All posts by Nupur Singhal

Transfer of Shares between Resident and Non-resident: Six Steps FC-TRS

With the increasing pace of paperless governance, Reserve Bank of India (RBI) allowed the facility to file form FC-TRS electronically on e-Biz platform vide A.P. (DIR Series) Circular No. 9 dated August 21, 2015. Filing of form FC-TRS electronically through e-biz portal is mandated discontinuing the physical filing w.e.f. February 8, 2016 vide A.P. (DIR Series) Circular No. 40 dated February 1, 2016.

SIX IMPORTANT POINTS TO REMEMBER

  1. There is no fee for filing FC-TRS through e-biz portal.
  2. The onus of filing form FC-TRS lies on the transferor/transferee whosoever is resident in India.
  3. The transferor/transferee/consultant filing the form needs to register itself with e-biz portal before filing it.
  4. It is mandatory to attach the consent letter of both buyer and seller with form FC-TRS.
  5. Valuation of shares to be transferred must be as per FDI norms. (Detailed below)
  6. Sectoral limits applicable on the company must be taken care of before transferring shares.

REGISTRATION ON E-BIZ PORTAL

Following 2 registrations are required on e-biz portal before you can file form:

  1. Firstly, the transferor/transferee/consultant filing the form shall register itself on the portal.
  2. After that, the business/company in which the investment is made shall also be registered on the portal.

Only after the above two registrations are done, the transferor/transferee/consultant can file FC-TRS.

REPORTING REQUIREMENT IN FORM FC-TRS: LEGAL PROVISION

As per the Consolidated FDI Policy 2016, reporting of transfer of shares between Residents and Non-residents and vice- versa is to be made in Form FC-TRS. The Form FC-TRS should be submitted to the AD Category – I bank, within 60 days from the date of receipt/date of payment of the amount of consideration. The onus of submission of the Form FC-TRS within the given time frame would be on the transferor / transferee, resident in India.

ACTUAL STAGE OF FILING FC-TRS WITH E-BIZ PORTAL

Case I: Sale from Non-resident to Resident

At present, since filing of FC-TRS electronically is mandated, it is practically not possible to file FC-TRS within 60 days from the date of receipt of the amount of consideration in case the sale is made from Non-resident to Resident. This is because now AD Category-I bank requires proof of submitting FC-TRS on e-biz portal before releasing the payment to the Non-resident.

Thus, practically, following steps are followed:

Six Simple Steps for Transfer from Non-resident to Resident Under e-Biz

  1. Filing FC-TRS electronically along with the attachments.
  2. Submitting the proof of filing FC-TRS to AD Category-I bank along with the application and other required documents for making payment of consideration.
  3. Remittance is made
  4. Approval of FC-TRS by RBI. (The status can always be checked online)
  5. Submitting FC-TRS, proof of payment, share certificate(s), if applicable, share transfer deed and other document required with the company.
  6. Company registers the transfer.

Case II: Transfer from Resident to Non-resident

If the transfer by way of sale is made from resident to non-resident, it becomes necessary to attach FIRC for receipt of consideration from non-resident with form FC-TRS. Thus, following steps are followed for successful registration of transfer from resident to non-resident:

Six Simple Steps for Transfer from Resident to Non-resident Under e-Biz

  1. Receipt of consideration from non-resident.
  2. Obtain FIRC for the receipt above from AD Category-I bank.
  3. File FC-TRS electronically along with the attachments. FIRC is required to be attached with the form.
  4. Approval of FC-TRS by RBI. (The status can always be checked online)
  5. Submitting FC-TRS, share certificate(s), if applicable, share transfer deed and other documents required with the company.
  6. Company registers the transfer.

