P. K. PANDYA & CO. Practising Company Secretary

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BUZZ ON CORPORATE LAWS

August 2014

Contents Ministry of Corporate Affairs (MCA) ........................................................................................................ 2

New Circulars of MCA: ......................................................................................................................... 2

Notifications issued: ............................................................................................................................ 3

RESERVE BANK OF INDIA ......................................................................................................................... 5

Foreign investment in India by SEBI registered long term investors in Government dated securities .... 5

SEBI ......................................................................................................................................................... 5

Monitoring of Compliance by Stock Exchanges .................................................................................... 5

Disclaimer: The contents are general information and should not be treated as legal advice or legal opinion by P. K. Pandya & Co. Readers are advised to seek legal advice, refer the applicable law and sole reliance on the content of this write-up is not recommended. If this write-up is circulated, content of this disclaimer and credit to P. K. Pandya & Co. shall be retained. Views expressed herein may differ from the position adopted by P. K. Pandya & Co. while advising clients. © P. K. Pandya & Co. 2014.

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Buzz on Corporate Laws: August 2014

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Ministry of Corporate Affairs (MCA) New Circulars of MCA:

Clarification on transitional period for resolutions passed under the Companies

Act, 1956 - General circular 32:

MCA vide this circular has clarified that all resolutions approved or passed by companies under relevant

applicable provisions of the Old Act during the period from 1st September, 2013 to 31st March, 2014, can

be implemented, in accordance with provisions of the Old Act, notwithstanding the repeal of the relevant

provision subject to the conditions (a) that the implementation of the resolution actually commenced

before 1st April, 2014 and (b) that this transitional arrangement will be available upto expiry of one year

from the passing of the resolution or six months from the commencement of the corresponding provision

in New Act whichever is later. It is also clarified that any amendment of the resolution must be in

accordance with the relevant provision of the New Act.

Our comments:

The resolutions passed under the provisions of the Companies Act, 1956 which has been implemented by

the companies shall continue to remain in force upto expiry of one year from the passing of the resolution

or within 6 months from the commencement of the corresponding provision of the Companies Act, 2013,

whichever is later.

But if there is any amendment in the resolution, then the same shall be in accordance with the provisions

of the Companies Act, 2013.

For copy of circular, click here

Clarification with regard to applicability of provisions of section 139(5) and 139(7) of the Companies Act, 2013 - General circular 33: MCA vide this circular has clarified that deemed Government companies would be covered under subsection (5) and (7) of section 139 of the Companies Act, 2013 Further, it has also been observed that the words " any other company owned or controlled, directly or indirectly ……… by the Central Government and partly by one or more State Governments” appearing in sub-sections (5) and (7) of section 139 of the New Act are to be read with the definition of control' in section 2(27) of the New Act. Thus documents like articles of association and shareholders agreements etc envisaging control under section 2(27) are to be taken into account while deciding whether an individual company, other than those referred in paragraph 1-2 above, is covered under section 139(5)/ 139(7) of the New Act. Clarification has also been sought that it shall be the responsibility of the company concerned to intimate to the Comptroller and Auditor General of India (C&AG) about its incorporation along with name, location of registered office, capital structure of such a company immediately on its incorporation. The company concerned shall also intimate to the relevant Government so that such Government may also send a suitable request to the C&AG.

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Buzz on Corporate Laws: August 2014

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Our comments: There was a doubt relating to applicability of section 139(5) and 139(7) of the Companies Act, 2013 to “deemed government companies” with respect to appointment of auditors by Comptroller and Auditor General of India (C&AG) since the new act does not contain any specific provisions about deemed government companies on the lines of section 619B of the Companies Act, 1956. Now, it has been clarified vide this circular that deemed government companies are covered under section 139(5) and 139(7) of the Companies Act, 2013. For copy of circular, click here

Notifications issued: Non-applicability of first proviso of section 203(1) Section 203 of the Companies Act 2012 relates to appointment of Key Managerial Personnel (KMP). First proviso to Section 203 (1) provides that after 01 April 2014, an individual shall not be appointed or re-appointed as chairperson of the company as well as managing director or CEO at the same time. It also provides exceptions where articles of association of a company permits such appointment or where the company is not carrying on multiple business. MCA vide this notification has extended exemption to companies in multiple business if the company is a public company, having paid-up share capital of Rs.100 crore (INR 1 billion) or more and annual turnover of rupees one thousand crore (INR 10 billion) or more which is engaged in multiple businesses and has appointed CEO for each such business. This notification is as per second proviso to sub-section (1) of Section 203 of the said Act. For the above provisions, the paid-up share capital and the annual turnover shall be decided on the basis of the latest audited balance sheet. For copy of notification dated 25th July, 2014, click here.

