P. K. PANDYA & CO. Practising Company Secretary

www.pkpandya.com

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BUZZ ON CORPORATE LAWS

May 2014

Contents eBook on Annotated Bare Act on Companies Act 2013 with Rules .............................................................. 2

Reserve Bank of India .................................................................................................................................... 2

Onus on listed companies to file form FC-TRS in case of transfer of shares / debentures by non-

resident holding controls .......................................................................................................................... 2

ECBs shifted from approval to under automatic route:............................................................................ 3

Re-schedulement of ECB by Authorised Dealer ........................................................................................ 3

Companies cannot raise ECB from overseas branch or subsidiary of Indian Bank to repay Rupee loans

availed of from domestic banking system ................................................................................................ 4

For change of control or merger / amalgamation of NBFCs requires Prior Written Consent of RBI....... 5

Exporters can receive advances for upto 10 years: ................................................................................... 6

Overseas direct investment by LLP ........................................................................................................... 6

THE COMPANIES ACT, 2013 .......................................................................................................................... 6

Status of notification of Rules and Orders ................................................................................................ 6

Some of the compliances: ......................................................................................................................... 7

New Rules ................................................................................................................................................. 7

SEBI ............................................................................................................................................................... 8

Companies listed exclusively on de-recognised or non-operation exchange ............................................ 8

Supreme Court judgements: ......................................................................................................................... 9

Debt Recovery ........................................................................................................................................... 9

Arbitration ................................................................................................................................................. 9

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. © P. K. Pandya & Co. 2014.

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eBook on Annotated Bare Act on Companies

Act 2013 with Rules

It will have facility to get updated copy till next March! Online sale will be launched soon. You can read

more about it at www.prakashpandya.com. To know as soon as eBook is made available for sale, please

register here.

Reserve Bank of India

Onus on listed companies to file form FC-TRS in case of transfer of shares /

debentures by non-resident having control

A non-resident (NR) [including a Non Resident Indian (NRI)], who has acquired and continues

to hold control in an Indian company in accordance with SEBI (Substantial Acquisition of shares

and Takeover) Regulations, has been permitted, under the FDI scheme, to acquire shares of that

company on a stock exchange in India through a registered broker.

The onus of filing FC-TRS with AD Category – I bank within 60 days from the date of receipt of

the amount of consideration is cast upon the transferor / transferee, whoever is resident in India.

Further, as per extant practice, where the form FC-TRS received by AD Category – I bank

beyond the prescribed period of 60 days, it seeks approval from the Reserve Bank of India,

Central Office before certifying the same.

Now it is decided that the investee company would have to file form FC-TRS with the AD

Category-I bank.

And where the form FC-TRS received by AD Category – I bank beyond the prescribed period of

60 days, it seeks approval from the Regional Office of RBI before certifying the same.

However, how companies will come to know when the transferor NR received funds? Also cases

of transferee of shares / debentures making application to the Company for registration of

transfer after 60 days of receipts of funds by transferor, cannot be ruled out. RBI needs to clarify

on this.

A.P. (DIR Series) Circular No.127 dated May 2, 2014. For the circular, click here .

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ECBs shifted from approval route to automatic route:

External Commercial Borrowings (ECB) from direct foreign equity holders (FEHs) are

considered both under the automatic and the approval routes, as the case may be.

ECBs from direct foreign equity holders (FEHs), from indirect equity holders and group

companies for general corporate purpose are considered under the approval route.

Further, any request for change of the ECB lender in case of FEH requires RBI’s approval.

RBI has now delegated powers to Authorised Dealer Banks to approve the following cases under

the automatic route - (it were falling under approval route):

(1) Proposals for raising ECB by companies belonging to manufacturing, infrastructure, hotels,

hospitals and software sectors

(a) from indirect equity holders and group companies.

(b) from direct equity holder for general corporate purpose (which includes working

capital financing).

(2) Proposals for raising ECB from direct / indirect equity holders and group companies for

companies in miscellaneous services.

Miscellaneous services mean companies engaged in training activities (but not

educational institutes), research and development activities and companies supporting

infrastructure sector. Companies doing trading business, companies providing logistics

services, financial services and consultancy services are, however, not covered under the

facility.

