Category Archives: regulatory updates

Nidhi Provisions Notified under Companies Act, 2013

 Ministry of Corporate Affairs (“MCA”) vide Notification dated July 1, 2019,  appointed that Section 406 of the Companies Act, 2013 shall come into force from August 15, 2019.

Nidhi company is created for borrowing and lending money between members. Some prerequisites for a Nidhi company are incorporation as public limited company with minimum 200 members, net owned funds to deposits ratio not to be more than 1:20, etc.

Further, MCA vide Notification dated July 1, 2019, has notified the Nidhi (Amendment) Rules, 2019 which amends the Nidhi Rules, 2014 effective from August 15, 2019.  The brief changes are as shown below:

Rule No Existing Amendment effective from August 15, 2019
2(d) Applicability of the rules to company incorporated as Nidhi under Section 406 of Companies Act, 2013 or those under Section 620A of Companies Act, 1956 New rule inserted for applicability to every company declared as Nidhi or Mutual Benefit Society under Section 406(1) of Companies Act, 2013
3(da) Not applicable New rule inserted to define a “Nidhi” which involves a company which accepts deposits from its members and lends to only its members for mutual benefit
3A Not applicable New rule inserted prescribing the procedure for the Central Government to notify a public company as a Nidhi, pursuant to any application made inform NDH-4 and also mandating companies to comply with filing of Form NDH-4 within time limits prescribed, failing which, such companies are disallowed from filing any notice of alteration of capital in Form SH-7 or return of allotment in Form PAS-3
4 A public company could be a ‘Nidhi’ only if incorporated as a Nidhi Omission of parts of the rule that required prior incorporation as Nidhi,
5 (1) Minimum requirements for every Nidhi was to be adhered within one year from commence of the Nidhi Rules, 2014 Now the requirements are to be adhered within one (1) year from the date of Nidhi’s incorporation
5(3) Extension of time could be provided by Regional Director in case a Nidhi files an application in Form NDH-2 to comply with the requirements of minimum 200 members and for maintaining ratio of 1:20 for net owned funds to deposits The time period of extension which can be granted by a Regional Director is now limited to up to one year, through insertion of a proviso
5(4) Nidhi which failed to comply with minimum requirements were prohibited to accept deposits beyond second financial year, unless it complied Even if such Nidhi complied with the requirements beyond second financial year, prohibition to accept deposits continues till a fresh declaration is obtained under Section 406(1) of New Act
7(1) Nidhi were to issue either fully paid up or partially paid-up equity shares of the nominal value Nidhi is prohibited from issue of partly paid up equity shares
12 The application form for a deposit should contain a statement that a depositor could approach RoC over non-payment of deposit The statement is changed so that a depositor can approach only a bench of National Company Law Tribunal.

Further new rule is inserted mandating the mention of the date of declaration or notification as Nidhi in the application for deposit.

23 The Regional Director was empowered to enforce compliance Regional Director is replaced with the Central Government to enforce compliance.

Further two new rules 23A and 23B are inserted to mandate existing Nidhi to get fresh declaration as Nidhi after commencement of the Nidhi (Amendment) Rules, 2019

Form NDH-4 Not applicable Insertion of new form for filing application for declaration as Nidhi Company and for updation of status by Nidhis

Source: http://www.mca.gov.in/Ministry/pdf/NidhiRules_01072019.pdf

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New Compliance under POSH for Entities in Telangana

Telangana Government’s Department of Women Development and Child Welfare vide its Notification on its website, has mandated entities with 10 or more employees to register their Internal Complaints Committee (ICC) constituted under Section 4 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (“POSH”) on the T-She box web portal on or before July 15, 2019, failing which a penalty of Rs.50,000/- will be imposed on the defaulting entities.

POSH is an act notified in 2013 with an intention to provide protection against sexual harassment of women at workplace and for redressal of complaints of sexual harassment. Section 6 of POSH mandates that every District Officer should constitute a ‘Local Complaints Committee’ to receive complaints of sexual harassment from establishments where ICC has not been constituted due to having less than ten workers. Hence, every employer with 10 or more employees is required to constitute an ICC with a senior level woman presiding officer, a member from a non-governmental organization and at least two members among the employees.

The present notification in Telangana mandates registering of such ICC with the Department of Woman and Child Welfare.  On a similar note, Karnataka Government vide its Notification dated May 25, 2019, made it mandatory for IT/ITES companies to form an ICC under POSH to avail an exemption till May 24, 2024, from the applicability of Industrial Employment (Standing Orders) Act, 1946.

Source: http://tshebox.tgwdcw.in/

New BEN-2 Form for declaration of Beneficial Owners

Ministry of Corporate Affairs (“MCA”) vide Notification dated July 1, 2019, amended the Companies (Significant Beneficial Owners) Rules, 2018 by substitution of the existing Form BEN-2 for declaration of Beneficial Owners through the Companies (Significant Beneficial Owners) Second Amendment Rules, 2019.

