification Number allotted to an individual who is to be appointed as Director of a Company, upon making an application (in e-form DIR-3) pursuant to Section 153 and 154 of the Companies Act, 2013. DIN of the proposed Director is also a pre requisite for Company Incorporation in India.

When application is made for DIN of a Non Resident, some confusion always creeps in as to documents required and the mode of execution and authentication.

 

Few questions before we enlist the documents

Whether PAN is mandatory when applying for DIN of a Non Resident (NR)? As father’s name is mandatory for DIN, what if father’s name is not mentioned in the Passport? Do a NR need to provide any documentary proof for father’s name? What kind of documents acceptable towards address proof of a NR?

 

Documents required for DIN of a Non-Resident

We have summarised the requirements for DIN application (DIR-3) for a NR applicant.

1. PAN:PAN is a ten-digit unique alphanumeric number issued by the Income Tax Department.PAN is mandatory to obtain new DIN for all Indian Nationals. It is not mandatory for foreign nationals. However, the same shall be mandatory in case the Non Resident is required to have PAN under Income Tax Act / Rules (of India), for example where the NR is in India for employment, etc.

 

2. Identity proof: Passport is a mandatory requirement for proof of identity for Foreign National. Notarised and Apostilled copy of the passport should be attached. Details entered should match exactly with the details of identity proof.

If the Non-resident is proposed to be appointed in an existing company, the Company secretary in full time employment / CEO / Managing Director/Director of the Indian company may certify the document. In this case it shall not be required to get the document Notarised or Apostilled.

 

3. Address proof like passport, or utility bills like electricity bill, telephone bill should be in the name of the applicant only and should not be older than 1 year (2 months for residents) from the date of filing of the eForm. Even this document needs to be Notarised and Apostilled.

 

4. Proof of father’s name is not required in the case of foreign nationals/NRIs.It is mandatory to enter either father’s first name or father’s last name. In case of single name for applicant orsingle name for father’s name, a declaration needs to be given in form DIR-3A as an attachment in e-form DIR-3.

Refer to Rule 9(4) of the Companies (Appointment and Qualification of Directors) Rules, 2014, for the format of DIR-3A: Companies (Appointment and Qualification of Directors) Rules, 2014

 

5. In case, the country selected is other than India, and you do not have PIN Code, enter ‘NA’. In case of foreign nationals, state can be mentioned in address/ city.

 

6. In case of proofs which are in languages other than Hindi / English, the proofs should be translated in Hindi / English from certified translator carrying his details (name, signature, address) and seal. In the case of foreign nationals, translation done by the notary of home country is also acceptable.

 

7. Applicant’s contact No., Email-ID, coloured passport size photograph, present address in India (if any).

 

8. Who will file DIR-3 on behalf of NR, do we have to get DSC (Digital Signature) of the NR?

E-form DIR-3 is required to be signed by the applicanti.e. the NR. Also, the application needs to be certified by either practicing professional or CS in whole time employment/ Director of the existing Company.

 

 

Foreign Direct Investment (FDI) by a Non-Resident Indian (NRI)

A person must satisfy the following 2 conditions to qualify as a NRI:

  1. He is a person resident outside India, and
  2. He is a citizen of India or is an ‘Overseas Citizen of India’ cardholder.

As per the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 as may be amended from time to time, a NRI is allowed to make investment in India in accordance with the said Regulations.

Types of Investment by NRI

A NRI may invest in India on either of the following basis:

  1. On repatriation basis
  2. On non-repatriation basis

FDI by NRI on Repatriation Basis

FDI by NRI on repatriation basis is governed by the provisions of Schedule 1, 2, 3 and 5 of the above stated Regulations as may be amended from time to time.

