Author Archives: novojuris

Clarification on Form ADT-1 (Form for Appointment of Auditor) filed through GNL-2 during the period 1 April 2014 to 20 October 2014

The Ministry of Corporate Affairs (the MCA) had received representation from various stakeholders seeking for relaxation from payment of additional fee specifically with respect to filing e-form ADT-1 which was filed through Form GNL-2 during the period from 1 April 2014 to 20 October 2014 for appointment of Auditors for the period 2014 to 2019 as the e-form ADT-1 was not available for filing during the said period and consequent to this, companies were facing difficulties in filling the details of Auditor in e-form INC-22A Active (One time return to be filed by companies on details of registered office of the Company).

MCA has considered the matter and issued a General Circular on 13 May 2019 clarifying  that the companies which had filed Form ADT-1 through form GNL-2 during non-availability of e-form ADT-1 i.e, from 1 April 2014 to 20 October 2014 may file e-form ADT-1 for appointment of Auditor for the period upto 31 March 2019 without any fee till 15 June 2019.

Further, the Companies which had filed form ADT-1 through e-form GNL-2 even after the deployment of e-form ADT-1 will have to file the e-form ADT-1 now with additional fee.

Source: http://www.mca.gov.in/Ministry/pdf/GeneralCircular13052019.pdf

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RBI opens Rupee Interest Rate Derivatives market to Non-Residents for hedging and trading in India

The Reserve Bank of India (“RBI”) on 27 March 2019, announced that a Non-Resident[1] shall be given access to the Rupee Interest Rate Derivative (“IRD”) market in India vide the notification of Non-resident Participation in Rupee Interest Rate Derivatives Market (Reserve Bank) Directions, 2019 (the “Directions”) with immediate effect which applies to Rupee IRD transactions undertaken on recognized stock exchanges, electronic trading platforms (“ETP”) and Over the Counter (“OTC”) markets.

Permissible activities under the Directions:

Under the Directions, a Non-Resident can undertake transactions in Rupee IRD markets for the following purposes:

1.Hedging their exposure to interest rate risk by using any permitted IRD product transacted on recognized stock exchanges, ETPs or OTC market, subject to the following condition

  • IRD transaction must conform to the provisions of Section 45(V) of the RBI Act, 1934 and FEMA, 1999, and any rules, regulations and directions issued thereunder;
  • Market-makers must ensure that the transactions by Non-Resident are being carried out for the purpose of hedging by calling for any relevant information from the Non-Resident, who will be obliged to provide the same

2. For purposes other than hedging of interest rate risk, i.e. Trading by;

  • Non-Residents other than individuals, for undertaking Overnight Indexed Swaps (“OIS”) transactions subject to condition of conducting it only through a market-maker in India by way of a back-to-back arrangement through a foreign counterpart of the market-maker in a back-to-back arrangement meaning that the Non-Resident shall undertake the transaction with a foreign counterpart of the market-maker and the foreign counterpart, in turn, immediately shall enter into an off-setting transaction with the market-maker in India. All rupee interest rate derivatives transactions, globally, of related entities of the market-maker must also be accounted for in the books of the market-maker.

OIS transactions by NRs for purposes other than hedging interest rate risk shall be subject to the overall limit as well. This shall be in the form of a Price Value of a Basis Point (“PVBP”) of all outstanding OIS positions undertaken by all Non-Residents which shall not exceed INR 3.50 billion. The PVBP of all outstanding OIS positions for any single Non-Resident shall not exceed 10% of the overall PVBP cap. The Clearing Corporation of India Ltd. (“CCIL”) shall publish methodology for calculation of PVBP, monitor and publish utilization of PVBP limit on a daily basis.

  • Foreign Portfolio Investors (“FPI”) collectively may also transact Interest Rate Future (”IRF”) up to INR 50 billion in terms of RBI’s circular titled “Separate limit of IRFs for FPIs” dated 01 March 2018.

Payments and Reporting:

All payments related to IRD transactions of a Non-Resident may be routed through a Rupee account or a vostro account. Market-makes shall also ensure that Non-Resident clients are from an FATF compliant country and that the clients comply with KYC requirements as prescribed under the RBI’s KYC Master Direction as amended from time to time. It is to be noted that this may required Non-Resident to acquire a Permanent Account Number (PAN) to quote in IRD transaction instruments.

