12 December, 2019
Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019
The Ministry of Corporate Affairs (“MCA”) on October 22, 2019 issued the Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019 to further amend the Companies (Appointment and Qualification of Directors) Rules, 2014 (Principal Rules). The amendment provides for substitution of rule 6 in the Principal Rules which provides for compliances required by a person eligible and willing to be appointed as an independent director.
The compliances are briefly outlined hereunder:
(i) Every individual (a) who has been appointed as an independent director in a company on the date of commencement of the amended rules, shall within a period of 3 (three) months from such commencement; or (b) who intends to get appointed as an independent director in a company after such commencement, shall before such appointment apply online with Indian Institute of Corporate Affairs (“Institute”) for inclusion of his/ her name in the databank for a period of 1 (one) year or 5 (five) years or for his/ her life term.
(ii) Every individual whose name has been so included in the databank shall file an application for renewal for a further period of 1 (one) year or 5 (five) years or for his/ her life term, within a period of 30 (thirty) days from the date of expiry of the period upto which his/ her name was applied for inclusion in the databank.
(iii)Every independent director shall file a declaration of the compliance of the amended rules with the Board, each time he/ she furnish a declaration under sub-section (7) of Section 149 of the Companies Act, 2013.
(iv)Every individual whose name has been included in the databank shall pass an online proficiency self-assessment test conducted by the Institute within a period of one year from the date of inclusion of name in the databank.
The amended rules shall come into force with effect from December 1, 2019.
Companies (Creation and Maintenance of databank of Independent Directors) Rules, 2019
The Ministry of Corporate Affairs (“MCA”) issued the Companies (Creation and Maintenance of databank of Independent Directors) Rules, 2019 on October 22, 2019. The new rules inter-alia provide for:
(i) Creation and maintenance of an online databank of persons willing and eligible to be appointed as independent directors by the Indian Institute of Corporate Affairs (“Institute”). The information available in the databank shall be provided only to companies required to appoint independent directors after paying a reasonable fee to the Institute.
(ii) Duties of the Institute in respect of independent directors including conducting an online proficiency test, preparing basic study material, providing option to take advanced tests.
(iii) Creation of a panel of not more than ten members nominated by Central Government for the purpose of approving the outline of courses and study material prepared by the Institute.
The provisions of these rules, other than rule 2 and 5 shall come into force with effect from December 1, 2019. The provisions of rule 2 and 5 shall come into force on such date as may be notified by the Central Government.
Companies (Accounts) Amendment Rules, 2019
The Ministry of Corporate Affairs (“MCA”) issued a notification on October 22, 2019 to further amend the Companies (Accounts) Rules, 2014 thereby inserting a new clause (iiia) in sub-rule (5) of rule 8, which provides that a statement regarding opinion of the Board with regard to integrity, expertise and experience (including the proficiency) of the independent directors appointed during the year shall form part of the Boards' report.
The amended rule shall come into force with effect from December 1, 2019.
Identification and flagging of Disqualified Directors u/s 164(2)(a) of the Companies Act, 2013
The Registrar of Companies(ROCs) are in process of identification and flagging of directors disqualified under section 164(2) of Companies Act, 2013 for their default on non-filing of financial statement or annual return for continuous period of three (3) years viz.2015-16, 2016-17 and 2017-18. Such defaulting directors have been cautioned to complete the necessary filings to avoid actions under section 164 of Companies Act, 2013. Further, the DINs of such directors are not allowed to be used for filing any e-forms on MCA portal.
Incorporation of new provision in the Handbook of Procedure 2015-20 about cases referred to National Company Law Tribunal (NCLT)
On 18 October 2019, the Ministry of Commerce and Industry issued a notification in the official Gazette making the following amendment in the Hand Book of Procedures 2015-2020 by adding a new Para No. 2.29A in Chapter 2 of Handbook of Procedure 2015-20 as under:
“2.29 A. Any firm / company coming under the NCLT proceedings shall make a summary of statement of outstanding export obligations/liabilities under the FTP schemes, indicating duty saved amounts and applicable interest till the date of start of proceedings before the National Company Law Tribunal (NCLT), any penalty imposed under FTD&R Act, any other dues such as fee etc., and submit the same to the RA concerned and to NCLT,
before the start of NCLT proceedings as part of the statutory filings. The statement of consumption of inputs/procurement of capital goods, attested by chartered engineer/chartered accountant, shall also be submitted along with other documentary details of any partial fulfillment of Export Obligation claimed towards offsetting the duty saved amount.”
