Don’t Rush in Peek Hours

Don’t rush in peek hours and stuck up with system congestion. Act quick and complete all the Annual Filings in time without postponing it to the last date. Though it is practically un-imaginable, let us try to do our best and complete them soon.

In this edition we will be seeing about issue and transfer of Depository receipts as amended on 10th October, 2019. Our usual Legal terms and News Bites related to notifications by MCA, SEBI, RBI, IT and GST will follow the article.

 Saranya Deivasigamani,
CEO

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Framework for issue of Depository Receipts

The Stock Exchange Board of India (SEBI) take and initiative followed by the budget announcement, that the Board will allow listed Indian companies to issue either equity, or debt, to investors on the overseas stock exchanges such as NYSE, Nasdaq and Hong Kong Stock Exchange.

The Board has drawn a framework for issue of Depository Receipt in reference with Section 41 of the Companies Act, 2013, Companies (Issue of Global Depository Receipts) Rules, 2014 (‘GDR Rules’), the Depository Receipts Scheme, 2014 (‘DR Scheme’), Reserve Bank of India (‘RBI’) notification dated December 15, 2014, Central Government notification dated September 18, 2019 and  Central Government notification dated October 07, 2019.

SEBI allows only Listed Company to issue or transfer Permissible Securities, for the purpose of issue of Depository Receipts (‘DRs’), subject to compliance with certain requirements.

Depository Receipt

As per Section 2(44) of the Companies Act, 2013, Depository Receipts (‘DRs’) means a foreign currency denominated instrument, listed on an international exchange, issued by a foreign depository in a permissible jurisdiction on the back of permissible securities issued or transferred to a domestic custodian and includes ‘global depository receipt’.

Foreign Depository

Foreign Depository (’FD’) means a person which:

(a) is not prohibited from acquiring permissible securities;

(b) is regulated in any of the Permissible Jurisdiction; and

(c) has legal capacity to issue DRs in the Permissible Jurisdiction where issue of DRs is proposed.

Eligibility

1. The Company should have been complied with SEBI (LODR), 2015.

2. Listed Company shall be eligible to issue or transfer Permissible Securities, for the purpose of issue of DRs, only if:

• the Listed Company, any of its promoters, promoter group or directors or selling or transferring shareholders and their associates are not debarred from accessing the capital market by SEBI, not a wilful defaulter, not a fugitive economic offender.

Provided that, these restrictions above shall not apply to the persons or entities whose period of debarment is already over as on the date of filing of the document.

‘Transfer of permissible securities by existing holders’ means deposit of existing Permissible Securities of the Listed Company with a Domestic Custodian, for the purpose of issue of DRs, pursuant to formal agreement(s) among the Listed Company and the Foreign Depository.

The equity shareholders of the Listed Company shall tender their shares for participation in such listing of DRs.

Subsequent issue and listing of DRs, shall be done by passing a special resolution in terms of GDR Rules.

The Listed Company may seek in-principle and final approval from Recognized Stock Exchange as well as International Exchange. However, such issue or transfer of Permissible Securities for the purpose of issue of DRs shall be subsequent to, the receipt of trading approval from the Recognized Stock Exchange for the public offer.

Permissible Jurisdictions and International Exchanges
Permissible Jurisdiction shall mean jurisdictions as may be notified by the Central Government from time to time, pursuant to notification no. G.S.R. 669(E) dated September 18, 2019 in respect of sub-rule 1 of rule 9 of Prevention of Money-Laundering (Maintenance of Records) Rules, 2005.

International Exchange(s) shall mean exchange(s) as may be notified by SEBI from time to time.

Obligation of the Listed Company

The obligation of the Listed Company is to:

• Comply with extant laws relating to issuance of DRs, including, the Companies Act, 2013, the Foreign Exchange Management Act, 1999 (‘FEMA’), Prevention of Money-Laundering Act, 2002, and rules and regulations made thereunder.
• Ensure that the DRs are issued only with underlying Permissible Securities.
• Ensure that aggregate of the Permissible Securities is in compliance with the limits mentioned in FEMA.
• Ensure that the agreement made with Foreign Depository is in compliance with limits mentioned in FEMA.
• Through an intermediary, file a copy of the initial document with SEBI and Recognized Stock Exchange, receive comments within 7 days and deemed to have no comments if not received any response from SEBI. Also the Stock Exchange shall take into consideration of the SEBI’s comments and pass in-principle approval within 15 working days.
• Ensure the public disclosure is made within 24 hours of date of filing.

