Corporate Updates – 09-11-2017

MCA – IBBI:

MCA has notified the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2017 and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment)Regulations, 2017 both shall come into force on the date of their publication in the Official Gazette. A resolution plan shall disclose details of the resolution applicant and other connected persons to enable the Committee of Creditors to assess credibility of such applicant and other connected persons to take a prudent decision while considering the resolution plan for its approval. The resolution plan shall disclose the details in respect of the resolution applicant, persons who are promoters or in management or control of the resolution applicant; persons who will be promoters or in management or control of the business of the corporate debtor during the implementation of the resolution plan; and their holding companies, subsidiary companies, associate companies and related parties, if any. It shall disclose details of convictions, pending criminal proceedings, disqualifications under the Companies Act, 2013, orders or directions issued by SEBI, categorization as a willful defaulter, etc..

FCRA:

The Union Ministry of Home Affairs has made it mandatory for all Non Governmental Organisations (NGO’s) to register with Niti Aayog’s portal NGO Darpan, if they want to receive orhope to receive foreign funding. The notice states that in order to receive money under the Foreign Contribution Regulation Act, 2010, NGOs must obtain a Unique Darpan Identification Number from the portal. Registration will involve providing contact details as well as PAN and Aadhaar numbers of the organisation’s key functionaries. The deadline for registration has not been specified. Further, MHA has made it clear that availing FCRA online services such as uploading annual returns (in online Form FC 4) or changes (in online Form FC 6) will require Unique Darpan Identification Number. NGO-Darpan (NGO Mirror) is a platform that provides space for interface between Voluntary Organisations / NGOs and key Government Ministries / Departments / Government Bodies

News from NIRC of ICSI

NIRC of ICSI is organising Rajasthan State Conference on the theme Corporate Laws – Reforms And Ease of Doing Business on Saturday, the 11th November, 2017 (9.30 AM to 5.30 PM) at Hotel Hilton, 42 Geejgarh House, Hawa Sadak, Jaipur – 302006. Fees : Rs.750/- (For Members/Students/Others); Free Corporate Members of NIRC (Delhi & Chapters). PCH – 4.

Corporate Updates – 07-11-2017

MCA:

MCA has notified the revised Annual Filing Forms i.e Form AOC-4 (Form for filing financial statement and other documents with the Registrar), Form AOC-4 XBRL (Form for filing financial statement in XBRL (Non-Ind AS) and other documents with the Registrar) are being revised and are likely to be notified on 7th November 2017 including therein demonetization related changes. Stakeholders are advised to download the latest version before filing these forms w.e.f. 8th November 2017. Form- wise date of last version change is available at on the website of MCA.

MCA:

MCA has release a press release stating that based on the massive drive undertaken by the Ministry in the recent past, around 2.24 lakh companies have been struck-off till date for remaining inactive for a period of two (2) years or more. Further, over 3,000 disqualified Directors are Directors in more than 20 companies each, which is beyond the limit prescribed under the Law; To address the criminality angle, the Director, Additional Director or Assistant Director of SFIO have been recently authorized to arrest any person believed to be guilty of any fraud punishable under the Act. Steps are underway for setting-up National Financial Reporting Authority (NFRA), an independent body, to test check Financial Statements, prescribe Accounting Standards and take disciplinary action against errant professionals;. A separate initiative is underway to develop a State-of-the-Art software application to put in place an ‘Early Warning System’ (EWS) to strengthen the Regulatory Mechanism. Moreover with a view to check the problem of Dummy Directors, action is underway to seed DIN with PAN and Aadhaar at the stage of DIN application through biometric matching for new applications. The same may be extended to legacy data in due course.

Corporate Updates – 06-11-2017

RBI:

RBI has Introduce Legal Entity Identifier Code for large corporate borrowers. The Legal Entity Identifier (LEI) code is conceived as a key measure to improve the quality and accuracy of financial data systems for better risk management post the Global Financial Crisis. LEI is a 20-digit unique code to identify parties to financial transactions worldwide. It has been decided that the banks shall advise their existing large corporate borrowers having total exposures of ₹ 50 crore and above to obtain LEI and borrowers who do not obtain LEI as per the schedule are not to be granted renewal / enhancement of credit facilities. A separate roadmap for borrowers having exposure between ₹ 5 crore and upto ₹ 50 crore would be issued in due course. Entities can obtain LEI from any of the Local Operating Units (LOUs) accredited by the Global Legal Entity Identifier Foundation (GLEIF). After obtaining LEI code, banks shall also ensure that borrowers renew the codes as per GLEIF guidelines. These directions are issued under Section 21 and Section 35(A) of the Banking Regulation Act, 1949.

