Full version of the Circular/Notification can be accessed at http://www.mca.gov.in
1. Clarification on Rules relating to Appointment and Qualification of Independent Directors.
The Ministry of Corporate Affairs vide General Circular No 14/2014 dated 9th June, 2014 has issued Clarifications regarding –
a)
Pecuniary relationship of Independent Directors – in view of the
provisions of section 188 of Companies Act, 2013 (“the Act”),
transactions in the ordinary course of business at arm’s length price
are not to be considered under pecuniary relationship.
b) R eceipt
of remuneration by Independent Director – clarified after consultation
with SEBI that ‘pecuniary relationship’ u/s. 149(6)(c ) of the Act, does
not include receipt of remuneration from one or more companies, by way
of fee provided u/s. 197 (5) of the Act for reimbursement of expenses
for participation in the Board and other meetings and profit related
commission approved by the members.
c) It is clarified that any
tenure of an Independent Directors on the date of commencement of the
Act shall not be counted for his appointment/holding of office of
Director under the Act. In view of the transitional period of one year
it is necessary that if it is intended to appoint Independent Directors
under the new Act, it must expressly be made u/s. 149(10)/(11) read with
Schedule IV of the Act, within one year from 01-04-2014.
d) A
ppointment of Independent Director for less than five years: The
appointment of an Independent Director is for a term ‘upto five years’
and hence for shorter periods is permissible. However, terms of lesser
periods would be treated as ‘term’ and an independent Director cannot be
appointed for more than ‘two consecutive terms.’
e) A ppointments of Existing Independent Directors would also need to be formalised by a letter of appointment.
2. Clarification regarding Register of Loans/Guarantee/ Security/making acquisition in the new format u/s. 186(9).
With
regard to the Register of Loans/Guarantee/Security/ making acquisition
to be maintained u/s. 186(9), read with Rule 12 of the Companies
(Meeting of Board and its Powers), the Ministry of Corporate Affairs
vide General Circular No. 15/2014 dated 9th June, 2014 has clarified
that the register maintained u/s. 372A of the Companies Act, 1956 would
remain and the new format would be applicable w.e.f 01-04-2014.
3. Clarification regarding PAN of Foreign Nationals.
The
Ministry of Corporate Affairs vide General Circular dated 10th June,
2014 No 16/2014, has further to the Circular No. 12/2014, clarified that
the circular for the Pan No. of Foreign Nationals was applicable to
subscriber/ promoter at the time of incorporation of the Company. In
absence of PAN, he shall furnish an undertakingin the prescribed format
attached to the circular, as an attachment to Form INC7.
4. Clarification regarding Filing of Form MGT-10.
The
Ministry of Corporate Affairs has vide General Circular No. 17/2014
dated 11th June, 2014 has informed stakeholders to fill Form MGT 10
physically, signed/certified by a professional and file it alongwith
required attachments in GNL-2 as a temporary arrangement till the Form
MGT-10 is made available.
5. Clarification for Filing of Form
INC-27 – for Conversion of Company from public to Private under the
provisions of Companies Act, 2013.
The Ministry of Corporate
Affairs vide General Circular No. 18/2014 dated 11th June, 2014, has
clarified that since section 14 (1) and 14(2) of Companies Act, 2013
have not been notified, the relevant section 31(2A) shall remain in
force and the delegated powers shall continue to remain with the ROC’s.
Thus applications have to be filed and disposed as per the earlier
provisions.
6. Clarification regarding matters relating to Share capital and debentures under Companies Act, 2013.
The Ministry of Corporate Affairs vide General Circular No. 19/2014 dated 12th June, 2014 has clarified that:
a)
S hare transfer forms executed before 01-04-2014 – Form SH-4 is now to
be used as the new share Transfer Form w.e.f 01-04-2014 in place of
earlier 7B. It is clarified that where Form 7B is submitted to the
company within the period prescribed, it has to accept the registration
of transfers. In case of delay, the Company can decide to not accept the
transfer form and convey reasons for the nonacceptance as per
provisions of section 56(4) of the Act.
b) D elegation of powers by
Board under Rule 6(2)(a) – The Ministry has clarified that as per
section 179 and 180 and Regulation 71 of Table F of Schedule 1, for the
issue of duplicate share certificates can be delegated to a Committee of
Directors subject to regulations imposed by the Board.
