Category Archives: regulatory updates

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

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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

Process for Accreditation of Investors for the purpose of Innovators Growth Platform

The Securities and Exchange Board of India (“SEBI”) vide circular dated 22 May 2019 has announced the framework for the process of accreditation of investors for the purpose of the Innovators Growth Platform (“Framework”).

The circular defines Accredited Investors (“AIs”), for the specific purpose of Innovators Growth Platform (“IGP”), as investors whose holding in the issuer company is eligible for the computation of at least 25% of the pre-issue capital in accordance with the SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”).

As per the Framework, the following shall be eligible to be considered as AIs:

  1. any individual with a total gross income of Rs. 50 lakhs annually and who has a minimum liquid net worth of Rs. 5 crores;
  2. or any body corporate with a net worth of Rs. 25 crores.

According to the Framework, an investor having a Demat account with a Depository has to make an application to the Stock Exchanges/Depositories in the manner prescribed by the latter for recognition as an AI. The Stock Exchanges and Depositories are allowed to use the service of Brokers and Depository participants respectively and the former shall be responsible for verification and maintenance of AI data. The documentation required for accreditation is provided in the form of an Annexure to the Circular.

Once an AI is accredited, the accreditation shall be valid for a period of three (3) years from the date of issue of accreditation. However, if the AI becomes ineligible before the expiry of three years due to change in the financial status of the AI, s/he/it would be under an obligation to inform the Stock Exchange/Depository of such ineligibility.

When a Company applies for listing on IGP, the merchant bankers have to ensure due diligence with regard to the eligibility of AIs and that their holding in the Company desirous of listing on the IGP, is in accordance with Regulation 283(1) of ICDR Regulations.

Through the Circular, SEBI has directed Exchanges/Depositories to implement the procedure within forty-five (45) days from date of circular; to disseminate the provisions of the circular on their website and to communicate the status of the implementation of the circular to SEBI. In view of the framework, the Exchanges/Depositories will have to amend their bye-laws, rules and regulations.

Source: https://www.sebi.gov.in/legal/circulars/may-2019/framework-for-the-process-of-accreditation-of-investors-for-the-purpose-of-innovators-growth-platform_43056.html

Failure to file ACTIVE form would result in marking DIN of Directors as Director of ACTIVE non-compliant company

The Ministry of Corporate Affairs (the MCA) vide the Companies (Incorporation) Amendment Rules, 2019 read with the Companies (Incorporation) (Fourth Amendment) Rules, 2019 had introduced Form INC-22A ACTIVE mandating the Companies to file particulars of the Company and its registered office on or before 15 June 2019. If any company fails to file the said form within the due date, the status of the Company will be marked as “ACTIVE non-compliant”.

In addition to the above amendment, the MCA has amended the Companies (Appointment and Qualification of Directors) Rules, 2014 by inserting new rule 12B. Consequent to this amendment now the status of Director Identification Number (DIN) of those “Active non-compliant” companies will also be marked as “Director of ACTIVE non-compliant company”. The DIN status can be changed to “Director of ACTIVE compliant company”, only after filing of form INC-22A ACTIVE.

Consequences of non-filing of Form INC -22A ACTIVEon or before 15 June 2019:

(i) Penalty of INR 10,000 shall have to be paid.

(ii)  DIN of the Directors shall be marked as “Director of ACTIVE non-compliant company

(iii) The Companies are unable to file the following forms with the MCA, unless Form INC-22A ACTIVE is filed:

  • Form SH-07 (Change in Authorized Capital);
  • Form PAS-03 (Change in Paid-up Capital);
  • Form DIR-12 (Changes in Director except cessation);
  • Form INC-22 (Change in Registered Office);
  • Form INC-28 (Amalgamation, de-merger)

Source: http://www.mca.gov.in/Ministry/pdf/CompaniesRules_16052019.pdf

 

 

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

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