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1. INTRODUCTION
On account of COVID – 19 being declared a worldwide pandemic by the World Health Organization, several countries have taken a slew of drastic measures to combat the spread of the virus. The alarming rise in the number of cases in India actioned the Central Government into implementing a nationwide lock-down. Further, taking cognizance of the disruptions in operations, logistics as well the workforce caused by the lock-down, the Ministry of Corporate Affairs, Government of India (“MCA”), the market regulatory – Securities and Exchange Board of India (“SEBI”) and the central bank – Reserve Bank of India (“RBI”) announced several relaxations in regulatory and statutory compliances that have to be undertaken by the companies to enable them to tide over this period of disruption caused by COVID-19. In this article, we have discussed the various relaxations permitted to companies for business continuity during this period by the MCA, SEBI and RBI.
2. RELAXATIONS
A. MINISTRY OF CORPORATE AFFAIRS
1. Relaxation of requirements under Section 173 of the Companies Act, 2013 and Rule 4 of the Companies (Meeting of Board and its Powers) Rules, 2014
Section 173 of the Companies Act, 2013 mandates that a minimum of 4 board meetings have to be held in a year with a gap of not more than 120 days between any two meetings. Such meetings may be attended by the directors either in person or through video conferencing or other audio visual means which are capable of recording and recognising the participation of the directors and recording and storing the proceedings of such meetings along with date and time.
However, there are certain matters which cannot be dealt with in any meeting held through video conferencing. Rule 4 of the the Companies (Meeting of Board and its Powers) Rules, 2014 provides that the following matters cannot be dealt with in any meeting held through video conferencing or other audio visual means:
a. Approval of the annual financial statements;
b. Approval of the Board’s report;
c. Approval of Prospectus;
d. Audit Committee Meetings for consideration of financial statement including consolidated financial statement if any, to be approved by the board under section 134(1) of the Act;
e. Approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover etc.
The MCA vide notification dated March 19, 2020, amended the above rule such that from the commencement of the Companies (Meetings of Board and its Powers) Amendment Rules, 2020 till June 30, 2020, the meetings on matters referred to above, may be held through video conferencing or other audio visual means in accordance with rule 3 of the Companies (Meeting of Board and its Powers) Rules, 2014.
Further, MCA has provided a one-time relaxation, allowing an additional 60 day gap in between two board meetings till September 30, 2020, such that the maximum gap between two consecutive meetings of the board shall stand extended from 120 days to 180 days1.
2. Exemption from the requirement of Independent Director Meeting
The Companies Act, 2013 mandates that the independent directors of a company shall hold at least one meeting in a financial year, without the attendance of non-independent directors and members of management2. However, MCA vide a general circular has provided that in case the independent director is unable to hold such a meeting, it shall not be viewed as a violation.
3. Extension of deadline for depositing the amount in the Deposit Repayment Reserve Account
Section 73(2)(c) of the Companies Act, 2013 read with rule 13 of the Companies (Acceptance of Deposits) Rules, 2014 provides that the company shall deposit an amount equivalent to not less than 20% of the deposits maturing during the following financial year and kept in a scheduled bank in a separate bank account called the deposit repayment reserve account on or before April 30 of each year. The due date for creating this reserve for the financial year 2020-21 has been extended to June 30, 20203.
4. Inclusion of spending funds on tackling COVID-19 as a CSR activity
Section 135 of the Companies Act, 2013 mandates that every company with a net worth of Rupees 500 Crore or more, or turnover of Rupees 1000 crore or more or a net profit of Rupees 5 crore or more during the immediately preceding financial year shall spend at least 2% of the average profits of the company made during the 3 immediately preceding financial years to undertake activities as provided in the corporate social responsibility policy of the company which includes activities as specified in Schedule VII of the Companies Act, 2013.
The MCA vide General Circular no. 10/2020 dated March 23, 20204 has clarified that any activity related to COVID-19 relating to the promotion of health care, including preventive health care, sanitation and disaster management shall constitute as CSR activity.