CBDT

CBDT has issued clarification on Cash sale of agricultural produce by cultivators /agriculturist on the basis of representations received from the stakeholders regarding applicability of income-tax provision to cash sale of agricultural produce by cultivators / agriculturists to traders. It is clarified that cash sale of the agricultural produce by its cultivator to the trader for an amount less than Rs 2 Lakh will neither result in any disallowance of expenditure under section 40A (3) of the Act in the case of trader nor attract prohibition under section 269ST of the Act in the case of the cultivator and shall not require the cultivator to quote his PAN/ or furnish Form No.60.

REVIVAL OF COMPANIES UNDER SECTION 252 OF THE COMPANIES ACT, 2013

REVIVAL OF COMPANIES under Section 252 of the Companies Act, 2013

 ~ By CS Manish Gupta, manish@rmgcs.com

The Registrar of Companies (ROC) all across India have initiated the process to close all those Companies which are not complying with the provisions of the Companies Act, 2013 particularly w.r.t filing of Annual Returns and Balance Sheet.

As per the provisions of section 248(1) of Companies Act, 2013 w.r.t power of Registrar to remove name of the company from register of companies, all ROC’s across India have issued show cause notices to the Companies falling u/s 248(1)(c). An opportunity was given to all such companies & their directors to respond to the said notice within 30 days and ROC was empowered to take action against the Company and its Directors in case of any failure to comply.

ROC office has removed the name / struck off almost 100,000 (One Lakh) Companies from its record. List of Companies struck off from record’s of ROC are available on MCA portal.

Consequently all such Companies shall stand dissolved and it shall on and from the date mentioned in the notice by the concerned Registrar of Companies, Ministry of Corporate Affairs, Government of India shall cease to operate as a Company (i.e. it is not a legal entity any more) and the Certificate of Incorporation issued to it shall be deemed to have been cancelled from such date.

As the name of all such companies are available in public domain, following can be the possible Consequences:

  • Bank’s might freeze all banking transaction with immediate effect for all such Companies. 
  • The working companies and / or companies having some immovable assets, will be the most impacted.
  • All existing Directors of these Companies shall continue to be liable for all liabilities under Section 248 (7) of the Companies Act, 2013.

Revival of Companies – Legal Background

Provisions with regard to the Revival of Companies or restoration of Name of Companies are provided under Section 252 of the Companies Act, 2013 read with the National Company Law Tribunal (Amendment) Rules, 2017. The relevant extract of the provisions are as under:

“Section 252(3): If a Company, or any member or creditor or workman thereof feels aggrieved by the company having its name struck off from the register of companies, the Tribunal on an application made by the company, member, creditor or workman before the expiry of twenty years from the publication in the Official Gazette of the notice under sub-section(5) of section 248 may, if satisfied that the company was, at the time of its name being struck off, carrying on business or in operation or otherwise it is just that the name of the company be restored to the register of companiesorder the name of the company to be restored to the register of companies, and the Tribunal may, by the order, give such other directions and make such provisions as deemed just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off from the register of companies.”

Procedure to be followed for filing an application with NCLT:

Detailed procedure of filing an application for restoration of Company, which has been struck off from the records of the ROC, has been provided in Section 252(3) read with rule 87A of National Company Law Tribunal (Amendment) Rules, 2017. These Rules were notified on 05-07-2017. The procedure which is required to be followed is as under:

