All posts by Mayank Verma

Judicial Remedy to Disqualified Directors

In 2017, more than 200,000 companies were struck off to remove the inoperative companies from the Records of the Register of Companies and more than 3,00,000 Directors were disqualified by deactivation of their DIN (Director Identification Number). These stringent measures were taken by the Government in respect of companies which were in default with respect to filling of financial statement or Annual return with the Registrar of Companies under the provisions of the Companies Act 2013 and 1956.

Consequences of disqualification:

When a Company defaults in filing its Financial Statements or Annual Return for a continuous period of three years, the Director of such defaulting Companies will not be eligible to be re-appointed in that Company or appointed as Director in other Companies for a term of five years and his office shall be liable to be vacated in all the Companies, other than the company which is in default, where he is Director immediately on the occurrence of disqualification (Section 164 read with Section 167 of the Companies Act, 2013). Also, as a result of their disqualification, DIN of Disqualified Directors are de-activated by the Registrar of Companies. Read more about disqualification of directors.

MCA came out with Condonation of Delay Scheme (CODS) for relief to certain companies: MCA (vide General Circular No. 16/2017 dated 29.12.2017) came out with CODS for those companies which are currently active but their directors are disqualified because of default of section 164(2) (Non-Filing of Financial Statements). The purpose of CODS was to give relief to the defaulting companies and disqualified directors by giving them an opportunity to make their default good and also get the default condone by the MCA. To read more about CODS.

 Judicial pronouncements by different High Courts in India:

 Ever since the Government came out with the notification, there has been spate of writ petitions seeking relief from disqualification. In one of the very well-known cases, the Hon’ble High Court of Judicature at Hyderabad has passed an order dated October 6, 2017 in Writ Petition (M/s. Dr. Reddy’s Research Foundation & Ors. Vs. The Ministry of Corporate Affairs & Anr). It was argued that the new regulation disqualifying the directors of the company if it fails to file annual returns for three financial years, as per Section 164 of the Companies Act, 2013, came into effect only on April 1, 2014. The three years from April 2014, would fall only by the end of March 31, 2017 and that the last date for filing annual return for the fiscal 2016-17 is October 30, 2017. The Court finally directed to restore the DIN number of the directors to enable such directors to submit annual returns in respect of the defaulting company for the years 2011 and 2016.

More Case Laws:

  1. Hon’ble Delhi High Court in the matter of in the case of Trilokchand M. Kothari & ors. V. Union of India & Ors. (P.(C) No. 11381 of 2017): Petitioners were unable to take the benefit of CODS because the companies in which they were director were struck off and they didn’t wish to revive the same then. The Hon’ble HC passed an order on 21.12.2017 as follows:
  • In case the Company is non-operative i.e. has neither commenced its business nor active for past 3 year and not holding assets The petitioners will be given a final opportunity to avail of the CODS-2018 and the Company will file hard copies of all requisite documents / application with the Registrar of Companies in relation to the aforesaid companies to avail of CODS-2018. It will submit an application in sub-section 248(2) (i.e. voluntary striking off) along with an affidavit and ROC will scrutinize the same and if the same are found to be otherwise in accordance with Section 248(2) of the Act, the petitioners would be granted benefit of CODS -2018 in respect of those companies. Further, the removal of the aforementioned companies from the Register under Section 248(1) (mandatory striking off) of the Act would be deemed to be under Section 248 (2) of the Act and petitioners’ application under Section CODS-2018 would be sympathetically considered by the Registrar.
  • In case the Company was operative and holding assets for 3 years – The petitioners shall approach the NCLT under Section 252 of the Act for revival and post revival, will do the filing pursuant to NCLT order.
  1. Hon’ble High Court of Bombay in the various writ petitions related to disqualification of directors, filed in year 2017 and 2018 endorses the order passed by Hon’ble Delhi High Court and stated the following statement in its order dated 22.03.2018:
  • The petitioners to take immediate steps in consonance with the provisions under Section 248(2) of the said Act, 2013 and under the CODS 2018, in any case within a period of seven days from that day.
  1. Hon’ble Delhi High Court Division Bench in the various writ petitions related to disqualification of directors, filed in year 2017 and 2018 passed the following order on 21.03.2018:
  • The petitioner(s) whose DIN numbers have not been activated despite interim orders in their favor, shall inform ROC and the respondents shall forthwith activate the DIN number;
  • the petitioner are entitled to avail the CODS-2018 Scheme, stand permitted to file the compliances under the CODS-2018 Scheme as hard copies with the Registrar of Companies and deposit (excluding petitioner(s) who have deposited fee through Demand Draft with ROC and the same is accepted) the fee and other charges payable for CODS with supporting calculations in court registry as fixed deposit and such deposit made in this court shall be deemed to be compliances and deposits having been effected in due compliance with the requirements of CODS 2018 Scheme with the respondents of course subject to making good any shortcomings which may be pointed out by the respondents;
  • The deposits under the CODS2018 Scheme have to be made by and on behalf of the Company concerned. As such, the payment or deposit by any one director shall be treated to have been made for and on behalf of the company.
  1. Hon’ble Rajasthan High Court in the matter of Niranjan Kumar and Mohan Lal Mahavar V. Union of India and ROC (Jaipur)P (C) 8899 of 2018, passed the following directions:
  • Companies shall file the requisite returns, documents and application under CODS 2018 with Registrar of Companies in hard copies;
  • The petitioners may continue to hold the post of director in the defaulting companies as well as in other companies so that they may be able to avail the benefit of CODS, 2018 during the pendency of the writ petition;
  • The petitioner would also make a necessary application under CODS-2018 along with the requisite charges. (CODS form with fees Rs. 30,000/-).