Further, the MCA vide an office memorandum dated March 28, 20205 has clarified that any contribution made by the company to the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM Cares Fund) shall qualify as an admissible expenditure towards fulfilling their CSR obligations under Section 135 of the Companies Act, 2013.
5. Deferment of applicability of the Companies (Auditor’s Report) Order, 2020
The Companies (Auditor’s Report) Order, 2020 shall now be made applicable from the financial year 2020-2021 instead of being applicable from the financial year 2019-2020 to ease the burden on companies and their auditors6.
6. Extension of deadline to invest or deposit at least 15% of the debentures maturing during the year
Rule 18 of the Companies (Share Capital and Debenture) Rules, 2014 provides that the company shall invest or deposit on or before April 30, a sum which shall not be less than 15% of the amount of its debentures maturing during the year, ending on March 31. The due date for investing or depositing such amounts before April 30, 2020 has been extended to June 30, 20207.
7. Extension from filing a declaration for commencement of business
Section 10A of the Companies Act, 2013 provides that a company incorporated on or after November 2, 2018, having a share capital shall not commence any business or exercise any borrowing powers unless a declaration is filed by a director within a period of 180 days of the date of incorporation of the company. The MCA has provided an additional 180 days to file the declaration8.
8. Exemption from Minimum Residency Requirements
Section 149 of the Companies Act, 2013 provides that every company shall have at least one director who stays in India for a total period of not less than 182 days during the financial year. MCA vide it’s circular dated March 24, 2020 has done away with the minimum residency requirement for the financial year 2019-20.
9. Introduction of the Companies Fresh Start Scheme, 2020 (“Company Scheme”) and modification of the LLP Settlement Scheme, 2020 (“LLP Scheme”)
The MCA vide General Circular no. 13/20209 and General Circular no. 12/202010 passed the LLP Settlement Scheme and Companies Fresh Start Scheme, 2020 allowing waiver of late fees for any delay in filing of any e-forms with the Registrar of Companies between April 1, 2020 and September 30, 2020. The Schemes, apart from giving longer timelines for companies and LLPs to comply with various filing requirements under the Companies Act 2013 and LLP Act, 2008 respectively, significantly reduce the related financial burden on them, especially for those with long standing defaults. Both the Schemes also contain provisions for giving immunity from penal proceedings, including against imposition of penalties for late submissions and also provide additional time for filing appeals before the concerned Regional Directors against the imposition of penalties, if already imposed.
10. Raising the minimum default limit under the Insolvency and Bankruptcy Code, 2016
The MCA vide its notification dated March 24, 2020 has raised the limit of minimum amount of default from Rs 1 Lakh to Rs 1 Crore11.
11. Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2020
The period of lockdown imposed by the Central Government in the wake of COVID-19 shall not be counted while calculating the timelines for an activity in relation to the corporate insolvency resolution process12.
12. Possible Suspension of provisions of the Insolvency and Bankruptcy Code, 2016
The Finance Ministry announced on March 24, 2020 that the Government of India may consider suspending Section 7, 8 and 9 of the Insolvency and Bankruptcy Code, 2016 which relates to the initiation of Corporate Insolvency Proceedings by financial creditors, operational creditor and corporate applicants. Such relaxation has not yet been implemented.
The relaxations set out under sub-paragraphs 10, 11 and 12 of paragraph A above comes as a relief to debt stricken companies who may have otherwise gone into insolvency. However, given the disruption in operations brought about due to this lock-down, it is likely that the situation of debt-ridden companies would only worsen during this period. Further, it is also likely that more companies may fall within the ambit of “defaulters” on account of disruptions in business. Hence, when the relaxations are removed, it is likely that India may witness an influx of cases against potentially insolvent companies.
B. STAMP DUTY
1. The Ministry of Finance vide notification dated March 30, 2020 has postponed the effective date of enforcement of the Indian Stamp (Collection of Stamp-Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019 from April 1, 2020 to July 1, 202013.
