Monday, 15 January, 2018

Vistra India Update 343

January 1 - January 15, 2017

COMPANY LAW

The Companies (Amendment) Act, 2017

The Companies (Amendment) Act, 2017 has received the assent of the President of India on January 3, 2018 and published in the Gazette of India. The amendment Act shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different provisions of the Act. These amendments under the Companies (Amendment) Act, 2017, are mainly aimed at addressing difficulties in implementation, facilitating ease of doing business, harmonisation with the Accounting Standards, the Securities and Exchange Board of India Act, 1992 and the regulations made there under and the Reserve Bank of India Act, 1934 and the regulations made there under, rectifying omissions and inconsistencies in the Act.

Significant Highlights of the Companies (Amendment) Act, 2017 are given hereunder:

Name Reservation / Approval

  • The period for reservation of name is substituted from sixty days from the date of the application to twenty days from the date of approval or such other period as may be prescribed.
  • For name change application from an existing Company, the Registrar may reserve the name for a period of sixty days from the date of approval.

Registered Office of Company

  • Company can have its registered office within 30 days (instead of 15 days) of its incorporation.
  • The time period for giving notice of change of situation of registered office is increased from 15 days to 30 days

Financial Statement, Board‘s Report. Etc.

  • CEO whether appointed as director or not shall sign the financial statement. Also, since the appointment of a Managing Director (MD) is not mandatory for all companies, financials has to be signed by MD, if any. The words ―if any has been added
  • The financials of associated companies has to be added to the preparation of consolidated financial statement.
  • The requirement of having extract of Annual return (Form MGT-9) has been done away with by placing the copy of annual return on website of the company (if any) and the web address/ link disclosed in the Board‘s Report.
  • The Nomination & Remuneration Committee shall specify the manner for effective evaluation of performance of Board, its committees and individual directors to be carried out either by the Board, by the Nomination and Remuneration Committee or by an independent external agency and review its implementation and compliance.
  • The Central Government is empowered to prescribe an abridged form of Annual Return.
  • Mandatory to place the entire annual return on website and by providing its link in Board‘s Report. Provision needs to be prescribed for companies not having website.
  • The requirement to attach an extract of Annual Return with the Board‘s Report is omitted.

Corporate Social Responsibility

  • The applicability of threshold for CSR compliance has to be tested for the Turnover/Net Profit/Net worth as at the end of immediately preceding financial year instead of any financial year.
  • Composition of CSR committee can be of two or more directors in case the company is not required to appoint Independent Director under section 149(4).
  • The term ―average net profit as provided in Explanation below Section 135(5) is been replaced with the words ―net profit

Right of Member to Copies of Audited Financial Statement

  • For circulation of annual accounts to members, the MCA had clarified that the shorter notice period would also apply to the circulation of annual accounts. It is now provided in the Amendment Act itself.
  • In respect of foreign subsidiary if audit of accounts is not prescribed as per law of the country, then unaudited accounts is to be placed before AGM & considered for consolidation.
  • Listed companies have to place on its website, separate audited accounts of its each subsidiary.

General Meetings

The unlisted company to hold its AGM anywhere in India if consented by all members in writing or in electronic mode obtained in advance.

The wholly owned subsidiary of a company incorporated outside India has been allowed to hold its extra ordinary general meeting outside India. Such wholly owned subsidiary can hold EGM at any place in the world.

The requirement of deposit of rupees one lakh with respect to nomination of directors shall not be applicable in case of appointment of independent directors or directors nominated by nomination and remuneration committee

Others:

  • Ratification of Auditors: The requirement related to annual ratification of appointment of auditors by members is omitted
  • Self Declaration‘ to replace Affidavit: With reference to incorporation of a company, affidavit‘ has been replaced by ―self declaration from the first subscribers to memorandum and first directors
  • Participation through video-conferencing: The directors are allowed to participate through video conferencing or other audio visual means on certain restricted items, if there is quorum through physical presence of directors.
  • The Central Government is now empowered to recognise any other universally accepted identification number as an identification document similar to director identification number.
  • Companies are permitted to give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirements.
  • The amendment explains the term "beneficial interest in a share. New terminology of significant beneficial ownership, in line with the international governance standards and OECD principles
  • No Central Govt. approval will be required for public companies for payment of remuneration to directors including MD and Whole time director and Manager even exceeding 11% of net profits. Approval of the central government would be needed only for variance to the conditions specified in part I of Schedule V for the appointment of abovementioned managerial persons. Duty casted on auditors - Report payment of remuneration in conformity with the provisions of the Act and disclose any excess remuneration.
  • The Private Placement process is simplified by doing away with separate offer letter details to be kept by company and reducing number of filings to Registrar.
  • The Period for filing return of allotment has been reduced to 15 days.
  • The maximum paid-up share capital for the purpose of determining a company as a small company has been increased from five crore rupees to ten crore rupees and turnover from twenty crore rupees to one hundred crore rupees. Further, turnover should be as per profit and loss account for the immediately preceding financial year and not as per its last profit and loss account.
  • Provide for a regime of offences and penalties which is commensurate to the gravity of the offence. Quantum of penalty is being levied taking into consideration the size of company, nature of business, injury to public interest, nature and gravity of default, repetition of default, etc.
  • In order to make the compliance requirement less onerous with the reasonable time period for all companies and to avoid strict penalties, section 403 has been amended. Delayed filing fees will vary depending on number of defaults and nature of form to be filed.

Click to view the circular

RBI AND FEMA

Master Direction – Foreign Investment in India

RBI has issued updated Master Directions laying down the modalities as to how the Foreign Exchange business has to be conducted by Authorized Persons with their customers/constituents with a view to implement the regulations framed under clause (b) sub-section 3 of section 6 and section 47 of the Foreign Exchange Management Act, 1999 (FEMA) read with Foreign Exchange Management (Transfer or Issue of a Security by a Person resident Outside India) Regulations, 2017 issued vide Notification No. FEMA 20(R)/2017-RB dated November 7, 2017. These Regulations are amended from time to time to incorporate the changes in the regulatory framework and published through amendment notifications.

Important changes in the Master Directions compared to earlier versions are:

  1. 100% foreign direct investment in Single brand retail trade under automatic route from 49% earlier.
  2. Relaxation provided to single brand retail trade with foreign director investment in terms local sourcing regulations. Per new norms single-brand retail trading entity can set off its domestic sourcing requirements against goods sourced for its global operations during the initial 5 years beginning 1st April of the year of the opening its first store. Earlier regulation requires 30% domestic sources every year.
  3. Hitherto 49% foreign direct investment was allowed in Indian carriers except Air India. Now this is relaxed and overseas airlines are now allowed to own up to 49% of Air India.
  4. It is now clarified that real estate broking services doesn’t amount to real estate business and is therefore, eligible for 100% FDI under automatic route.
  5. In all sectors where FDI is allowed under automatic route, issue of shares is allowed for non-cash considerations like pre-incorporation expenses, import of machinery etc.,
  6. FDI investors can now ask for audit of Investee Company by a particular audit firm having international network.  Such cases are allowed if joint audit is allowed where one of the audit firm is not part of the international network sought by the FDI investor.

Click to view the circular

CUSTOMS

Publishing of rate of exchange for conversion of the foreign currency

The Central Board of Excise and Customs (CBEC) vide Notification No. 01 /2018 - Customs (N.T.) notified the rate of exchange for conversion of the foreign currency into Indian currency or vice versa for Export and Import of goods, with effect from 5th of January 2018.  The Notification is appended below for reference:

Click to view the circular

LABOUR LAWS

Employers need not contribute Provident Fund over and above the statutory wage ceiling of their employees

Employee’s Provident Fund Organization (EPFO) vide its internal circular has instructed its offices not to force employers to contribute over the above the statutory wage ceiling in respect of their employees. However, option is available to employees to contribute beyond statutory wage ceiling if they so desire subject to the conditions as enumerated under Para 26(6) of the Employees Provident Fund Scheme, 1952.

EPFO reiterated its Head office circular again as per the Supreme Court order. The circular is appended below for reference.

Click to view the circular

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