India – Corporate And Commercial Legal Updates – November 2018

29 November, 2018

 

National Financial Reporting Authority Rules, 2018

 

On November 13, 2018, MCA notified the National Financial Reporting Authority Rules, 2018. These rules shall come into force on the date of their publication in the official Gazette. These rules, amongst other things, specifies the classes of companies and bodies corporate which shall be governed by the National Financial Reporting Authority (“Authority”); the functions and duties of the Authority; the need for an auditor to file a return with the Authority on or before 30th April every year; the manner of monitoring and enforcing compliance with accounting standards; the manner of monitoring and enforcing compliance with auditing standards.

 

External Commercial Borrowings (ECB) Policy Review of Minimum Average Maturity and Hedging Provisions 

 

On November 6, 2018, RBI issued a circular, reviewing the Minimum Average Maturity and Hedging Provisions of the of Master Direction No. 5 dated January 1, 2016 on “External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers”. In terms of this Master Direction, certain eligible borrowers raising foreign currency denominated ECBs under Track I, having a minimum average maturity requirement of five (5) years, are

mandatorily required to hedge their ECB exposure fully. 

 

The extant provisions have been reviewed and amended as under:

 

a) Minimum average maturity: Reduce the minimum average maturity requirement for ECBs in the infrastructure space raised by eligible borrowers under paragraph 2.4.2 (vi) of the aforesaid Master Direction from five (5) years, as stipulated under paragraph 2.4.1(iv), to three (3) years; and

 

b) Hedging requirements: Reduce the average maturity requirement from extant ten (10) years to five (5) years for exemption from mandatory hedging provision applicable to ECBs raised by above referred eligible borrowers. Accordingly, the ECBs with minimum average maturity period of 3 to 5 years in the infrastructure space will have to meet  100 per cent mandatory hedging requirement.

 

Further, it is also clarified that ECBs falling under the aforesaid revised provision but raised prior to the date of this circular will not be required to mandatorily roll-over their existing hedges.

 

Standardised norms for transfer of securities in Physical mode

 

On November 6, 2018, SEBI issued a circular, after realizing that the registered share transfer agents (RTAs) are seeking various documents for effecting transfer of securities and the documents sought vary across RTAs. SEBI also received representations, highlighting difficulties faced by transferees in providing these documents. In this regard, SEBI had meetings with Registrars Association of India (RAIN) and Depositories and pursuant to such meetings, RAIN has submitted a standardised procedure for transfer of securities in physical mode.

 

The proposal of RAIN has been examined and accordingly, the documentation/procedure for transfer of physical securities has been modified.

 

Streamlining the Process of Public Issue of Equity Shares and convertibles

 

On November 1, 2018, SEBI issued a circular stating that it has been decided, in consultation with the stake holders, to introduce the use of Unified Payments Interface (UPI) as a payment mechanism with Application Supported by Block Amount (ASBA) for applications in public issues by retail individual investors through intermediaries (Syndicate members, Registered Stock Brokers, Registrar and Transfer agent and Depository Participants). The proposed process would increase efficiency, eliminate the need for manual intervention at various stages, and will reduce the time duration from issue closure to listing by up to three (3) working days. Considering the time required for making necessary changes to the systems and to ensure complete and smooth transition to UPI payment mechanism, the proposed alternate payment mechanism and consequent reduction in timelines is proposed to be introduced in a phased manner. The phases along with the timelines and processes are further elaborated in this circular.

 

Companies Amendment (Ordinance), 2018

 

On November 2, 2018, the Ministry of Corporate Affairs (“MCA”) issued a press release stating that the President of India has given his assent to the promulgation of the Companies Amendment (Ordinance), 2018 (“Ordinance”). The Ordinance is based on the recommendations of the Committee appointed by the Government to review offences under the Companies Act, 2013 (“Act”). The twin objectives of the Ordinance are promotion of ease of doing business along with better corporate compliance. The key amendments are as under:

 

a) Shifting of jurisdiction of sixteen (16) types of corporate offences from the special courts to inhouse adjudication, which is expected to reduce the case load of special courts by over sixty (60) per cent, thereby enabling them to concentrate on serious corporate offences. With this amendment the scope of in-house adjudication has gone up from eighteen (18) sections at present to thirty-four (34) sections of the Act.

 

b) The penalty for “small companies” and “one person companies” has been reduced to half of that applicable to normal companies.

 

c) Instituting a transparent and technology driven inhouse adjudication mechanism on an online platform and publication of the orders on the website.

 

d) Strengthening in-house adjudication mechanism by necessitating a concomitant order for making good the default at the time of levying penalty, to achieve the ultimate aim of achieving better compliance.

 

e) De-clogging the National Company Law Tribunal (NCLT) by: 

 

(i) enlarging the pecuniary jurisdiction of Regional Director by enhancing the limit up to INR 25 lakh as against earlier limit of INR 5 lakh under Section 441 of the Act;

 

(ii) vesting in the Central Government the power to approve the alteration in the financial year of a company under section 2(41) of the Act; and 

 

(iii) vesting the Central Government the power to approve cases of conversion of public companies into private companies.

 

f) Other amendments relating to corporate compliance and corporate governance include (i) re-introduction of declaration of commencement of business provision to better tackle the menace of 'shell companies'; (ii) greater disclosures with respect to public deposits; (iii) greater accountability with respect to filing documents related to creation, modification and satisfaction of charges; (iv) nonmaintenance of registered office to trigger deregistration process; and (v) holding of directorships beyond permissible limits to trigger disqualification of such directors.

 

Advisory in relation to Foreign Trading Portals

 

On October 30, 2018, SEBI issued an advisory cautioning all investors to avoid participating in unregulated web portals / entities offering transactions in securities (including derivatives) which are executed or undertaken on the terminal of foreign exchanges/platforms. The advisory states that the investors may also note that for any kind of claim/dispute relating to such participation or enforcement of any agreement/contract/claim, etc., the following recourses shall not be available to them:

 

a) Rights of investors under bye-laws/regulations of Recognized Stock Exchange(s) and investor protection under Indian securities laws.

 

b) Dispute resolution mechanism administered by Recognized Stock Exchange(s).

 

c) Investor grievance redressal mechanism administered by Recognized Stock Exchange(s).