  1. According to the provisions of Section 252(3) of Companies Act, 2013, Company, any member, creditor or workmen can file applicationin NCLT for restoration of name of Company in the records of the ROC.
  1. An application / appeal shall be filed in Form No. NCLT – 9 (on Legal Paper) with NCLT Bench having jurisdiction as per the Registered Office Address of the Company.
  1. Applicant has to serve an advance copy of the application on the Registrar of Companies (Speed Post + Physical Submission through a covering letter as well) and on such other persons as the Tribunal may direct, not less than 14 days before the date fixed for hearing of the application.
  1. An application must be accompanied with the following documents:
  1. a) Detailed reasons for such restoration along with the evidence and proofs;
  2. b) Affidavit verifying the petition, duly notorized;
  3. c) Demand Draft in favour of “Pay & Accounts Officer, Ministry of Corporate Affairs, New Delhi”for payment of fee of Rs. 1,000/- (Rupees One Thousand Only);
  4. d) Copy of MOA & AOA;
  5. e) Copy of Notice as issued by the concerned ROC for striking off of the Company;
  6. f) Copy of Board Resolution for restoration of Name, Filing of an Application with NCLT, Authorisation in favour of any director and appointment of Professional to appear on behalf of the Company;
  7. g) Memorandum of appearance with copy of the Board Resolution or the vakalatnama, as the case may be;
  8. h) Latest audited financials;
  9. i) Proof of service of application on ROC;
  10. i) Any other documents in support of the case.
  1. Upon hearing the appeal or the application or any adjourned hearing thereof, the Tribunal may pass appropriate order, as it deems fit. Where the Tribunal makes an order restoring the name of a company in the register of companies, the order shall direct that-
  1. a) the appellant or applicant shall deliver a certified copy to the Registrar of Companies within thirty days from the date of the order;
  2. b) on such delivery, the Registrar of Companies do, in his official name and seal, publish the order in the Official Gazette;
  3. c) the appellant or applicant do pay to the Registrar of Companies his costs of, and occasioned by, the appeal or application, unless the Tribunal directs otherwise; and
  4. d) the company shall file pending financial statements and annual returns with the Registrar and comply with the requirements of the Companies Act, 2013 and rules made thereunder within such time as may be directed by the Tribunal.
  1. On getting the order for Restoration of the Name, Company shall file the copy of order with the concerned Registrar of Companies with in a period of 30 days from the date of the order in Form INC – 28.
  1. The Registrar of Companies do, in his official name and seal, publish the order in the Official Gazette after restoration of the name of the Company in his records.
  1. As per the directions of the NCLT in Point 5(d), the company shall file all pending financial statements and annual returns with the Registrar and comply with the requirements of the Companies Act, 2013.

In the recent past NCLT has decided various cases filed by the Companies under the provisions of erstwhile Section 560(6) of the Companies Act, 1956. Hon’ble NCLT Benches in some of the cases have granted approval of restoration of name, have rejected few applications and have also imposed cost for restoration in some of the cases. Sharing citation with gist of the decisions given by NCLT benches in this regard:

  1. R.A.P. Garments Private Limited V/s Registrar of Companies, NCT of Delhi & Haryana Dated 24thApril, 2017 C.P. No. 461/2014 –NCLT Special Bench, New Delhi.     

The Hon’ble tribunal states that the company is a running company and that it will be seriously prejudiced if not restored in the registrar of Registrar of Companies, the petition is allowed subject to certain conditions, i.e the petitioner company shall file all pending returns in 30 days of restoration and to Rs. 5 Lakh to ROC to defray costs and expenses.

  1. Hamilton Estates Private Limited V/s Registrar of Companies, NCT of Delhi & Haryana Dated 19th April, 2017 C.P. No. 56/2016 – Before NCLT, New Delhi

The Hon’ble tribunal states that the respondent (ROC) has failed to satisfy the Bench that all prerequisite steps as provided in Section 560(1), (2) & (3) have been taken before striking off the name of the Company. The name of the Company allowed to be restored in the registrar of Registrar of Companies, the petition is allowed subject to payment of Rs. 25,000/- to Prime Minister Relief Fund. 

  1. M. G. Power System Private Limited V/s Registrar of Companies, NCT of Delhi & Haryana Dated 18th May, 2017 C.P. No. 47/2015 – Before NCLT, New Delhi

The Hon’ble NCLT has allowed the petition, even ROC has contended that the petitioner company has not filed its statutory returns and other documents since incorporation. Thus, its giving rise to the reasonable belief that the company was not operational.  The Hon’ble NCLT states that it would be just and proper to order restoration of the name of Company in the register of the ROC The petitioner company was directed to file all pending returns in 30 days of restoration and to deposit Rs. 25,000/-  to Prime Minister Relief Fund.

  1. Akash Ganga Builders Private Limited V/s Registrar of Companies, NCT of Delhi & Haryana Dated 30th June, 2017 C.P. No. 935/2015 – Before NCLT, Principal Bench     

The Hon’ble Principal Bench of NCLT has dismissed the petition on the ground that the name of the Company was struck off because the Company had not raised its capital upto Rs. 1 Lakh as provided in the provisions of the Companies Act, 2013, however the Company has prayed that it is because of non filing of returns. Petition dismissed with the cost of Rs. 10,000/- to be paid to the Central Government.

  1. Arvind Jain, Rajesh Jain, Rajnish Jain vs. Akarshan Hotel Pvt. Ltd & Registrar Of Companies, NCT of Delhi & Haryana Dated 27th June, 2017 C.P. No. 636/2016 – Before NCLT, Principal Bench

The present application for restoration was filed by the Directors & Shareholders of the Company who have brought this Company in the year 1997, however as per the last filed returns which was for the year 1991, there were different directors and shareholders and after that no document is being filed with the ROC. The petition was dismissed with a cost of Rs. 10,000/- on the ground that applicant failed to prove that they are the directors and shareholders of the Company.

