MCA silently inserting backdated changes in Rules
How can we rely on a Ministry as arbitrary as MCA, which brings something with a bang and then silently creeps in to correct the same without any indication?
The Ministry of Corporate Affairs (MCA) came up with the finalised rules on Companies Act, 2013 after comments from the stakeholders on the draft rules on and from 27 March 2014 without bearing any date or notification number on the same as the same was apparently not published in the Official Gazette. However, all the rules were supposedly effective from 1 April 2014. Subsequently, one by one all the Rules were being notified and by now corporates had started taking action based on the Rules already available on the MCA portal. To the surprise of all—the notified rules contained changes as from the so called final rules earlier available on the MCA portal. Therefore, what appeared before though were final rules, but what appear now in the Gazette are actually the final-final rules!
One such recent blunder is the publication of the Companies (Share Capital and Debentures) Rules, 2014 (Rules) in the Official Gazette on 12 May 2014 (Notified rules). Though in disguise the MCA has rectified its mistake, however, the issue is that the so called final-final Rules do not rectify merely a clerical error but are materially and substantially different in terms of the various important provisions dealing with debentures and creation of debenture redemption reserve (DRR). In fact, if one looks at the website of MCA, the date of publication of Rules still appears to be 27 March 2014 and the document appearing on the MCA Portal bears the date as 3 April 2014 (under the Hindi version) and 31 March 2014 (under the English version).  Therefore, what follows is that MCA also indulges in back dating of documents as the Rules are supposedly to be effective from 1 April 2014.
The Rules as appearing earlier on the MCA portal along with the single PDF document scanned and put on the website of MCA, which states that such Rules are effective from 1 April 2014 purported to be signed by MCA official cannot be said to have any clerical error and why would one assume such error also. The MCA never admitted or came out with any clarification to at least sound the stakeholders that the notified rules “may” at all be different from the ones uploaded earlier on the its portal. So how do we ascertain which are the final rules and which one to follow? The notified Rules are materially different from what they appeared earlier and thus having significant impact on the corporates and will continue to cause a chaos in reading and re-reading the Rules so as to ascertain where in disguise has MCA posed minor changes and corrections which in effect are substantial.
In respect of the Companies (Share Capital and Debentures) Rules, 2014, the rules as appearing earlier required creation of DRR by all the Companies to the extent of 50% and further did not provide any exemption or exception to non-banking financial companies (NBFCs) even in case of privately placed debentures and all India financial institutions (AIFIs) unlike as available to them earlier vide the MCA Circular on 11 February 2013  for creation of DRR by NBFCs.  The final-final rules are a breather to the corporate sector inasmuch as not only is the DRR amount reduced from 50% to 25% but also the exceptions as available to NBFCs earlier has been retained in terms of creation of DRR for privately placed debentures. In other words, the notified Rules bounce back verbatim to the position which existed prior to publication of the rules on 27 March 2014 and thus, the situation remains the same as before.
The position that stands now in comparison with the earlier rules after the issue of the Notified rules is:
Another requirement of the Rules is that in case, where DRR is required to be created, companies were to park 15% of amount of debentures and invest the same in mutual funds, deposits and  government securities by 30 April 2014. Therefore, the problem that now poses is that there may be some NBFCs, which had issued debentures on private placement basis, and thus, no do not require to creation of DRR but which have already issued debentures worth Rs200 crore and therefore gone ahead with parking of funds to the extent of Rs30 crore. How does the company now do away with the action already taken? Though the final-final Rules really are a boon to NBFCs, which are the primary issuers of debentures in the bond market but the issue is not that MCA has gone ahead and corrected merely a mistake—the larger issue is that can Ministry keep on playing with the law as and how it feels like and leaves it to the understanding of all and sundry of its blunders and corrections without a hint of the same. Can MCA act so irresponsibly? 
The MCA has already gained powers as an executive to not only make the law but also amend it without any understanding of its impact and this is only going to be prejudicial to the Indian Inc at large as the department goes ahead boldly to commit mistakes and sadly there is no one to put a halt to it. In a very recent ruling in the case of Godrej Industries Ltd, the Bombay High Court has tried to curb the practice by slapping MCA saying that how can the Rules which are not even notified can be said to be effective merely by signing on a piece of paper. How can we rely on a law maker as volatile as MCA, which brings something with a bang and then silently creeps in to correct the same without any indication? On one side where the law makers aim at corporate governance whereas on the other hand with such goof-ups all are we creating a mockery of the Indian legal system to the world at large!
(Aditi Jhunjhunwala works as Senior Associate at Vinod Kothari & Co under the Corporate Law Division.)




Yerram Raju Behara

2 years ago

This is the advantage of a rule-bound Act that the bureaucrat does not want to get rid of. He has scope to change rules with impunity. Governance needs change in this regard. Hope Modi Government promising reforms in Government also seriously looks into this aspect as well.


2 years ago

Merely in the foot steps of India's Social Engineering, retrospectively legislating First Citizen and Parliament.

Gool Daruwalla

2 years ago

Even for transfer of Shares the form 7b is no longer to be used. (The green transfer forms). Form SH4 is to be used. Companies are suppossed to track the transfer using form SH2. Please note that in the mean while RTA's have swung into action and raised objections for the green transfer forms received after 01 Apr 2014, and outright rejecting them. They have asked users to submit forms SH4. RTA;s have sent form SH4 without the date stamp of the ROC on the SH4 form. What is this half baked setting of rules, and issuing orders just for the sake of harrasment!!!! There is no clarity on where the SH4 is going to be available, whether the ROC has to date frank the SH4 form similr to how the form 7B was being date franked. RTA's and other institutions involved should ask the relevant questions before just saying yes sir, yes sir, three bags full and implementing half baked schemes.