7. Clarification with regard to voting through electronic means.
The
Ministry of Corporate Affairs vide General Circular No. 20/2014 dated
17th June, 2014 has decided not to treat the relevant provisions of
section 108 of Companies Act, 2013 read with Rule 20 of Companies
(Management and Administration) Rules 2014 dealing with the exercise of
vote by members by electronic means as not mandatory till 31st December,
20I4 as compliance with procedural requirements, engagement of
Depository Agencies and the need for clarity on matter like demand for
poll/ postal ballot etc., will take some more time. The e-voting
procedure, clarifications on issues by stakeholders are provided in the
Annexure to the Circular.
8. Clarifications with regard to provisions of Corporate Social Responsibility u/s. 135 of the Companies Act, 2013.
The
Ministry of Corporate Affairs, vide Circular No. 21/2014, dated 18th
June. 2014, issued clarifications with regard to provisions of Corporate
Social Responsibility u/s. 135 of the Companies Act, 2013. The
following is clarified for CSR:
i. T he statutory provision and
provisions of CSR Rules, 2014, is to ensure that while activities
undertaken in pursuance of the CSR policy must be relatable to Schedule
VII of the Companies Act 2013, the entries in the said Schedule VII must
be interpreted liberally so as to capture the essence of the subjects
enumerated in the said Schedule. The items enlisted in the amended
Schedule VII of the Act, are broad-based and are intended to cover a
wide range of activities as illustratively mentioned in the Annexure.
ii.
It is further clarified that CSR activities should be undertaken by the
companies in project/programme mode [as referred in Rule 4 (1) of
Companies CSR Rules, 2014]. One-off events such as
marathons/awards/charitable contribution/advertisement/ sponsorships of
TV programmes etc., would not be qualified as part of CSR expenditure.
iii.
Expenses incurred by companies for the fulfillment of any Act/Statute
of regulations (such as Labour Laws, Land Acquisition Act etc.) would
not count as CSR expenditure under the Companies Act.
iv. S
alaries paid by the companies to regular CSR staff as well as to
volunteers of thecompanies (in proportion to company’s time/hours spent
specifically on CSR) can be factored into CSR project cost as part of
the CSR expenditure.
v. “Any financial year” referred under s/s.
(1) of section 135 of the Act read with Rule 3(2) of Companies CSR
Rule, 2014, implies ‘any of the three preceding financial years.’
vi.
E xpenditure incurred by Foreign Holding Company for CSR activities in
India will qualify as CSR spend of the Indian subsidiary if, the CSR
expenditures are routed through Indian subsidiaries and if the Indian
subsidiary is required to do so as per section 135 of the Act.
viii. Contribution to Corpus of a trust/society/section 8 companies etc., will qualify as Csr expenditure as long as (a) the trust/ society/section 8 companies etc., is created exclusively for undertaking Csr activities or (b) where the corpus is created exclusively for a purpose directly relatable to a subject covered in schedule Vii of the act.
9. Notification for Companies (Acceptance of deposits) Amendment Rules, 2014.
The ministry of Corporate affairs has on 6th june, 2014 has amended the Companies (acceptance of deposits) rules 2014, by insertion of proviso to rule 5(5) namely “Provided that the Companies may accept deposits without deposit insurance contract till 31st march, 2015.”
