3 April, 2020
SUPREME COURT OF INDIA SETS ASIDE RBI CIRCULARS RESTRICTING VIRTUAL CURRENCY
The Supreme Court of India has, in its judgment in the Internet and Mobile Association of India v. Reserve Bank of India, set aside the Reserve Bank of India's (“RBI”) notifications, dated April 5 and 6, 2018, which directed entities regulated by RBI not to deal in virtual currency or provide services for facilitating any person or entity in dealing with or settling virtual currency. The Supreme Court considered arguments from both the sides and also evaluated the background of crypto currencies in India, history and powers of the RBI and the definitions of virtual currency adopted by various countries. It relied upon the principle of “doctrine of proportionality” read with “right to carry out trade or business” for determining the constitutionality of the RBI notifications basis which it set aside the notifications on the ground that these failed to pass the tenets of proportionality.
The judgment has been hailed as a lifeline for the players in the cryptocurrency market and has paved the way for a revival of the crypto currency ecosystem in India. However, such revival may take some time since the market has been dormant. Given that there is no consolidated regulation to govern cryptocurrency currently one would hope that the RBI and government, instead of trying to circumvent the Supreme Court’s judgment, come out with a legislation to regulate dealings in cryptocurrencies.”
COMPANIES (ISSUE OF GLOBAL DEPOSITORY RECEIPTS) AMENDMENT RULES, 2020
The Ministry of Corporate Affairs (“MCA”) has issued the Companies (Issue of Global Depository Receipts) Amendment Rules, 2020 thereby amending the Companies (Issue of Global Depository Receipts) Rules, 2014. The amended rules inter alia provide for (i) substitution of “Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993” with the words “Depository Receipts Scheme, 2014” (Scheme); and (ii) inserting definition of “overseas depository/overseas depository bank” having same meaning as “foreign depository” defined in the Scheme. Further, the existing rule 5(1) in the Companies (Issue of Global Depository Receipts) Rules, 2014 has been substituted with a new rule which provides that the depository receipts can be issued by way of public offering or private placement or in any other manner prevalent in the concerned jurisdiction and may be listed or traded on the listing or trading platform in the concerned jurisdiction. Further, a new proviso has been inserted in rule 7 providing for remittance of proceeds of issue of depository receipts and manner of its utilization
CIRCULAR FOR FILING OF FORMS BY INSOLVENCY PROFESSIONAL OR RESOLUTION PROFESSIONAL
The MCA has issued a circular on February 17, 2020 regarding filing of forms with the MCA by the Insolvency Professional (Interim Resolution Professional (IRP) or Resolution Professional (RP) or Liquidator) appointed under the Insolvency and Bankruptcy Code, 2016. The IRP/ RP/ Liquidator shall be required to file a copy of the order of the National Company Law Tribunal (NCLT) regarding their appointment in form INC 28 with the MCA, which shall be approved by the jurisdictional registrar. Once the form INC 28 is approved, for all the subsequent filings with the MCA the IRP/ RP/ Liquidator shall choose his/ her designation as Chief Executive Officer (CEO) of the Company, which designation shall also be reflected in the MCA portal.
The circular further provides that in case the order of admission of a company (corporate debtor) into corporate insolvency resolution process or into liquidation is stayed or set aside by the NCLT or National Company Law Appellate Tribunal (NCLAT) or other courts, such order shall be filed in Form INC-28 by the concerned Insolvency Professional with the MCA.
COMPANIES (AUDITORS’ REPORT) ORDER, 2020
The MCA has released the Companies (Auditors’ Report) Order, 2020 (“Order”) on February 25, 2020 thereby superseding the Companies (Auditors’ Report) Order, 2016 except as to things done or omitted to be done before such supersession. The Order provides that every report made by the auditor under section 143 of the Companies Act, 2013 on the accounts of every company audited by him, to which this Order applies, for the financial years commencing on or after the April 1, 2019, shall additionally contain the matters specified under this Order. The key matters to be included in the auditors’ report are mentioned below:
i) Details regarding the plant, property and equipment including quantitative details, revaluation, maintaining proper records etc.