Amendment in Schedule VII of Companies Act, 2013

In Schedule VII, after item (x), the following item and entry shall be inserted, namely:

"(xi) slum area development,

Explanation.- For the purposes of this item, the term 'slum area' shall mean any area declared as such by the Central Government or any State Government or any other force competent authority under any law for the time being in force."

Our comments: One new activity has been notified which can be included by the companies in their Corporate Social Responsibility Policies.

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For copy of notification dated 6th August, 2014, click here.

Amendment in Rules related to Meeting through video conference and change in

limits of RPT:

The central Government has amended the Companies (Meeting of Board and its Powers) Rules, 2014 with

effect from 14th August 2014. The effect of the amendments are:-

(1) Venue of Board meeting conevned through video confernce or audio visual means need not be in India.

(2) audit committee meeting for consideration of financial statement, including consolidated financial

statement, if any, which is required to be approved by the Board under section 134 (1) cannot be held

through video confernce or audio visual means. Original (prior to amendment) the Rule provided for

“consideration of account”. With this amendment more clarity is brought.

(3) Revision of limits of contract or transactions with related parties.

For entering into transaction(s) with related party in excess of limit specified below, prior approval of the

members of the company by special resolution is required.

Nature of transaction exceeding

Sale, purchase or supply of any goods or materials, directly or through appointment of

agent - as mentioned in clause (a) and clause (e) respectively of sub section (1) of section 188

10% of turnover of the company; or Rs. 100 crore (INR 1 bn)

Whichever is lower

Selling or otherwise disposing of or buying property of any kind, directly or through

appointment of agent - as mentioned in clause (b) and clause (e) respectively of sub-section (1)

of section 188

10% of net worth of the company; or Rs. 100 crore (INR 1 bn)

Whichever is lower

Leasing property of any kind - as mentioned in clause ( c) of sub-section (1) of section 188

10% of turnover of the company; or 10% of net worth of the company; or

Rs. 100 crore (INR 1 bn) Whichever is lower

Availing or rendering of any services, directly or through appointment of agent - as mentioned in

clause (d) and clause (e) respectively of sub-section (1) of section 188

10% of turnover of the company; or Rs. 50 crore (INR 500 mn)

Whichever is lower

It is clarified that the aforesaid limits shall apply for transaction or transactions to be entered into either

individually or taken together with the previous transactions during a financial year.

Prior approval of members of the company by special resolution is required in respect following nature of

transactions with related party:

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(1) For appointment to any office or place of profit in the company, its subsidiary company or associate

company at a monthly remuneration exceeding Rs. 250,000/- - as mentioned in clause (f) of sub-section

(1) of section 188;

(2) For remuneration for underwriting the subscription of any securities or derivatives thereof, of the

company exceeding 1% of the net worth - as mentioned in clause (g) of sub-section (1) of section 188.

The Turnover or net Worth referred in the above sub-rules shall be computed on the basis of the Audited

Financial Statement of the preceding financial year.

In case of a wholly owned subsidiary, the special resolution passed by the holding company shall be

sufficient for the purpose of entering into the transactions between the wholly owned subsidiary and the

holding company.

For copy of notification dated 14th August, 2014, click here.

RESERVE BANK OF INDIA Foreign investment in India by SEBI registered long term investors in Government dated

securities

The investment limit in government securities has been enhanced by USD 5 billion by

correspondingly reducing the amount available to long term investors from USD 10 billion to USD

5 billion within the overall limit of USD 30 billion.

The investment limit of USD 5 billion shall be invested in government bonds with a minimum

residual maturity of three years. There will be no lock-in period and FIIs/QFIs/FPIs shall be free

to sell the securities to the domestic investors.

[Circular no. RBI/2014-15/145 A. P. (DIR Series) Circular No. 13 dated July 23, 2014] For circular,

click here

SEBI

Monitoring of Compliance by Stock Exchanges

SEBI, earlier vide its circulars dated September 30, 2013 and November 18, 2013 has put in place

a system to monitor and review the compliance of listing conditions by listed companies and to

devise framework to detect any non- compliance / violation of the applicable laws.

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All listed companies shall mandatorily comply with the Principles of Corporate Governance as per

amended Clause 49 of the listing agreement. As per the said principle, all the shareholders of the

company shall participate and vote effectively in general meetings of the company.

SEBI has observed that some listed companies belonging to the same group are holding AGMs

within a time gap of 15 minutes between two AGMs. The allocation of 15 minutes for conducting

AGM does not appear to be adequate enough to facilitate a constructive discussion on various

matters transacted at the AGM.

Hence, SEBI has advised all recognized stock exchanges to set up and equip monitory framework

and shall ensure that the principle of corporate governance are followed by all the listed

companies in letter and spirit.

This circular will be effective from 1st October, 2014

For copy of circular, click here

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