Conclusion

The Companies Act provides exhaustive measures for the revival of companies and the NCLT is vested with powers to take all necessary measures for the revival of companies. One has to see the grounds, facts and to collect certain documents before filing any such application or appeal for revival of Company. As the time limit prescribed under the provisions for making an application is 20 years, applicant can choose to file the said application after arranging all such documents. It is always better to delay then getting the same rejected on ground of some discrepancy in the application. Although, it will be tough for the working companies whose name are being struck off by the ROC but I am personally looking at it as an opportunity for our Practising Company Secretaries, as they will be getting a fair opportunity to appear and present their cases before the various benches of NCLT.

Disqualification of Directors: A New Mystery!!!

Disqualification of Directors: A New Mystery!!!

By CS Manish Gupta, manish@rmgcs.com

& CS Suresh Kumar Pandey, suresh@rmgcs.com

In the corporate realm, where several laws are in operation, implementation receives a blow when it comes to interpretation and understanding the spirit and purpose of any particular law that may have been designed and promulgated for meeting a particular purpose in the light of the anomalies prevalent in the sector at any given point of time.

Recently Ministry of Corporate Affairs has cancelled the registration of around 2.10 lakh defaulting companies and subsequent direction of the Ministry of Finance to banks to restrict operations of bank accounts of such companies by the directors of such companies or their authorized representatives, the Ministry of Corporate Affairs identified approx 1,06,578 Directors for disqualification under Section 164(2)(a) of the Companies Act, 2013. Further, the Ministry may come up with another list of such disqualified directors.

The Ministry of Corporate Affairs said that this exercise was necessary to create an atmosphere of confidence and faith in the system paving the way for ease of doing business in India. The Ministry is monitoring these cases on priority basis and taking up a concerted action with the help of other departments. Further, the money laundering activities performed under the aegis of shell companies are also under scanner.

MOS (CA) Shri Chaudhary said that “The present Government has vowed to fight Black Money and fighting the menace of Shell Companies is an imperative element of such fight.

Few weeks back, the market regulator Securities and Exchange Board of India (SEBI) had also directed stock exchanges to take action against 331 suspected shell companies that are listed on their platforms. As part of efforts to curb black money menace, Sebi has banned scripts of these companies and were not available for trading thereafter. Most of those companies had filed appeal with SAT against the said impugned order and SAT has set aside the order on the ground that Sebi has passed its impugned order without any investigation into the affairs of the companies. It seems that the same story is going to be repeated with the order of MCA, which deals with disqualification of directors, as various writ petitions are already been filed and admitted in the various High Courts of India.

Statutory Provisions under Companies Act, 2013

Section 164 of the Companies Act, 2013 deals with disqualification of directors. As per the provisions of section 164(2)(a), a director in a company that has not filed financial statements or annual returns for three financial years continuously would not be eligible for re-appointment in that company or for appointment in any other company for five years from the date on which the said company fails to do so.

Section 164(1) : Grounds due to which a person shall not be eligible for appointment as a director of a Company:

(a) If declared by a competent court as a person of unsound mind;
(b) If he is an undischarged insolvent;
(c) His application to be adjudged as an insolvent is pending;
(d) He has been sentenced to imprisonment: (1) for not less than six months – disqualification shall continue till five years after expiry of the sentence; or (2) for seven years or more – disqualification shall be permanent;
(e) If otherwise disqualified by a court or a Tribunal till the order is in force;
(f) He has failed to pay the call money on shares within a period of six months from the last date fixed for payment;
(g) If the person has been convicted for offence under section 188 dealing with ‘Related Party Transactions’;
(h) He does not have a Directors Identification Number (DIN).

Sub-section (2) of the section 164 makes a director ineligible for re-appointment in a company or for appointment in any other company if he is or has been a director of a company which:

(a) has not filed financial statements or annual returns for any continuous period of three financial years; or
(b) has failed to repay the deposits or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more.

The disqualification shall continue for a period of five years from the date on which the said company fails to do either of the acts.

Sub-section (3) of the section 164 provides that a private company may by its articles provide additional grounds for disqualification.

MCA has proposed amendments under Companies Bill 2016

The proviso to Section 164 says that the disqualification incurred by a person, due to his conviction for imprisonment or due to an order of a tribunal/court or due to conviction for violating provisions under section 188, shall remain suspended during the period in which appeal has been preferred and is pending before a higher forum. However, the proposed amendment by 2016 bill provides that the disqualification shall continue even if appeal or petition has been filed against order of conviction.