FDI by NRI on Non-Repatriation Basis

Foreign Direct Investment by a non-resident Indian (NRI) on non-repatriation basis is governed by Schedule 4 of the above stated Regulations as may be amended from time to time. You can see the whole schedule at Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000, Schedule 4 with an important amendment at Review of FDI policy on Investments by NRIs, PIOs, and OCIs

General Permission

As per the Schedule 4, a NRI may make investment in India on non-repatriation basis in the following ways:

  1. By acquiring and holding various instruments such as equity shares, convertible preference shares, convertible debentures, warrants or units.
  2. A NRI may also contribute to the capital of a partnership firm, proprietary firm or a Limited Liability Partnership without any limit on non-repatriation basis.
  3. A NRI may also invest on non-repatriation basis through a company, trust and a partnership firm incorporated outside India and owned and controlled by NRIs.

All of the above investment will be deemed to be domestic investment at par with the investment made by residents.

Prohibition

A NRI is prohibited from making investment in the following businesses which are also the prohibitions for FDI in general:

  1. A Nidhi company
  2. Agricultural/plantation activities
  3. Real estate business
  4. Construction of farm houses
  5. Dealing in Transfer of Development Rights

Mode of Purchase

The consideration by NRI for investment under Schedule 4 shall be paid by any of the following ways:

  1. Inward remittance through normal banking channel from abroad.
  2. Out of funds held in NRE/FCNR/NRO account maintained with a bank in India.

Sale/Maturity Proceeds of Securities

The sale/maturity proceeds of the securities or units acquired as above shall be credited only to NRO account irrespective of the type of account from which the consideration for acquisition was paid.


Inward Remittance and Related Compliances w.r.t. Shares Subscribed by Non-Residents at the Time of Company Incorporation

ADDITIONAL STEPS IN CASE SHARES ARE BEING SUBSCRIBED BY A NON-RESIDENT PROMOTER / INVESTOR 

This Article was earlier part of Post Incorporation Compliances. We have now split the same into two parts. This is the second part covering Subscription of Shares by NR post Company Incorporation. Through this blog, we have tried to cover the post incorporation procedure and compliances under Foreign Exchange Management Act (FEMA) in case of non-resident investment.

In case of non-resident investors, the following procedure is involved w.r.t. foreign remittance of subscription amount. 

FDI Norms:

As per reporting of FDI norms, chronology of event should be:

    • Receipt of Foreign money.
    • Reporting of receipt of amount of consideration to RBI for issue of shares through an AD Category – I bank, together with a copy/ies of the FIRC/s evidencing the receipt of the remittance along with the KYC report on the non-resident investor from the overseas bank remitting the amount.
    • UIN (Unique identification Number) shall be allotted by RBI.
    • The equity instruments should be issued within 180 days from the date of receipt of the inward remittance. In case, the equity instruments are not issued within 180 days from the date of receipt of the inward remittance or date of debit to the NRE/FCNR (B) account, the amount of consideration so received should be refunded immediately to the non-resident investor by outward remittance through normal banking channels or by credit to the NRE/FCNR (B) account, as the case may be
    • However, please note that the above FDI norms pertaining to 180 days is redundant for all practical purpose for the fact that the Companies Act, 2013 requires the shares to be allotted within 60 days from the date of inward remittance.
    • After issue of shares you have to file Form FCGPR, not later than 30 days from the date of issue of shares. UIN is to be mentioned in the form FCGPR.

Confusion in compliance with FDI norms

It is practically impossible to comply with the FDI norms in case of subscription of shares of a newly incorporated Company by a Non-Resident. The reason being, a Non-Resident will remit money towards shares subscribed only after the Company has opened Current Account while the date of allotment of shares is deemed to be the Date of Incorporation of the Company. That means shares are being issued without having received the Inward Remittance while the 1st step in case of FDI compliance is receipt of Inward Remittance (please see point 1 of FDI Norms above).

Therefore there are two types of practice prevalent in India for complying with the requirement of FDI Norms, which are being elaborated below. Of course, needless to say that none of the practice is foolproof and has its own merits and demerits.

Practice 1:

    • Company Incorporation
    • PAN and Bank Account opened
    • Inward Remittance received into the Current Account opened
    • Reporting of Inward Remittance to RBI through AD Bank within 30 days of Inward Remittance
    • UIN allotted by RBI
    • Board Meeting held to take note of Inward Remittance and for issue of Share Certificates.
    • Share Certificates issued with date of Incorporation as the date of Issue of Shares.
    • FCGPR filed immediately thereafter but not later than 30 days from the date of Board Meeting. Here, the date of Incorporation is mentioned as date of Issue of Shares and therefore, it is put in the records that there has been a delay in filing of FCGPR.