(3) Proposals involving change of lender when the ECB is from FEH – direct / indirect equity

holders and Group Company.

A.P. (DIR Series) Circular No.130 dated May 16, 2014. For the circular, click here.

Re-schedulement of ECB by Authorised Dealer

AD Category – banks are permitted to approve changes / modifications in the drawdown /

repayment schedule of the ECBs already availed, both under the approval and the automatic

routes, subject to the conditions. However, any elongation / rollover in the repayment on expiry

of the original maturity of the ECB require the prior approval of the Reserve Bank of India

(‘RBI’).

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The designated AD Category – I bank to allow re-schedulement of ECB raised both under the

automatic and approval routes (FCCB is not covered) due to changes in draw-down schedule and

/ or repayment schedule with the following conditions:

(a) Changes, if any, in all-in-cost (AIC) is only on account of the change in average maturity

period (AMP) due to re-schedulement of ECB and post re-schedulement, the AIC and the AMP

are in conformity with applicable guidelines. There should not be any increase in the rate of

interest and no additional cost (in foreign currency / Indian Rupees) should be involved.

(b) The re-schedulement is allowed only once, before the maturity of the ECB.

(c) If the lender is an overseas branch of a domestic bank, the prudential norms applicable on

account of re-schedulement should be complied with.

(d) The changes on account of re-schedulement should be reported to Department of Statistics

and Information Management (DSIM) through revised Form 83.

(e) The ECB should be in compliance with all applicable guidelines related to eligible borrower,

recognised lender, All-in-Cost, Average Maturity Period, end-uses, etc.

(f) The borrower should not be in the default / caution list of RBI and should not be under the

investigation of Directorate of Enforcement.

A.P. (DIR Series) Circular No. 128 dated May 9, 2014. For the circular, click here.

Companies cannot raise ECB from overseas branch or subsidiary of Indian

Bank to repay Rupee loans availed of from domestic banking system

Eligible Indian companies are permitted to refinance / repay the Rupee loans, raised by them

from the domestic banking system, by raising ECB from recognised lenders, subject to

conditions. However, repayment of Rupee loans availed of from domestic banking system

through ECBs extended by overseas branches / subsidiaries of Indian banks is not permitted.

It is directed that eligible Indian companies will not be permitted to raise ECB from overseas

branches / subsidiaries of Indian banks for the purpose of refinance / repayment of the Rupee

loans raised from the domestic banking system in respect of the following:

a. Scheme of take-out financing.

b. Repayment of existing Rupee loans for companies in infrastructure sector.

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c. Spectrum allocation.

d. Repayment of Rupee loans.

A.P. (DIR Series) Circular No.129 dated May 9, 2014. For the circular, click here .

Change of control or merger / amalgamation of NBFCs requires prior written consent of

RBI

Reserve Bank of India ('RBI') grants a certificate of Registration to non-banking financial

company ('NBFC') only if it is satisfied, inter alia, that the general character of the management

or the proposed management of the NBFC shall not be prejudicial to the public interest or the

interests of its depositors.

Further in 2009, RBI mandated that its approval would be necessary in cases of acquisition/

transfer of control of NBFCs accepting deposits.

RBI now intends to ensure that the 'fit and proper' character of the management of NBFCs is

continuously maintained. And hence it has been decided that both deposit accepting and non-

deposit accepting, shall obtain prior written permission from RBI for:

(i) any takeover or acquisition of "control" of an NBFC, whether by acquisition of shares or

otherwise;

(ii) any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an

entity with an NBFC

(a) that would give the acquirer / another entity "control" of the NBFC;

(b) which would result in acquisition/transfer of shareholding in excess of 10 percent of the paid

up capital of the NBFC.

Prior written approval of the Reserve Bank would also be required before approaching the Court

or Tribunal under Section 391-394 of the Companies Act, 1956 or Section 230-233 of

Companies Act, 2013 seeking order for mergers or amalgamations with other companies or

NBFCs.