Further, a proviso to sub-section (2) is proposed to be added which will provide that a disqualification for non-filing of financial statements or failure to redeem debentures/payments of deposits shall not be incurred by a director for a period of six months from date of his appointment. This time period shall provide a breathing period to the directors for making good the default of a company.

Disqualification of Directors Under s. 164(2)

Section 164(2) disqualifies a director for reappointment in the same company or for appointment in any other company if either of the two specified defaults have been committed by the company in which he is a director. The first default is non-filing of financial statements or annual Returns for a continuous period of three financial years. The second default is failure to repay the deposits for period of 1 year.

Removal of Disqualification under section 164(2)

The provisions of section 164 (2) have to be read with Rule 14 of the Companies (Appointment and Qualification of Directors) Rules, 2014. As per Rule 14, every director is duty bound to inform the company in form DIR-8 about his disqualification under sub-section 2 of section 164 before his appointment or reappointment. Similarly, a duty has been cast on the company, which fails to file the financial statements or fails to repay any deposits as specified under sub-section 2 of section 164, to furnish the names and addresses of all directors of that company in form DIR-9. If the company fails to file form DIR-9 then officers of the company shall be the officers-in-default.

The Rule 14 also provides for the removal of disqualification of directors suffered under sub-section 2 of section 164. It states that an application for removal of disqualification of directors can be made in Form DIR 10. The application for removal of disqualification can be filed with the Registrar of Companies. However, it is important to note that there is no statutory provision under the Companies Act, 2013 which empowers the Registrar of Companies to remove disqualification of directors. Thus, the legal sanctity of Rule 14 has to stand the test of time.

Further, the Section 164 of the Act only provides for the Disqualification of Directors for 5 years without any reference to the penalty / prosecution on the concerned directors. Going by the plain reading one can say, such director shall be  eligible to be appointed as director on the Board of any Indian Company, only after 5 year and has to apply for removal of disqualification in form DIR – 10 as stated in the applicable Rules.

We are also of the view that the disqualification as prescribed under Section 164 can neither be removed by compounding of offence for non filing of past financial & annual return nor by restoration of name of the Company under the provisions of the Section 252 of the Act by the order of the Hon’ble NCLT as these offence are covered under different provisions of the Act and has nothing to do with the disqualification of Directors.

Retrospective operation of provisions of Section 164(2)

It is a cardinal rule in law that every statute is prospective unless it is expressly or by necessary implication made to have retrospective operation.

The provisions of section 274 (1) (g) which were inserted by the amending act of 2000 in the Companies Act 1956 were retrospective in operation. This provision is akin to the section 164(2) of the Companies Act, 2013. Further, while interpreting the provisions of section 164(2) the National Company Law Tribunal in Vikram Ahuja v. Greenstone Investments (P.) Ltd. [2017] 136 CLA 131 (NCLT) held that the provisions of Section 164 are not retrospective in nature.

The Tribunal held that non–filing of financial statements before this enactment would not tantamount to disqualification to become director or to continue as director. New enactment has made non–filing of financial statements for three consecutive years as disqualification and amounts to an offence only to the act after 1st April, 2014. If this disqualification is construed as applicable to the past acts, it is obviously unfair to the people conducting the affairs of the company under the impression that non–filing of financial statements for three years is not a default and not an offence. Therefore, this provision has to be read as applicable to the situations where non–filing has started, at the most in the past and is continuing while this enactment has come to into existence and also to future non–filings but not to be considered as applicable to the past acts for it is an established proposition that an Act has to be considered retrospective only when it has been explicitly mentioned in the Act.

GENERAL CIRCULAR 41/2014 DATED 15.10.2014.

Before interpreting the provisions of Section 164(2) and its applicability as prospective or retrospective, it would be important to refer to the General Circular 41/2014 dated 15.10.2014 issued by Ministry of Corporate Affairs.

The said circular dated 15.10.2014 was issued by the MCA on the clarification been sought by the Stakeholders that whether the directors of the Companies who have filed their (past) balance sheets or annual returns after 01.04.2014 but before the Company Law Settlement Scheme 2014 (CLSS-2014) [15.08.2014] will get immunity from disqualification under Section 164(2)(a). As per the said circular, the MCA has clarified that the disqualification will be applicable for the prospective defaults of such companies directors who have filed their Balance Sheets and Annual returns on or after 01.04.2014 but before CLSS-2014 i.e. before 15.08.2014.

In other words, it can be said that the provisions of Section 164 (2) are not prospective in nature that is the three financial years will not be counted from 01.04.2014 (the day the section became effective) but even in case where the balance sheets or annual returns of previous years i.e. prior to 01.04.2014 have not been filed for consecutive period of three years and such default continues after 01.04.2014, the directors of such companies will be considered as disqualified. The prospective effect of disqualification will be applicable on such companies who have prior to 15.08.2014 have complied with filing of its past balance sheets or annual return as the case may be.