Form FCGPR can be accompanied with a forwarding letter to RBI that since the shares are issued to Non-resident for subscribing to the Memorandum and Articles of Association, there has been delay in filing of FCGPR.

Note: Here, in this case there is clear communication of facts, albeit, there has been violation of FDI Norms. It has been observed that RBI do not question the above non-compliance unless there has been inordinate delay in receiving Inward Remittances and related compliances thereafter .

Practice 2:

  • Company Incorporation
  • PAN and Bank Account opened
  • Inward Remittance received into the Current Account opened
  • Reporting of Inward Remittance to RBI through AD Bank within 30 days of Inward Remittance
  • UIN allotted by RBI
  • Board Meeting held for issue of Shares (here, this Board Meeting date is taken as date of Issue of Shares and not the actual issue of Shares i.e. date of Incorporation).
  • Share Certificates issued with date of Board Meeting as the date of Issue of Shares.
  • FCGPR filed within 30 days of issue of shares with date of the Board Meeting mentioned as date of Issue of Shares.

Note: It is needless to say that the date of Board Meeting being taken as date of Issue of Shares w.r.t shares subscribed at the time of incorporation is contrary to the provisions of Company Law and therefore, to that extent, it is misstatement of facts.

For more information on subscriber sheet of MOA & AOA, kindly visit link Rules relating to subscription of Memorandum and Articles of Association at the time of Company Incorporation.


E-Voting under Companies Act, 2013 viz Clause 35B

(as revised on August 3, 2016)

 

Voting by electronic mode means a process for recording votes by the members using a computer based machine. The system displays an electronic ballot and enables a shareholder to record the vote. The number of votes polled in favour or against a resolution is computed such that the entire voting gets registered and counted in an electronic registry in a centralized server..

Section 108 of the Companies Act, 2013 (‘Act, 2013’) read with Rule 20 of the Companies (Management and Administration) Rules, 2014 (‘MGT Rules’) had made it mandatory for every listed company and company having not less than 1000 shareholders to provide e-voting facility at general meetings..

Regulation 44 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR)also provide that every listed company shall provide the facility of remote e-voting for all the shareholders’ resolution. Moreover, in order to ensure consistency between LODR and Companies Act, 2013, R.44 provides that the listed entity shall comply with Companies (Management and Administration) Rules, 2014.

The listed entity shall also file the details of voting results to the stock exchange within 48 hours of the conclusion of General Meeting..

MCA has also issued some clarifications on the e-voting, which are:

1) Where e-voting takes place, voting by show of hands is not applicable.

2) If shareholders choose to vote electronically, he will be allowed to participate physically in the general meetings, but he cannot vote on the resolutions again;

3) Where certain items are required to be transacted only by postal ballot it has to be decided only by postal ballot and not at the general meeting;

4) In case a person is unable to vote electronically and not able to attend the general meeting also, then he would not get any facility to vote by postal ballot. This clarification is for those items which are not being transacted by Postal Ballot..

Agencies for e voting:

NSDL and CDSL ventures ltd (CVL) have developed an internet based e-voting platform which enables the shareholders to vote electronically in a convenient manner.

  1. NSDL

www.evoting.nsdl.com

  1. CDSL ventures ltd (CVL)

http://www.evotingindia.com/


E Voting Procedure viz Rule 20 of the Companies (Management and Administration) Rules, 2014

Section 108 of the Companies Act, 2013 (‘Act, 2013’) read with Rule 20 of the Companies (Management and Administration) Rules, 2014 (‘MGT Rules’) had made it mandatory for every listed company and company having not less than 1000 shareholders to provide e-voting facility at general meetings. Rule 20 states as follows:.

(1) Every listed company or a company having not less than one thousand shareholders, shall provide to its members facility to exercise their right to vote at general meetings by electronic means....

(2) A member may exercise his right to vote at any general meeting by electronic means and company may pass any resolution by electronic voting system in accordance with the provisions of this rule....

