India: Corporate Laws

Registrar of Companies ("RoC") allows affixation of Digital Signature Certificate ("DSC") of any one of the Resigned Directors (who was an Authorized Signatory) to DIR- 12

In terms of the previous regulations issued by the Ministry of Corporate Affairs ("MCA"), DSC deactivated immediately upon filing of Form DIR-11 (Form for reporting the resignation by a director to RoC). This posed problems in cases where all the directors of the Company have resigned and new directors are proposed to be appointed. Based on several representations received by MCA, MCA has authorized RoC to permit any one of the resigned directors to use his DSC for filing Form DIR-12 (prescribed form for filing particulars of appointment of directors and the key managerial personnel and the changes among them) in relation to appointment of new director(s).

Notification of Company (Auditor's Report) Order (CARO) 2015 ("New CARO, 2015")

MCA vide its order dated April 10 2015 notified New CARO. Amongst other key amendments brought to the CARO 2003, the applicability of New CARO has been made limited with exemptions from applicability granted to (i) a One Person Company as defined under clause (62) of section 2 of the Companies Act, 2013 ("CA 2013") (ii) a small company as defined under clause (85) of section 2 of the CA 2013; and (iii) a private limited company with a paid up capital and reserves of not more than INR 5 million which does not have loan outstanding exceeding INR 2.5 million from any bank or financial institution and does not have a turnover exceeding INR 50 million at any point of time during the financial year New CARO would be applicable from financial year 2014- 2015. New CARO requires auditor to report whether there is an adequate internal control procedure for the sale of services in addition to report on adequacy of internal control for purchase of inventory, fixed assets and sale of goods.

MCA has notified the Secretarial Standards issued by the Institute of Company Secretaries of India ("ICSI")

The Secretarial standards issued by ICSI with the Government of India's ("GoI") approval have been notified by the MCA as well. The Secretarial Standards on meetings of board of directors ("SS-1") and Secretarial Standards on general meetings ("SS-2") issued by ICSI are required to be compulsorily complied by the Indian companies w.e.f. July 1, 2015. Under Section 118 (10) of the CA 2013, now the Indian companies would necessarily have to observe SS1 and SS2 with respect to general meetings and board meetings.

Key features of SS-1 are

  • The agenda setting out the business to be transacted at the meeting and notes on the agenda shall be made available to directors at least seven days before of the date of the meeting (unless articles of the company provide for a longer period).
  • The notice of a meeting shall be given even if the meeting is held on a predetermined date or interval. ).
  • Quorum shall be present not only at the time of commencement of meeting but also while transacting business. ).
  • The draft minutes shall be circulated to all the members of the board or committees for their comments within 15 days from date of conclusion of the meeting of the board or the committee. ).

Key features of SS-2 are:

  • If any director is unable to attend meeting, chairman shall explain such absence of the director in the meeting, to the members.
  • Chairman should explain the objective and implication of resolution before they are put to vote at meetings.
  • Extracts of meeting shall be given only after minutes have been duly signed.
  • Quorum has to be present throughout the meeting and not only at the commencement of meeting.
  • It lists out various requirements for filing and maintaining the minutes book.
  • Provisions relating to the notice of the general meeting have been prescribed.
  • Comprehensively lists out scenarios where postal ballot form shall be considered invalid.
  • Prohibits practice of distribution of gifts to members at meeting.
  • If a company fails to comply with these provisions then the company would be liable to pay penalties as stipulated by these standards.

GoI Constitutes High Level Committee for Monitoring Corporate Social Responsibility ("CSR") Implementation by Companies.

The GoI vide circular dated February 3, 2015 has constituted a High Level Committee for monitoring the progress of implementation of CSR policies by companies at their level and by the government under the provisions of section 135 of CA 2013 (prescribing CSR compliances by companies). The objective of the said committee is to suggest suitable methodologies, to recommend measures and to identify strategies to monitor compliance with CSR regulations. The committee shall have to submit its report within six months from the date of holding its first meeting. This has been done in order to re-emphasize the importance of adherence to CSR regulations by companies.

