Category Archives: Articles

Fast Track Insolvency Resolution Regulations

With an aim to complete an insolvency petition even faster, in 90 days, for small companies, companies where there are not a lot of transactions / operations, the Insolvency and Bankruptcy Board of India  has notified the sections 55 to 58 of the Insolvency and Bankruptcy Code 2016 and the draft of Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 with effect from 14 June 2017.

It is believed that these regulations help in faster and easier completion of bankruptcy proceedings.

The fast track process applies to the following categories of corporate debtors:

  • a small company, as defined under clause (85) of section 2 of the Companies Act, 2013;
  • a Startup (other than the partnership firm), as defined in the notification dated 23 May 2017 of the Ministry of Commerce and Industry;
  • an unlisted company with total assets, as reported in the financial statement of the immediately preceding financial year, not exceeding Rs.1 crore.

The criteria for an Insolvency Resolution Professional (IRP) are:

  • An insolvency professional can be resolution professional if he, all his partners and directors are independent of the corporate debtor.
  • Not eligible if he or the insolvency professional entity of which he is a partner or director,is under a restraint order of the Board.
  • Shall not continue as resolution professional of he or entity where he is director or partner or any other of his director or partner represents any other stakeholders in the same fast track process.

The Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 also provides that if committee thinks that fast track process cannot be completed within 90 days then it may instruct the resolution professional to make an application to the Adjudicating Authority. However, the Adjudicating Authority may, if satisfied, extend the period of 90 days by a further period up to 45 days for completion of the process.

Further, Interim Resolution Professional (IRP) shall file a report certifying constitution of committee to Adjudicating Authority before expiry of 21 days from the date of his appointment. Based on records, if interim resolution professional is of opinion that fast track process is not applicable to corporate debtor, he shall file an application to Adjudicating Authority along with the report to pass an order converting the fast track process to corporate insolvency resolution process. If Adjudicating Authority passes on order of such conversion, the process shall be carried on in accordance with Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Source: http://www.ibbi.gov.in/RegulationsonFastTrackCorporateResolutionProcess.pdf

Dematerialization of Shares

Shares went digital a couple of decades back.  While holding shares in demat is mandatory for public listed companies, even private limited companies can opt for it. This just makes it a tad easier, especially during the secondary sale of shares. Private limited companies who raise institutional investment or in cases of large number of angel investors on their capital table may find this especially useful.

shares demat

Image credit: thehindubusinessline.com

According to the Depositories Act, 1996, a shareholder has the option to hold shares either in physical or electronic form. The converted electronic data is stored with the depository from where they can be traded. It is similar to a bank where a shareholder opens an account with any of the depository participants.

The parties involved in process of Dematerialisation are Issuer Company, Depository, Depository Participant, Registrar and Transfer Agent and Shareholder.

Depository is an institution registered under the Securities and Exchange Board of India (SEBI). Similar to the way banks hold funds of its account holders, depositories maintain accounts for shareholders’ securities (share, debentures, mutual fund etc.) held by them in a dematerialised or an electronic form. Presently, National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) are registered with SEBI to act as Depositories in India. They interface with the shareholders through their agents called Depository Participants (DPs). Any bank (private, public and foreign), financial institutions and SEBI registered trading members could be a DP. A DP is one with whom you need to open an account to deal in electronic form.

Apart from ease, demat provides for other benefits

  • Dematerialized shares cannot be defaced or mutilated or stolen, hence it is a safe way to hold shares by the shareholders;
  • Easily transferred electronically;
  • No Stamp duty is required to be paid upon allotment or transfer of shares;
  • Reduction in transaction cost and legal cost;
  • Minimal paperwork.