C. SECURITIES AND EXCHANGE BOARD OF INDIA
1. Relaxation from compliances with provisions under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”): SEBI circulars dated March 19, 2020 , March 23, 2020 and March 26, 2020
202014, March 23, 202015 and March 26, 202016
S.No. |
Regulation |
Relaxation |
a. |
Regulation 7(3) of LODR provides that listed entities shall submit a compliance certificate on share transfer facility to the stock exchange within 1 month of the end of each half of the financial year. |
The due date has been extended from April 30, 2020 to May 31, 2020. |
b. |
Regulation 13(3) of LODR provides that the listed entities shall file with the stock exchange on a quarterly basis, within 21 days from the end of each quarter, a statement giving the number of investor complaints pending at the beginning of the quarter, those received during the quarter, disposed of during the quarter and those remaining unresolved at the end of the quarter. |
The due date has been extended from April 21, 2020 to May 15, 2020. |
c. |
Regulation 17(2) of the LODR provides that the board of directors shall meet at least 4 times a year, with a maximum time gap of 120 between any two meetings.
Regulation 18(2)(a) of the LODR provides that the audit committee shall meet at least 4 times in a year and not more than 120 days shall elapse between two meetings. |
The board of directors and the audit committee of the listed entity are exempted from observing the maximum stipulated time gap between two meetings for the meetings held or proposed to be held between the period December 1, 2019 and June 30, 2020.
However the board of directors/ audit committee shall ensure that they meet atleast four times a year, as stipulated under regulations 17(2) and 18(2)(a) of the LODR. |
d. |
Regulation 19(3A) of the LODR provides that the nomination and remuneration committee shall meet at least once in a year. |
The due date for the same has been extended to June 30, 2020 from March 31, 2020. |
Regulation 20(3A) of the LODR provides that the stakeholder relationship committee shall meet at least once in a year. |
||
Regulation 21(3A) of the LODR provides that the risk management committee shall meet at least once in a year. |
||
e. |
Regulation 24A of the LODR read with circular No CIR/CFD/CMD1/27/2019 dated February 8, 2019 provides that every listed entity and its material unlisted subsidiaries incorporated in India shall undertake secretarial audit and shall annex with its annual report, a secretarial audit report, given by a company secretary in practice within 60 days from the end of the financial year. |
The due date for the submission for the secretarial audit report has been extended to June 30, 2020 from May 30, 2020. |
f. |
Regulation 27(2) of the LODR provides that the listed entity shall submit a quarterly compliance report on corporate governance to the recognised stock exchange within 15 days from close of the quarter. |
The due date of submitting the quarterly compliance report has been extended to May 15, 2020 from April 15, 2020. |
g. |
Regulation 31 of the LODR provides that listed entity shall submit to the stock exchange a statement showing holding of securities and shareholding pattern separately for each class of securities on a half-yearly basis within 21 days from the end of each half year. |
The due date of submitting the statement has been extended to May 15, 2020 from April 21, 2020. |
h. |
Regulation 33 of the LODR provides that the listed entity shall submit the financial results in the following manner:
The listed entity shall submit quarterly and year-to-date standalone financial results to the stock exchange within 45 days of end of each quarter, other than the last quarter. |
The due date of submission of the quarterly report has been extended to June 30, 2020 from May 15, 2020. |
In case the listed entity has subsidiaries, in addition to the requirement mentioned above, the listed entity also submit quarterly/year-to-date consolidated financial results. |
The due date of submission of the annual report has been extended to June 30, 2020 from May 30, 2020. |
|
i. |
SEBI vide its circulars CIR/IMD/DF/18/2013 dated October 29, 2013, SEBI/HO/DDHS/CIR/P/2019/115 dated October 22, 2019 and SEBI/HO/DDHS/CIR/P/2019/167 dated December 24, 2019, provides that companies proposing to make the public issue of NCDs/NCRPS/CPs are required to submit the audited financials in the offer document, which are not older than 6 months from the date of the prospectus. |
The proposed date issuance of NCDs/NCRPs/CPs has been extended from on or before March 31, 2020 to May 31, 2020.
