MCA's latest circular on 'transitional period for resolutions passed Under the Companies Act, 1956’ adds to a long list of such clarifications that seem to be standing in for lawmaking
The Ministry of Corporate Affairs’ (MCA) new avatar as the lawmaker seems to be gaining ground by the day, as is their trend of bringing out more ‘clarification’ circulars. These circulars seem to rewrite the law of the land rather than just clarify it. The subject of the latest ‘clarification’ circular of the MCA, dated 23 July 2014, is ‘Clarification on transitional period for resolutions passed Under the Companies Act, 1956’.
This new Circular seeks to protect the validity of the resolutions passed under the erstwhile Companies Act, 1956 (‘Act of 1956’) which was under various stages of implementation at the time of commencement of the new Companies Act, 2013 (‘Act of 2013’). Since the stance in this regard was pretty clear in the Act of 2013 read with the General Clauses Act, 1897, a mere clarification from the MCA in this regard would have been enough. Instead, the Circular comes loaded with riders which has made it seem increasingly as though the MCA has taken unto itself the responsibility of writing the law according to its own whims and fancies.
In this article we discuss the effect of the Circular by delving into some of the resolutions passed under the Act of 1956 which might be affected by this Circular.
Section 6 of General Clauses Act, 1897
Section 6 of the General Clauses Act provides that where a Central Act has been repealed, then, unless a different intention appears, the repeal shall not affect the previous operation of the enactment so repealed or anything duly done or suffered thereunder or affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed.
Section 465 of the Act, 2013
Section 465 (2) (a) of the Act, 2013 also lays down a similar provision. It provides that unless something has been done under a repealed enactment which is inconsistent with the provisions of the Act of 2013, the said act shall be deemed to have been done or taken under the corresponding provisions of the Act of 2013.
Further, sub-clause (b) goes on to say that ‘any order, rule, notification, regulation, appointment, conveyance, mortgage, deed, document or agreement made, fee directed, resolution passed, direction given, proceeding taken, instrument executed or issued, or thing done under or in pursuance of any repealed enactment shall, if in force at the commencement of this Act, continue to be in force, and shall have effect as if made, directed, passed, given, taken, executed, issued or done under or in pursuance of this Act’.
It is clear from the above provisions, that any act done in pursuance of a repealed enactment, that is not inconsistent with the provisions of the Act of 2013 would have been deemed to be passed under the provisions of this Act.
The Circular provides that ‘resolutions approved or passed by companies under relevant applicable provisions of the Old Act during the period from 1st September, 2O13 to 31st March, 2014, can be implemented, in accordance with provisions of the Old Act, not withstanding 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.’
With the above provisions, the Circular practically seeks to rewrite the law and has laid down a series of limitations for the clarification to take effect. Instead of providing validity to the resolutions passed under the Act, 1956, it has in turn, set out their expiry date i.e. implementation of the resolutions must be done within one year from passing the resolution or six months from the commencement of the Act of 2013, whichever is later. Further, it lays down that the implementation of such resolutions should have commenced before 1 April 2014 for taking benefit of the Circular. This means that resolutions passed under the Act of 2013, pending implementation as on 1 April 2014 would mandatorily have to comply with the provisions of the new Act, as applicable.
The Circular also provides than in case the resolutions are amended after their passing, the amendment shall be in accordance with the relevant provisions of the new Act of 2013. However it can be presumed that if they are amended prior to the relevant provision of the Act of 2013 comes into effect, the same may not be followed.
No clarity has been provided in respect of the status of resolutions passed prior to 1 September, 2014. Can their implementation be in accordance with the old Act of 1956? The question remains unanswered.
Below we discuss in briefm a few of the sections of the Act of 2013 which had different requirements than the Act of 1956.
(i) Section 42 of the Act of 2013 pertaining to private placement of securities
Under the Act of 1956 there was hardly any compliance required for private placement of securities. The requirements under the Act of 2013 have changed drastically and have laid down a plethora of compliances to be done in this regard. Thus, resolutions passed under the Act of 1956 that were not implemented before 1 April 2014 will have to comply with the newer and stricter regulations.
(ii) Borrowings from banks pursuant to Section 180 (1) (c) of the Act of 2013
Section 180 requires a special resolution to be passed for borrowings by the company that exceed the aggregate of the paid up share capital and free reserves of the company. This section was implemented w.e.f. 12 September 2013. The Act of 1956, however, required an ordinary resolution for this purpose.
In view of the change in the provisions, banks have been asking for fresh resolutions to be passed under the provisions of the Act of 2013 before granting of loans. This confusion was however clarified by the MCA vide its circular dated 25 March, 2014 which provided that resolutions passed in this regard under the erstwhile section 293 of the Act of 1956 would hold good for a period of one year from the date of commencement of the section.
(iii) Related Party Transactions under Section 188 of the Act of 2013.
The list of related party transactions under the Act of 2013 has been widely enhanced over and above the erstwhile provisions under Section 297. Moreover, compliances with respect to such transactions now include passing of special resolutions. Concepts such as ‘ordinary course of business’ and ‘arm’s length’ have been introduced.
Thus resolutions for entering into related party transactions under the old Act of 1956 which were not implemented before 1 April 2014, will have to meet many compliance requirements as under the new Act of 2013.
(Shampita Das works as an Associate in Corporate Law Group at Vinod Kothari & Company)
After eight days of rally, a decline on the 9th day tomorrow is highly likely
As we mentioned yesterday, the benchmarks today recorded further gain today. After a range bound session where the indices traded mostly in the red, at around 2.10 pm the indices made a sudden upsurge and today again closed at an all-time high. The upmove was supported by the positive data from China.
