Coverage Confirmation of Compliance of which Acts? 1. Impact on - PowerPoint PPT Presentation

“ Anomalies and Interpretation – Companies Act 2013” - [Ref. Annual Return 2015] - By CS Makarand Joshi - makarandjoshi@mmjc.in

Coverage Confirmation of Compliance of which Acts? 1. Impact on private company which is sub of Public Company 2. Meaning of Listed Company 3. Rights Issue 4. Modes of dispatch recognised by Cos Act 2013 5. Deposit – What it covers and what not? 6. Lien on FD – is it a Charge to be registered with ROC? 7. Charging Interest u/s 186? 8. Meaning of Net profit Under Rules u/s 135 9. 10. Related Party Transactions – critical quesions

I/We certify that: (a) the return states the fact, as they stood on the date of the closure of financial year aforesaid correctly and adequately (b) unless otherwise expressly stated to the contrary elsewhere in this return , the company has complied with ‘ all the provisions ’ ‘ of the Act ’ during the financial year

Declaration I am authorized by the Board of directors of the Company vide resolution number ___ dated ____ (DD/MM/YY) to sign this form and declare that all the requirements of the Companies Act, 2013 and the rules made there under in respect of the subject matter of this form and matters incidental there to have been complied with. I further declare that :

How to interpret?  Contextual Interpretation – Rule of Contextual Interpretation requires the court should examine every word of statute in its context, while keeping in mind the preamble of the statute, other provision thereof, pari material statute, if any and mischief intended to be remedied.  SAR [MR 3] – requires comment about system  Se. 134 – requires system  Declaration in MGT 7 restricts to compliance of Companies Act 2013

Public Company 2(71)  What is the status of private company which is subsidiary of Public Company? [se. 2(71)]  “PRIVODED THAT a company which is subsidiary of a company, not being a private company shall deemed to be public company for the purpose of this act even where such subsidiary company continues to be a private company in its articles.”  Hillcrest Judgement?  Gharda Chemicals Judgement?

Listed Company  Se.2(52) [2013 Act] – Listed Company means a company which has any of its securities listed on any recognized stock exchange  Se. 2 (23A) [1956 Act] – Listed Public Companies means a public company which has any of its securities listed in recognized stock exchange  ‘Securities’ [SCRA ] .. Includes shares / debentures or other marketable securities  Naresh K. Aggarwala V. Canbank Financial Services [Supreme Court] – Dahiben Umedhai Patel V. Narman James Hamilton [Marketable]

Whether Private cos debentures can be freely tradable?  Se. 2(68)(i) – restricts the right to transfer its shares  Se. 2(68)(iii) – prohibits any invitation to public to subscribe for any securities of the Company  Re. 22 SEBI Debt Listing Regulation – grants relaxation from se. 19 of SCRA for listing of privately placed debentures  Literal Rule Vs. Purposive Interpretation [Mischief Rule]

Mode of Dispatch  Se. 62(2) only following modes are recognized – Registered post 1. Speed post 2. Electronic mode 3.  Whether dispatched by hand delivery is a violation?  If violation of procedural provision does not result in denial of fair hearing or causes prejudice to the parties, the same has to be treated as directory notwithstanding the use of the word ‘shall’ [ Shivjee Singh v. Nagendra Tiwary 2010 AIR SCW 4064]

What is ‘deposit’ under acceptance of deposit rules?  The major highlights of this definition are –  This is an inclusive definition. It says ‘deposit’ includes any receipt of money by way of deposit or loan or any other form , by a company, but does not include.....  There are 14 exclusions from the definition of deposit  Here any other manner has to be read in the context of receipt either as deposit or loan.

What are 14 exclusions? Any amount received from government or from any other 1. source whose repayment is guaranteed by central government Any amount received from foreign source, so long as it is in 2. compliance with Foreign Exchange Management Act Any loan or facility received from Bank 3. Any loan or financial assistance received from public 4. financial institutions Any amount received against issue of commercial paper or 5. any other instrument issued under guidance of RBI

What are 14 exclusions? Any amount received from any other company 6. Any application money received under this act , against issue 7. of any securities [so long as the allotment is done in 60 days of receipt of money] Any amount received from Director of the Company [however 8. the amount received should not be out of borrowed funds] Any amount received against issue of secured bond or 9. debentures OR Any amount received against issue of compulsory convertible bond or debentures [bond should be convertible into shares within a period of 5 years]

What are 14 exclusions? 10. Any security deposit received from employee of the company [not exceeding 12 months salary]. This deposit should be non interest bearing. 11. Any non interest bearing amount received or held in trust [by the company] 12. Any amount received in the course of and for the purpose of business of the company –  as an advance for the supply of goods or provisions of services accounted for in the manner, provided that such advance is appropriated against supply of goods or services within a period of 365 days from acceptance of deposit

What are 14 exclusions?  as advance accounted for in any manner, received in connection with consideration for property  as security deposit for performance of contract for supply of goods or services  as advance under long term projects for supply of capital goods 13. any amount brought by promoters in pursuance of stipulation imposed by the lending institution 14. any amount accepted by a Nidhi Company in accordance with section 406 of the Companies Act 2013.

Charge  Se. 77 – duty of every company creating charge on its property or assets … to register charge  2 (16) – charge means an interest or lien created on the property or assets of a company or any of its undertaking or both as security and includes mortgage  Se. 125 of earlier act – had exhaustive definition  Se. 125 did not covered ‘lien’ specifically  Capital Finance Co. Ltd. v Stokes (1968) 1 WLR 899: 1969 (1) Comp LJ 341: (1969) 39 Comp Cas 169 (CA). – Vendors Lien does not require charge registration  Se. 2(16) is inclusive definition and specifically covers lien

Charging Interest u/s 186 (7)  No loan shall be given under this section at a rate of interest lower than the prevailing yield of one year, three year or five year or ten year Government Securities [closest to the tenor of the loan]  ‘ No loan…’ is negative and prohibitory language  ‘ Shall be given’ is about future actions  What about continuing loans?  Statutory provisions are prospective, unless provision expressly provides retrospective operations [Mahadeolal Kanodia V. Adm. Gen of West Bengal AIR 1960 SC 936]

Who is exempted from charging interest?  Loan made by Following entities are exempted from compliance of section 186  In the ordinary course of business by – Banking company 1. Insurance company 2. Housing finance company 3.  OR; BY Company engaged in the business of – Financing companies; or 1. Providing Infrastructural Facilities 2.

Ordinary Course ?? Sections Ordinary Course in Relation to 67 Lending 179 Acceptance of Deposit by Bank 180 Acceptance of Deposit by Bank 185 Providing loan, giving guarantee and security 186(11)(1)(a) Loan made, guarantee given or security provided 186(11)(1)(b)(iv) Acquisition of securities 188 ‘Transactions’ 195 ‘Communication’ Whether Context is relevant?

Related Party 2(76) Any body corporate whose Board of Directors, v. managing director or manager is accustomed to act in accordance with the advice, direction or instructions of a director or manager  Body corporate covers foreign company  Whether board or MD/ Manager of Holding company can be considered as accustomed to act as per instructions of subsidiary company?

Related Party 2(76) A company which is – i. (A) A holding, subsidiary or any associate company of such company Se. 2 (87) – Subsidiary [Explanation (for the  purpose of subsidiary) = the expression company includes any body corporate] Holding Company 2(46) – does not cover word  body corporate …

Service?  Se. 297 – Contract for service  Se. 188(1)(d) – availing or rendering of service  Whether employment is service?  It is service but excluded in service tax / consumer protection etc. [because employer is not customer]  Mischief Rule  Literal Rule