10. Notification of section 74(3) and 74(2) relating to repayment of deposits etc., accepted before commencement of the Act
The ministry of Corporate affairs has vide Notification dated 6th June, 2014 notified that the provisions relating to s/s. 2 and 3 of section 74 of Companies act, 2013 are in force from 6th june, 2014.
11. Amendment to Companies (Meetings and Powers of board) Rules, 2014.
The ministry of Corporate affairs has vide Notification dated 12th june. 2014 amended the Companies (meetings and Powers of Board) rules, 2014, by inserting rule 6 after explanation as follows:
“Provided that public companies covered under this rule which were not required to constitute audit Committee u/s. 292a of the Companies act, 1956 (1 of 1956) shall constitute their audit Committee within one year from the commencement of these rules or appointment of independent directors by them, whichever is earlier:
Provided further that, public companies covered under this rule shall constitute, their nomination and remuneration Committee within one year from the commencement of these rules or appointment of independent directors by them, whichever is earlier.”
12. Amendment to Companies (declaration and Payment of dividend) Rules, 2014.
The ministry of Corporate affairs has vide Notification dated 12th june, 2014 amended the Companies (declaration and Payment of dividend) rules, 2014 to substitute rule 3(5) as follows:
“3(5) no Company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the Company of the current year.”
13. Clarification with regard to format of annual return applicable for Financial year 2013-14 and fees to be charged by companies for allowing inspection of records.
As per the provisions of section 92 of the act, 2013 it is required for very company to submit the annual return in format as given in form MGT-7 containing the particulars as they stood on the close of the financial year where- as as per section 159 of the Companies act, 1956, the annual return gave the position from the date of last annual general meeting till the date of current annual general meeting.
To clear the confusion, the Ministry has now clarified that the format of annual return under act, 2013 (form – MGT-7) shall not be applicable to the Companies whose financial year ended on or before 1st April, 2014, i.e., the Companies are to file the Annual Return as per the old format (schedule V) as per act, 1956 within 60 days from the date of agm in form 20B. Fees for inspection of records and other documents.
Companies have also sought clarity on fees for allowing free of cost inspection of records under rule 14(2) and rule 16 of the Companies (management and administration) Rules, 2014. The ministry has clarified that until the requisite fee is specified by companies, inspections could be allowed without levy of fee.
14. Clarification relating to incorporation of a Com- pany, i.e., Company incorporated outside india.
The ministry of Corporate affairs has vide Circular dated 25th june, 2014 informed that as per sections 2(68), 2(71) and 2(87) of the Companies act, 2013 there is no bar in the new act for a company incorporated outside india to incorporate a subsidiary either as a public company or a private company. an existing company, being a subsidiary of a company incorporated outside india, registered under the Companies act, 1956, either as private company or a public company by virtue of section 4(7) of that act, will continue as a private company or public company, as the case may be, without any change in the incorporation status of such company.
15. Clarification with regard to holding shares in a fiduciary capacity by associate Company u/s. 2(6) of Companies Act, 2013.
The ministry of Corporate affairs has vide Circular dated 25-06-2013, in continuation of the general Circular no. 20/2013 dated 27-12-2013 clarified that the shares held by a company in another company in ‘fiduciary capacity’ shall not be counted for the purpose of determining the relationship of ‘associate company’ u/s. 2(6) of the Companies act, 2013. u/s. 2(6) “associate company,” in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company. Explanation — For the purposes of this clause, “significant influence” means control of at least 20% of total share capital, or of business decisions under an agreement.
16. Clarification on applicability of residency requirements for resident director.
As per section 149(3) of the Companies act, 2013 every company must have at least one director who has stayed in india for a total period of not less than 182 days in the previous calendar year. The Ministry has clarified vide Circular dated 26th june, 2014 that the ‘residency requirement’ would be reckoned from the date of commencement of section 149 of the act, i.e., 1st april, 2014. The first ‘previous calendar year’ for compliance with these provisions would, therefore, be calendar year 2014. The period to be taken into account for compliance with these provisions will be the remaining period of calendar year 2014 (i.e., 1st april to 31st december). Therefore, on a proportionate basis, the number of days for which the director(s) would need to be resident in india, during calendar year 2014, shall exceed 136 days.