The companies are also permitted to submit audited financial statements as on September 30, 2019. |
j. |
SEBI vide Circular HO/DDHS/CIR/P/2018/144 dated November 26, 2018 provides that Large Corporates shall make the following disclosures to the stock exchange |
|
Within 30 days from the beginning of the financial year, disclose the fact that they are identified as a Large Corporates. |
The due date for initial disclosures has been extended to June 30, 2020 from April 30, 2020. |
|
Within 45 days of the end of the financial year, the details of the incremental borrowings done during the financial year. |
The due date for annual disclosures has been extended to June 30, 2020 from May 30, 2020. |
|
k. |
Regulation 40(9) of the LODR provides that the listing entity shall ensure that the share transfer agent and/or the in-house share transfer facility, as the case may be, produce a certificate from a practicing company secretary within 1 month of the end of each half of the financial year, certifying that all certificates have been issued within 30 days of the date of lodgement for transfer, sub-division, consolidation, renewal, exchange or endorsement of calls/allotment monies. |
The due date for submission of the certificate has been extended to May 31, 2020 from April 30, 2020. |
l. |
Regulation 44(5) of the LODR provides that the top 100 listed entities by market capitalization, determined as on March 31st of every financial year, shall hold their annual general meetings within a period of five months from the date of closing of the financial year. |
The due date has been extended to September 30, 2020 from August 31, 2020. |
m. |
Regulation 47 of the LODR requires publishing, in the newspapers, information such as notice of the board meeting, financial results etc. |
The requirement has been exempted for all events scheduled till May 15, 2020.
|
n. |
Regulation 52 of the LODR provides that the listed entity which has issued listed NCDs, NCRPS and CPs shall prepare and submit unaudited or audited financial results on a half-yearly basis within 45 days from the end of the half-year to the recognised stock exchange. |
The due date for half-yearly submission has been extended to June 30,2020 from May 15, 2020.
|
If the listed entity intimates in advance to the stock exchange that it shall submit to the stock exchange its annual audited results within 60 days from the end of the financial year, un-audited financial results for the last half-year accompanied by limited review report by the auditors need not be submitted to stock exchange. |
The due date for yearly submission has been extended to June 30, 2020 from May 30, 2020 |
|
o. |
The Securities and Exchange Board of India (Issue and Listing of Municipal Debt Securities) Regulations, 2015 (“ILDM Regulations”), SEBI circular nos. CIR/IMD/DF1/ 60 /2017 dated June 19, 2017 and SEBI/HO/DDHS/CIR/P/134/2019 dated November 13, 2019 provides that: |
|
Regulation 23 and Schedule V of the ILDM Regulations provides that issuers shall submit half yearly return on investors grievances and redressal within 30 working days from end of half-year. |
The due date for filing has been extended to June 30, 2020 |
|
Regulation 23 and Schedule V of the ILDM Regulations provides that issuers shall file its audited financial results with the stock exchange within 60 days from the end of the financial year for annual financial results. |
The due date for filing has been extended to June 30,2020 from May 30,2020. |
|
The listed entities shall within 45 days from the end of the quarter, disclose the balances in the accounts that have to be maintained as per the ILDM Regulations. |
The due date for filing has been extended to June 30, 2020 from May 15, 2020 |
|
p. |
SEBI vide circular no. SEBI/HO/CFD/CMD/CIR/P/2020/12 dated January 22, 2020 lays down imposition of fines and other enforcement actions for non-compliances with provisions of the LODR. |
The effective date of this circular has been extended and will now come in to force on compliance periods ending on or after 30 June 2020, which was, March 31 2020 prior to the amended. |
1. Relaxation in regulatory filings for REITs and InvITs
SEBI vide it’s circular dated March 23, 202017 has extended the due date for all regulatory filings and compliances for the period ending March 31, 2020 by 1 month over and above the timelines prescribed under SEBI (Real estate Investment Trusts) Regulations, 2014 and SEBI (Infrastructure Investment Trusts) Regulations, 2014.