Conclusion:

The last date to avail benefit under CODS was 01.05.2018. Now, disqualified directors of the struck off companies which have failed to take benefit of CODS, are left with either of the following remedies:

  1. Revival of the Company:

Restoration of the name of the company by NCLT – If an operative company has been struck-off by the ROC due to its non-filing of Annual Return and if directors/promoters willing to continue the operations of the Company, then the directors / promoters of that company should apply to NCLT for restoration of its name. They can avail the benefits of relief given under the order of the NCLT.  Read more about Restoration of name of the company.

  1. Removal of Disqualification without reviving the Company.

File writ with High Court – In case of an in-active company which is struck-off , the disqualified  directors should file writ petition with the jurisdictional High Court. The High Court may provide  the following reliefs to the petitioner company:

  • permitting the company to file its Annual documents in hard copies,
  • allowing the company to file an application under Section 248(2) (Company can file an application voluntarily with the Registrar of Companies for Striking off the name of the Company)

The defaulting directors can get their disqualification removed after complying with all the above directions of the Hon’ble high court.

 

Transfer Of Shares Between Resident And Non-Resident (Private Limited Companies)

 

Transfer of shares between two residents (of India) involves payment of consideration (buyer to the seller) and execution of share transfer deed. Share transfer deed to be duly stamped @ 0.25% of the consideration amount. When the transaction is between a resident and a non-resident, there are regulations concerning inward and outward remittance of funds, valuation of shares and submission of form FC-TRS on e-biz portal. The Reserve Bank of India (RBI) through Notification No. FEMA 20(R)/ 2017-RB dated November 07, 2017, made Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 to regulate investment in India by a Person Resident outside India.

FC-TRS

 

FORM FOREIGN CURRENCY-TRANSFER OF SHARES (FC-TRS):

Form FC-TRS is required to be filed for transfer of capital instruments (Equity Shares, Fully and Compulsory Convertible Securities) of an Indian Company in the following cases:

  1. When the transfer is made between a person resident outside India (repatriable basis) and a person resident outside India (non-repatriable basis)
  2. When the transfer is made between a person resident outside India (repatriable basis) and a person resident in India.

 

Who is to file form FC-TRS?

Transfer of capital instruments prescribed above shall be reported on receipt of every tranche of payment. One of the important dilemma between public at large is that who has to file this form with Authorised Dealer Bank?

The onus of reporting FC-TRS shall be on the resident transferor/ transferee or the person resident outside India holding capital instruments on a non-repatriable basis, as the case may be.

 

What is the Time Limit for filing FC-TRS?

The form FCTRS shall be filed with the Authorised Dealer bank within sixty days of transfer of capital instruments or receipt/ remittance of funds whichever is earlier.

 

What is the Procedure for filing FC-TRS?

The following steps are included in filing of FC-TRS form:

  1. Execution of Share Transfer Deed and Payment of Stamp Duty: The parties should execute the following documents for transferring their shares:
    • Share Transfer Deed as per SH-4
    • Duly signed Consent letters from the buyers and seller.