ii) Details regarding proceedings against a company under Benami Transactions Prohibition Act.
iii) Details about inventory, proper verification of records, proper returns filed or not etc.
iv) Details regarding loans and advances given by company, outstanding loans, renewal of loans and loans given without specifying terms of repayment.
v) Details of loan taken by company and whether loans were used for the purpose for which it was taken, loans taken to meet obligation of subsidiaries, JV or associates and whether such loans are taken by pledging shares of subsidiaries, JV and associates.
vi) Details on treatment of undisclosed income disclosed in current year during tax assessments.
vii) Details on internal audit system, if applicable.
viii) Details on cash loss in previous year or immediate preceding year.
ix) Compliance of corporate social responsibility under section 135 of the Companies Act, 2013, if applicable.
x) Details on the material uncertainty of a Company to meet its short term financial liabilities- the same needs to be ascertained using ratios, ageing analysis and expected dates of realization of financial assets.
CLARIFICATION ON PROSECUTIONS FILED OR INTERNAL ADJUDICATION PROCEEDINGS INITIATED AGAINST INDEPENDENT DIRECTORS, NON-PROMOTERS AND NON-KMP/ NON-EXECUTIVE DIRECTORS
The MCA has issued a circular on March 2, 2020 clarifying the aspects with respect to initiation of prosecution against directors of Indian companies, which inter alia provides for the following:
i) Whole-time director (WTD) and key managerial personnel (KMP) associated with the day to day functioning of the company shall ordinarily be liable for the defaults of the company. In absence of WTD/ KMP, such director or directors who have expressly given their consent for incurring liability (by filing intimation in e-form GNL-3 with the MCA) would be liable for defaults of the company. However, in case wherein the penal provisions under the Companies Act, 2013 (Act) provides that a specific director, or officer,
or any other person would be accountable for the default, in such case prosecution would be initiated by the Registrar of Companies (ROC) only against the concerned director, or officer, or any other person accountable for the default and not against the other directors/ officers.
ii) Independent directors or non-executive directors shall not be arrayed in any civil or criminal proceedings under the Act, unless the default has occurred with their knowledge, attributable through board process, and with their consent or connivance or where they had not acted diligently as per the provisions of the Act.
iii) All the instances of filing of information/records with the registry, maintenance of statutory registers or minutes of the meetings, or compliance with the orders issued by the statutory authorities (including NCLT), are not the responsibility of independent directors or non-executive directors. Accordingly, independent directors and non-executive directors would not be ordinarily liable for the default of the company, unless any specific requirement is provided in the Act or in the orders of any statutory authority. However, where there are no WTDs and KMPs in the company, non-executive directors may be liable for the defaults of the company.
iv) At the time of serving notices to the company during an investigation, inquiry, or an adjudication proceeding, necessary documents may be sought by the ROC so as to ascertain the involvement of the concerned officers of the company. In case the lapses are attributable to decisions taken by board or its committees, all care would need to be taken by the ROC so as to ensure that any proceedings are not unnecessarily initiated against the independent directors or non-executive directors, except in cases where sufficient evidence exists to the contrary.
iv) Details regarding loans and advances given by company, outstanding loans, renewal of loans and loans given without specifying terms of repayment.
v) Details of loan taken by company and whether loans were used for the purpose for which it was taken, loans taken to meet obligation of subsidiaries, JV or associates and whether such loans are taken by pledging shares of subsidiaries, JV and associates.
vi) Details on treatment of undisclosed income disclosed in current year during tax assessments.
vii) Details on internal audit system, if applicable.
viii) Details on cash loss in previous year or immediate preceding year.
ix) Compliance of corporate social responsibility under section 135 of the Companies Act, 2013, if applicable.
x) Details on the material uncertainty of a Company to meet its short term financial liabilities- the same needs to be ascertained using ratios, ageing analysis and expected dates of realization of financial assets.