Going by the same methodology, MCA has notified 3 separate list (block of 3 years i.e 2011-2012 to 2013-2014, 2012-2013 to 2014-2015 & 2013-2014 to 2015-2016) of disqualified directors of such companies which have not filed their financials starting from the financial year 2011-2012. 

Clash between the Provisions of section 164 read with 167

Section 167 talks about vacation of office of a director. Sub-section (1) of section 167 states that the office of a director shall become vacant if he incurs any of the disqualifications specified in section 164. The basic difference between these two sections is that section 164 talks about the grounds for disqualification and section 167 provides for grounds of vacation of office. Thus, section 164 becomes applicable at the time of appointment or reappointment of a person as a director of any company whereas section 167 becomes applicable to person who is already a director.

Now, the question which arises is weather section 164(2) can be read with section 167 or not ? It is submitted that the provisions of sub-section (2) of section 164 are different provisions which contain consequences of the disqualification in the provision itself. Thus, section 167 will be applicable in cases covered by sub-section (1) of section 164 and it would not apply to grounds covered by sub-section (2) of section 164.

It is a well-established rule of interpretation that provisions of the statute should be read so as to harmonies with each other. If we apply these rules of statutory interpretation, it would appear that the consequence of vacation of office under section 167(1)(a) cannot apply in respect of the disqualification stated in subsection (2) of section 164, because subsection (2) itself specifically provides the consequence of the disqualification, namely that a director of the defaulting company shall not be eligible for re-appointment as a director of the defaulting company and for appointment of any other company for a period of five years from the date on which the said company fails to do so.

The provision in section 164(2) can be said to be a special provision as against section 167(1)(a) which is a general provision and hence the former should override the latter. Accordingly, while the provision in section 167(1)(a) would apply in the cases covered by section 164(1), it would not apply in the cases covered by section 164(2).

Thus, the apparent conflict between the two sections can be resolved by applying the rule of statutory interpretation that when there is a conflict between a special provision and a general provision, the special provision prevails over the general provision; the general provision applies only to such cases which are not covered by the specific provision; the rule applies to resolve conflict between different provisions in different statutes as well as in same statute.

OTHER EVENTS ATTRACTING DISQUALIFICATION

  • Through Articles of Association

A Private Company can provide additional grounds for disqualifications in the Articles of Association. Such articles have an overriding effect over provisions of the Companies Act including s. 274 (now s. 164).

  • Default In Repaying Deposits

No person who is or has been  a director of the Company which has failed to repay deposits  accepted by it or interest thereon etc. for one year or more

  • By Operation of the Law

The disqualification for default in paying deposit and default in filing annual statements was inserted under section 274 (now 164) of the Companies Act, 1956 by way of amendment in 2000. In Nabendu Dutta’s case, while discussing the retrospective operation of this provision, the High Court of Calcutta held that language of the provision makes it implicit that the Legislature intends retrospective operation. Thus, it is evident from the language of clause (g) of sub-section (1) of section 274 (now 164(2)) that on the date of commencement of the Amending Act, any person who has been director in a defaulting company will be affected by the sub-section.

  • Scheme of Compromise and Arrangement on Default in Repaying Deposits

The scheme of compromise and arrangement sometimes defers the payment of deposits. In such cases, the default on repayment of deposits begins from the date of original default. It cannot be postponed or deferred on assumption that if the scheme would be sanctioned, the date of redemption would be different.

After effects of disqualification of Directors

A person who’s name is mentioned in the Order as disqualified director, has to go through the after effects, which might stay for next 5 years (effectively 4 years, as disqualification is effective retrospectively from 01-11-2016). DIN of the all such directors are blocked for 5 years and cannot be used to file any e-form including Annual Filing forms, even if the financials are being signed by such directors. The problem is worse for the active Companies which has complied with the provisions of the Act and having only 2 directors who are named in the list of disqualified directors. In all those cases power to appoint new director on the Board is either with the Central Government or with the Shareholders who can appoint any new person as director and approach respective ROC to add the name in the list of signatory from backend manually.

