India: SCV News, April – June 2015: Corporate Advisory Services

Last Updated: 20 October 2015
Article by S.C. Vasudeva & Co.

Clarification on Rate of Interest on Loans provided under Section 186 (7) vide MCA Circular No. 6/2015 dated 9th April 2015

Section 186(7) of the Companies Act, 2013 specifies that no loan shall be given under the said section at a rate of interest lower than the prevailing yield of one year, three year, five year or ten year Government Security closest to the tenor or the loan.

Consequent to the requirements of the said section, the MCA has clarified that in cases where the effective yield (effective rate of return) on tax free bonds is greater than the prevailing yield of one year, three year, five year or ten year Government Security closest to the tenor or the loan, there is no violation of Section 186(7) of the Companies Act, 2013.

Remuneration to Managerial Persons under Schedule XIII of Companies At 1956 vide MCA Circular No. 07/2015 dated 10th April 2015

By virtue of the provisions of Schedule XIII (Sixth proviso to Para (C) of Section II of Part II) of the Companies Act 1956, read with circular number 1/11/2012-CL-VII dated 16th August 2012, listed companies and their subsidiaries were allowed to pay managerial remuneration without approval of Central Government, in excess of the limits specified in Para II Para (C) of such schedule if the managerial person met with the conditions specified therein.

Since similar provisions were not available in the Schedule V of the Companies Act, 2013, there was a need for clarification that managerial persons appointed in accordance with such provisions of schedule XIII of the Companies Act, 1956 may receive relevant remuneration for the period as approved by the Company in accordance with such provisions of earlier Act.

Accordingly, the MCA has clarified that managerial person appointed in accordance with the provisions of Schedule XIII of the earlier Act may receive relevant remuneration for the period as approved by the Company in accordance with the provisions of the earlier Act even if the part of his/her tenure falls after 1st April 2014.

Repayment of Deposits Accepted by company before 1st April 2014

MCA has vide its General Circular No. 9/2015 dated 8th June 2015 read with Removal of Difficulties Order dated 2nd June 2014 and Removal of Difficulties Order dated 6th June, 2014 clarified that until the constitution of National Company Law Tribunal a depositor can file application under section 73 (4) of Companies Act 2013 with Company Law Board 'CLB' if the company fails to make repayment of Deposits accepted by it.

Further company may also file an application under section 74 (2) of the Act with CLB seeking extension of time in making repayment of deposits accepted by it before commencement of the provisions of said Act.

Exemptions Granted to Private Limited Companies vide Notification No. G.S.R. 464 (E) dated 5th June 2015

MCA has vide its aforementioned Notification No. G.S.R. 464 (E) dated 5th June 2015 issued significant relaxation for Private companies in the areas of prohibition of acceptance of deposits from public, shareholders' approval in certain cases, eligibility of auditors, loans to directors, related party transactions, granting of ESOPs etc.

A brief note providing an overview of key exceptions/modifications/adaptations made to Private Companies has already been circulated and can be viewed on our website

Exemptions /Relaxation to Government Companies from various Provisions of Companies Act 2013

MCA has vide its Notification No. G.S.R. 463 (E) dated 5th June 2015 granted exemptions to Government Companies from the provisions of Companies Act 2013. The exemption have been given for provisions related to transfer & transmission of securities, declaration & Investigation of beneficial Interest; Annual General Meetings Time; Declaration of dividend; Segment Reporting; Report of Board of Directors; Maximum number of directors; independent directors; Appointment & Disqualification of directors; Audit & Remuneration Committee; Loan to directors; Related Party Transactions; Managing or Whole time director.

Exemptions /Relaxation to Section 8/ Licensed Companies with Charitable Objects from various Provisions of Companies Act 2013

MCA has vide its Notification No. G.S.R. 466 (E) dated 5th June 2015 granted exemptions to Section 8/Licensed Companies with Charitable Objects from the provisions of Companies Act 2013. The exemptions granted are related to appointment of Company Secretary; Minimum Paid up Share Capital; General Meetings; Notice Periods; Minutes, Right of members to have audited financial statements; Appointment & Minimum –Maximum number of directors; Meetings of Board, Audit Committee, Remuneration Committee; Disclosure of interest by Directors; register of Contracts in which directors are interested etc. As per the RBI A.P. (DIR Series) Circular No.1 dated 3rd July, 2014, the limit for Financial Commitment (FC) under ODI to be undertaken by an Indian Party under the Automatic Route is restored from 100% of the net worth of the Indian Party to 400% of the net worth of the Indian Party. However, prior approval of Reserve Bank of India (RBI) shall be required, where the FC exceeds USD 1 (one) Billion (or its equivalent) even when the total FC is within the eligible limit under the automatic route (i.e. 400% of the net worth as per the last audited Balance Sheet).

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.

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