COMPANIES (APPOINTMENT AND QUALIFICATION OF DIRECTORS) AMENDMENT RULES, 2020
The MCA has issued the Companies (Appointment and Qualification of Directors) Amendment Rules, 2020 on February 28, 2020 to further amend the Companies (Appointment and Qualification of Directors) Rules, 2014, which shall come into force on the date of their publication in the Official Gazette. The amended rules provide for the following:
i) Time period for making an online application by an independent director, to the Indian Institute of Corporate Affairs (IICA) for the inclusion of his/her name in the data bank has been extended from 3 months to 5 months (i.e., till April 30, 2020).
ii) Individuals who have served as a director or key managerial personnel, for a total period of at least ten years, as on the date of inclusion of his/ her name in the databank, either in a listed public company, or in an unlisted public company having a paid- up share capital of rupees ten crore or more, or in a body corporate listed on a recognized stock exchange, shall be exempted from passing the online proficiency selfassessment test mandated for independent directors.
AMENDMENT TO THE NOTIFICATION ISSUED BY THE MCA ON JUNE 5, 2015
The MCA has issued an amendment to its earlier notification issued on June 5, 2015 through which various exemptions form compliance of the provisions of the Act were provided to specific private/ government companies. The new notification provides for the following:
i) An explanation has been inserted in the definition of “ government company’, which states that for the purpose of definition the “ paid- up share capital” shall be construed as “ total voting power”, where shares with differential voting rights have been issued.
ii) In section 4( 1)( a) of the Act , the words “ in the case of a public limited company, or the last words “ private limited” in case of a private limited company, shall be omitted. Government companies shall be exempted from taking prior approval of shareholders by way of resolution as required by Sec. 188 of the Companies Act, 2013, in respect of contracts/ arrangements entered into by it not only with other government companies but also with central government or any state government or any combination thereof.
CABINET APPROVES THE FOREIGN DIRECT INVESTMENT POLICY ON CIVIL AVIATION
On March 4, 2020 the Union Cabinet approved to amend the extant Foreign Direct Investment (FDI) Policy to permit foreign investment(s) in M/s Air India Ltd by non-resident Indians (NRIs), who are Indian Nationals, upto 100% under the automatic route. As per the present FDI Policy, 100% FDI is permitted in scheduled Air Transport Service/Domestic Scheduled Passenger Airline (upto 49% under automatic route and Government route beyond 49%). However, for NRIs, 100% FDI is permitted under automatic route in Scheduled Air Transport Service/Domestic Scheduled Passenger Airline.
The amendment in FDI policy will permit foreign investment in M/s Air India Ltd at par with other Scheduled Airline Operators i.e. upto 100% in M/s Air India Ltd by those NRIs, who are Indian Nationals. Further, this amendment to the FDI Policy is meant to liberalize and simplify the FDI policy to provide ease of doing business in the country leading to largest FDI inflows and thereby contributing to growth of investment, income and employment.
SEB I NOTIFIES NEW GUIDELINES FOR PORTFOLIO MANAGERS
On February 13, 2020, SEBI introduced a new set of Guidelines for Portfolio Managers (“Guidelines”). These Guidelines (effective from May 1, 2020) inter-alia have brought forth the following key changes:
i) Fees – Portfolio managers have been prohibited from charging upfront fees from clients either directly or indirectly. Brokerage to be charged to clients as expenses.
ii) Direct onboarding – Portfolio managers shall provide clients the option to be on-boarded directly without intermediation of persons engaged in distribution services and the same shall be disclosed in its Disclosure Documents, marketing material and on its website.
iii) Investment approach – The information contained in the investment approach offered by portfolio managers shall be uniform across all reporting standards such as regulatory reporting, disclosure document etc. The description of investment approaches shall include certain things such as investment objectives, description of types of securities etc.
iv) Periodic reporting – Portfolio managers shall report to SEBI their compliance with the SEBI Circular on Improvement in Corporate Governance on an annual basis instead of bi- annual submission. Half- yearly reporting for Portfolio managers have been abolished and replaced with annual reporting of audited accounts and certificate of chartered accountant.
v) Distributor’ supervision – The Guidelines also provide for supervision of distributors, such as which distributors to hire, licenses they should have, the fees to be paid, compliance with the code of conduct for distributors and so on.
For further information, please contact:
Gaurav Wahie, Partner, Clasis Law
gaurav.wahie@clasislaw.com