RECENT JUDICIAL PRONOUNCEMENTS W.R.T. DISQUALIFICATION OF DIRECTORS

  1. REDDY’S RESEARCH FOUNDATION V. MINISTRY OF CORPORATE AFFAIRS (ORDER HIGH COURT OF HYDERABAD – Oct 6, 2017)

The Hon’ble High Court of Hyderabad, held that the Rule 14 of the Companies (Appointment and Qualification of Directors) Rules, 2014, inter-alia provides for rectifying the defect by enabling the defaulting companies to file their returns, however, the said Rule does not provide what is required to be done by the respective authorities. The reliance was placed on the report of the Companies Law Committee, submitted to the Hon’ble Union Minister of Finance, Corporate Affairs, discloses that the irregularity in relation to the same, particularly, with regard to the disqualification that is earned by an individual not only with respect to the defaulting company, but also with respect to the other companies, is noticed and the prima facie opinion of the Committee is that a rectification is required to be made restricting the scope of disqualification to the defaulting Company.

In the light of the fact that a defaulting company is allowed to rectify the defect by filing the returns which have not been filed earlier and to restore the DIN Numbers of petitioners so as to enable them to submit annual returns for the years 2011-12 to 2015-16 and further financial statements for the years 2012-13 to 2015-16.

  1. SRINIVASAN SANDILYA & ORS V. UNION OF INDIA & ORS

(DELHI HIGH COURT – Oct 10, 2017)

The Hon’ble Delhi High Court, has stated that prima facie, it appears that the provision under section 164(2) does not provide for immediate disqualification of Directors from all existing companies. The direction / order disqualifying the petitioners from acting as Directors of companies was stayed till the next date of hearing.

  • BHAGVAN DAS DHANANJAYA DAS V. UNION OF INDIA

(HIGH COURT OF MADRAS – 21.09.2017)

The Hon’ble court of Madras has decided that order dated 08.09.2017 uploaded in the website of Ministry of Corporate Affairs, so far as the petitioner is concerned, quash the same as illegal, arbitrary and devoid of merit and consequently direct the respondent (ROC) to permit petitioner to get reappointed as Director of any Company or appointed as Director in any company without any hindrance thereby staying the operation of the order w.r.t. the petitioner.

CONCLUSION

The above discussion has left various questions unanswered, which are yet to be answered by one of the main pillar of the Constitution of India i.e. Indian Judiciary in near future unless there is another circular clarifying the position from the MCA.

Corporate Updates – 03-11-2017

MCA:

In order to provide ease for doing business to stakeholders, MCA is making continuous efforts to simplify incorporation related process. MCA will soon be dispensing with the requirement of separately uploading Forms 49 A& 49B after filing Spice e-forms. Accordingly, With effect from 6P.M. of 4th November 2017, stakeholders will NOT be required to upload signed 49A/49B using “Submit application for PAN/TAN” service, in respect of any fresh SPICe submission or Resubmission cases. PAN and TAN will continue to be issued as before based on the details submitted in the SPICe form itself.

CBDT:

CBDT has notified the amendments to the Income-tax Rules, 1962. These rules may be called the Income-tax (Twenty-fourth Amendment) Rules, 2017. Information and documents to be kept and maintained under proviso to sub-section (1) of section 92D and to be furnished in terms of sub-section (4) of section 92D. Further, every person, being a constituent entity of an international group having the prescribed value of international transactions, keep and maintain the information and documents of the international group, namely:- A list of all entities of the international group along with their addresses and a chart depicting the legal status of the constituent entity and ownership structure of the entire international group.

Corporate Updates – 02-11-2017

CBDT

CBDT extends due date for filing Income Tax Returns and Tax Audit Reports upto 7th November, 2017. On consideration of representations from various stakeholders for further extension of ‘due date’, being 30th September 2017 for those liable to file returns by 30.09.2017 and to facilitate ease of compliance by the taxpayers, CBDT has further extended the ‘due-date’ for filing Income Tax Returns and various reports of audit prescribed under the Income-tax Act,1961 pertaining to AY 2017-18 from 31st October, 2017 to 7th November, 2017 for all such taxpayers.

Ease of Doing

India’s has made a historic jump of 30 ranks in the World Bank’s Doing Business Report, 2018. India’s rank has risen to 100 in the latest report compared to 130 in the Doing Business Report, 2017. Historic jump in ‘Ease of Doing Business’ rankings is the outcome of the all-round & multi-sectoral reform push of Team India. Easier business environment is leading to historic opportunities for our entrepreneurs, particularly MSME sector & bringing more prosperity. Over the last 3 years we have seen a spirit of positive competition among states towards making business easier. It is worth noting that various initiatives were taken in the past couple of years to improve this ranking starting from the incorporation of companies and going upto the registration process and compliance’s thereafter.

