In your interest.
Online Personal Finance Magazine
No beating about the bush.
RBI cancelled registration of GE Strategic Investments India, Profound Exports, Two Brothers Holding, Swank Services, Praxis Consulting and Information Services and Credible Microfinance, all based in Delhi
The Reserve Bank of India on Monday cancelled certificate of registration (CoR) of six non-banking financial companies (NBFCs) from the national capital.
According to an RBI statement, these Delhi-based NBFCs, whose CoR has been cancelled, are GE Strategic Investments India, Profound Exports Pvt Ltd, Two Brothers Holding Ltd, Swank Services Pvt Ltd, Praxis Consulting and Information Services Pvt Ltd, and Credible Microfinance Ltd, formerly known as Credible Securities & Finance Pvt Ltd.
Following cancellation of registration certificate, these companies cannot transact the business of a non-banking financial institution, the central bank said in the statement.
MCA’s latest order burdens private limited companies with even more stringent compliance, in case of related party transactions
The Ministry of Corporate Affairs (MCA) is leaving no stone unturned to make matters pertaining to related party and transactions clear. But is it succeeding? On 24 July 2014, the MCA, vide its Companies (Removal of Difficulties) Sixth Order, 2014 (Present Order), amended clause (iv) of Section 2(76) of Companies Act, 2013 (Act of 2013). The Present Order is most likely to create outcry from companies.
It seems that the Ministry is determined to issue weekly clarifications regarding related parties. MCA first issued Companies (Removal of Difficulties) Fifth Order, 2014, dated 9 July 2014 , amending clause (v) of Section 2(76) of the Act of 2013 by replacing ‘and’ with ‘or’. This was followed with clarifications on matters relating to related party transactions vide general circular no. 30/2014 dated 17 July 2014. The MCA further amended the definition of a related party by amending Companies (Specification of definition details) Rules, 2014 vide notification dated 17 July 2014, which came into force from the date of its publication in the official gazette.
Section 2 (76) (iv) of the Act of 2013 has been amended to insert words ‘or his relative’. The amended rule post amendment will stand as under:
2(76) (iv) Related Party: a private company in which a director or manager or his relative is a member or director;
This is done with the intent to expand the purview of related parties, while dealing with private companies. Earlier Section 297 of Companies Act, 1956 (old Act 1956) restricted the scope of related parties to a private company, of which the director is a member or director. However, under the new Act of 2013 there has been an inclusion of 'manager appointed' in such private company and now, vide Ministry’s present order, relative of a director or manager of a private company where such relative is a member or director has also been added.
The MCA had issued a draft notification on 24 June 2014, on the in-applicability/ partial/ modified applicability of certain provisions of the Act of 2013 to private companies, in exercise of powers under section 462 of the Act 2013. Public comments were invited on the same by 1 July 2014. The same was to be placed before both the houses of parliament. The notification altogether exempted private companies from the applicability of Section 188.
However, the draft notification obtained from the Rajya Sabha office has a slight modification in the terms of applicability of Section 188. The entire exemption from applicability of Section 188 was replaced with exemption only from applicability of the second proviso of Section 188 (1) of the Act of 2013. This means that if the related party is a member of the Company, then he shall not be dis-entitled from voting on such resolutions at the general meeting.
The MCA, without realizing the extent of compliance required in case of related party transactions has simply expanded the scope of definition. This means any company entering into a transaction with a private limited company in which relatives of director or manager is a member or director will be a related party transaction. This means it will require prior approval of the Audit committee, wherever applicable. Further, if the transaction is not in the ordinary course of business and not being done on arms length basis, the same will require approval by the Board. Further, if such a transaction exceeds the limits specified under Rule 15 of Companies (Meetings of Board and its Powers) Rules, 2014, prior approval of shareholders will also be required.
The present order will lead to everything but removal of any difficulty!
(Debolina Banerjee is an associate at Vinod Kothari & Company)
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)