Resignation of statutory auditors from listed entities and their material subsidiaries
On 18 October 2019, the Securities and Exchange Board of India (“SEBI”) issued certain conditions to be complied with upon resignation of the statutory auditor of a listed entity/material subsidiary with respect to limited review / audit report as per the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI LODR Regulations”), which are enlisted here under:
A. All listed entities/material subsidiaries shall ensure compliance with the following conditions while appointing/re-appointing an auditor:
(i) If the auditor resigns within 45 days from the end of a quarter of a financial year, then the auditor shall, before such resignation, issue the limited review/ audit report for such quarter.
(ii) If the auditor resigns after 45 days from the end of a quarter of a financial year, then the auditor shall, before such resignation, issue the limited review/ audit report for such quarter as well as the next quarter.
(iii)Notwithstanding the above, if the auditor has signed the limited review/ audit report for the first three quarters of a financial year, then the auditor shall, before such resignation, issue the limited review/ audit report for the last quarter of such financial year as well as the audit report for such financial year.
B. Other conditions relating to resignation shall include:
(i) Reporting of concerns with respect to the listed entity/its material subsidiary to the Audit Committee:
(a) In case of any concern with the management of the listed entity/material subsidiary such as non-availability of information / non-cooperation by the management which may hamper the audit process, the auditor shall approach the Chairman of the AuditCommitteeof the listed entityand the Audit Committeeshallreceivesuch concern directly and immediately without specifically waiting for the quarterly Audit Committee meetings.
(b) In case the auditor proposes to resign, all concerns with respect to the proposed resignation, along with relevant documents shall be brought to the notice of the Audit Committee. In cases where the proposed resignation is due to non-receipt of information / explanation from the company, the
auditor shall inform the Audit Committee of the details of information / explanation sought and not provided by the management, as applicable.
(c) On receipt of such information from the auditor relating to theproposal to resign as mentioned above, the Audit Committee / board of directors, as the case may be, shall deliberate its views on the matter and communicate to the management and the auditor.
(ii) Disclaimer in case of non-receipt of information: In case the listed entity/its material subsidiary does not provide information required by the auditor, to that extent, the auditor shall provide an appropriate disclaimer in the audit report, which may be in accordance with the Standards of Auditing as specified by ICAI/NFRA.
C. Obligations of the listed entity and its material subsidiary:
(i) Format of information to be obtained from the statutory auditor upon resignation: Upon resignation, the listed entity / its material subsidiary shall obtain information from the Auditor in the specified format.
(ii) Co-operation by listed entity and its material subsidiary: During the period from when the auditor proposes to resign till the auditor submits the report for such quarter / financial year as specified above, the listed entity and its material subsidiaries shallcontinue to provide all such documents/information as may be necessary for the audit / limited review.
(iii) Disclosure of Audit Committee's views to the Stock Exchanges: Upon resignation of the auditor, the Audit Committee shall deliberate upon all the concerns raised by the auditor with respect to its resignation as soon as possible, but not later than the date of the next Audit Committee meeting and communicate its views to the management. The listed entity shall ensure the disclosure of the Audit Committee's views to the stock exchanges as soon as possible but not later than twenty-four hours after the date of such Audit Committee meeting.
Update on the Securities Contracts (Regulation) Act, 1956
On 18 October 2019, the Ministry of Finance issued a notification declaring a contract for the purchase or sale of a right to buy or sell or a right to buy and sell in future, such underlying goods, as a derivative for the purposes of the Securities Contracts (Regulation) Act, 1956.
For further information, please contact:
Vineet Aneja, Partner, Clasis Law
vineet.aneja@clasislaw.com
