Tag Archives: company law

NOTIFICATION OF THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL (AMENDMENT) RULES 2017.

NOTIFICATION OF THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL (AMENDMENT) RULES 2017.

The MCA vide its notification dated 23 August 2017 has amended Rule 63 of National Company Law Appellate Tribunal Rules 2016  notified on 21 July 2016 regarding Appearance by Authorised Representative, as under:

  • Subject to provisions of section 432 (Right to Legal Representation) of the Companies Act 2013, a party to any proceedings or appeal before the Appellate Tribunal may either appear in person or authorise one or more chartered accountants or company secretaries or cost accountants or legal practitioners or any other person to present his case before the Appellate Tribunal.
  • The Central Government, the Regional Director or the Registrar of Companies or Official Liquidator may authorise an officer or an Advocate to represent in the proceedings before the Appellate Tribunal.
  • The officer authorised by the Central Government or the Regional Director or the Registrar of Companies or the Official Liquidator shall be an officer not below the rank of Junior Time Scale or company

Source: http://www.mca.gov.in/Ministry/pdf/NCLATAmendmentRules2017_25082017.pdf

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COMMENTS INVITED ON THE PROPOSED AMENDMENTS IN THE DRAFT COMPANIES (COST RECORDS AND AUDIT) RULES, 2014

COMMENTS INVITED ON THE PROPOSED AMENDMENTS TO THE DRAFT COMPANIES (COST RECORDS AND AUDIT) RULES, 2014

Pursuant to the implementation of Indian Accounting Standards (IndAS), the MCA vide its public notice dated 11 August 2017 has invited comments/suggestions on the amendment in Companies (Cost Records and Audit) Rules, 2014 in order to bring uniformity between financial records and cost records.

The comments/suggestions on the said Draft Rules shall be provided on or before 26 August 2017.

Source:

Public Notice: http://www.mca.gov.in/Ministry/pdf/notice_11082017.pdf

Draft Rules: http://www.mca.gov.in/Ministry/pdf/draftRules_11082017.pdf

CLARIFICATION ON DEFINITION OF “JOINT VENTURE”

MINISTRY OF CORPORATE AFFAIRS (MCA)

CLARIFICATION ON DEFINITION OF “JOINT VENTURE” FOR THE PURPOSE OF EXEMPTION FROM APPOINTMENT OF INDEPENDENT DIRECTORS BY CERTAIN UNLISTED PUBLIC COMPANIES

The MCA vide its notification dated 5 July 2017 had inserted Rule 4(2) and amending Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 to exempt the unlisted public company which is a joint venture, a wholly owned subsidiary or a dormant company from appointing independent directors.

Further for the purpose of availing exemption under Rule 4(2) as such a term is not defined in the Companies Act, 2013, stakeholders and other professional institutes had sought for clarifications with regard to the meaning of “Joint Venture”.

In view of the above, MCA vide its circular dated 05 September 2017 has clarified that the term “Joint venture” would mean a joint arrangement, entered into in writing, whereby parties that have joint control of the arrangement, have rights to the net assets of the arrangements. The usage of the term is similar to that under the Accounting Standards.

Source: http://www.mca.gov.in/Ministry/pdf/GeneralCircular_05092017.pdf

Insolvency & Bankruptcy Code- Protection FROM Creditor or Protection FOR Creditor

Background

The Insolvency and Bankruptcy Code, 2016 (“Code”) was notified effective 28 May 2016 with an aim amongst many others, to complete insolvency resolution process in time bound manner, to revive the entity and to ensure/safeguard the value of creditors (specifically unsecured creditors) and to protect the entity itself from coercive action of creditors (with an introduction of moratorium period). This legislation is very much needed, along with the rigour that it propounds.

The Code gives powers to creditors (both operational creditor & financial creditor) to drag the corporate debtor to the National Company Law Tribunal (the Adjudicating Authority) for insolvency resolution process in cases of default of payment. However, in the absence of specific opportunity to the corporate debtor to address the very reason for such default, the intent of the Code appears to below-sided towards creditors.

Should the corporate debtors be given an opportunity to be heard?

Position of Corporate Debtor under the Code

The existing procedure under the Code in case of operational creditor being an applicant involve a notice of dispute being issued against the corporate debtor, following which a time period for response is given to the corporate debtor to prove the existence of a dispute. After the mandated time period of 10 days has been exhausted, the operational creditor files an application. Following the filing of an application, there is a limited period of 14 days, following which the same has to be admitted by the NCLT.In case of financial creditor being an applicant to the insolvency process, an application would be made to Adjudicating Authority and a copy of such application would be sent to the corporate debtor.

Upon application being accepted by the Adjudicating Authority, there is a time period of 30 days within which the insolvency resolution professional is appointed by the creditors to put together all the relevant material in this regard and call for a meeting of various creditors.

The insolvency resolution professional (IRP)  is the individual who is proposed by the resolution applicant (i.e. creditor) and appointed by the Adjudicating Authority. A corporate debtor does not and cannot have any role in such appointment. IRP works to protect the interest of creditors and provides for a revival plan to protect the interest of the creditors.

Upon IRP being appointed, the IRP takes charge of the running of the business. The corporate debtor cannot make any management decisions.The resolution plan is then placed before the committee of creditors, and if more than 75 percent of the creditors approve, then the plan is approved. If not approved, the company goes into liquidation.

It may be noted that once an application is filed by the creditor, the Code rides excessively on the word of the corporate creditor.While there are few judicial precedents in which the Court has ruled that the Adjudicating Authority has to adhere to the principle of natural justice while deciding applications, the point of emphasis remains that the Code by itself does not provide any recourse for the corporate debtor to raise the grievance. It is for the Adjudicatory Authority to make ways for the corporate debtor to represent himself. Moreover, there is no structured procedure laid down for a fair hearing to be given to the corporate debtor.

Possible Remedies for safeguarding the rights of the corporate debtors against the frivolous threats of the creditors.

A corporate debtor who has intimate knowledge of the business, technical and professional experience of running the business should also be heard in appointing an IRP. An IRP who is not experienced in running a particular business or does not have the intimate knowledge required of the industry may cause damage, which perhaps can be evaluated prior to appointing the IRP.

Considering principles of natural justice, a right must be provided to the corporate debtor to be heard and present its side of the facts. It would be essential to have a provision in the Code to provide that opportunity to the debtor. With the rise of frivolous threats from many stakeholders a business has – employees, small value (amount) vendors, it helps in stopping frivolous threats.

Author: Ashwin Bhat