SIX DOCUMENTS REQUIRED TO BE ATTACHED ALONG WITH THE FORM

Following documents shall be attached to the e-form FC-TRS:

  1. Consent letter duly signed by the buyer and seller or their duly appointed agent and in the latter case, the Power of Attorney document.
  1. The shareholding pattern of the investee company before and after the acquisition of shares by a person resident outside India along with CS certificate from investee company that FDI is within the prescribed limit and as per extant guidelines.
  1. Certificate indicating fair value of shares from a Chartered Accountant.
  1. Declaration from the buyer to the effect that he is eligible to acquire shares/compulsorily and mandatorily convertible preference shares/debentures under FDI policy and the existing sectoral limits and pricing guidelines have been complied with. If applicable, declaration from the FII/sub account to the effect that the individual FII/sub account ceiling as prescribed has not been breached.
  1. If the sellers are NRIs/OCBs, the copies of RBI approvals evidencing the shares held by them, if any.
  1. Declaration by the Non-resident along with the self-attested photo ID proof of the person signing and the board resolution from the foreign company (if Non-resident is a Company) authorising to sign FC-TRS form.

VALUATION ASPECT

Case I: Listed Companies

In terms of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 as may be amended from time to time.

It is important to note that it holds good only for off market trades of listed securities. For trading on stock exchanges by Non-residents, refer to the SEBI (Foreign Portfolio Investors) Regulations.

Case II: Unlisted Companies

As per any internationally accepted pricing methodology on arm’s length basis.

PRICING OF THE SECURITIES TRANSFERRED BY WAY OF SALE

Case I: Sale from Resident to Non-resident

 The transfer shall be made at or above fair value determined as above. The minimum price shall be the fair value.

Case II: Sale from Non-resident to Resident

The transfer shall be made at or below the fair value determined as above. The maximum price shall be the fair value.

Transfer of Dividend to IEPF – Procedural Aspects

 

Step-by-Step Procedure:

  • Login on the MCA website and then select ‘Pay Miscellaneous Fee’ under the tab ‘MCA Services’. Following screen will appear:

 IEPF Snapshot 1

 

  • Select ‘Investor Education and Protection Fund’. The following screen will appear:

IEPF Snapshot 2

 

  • Fill in all the details and select ‘Pay Fee’. The following screen will appear:

IEPF Snapshot 3

 

 

  • Now, the payment can be made by 2 methods as follows:
  1. Offline payment through Challan.
  2. Online payment through Credit/Debit Card, Internet Banking or through NEFT.

 

METHOD OF OFFLINE PAYMENT

  1. Select ‘Challan’ from the payment options and the challan for offline paymentwill be generated as follows:

IEPF Snapshot 4

 

  1. Then deposit the amount in the name of Pay and Accounts Office with the authorized bank within 30 days of transfer becoming due.
  2. The amount shall be deposited along with 3 copies of challan to the authorized bank.
  3. The bank shall return 2 copies of challan to the company duly stamped “in token of having received the amount”.
  4. The company shall then file 1 copy of challan to the IEPF Authority and Form IEPF-1 within 30 days of submission of challan.

 

METHOD OF ONLINE PAYMENT

  1. Select Credit/Prepaid Card, Internet Banking or NEFT to make payment through online method.
  2. In case ‘NEFT’ is selected, the challan for NEFT will be generated as follows:

IEPF Snapshot 5

Similarly, the challan will be generated for payment through Internet Banking and Credit/Prepaid Card.

  1. Thereafter file Form IEPF-1 within 30 days of payment and attach to it the challan generated for payment.

NOTE:A person may claim amount or shares transferred to IEPF by filing Form IEPF-5.

 

Treatment of Fund under Section 205C of the Companies Act, 1956

It shall be transferred to the Fund created under Section 125 of the Companies Act, 2013 and investors whose dividend and other amounts were transferred to the previous fund shall also be entitled to get refund in accordance with Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules , 2016.

 

RELEVANT LINKS:

For various Timelines of Transfer to IEPF, refer to the Various Timelines Under the Comopanies Act, 2013 for IEPF Compliances.

For information on Transfer of Shares to IEPF, refer to the Transfer of Shares to IEPF – Legality and Practicality.

 

 

Transfer of Shares to IEPF – Legality and Practicality

As per Section 124(6) of the Companies Act, 2013, all the shares, in respect of which unpaid or unclaimed dividend are transferred to IEPF,shall also be transferred in the name of IEPF within 30 days of such transfer of shares becoming due (Rules are yet to be notified for simplifying such transfer of shares to IEPF).