Obligation of Indian Depository, Foreign Depository and Domestic Custodian

Indian Depositories, shall develop a system to ensure that aggregate holding of DR holders along with their holding, if any, through offshore derivative instruments and holding as a Foreign Portfolio Investor belonging to same investor group shall not exceed the limit on foreign holding under the FEMA and applicable SEBI Regulations.

The Foreign Depository shall not issue or pre-release the DRs unless the Domestic Custodian as confirmed the receipt of underlying Permissible Securities.

Domestic Custodian shall maintain records in respect of, and report to, Indian depositories all transactions in the nature of issue and cancellation of depository receipts, for the purpose of monitoring limits.

While working on DRs, we should not only check the laws of India, but also the jurisdiction where the Foreign Depository is registered.

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Legal Terms

in pari delicto

adv. Latin for “in equal fault,” which means that two (or more) people are all at fault or are all guilty of a crime.

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MCA Updates

• Companies (Meetings of Board and its Powers) Amendment Rules 2019.

SEBI Updates

• SEBI (Prohibition of Insider Trading) (Third Amendment) Regulations, 2019
• SEBI (Buy-Back of Securities) (Second Amendment) Regulations, 2019
• SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 [Last amended on September 23, 2019]
• Securities and Exchange Board of India (Credit Rating Agencies) (Amendment) Regulations, 2019
• Framework for issue of Depository Receipts

RBI Updates

•  No major updates,

IT Updates

• Clarification in respect of Section 115BAA.
• Income Tax (11th Amendment) Rules, 2019
• Higher depreciation on motor cars, buses, etc.,

GST Updates

• Features of Making Payment on Voluntary Basis (Form GST DRC-03) on GST Portal.
• E-Invoice System concept note, Standard, Schema and Template.

4 Successful Years of ZappyNews

We hope that 4 years of Zappy News provided you various insights on latest notifications and amendments in Companies Act, Income Tax, SEBI and RBI. We promise to provide you valid updates that will help you improve your knowledge bank and excel in the market.

In this edition we will be seeing about another amendment made effective on the Independence day that is the Nidhi (Amendment) Rules 2019 . Our usual Legal terms and News Bites related to notifications by MCA, SEBI, RBI, IT and GST will follow the article.

 Saranya Deivasigamani,
CEO

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The Nidhi (Amendment) Rules, 2019

The Central Government in its notification dated 1st July 2019 come up with the Nidhi (Amendment) Rules 2019 which are made effective from 15th August 2019.

Key Highlights of the Amendments

Definition of the term ‘Nidhi’

The Nidhi (Amendment) Rules 2019, has inserted a new sub-rule under rule 3 as sub-rule (da) to provide definition of the term ‘Nidhi’ which was not defined anywhere earlier. As per rule 3 (da), ‘Nidhi’ means a company which fulfils the rules made by the Central Government and which has been incorporated as Nidhi with the following objects:

• Cultivating/educating the habit of thrift and savings among the members; and
• Receiving deposits from and lending to its members only for their mutual benefits.

Rule 3A – Declaration of Nidhis

Another new rule 3A has been inserted that provides a declaration for the public company. If the public company wants to declare it as Nidhi Company, then it can make an application in Form NDH-4. The Central Government, after being satisfied that the company has met all the requirements, shall notify it as Nidhi company in the official Gazette.

The Nidhi company incorporated under the Act on or after the commencement of Nidhi Amendment Rules 2019 shall file an application in Form NDH-4 within a period of 60 days from the date of:

• One year from the date of incorporation; or
• The period up to which the Regional Directors have granted the extension of time.

However, in case the company doesn’t comply with the requirement of filing of Form NDH-4, then, the company shall not be allowed to file the following forms:

• Form No. SH-7 – Notice to the Registrar of any alteration of the share capital
• Form No. PAS-3 – Return of allotment

Rule 23A

Rule 23A stipulates the following categories of the company to file a declaration in Form NDH-4:

• Category of the company referred at rule 2(b) i.e., the company functioning on the lines of Nidhi company who has either not applied for or has applied and is awaiting Nidhi status; and
• Every Nidhi company incorporated under the Companies Act 2013 before the commencement of the Nidhi Amendment Rules 2019.