MCA Amends Norms for E-Voting Facility at General Meetings

MCA vide its notification dated March 19, 2015 substituted extant e-voting provisions by amending Companies (Management and Administration) Rules, 2014.

Amongst other amendments, following critical amendments have been brought in the said rules:

  • The term 'Agency' has been defined to mean National Securities Depository Limited ("NSDL"), Central Depository Services Limited ("CDSL") or any other entity approved by MCA;
  • A concept of 'remote e-voting' has been included in the definition of 'e-voting' which refers to a facility of casting votes by a member using electronic voting system from a place other than the venue of general meeting;
  • It is provided that the facility for remote e-voting would remain open for not less than 3 days and shall close at 5:00 pm on the date of general meeting.;
  • The term "Cut off date" for determining the eligibility to vote has been defined as a date not earlier than seven days before the date of holding the general meeting.
  • Voting has been made a basic right of the shareholders.
  • Mode of dispatch of notice of meeting under e-voting, procedure of e-voting and prohibition on withdrawal of resolutions made under the e-voting process are also provided for in the said amendment.

Amendments to CA 2013 vide Notification dated May 25, 2015 "Companies (Amendment) Act, 2015"

The key and the relevant highlights of the Companies (Amendment) Act, 2015 are as follows:

  • No minimum paid-up capital requirements for incorporating private as well as public companies in India: The minimum paid-up share capital requirement of INR 0.1 million (in case of a private company) and INR 0.5 million (in case of a public company) under CA 2013 has been done away with. Consequently, the definitions of private and public companies stand amended.
  • Requirement for affixing common seal have been done away with: CA 2013 required common seal to be affixed on certain documents. Now, the use of common seal has been made optional on the following documents:

    (i) Share certificates signed by two directors or one director and a company secretary of the company.
    (ii) Bills of exchange;
    (iii) Inspectors Report issued for a company under investigation;
    (iv) Documents executed by a company after its registration while exercising its right to hold or dispose of property, sue or being sued, etc.
  • Replacing 'special resolution' with 'resolution': For approval of related party transactions by the companies with a paid up capital of INR 100 million or more, requirement of special resolution has been done away with. Pursuant to the amendment, now only an ordinary resolution shall be sufficient. Further, any related party transactions between holding companies and wholly owned subsidiaries are now exempted from the requirement of obtaining shareholders' approval. Hence section 188 of the CA 2013 relating to related party transactions stands amended.

Exemptions Extended to Private Companies under CA 2013 vide MCA Notification dated June 5, 2015 ("Notification"):

The most relevant exemptions granted to the private companies under this notification are discussed hereinbelow. These exemptions and relaxations are applicable only to a private company which is not a subsidiary of public company.

1) Restrictions on Purchase of Own Shares
The Notification has exempted private companies from the applicability of the provisions of Section 67 of CA 2013 which earlier imposed restrictions on the companies including private companies to purchase its own shares unless the consequent reduction of capital is effected and sanctioned under the provisions of the CA 2013. This exemption can be availed subjected to the fulfilment of the following:

  • The company shall have no shareholder which is a body corporate;
  • Borrowings of the company from banks, financial institutions or body corporate should not exceed twice the amount of paid up share capital or INR 500 million, whichever is lower; and
  • There shall be no subsisting defaults in repayment of such borrowings at the time of

2) Issue of Shares with Differential Rights

The Notification provides that Section 43 and Section 47 of CA 2013 will not apply to a private company if the memorandum of association or the articles of association of such private company provides so. Section 43 of CA 2013 prescribes that a company is allowed to have only two kinds of share capital - equity shares (with or without differential rights to dividend, voting or otherwise) and preference share capital. Further, all companies are required to fulfil certain conditions to be eligible to issue equity shares with differential rights. Section 47 of the CA 2013 provides that the equity shareholders shall be entitled to vote on all resolutions, while preference shareholders are permitted to vote only on resolutions which would affect their rights or are in relation to winding up or reduction of capital of the Company.