(3) A company which opts to provide the facility to its members to exercise their votes at any general meeting by electronic voting system shall follow the following procedure, namely;.

(i) the notices of the meeting shall be sent to all the members, auditors of the company, or directors either –

    • by registered post or speed post ; or
    • through electronic means like registered e-mail id;
    • through courier service;.

(ii) the notice shall also be placed on the website of the company, if any and of the agency forthwith after it is sent to the members;.

(iii) the notice of the meeting shall clearly mention that the business may be transacted through electronic voting system and the company is providing facility for voting by electronic means;.

(iv) the notice shall clearly indicate the process and manner for voting by electronic means and the time schedule including the time period during which the votes may be cast and shall also provide the login ID and create a facility for generating password and for keeping security and casting of vote in a secure manner;...

(v) Publication of Notice: the company shall cause an advertisement to be published, not less than five days before the date of beginning of the voting period, at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situated, and having a wide circulation in that district, and at least once in English language in an English newspaper having a wide circulation in that district, about having sent the notice of the meeting and specifying therein, inter alia, the following matters, namely:-

    • statement that the business may be transacted by electronic voting;
    • the date of completion of sending of notices;
    • the date and time of commencement of voting through electronic means;
    • the date and time of end of voting through electronic means;
    • the statement that voting shall not be allowed beyond the said date and time;
    • website address of the company and agency, if any, where notice of the meeting is displayed; and
    • contact details of the person responsible to address the grievances connected with the electronic voting;

(vi) the e-voting shall remain open for not less than one day and not more than three days:

Provided that in all such cases, such voting period shall be completed three days prior to the date of the general meeting;...

(vii) during the e-voting period, shareholders of the company, holding shares either in physical form or in dematerialized form, as on the record date, may cast their vote electronically:

Provided that once the vote on a resolution is cast by the shareholder, he shall not be allowed to change it subsequently....

(viii) at the end of the voting period, the portal where votes are cast shall forthwith be blocked....

(ix) Scrutiniser: the Board of directors shall appoint one scrutinizer, who can be Company Secretary in practice but not in employment of the company and is a person of repute who, in the opinion of the Board can scrutinize the e-voting process in a fair and transparent manner:

Provided that the scrutinizer so appointed may take assistance of a person who is not in employment of the company and who is well-versed with the e-voting system;...

(x) the scrutinizer shall be willing to be appointed and be available for the purpose of ascertaining the requisite majority;...

(xi) the scrutinizer shall, within a period of not exceeding three working days from the date of conclusion of e-voting period, unblock the votes in the presence of at least two witnesses not in the employment of the company and make a scrutinizer’s report of the votes cast in favour or against, if any, forthwith to the Chairman;...

(xii) the scrutinizer shall maintain a register either manually or electronically to record the assent or dissent, received, mentioning the particulars of name, address, folio number or client ID of the shareholders, number of shares held by them, nominal value of such shares and whether the shares have differential voting rights;...

(xiii) Register & Records: the register and all otherpapers relating to electronic voting shall remain in the safe custody of the scrutinizer until the chairman considers, approves and signs the minutes and thereafter, the scrutinizer shall return the register and other related papers to the company....

(xiv)Results: the results declared along with the scrutinizer’s report shall be placed on the website of the company and on the website of the agency within two days of passing of the resolution at the relevant general meeting of members;...

(xv) subject to receipt of sufficient votes, the resolution shall be deemed to be passed on the date of the relevant general meeting of members..

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...

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Subsidiary of a Foreign Company- Status Under Companies Act, 2013

Status of a subsidiary of a Foreign Company as per Companies Act, 2013
With the legislation of the new Act, it has been clarified that a body corporate incorporated outside India is not prohibited from incorporating subsidiaries as private/public companies. This implies that the earlier criteria (Sec 4(7) of the Old Act explained below) of automatically deeming certain private companies as public now cease to exist and a company’s status would be directly determined from the manner of its formation..

Status of existing subsidiaries
Further, existing private/public companies (subsidiaries) will continue to retain their status and the change in law will not affect them in any manner (MCA Circular No. 23/2014). This implies that deemed public companies under the old Act will continue with their tag of public company even though under the new Act they might be categorized as a private company..