The above-referred companies are required to file a declaration in Form NDH-4 within later of the following dates:

• One year from the date of incorporation of the Nidhi company; or
• 6 months from the date of commencement of the Nidhi Amendment Rules 2019.

If in case the above-referred companies fail to file the declaration in due time, the defaulting company shall not be allowed to file the following forms:

• Form No. SH-7 – Notice to the Registrar of any alteration of the share capital
• Form No. PAS-3 – Return of allotment.

Rule 23B

• In order to update its status, every company which has been declared as Nidhi under the previous company law is also required to file the declaration in Form NDH-4. Such companies are required to file the declaration within a period of 6 months from the date of commencement of Nidhi Amendment Rules 2019.
• If the company files the declaration after the above referred period, then, the company is required to pay appropriate fees as per the Companies (Registration Offices and Fees) Rules 2014.
• If the company fails to file the declaration, then, the company shall not be allowed to file the following forms:
• Form No. SH-7– Notice to the Registrar of any alteration of the share capital
• Form No. PAS-3 – Return of allotment.

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Legal Terms

Dereliction

n. 1) abandoning possession, which is sometimes used in the phrase “dereliction of duty.” It includes abandoning a ship, which then becomes a “derelict” which salvagers can board.

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MCA Updates

• No major updates.

SEBI Updates

• Non-compliance with certain provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”)
• Schemes of Arrangement by Listed Entities and (ii) Relaxation under Sub-rule (7) of rule 19 of the Securities Contracts (Regulation) Rules, 1957

RBI Updates

• Foreign Exchange Management (Deposit) (Amendment) Regulations, 2019 – Acceptance of Deposits by issue of Commercial Papers.

IT Updates

• ​E-assessment Scheme, 2019.
• Income-tax (6th Amendment) Rules, 2019.

GST Updates

• Steps to be taken by taxpayers to file Form GSTR 9C.

Another Simplified Incorporation

As an initiation of simplifying the incorporation procedures, recently the Central Government interlinked PAN, TAN, GST, ESIC, PF registration and various other registrations along with SPICe and AGILe forms. Now from this 73rd Independence day, another simplification of Section 8 Company by obtaining License number through SPICe form itself.

In this edition we will be seeing about the new incorporation procedure for Section 8 Company. Our usual Legal terms and News Bites related to notifications by MCA, SEBI, RBI, IT and GST will follow the article.

 Saranya Deivasigamani,
CEO

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Incorporation of Section 8 Company

As a process of further simplification of incorporation of Companies and to further integrate the incorporation procedures into single window approval process, the Central Government in it’s notification dated 7th June, 2019 proposed the Companies (Incorporation) Sixth Amendment Rules, 2019 which came into force on 15th August, 2019.

Key Highlights of the Amendment

1. Requirement of prior filing of INC-12 for new section-8 companies is being dispensed with vide the Companies (Incorporation) Sixth Amendment Rules, 2019 dated 7th June, 2019.
2. Section 8 Companies can be incorporated by either reserving names through Run and filing SPICe thereafter or by directly filing SPICe. Licence No.for a section 8 company will be allotted at the time of incorporation itself.
3. All pending INC-12 SRNs for new Companies pending at respective RoCs would be marked as ‘Rejected’ on 15th August 2019. Such applicants may thereafter directly file SPICe for obtaining Licence Number and for incorporation of Section 8 Companies.
4. Those who have already obtained License Numbers and are yet to file SPICe form for incorporating Section 8 companies may do so at their convenience but the forms shall be processed only after a certain time lag to allow for work flow changes to take effect.
5. Those who have already filed SPICe forms which are pending at CRC may await processing of these forms after the work flow changes take effect.

Incorporation Procedure in effect

Name Approval

The name approval can be obtained by filing web based Reserve Unique Name (RUN) Form or trough SPICe Form INC-32 along with submission of other forms.

