Relaxation to Listed Companies Regarding Dispatch of Letter of Offer for Rights Issue
On 6 May 2020, the Securities and Exchange Board of India ("SEBI") permitted listed entities to dispatch the letter of offer in respect of rights issue of share to the shareholders through electronic mode due to the on-going situation arising out of COVID-19. In line with the SEBI circular, the Ministry of Corporate Affairs ("MCA") issued a circular on 11 May 2020 clarifying that in case of rights issue of shares (opening upto 31 July 2020) by listed companies, the inability to dispatch letter of offer to the shareholders through registered post or speed post or courier would not be considered as a contravention of the provisions of section 62(2) of the Companies Act, 2013 provided the company complies with the aforementioned SEBI Circular.
Additional relaxation in relation to compliance with certain provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulation, 2015 in light of COVID-19
On 12 May 2020, SEBI granted relaxation to listed entities from certain provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 ("LODR"). The following relaxations have been provided to listed entities under LODR:
- Relaxations necessitating out of the circulars issued by the
- The Ministry of Corporate Affairs , vide circulars dated 8
April 2020 and 13 April 2020 provided certain relaxations for
companies, including conducting Extraordinary General Meeting (EGM)
through Video Conferencing (VC) or through other audio-visual means
(OAVM) (hereinafter referred to in this circular as 'electronic
mode'). Further, vide circular dated 5 May 2020, MCA also
extended these relaxations to AGMs of companies conducted during
the calendar year 2020; the circular has also dispensed with the
printing and dispatch of annual reports to shareholders.
Accordingly, the following related provisions of the LODR are
relaxed / have been dispensed with:
- Requirement of sending physical copies of annual report to shareholders – This requirement has been dispensed with for listed entities who conduct their AGMs during the calendar year 2020 (i.e. till 31 December 2020),
- Requirement of proxy for general meetings - the requirement of sending proxy forms for general meetings if the meeting is held electronically has been dispensed with till 31 December 2020, and
- Requirement of dividend warrants/cheques. In cases where email addresses of shareholders are available, listed entities are advised to obtain bank account details and use the electronic modes of payment specified in Schedule I of LODR.
- The Ministry of Corporate Affairs , vide circulars dated 8 April 2020 and 13 April 2020 provided certain relaxations for companies, including conducting Extraordinary General Meeting (EGM) through Video Conferencing (VC) or through other audio-visual means (OAVM) (hereinafter referred to in this circular as 'electronic mode'). Further, vide circular dated 5 May 2020, MCA also extended these relaxations to AGMs of companies conducted during the calendar year 2020; the circular has also dispensed with the printing and dispatch of annual reports to shareholders. Accordingly, the following related provisions of the LODR are relaxed / have been dispensed with:
- Relaxation from publication of advertisements in the newspapers - In view of the continuing lockdown and the resultant bottlenecks relating to print versions of newspapers, this exemption from publication of advertisements in newspapers has been extended for all events scheduled till 30 June 2020.
- the requirement of publishing quarterly consolidated financial results for certain categories of listed entities has also been relaxed.
Relaxation from the applicability of SEBI's earlier circular on non-compliance with the Minimum Public Shareholding (MPS) requirements
On 14 May 2020, SEBI granted relaxations to certain listed entities from complying with the earlier SEBI Circular dated 10 October 2017 (which lays down the procedure to be followed by the recognized stock exchanges/depositories with respect to minimum public shareholding (MPS) non-compliant listed entities, their promoters and directors, including levy of fines, freeze of promoter holding etc.). The recent circular states that those listed entities for whom the deadline to comply with the MPS requirements falls between the period from 1 March 2020 to 31 August 2020, no penal action will be taken by the recognized stock exchanges if they have not been able to comply with the MPS requirements. Further, any penal actions, if any, initiated by Stock Exchanges for the period 1 March 2020 till date for non-compliance of MPS requirements by such listed entities shall stand withdrawn.
Relaxation relating to procedural matters – Takeovers and Buy-back
On 14 May 2020, SEBI granted one-time relaxations to listed entities (effective with immediate effect) from certain procedural requirements pertaining to open offers and buy-back tender offers opening up to 31 July 2020 under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and SEBI (Buy-back of securities) Regulations, 2018. The Circular provides that:
- service of the letter of offer and/or tender form and other offer related material to shareholders may be undertaken by electronic transmission subject to fulfillment of certain conditions,
- the acquirer/company and the manager of the offer shall provide for inspection of material documents electronically.
- As far as possible, attempts will be made to adhere to the existing prescribed framework.
Decisions taken by the Monetary Policy Committee in light of the COVID-19 pandemic
The monetary policy committee (MPC) of RBI had an off-cycle meeting during 20 – 22 May 2020 in lieu of the scheduled meeting during 3 - 5 June 2020. During the course of the meeting, the MPC reviewed domestic and global developments and their implications for understanding the true wrath of the pandemic as well as to plan ahead to bring the economy back on its heels.
Accordingly, the measures announced by the MPC on 22 May 2020 can be broadly delineated under the following four categories:
- Measures to improve the functioning of markets and market participants;
- Measures to support exports and imports;
- Efforts to further ease financial stress caused by COVID-19 disruptions by providing relief on debt servicing and improving access to working capital; and
- Steps to ease financial constraints faced by State Governments.