Note: While executing the share transfer deed, stamp duty @ 0.25 % on the consideration amount is to be paid by purchasing the share transfer stamps, affixing those on the SH-4 and then crossing the same.

  1. Transfer of Funds: The funds should be transferred through proper Banking channels. Copy of FIRC and copy of KYC of person resident outside India should be obtained from Authorised Dealer Bank.
  1. Registration on E-biz portal: it is mandatory to register the details of the person filing form along with his/her digital signatures (DSC) on e-biz portal.
  1. Filing of form on E-Biz portal with the required attachments: The form is filled online on E-biz portal along with the name of attachments given below. The DSC of the concerned person is affixed while submitting form.
  1. Scrutiny from AD Bank: Post submitting form on E-Biz portal, AD bank scrutinize each and every application and it may send the form for re-submission if any documents/information is incorrect or missing.
  1. Sanction letter/ Certificate issued by AD Bank: AD Bank provides you with a sanction letter or certificate if all the documents and information are satisfactory to them. This is a documentary evidence which states that FDI compliances are duly taken care off by the applicant.
  1. Take on record by the Indian Company: The sanction letter/certificate issued by AD bank is attached with the share transfer form and share certificate and submitted to the Company so that company may take the transfer on its record.

Additional Step may be required in delay submission of FC-TRS: In case the applicant fails to file FC-TRS within 60 days of transfer, then the AD Bank will forward the application to RBI for its approval.

 

Is there any Statutory Fees for filing FC-TRS?

There is no upfront (like MCA portal) statutory fees for filing FC-TRS on E-biz portal, but AD Bank may charge for processing FC-TRS. The processing fees may vary from Bank to Bank. The bank may ask for an authorisation from Applicant in order to deduct the bank charges from account.

 

What are the Attachments to be filed with form FC-TRS on E-biz portal?

Form FC-TRS is an online form that is to be filled and filed through E-biz portal along with the following important documents:

  1. Consent Letter from Buyer and Seller.
  2. Copy of FIRC in cases of foreign remittance is received by resident Indian.
  3. Copy of KYC of the buyer (NRI) on the letterhead of the bank.
  4. Valuation Report from the Certified Valuer certifying the value of shares.

 

Is there any prescribed method for valuation of shares?

Price of share shall be decided on the basis of valuation of Shares as per any internationally accepted pricing methodology for valuation on an arm’s length basis duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a practicing Cost Accountant.

  • While transferring shares from resident to non-resident, the minimum bar on price is set. The price cannot be less than the price determined from the valuation report.
  • In case the shares are transferred from non-resident to resident investor, the upper cap for price is set. The price cannot be more than the price determined from the valuation report.

 

 

 

Compounding of Offences Under Companies Act, 2013

 

BRIEF INTRODUCTION

A company is a legal person formed under the applicable laws in order to do a business/activity by complying the laws of the land. In India, Companies Act, 2013 has many provisions in order to maintain transparent working of the company.  When these provisions are violated inadvertently or otherwise, either by the company or by its officer, huge penalty and prosecution provisions are attracted on them. Compounding of those violations is a solution given in the law.

 

What is meant by Compounding?

Compounding of an offense is a settlement mechanism, by which, the offender is given an option to pay money in lieu of his prosecution, thereby avoiding a prolonged litigation. There is no definition of the word “compounding” in the Companies Act 2013, however, the legal meaning of compounding is “doing good the default/noncompliance”.

Therefore, the first and foremost step in compounding is to make the default good. The procedure for compounding has been enumerated step wise later in this blog.

 

What is an Offence?

Term “Offence” has been extracted from section 3(38) of General Clauses Act, 1897, which says that “Offence” shall mean any act or omission made punishable by any law for the time being in force. An Offence may be “Compoundable” or “Non-Compoundable”.

 

Why should a Company go for Compounding?

The following are the advantages of Compounding:

  1. No personal appearance for officer in default, as in case of prosecution for an offence in a criminal court;
  1. No further prosecution shall be initiated either by registrar or shareholder or any other person in respect of that offence after compounding;
  1. Summary proceeding, less time consuming;
  1. The Compounding fee cannot be more than the maximum fine levied under the relevant provision;
  1. No appeal against order of composition;
  1. No disqualification for Directors, since fees payable on compounding are not treated as penalty;

One of the key benchmark in assessing ‘Ease of doing business’ is the smoothness and rapidness in compounding of offences.