The Companies (Significant Beneficial Owners) Rules, 2018 was framed under Section 90 of the Companies Act, 2013 to identify the owners of a company incorporated by way of multilayered intermediate entities.  Such owners hold shares of a company but will not have any beneficial interest in such shares. These owners having an interest in indirect holding of shares, but their names are not entered in the register of members, are termed as ‘Beneficial Owner’. While such beneficial owner is required to file a declaration in Form BEN-1, the company is required to file a return in Form BEN-2.  These rules were earlier amended on February 8, 2019, whereby the definition of a significant beneficial owner was amended, to one who had a right of at least 10% of shares/voting right or has the right to receive 10% or more of distributable dividend. Form BEN-2 is to be filed within 30 days from the date of receipt of declaration in Form BEN-1. No additional fees is payable if Form BEN-2 is filed within 30 days from the date of deployment on MCA-21.

Source: http://egazette.nic.in/WriteReadData/2019/206373.pdf

New Procedure for filing Annual Return on Foreign Liabilities & Assets

Reserve Bank of India (“RBI”) vide its Circular No.37 dated June 28, 2019, discontinued the existing practice of submission of annual returns on Foreign Liabilities and Assets (FLA) through email to RBI by July 15 of every year.  RBI has provided a web-portal interface https://flair.rbi.org.in to the reporting entities to get an RBI provided login-name and password, using which the entities are required to report inward and outward foreign affiliate trade statistics (FATS).

Since 2012, RBI had mandated filing of the annual return FLA for all Indian companies which have received any foreign investment or has made overseas investment. The procedure for submission of the form was by sending an email to the RBI by July 15th every year attaching a duly filled form in soft copy.

The details sought in the revised Foreign Liabilities and Assets Information Reporting (FLAIR) system include, information on first year of receipt of foreign direct investment/overseas direct investment, disinvestment, and other financial details on fiscal year basis.

 

Source: https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT226CBAA4706347E46429D5034B4671A6F60.PDF

ESI Contribution Reduction w.e.f July 1, 2019

Employees’ State Insurance Act, 1948 (“ESI”), is a social benefit legislation, enacted to provide certain benefits to employees in case of sickness, maternity and employment injury.

Amended Position:

The Ministry of Labour and Employment vide its Gazette Notification No.G.S.R. 423 (E) dated 13th June, 2019 has amended the Employees’ State Insurance (Central) Rules, 1950. The amendment rules i.e. the Employees’ State Insurance (Central) Amendment Rules, 2019 shall come into force from 1st July, 2019 and has made the following amendments:

  • The rate of contribution under the amended rules is reduced from 6.5% to 4% i.e., the employers’ contribution is being reduced from 4.75% to 3.25% and employees’ contribution is being reduced from 1.75% to 0.75%.

A tabular form has been depicted for easier reference:

Rate of contribution (in percentage) under Employees’ State Insurance Rules
Existing Rate till June 30, 2019 Revised Rate from July 1, 2019
Employers’ contribution 4.75 3.25
Employees’ contribution 1.75 0.75
Total contribution 6.5 4

Source: http://egazette.nic.in/WriteReadData/2019/205715.pdf

Incorporation of Section 8 Companies (Not for Profit Organisation) gets simplified

The Ministry of Corporate Affairs (the MCA) vide its notification dated 7 June 2019 has amended the Companies Incorporation Rules, 2014 to simplify the incorporation procedure. This shall be effective from 15 August 2019. Following are the key changes made:

  1. Any person who is desirous of incorporating a company under section 8 i.e., Not for Profit Organisation, under the Companies Act, 2013 can make an application in e-Form INC-32. No separate application for license is required to be made. Prior to this amendment, the applicant was required to make an application in Form INC 12 to obtain license and thereafter application for Incorporation was required to be made.
  2. Post scrutiny of the documents, the Certificate of Incorporation for Section 8 companies will now be issued by Registrar of Companies in Form INC-11 which earlier was issued as a licence under Form -16 or Form-17 as the case may be.

With these changes now the process of Incorporation of Section 8 Companies will be simplified and fast-tracked.

Source: http://www.mca.gov.in/Ministry/pdf/Rules_07062019.pdf

Regulatory update on Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2019

The Ministry of Corporate Affairs (the MCA) vide the Companies (Prospectus and Allotment of Securities) Rules, 2014 has introduced Form PAS-6. The said form is required to be filed by every unlisted public company within sixty days from the conclusion of each half year i.e. for each half year ended 30th September and 31st March in every financial year for each ISIN separately and duly certified by a company secretary in practice or chartered accountant in practice.

Also, every company shall immediately bring to the notice of the depositories in case there is any difference observed in its issued capital and the capital held in dematerialized form.

Sources:http://www.mca.gov.in/Ministry/pdf/Rules_23052019.pdf