Corporate Updates – 31-10-2017

CBEC – GST:

CBEC has again extended the last date for filing of GSTR – 2 for the month of July, 2017 to 30th November, 2017. The last date for filing of GSTR-2 for the month of July, 2017 was 31st October, 2017 and authorities have approved the extension of filing of GSTR- 2 for July, 2017 to 30th November, 2017, for facilitation of businesses and all taxpayers. Accordingly, the last date for filing of GSTR-3 for the month of July, 2017 also stands extended to 11th December, 2017 (the deadline was 10th November, 2017). This will facilitate about 30.81 lakh taxpayers for filing GSTR-2 for the month of July, 2017.

THE CONTRACT LABOUR (REGULATION AND ABOLITION) HARYANA AMENDMENT ACT, 2016

The Haryana Government, Law and Legislative Department has notified the Contract Labour (Regulation and Abolition) Haryana Amendment Act, 2016, in its application to the State of Haryana. The amendment is carried to change the applicability of the main legislation i.e The Contract Labour (Regulation and Abolition) Act, 1970 in the state of Haryana. After the amendment the provisions are applicable to every establishment in which Fifty (earlier twenty) or more workmen are employed or were employed on any day of the preceding twelve months as contract labour and to every contractor who employs or who employed on any day of the preceding twelve months Fifty (earlier twenty) or more workmen. Further proviso has been added to Registration clause that the appropriate Government may by notification in the Official Gazette, impose such further conditions, as may be deemed necessary, at the time of registration of an establishment for the proper administration of the Act and for prevention of misuse of employment of contract Labour.

Corporate Updates – 30-10-2017

MCA:

MCA has released the much awaited circular on Relaxation of additional fee and extension of last date of filing of AOC-4 and AOC-4 (XBRLnon-IndAS) under the Companies Act, 2013. The MCA has already extended the date of filing of AOC-4 (XBRL E-forms using Ind AS) for the financial Year 2016-2017 without additional fee till 31.03.2018. MCA has granted extension of time for filing of financial statements for the financial year ended 31.03.2017 in e-forms AOC-4 and AOC 4 (XBVRL non –IndAS) and the corresponding AOC-4 CFC e-forms upto 28.11.2017 without levying additional fee.

CBDT:

As Section 286 of the Income-tax Act, 1961 (‘the Act’) requires for furnishing of a Country-by-Country report (CbCR) in respect of an international group by its constituent or parent entity. The ‘due date’ for furnishing the Country-by-Country Report is the date specified under section 139(1) for furnishing the return of income for the relevant accounting year. FY 2016-17 will be the first reporting year for furnishing of CbCR. As the rules for furnishing of CbCR are also still under consideration. The Central Board of Direct Taxes, in respect of all assessees, has extended the ‘due date’prescribed therein for furnishing of report in respect of international group for reporting accounting year 2016-17 to 31st March, 2018.

Corporate Updates – 27-10-2017

MCA:

MCA has finally issued a circular for Relaxation of additional fees and extension of last date of filing of AOC-4 XBRL E-Forms using Ind AS under the Companies Act, 2013. The extension is granted to all companies which are required to prepare their financial statements in accordance with the Companies (Indian Accounting Standards) Rules, 2015 for the financial year 2016-2017 are required to submit their statements only in XBRL format. As the development of tools necessary for deployment of the taxonomy for XBRL filing is expected to be completed by 28-02-2018, it is therefor decided to extend the last date for filing of AOC – 4 XBRL for such companies for the financial year 2016-17 without additional fees till 31st March, 2018. The filing should be made by these companies only when the IndAS taxonomy is deployed by the MCA.

MCA – IBBI:

MCA has issued clarification regarding approval of resolution plans under Section 30 and 31 of the Insolvency & Bankruptcy Code, 2016. MCA has provided clarity, that the resolution plans under the Insolvency and Bankruptcy Code does not require approval of the shareholders. The clarification comes against the backdrop of concerns in certain quarters about the possibility of promoters of a company blocking insolvency resolution process under the existing provisions of the Code. As Resolution process is taken up only after it is approved by the National Company Law Tribunal (NCLT), the adjudicating authority, a resolution plan approved by the adjudicating authority shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. It is further clarified that approval of shareholders of the company for a particular action required in the resolution plan is deemed to have been given by the adjudicating authority.

News from NIRC of ICSI

NIRC of ICSI will be organising a Seminar on the theme "Commercial Contracts : Negotiation, Drafting and Litigations" on Saturday, the 28th October, 2017 from 10.00 AM onwards at Hotel Piccadily, Janakpuri District Centre Complex, Near Janak Puri West Metro Station, New Delhi-110058. Fees : Rs.1,600/- per delegate inclusive of GST (Rs.1000/- for students) ; FREE for Corporate Members of NIRC. PCH – 4.