2. Extension of deadline to implement circular on stewardship code
SEBI vide circular no. CIR/CFD/CMD1/168/2019 dated December 24, 2019 introduced a Stewardship Code for all Mutual Funds and all categories of AIFs, in relation to their investment in listed equities. The Code which was supposed to come into effect from April 1, 2020 shall now be implemented on July 1, 202018.
3. Relaxation in compliance with requirements pertaining to Mutual Funds19
S.No. |
Regulation |
Relaxation |
|
Regulation 59 of the SEBI (Mutual Fund) Regulations, 1996 provides that a mutual fund and asset management company shall within 1 month from the close of each half-year, i.e. on March 31 and on September 30, host a soft copy of its unaudited financial results on their website. |
The due date for filing the half yearly unaudited financial results has been extended from April 30, 2020 to May 31, 2020. |
|
SEBI circular No. SEBI/HO/IMD/DF2/CIR/P/2016/42 dated March 18, 2016 provides that the commissions to be paid to distributors are required to be disclosed on half-yearly basis within 10 days from the close of half year. |
The due date for disclosures has been extended to May 10, 2020 from April 10, 2020. |
|
SEBI Circular No. Cir / IMD / DF / 2 / 2010 dated May 13, 2010 provides that the annual disclosure of investor complaints with respect to mutual funds are required to be disclosed within 2 months of the close of the financial year. |
The due date for disclosure of the investor complaints has been extended from May 31, 2020 to June 30, 2020. |
|
Risk management framework for liquid and overnight funds and norms governing investment in short term deposits dated Sept. 20, 2019 |
The effective date of implementation has been extended to May 1, 2020 from April 1, 2020. |
|
Review of investment norms for mutual funds for investment in debt and money market instruments dated October 1, 2019. |
The effective date of implementation has been extended to May 1, 2020 from April 1, 2020. |
|
Valuation of money market and debt securities dated September 24, 2019 |
The effective date of implementation has been extended to May 1, 2020 from April 1, 2020. |
|
All mutual fund schemes where the observation letter was issued by SEBI and are yet to be launched shall have a validity period of 1 year from the date of the SEBI letter and all new mutual fund schemes where the final observation letter will be issued by SEBI shall have a validity period of 1 year from the date of the SEBI letter. |
4. Relaxation from compliance with certain provisions of the SAST Regulations, 201120
Regulation 30 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 provides that every person who (together with persons acting in concert) holds 25% or more of shares or voting rights in a target company and the promoter of every company (together with persons acting in concert) are required to disclose their aggregate shareholding and voting rights held in a listed company as of March 31, each year. The due date for making this disclosure has been extended to June 1, 2020.
Further Regulation 31 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 provides that the promoter of every company (together with persons acting in concert) is required to declare that on a yearly basis that he has not made any encumbrance on the shares held by him, directly or indirectly, other than those already disclosed during the financial year. The due date for making this disclosure has been extended to June 1, 2020.
5. Relaxation from compliance with certain provisions issued under SEBI (Credit Rating Agencies) Regulations, 1999
SEBI has permitted credit rating agencies to not consider non-payment of principal/ interest or any rescheduling of payment of debt obligations by the issuer as a default until the period of moratorium granted by the RBI, i.e. May 31, 202021. Further an extension of 30 days is being granted for making annual and semi-annual disclosures by CRAs on its website for the period ended March 2020 and a relaxation has been granted from the timelines for rating actions/ issue of the press release by the credit rating agencies stipulated vide SEBI circular dated June 30, 2017.
6. Continuation of Phase II of Unified Payments Interface with Application Supported by Block Amount
SEBI
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