 

What if prosecution is pending before a criminal court?

Section 441 starts with non-obstante clause “notwithstanding anything contained in the Code of Criminal Procedure, 1973”. A specific power or authority has been vested with NCLT or the Regional Director, as the case may be, under Section 441 of the Act to compound any offence punishable under this Act committed by a company or any officer thereof, not being an offence punishable with imprisonment only, or with imprisonment and also with fine. An elaborated procedure has been laid down for compounding such offences under Sub-sections (1) to (5) of Section 441 of the Act. It is nowhere indicated in any of the provisions as contained in Section 441, Sub-sections (1) to (5) that the NCLT or Regional Director while compounding the offences punishable under the Act is required or obliged to insist on obtaining prior permission of the criminal court where any such prosecution is pending.

 

Which offences are compoundable?

As per Section 441(1), the following two kind of offences are compoundable:

  1. Offences punishable with fine only.
  1. Offences punishable with imprisonment or fine or both.

 

Circumstances where compounding is not possible:

  1. The offence cannot be compounded in case either the investigation against company has been initiated or is pending.
  1. The offence cannot be compounded in case similar offence committed has been compounded and period of three years has not expired.
  1. Any offence which is punishable under this Act with imprisonment only or with imprisonment and also with the fine;

 

Jurisdiction to handle cases for the compounding:

A significant pre-requisite for filing application for compounding is to know where the application should be filed. This is answered in the section 441 itself as:

  1. In case the quantum of fine in any offence is upto INR 25 Lakh  [as amended by Companies (Amendment) Ordinance, 2018 dated 02.11.2018], the jurisdiction to compound that offence is with the concerned Regional Director (RD) or any officer authorised by the Central Government.
  1. In case the quantum of fine exceeds INR 25 Lakh  [as amended by Companies (Amendment) Ordinance, 2018 dated 02.11.2018], the Jurisdiction to compound that offence is with the respective Bench of the National Company Law Tribunal (NCLT).

Note: In case the offence is punishable with imprisonment or fine or both, the prior permission of Special Court was required. But, as per section 90 of Companies Amendment Act, 2017 notified as on 09.02.2018, the power to decide compounding case for offences punishable with imprisonment or fine or both has been given to NCLT. This amendment is a major step towards ease of doing business.

 

Procedure to compound an offence under Companies Act, 2013:

  1. Filing compounding application is the secondary step. The First step is to make the default good.
  1. An application for the compounding of an offence shall be made to the Registrar in Form GNL – 1.
  1. Registrar shall forward the same, together with his comments thereon, to the Tribunal or the Regional Director or any officer authorised by the Central Government, as the case may be.
  1. The concerned authority will hear both parties, i.e. Applicant and the Registrar and will pass compounding order by deciding the following:
    • Quantum of Fine which shall not exceed the maximum amount of the fine which may be imposed for the offence so compounded;
    • Directing any officer or other employee of the company to file, submit, deliver any document, return, account on payment of the fee, and the additional fee (as per sec 403) within such time as may be specified in the order.
  1. Where any offence is compounded, an intimation thereof shall be given by the company to the Registrar within seven days from the date on which the order is made available to the petitioner/applicant.

 

Post compounding of an offence:

  1. In case the offence has been compounded before the institution of any prosecution, no prosecution shall be filed either by ROC or by any shareholder or by any person authorized by the Central Government.
  1. Where the compounding of any offence is made after the institution of any prosecution, such compounding shall be brought by the Registrar in writing, to the notice of the Court in which the prosecution is pending. And, on such notice of the compounding of the offence being given, the company or its officer in relation to whom the offence is so compounded shall be discharged.
  1. Payment of fine, as decided in the order of Compounding, to be made within the time prescribed in the order.

 

Penal Provisions:

Any officer or other employee of the company who fails to comply with any order made by the concerned authority under Section 441, shall be punishable with imprisonment for a term which may extend to six months, or with fine not exceeding one lakh rupees, or with both.