Term "control" shall have the same meaning as is assigned to it under clause (e) of sub-

regulation (1) of regulation 2 of Securities and Exchange Board of India (Substantial Acquisition

of Shares and Takeovers) Regulations, 2011.

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Earlier RBI direction of 2009 stands repealed and new Directions are issued to above effect by

the name - Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control)

Directions, 2014.

[Notification No. DNBS.(PD) 275/GM(AM)-2014 dated May 26, 2014]

For copy of RBI notification, click here.

Exporters can receive advances for upto 10 years:

Prior approval of the Reserve Bank is required to be obtained by an exporter for receipt of

advance where the export agreement provides for shipment of goods extending beyond the

period of one year from the date of receipt of advance payment.

In February 2012, RBI allowed AD Category- I banks to allow exporters to receive advance

payment for export of goods which would take more than one year to manufacture and ship and

where the 'export agreement' provides for the same.

Now, RBI has allowed AD Category- I banks to allow exporters having a minimum of three

years’ satisfactory track record to receive long term export advance up to a maximum tenor of 10

years to be utilized for execution of long term supply contracts for export of goods subject to

certain conditions.

Guidelines are also issued for Authorised Dealers to give bank guarantee (BG) / Stand by Letter

of Credit (SBLC) for export performance.

A.P. (DIR Series) Circular No.132 dated May 21, 2014. For copy of the circular, click here.

Overseas direct investment by LLP

LLP, may undertake financial commitment to / on behalf of a JV / WOS abroad in terms of the

extant FEMA provisions under Regulation 6 (and regulation 7, if applicable) of Foreign

Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004.

For the notification, click here.

THE COMPANIES ACT, 2013

Status of notification of Rules and Orders

Following notified version of Rules are available at MCA portal:

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the Companies (Registration of Foreign Companies) Rules, 2014[Chapter XXII]

the Companies (Registration Offices and Fees) Rules, 2014 [Chapter XXIV]

the Companies (Miscellaneous) Rules, 2014 [Chapter XXIX]

the Companies (Adjudication of Penalties) Rules, 2014 [Chapter XXIX]

The notified copy of the following are still not made public:

1. the Companies 1st (Removal of Difficulties) Order, 2014 - relates to clarification on section

2(76)(v)

2. the Companies 2nd (Removal of Difficulties) Order, 2014 - relates to section 92(2)

Some of the compliances:

Maintain register of members in new format Form No. MGT-1 by 30 September 2014.

Each entry in register of members shall be authenticated by company secretary or a person

authorized by the Board.

New Rules

The following new Rules under the Companies Act, 2013 are notified in Official Gazette of India

and brought to force by MCA from April 01, 2014:

1. the Companies (Specification of definitions details) Rules, 2014

2. the Companies (Incorporation) Rules, 2014 [Chapter II]

3. the Companies (Prospectus and Allotment of Securities) Rules, 2014 [Chapter III]

4. the Companies (Global Depository Receipts) Rules, 2014 [Chapter III]

5. the Companies (Share Capital and Debentures) Rules, 2014 [Chapter IV]

6. the Companies (Acceptance of Deposits) Rules, 2014 [Chapter V]

7. the Companies (Registration of Charges) Rules, 2014 [Chapter VI]

8. the Companies (Management and Administration) Rules, 2014 [Chapter VII]

9. the Companies (Declaration and Payment of Dividend) Rules, 2014 [on Chapter VIII]

10. the Companies (Accounts) Rules, 2014 [Chapter IX]

11. the Companies (Audit and Auditors) Rules, 2014 [on Chapter X]

12. the Companies (Appointment and Qualification of Directors) Rules, 2014 [Chapter XI]

13. the Companies (Meetings of Board and its Powers) Rules, 2014 [Chapter XII]

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14. the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

[Chapter XIII]

15. the Companies (Inspection, Investigation and Inquiry) Rules, 2014 [Chapter XIV]

16. the Companies (Authorised to Registered) Rules, 2014 [Chapter XXI]

17. the Companies (Registration of Foreign Companies) Rules, 2014 [Chapter XXII]

18. the Companies (Registration Offices and Fees) Rules, 2014 [Chapter XXIV]

>>the Companies (Registration Offices and Fees) Amendment Rules, 2014 [Chapter

XXIV]

19. Nidhi Rules, 2014 [Chapter XXVI]

20. the Companies (Miscellaneous) Rules, 2014 [Chapter XXIX]

21. the Companies (Adjudication of Penalties) Rules, 2014

SEBI

Companies listed exclusively on de-recognised or non-operation exchange

Stock Exchanges have been granted exit option by SEBI and they need to either comply with

requirement to continue to be recognized exchange or surrender the registration. This compliance

needs to be done on or before May 30, 3014. Non-compliant stock exchanges are directed by

SEBI to ensure that the exclusively listed companies of such non-compliant stock exchanges

may opt for listing in nation-wide exchanges after complying with listing norms of main board or

the diluted listing norms, if any, on or before the exit of the exchange, either on voluntary or

compulsory basis - as the stock exchange may determine.

Alternatively, such exclusively listed companies may opt for voluntary delisting before the de-

recognition of the stock exchanges by following the existing delisting norms of SEBI in terms of

SEBI (Delisting of Equity Shares) Regulations, 2009. And Nation-wide stock exchanges shall

provide a platform to these companies to facilitate reverse book building for voluntary delisting

using their platform.

In case of companies exclusively listed in the non-operational stock exchanges that are not

traceable or where the data available is more than three years old, the process of inclusion in list

of companies identified as 'Vanishing' (maintained by Ministry of Corporate Affairs) may be

initiated by the respective stock exchanges.

If such companies fails to obtain listing on nation-wide exchange and which do not delist or

which are not considered as 'Vanishing companies', will cease to be listed companies and will be

moved to the dissemination board by the existing stock exchange.

SEBI Circular CIR/MRD/DSA/18/2014 dated May 22, 2014. For copy of the circular click here.

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Supreme Court judgements:

Debt Recovery

1. Held, State Financial Corporation, being secured creditor, would have priority mortgaged property /

secured asset and Central Excise Department has no charge over said property, Rana Girders Ltd. v.

Union of India, (2013) 10 SCC 746

2. Held, adjudicated and accrued rights of workmen would have precedence to claim of State Financial

Corporation. Karnataka State Financial Corpn. v. Mysore Division Industrial Workers General Union,

(2013) 10 SCC 638

Arbitration

1. Held, if agreement containing arbitration clause is superseded / novated by subsequent

agreement between parties then the arbitration clause of the original agreement does not survive.

Young Achievers v. IMS Learning Resources (P) Ltd., (2013) 10 SCC 535

2. Application u/s.34 of Arbitration and Concilliation Act, 1996 to set aside award passed in

favour of SSI unit. Even in such cases, requirement of deposit of 75% of award amount u/s.7 of

Interest on Delayed Payments to Small Scale and Ancilliary Industrial Undertakings Act, 1993 is

applicable. And the term 'award' u/s. 7 of Act of 1993 would include an application u/s.34 of Act

of 1996. Sri Paravathi Parmeshwar Cables v. A.P. Transmission Corpn. Ltd., (2013) 10 SCC

693

3. Limitation period for counter claim in arbitration proceedings.

Reiterated general rule and exception thereto as laid down in Praveen Enterprises, (2012) 12

SCC 581. Section 3(2)(b) of the Limitation Act, 1963 provides that in regard to counterclaim in

suits, the date on which the counterclaim is made in court shall be deemed to be the date of the

institution of the counterclaim. As the Limitation Act, 1963 is made applicable to arbitrations, in

the case of a counterclaim by a respondent in an arbitral proceeding, the general rule is that the

date on which the counterclaim is made before the arbitrator will be the date of

'institution' insofar as counterclaim is concerned. Section 21 of the 1996 Act is therefore not

relevant for counterclaims. An exception to this general rule is: where the respondent (R)

against whom a counterclaim is made, had also made a claim against the claimant and sought

arbitration by serving a notice to the claimant but subsequently raises that claim as a

counterclaim in the arbitration proceedings initiated by the claimant, instead of filing separate

application. Voltas Ltd. v. Rolta India Ltd. (2014) 4 SCC 516