Sec 4(7) of the Old Act
According to Sec 4 (7) of Companies Act, 1956 a private company (subsidiary) incorporated in India by a body corporate incorporated outside India would qualify as a public company if the following conditions were fulfilled:.

  • The body corporate incorporated outside India should be of such a nature that if incorporated in India it would acquire the status of a public company.
  • The entire share capital of the private company should not be held by the body corporate incorporated outside India either alone or together with one or more other such body corporate(s) incorporated outside India.

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Issue of shares by Private placement (includes Preferential Issue)

Preferential Issue – Procedure

(updated upto 18th March, 2015)

Compiled from provisions of Section 42 and Section 62 of the Companies Act, 2013 read with Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014 and Rule 13 of Companies (Share Capital and Debentures) Rules, 2014. 

a)      Shareholders meeting

1.  The issue has been authorized by a special resolution of the members (Sec 62(1)(c)). File form MGT-14 with ROC with copy of special resolution within 30 days.

2.  The company shall make various disclosures in the explanatory statement to be annexed to the notice of the general meeting pursuant to section 102 of the Act as stated in Rule 13 of Companies (Share Capital and Debentures) Rules, 2014. Among various details, the names of the proposed allottees, the change in control and the pre & post shareholding pattern, shall also be disclosed.

3.  The allotment of securities on a preferential basis made pursuant to the special resolution shall be completed within a period of twelve months from the date of passing of the special resolution.

4.   No fresh offer or invitation under this section 42(3) of the Companies Act, 2013 shall be made unless the allotment with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company

b)     Registered valuer

5.  The price of the shares or other securities to be issued on a preferential basis shall be determined on the basis of valuation report of a registered valuer;

However, in case of preferential issue by a listed company, the price of the shares to be issued is not required to be determined by the report of a registered valuer.

c)      Offer Document (PAS-4) and complete record (PAS-5)

6.  Issue of a private placement offer letter. (Sec 42(1)). For the purposes of sub-section (1) of Section 42, a company may make an offer or invitation to subscribe to securities through issue of a private placement offer letter in Form PAS-4.

7.  A private placement offer letter shall be accompanied by an application form serially numbered and addressed specifically to the person to whom the offer is made and shall be sent to him, either in writing or in electronic mode, within thirty days of recording the names of such persons. (Section 42(7) read with Rule 14(1)(b) of Chapter III)

8.  The company shall maintain a complete record of private placement offers in Form PAS-5.

9.  A copy of such record (PAS-5) along with the private placement offer letter in Form PAS-4 shall be filed with the Registrar within 30 days of circulation date. Date of private placement offer letter shall be considered as circulation date.

However MCA gave a clarification dated 18.03.2015 which states that in case of any preferential offer to one or more existing members, there is no requirement to make an offer in Form PAS 4 neither is a requirement to file it with the RoC / SEBI along with record of Private Placement i.e PAS-5.

d)     Share Application Money

10.    A company making an offer of securities shall allot its securities within sixty days from the date of receipt of the application money for such securities. If not able to allot, return application money within 15 days failing which interest shall be payable by the company @ 12% p.a.

11.  Monies received on application under this section shall be kept in a separate bank account in a scheduled bank.

12.  The payment to be made for subscription to securities shall be made from the bank account of the person subscribing to such securities and the company shall keep the record of the Bank account from where such payments for subscriptions have been received. (Rule 14(2)(d) of Companies (Prospectus and Allotment of Securities) Rules, 2014)

13.  The securities allotted by way of preferential offer shall be made fully paid up at the time of their allotment.

 e)      Return of Allotment

14.  A return of allotment of securities under section 42 shall be filed with the Registrar within thirty days of allotment in Form PAS-3(along with a copy of valuation report).

Penalty

If a company makes an offer or accepts monies in contravention of this section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount involved in the offer or invitation or two crore rupees, whichever is higher, and the company shall also refund all monies to subscribers within a period of thirty days of the order imposing the penalty (Sec 42(10)).