Gool Daruwalla

In Reply to Gool Daruwalla 2 years ago

Also note that the SH4 was available on the net only after 18Apr2014.
This retrospective enforcement of rules is not in the right perspective. MCA should now give a 3 month leeway, ensure that all things are in place and enforce the rules. Haphazard enforcement causes more problems than solutions. All rules should be the same till end of July 2014, then only should the new rules be implemented


2 years ago

As rightly mentioned that MCA and sebi nse bse all the rule makers are rule brakers this is happening for past 10 years of UPa govt now the present BJP govt should do justice is humble reques


2 years ago

This was one of the fears expressed when it was realised that a major portion of the new Company Law will be in the rules and the Executive can play merrily with the rules. But it was not expected that the MCA will resort to such a practice of back dating some rules to save its face.

Suresh Kumar Varma

2 years ago

Earlier reported instance in the case of Income tax by me

Income tax e filing conundrums

See how the recent Notification (dt.12.09.2013) for sending ITR –V to CPC Bangalaru extended upto 31-10-2013 for returns filed for A.Y.2011-12 & A.Y.2012-13 is overlooking the base provision of Sec.143(2) proviso “ Provided that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished”

Which means either the said notice issued after 30-09-2013 gets time barred or another year of waiting upto 30-09-2014.

This becomes applicable for scrutiny notice for such revised returns (A.Y.2011-12) and normal return (A.Y.2012-13) cases..

Unintended consequences – Is that so?


CA.K. Suresh Kumar Varma
98 472 27 494

Vinod Kumar Agarwal

2 years ago

Now this is why we have legal cases pending in all courts most of them against the state. So we now need a ministry to interpret the laws for the EXECUTIVE who are supposedly running the democracy. HUM NAHIN SUDHRENGE...!!

SEBI asks Idol India Infra, promoters, directors to refund money
SEBI also prohibited Idol India Infrastructures, its promoters and directors from accessing the securities market for raising funds
Market regulator Securities and Exchange Board of India (SEBI) has directed Idol India Infrastructures Ltd, its promoters and directors to refund money collected from investors.
SEBI said it found Idol India Infra, its promoters and directors flouting norms by raising Rs4.95 crore from over 10,000 investors through issuing non-convertible debentures (NCDs). 
However, the company claimed to have repaid a sum of Rs4.41 crore along with interest to its investors. 
In an order, SEBI directed Idol India Infrastructures, its promoter and directors to "refund the money collected by the company through the issuance of NCDs...With returns that were promised by the company to its investors. " 
In cases of delay in making the repayments, the company, its promoters and directors, would return the money collected from its investors with an interest of 15% per annum compounded at half yearly intervals, from the date of this order till the date of actual payment, SEBI said. 
The regulator said that repayments as claimed by the company, would need to be certified by Chartered Accountants. 
The market regulator also asked Idol India Infra to issue public notice, in all editions of two national dailies and in one local newspaper detailing the modalities for refund, including details on contact persons including names, addresses and contact details, within next 15 days. 
SEBI also prohibited India Infrastructures Ltd and its promoters and directors from accessing the securities market for the purposes of raising funds with immediate effect. 
"This restraint shall continue be in force for a further period of two years on completion of the repayments (to its investors), made to the satisfaction of SEBI," the regulator said in its order.


ECGC India FY14 net profit surges 49% to Rs361 crore

For FY14, ECGC India reported higher net profit to Rs361 crore  as its gross premium income increased to Rs1,304 crore


Export Credit Guarantee Corporation of India Ltd (ECGC), a government owned export credit insurer, reported a higher full year net profit mainly on increase in its premium income and recoveries.

For the 12 month to end-March, ECGC said its net profit jumped 49% to Rs361 crore from Rs243 crore even as its gross premium income rose 13% to Rs1,303 crore from Rs1,157 crore, a year ago period. Its recoveries during FY14 increased by 31.66% to Rs159 crore.
During FY14, ECGC has covered 7% more aggregate risk value to Rs2.79 lakh crore from Rs2.60 lakh crore a year ago period. It comprises 49% of those under policies issued to exporters and 51% of that pertaining to covers given to banks.

“Though there have been signs of economic recovery in the US and Europe in 2013, political instability and strife in many countries like Libya, Syria, Egypt, Afghanistan, Sudan, Iraq, Turkey and Ukraine heightened risks for exporters and financing banks.


Therefore, the role of ECGC continues to be very important and crucial as exporting without suitable credit insurance is fraught with huge risk,” said N Shankar, chairman and managing director of ECGC in a release.

ECGC said during the FY14, it paid Rs898 crore of claims, significant 64% increase from Rs548 crore a year ago period. During FY14 ECGC paid out 381 claims worth Rs109.29 crore to exporter under policies issued to them and 175 claims worth Rs639.55 crore to financing banks under Export Credit Insurance for Banks (ECIB) Scheme. The major sectors under which it received maximum claims are Gems & Jewellery, ready made garments and textiles, engineering goods, chemicals and agriculture products.
ECGC paid a dividend of Rs88 crore to the Government of India.

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