Regarding newly incorporated companies it is clarified that companies incorporated between 01-04-2014 to 30-09-2014 should have a resident director either at the incorporation stage itself or within six months of their incorporation. Companies incorporated after 30-09-2014 needs to have the resident director from the date of incorporation itself.
17. Clarification with regard to use of the words’ Commodity Exchange” in the Company registration.
The ministry of Corporate affairs vide Circular dated 27th June, 2014, has clarified that the words Commodity Exchange’ in the name of the Company can only be allowed when a “No Objection Certificate” from the Forward Markets Commission (fmC) is furnished by the applicant. Also clarified that the NOC would also be required in cases of Companies registered with the words ‘Commodity exchange’ before the issue of this circular.
18. Extension for filing of Form DPT 4 under Companies Act, 2013.
The ministry of Corporate affairs has granted extension of time for the period of two months, i.e., upto 31-08-2014 for filing of the Statement regarding deposits existing on the date of commencement of the Companies act, 2013 in form dPt 4 as per provisions 74(1) (a) under the act and Companies (acceptance of deposits) rules, 2014.
19. Clarification on Form MGT 14 through STP mode.
The ministry of Corporate affairs vide Circular dated 9th july, 2014 has tried to simplify procedures for timely disposal of e-forms by taking the form MGT-14 on record using the straight through Process mode in all cases except in cases of change of name, objects clause, resolution for further issue of capital and conversion of companies.
20. Registration of Names of Companies must be in Consonance with the Provisions of the Emblems and Names (Prevention of improper Use) Act, 1950.
The ministry of Corporate affairs vide circular dated 11th july, 2014, has directed ROC’s that when allotting names to Companies/LLP’s they must ensure that names of Companies must be in consonance with the Provisions of the emblems and names (Prevention of improper use) act 1950.
21. Clarification on matters relating to related party.
The ministry of Corporate affairs has vide Circular dated 17th July, 2014 clarified the following in relation to related parties:
i. For the second proviso of section 188(1), related party that cannot vote refers to the related party with reference only to the contract or arrangement for which the special resolution is being passed.
ii. U/s. 188 – it is clarified that the requirements of section 188 will not be attracted for transactions arising out of Compromises, arrangements and amalgamations, dealt with under specific provisions of Companies act, 1956 or 2013.
iii. Contracts already entered into by the Company u/s. 297 of Companies act, 1956 before the commencement of section 188 of the Companies act, 2013, i.e., before 01-04-2014 will not require fresh approvals till the expiry of the original term unless any modification thereto is made.
22. Extension of Validity of reserved Names.
The ministry of Corporate affairs has vide Circular no. 31/2014 dated 19-07-2014 intimated with respect to extension of time for the validity of reserved names made in form inC-1 under the Companies act, 2013 for which the service provider of mCa-21 has brought to the notice of ministry that there are numerous cases in this respect which allows the applicants to use the name approved within 60 days but that is at variance with the implementation at MCA thereby causing inconvenience to the stakeholders. Out of these cases, 1930 cases were those whose time limit expired on or before 19-07-2014, therefore it has been decided to extend the timeline upto 18th august, 2014. Further, those cases in which the names have been reserved but they are yet to be issued, the time period as indicated in the letters of intimation is allowed.
23. Clarification on transitional period resolution passed under Companies Act, 1956.
The ministry has vide general Circular no. 32/2014 dated 23rd July, 2014 clarified that resolutions approved or passed by companies under relevant applicable provisions of the old act during the period from 1st september, 2013 to 31st march, 2014, can be implemented, in accordance with provisions of the old act, notwithstanding the repeal of the relevant provision subject to the conditions (a) that the implementation of the resolution actually commenced before 1st april, 2014 and (b) that this transitional arrangement will be available upto expiry of one year from the passing of the resolution or six months from the commencement of the corresponding provision in New Act whichever is later. It is also clarified that any amendment of the resolution must be in accordance with the relevant provision of the new act.