PROCEDURE TO TRANSFER SHARES TO IEPF

  1. The Board shall authorize Company Secretary or any other person to sign the relevant documents.
  2. The company shall inform the shareholders concerned whose shares are to be transferred at their last known address 3 months before the due date of transfer of shares.
  3. Simultaneously, it shall publish a notice in English and regional language having wide circulation and on their website giving details of such shareholders and shares due for transfer.
  4. In case of demat shares, the person authorized by the Board shall sign the Delivery Instruction Slips on behalf of such shareholders for transfer in favor of IEPF suspense account (name of the company).
  5. In case of physical shares, the following procedure needs to be followed:
  6. The person authorized by the Board shall apply for duplicate share certificates to the company on behalf of such shareholders and then the company shall issue duplicate share certificates and it shall be stated on the face of it- “Issued in lieu of share certificate no.______ for purpose of transfer to IEPF” and the word “duplicate” shall be stamped or punched in bold letters across the face of the share certificate.
  7. After this, the person authorized by the Board shall sign form no. SH-4 on behalf of shareholders for transferring the shares in favor of the Fund.
  8. On receipt of all the documents, the Board or its Committee shall approve the transfer and thereafter thetransfer of shares shall be effected in favor of the Fund in the records of the company.

OTHER IMPORTANT POINTS

  1. While effecting such transfer, the company shall send a statement to the Fund in Form No. IEPF 4 containing details of such transfer.
  2. Exception:In case the beneficial owner has encashed any dividend warrant during the last 7 years, such shares shall not be required to be transferred to the Fund even though some dividend warrants may not have been encashed.
  3. The company or depository, as the case may be, shall preserve copies of the depository instruction slips, transfer deeds and duplicate certificates for its records.
  4. When the physical shares are transferred, the Authority shall demat these shares and it shall keep only those shares in physical form, where demat of shares is not possible.
  5. The voting rights on shares transferred to the Fund shall remain frozen until the rightful owner claims the shares.

The Authority shall maintain IEPF suspense account (name of the company) with DP on behalf of the shareholders who are entitled for the shares and all benefits accruing on such shares e.g. bonus shares, split, etc. except right issue shall also be credited to such account.

RELEVANT LINKS:

For various Timelines of Transfer to IEPF, refer to the Various Timelines Under the Comopanies Act, 2013 for IEPF Compliances.

For information on Procedural Aspects of Transfer of Dividend to IEPF, refer to the Transfer of Shares to IEPF – Procedural Aspects.

Various Timelines Under The Companies Act, 2013 for IEPF Compliances

The provisions applicable on declaration and payment of dividend including its transfer to Unpaid Dividend A/c and Investor Education and Protection Fund are as follows:

Particulars Applicable Section Applicable Rule
For payment of dividend Section 123 The Companies (Declaration and Payment of Dividend) Rules 2014
For transfer of dividend to Unpaid Dividend A/c Section 124
For transfer to IEPF Section 125 and 126 The Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016

 

A brief summary containing various timelines related to dividend starting from the declaration of dividend till its transfer to Investor Education and Protection Fund is given as under:

S. No. Particulars Time limit Remark
1 Declaration of dividend At GM/BM
2 Amount of dividend shall be deposited with separate  bank account with the schedule bank Within 5 days from the date of declaration.
3 Dividend shall be paid or claimed Within 30 days from the date of declaration.
4  Amount still Unpaid or Unclaimed shall be deposited in UNPAID DIVIDEND A/C. Within 7 days from the expiry of above 30 days. If co. fails, then liable to pay interest @ 12%  p.a.
5* Statement containing names, addresses and unpaid dividend to be paid to each person Prepared and placed on the website of the Company, if any, within 90 days of making transfer to UNPAID DIVIDEND A/C. It shall also be placed on any other website
6 File Form IEPF-2 Form IEPF-2 shall be filed every year within 90 days of the AGM which shall contain investor wise details of unclaimed and unpaid amounts in respect of dividends, debentures, etc. It shall contain details as on the date of AGM.
7 File Form IEPF-6 Form IEPF-6 shall be filed within 30 days of the end of F.Y. stating the amounts due to be transferred to the Fund in next F.Y.
8* Deposit with IEPF U/S 125 Within 30 days after the expiry of 7 years from the date it was transferred to UNPAID DIVIDEND A/C.

*CONSEQUENCES OF NON-COMPLIANCE: If a company fails to comply with any of the requirements of Section 124, the company shall be punishable with fine of minimum INR 0.5 million and maximum INR 2.5 million and every officer of the company who is in default shall be punishable with minimum fine of INR 0.1 million and maximum INR 0.5 million.

IMPORTANT HIGHLIGHTS:

  • Amount shall be transferred to IEPF within 30 days after the expiry of 7 years from the date of deposit in Unpaid Dividend Account.
  • Form IEPF-1 shall be furnished to the Authority constituted under Section 125 containing details of such transfer within 30 days of submission of challan with the Authority.
  • The company shall also keep records consisting of names, etc. of persons in respect of whom amount has been transferred to the IEPF.
  • All shares in respect of which unclaimed dividend has been transferred to the Fund shall also be transferred in the name of IEPF. Form IEPF-4 shall be filed with the Fund containing details of transfer.
  • Form IEPF-3 shall be filed within 30 days from the end of financial year if there is a specific order of any statutory authority restraining any transfer of such shares and payment of dividend.

RELEVANT LINKS:

For Procedural aspects on transfer of dividend to the Fund, refer to the Transfer of Shares to IEPF – Procedural Aspects.

For information on transfer of shares to IEPF, refer to the Transfer of Shares to IEPF – Legality and Practicality.

For various IEPF related forms refer to the IEPF Forms – MCA website.

Special Notice Under the Companies Act, 2013

Members’ Resolutions under present Act are of three kinds, a) Ordinary, b) Special, and c) Resolutions requiring special notice.

Special notice means that intention to move a resolution at a General Meeting has to be given specifically by the shareholders. It is governed by Section 115 of the Companies Act, 2013 and Rule 23 of the Companies (Management and Administration) Rules, 2014.

Matters requiring Special Notice:

  1. Those prescribed under the Companies Act, 2013 and rules made thereunder: The Companies Act, 2013 prescribes the following matters for which special notice is required to be given by the shareholders-
    • To a appoint a person as auditor other than retiring auditor or providing expressly that the retiring auditor shall not be re-appointed, except where the retiring auditor has completed a consecutive term of 5 or 10 years, as the case may be. [Section 140]
    • To remove s director. [Section 169]
    • To appoint somebody as director in place of the director so removed.[Section 169]
  1. Those prescribed by the company’s Articles of Association: Company’s AOA may provide for the matters for which special notice is required under Section 115 of the Companies Act, 2013.

Members eligible to send Notice

Notice shall be given by members holding minimum 1% of the total voting power or shares on which an aggregate sum of not less than Rs. 5, 00,000 has been paid up as on the date of the notice.

Length of Notice

The notice shall be sent not earlier than 3 months but at least 14 days before the date of general meeting. The company shall give its members notice of the resolution at least 7 days before the meeting as prescribed in Rule 23 of the Companies (Management and Administration) Rules, 2014.

For further information please visit:

REMOVE A DIRECTOR U/S 169 (SECTION 284 OF THE OLD ACT)

TO APPOINT A PERSON AS AUDITOR OTHER THAN RETIRING AUDITOR U/S 140 OF THE COMPANIES ACT, 2013

Remove a Director U/S 169 of The Companies Act, 2013 (Section 284 of the Old Act)

 

A special notice under section 115 of the Companies act, 2013 is required to be given by the shareholders in order to remove a director before the expiry of the tenure of his office.

  • Notice shall be given by members holding minimum 1% of the total voting power or shares on which an aggregate sum of not less than Rs. 5, 00,000 has been paid up as on the date of the notice. (Section 115 of the Companies Act, 2013)
  • The notice shall be sent not earlier than 3 months but at least 14 days before the date of general meeting.
  • The company shall give its members notice of the resolution at least 7 days before the meeting as prescribed in Rule 23 of the Companies (Management and Administration) Rules, 2014.

A vacancy caused by such removal may be filled at the same meeting provided special notice of the proposed appointment has also been given. The director so appointed shall hold office till the removed director could have held office had he not been removed. If the vacancy is not filled in, at the meeting, it may be filled in by the Board as casual vacancy. However, the director who has been removed shall not be appointed.

 

Rights Available To Director Whose Removal Is Proposed

  1. On receipt of the special notice, the company should send a copy thereof to the director to be removed.
  2. He has the right to send give representation of a reasonable length.
  3. The company is under the obligation to forward the said representation to all the members unless it is received too late.
  4. When the representation is not sent as above, the director has the right to get the representation read out in the relevant meeting.
  5. Representation made by the director shall also be filed with the Registrar when it is not sent to the members.

 

However, the company or any other person aggrieved may apply to the Tribunal not to send the representation and not to read it out in the meeting on the ground that the rights conferred by this section are being wrongly used by the director.

The provisions of Section 173(2) (now Section 102 of Companies Act, 2013) as to the explanatory statement are not applicable in respect of the resolution for the removal, because the company merely acting in pursuance of a special notice received by it to move the resolution, is not a resolution proposed by the company [Life Insurance Corporation of India v. Escorts (1986) 59 Comp Case 548 (SL)].

 

 

To Appoint a Person as Auditor Other Than Retiring Auditor U/S 140 of The Companies Act, 2013

Appointment of Auditor

As per Section 139(6) of the Companies Act, 2013, the first auditor of the company shall be appointed by the Board of Directors within 30 days from the date of incorporation who shall hold office till the conclusion of first AGM.

Section 139(1) states that the shareholders of the company shall appoint an auditor at its first annual general meeting who shall hold office till the conclusion of sixth AGM subject to ratification at every AGM.

Person other than the retiring auditor is proposed to be appointed

Where a person other than the retiring auditor is proposed to be appointed as an auditor or where it is proposed that the retiring auditor shall not be re-appointed, a special notice under Section 115 of the companies Act, 2013 has to be given proposing that such a resolution would be moved at the next annual general meeting.

This provision is attracted only when the retiring auditor is not to be appointed after the completion of his term of 5 years or whatever his tenure is. It is to be noted that ratification of auditor appointment at every AGM shall not be treated as completion of the term of auditor. And therefore, if an auditor is to be removed during the tenure of his office, then Central Government approval is required as provided in Section 140(1).

Special Notice procedure

  • Notice shall be given by members holding minimum 1% of the total voting power or shares on which an aggregate sum of not less than Rs. 5,00,000 has been paid up as on the date of the notice. (Section 115 of the Companies Act, 2013)
  • The notice shall be sent not earlier than 3 months but at least 14 days before the date of general meeting.
  • The company shall give its members notice of the resolution at least 7 days before the meeting as prescribed in Rule 23 of the Companies (Management and Administration) Rules, 2014.

Rights available to the Retiring Auditor

  1. On receipt of the special notice, the company should send a copy thereof to the auditor to be removed. The Department has advised to send the notice by registered post acknowledgement due. (Circular No. 2/81, dated 17.10.1981).
  2. He has the right to send give representation of a reasonable length.
  3. The company is under the obligation to forward the said representation to all the members unless it is received too late.
  4. When the representation is not sent as above, the auditor has the right to get the representation read out in the relevant meeting.
  5. Representation made by the auditor shall also be filed with the Registrar when it is not sent to the members.
  6. Special notice is not required for the removal of the first auditor or auditors.

 

However, the company or any other person aggrieved may apply to the Tribunal not to send the representation and not to read it out in the meeting on the ground that the rights conferred by this section are being wrongly used by the auditor.

Explanatory Statement

The provisions of Section 173(2) (now Section 102 of Companies Act, 2013) as to the explanatory statement are not applicable in respect of the resolution for the removal, because the company merely acting in pursuance of a special notice received by it to move the resolution, is not a resolution proposed by the company [Life Insurance Corporation of India v. Escorts (1986) 59 Comp Case 548 (SL)].