P. K. PANDYA & CO. Practising Company Secretary

www.pkpandya.com

BUZZ ON CORPORATE LAWS

July 2014

Contents THE COMPANIES ACT, 2013 ............................................................................................................. 2

Status of notification of Rules and orders ....................................................................................... 2

New Circulars of MCA: ......................................................................................................................... 7

Reserve Bank of India .............................................................................................................................. 7

Amendment in Foreign Exchange Management (Permissible Capital Account Transactions)

Regulations, 2000 ............................................................................................................................. 7

Amendment in Foreign Exchange Management (Transfer or Issue of Security by a Person

Resident outside India) Regulations, 2000 ..................................................................................... 7

Issue of Partly Paid Shares and Warrants by Indian Company to Foreign Investors ................. 8

Restoration of limit of Financial Commitment (FC)/ Overseas Direct Investments (ODI) by

Indian Party ....................................................................................................................................... 8

Revised Pricing Guidelines for issue/transfer of shares or convertible debentures .................... 9

Reporting under FDI Scheme – Switch over of NIC codes ........................................................... 9

SEBI ....................................................................................................................................................... 9

Circular on extension of timeline for alignment of employee benefit schemes with the SEBI

(ESOS and ESPS) Guidelines, 1999 .............................................................................................. 9

Trade Marks .......................................................................................................................................... 10

Amendment to TM Rules ................................................................................................................... 10

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THE COMPANIES ACT, 2013

Status of notification of Rules and orders

Following rules are modified:

1. The Companies (Specification of definition details) Amendment Rules, 2014

[Chapter I]

It proposes to modify this rules as under:

In Rule3 after the words ‘a director’ the words ‘other than independent director’,

shall be inserted.

pkpandya’s Comment: ‘Related Party’ not to include an independent Director of

holding company or his relatives.

For copy of the proposed amendment to Rules, click here

2. The Companies (Miscellaneous) Amendment Rules, 2014 [Chapter 29II]

New Rule11 shall be inserted w.e.f 17th July, 2014 namely:

Rule 11 Applications or forms pending before Central Government, Regional

Director or Registrar of companies.-

Any application or form filed with the Central Government or Regional Director or

Registrar (hereinafter referred to as 'the authority') prior to the commencement of

these rules but not disposed of by such authority for want of any information or

document shall, on its submission, to the satisfaction of the authority, be disposed

of in accordance with the rules made under the Companies Act, 1956 (1 of1956).

pkpandya’s Comment: Newly inserted rule 11, is clarificatory in nature and is

important. However, its legality is questionable, since section 465 of the Act is not

brought to force and hence legally the Companies Act 1956 is not repealed (!?)

and doubt arises about applicability of Section 6 of the General Clauses Act (in the

absence of repeal of the old law!!). Hence doubt also arises about applicability of

section 465(2) (k) of the new law, which provides that application under Companies

Act 1956 with ROC, RD or MCA shall be cleared by them under old law. It is

understood that many applications are pending with MCA and are not processed

sans this clarification. This, hopefully, will enable officers at ROC, RD and MCA

offices to clear all pending applications under the old law (or should I say yet to be

repealed law, whose application is stopped with administrative directions!).

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For copy of Rule, click here

3. The Companies (Prospectus and Allotment of Securities) Amendment Rules,

2014 [Chapter 3]

The following proviso shall be inserted in sub-rule (2) of Rule 14 after the

second proviso w.e.f. 30th June, 2014:

Provided also that in case of an offer or invitation for non-convertible debentures

referred to in the second proviso, made within a period of six months from the date

of commencement of these rules, the special resolution referred to in the second

proviso may be passed within the said period of six months from the date of

commencement of these rules.

pkpandya’s Comment: Rule 14 deals with private placement of securities. It

mandates, inter alia, prior approval of shareholders by way of special resolution

for ‘each’ offer or invitation. By second proviso to the Rule 14, an exception is

carved out for private placement of Non-convertible Debentures (‘NCD’), whereby

prior approval by special resolution of shareholders suffices for several offer or

invitation to be made during the year (instead of ‘each’ offer).

With insertion of aforesaid new third proviso w.e.f. 30 June 2014, approval of

members by special resolution can be obtained on or before 30 September 2014

for private placement of NCD to be made on or before 30 September 2014. Thus,

prior approval of shareholders is not necessary for a limited time for private

placement of NCD.

For copy of Rule, click here

4. The Companies (Cost Records and Audit) Rules, 2014 are notified w.e.f. 30th

June, 2014

For the copy of Rule, Click here

5. The Companies (Management and Administration) Amendment Rules, 2014

[Chapter 7]

After Sub-rule 1 of Rule 20 the following proviso shall be inserted

Provided that the company may provide the facility referred to in this sub-rule on

or before the 1st day of January, 2015

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The words ‘which provides’ shall be substituted for the words ‘which opt to

provides’ in Sub-rule 3 of Rule 20.

pkpandya’s Comment: Amendment to Rule 20(1) is to defer mandatory electronic

voting till 31 December 2014.

Rule 20(3) amended to align with Rule 20(1). Prior to amendment, Rule 20(3) gave

impression that e-voting is not mandatory. However, for companies whose equity

are listed on stock exchange(s) in India, clause 35B mandates providing of e-voting

facility where postal ballot is offered.

For copy of Rule, click here

6. The Companies (Share Capital and Debentures) Amendment Rules, 2014. –

w.e.f. 18 June 2014 [Chapter 4]

In rule 4, after sub-rule (6), for the Explanation, the following Explanation shall be

substituted, namely:-

“Explanation.- For the purposes of this rule it is hereby clarified that equity shares

with differential rights issued by any company under the provisions of the

Companies Act, 1956 (1 of 1956) and the rules made thereunder, shall continue

to be regulated under such provisions and rules.”.

pkpandya’s Comment: This is a big relief for companies who have issued shares

with differential voting rights under the Companies Act 1956. It would be governed

by the provisions of the Act of 1956 and Rules framed thereunder. Earlier,

explanation to Rule 4 stated that until shares with differential voting rights issued

under Companies Act 1956 are converted into shares with differential voting rights

under the Companies Act 2013, they would continue.

In rule 13,

a. in sub-rule (2), after clause (j), the following Explanation shall be inserted,

namely:-

“Explanation. - For the purposes of these rules, it is hereby clarified that, till a

registered valuer is appointed in accordance with the provisions of the Act, the

valuation report shall be made by an independent merchant banker who is

registered with the Securities and Exchange Board of India or an independent

Chartered Accountant in practice having a minimum experience of ten years”.;

pkpandya’s Comment: For unlisted companies making preferential offer,

need to offer it at a price determined by valuation report – whether issued for

cash or not. Until registered valuer are notified, valuation report is required to

be obtained from the category stated in the explanation above.

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b. after sub-rule (2), the following sub-rule shall be inserted, namely:-

“(3) The price of shares or other securities to be issued on preferential basis

shall not be less than the price determined on the basis of valuation report of a

registered valuer.”

pkpandya’s Comment: Rule 13 (2) (g) requires price shall be determined

based on valuation report. It doesn’t prohibit issue of shares at lower than the

price discovered under valuation report. W.e.f. 18 June 2014, price of

preferentially issued securities shall be equal or more than the price discovered

under valuation repot.

In rule 18,

a. in sub-rule (1), in clause (a), for the proviso, the following proviso shall be

substituted, namely:-

“Provided that the following classes of companies may issue secured

debentures for a period exceeding ten years but not exceeding thirty years,

i. Companies engaged in setting up of infrastructure projects;

ii. ‘Infrastructure Finance Companies’ as defined in clause (viia) of sub-

direction (1) of direction 2 of Non-Banking Financial (Non-deposit

accepting or holding) Companies Prudential Norms (Reserve Bank)

Directions, 2007;

iii. ‘Infrastructure Debt Fund Non-Banking Financial companies’ as defined

in clause of

(b) direction 3 of Infrastructure Debt Fund Non-Banking Financial

Companies (Reserve Bank) Directions, 2011”.

pkpandya’s Comment: Life span of secured debenture is fixed at 10 years. An

exception is provided to aforesaid categories, where it can be for a period upto 30

years.

b. in sub-rule (7), in clause (b), in sub-clause (ii), after the letters, brackets, words

and figures “RBI (Amendment) Act, 1997”, the words “and for Housing Finance

Companies registered with the National Housing Bank” shall be inserted

pkpandya’s Comment: Housing Finance Companies are placed at par with

NBFCs for creation of DRR.

For copy of Rule, click here

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7. The companies (Declaration and Payment of Dividend) Rules, 2014 [Chapter

8]

For Sub-rule 5 of Rule 3 following rule shall be substituted:

No Companies shall declare dividend unless carried over previous losses and

depreciation not provided in previous year(s) are set off against profits of the

company of the current year.

pkpandya’s Comment: Earlier Rule 3(5) was ambiguous. It is now made clear

that before payment of dividend, companies need to set off previous year(s) carried

forward losses and depreciation against profit of the year.

For copy of Rule, click here

8. The Companies (Meetings and Powers of Board) Rules, 2014 [Chapter 12]

In rule 6, after the explanation, the following shall be inserted, namely:-

Provided that public companies covered under this rule which were not required to

constitute Audit Committee under section 292A of the Companies Act, 1956 (1 of

1956) shall constitute their Audit Committee within one year from the

commencement of these rules or appointment of independent directors by them,

whichever is earlier.

Provided further that public companies covered under this rule shall constitute their

Nomination and Remuneration Committee within one year from the

commencement of these rules or appointment of independent directors by them,

whichever is earlier.

pkpandya’s Comment: The Act permits appointment of Independent Directors

within a year, however no such breathing was provided for constitution of Audit

Committee (which comprises of independent directors). Hence this amendment is

brought.

(Above notification has two errors. Principal notification number referred is wrong.

Even name of the rules referred is wrong. The correct name of the Rules is ‘the

Companies (Meetings of Board and its Powers) Rules, 2014’. It is {wrongly} called

as the Companies (Meetings and Powers of Board) Amendment Rules, 2014’!)

For copy of Rule, click here

P. K. PANDYA & CO. www.pkpandya.com

9. The Companies (Appointment and Remuneration of Managerial personnel)

Rules, 2014 [Chapter 13]

After Rule 8 following Rule 8A shall be inserted:

8A. Appointment of Company Secretaries in companies not covered under rule

8.—

A company other than a company covered under rule 8 which has a paid up share

capital of five crore rupees or more shall have a whole-time company secretary.”

New Circulars of MCA:

It will be covered in next issue of e-newsletter (so as to keep number of pages of this

newsletter limited).

Reserve Bank of India

Amendment in Foreign Exchange Management (Permissible Capital Account

Transactions) Regulations, 2000

The limit on drawl of foreign exchange by a resident individual for a capital account

transaction has been increased from USD 75000 to USD 125000 per financial year.

[Notification No. FEMA. 311/2014-RB dated June 24, 2014] For the RBI notification, click

here

Amendment in Foreign Exchange Management (Transfer or Issue of Security by a

Person Resident outside India) Regulations, 2000

Foreign Exchange Management (Transfer or Issue of Security by a Person Resident

outside India) Regulations, 2000 has been amended vide this notification.

Warrants in addition to the shares or convertible debentures could be issued by an Indian

Company to a person resident outside India.

Wherever the words “shares or convertible debentures” appears, the words “shares or

convertible debentures or warrants” has been substituted in the said regulations.

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[Notification No. FEMA. 308/2014-RB dated June 30, 2014] For the RBI notification, click

here

Issue of Partly Paid Shares and Warrants by Indian Company to Foreign Investors

Equity shares or compulsorily and mandatorily convertible preference shares/debentures

containing an optionality clause but without any option/ right to exit at an assured price

were recognized as FDI compliant instruments.

Now, partly paid equity shares and warrants issued under the Companies Act, 2013 and

the SEBI guidelines shall also be recognized as eligible instruments for the purpose of

FDI and foreign portfolio investment (FPI) by Foreign Institutional Investors

(FIIs)/Registered Foreign Portfolio Investors(RFPIs) subject to compliance with FDI and

FPI schemes

Thus, an Indian Company can issue party paid equity shares and warrants subject to

compliance with several conditions.

NRIs shall also be eligible to invest on non - repatriation basis in the above securities in

accordance with the provisions of the Companies Act/ SEBI guidelines / Income tax

provisions, as applicable.

[A.P. (DIR Series) Circular No. 3 dated July 14, 2014] For the RBI circular, click here

Restoration of limit of Financial Commitment (FC)/ Overseas Direct Investments

(ODI) by Indian Party

RBI has decided to restore the limit of Overseas Direct Investment/Financial Commitment

(i.e. 400% of the net worth) to be undertaken by an Indian Party under the automatic

route. But if an Indian party undertakes any financial commitment exceeding USD 1 billion

or its equivalent in any financial year, then in that case the Indian party is required to

obtain prior approval of the Reserve Bank even if the total financial commitment is within

the eligible limit i.e. 400% of the net worth.

[A.P. (DIR Series) Circular No.1 dated July 3, 2014] For the RBI Circular, click here

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Revised Pricing Guidelines for issue/transfer of shares or convertible debentures

In order to provide greater freedom and flexibility to the parties concerned under the FDI

framework, the revised pricing guidelines has been notified for the purpose of

issue/transfer of shares or convertible debentures. Now, the pricing of shares shall be

done as per any internationally accepted pricing methodology for valuation of shares on

arm’s length basis instead of discounted free cash flow method in case of shares of an

unlisted company.

[A. P. (DIR Series) Circular No. 4 dated July 15, 2014] For the RBI circular, click here

Reporting under FDI Scheme – Switch over of NIC codes

DIPP, Ministry of Commerce vide Press Note 4 dated 26th June, 2014 has decided to switch over to the National Industrial Classification (NIC) 2008 from the NIC 1987 version for the purpose of classification of activities under the industrial classification system. Indian companies are henceforth required to report the NIC codes as per NIC 2008 version in Form FC-GPR and Form FC-TRS RBI has also introduced a uniform State and District Code list for reporting of FDI details in Form FC-GPR.

[A.P. (DIR Series) Circular No. 6 dated July 18, 2014] For the RBI circular, click here.

SEBI

Circular on extension of timeline for alignment of employee benefit schemes with

the SEBI (ESOS and ESPS) Guidelines, 1999

SEBI vide its circular dated November 29, 2013 had extended the time limit for alignment

of employee benefit schemes with the SEBI (ESOS and ESPS) Guidelines, 1999 till June

30, 2014.

Now, SEBI has extended the above mentioned time limit till the new regulations shall

come into force as and when notified. Thus, the prohibition on acquiring securities from

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the secondary market shall continue till the existing schemes are aligned with the new

regulations.

For the Circular, click here.

Trade Marks

Amendment to TM Rules

The Government of India has notified the Trademark (Amendment) Rules, 2014 vide gazette notification G.S.R. 555(E) dated August 01, 2014. The Government hereby makes the following amendments to the Trademark Rules, 2002:

(i) The official fee for filing of trademark application in one class has been increased from Rs. 3500 to Rs. 4000 effective from the date of notification.

(ii) The official filing fee for expedited examination has also been increased from Rs.12, 500 to Rs. 20,000 effective from the date of notification.

The Trademark Office vide Public Notice no. CG/Public Notice/2014-15/51 dated August 7, 2014 has notified that all the agents/applicants who have filed the trademark applications after August 1, 2014 will have to pay the deficient fee by September 30, 2014. The receipt of deficient fee after the aforementioned date shall result in shifting of the filing date to the date of payment of the deficiency.