Below are the key measures taken by the MPC in order to overcome the present crisis situation:
- Reduction in the Repo rate – The Repo rate has been reduced by 40 basis points from 4.4% to 4.0% with immediate effect. Consequently, the Marginal Standing Facility rate and the Bank rate stand reduced to 4.25% from 4.65%; and Reverse Repo rate stands reduced to 3.35% from 3.75%.
- Measures to improve the functioning of markets and market
- A special refinance facility of ₹15,000 crore provided to SIDBI (at RBI's policy repo rate for a period of 90 days for on-lending/ refinancing) to be rolled over for another period of 90 days in order to provide greater flexibility to SIDBI.
- In view of difficulties expressed by Foreign Portfolio Investors (FPIs) and their custodians under the Voluntary Retention Route (VRR) scheme on account of COVID-19 related disruptions in adhering to the condition that at least 75% of allotted limits be invested within 3 months, it has been decided that an additional 3 months' time will be allowed to FPIs to fulfil this requirement.
- Measures to support Import and Exports –
- Increase in the maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks from the existing one year to 15 months, for disbursements made up to 31 July 2020;
- Extending a line of credit of INR 15,000 crore to the EXIM Bank for a period of 90 days (with rollover up to one year) so as to enable it to avail a US dollar swap facility and meet its foreign currency resource requirements; and
- Extension of the time period for completion of outward remittances against normal imports (i.e. excluding import of gold/diamonds and precious stones/jewellery) into India from 6 months to 12 months from the date of shipment for such imports made on or before 31 July 2020.
- Measures to ease financial stress by providing relief on debt
servicing and improving access to working capital:
- The RBI had earlier, on two separate occasions (27 March and 17 April 2020), announced certain regulatory measures pertaining to (A) granting of 3 months moratorium on term loan installments; (B) deferment of interest for 3 months on working capital facilities; (C) easing of working capital financing requirements by reducing margins or reassessment of working capital cycle; (D) exemption from being classified as 'defaulter' in supervisory reporting and reporting to credit information companies; (E) extension of resolution timelines for stressed assets; and (F) asset classification standstill by excluding the moratorium period of 3 months, etc. by lending institutions. In view of the extension of the lockdown and continuing disruptions on account of COVID-19, the above measures are being extended by another 3 months from 1 June 2020 till 31 August 2020 taking the total period of applicability of the measures to 6 months (i.e. from 1 March 2020 to 31 August 2020).
- The lending institutions are being permitted to restore the margins for working capital to their original levels by 31 March 2021. Similarly, the measures pertaining to reassessment of working capital cycle are being extended up to March 31, 2021.
- Lending institutions are now permitted to convert the
accumulated interest on working capital facilities over the total
deferment period of 6 months (i.e. 1 March 2020 up to 31 August
2020) into a funded interest term loan which shall be fully repaid
during the course of the current financial year, ending 31 March
With a view to facilitate greater flow of resources to corporates, it has been decided, as a one-time measure, to increase a bank's exposure to a group of connected counterparties from 25% to 30% of the eligible capital base of the bank. The increased limit will be applicable up to 30 June 2021.
- All other provisions of circulars dated 27 March 2020 and 17 April 2020 shall remain applicable mutatis mutandis.
- Steps to ease financial constraints faced by State Governments – Relaxation in the rules governing withdrawal from the Consolidated Sinking Fund (CSF), while at the same time ensuring that depletion of the CSF balance is done prudently which shall enable States to meet about 45% of the redemptions of their market borrowings, due in 2020-21 and shall be effective immediately and valid till 31 March 2021.
Amendment of Schedule VII of the Companies Act, 2013
On 26 May 2020 the MCA amended the provisions of Schedule VII of the Companies Act, 2013, which relates to corporate social responsibility (CSR). The Schedule VII has been amended to include any contribution to "Prime Minister's Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund)" in the list of activities which can be incorporated by companies in their CSR policies. Accordingly, any contribution to PM CARES Fund would qualify as eligible CSR expenditure. The amendment shall be deemed to be effective from 28 March 2020.
Criteria for reclassification of micro, small and medium enterprises
On 1 June 2020, the Ministry of Micro, Small and Medium Enterprises issued a notification dealing with "Criteria's for classification of micro, small and medium enterprises" which comes into effect from 1 July 2020. In supersession of the earlier notification dated 30 September 2006, the Central Government notified the following criteria for classification of micro, small and medium enterprises, namely:—
- a micro enterprise, where the investment in Plant and Machinery or Equipment does not exceed one crore rupees and turnover does not exceed INR 5 crore (50 million);
- a small enterprise, where the investment in Plant and Machinery or Equipment does not exceed ten crore rupees and turnover does not exceed INR 50 crore (500 million);
- a medium enterprise, where the investment in Plant and Machinery or Equipment does not exceed fifty crore rupees and turnover does not exceed INR 250 Crore (2.5 billion).
The Companies (Share Capital and Debentures) Amendment Rules, 2020
On 5 June 2020, the MCA issued the Companies (Share Capital and Debentures) Amendment Rules, 2020. The amendment provides that a startup company, as defined in notification number G.S.R. 127(E) dated 19 February 2016 issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India, may issue sweat equity shares not exceeding 50% of its paid up capital upto 10 (Ten) years from the date of its incorporation or registration, which was previously 5 (five) years. Further, the amendment also makes changes in the provisions regarding debenture redemption reserve and investment or deposit of sum in respect of debentures maturing during the year to be maintained by companies.
The contents of this publication is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.