 

KEY POINTERS TO BE NOTED

  1. The Compounding application cannot be rejected without due consideration. The Company Law Board (now NCLT) in the case of Amadhi Investments Ltd., held that neither of the CLB or the Regional Director has been authorized with discretionary power to reject a compounding application without due consideration.
  1. Filing compounding application is the secondary step. The First step is to make the default good. The reason due to which default occurred should come to an end and thereafter the compounding application should be filed.
  1. In GNL – 1, the application can be filed for Company, Director or Manager/Secretary or CEO/CFO or others. Details of only 8 persons can be entered in the e Form. If number of persons is greater than 8, then additional details can be provided in optional attachment.
  1. Compounding application can be filed either before or after the institution of any prosecution.

 

COMMON OFFENCES FOR WHICH COMPOUNDING APPLICATION WERE MOVED TO RD/NCLT

1. Not Holding of Annual General Meeting “(AGM)” :

In case  where  companies  fails to hold its Annual General Meeting (as per Section 96)  in the below mentioned manner:

  • Within 6 months from the end of financial year ; or
  • Gap between the two AGM exceeds 15 months or more.

For instance, Compounding Orders were passed by NCLT Delhi Bench and NCLT Bengaluru Bench in the matter of M/s United News of India and M/s. Bhumika Alloy Castings Pvt. Ltd. respectively, where applicant had failed to hold AGM within the due date prescribed under the ACT and the offences were compounded by the respective NCLT Bench .

2. Not laying of Annual Accounts in the AGM:

In case where a company fails to lay down the audited financials or fails to get audited financials approved at AGM, and the AGM stands adjourned after the day which is in addition to the prescribed time period mentioned in Section 96 (please see point 1).

Example: In Bejoy Kumar case (supra) referred to in the Circular (Circular No. 4 of 1974, dated February 2, 1974) the Calcutta High Court did not accept the contention that an annual general meeting could be adjourned beyond the statutory period limits as laid down in sections 96 and 129 of the Act.

3. Inadequate Disclosures in Board’s Report:

In case the Companies fail to disclose or give facts and statements which are mandatorily required to be annexed to the Board’s Report.

Example: There is requirement to disclose the reason for not making adequate contribution towards CSR in Board’s Report. In case of M/s. Radhe Instrumentations Pvt. Ltd. and M/s. Pennwalt Ltd., NCLT Mumbai Bench accepted and compounded the default made by above companies.

4. Non appointment of Company Secretary & Chief Financial Officer:

In case where companies having paid-up share capital of INR 5 Crores or more fail to appoint a Whole-time Company Secretary [INR 10 Crores for other Key Managerial Persons (KMP)], such companies and every Director and KMP are liable for punishment with fine as per Section 203 (5) of the ACT.

Example: NCLT Bengaluru Bench, in case of Atyati Technologies Private Limited, has accepted the compounding application for default of non-appointing a Whole-time CS.


Updated till 5th January, 2019

Exemptions to Private Companies

Since the day Companies Act, 2013 was majorly notified, i.e. 01st April, 2014, it was widely criticised for being not business friendly and for being too restrictive. With the present Government’s resolve towards ease of doing business in India, several measures have been taken since then to ease the stringent provisions of Companies Act, 2013. The highlight of the journey since 01-April-2014 has been simplification in the process of Company Incorporation, integration of PAN and TAN (mandatory Income Tax registration numbers) into Company incorporation process (now the Company won’t have to make separate applications for these registrations thereby saving a minimum of 15 days process post incorporation. PAN is mandatory for Bank account opening), establishing National Company Law Tribunal (all matters under Companies Act are now being tried before this Tribunal in a time bound manner), notifying Insolvency and Bankruptcy code, 2016 thereby enabling the ease of closure of a Company in a time bound manner.

 

Several Notifications have been issued by the Ministry of Corporate Affairs, especially with respect to Private Limited Company, Small Companies and Start-up Companies. One major notification was issued on June 5, 2015 and now, another notification has been issued on June 13, 2017, further easing the compliances for these companies.

 

Given below is a brief analysis of the all exemptions that have been provided by the said notification:

 

S. No. Exemption / Modification / Adaptation from the Provisions of Companies Act, 2013 Analysis Possible Course of Action with regards to Article of Association of the Company
1. In section 2(40), for the proviso, the following shall be substituted:

Provided that the financial statement, with respect to one person company, small company, dormant company and private company (if such private company is a start-up) may not include the cash flow statement.

This means that a one person company, small company, dormant company and private company (if such private company is a start-up) need not include cash flow statement in its financial statement. If the AOA provides otherwise, then the company needs to amend its AOA to avail this exemption.
2. Section 2(76)(viii) shall not apply w.r.t. Section 188 Transactions with a holding company, subsidiary or an associate company or a fellow subsidiary shall not be considered as Related Party Transactions (RPT).
3. Section 43 and 47 shall not apply where MoA or AoA of the company provides otherwise Accordingly, private companies, by way of providing relevant provisions in their charter documents, are now free to structure voting rights (including voting rights to preference shares in case of non-payment of dividend), coupon on preference shares, etc. Company has to alter AOA for availing this exemption
4. Under Section Section 62(1)(a)(i) and 62(2):

Following proviso will be inserted in sub-clause (i) of clause (a) of sub-section (1) of Section 62:

“Provided that notwithstanding anything and sub-section (2) of this section, in case 90% of the members of a private company have given their consent in writing or in electronic mode, the periods lesser than those specified in the said sub-clause or sub-section shall apply.”

This would basically mean that in case of a rights issue, if at least 90% of the shareholders of the company agree (either in writing or in the form of an e-mail response) then the period of notice as well as the duration of rights offer can be shortened. If the AOA provides otherwise, then the company needs to amend its AOA to avail this exemption.
5. In Section 62(1)(b), for the words ‘special resolution’, the words ‘ordinary resolution’ shall be substituted This would mean that for the purpose of approving employee stock option plans, a private company would require an ordinary resolution and not a special resolution. If SR is mention in AOA then it has to be amended in order to avail this benefit.
6. Section 67 Will not apply to private companies:

  1. in whose share capital no other body corporate has invested any money;
  2. if the borrowings of such a company from banks / financial institutions / any Body Corporate is less than twice its paid up capital or Rs. 50 crs whichever is lower; and
  3. such a company is not in default in repayment of such borrowings subsisting at the time of making transactions under this section.
A private limited company can buy its own shares without effecting a consequent reduction of share capital if the company complies with the prescribed qualifications. If the AOA provides otherwise, then the company needs to amend its AOA to avail this exemption.
7. Section 73(2)(a) to (e) shall not apply to a private company which accepts from its members monies not exceeding 100% of aggregate of the paid up share capital and free reserves and securities premium account

OR

which fulfils all of the following conditions, namely:-

  1. which is not an associate or a subsidiary company of any other company;
  2. if the borrowings of such a company from banks or financial institutions or any Body Corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and
  3. such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under this section.

Such company shall file the details of monies so accepted to the RoC in such manner as may be specified.

This means that private companies which accepts prescribed threshold of monies from its members will not require to issue circular to its members, file a copy of the circular to the RoC, deposit certain amount of money in its deposit repayment reserve account, provide a deposit instance and certify that no default has been committed in repayment of deposits and interest thereon. If the AOA provides otherwise, then the company needs to amend its AOA to avail this exemption.
8. Section – 92 (1)(g) shall apply to small companies  in the following way:

“aggregate amount of remuneration drawn by directors”

Small Company will only disclose the aggregate amount of remuneration drawn by all directors. No need to bifurcate the amount.
9. Section – 92 (1) shall apply to small companies in the following way:

“The annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company.”

Now Annual Return can be signed by Company Secretary (if any) or any one director of the Company. Earlier it has to signed by atleast two directors. If the AOA provides otherwise, then the company needs to amend its AOA to avail this exemption.
10. Provisions of the Following Sections:

101 – Notice of General Meeting

102 – Explanatory Statements

103 – Quorum of General Meeting

104 – Chairman of the General Meeting

105 – Proxies

106 – Restrictions on Voting Rights

107- Voting by show of hands

109 – Demand for poll

Shall apply unless otherwise specified in respective sections of the articles of the company provide otherwise.

A private company can provide separate provisions in its articles with respect to its general meeting notice, explanatory statement, quorum, chairman, proxies, voting (by show of hands or by way of poll) and most importantly it can also specify voting rights in case of partly paid up shares. Articles of Associations are to be amended for availing these exemptions
11. Section 117(3)(g) shall not apply The provisions of Section 117 shall not apply to the resolutions passed by private limited company in pursuance to the provisions of clause 179(3). No MGT- 14 shall be filed by the Company for the above Board Resolutions passed. No Amendment is required under AOA of the Company.
12. Section -143(3)(i) shall not apply to the following private companies:

  1. which is a one person company or a small company; or
  2. which has turnover less than rupees fifty crores as per latest audited financial statement or which has aggregate borrowings from banks or financial institutions or any body corporate at any point of time during the financial year less than rupees twenty five crore.
The clause i of Section 143(3) focus about the requirement of having adequate Internal Financial Control System & its operating effectiveness in the Company and Disclosure of the same in Auditors Report. Now the OPCs, Small Companies and Specified Private Companies are not obligated to maintain these control systems in their respective Company.
13. Section 160 shall not apply In case of regularization of additional directors and appointment of any director other than retiring director, that the requirement of Rs. 1 lakh deposit and the 14 days’ notice period is no more required. If the AOA provides otherwise, then the company needs to amend its AOA to avail this exemption.
14. Section 162 shall not apply A private company can move the motion to appoint two or more persons as directors by a single resolution.
15. Section 173(5) shall apply in the following way:

A small company shall be deemed to have complied with the provisions of this section if at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days

The minimum number of board meetings to be conducted in every year has been atleast one in each half of a calendar year and min gap between two meetings is 90 days. Alteration of AOA is required.
16. Section 174(3) shall apply with the exception that the interested director may also be counted towards quorum in such meeting after disclosure of his interest pursuant to Section 184 This means that if the number of Interested Directors exceeds or is equal to two-thirds of the total strength of the Board of Directors, the Interested Director may also be counted towards quorum in such meeting after disclosure of his interest pursuant to Section 184.
17. Section 180 shall not apply This means that all the powers / decisions listed u/s 180 can now be taken by the board of a private limited company without obtaining approval from the shareholders of the company. AOA has to be altered if required.
18. Section 184(2) shall apply with the exception that the interested director may participate and will also be counted for quorum in such meeting after disclosure of his interest. This means that a director can participate in a meeting wherein such matters are discussed in which he / she is interested, only after he/she discloses his/her interest.
19. Section 185 shall not apply to a private company:

  1. in whose share capital no other body corporate has invested any money;
  2. if the borrowings of such a company from banks / financial institutions / any body corporate is less than twice of its paid up share capital or Rs. 50 crores, whichever is lower; and
  3. such a company has no default in repayment of such borrowings subsisting at the time of making transactions under this section.
Only prescribed type of companies are eligible for an exemption from the provisions of Section 185 and can advance, directly or indirectly, any loan (including any loan represented by book debt) or give any guarantee or provide any security in connection with a loan taken by a director or any other person in whom the director is interested. If the AOA provides otherwise, then the company needs to amend its AOA to avail this exemption.
20. Second proviso to Section 188(1) shall not apply In private company, even a related party member can also vote on resolutions, to approve any contract or arrangement with the related party.
21. Section 196(4) and (5) shall not apply The applicability of remuneration related provisions / restrictions in case of managerial personnel of private limited companies, especially in case of companies having losses or inadequate profits. Furthermore, no disclosures in the board or general meeting agenda will be required in case of remuneration of managerial personnel of private limited companies and such companies are also not required to file return with the RoC in this regard.

 

The Link to the following topics is given hereunder:

 

  1. MCA Notification dated June 05, 2015 : http://www.mca.gov.in/Ministry/pdf/Exemptions_to_private_companies_05062015.pdf
  2. MCA Notification dated June 13, 2017 : http://www.mca.gov.in/Ministry/pdf/ExemptionPrivateCompanies.pdf
  3. More Info on Start-Up Companies        : http://www.bsamrishindia.com/start-up-india-important-benefits-and-some-concerns/

 

 

 

Process for Exit of Exclusive Listed Companies (ELCs) from Dissemination Board (DB) of BSE

SEBI vide circular dated May 30, 2012 issued guidelines facilitating the exit of Derecognized/Non-operational stock exchanges and exit to the shareholders of exclusively listed companies (ELCs) by allowing them to get listed on nationwide stock exchanges after complying with the diluted listing norms of nationwide stock exchanges, failing which they would be moved to the Dissemination Board (DB). Further, SEBI vide circular dated May 22, 2014, inter-alia, provided that ELCs, on de-recognized/non-operational stock exchanges, can also opt for voluntary delisting by following the existing delisting norms of SEBI. It was also specified that if the ELCs fail to comply with the same, they shall be moved to DB. Subsequently, SEBI vide circular dated April 17, 2015 allowed a period of eighteen months’ time to ELCs on DB to obtain listing upon compliance with the listing requirements of the nation-wide stock exchanges and The ELCs which fail to list on the nationwide stock exchanges under the aforesaid mechanism shall provide exit opportunity to its members/investors.