 

Postal Ballot

Postal ballot means voting by post or through any electronic mode.(Sec2(65) of the CA 2013)

Earlier, Section 192A of the Companies Act, 1956, read with the Companies (Passing of the  Resolution by Postal Ballot) Rules, 2001 (the Rules) obligated the listed companies to conduct certain businesses only by way of postal ballot. 

Applicability

Postal Ballot is now applicable to all companies except One Person Company and other companies having members upto two hundred. (Proviso to Rule 22 of chapter 7)

The following items of business shall be transacted only by means of voting through a postal ballot (Section 110(1)(a) of the Act read with Rule 22(16) of Companies (Management and Administration) Rules, 2014).

(a) alteration of the objects clause of the memorandum;

(b) alteration of articles of association in relation to insertion or removal of provisions which are required to be included in the articles of a company in order to constitute it a private company;

(c) change in place of registered office outside the local limits of any city, town or village;

(d) change in objects for which a company has raised money from public through prospectus and still has any unutilized amount;

(e) issue of shares with differential rights;

(f) variation in the rights attached to a class of shares or debentures or other securities;

(g) buy-back of shares;

(h) election of small shareholders director (applicable to listed company);

(i) sale of the whole or substantially the whole of an undertaking;

(j) giving loans or extending guarantee or providing security in excess of the limit (specified under sub-section (3) of section 186): 

Procedure to be followed for conducting business through postal ballot.-

(1)   Where a company is required or decides to pass any resolution by way of postal ballot, it shall send a notice to all the shareholders, along with a draft resolution explaining the reasons thereof and requesting them to send their assent or dissent in writing on a postal ballot because postal ballot means voting by post or through electronic means within a period of thirty days from the date of dispatch of the notice.

(2)   The notice shall be sent either (a) by Registered Post or speed post, or (b) through electronic means like registered e-mail id or (c) through courier service

(3)   An advertisement shall be published at least once in a vernacular newspaper  and at least once in English language in an English newspaper about having dispatched the ballot papers and specifying various details as prescribed in the rules.

(4)   The notice of the postal ballot shall also be placed on the website of the company

(5)   The Board of directors shall appoint one scrutinizer,

(6)   If a resolution is assented to by the requisite majority of the shareholders it shall be deemed to have been duly passed at a general meeting convened in that behalf.

(7)   The scrutinizer shall submit his report within seven days after the last date of receipt of postal ballots;

(8)   The results shall be declared by placing it, along with the scrutinizer’s report, on the website of the company.

(9)   The resolution shall be deemed to be passed on the date of at a meeting convened in that behalf.

Listed Companies:

In addition to the above mentioned businesses, SEBI (Buy Back of Securities) Regulations, 1998, SEBI (Delisting of Equity Shares) Regulations, 2009, SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 also provide some business for which postal ballot is mandatory.

Clause 49 of the Listing Agreement also suggests, among others, the following information to be included in the Report on Corporate Governance in the Annual Report of Companies under the heading – General Body meetings:

  1. Whether any special resolution passed last year through postal ballot – details of voting pattern
  2. Person who conducted the postal ballot exercise
  3. Whether any special resolution is proposed to be conducted through postal ballot
  4. Procedure for postal ballot

1st things 1st – Disclosure of Director’s Interest

We updated earlier about the correction in the letter head of the Company in order to comply with the requirement of the Companies Act, 2013. Another thing the company has to be careful about is Disclosure of Director’s interest.

Disclosure of Director’s Interest….

  • Every director shall disclose his concern or interest in any company or companies or bodies corporate (including shareholding interest), firms or other association of individuals, by giving a notice in writing in the form prescribed. (Sec 184).
  • When to disclose: Such disclosure shall be made at the 1st board meeting in which the director participates and thereafter at the 1st meeting of every financial year or whenever there is a change. All notices shall be kept at the registered office and shall be preserved for a period of eight years.
  • No option but to comply: Earlier, most of the Companies used to ignore the provisions relating to Disclosure of Director’s Interest. Now, the Companies will have no option but to comply with this provision, reason being…..