24. Applicability of Second Proviso to section 203(1).
The Central government vide Notification dated 25th July, 2014, has notified that for the purposes of applicability of second proviso to section 203 (1) of Companies act 2013 pertaining to individuals not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing directoror Chief Executive Officer of the company at the same time.
The following Class of companies:
• Public companies with paid up capital of Rs. 100 core or more; and
• With annual turnover of Rs. 1,000 crore or more (both as per the latest audited Balance Sheet); and
• engaged in multiple businesses; and
• have appointed Chief Executive Officer for each business shall be exempt.
25. Cost Records and Cost Audit.
The ministry of Corporate affairs has on 2nd july issued notification relating to the Companies (Cost Records and Audit) rules, 2014 u/s. 148 of the Companies act, 2013. the new rules specify four classes of companies, i.e.:
i. Companies engaged in the production of specified goods in strategic sectors,
ii. Companies engaged in an industry regulated by a sectoral regulator or a ministry or department of Central government,
iii. Companies operating in areas involving public interest,
iv. Companies (including foreign companies other than those having only liaison offices) engaged in the production, import and supply or trading of fol- lowing medical devices….
Which shall be required to maintain cost records and who will be subject to cost audit. relevant e-forms would be made available on the MCA portal shortly.
26. Amendment to the Companies (Prospectus and Allotment of Securities) Rules, 2014.
the ministry of Corporate affairs has vide Notification dat- ed 30th june, 2014 amended the Companies (Prospec- tus and allotment of securities) rules, 2014 whereby in rule 14, in sub-rule (2), in Clause (a), after the second proviso, the following proviso shall be inserted, namely:—
“Provided also that in case of an offer or invitation for non-con- vertible debentures referred to in the second proviso, made within a period of six months from the date of commencement of these rules, the special resolution referred to in the second proviso may be passed within the said period of six months from the date of commencement of these rules.”
27. Amendment to the Companies (Miscellaneous) Rules, 2014.
The ministry of Corporate affairs vide Notification dated 17th july, 2014, has amended the Companies (miscellaneous) rules, 2014, by inserting
“11. applications or forms pending before Central gov- ernment, regional director or registrar of companies.- Any application or form filed with the Central Government or regional director or registrar (hereinafter referred to as `the authority’) prior to the commencement of these rules but not disposed of by such authority for want of any information or document shall, on its submission, to the satisfaction of the authority, be disposed of in accordance with the rules made under the Companies act, 1956 (1 of 1956).”
28. Companies (Specification of definitions details) Amendment Rules 2014.
the ministry of Corporate affairs has vide Notification dated 17th July, 2014 specified that in Rule 3 to the Companies (Specification of Definitions Detail) Rules, 2014 after the words ‘a director’ the words ‘other than an independent director’ shall be inserted.
30. Amendment to the Companies (Management and Administration) Rules, 2014
the ministry of Corporate affairs has vide Notification dated 24th july, 2014 has amended the Companies (management and administration) rules, 2014. in rule 9, after sub-rule (3), the following proviso shall be inserted, namely:-
“Provided that nothing contained in this rule shall ap- ply in relation to a trust which is created, to set up a mutual fund or Venture Capital fund or such other fund as may be approved by the securities and exchange Board of india.”
In rule 13,- (a) the words “either value or volume of the shares” shall be omitted;
(b) The explanation shall be omitted.
In rule 23, in sub-rule (1), for the words “not less than five lakh rupees,” the words “not more than five lakh ru- pees” shall be substituted;
In rule 27, in sub-rule (1) and in the explanation, for the word “shall,” the word “may” shall be substituted.