3) Loans to Directors and Interested Entities

The Notification provides that Section 185 of the CA 2013 shall not apply to a private company. Section 185 prohibits companies from advancing loans to directors and to persons in whom directors are interested or give any guarantee or provide any security in connection with any loan taken by him or such other person, a few exceptions aside. This exemption can be availed subjected to the fulfilment of the following:

  • No body corporate shall have invested any money in the share capital of the company;
  • The borrowings of the company from banks, financial institutions or any body corporate shall not exceed twice the amount of paid-up share capital or INR 500 million – whichever is lower; and
  • There shall be no subsisting defaults in repayment of such borrowings at the time of making transaction.

4) Related Party Transactions

The Notification provides that, in relation to a private company, the entities specified in Section 2(76) (viii) of CA, 2013 (i.e., the Group Companies) would not be considered related parties for the purposes of Section 188 of CA 2013. As a result of this relaxation, private companies shall not be required to obtain the approval of the board or the shareholders, for the purpose of entering into a contract/ arrangement with a Group Company.

The Notification also exempts private companies from the ambit of the second proviso to Section 188(1) which shall now permit members of the company interested in the contract/ arrangement to vote on the resolution for authorizing the related party transaction.

5) Further Issue of Share Capital

The Notification introduces a new proviso to Section 62(1)(a)(i) of CA 2013 which provides that offer period for a rights issue should be for a minimum period of 15 days from the date of opening of the offer. The proviso states that if at least 90% of members of a private company give their consent in writing or in electronic mode, a period lesser than that specified for minimum offer period and period for dispatch of rights issue offer letter can be adopted in respect of the rights issue.



6) Participation of Interested Directors
The Notification provides an exemption with regards to section 184(2) of CA 2013 which requires interested directors to disclose his/ her interest at the board meeting in which the contract or arrangement is discussed and abstain from participation in discussions pertaining to such contract or arrangement. The exemption allows an interested director to participate in the board meeting after disclosing his/ her interest. This relaxation however, is subject to the director providing disclosures of his/her interests in the prescribed form before he/ she participates in the meeting.

7) Conduct of General Meetings

As per the Notification, the provisions of Sections 101 to 107 and Section 109 of CA 2013 which deal with the requirements of convening and conducting of general meetings by all companies, such as service of notice of general meeting, explanatory statement, quorum, chairperson of the meetings, appointment of proxies, restriction on voting rights, voting by show of hands and demand for poll shall not apply to private companies. Thus, the notification provides private companies with the flexibility to decide their own procedure for conducting general meetings by incorporating suitable provisions in their articles of association.



8) Filing of Board Resolutions with Authority

The Notification provides that Section 179(3) of CA 2013 which requires companies to file with the Registrar of Companies (RoC), copies of board resolutions passed in connection with certain matters dealt with under section 179(3) and the rules framed thereunder. These matters include : (i)making calls on shareholders in respect of money unpaid on their shares;(ii) authorizing buy-back of securities;(iii) issuance of securities including debentures, whether in or outside India;(iv) borrowing of monies;(v) investing the funds of the company;(v) granting loans or giving guarantee or providing security in respect of loans;(vi) approving financial statement and the Board's report;(vii) diversifying the business of the company;(viii)approving amalgamation, merger or reconstruction(ix)taking over a company or acquiring a controlling or substantial stake in another company;(x) additional matters as prescribed under Rule 8 of Companies (Meetings of Board and its Powers) Rules, 2014, shall not apply to a private company.



9) Appointment of Directors

The Notification exempts a private company from the applicability of Sections 160 and 162 of CA 2013 which prescribes certain processes to be followed by a person who intends to stand for directorship of the company. Further, Section 162 of CA 2013 prohibits companies from passing a single resolution for appointment of 2 or more directors unless such a motion has first been agreed to unanimously by all the shareholders, from which private Companies are now exempt. Therefore, the notification is a welcome move towards easing the operations of private companies. It may be observed that in many of the cases above, certain provisions of CA 2013 caused difficulties and delays in the operations of private companies. The Notification attempts to remove the same and is expected to succeed to a great extent.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions