Jurisdiction - India
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India – Corporate And SCRA Update.

27 April, 2015

 

 

Amendments To The Companies (Share Capital and Debenture) Rules, 2014

 

The Ministry of Corporate Affairs (‘MCA’) has, by way of notification dated March 18, 2015, issued the Companies (Share Capital and Debenture) Amendment Rules, 2015, which made certain amendments to the Companies (Share Capital and Debenture) Rules, 2014 (‘Share Capital and Debenture Rules’), including the following:


i. the proviso to Rule 18 (1)(d)(i) of the Share Capital and Debenture Rules, which had excluded pledges from the classification of eligible securities for debentures, has been deleted. Thereby, a pledge is now an eligible security for the purpose of this provision;


ii. the definition of employees of an “associate company” has been deleted from the definition of employees eligible for employee stock options;


iii. no private placement offer letter (in Form PAS-4) and serially numbered application form is required in cases where preferential allotment is being made to one or more existing members;


iv. in case secured debentures have been issued by a Non Banking Financial Company (‘NBFC’), the charge or mortgage over movable property is not required to be ‘specific,’ and can be created over any moveable property;


v. a holding company is permitted to create security over its assets in cases where the relevant loan is taken by its subsidiary company from a bank or NBFC; and


vi. nothing under Rule 18 of the Share Capital and Debenture Rules, which deals with debentures, will apply to commercial papers or any other similar instrument governed by the Reserve Bank of India (‘RBI’), foreign currency convertible bonds or foreign currency bonds.

 

Clarification / Amendment To Section 186 Of The Companies Act, 2013

 

The MCA has, by way of the Companies (Removal of Difficulties) Order, 2015 dated February 13, 2015, provided that Section 186 of the Companies Act, 2013 (‘Companies Act’), which deals with loans and investments made by a company will not apply to any acquisition made by a banking company or an insurance company or a housing finance company, which makes acquisitions of securities in the ordinary course of its business.
Separately, the MCA has, by way of General Circular 4 of 2015 dated March 10, 2015, clarified that loans / advances made by companies to their employees, other than to the managing or whole time directors (which is governed by Section 185 of the Companies Act) are not governed by the requirements of Section 186 of the Companies Act. This clarification will, however, be applicable if such loans / advances to employees are in accordance with the conditions of service applicable to employees and the remuneration policy, in cases where such policy is required to be formulated.

 

Amendments To The Companies (Meetings Of The Board And Its Powers) Rules, 2014

 

The MCA has, by way of the Companies (Removal of Difficulties) Order, 2015 dated February 13, 2015, provided that Section 186 of the Companies Act, 2013 (‘Companies Act’), which deals with loans and investments made by a company will not apply to any acquisition made by a banking company or an insurance company or a housing finance company, which makes acquisitions of securities in the ordinary course of its business.
Separately, the MCA has, by way of General Circular 4 of 2015 dated March 10, 2015, clarified that loans / advances made by companies to their employees, other than to the managing or whole time directors (which is governed by Section 185 of the Companies Act) are not governed by the requirements of Section 186 of the Companies Act. This clarification will, however, be applicable if such loans / advances to employees are in accordance with the conditions of service applicable to employees and the remuneration policy, in cases where such policy is required to be formulated.

 

Companies (Corporate Social Responsibility Policy) Amendment Rules, 2015

 

The MCA has, by way of notification dated January 19, 2015, amended the Companies (Corporate Social Responsibility Policy) Rules, 2014 (‘CSR Rules’), whereby companies are now permitted to carry on CSR activities through a Section 8 company established by such company, either singly or along with its holding or subsidiary or associate company or along with any other company or holding or subsidiary or associate company of that other company. Accordingly, companies can now CSR activities through a Section 8 company that has been established, not only with its holding / subsidiary / associate company, but also with any other company and its group company. However, participation of the concerned company in the establishment of the Section 8 company is essential. Further, the requirement of an unrelated Section 8 company having an established track record of 3 years, for a company to participate in CSR activities through it, does not apply if such Section 8 company has been established by a company with an unrelated company and its group company.

 

Clarification On Whether Amounts Received Prior To April 1, 2014 Are To Be Treated As ‘Deposits’ Under The Companies Act

 

By way of the General Circular 5 of 2015 issued on March 30, 2015, the MCA has clarified that amounts received by private companies from their members, directors or their relatives, prior to April 1, 2014, will not be treated as ‘deposits’ under the Companies Act and the Companies (Acceptance of Deposits) Rules, 2014, provided that the relevant private company discloses all such amounts in the notes to its financial statement for the financial year commencing on or after April 1, 2014 and the accounting head under which such amounts have been shown in the financial statement.

 

Securities Contracts (Regulation) (Amendment) Rules, 2015

 

The Ministry of Finance has issued the Securities Contracts (Regulation) (Amendment) Rules, 2015 pursuant to which the definition of ‘public shareholding’ has been amended to include shares underlying the depository receipts, if the holder of such depository receipts has the right to issue voting instructions and such depository receipts are listed on an international exchange in accordance with the Depository Receipts Scheme, 2014, provided that any equity shares of a company held by any trust for implementing employee benefit schemes under the regulations framed by Securities and Exchange Board of India (‘SEBI’) will be excluded from the definition of public shareholding.


In view of the above amendment of the definition of ‘public shareholding’, Rule 19A of the Securities Contracts (Regulation) Rules, 1957 has been accordingly amended to state that where the public shareholding of a listed company falls below 25% as a consequence of the change in the definition of ‘public shareholding’, it will increase its shareholding to 25% in the manner specified in the applicable SEBI regulations within 3 (three) years from the date of notification of:


i. the Depository Receipts Scheme, 2014 in cases where the public shareholding falls below 25% as a result of such scheme; or


ii. the SEBI (Share Based Employee Benefits) Regulations, 2014 in cases where the public shareholding falls below 25% as a result of such regulations.


AZB 

 

For further information, please contact:

 

Zia Mody, AZB & Partners
zia.mody@azbpartners.com

 

Abhijit Joshi, AZB & Partners 
abhijit.joshi@azbpartners.com

Shuva Mandal, AZB & Partners 
shuva.mandal@azbpartners.com

 

Samir Gandhi, AZB & Partners
samir.gandhi@azbpartners.com

Percy Billimoria, AZB & Partners 
percy.billimoria@azbpartners.com

 

Aditya Bhat, AZB & Partners 
aditya.bhat@azbpartners.com

 

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