S&P BSE Sensex opened at 26,189 while CNX Nifty opened at 7,796. After hitting the day’s low at 26,078 and 7,772 the indices moved higher to hit a high at 26,293 and 7,836. Sensex closed at 26,272 (up 125 points or 0.48%) while Nifty closed at 7,831 (up 35 points or 0.45%). The NSE recorded a volume of 83.97 crore shares. India VIX rose 0.20% to close at 14.7200.
Among the other indices on the NSE, the top five gainers were Metal (1.50%), PSU Bank (1.11%), IT (0.91%), FMCG (0.68%) and Realty (0.61%) while the top five losers were Media (0.76%), Smallcap (0.33%), CPSE (0.28%), Energy (0.22%) and Midcap (0.19%).
Of the 50 stocks on the Nifty, 33 ended in the green. The top five gainers were Bank of Baroda (3.50%), Asian Paints (2.81%), HCL Technologies (2.65%), Hindalco (2.61%) and Tata Steel (2.42%). The top five losers were Cairn (6.68%), Gail (1.95%), Power Grid (1.21%), Hero MotoCorp (1.11%) and Dr Reddy (1.08%).
Of the 1,592 companies on the NSE, 762 companies closed in the green, 762 companies closed in the red while 68 companies closed flat.
Union Cabinet has approved the hike in foreign direct investment (FDI) in insurance sector to 49% from 26%. Finance Minister Arun Jaitley had in the Union Budget 2014-15, this month, proposed a hike in FDI in insurance sector to 49% from 26%.
Aluminum-maker Hindalco (2.30%) was the top gainer in the Sensex 30 pack. Today, the stock hit its 52-week high at Rs 198.50 on the BSE, after the aluminium prices hit their highest in more than a year.
Axis Bank, on Wednesday hit its 52-week high, after it posted its June 2014 quarter results. The Bank has posted a net profit of Rs1,666.76 crore for the quarter ended June 2014 as compared to Rs1,408.93 crore for the quarter ended June 2013. Total Income has increased from Rs9,059.12 crore for the quarter ended June 2013 to Rs9,980.47 crore for the quarter ended June 2014. Today the stock was among the top five losers in the Sensex 30 stock.
Today for the third consecutive session, Financial Technologies (10%) came out as a top gainer in ‘A’ group on the BSE. Three PSU banks, Uco Bank (5.83%), Bank of India (4.27%) and Bank of Baroda (3.34%), were among the top six gainers in ‘A’ group on the BSE.
Ipca Lab (13.06%) was the top loser in the ‘A’ group on the BSE. Today, the company communicated that the company's active pharmaceutical ingredients manufacturing facility situated at Ratlam (Madhya Pradesh) has received certain inspection observations from the US FDA. Consequent to this, the company has voluntarily decided to temporarily suspend API shipments from this manufacturing facility for the US market, till this issue is addressed.
US indices closed flat on Wednesday. Except for Nikkei 225 (0.29%) and Seoul Composite (0.08%), all the other Asian indices closed in the green. Shanghai Composite (1.28%) was the top gainer.
A Chinese manufacturing gauge rose to an 18-month high in July, adding to signs that the government will meet its 2014 economic-growth target of about 7.5%. A preliminary Purchasing Managers' Index from HSBC Holdings Plc and Markit Economics was at 52, compared with a final reading of 50.7 in June. Numbers above 50 indicate expansion.
South Korea unveiled 11.7 trillion won ($11.4 billion) in government initiatives to help the economy, after growth slumped to the weakest pace in more than a year in the second quarter.
European indices were trading in the green. US Futures too were trading marginally higher.
Euro-area manufacturing and services activity strengthened in July in a sign that a recovery in the 18-nation region is gathering pace. The Purchasing Manager's Index for both industries jumped to 54 from 52.8 in June, matching a three-year high reached in April, London-based Markit Economics said today. It is the 13th month the gauge has exceeded 50, the mark that signals expansion.
German services activity expanded at the fastest pace in three years and manufacturing accelerated, signaling that the economy is recovering from a slowdown in the second quarter. The Purchasing Manager's Index for services jumped to 56.6 in July from 54.6 in June, London-based Markit Economics said today. A factory gauge rose to 52.9 from 52. A reading above 50 indicates expansion.
SEBI has passed an interim order directing Remac Realty not to collect any money from investors from its existing "schemes"/plans or to launch any new "scheme"/plan
SEBI (Securities and Exchange Board of India) has passed an interim order directing Remac Realty India Ltd., and its directors, Partha Pratim Tewari, Arnab Roy, Ganesh Kumar Bagaria, Leena Tewari, Reena Vijay, Sandip Chattopadhyay and Debapratim Mazumder not to collect any money from investors from its existing "schemes"/plans or to launch any new "scheme"/plan; and to immediately submit the full and detailed inventory of the assets owned by the company out of the amounts collected from the "applicants"/investors under its existing "schemes"/plans, according to a release from the regulator.
The company has been ordered not to dispose of any of the properties, or alienate the assets of the existing "schemes"/plans. Further, it shall not divert any funds raised from public at large, kept in bank account(s) and/or in the custody of the company.
SEBI has ordered the company to provide complete information on its investors and their investments in the company to help in the investigation. Also, the company should provide SEBI details of expenditure incurred under the head "Administration Overheads", duly certified by an auditor.
SEBI’s press release says that, “It is alleged that the company is engaged in fund mobilising activity from the public by floating/ sponsoring/ launching 'collective investment scheme' as defined in Section 11AA of the SEBI Act without obtaining a certificate of registration from SEBI.”