Ministry of Corporate Affairs has revised Rule 8 of the Companies (Incorporation) Rules, 2014 on 10th May 2019 in the Companies (Incorporation) Fifth Amendment Rules, 2019. The revised name rules shall be checked before making any application for company name reservation in RUN or SPICe. The complete text of the revised Rule 8,  Can be accessed by clicking here.

As per the revised rules, the proposed name of a section 8 company under the Act should include the words Foundation, Forum, Association, Federation, Chambers, Confederation, Council, Electoral Trust and the like, etc.

Through RUN form, an applicant can apply upto 2 names in a single form. IWhereas, in SPICe form, the applicant can apply upto only 1 name in a single form.

No resubmission will be allowed for RUN form and SPICe form will carry it’s own resubmission limits allowed in normal course of approval.

An approved name through RUN is valid for a period of 20 days from the date of approval.

Licence and Incorporation Documents

The license and incorporation documents shall be applied through SPICe Form INC-32.

Mandatory Attachments:

• Memorandum of Association (in pdf format)
• Articles of Association (in pdf format)
• Declaration by first subscribers and first directors
• Proof of address
• Interest of first directors in other entities.
• Declaration in form INC-14
• Declaration in form INC-15

Notes to Remember:

SPICe MOA INC-33 and SPICe AOA INC-34 is not applicable and the MOA and AOA has to be given as mandatory attachment in the SPICe form itself.

Any other information can be provided as an optional attachment (like INC-9 and INC-10). A separate declaration in format of INC-8 is not required to be attached.

Registration under Income Tax

Section 8 Company shall start registration under Section 12AA of the Income Tax Act, 1961 as soon as obtaining Certificate of Incorporation from ROC and obtaining bank account number under form 10A along with following documents:

• Incorporation documents—Licence from Central Government, Certificate of Incorporation, MOA, AOA.
• Declaration u/s 13 (1)(c) of the Income Tax Act.
• Notes specifying the main activities.
• NOC from the owner of the premises where the registered office is situated.
• Proof of address and identity of subscribers and directors.
• Undertaking under the 1st proviso to section 2(15) of the Income Tax Act, 1961.
• Details of bank account.
• Details of donations received / made since inception. Along with list of donors and their PAN.
• List of activities conducted since inception and proposed to be carried out for next 3 years.
• Copy of Annual Reports since inception.

 

80G application shall immediately follow 12AA approval and FCRA application can be made after 3 years of existence and has undertaken reasonable activity in its chosen field for the benefit of the society for which the foreign contribution is proposed to be utilized.

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Legal Terms

Illusory Promise 

n. an agreement to do something that is so indefinite one cannot tell what is to be done or the performance is optional (usually because it is just a gesture and not a true agreement).

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MCA Updates

• Investor Education and Protection Fund Authority(Acounting, Audit, Transfer and Refund) Second Amendment Rules, 2019.
• AOC-4 XBRL, AOC-4 CFS, SCP, AGILe are revised on 11th August, 2019. SPICe is revised on 17th August, 2019.  IEPF-1 , IEPF-2 and IEPF–4 forms shall be revised, new IEPF–1A shall be available and IEPF–6 shall be deprecated from 20th August 2019.
• Commencement Notification Insolvency and Bankruptcy Code(Amendment) Act, 2019 Dated 16 August 2019.
• Companies (Share Capital and Debenture) Amendment Rules, 2019.
• THE COMPANIES (AMENDMENT) ACT,2019 Dated 01 August 2019.

SEBI Updates

• SEBI (Buy-Back of Securities) (Amendment) Regulations, 2019.
• SEBI (Delisting of Equity Shares) (Amendment) Regulations, 2019
• SEBI (Issue of Capital and Disclosure Requirements) (Third Amendment) Regulations, 2019.
• SEBI (Listing Obligations and Disclosure Requirements) (Fourth Amendment) Regulations, 2019.
• SEBI (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations, 2019.
• SEBI (Prohibition of Insider Trading) (Second Amendment) Regulations, 2019.

RBI Updates

• FEMA (Deposit) (Amendment) Regulations, 2019 – Acceptance of Deposits by issue of Commercial Papers.
• ECB Policy – Rationalisation of End-use Provisions.

IT Updates

• No major updates.

GST Updates

• No major updates.