Reason 1: Contravention by a Director may lead to imprisonment extending to 1 year or a fine not less than Rs. 50,000 and extending to Rs. 1,00,000. (This contravention can be compounded only with the approval of the Special Court.).

Reason 2:  The Company shall file copy of this Resolution (Disclosure of Interest) with the RoC within 30 days of passing it..

Reason 3: If there is delay in filing the Resolution beyond 270 days, then the Company shall be punishable with fine of minimum of Rs. 5 lacs but which may extend to Rs. 25 lacs and every Officer in Default shall also be penalised with fine of min Rs. 1 lac to Rs. 5 lacs. (The only reprieve is this is a compoundable offence).

Reason 4: The office of a director shall become vacant in case  he acts in contravention of the provisions of Section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested (Sec 167)

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Board Meeting by Video Conference

1. The participation of directors in a meeting of the Board may be either in person or through video conferencing or other audio visual means..
2. Directors participating through video conferencing shall also be counted for the purposes of quorum..
3. Matters not to be dealt with in a meeting through video conferencing

  • Approval of annual financial statements.
  • Approval of the Director’s report.
  • Approval of the prospectus.
  • Audit committee meetings for consideration of accounts.
  • Approval of matters relating to amalgamation, mergers, demergers, acquisitions and takeovers..

4. The system should be capable of recording and storing the proceedings of such meetings along with date and time:.

5. The Chairperson / Company Secretary shall take care for safekeeping of electronic recording (as part of the records of the company) at least before the time of completion of audit of that particular year.


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Disqualifications of Directors : Non-filing of B/s and Annual Returns

In this excerpt, the focus is on disqualification because of non-filing of Balance Sheets and Annual Return or similar such non-compliances (Sec 164(2) of the Companies Act, 2013)..

The following persons shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company –.

  • Failed to file financial statements or annual returns for any continuous period of three financial years; or
  • Failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more

Every director shall inform to the company concerned about his disqualification under sub-section (2) of section 164 in Form DIR-8 before he is appointed or re-appointed (Rule 14(1) of Companies (Appointment and Qualification of Directors) Rules, 2014).

Now, it has been made the duty of the company to mandatorily intimate ROC (in e form DIR 9) about its failure, and if it fails to intimate within a period of thirty days, the Directors and officers of the company shall be the officers in default. These are far reaching consequences. Regarding Officer who is in Default, we will discuss it very soon..

Also, it has been made the duty of the Auditors to state in its Auditors Report whether any director is disqualified for non-compliances as stated above.

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Rotation of Auditors

Now, rotation of auditors is mandatory for all listed companies and only those unlisted and private companies which meet the prescribed criteria..

1. Unlisted Public companies with a paid up share capital of Rs. 10 crore or more;

2. Private Limited companies with a paid up share capital of Rs. 20 crore or more; and

3. Companies with public borrowings from financial institutions, banks or from the public (by way of deposits) of Rs. 50 crore or more..

Prior period is to be taken into account: For the purpose of the rotation of auditors, the period for which the individual or the firm has held office as auditor prior to the commencement of the Act shall also be taken into account.

Rotation among ‘network firms’ or associate or affiliates of an existing audit firm has also been prohibited.

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Appointment of MD, CS, etc. (KMP)

Now Private Limited Companies, irrespective of their capital, are not mandatory required to appoint KMP (Key Managerial Personnel).

MD, Whole-time Director, CEO, CFO and Company Secretary have been defined in the CA 2013 to be the KMPs of the Company. 

Following Companies are mandatorily required to have KMP 

  1. Every listed company and
  2. Every other public company having a paid-up share capital of ten crore rupees or more

Letter Heads : CA 2013

(revised upto August 3, 2016)

CIN to be there on Letter Head: The Corporate Identity Number which is a 21 digit number allotted by the Ministry of Corporate Affairs – this needs to be now printed in the company letter heads/ invoices and any other official documents of the company..

Change in Name of the Company: Where there is a change in the name of the company during the last two years then the former name shall also be mentioned along with the current name. It can be mentioned as “erstwhile XYZ Private Limited” in brackets under the new name. The old name should also be mentioned in the name plates which is required to be prominently affixed outside the registered office of the company.

