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India – Corporate & SCRA Snapshots.

29 April, 2014

 

 
  •  The Ministry of Corporate Affairs (‘MCA’), Government of India (‘GoI’) had notified numerous sections of the Companies Act, 2013 (‘2013 Act’) that have taken effect from April 1, 20141. Rules under the notified sections have also been notified with effect from April 1, 2014. There are still certain sections under the 2013 Act which have not yet been notified.

  • MCA, by way of a notification dated February 27, 2014 designated April 1, 2014 as the date on which the provisions of Section 135 and Schedule VII of the 2013 Act came into force. As per Section 135 of the 2013 Act, every company that meets the following criteria during any financial year, is required to comply with prescribed Corporate Social Responsibility (‘CSR’) requirements: (i) companies having a net worth of INR 5bn or more; or (ii) companies that have a turnover of INR 10bn or more; or (iii) companies that have made a net profit of INR 50m  or more (‘Thresholds’).

The Companies (Corporate Social Responsibility Policy) Rules, 2014 (‘CSR Rules’) (which were released by MCA on February 27, 2014) extend CSR requirements to a “foreign company” that has a branch office or project office in India that meet the Thresholds.

 

A company that satisfies the Thresholds is required to comply with certain prescribed CSR requirements including inter alia: (i) contribution of at least 2% of the average net profits of the company made during the three immediately preceding financial years, with preference being given to local areas around which the company operates; (ii) formulation of a CSR policy relating to prescribed activities; (iii) constitution of a CSR committee comprising three or more directors, one of whom must be an independent director. If a company does not comply with (i) above, the board must specify in its report the reason for such non-compliance.

 

The CSR Rules also provide exemptions in computing the average net profits of the company, which as per Section 135 of the 2013 Act is to be calculated in accordance with the provisions of Section 198 of the 2013 Act.

 

  • Section 394A of the Companies Act, 1956 (‘1956 Act’) prescribes that a notice be provided to the GoI in cases involving any arrangement or compromise (under Section 391 of the 1956 Act) or reconstruction or amalgamation (under Section 394 of the 1956 Act) (collectively, a ‘Scheme’) before a court of competent jurisdiction. The powers of the GoI under Section 394A of the 1956Act (‘Section 394A’) have been delegated to the Regional Directors (‘RD(s)’) who also file representations on behalf of the GoI wherever necessary.

MCA, by a circular dated January 15, 2014 (‘Circular’) has stipulated that while responding to notices on behalf of the GoI under Section 394A, the concerned RD is required to invite specific comments from the Income Tax Department (‘IT Department’) within 15 days of receipt of a notice, before such RD files a response with the High Court. If no response from the IT Department is forthcoming, it is presumed that the IT Department has no objection to the Scheme. Every RD is also required to ascertain, if feedback is required from any other sectoral regulator and obtain such feedback as required.

 

In light of the Circular, the Hon’ble High Court of Bombay (‘BHC’), by way of an order dated January 31, 2014 (‘Order’), has extended the total time period from the date of service of the petition on RD to the date of his affidavit, at 70 days (from the previous 40 days).

 

  • MCA, by a circular dated February 11, 2014 has prohibited companies and limited liability partnerships (‘LLPs’) from use of the word “National” except for companies where either the Central or State Government(s) are stakeholders. Further, companies and LLPs are prohibited from use of the words “Bank” and “Stock Exchange” or “Exchange”, unless no objection certificates (‘NoC’) from the Reserve Bank of India (‘RBI’) and the Securities and Exchange Board of India (‘SEBI’) have been obtained.

  • MCA, by a circular dated September 13, 2013 issued certain clarifications including, inter alia in relation to companies’ compliance with Section 180 of the 2013 Act (‘Section 180’), relating to restrictions on the powers of the board of directors. MCA had clarified that if the notice for a general meeting to obtain the requisite approvals was issued prior to September 12, 2013, then such resolution may be passed in accordance with the requirement of the 1956 Act (i.e. by way of an ordinary resolution under Section 293 of the 1956 Act (‘Section 293’), instead of by way of a special resolution as required under Section 180.

Recently, by way of a circular dated March 25, 2014, MCA has issued another clarification on the subject stating that a resolution passed under Section 293 prior to September 12, 2013 with reference to borrowings (subject to the limits prescribed) and/or creation of security on assets of the company will be regarded as sufficient compliance of the requirements of Section 180, for a period of one year from September 12, 2013.

 

End Notes:

 

1 Note: The sections notified herein are in addition to the 98 sections of the 2013 Act notified on September 12, 2013.

 

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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