Category Archives: regulatory updates

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

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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

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

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