Process that private limited companies can follow to demat their shares:

  1. The Articles of Association should provide for issuances of shares in dematerialised form.
  2. Arrange demat connectivity from depositories like NSDL or CDSL along with a Registrar and Transfer Agent (RTA) by entering into a tripartite agreement between the company, the Depositories and the RTA.
  3. Before converting physical shares into dematerialized form, a company is required to register with a depository as an issuer. These depositories have their terms of registration, so it is necessary for a company to meet those terms. If registration is successful depositories will be providing the company with an International Securities Identification Number (ISIN) for each of the shares. “ISIN” is a unique 12-digit alphanumeric code given to a security, share, debenture, bond etc. when the security is admitted in the depository system. First two digits of the ISIN code indicate country of registration for the security. For all securities registered on depository in India, first two digits of the ISIN code are ‘IN’.
  4. ISIN shall be quoted on all correspondence with the DP and Depositories with respect to allotment of securities or transfer of securities as the case may be.
  5. Issuer should obtain electronic connectivity with the existing RTA or by obtaining In-House connectivity.
  6. Shareholders of a registered company are required to open an account with any of the DPs in India by signing an agreement which defines the rights and duties of the DP and the shareholder wishing to open the account. The client ID along with the DP ID gives a unique identification in the depository system.
  7. After opening an account with the DP, a shareholder should surrender the physical certificates held in his name to the DP. These certificates will be sent to the respective companies where they will be cancelled after dematerialization and the respective shareholder’s account maintained with the DP will be credited.
  8. Dematerialised shares are in the fungible form, that is, they do not bear any notable feature like distinctive number, folio number or certificate numbers and stamping, is not required.

If required, securities in dematerialized form can again be converted into physical form through a process called Rematerialization.

Some indicator of the costs as per the information on the DP’s website.

At NSDL, the joining fees for companies to register as issuer is Rs. 30,000/- plus service tax (one-time fee). In addition to the joining fee, any issuer of the listed securities is required to pay annual custody fees at the rate of Rs. 8/- per shareholder in NSDL, which is subject to a minimum amount which ranges between Rs. 6000 (where nominal value of shares admitted is upto Rs. 5 crores) to about Rs. 50,000 (for nominal value of shares above Rs. 20 crores).

CDSL is the other big DP in India, whose fees and charges are a tad lesser than NSDL.

 

Authors: Ashwin Bhat D, Senior Associate and Ifla A, Associate

Disclaimer: The information contained in this post is for dissemination purposes only and shall not be relied upon as an opinion. For any help or assistance please email us on  relationships@novojuris.com

 

Regulatory Updates: Labour Ministry – Amendment under the EPF, EPS, and EDLI Schemes for e-Payment

Via its notification dated May 4, 2017, the Ministry of Labour & Employment amended the Employees’ Provident Fund Scheme, 1952; the Employees’ Pension Scheme, 1995; and the Employees’ Deposit Linked Insurance Scheme, 1976; to enable payments to be made to the beneficiaries/pensioners/insurance claimants via an electronic or digital funds transfer system. This mode of funds transfer has been made mandatory, and is expected to benefit 4.5 crore EPF subscribers and around 54 lakh pensioners.

Sources: 1, 2

Regulatory Updates: Telecom Regulatory Authority of India – Adoption of e-KYC Service for Fixed Line, Internet, and Broadband Connections

The Telecom Regulatory Authority of India (TRAI) via a letter dated May 16, 2017, has authorised the use of Aadhaar based e-KYC authentication by Internet Service Providers for the purposes of providing broadband and internet connections. This process had already been authorised and operationalised for new as well as existing subscribers of mobile connections (via letters dated September 16, 2016 and March 23, 2017 respectively). However, the TRAI is yet to come out with an appropriate format of the Customer Application Form, for the purpose of operationalising this process of ISPs.

Source

Regulatory Updates: Intellectual Property (IP Laws) – DIPP and WIPO to set up Technology and Innovation Support Centers for IP generation

The Department of Industrial Policy and Promotion (DIPP) (Industrial Promotion Body) and World Intellectual Property Organization (WIPO) have joined hands to establish Technology and Innovation Support Centres (TISC) in the country which is expected to boost generation and commercialisation of intellectual properties.