As per the SEBI vide their circular number SEBI/HO/MRD/DSA/CIR/P/2017/27 dated March 27, 2017  and SEBI/HO/MRD/DSA/CIR/P/2016/110  dated October 10, 2016 the following steps have been identified for exit of ELCs from DB of BSE by way of delisting of shares:

Step – 1: Intimation of Plan of Action to the Designated Stock Exchange

  • The ELCs on the DB which are yet to indicate their intention to provide exit shall submit their plan of action to designated stock exchanges latest up to June 30, 2017 to the satisfaction of the designated stock exchanges.
  • The designated stock exchanges shall review the plan of action and ensure completion of the process within 6 months.

If we opt for the Delisting of Shares then there are practically two possibilities i.e. either there is public stake involved in the ELC or entire shareholding is held by Promoters only. If there is public stake involved in the ELC then the following steps shall be followed:

Step – 2: Appointment of Independent Valuer

  • The promoter in consultation with the designated stock exchange shall appoint an ‘independent valuer’ from the panel of expert valuers of the designated stock exchange.
  • In case the fair value determined is positive the promoter of the company shall acquire shares of such companies from the public shareholders by paying them such value determined by the valuer.
  • In case the fair value determined is nil or negative the promoters of the company shall acquire shares of such companies from the public shareholders by paying them such value as obtained after further discussion with Merchant Banker.

Step – 3: Acquisition of shares

  • The promoter shall undertake to complete the entire process within seventy five working days.

Step – 4: Mode of payment

  • The promoter shall open an escrow account in favor of independent valuer/designated stock exchange and deposit therein the total estimated amount of consideration on the basis of exit price and number of outstanding public shareholders.

Step – 5: Application to Designated Stock Exchange for Exit Scheme

  • An Application in prescribed form shall be made to designated stock exchange for informing option given by SEBI in its circular dated October 10, 2016 and to obtain a temporary user id and Password for uploading of various documents.

Step – 6: Newspaper Advertisement

  • The promoter of the company to make a public announcement in at least one national daily with wide circulation, one regional language newspaper of the region where the exited stock exchange was located and the website of the designated stock exchanges.

Step – 7: Offer Period

  • The exit offer shall remain open for a period of minimum five working days during which the public shareholders shall tender their shares.

Step – 8: Payment

  • The promoter shall make payment of consideration within fifteen working daysfrom the date completion of offer.

Step – 9: Certification by Promoter

  • The promoter shall also certify to the satisfaction of designated stock exchange that appropriate procedure has been followed for providing exit to shareholders of such companies. Subsequently, the designated stock exchanges upon satisfaction shall remove the company from the dissemination board.

In Case entire shareholding of the Company is held by promoters only then the following procedure has to be followed:

Step – 1: Seek an empanelled Independent professional

  • An empanelled Independent Professional is the SEBI Registered Category I Merchant Banker.

Step – 2: Newspaper Advertisement

  • The promoter of the company to make a public announcement in at least one national daily with wide circulation, one regional language newspaper of the region where the exited stock exchange was located and the website of the designated stock exchanges

Step – 3: Preparation and filing of documents by ELC and Empanelled Independent Professional

  • Letter from an empanelled Independent Professional and ELC informing the Exchange that 100% equity shares of the company are held by promoters and none of the shares of the company are held by public shareholders and that letter shall also state the date from which promoters are holding 100% equity shares of the company and the said company has complied with all the requirements of said SEBI circular dated October 10, 2016 and is eligible to be removed from the DB.
  • ELCs also required to submit latest shareholding pattern (format as per Regulation 31of SEBI LODR) duly certified by the company and the RTA showing 100% promoter holding.
  • Copy of public Announcement made in Step – 2.

BSE Link: http://www.bseindia.com/investors/disseminationboard.aspx?expandable=6