More information on Letter Head: Apart from above the current name of the company, address of its registered office telephone number, fax number, e-mail address, website address also need to be printed on the letter heads and all other oficial publications of the company.


Explanatory Statement under Companies Act, 2013

(Amended upto June 5, 2015)

 

As you are aware that the Ministry has now enforced 98 sections of the Act vide notification dated September 12, 2013. The said sections have come into effect from September 12, 2013. One of the enforced provisions is Section 102 dealing with Statement to be annexed to the notice calling general meetings for every special business [corresponding to section 173 of the Companies Act, 1956 (1956 Act)]..

What it requires additionally is the disclosure of not only the names of the interested parties but also the nature and extent of interest of directors, managers, key managerial personnel (KPM) and relatives of directors, manager and KMP in the explanatory statement to be annexed for every special business in the notice calling general meetings..

Moreover, if any item of special business to be transacted refers to any document which is to be considered at the meeting then the details of time and place where such documents can be inspected shall also be mentioned in the explanatory statement given for that special business.

The basic idea behind giving explanatory statement is to provide the shareholders with all the necessary information and facts so that they can make an informed decision.

If any director, promoter, manager, KMP or any of their relatives accrue any benefit due to non-disclosure of interest in the explanatory statement then such person shall hold such benefit in trust for the company and compensate the company to the extent of benefit received by them.

Exception to Requirement of Sending Explanatory Statement:

  • There is no need to annex the explanatory statement to the notice of an EGM convened by the requistionists.
  • Section 102 shall not apply to private companies if articles of the company provide so.

 

 

Subscription to MoA by Non Residents (at the time of Company Incorporation)

Subject to the sectoral policy on foreign investments and non-resident holding limits applicable to an Indian company, the entire share capital of a company may be held by non-residents. There is no restriction on a non-resident being a subscriber to the Memorandum of Association, however some procedural aspects under Companies Act needs to be taken care of.

Signature of the Foreign National to be consularised by the Indian consulate in the country of the Non Resident subscriber 

Special procedure as to the legal validity is followed in case of subscription to Memorandum of Association (MoA) as a measure of safeguard for tracing Foreign National in case of default made. It was felt appropriate that the address of the Foreign National is attested by the Indian Embassy of Country of origin of Foreign National. This was the logic given by the Department of Company Affairs (DCA, now MCA) way back in 2003 vide its circular 17/69/2003 CL-V dated 7th January, 2004. DCA came out with this circular in order to prescribe uniform procedure on subscription to MoA by Foreign National.

Vide the said circular dated 7th January 2004, RoCs were advised to follow uniform procedure on subscription to MoA by Foreign National. The circular provided for the following:

  • If the MoA is signed by foreign nationals outside India, their signatures are to be attested before the Indian Embassy in the Country in which subscribers are residing
  • If the MoA is signed by foreign nationals (who are not resident of India and are on temporary visit) in India, their signatures can be attested by a person in India (professional like Chartered Accountant, Company Secretary, Advocate etc) and proof of their visit to india like passport and visa are to be produced for verification
  • If the MoA is signed by foreign nationals residing in India for several years / permanently, procedure as at para (b) above is followed and documentary proof of the fact that the subscribers have been residing in india is also insisted upon.

MoA can also be subscribed by suitable authorisation

It may also be noted that an Indian National resident in India can also be authorised by way of Power of Attorney (PoA) to subscribe to the MoA. In that case the PoA should be Notarised and consularised in the country of origin. Also, such PoA should be adequately stamped within 3 months of the document landing in India.

If the subscriber is a foreign company, the authorisation shall be by way of Board Resolution which shall also clearly specify the number of shares being subscribed. Such Board Resolution should be notarised and consularised in the country of origin.

If the MOA is subscribed in any other language other than the language of the MoA, then an affidavit shall be required stating that the subscriber has understood the contents of the document, i.e. Memorandum and Articles of Association.

FEMA Compliances

FEMA compliances have been separately covered in a separate blog titled Post Incorporation Compliances-Companies Act 2013

CS Samrish Bhanja