The agreement, signed between the DIPP and WIPO for setting up of TISCs, will provide an motivation to knowledge sharing, capacity building and sharing of best practices among the over TISCs operating worldwide by providing access to global network.

Services offered by TISCs may include:

  1. Access to online patent and non-patent (scientific and technical) resources and IP-related publications;
  2. Assistance in searching and retrieving technology information;
  3. Training in database search;
  4. On-demand searches (novelty, state-of-the-art and infringement);
  5. Monitoring technology and competitors;
  6. Basic information on industrial property laws, management and strategy, and technology commercialization and marketing.

The Cell for IPR Promotion and Management (CIPAM) is designated as the National Focal point for the TISC national network. As the national focal point, CIPAM shall identify potential host institutions, assess their capacities and support them in joining the TISC project. CIPAM will also act as the main intermediary between WIPO and TISC host institutions and coordinate all the activities of the national TISC network.

Source

Regulatory Updates: Ministry of Corporate Affairs – Notification of the Companies (Acceptance of Deposits) Amendment Rules, 2017

Ministry of Corporate Affairs vide its notification dated 11 May 2017 has amended the Companies (Acceptance of Deposits) Rules 2014 to include “Infrastructure Investment Trusts” in the exemption category and to defer “deposit insurance” for another one year (till 31 March 2018) in the absence of suitable deposit insurance product in the market.

Section 73(2) of the Companies Act 2013 read with Rule 5 of Companies (Acceptance of Deposits) Rules, 2014 mandates that every company inviting deposits shall enter into a contract for providing deposit insurance at least 30 days before the issue of circular or advertisement or renewal as the case may be. However, in view of non-availability of such deposit insurance products, companies are now allowed to raise deposits without any deposit insurance till 31st March, 2018, as per proviso to Rule 5(1) of the Companies (Acceptance of Deposits) (Amendment) Rules, 2017.

Source

Regulatory Updates: Securities Exchange Board of India – Instant Access Facility (IAF) in Mutual Funds and use of e-wallet for investment in Mutual Funds

SEBI vide its circular no. SEBI/HO/IMD/DF2/CIR/P/2017/39 dated 8 May 2017 has issued guidelines for Instant Access Facility (IAF) in Mutual Funds and use of e-wallet for investment in Mutual Funds, with an objective to channelize households’ savings into capital market and to promote digitalization in mutual funds.

Key Highlights:

1) Monetary LimitMutual Funds (MFs) / Asset Management Companies (AMCs) can offer instant access facility (through online mode) upto INR 50,000 or 90% of folio value, whichever is lower, to resident individual investors in liquid schemes by applying lower of Previous Day Net Asset Value or Net Asset Value of Day on which application is received.

2) Liquidity:

  • Liquidity is to be provided out of the available funds from the scheme and MFs/AMCs to put in place a mechanism to meet the liquidity demands.
  • For providing such facility MFs/AMCs would not be allowed to borrow.

3) MFs/AMCs can accept investment by an investor through e-wallets (Prepaid Payment Instruments (PPIs)) subject to the following:

  • Investment of upto INR 50,000 per Mutual Fund per financial year can be made using e-wallets. However, redemptions of such investments can be made only to a bank account of the unit holder.
  • MFs/AMCs must not offer any incentive such as cash back etc., directly or indirectly for investing in mutual fund scheme through them.
  • E-wallet’s balance loaded through cash or debit card or net banking, can only be used for subscription to mutual funds schemes and balance loaded through credit card, cash back, promotional scheme etc. should not be allowed for subscription to MF schemes.
  • Further, this limit of INR 50,000 would be an umbrella limit for investment by an investor through e-wallet and/or cash, per mutual fund per financial year.

4) The SEBI Circular shall be applicable with immediate effect.

Source