All OTC rupee IRD transactions are to be reported by market-makers and ETPs to the trade repository of CCIL, clearly indicating whether trade is for hedging or other purposes. Trade details, including particulars of NR client for OIS transactions under the back-to-back arrangement is to be reported by market-makers to the trade repository of CCIL. Additionally, cross-border remittances arising out of transactions in Rupee IRD shall be reported by banks to RBI at monthly interval.

References:

[1] A ‘Non-Resident’ under the Directions means person resident outside India as defined in section 2(w) of Foreign Exchange Management Act, 1999.

2. https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11512

Simplified process of Incorporation & Commercial registrations

Introduction

The Ministry of Corporate Affairs (MCA) had notified the Companies (Incorporation) Third Amendment Rules, 2019[1] on 29 March 2019 which introduced the e-form INC-35 [Application for Goods and services tax Identification number, employees state Insurance corporation registration pLus Employees provident fund organisation registration (AGILE)]. The said AGILE form aims at bringing a single window where applicants can make applications under the Goods and Services Tax (GST), Employees Provident Fund Organization (EPFO) and Employees State Insurance Corporation (ESIC).

At present, the application for incorporation of a Company is made in e-form INC-32 (SPICe) along with e-Memorandum of Association (e-MOA) in Form No. INC-33 and e-Articles of association (e-AOA) in Form no. INC-34. Through e-form INC-32, the applicants can apply for PAN and TAN and now with the deployment of e-form INC-35, applications can be made for GST, EPFO and ESIC while incorporation of the Company.

This is a welcoming change brought about by the MCA wherein the incorporation process has been made hassle-free and the applicants can apply for various registrations while incorporating the Company. Previously, even after obtaining the certificate of incorporation Companies had to apply for registrations under the GST, EPFO and ESIC and subsequent approval. This proved to be a setback for companies and they couldn’t actually commence operation. However, with the introduction of the AGILE form the Ease of doing Business in India initiative has now been further enhanced.

How does this work?

For incorporation of the Company, applicants have to upload the requisite incorporation related linked e-forms i.e., INC-32, INC-33, INC-34 and INC-35. Thereafter, on approval of the same by the MCA, the Certificate of Incorporation, PAN and TAN is issued. Subsequently, the requisite information for GST, EPFO and ESIC (whichever service is availed) that has been filed in e-form INC-35 is forwarded to the concerned departments for its approval.

Thus, there are no repetitive submissions of incorporation related documents for obtaining registrations under GST, EPFO and ESIC.

Practical issues faced

Though this new amendment has made the incorporation process stress-free, applicants still face practical issues in this respect. Some of the issues are as follows:

  1. Companies have to provide a registered office address compulsorily for the AGILE form: While incorporating a company, applicants have an option to provide a correspondence address instead of a registered office address. However, they do have to obtain a registered office address within 30 days from the date of incorporation of the Company. This helps applicants a sufficient time to set up a registered office in case they do not have one at the time of incorporation. However, for the purpose of filing the AGILE form it is mandatory to have a registered office address as the form will only accept the address provided in the SPICe i.e., INC-32, or the correspondence address has to be the same as the address of the registered office.
  2. Principal place of business should be the same as the Registered Office of the proposed Company: Applicants willing to apply for GSTIN/Establishment code as issued by EPFO/Employer Code as issued by ESIC at the time of incorporating company, have to make sure that the principal place of business is the same as the Registered Office Address of the proposed Company. Thus, Companies intending to have the principal place of business different from the Registered Office address cannot avail this facility. They have to follow the existing registration procedure under the GST, EPFO and ESIC.
  3. Mandatory filing of AGILE form: Applying for GSTIN/ Establishment code as issued by EPFO/Employer Code as issued by ESIC at the time of incorporating company is optional. However, applicants have to still file the e-form as it is a linked e-form which accompanies the SPICe form for incorporation. This can prove to be an unnecessary compliance requirement for applicants who do not want to apply for GST, EPFO and ESIC registrations at the time of incorporation. 
  4. Resubmission of GST Application through the GST portal: In case of any error in the GST Application and the same has been sent for resubmission, applicants have to resubmit the application through the GST portal only. Further, if the TRN expires, a fresh application for GST shall have to be made through the GST portal too.

Conclusion

The introduction of this form surely proves to be beneficial for stakeholders however it still does not cover all the general registration requirements for a newly incorporated company such as Professional Tax, Trade License, Shop and Establishments, etc. Additionally, the MCA also has to look into the practical issue that are being faced and incorporate the changes to provide a seamless service.

Authors: Alivia Das and Ashwin Bhat

Reference:

[1] http://www.mca.gov.in/Ministry/pdf/companiesINC3rdAmendmentRules_30032019.pdf

Changes in Eligibility Criteria for Class Action Application

The Ministry of Corporate Affairs (“MCA”) on 08 May 2019 amended the National Company law Tribunal Rules, 2016, (“Rules”) which will streamline the provisions of Rule 84 of the said Rules (i.e. Right to apply under the Companies Act in case of Oppression and Mismanagement) and Section 245 (Class Action) of the Companies Act, 2013 (the Act).

While reading Section 245(1) of the Act together with the amended Rules it can be derived that following classes of members or depositors can Class Action under Section 245 of the Act before the National Company law Tribunal for seeking its order:

Category Criteria
In case of a company having a share capital The application shall be made by at least:

(a) 5% of total members or 100 members, whichever is less; or

(b) In case of an unlisted company, members holding at least 5% of issued share capital; or

(c) In case of a listed company, members holding at least 2% of issued share capital.

In the case of a company not having a share capital The application shall be made by atleast one-fifth of the total number of its members.
In case applicants are Depositors The application shall be made by at least:

 

(a) 5% of the total number of depositors or 100 depositors, whichever is less; or

(b) Depositors to whom the company owes 5% of total deposits of the company.

 

Source: http://www.mca.gov.in/Ministry/pdf/AmendmentRules1_08052019.pdf

Changes in the process of Strike-off of the Companies

The Ministry of Corporate Affairs (“MCA”) on 8 May, 2019 has notified the Companies (Removal of Names of Companies from the Register of Companies) Amendment Rules, 2019 (“Amendment Rules”) which shall come into effect from 10 May, 2019. The Amendment rules provides for the following changes:

(a) Explicit requirement of filing the Annual Forms

(i) The MCA vide this amendment has clarified that Companies have to file their overdue returns in AOC-4, AOC-4 XBRL and MGT-7 before filing an application in Form No. STK-2 with the Registrar of Companies (the RoC).

(ii) Company shall not be able to file Form No. STK-2, once it has received the notice of strike-off in Form No. STK-7 from the RoC.

(iii) The statutory fee for making an application for strike off has been increased to INR 10,000.

(b) List of documents to be filed with the RoC.

The application for removing the name of the Company from the RoC in Form No. STK-2 shall be accompanied by the following documents:

  1. indemnity bond (duly notarised) in Form STK 3;
  2. a statement of accounts containing assets and liabilities of the company made up to a day, not more than thirty days before the date of application and certified by a Chartered Accountant;
  • An affidavit in Form STK 4 by every director of the company;
  1. a copy of the special resolution duly certified by each of the directors of the company or consent of seventy-five per cent of the members of the company in terms of paid-up share capital as on the date of application;
  2. a statement regarding pending litigations, if any, involving the company.

As per the amendment rules, the aforementioned statement of accounts shall now be provided in Form No. STK-8 (the format of which has been provided in the Annexure to the principal rules).

Source: http://mca.gov.in/Ministry/pdf/AmendmentRules_08052019.pdf

ANALYSIS OF THE TIK-TOK ORDER

The Madras High Court delved into an important issue related to protecting children’s privacy in the context of web-based applications such as Tik-Tok, published by Bytedance (India) Technology Private Limited (“Company”). The petitioner contended that the app was “degrading culture”, encouraging pornography and exposing children to paedophiles.

As per Section 79 of the Information Technology Act, 2000 (“IT Act”) an intermediary would not be held liable for any third party information, data, or communication link made available or hosted by him provided that the intermediary’s functionality is limited to providing access to a communication system over which information made available by third parties is transmitted, temporarily stored or hosted or if the intermediary does not– (i) initiate the transmission, (ii) select the receiver of the transmission, and (iii) select or modify the information contained in the transmission. The exemption would not be applicable if the intermediary is involved in the unlawful act or if the intermediary fails to take down any unlawful content upon receiving actual knowledge of such content.

Further, for the exemption to be applicable the Intermediary should abide by the due diligence standards prescribed in the Information Technology (Intermediaries Guidelines) Rules, 2011 (“IT Rules”). The Rules provide that an intermediary should, among other things:

  1. publish the rules for access or usage of the intermediary’s computer resource and inform its users that in case of non-compliance with rules, the Intermediary has the right to immediately terminate the access to the intermediaries resources.
  2. Include in the aforementioned rules, that the users should not host/upload any content that is grossly harmful, obscene, pornographic, paedophilic, libellous etc.
  3. publish on its website the name of the Grievance Officer and his contact details as well as mechanism by which users can notify their complaints

Tik-Tok can be deemed an “intermediary” under the IT Act. The petitioner had incorrectly compared the Tik-Tok to the infamous “Blue-Whale” application, which unlike Tik-Tok is not an intermediary. Through an interim order the Hon’ble High Court had directed the Government to prohibit any further downloads of the app and asked the Central Government whether it would enact any statute specifically protecting the privacy of children online, akin to US’s Children’s Online Privacy Protection Act (“COPPA”).

The COPPA was enacted with the intention of protecting the children and making the website operators more diligent towards the protection of personal data. The resultant obligations ensure that the websites obtain consent from the parents prior to collecting or processing any child’s information. COPPA requires site operators to allow parents to review any information collected from the children. This entails that the website would have to provide full access to all user records, profiles and log-in information upon being requested by the parent.

Mr. Arvind P. Datar, learned Senior Counsel, the amicus curiae submitted that the Indian laws were comprehensive enough to deal with the issues mentioned by the petitioner and that no special legislation needed to be enacted. It may also be noted that the draft Personal Data Protection Act (“Bill”) also deals with certain aspects of children’s privacy such as barring website operators from profiling of children or making any targeted advertising directed children.

The Company contended that it followed all the requirements under the IT Act and the IT Rules and in fact went above and beyond the requirements by 1) engaging a content moderation team to screen harmful content, 2) allowing users to block mischievous users, 3) providing a “report” feature which lead to average takedown time of just 15 minutes (even though the law expected intermediaries to initiate suitable actions within 36 hours of being informed of any unlawful content) 4) providing parental control/supervision related features  5) deploying an AI-powered takedown mechanism that detects illegal content, including content that is violative of Section 354C of the Indian Penal Code, 1860 and Section 66E of the IT Act etc.

The contentions of the Company with regards to diligence practices in accordance with industrial standards were taken on record by the Madras High Court as an undertaking and in furtherance of same, the interim ban imposed by its previous order dated April 3rd,  2019 was lifted.

Author: Spandan Saxena and Asis Panda

Reference:  S. Muthukumar v. M/S Bytedance (India) Technology Private Limited- http://164.100.79.154/madurai-do/index.php/casestatus/viewpdf/wp(md)_7855_2019_xxx_0_0_25042019_107_135.pdf

Notification of Companies (Acceptance of Deposits) Second Amendment Rules, 2019

The Ministry of Corporate Affairs (the MCA) vide its Notification dated 30 April 2019, has amended the Companies (Acceptance of Deposits) Rules, 2014. This amendment is in relation to its earlier notification dated 22 January 2019 which mandated the non-government companies to file Form DPT 3 providing particulars of transactions that have not been considered as deposit under the Companies Act 2013 or both as on 22 January 2019. With this amendment, the MCA has amended to mandate the Companies to provide aforesaid information as on 31 March 2019. Further, it has extended the due date for filing Form DPT 3 from 22 April 2019 to 30 June 2019.

Source: http://www.mca.gov.in/Ministry/pdf/CompaniesAcceptanceDepositsSecAmendRules_01052019.pdf