Updates on Companies Act, 2013

1. Provisions relating to One Person Company amended:

MCA vide notification dated 01^st February, 2021 has amended the Companies (Incorporation) Rules, 2014 with regard to the applicable provisions of One Person Company.  The following amendments shall be effective from 1^st April 2021:

1. An Indian citizen whether resident in India or otherwise, can incorporate an OPC.
2. Residency requirement has been reduced from 182 days to 120 days for the purpose of OPC.
3. An OPC may convert itself into Private or Public company at any time after incorporation. The earlier restriction imposed on conversion with regard to time period of two years and threshold limit of paid up capital and Turnover has been omitted now.
4. A private company may also convert itself into OPC without any restrictions that were imposed earlier with regard to paid up capital and average annual turnover.

Click here to access the Notification.

2. Producer Company Rules, 2021

MCA vide notification dated 11^th February, 2021 has notified the Producer Companies Rules, 2021 in supersession of Producer Companies (General Reserve) Rules, 2003 with effect from the date of the notification.

Click here to access the Notification.

3. Minimum offer period for Rights Issue amended:

MCA vide notification dated 11^th February, 2021 has inserted Rule 12 A of Companies (Share Capital and Debentures) Rules, 2014, which shall be effective from 1^st April 2021.  It prescribes that the minimum offer period for Right issue shall be 7 days from the date of offer.

Click here to access the notification.

4. Exclusions to the definition of Listed company:

MCA vide Notification dated 19^th February, 2021, has amended the Companies (Specification of definitions details) Rules, 2014 with effect from 1^st April, 2021 to exclude the following classes of companies from the ambit of Listed companies:

1. Public companies which have not listed their equity shares on a recognized stock exchange but have listed their –

• Non-convertible debt securities issued on private placement basis in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008; or
• Non-convertible redeemable preference shares issued on private placement basis in terms of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013; or
• both categories of (i) and (ii) above.

2. Private companies which have listed their non-convertible debt securities on private placement basis on a recognized stock exchange in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

3. Public companies which have not listed their equity shares on a recognized stock exchange but whose equity shares are listed on a stock exchange in a jurisdiction as specified in sub-section (3) of section 23 of the Act.

Click here to access the notification.

5. Fast track Merger allowed for new class of companies:

MCA vide Notification dated 1^st February, 2021 has allowed the following class of companies also to file a scheme of merger or amalgamation under section 233 of the Act (Fast Track Merger) :

• two or more start-up companies; or

• one or more start-up company with one or more small company.

Click here to access the notification.

6. Threshold limit for small companies increased:

The threshold limit for small companies has been amended vide Notification dated 01^st February, 2021. As per the amendment, those companies having paid up capital of not exceeding Rs. 2 Crores and turnover of not exceeding Rs. 20 Crores will fall under the ambit of small companies with effect from 1^st April, 2021.

Click here to access the notification.

7. Companies Amendment Act, 2020 – Sections notified:

MCA vide Notification dated 11^th February, 2021 has notified section 52 and 66 of the Companies Amendment Act, 2020 with effect from 11^th February, 2021 that relates to Producer companies and repeal of enactments and savings respectively.

Click here to access the notification.

Updates on SEBI

1. Setting up of Limited Purpose Clearing Corporation (LPCC) by Asset Management Companies (AMCs) of Mutual Funds:

With  the  objective  of development  of the corporate  bond  market  from  the perspective  of mutual  funds,  the  Mutual  Fund  Advisory  Committee  (MFAC)  of SEBI had constituted a Working Group consisting of representatives of various Mutual  Funds,  Clearing  Corporation  of  India  Limited  (CCIL)and  AMFI .

The working group for  recommended  that  AMCs  of  Mutual  Funds  should  set  up  a  Limited  Purpose Clearing  Corporation  (LPCC) for  clearing  and  settling  repo  transactions  incorporate debt securities by contributing an amount of INR 150 Crore.

Upon  deliberations,  SEBI  Board  in  its  meeting  held  on  September  29,  2020, approved a proposal to facilitate  setting up of a LPCC for clearing and settling repo  transactions  in corporate debt  securities  and  accordingly  Securities Contracts    (Regulation)    (Stock    Exchanges    and    Clearing    Corporations) Regulations,  2018(SECC  Regulations),  have  been  amended.

Click here to access circular

2. Revised Framework for Innovation Sandbox:

SEBI vide its circular dated February 02, 2021 has proposed a concept of “Innovation Sandbox”. Innovation Sandbox facilitates access to an environment (testing facilities  and  test  data)  provided  by Enabling  Organizations like Stock Exchanges, Depositories and Qualified Registrar and Share Transfer Agents (QRTAs) wherein innovators  (hereinafter  referred  to  as Sandbox  Applicants)  would  be  testing  their innovations  in isolation  from the live  market  and  would be used  for offline  testing  of the proposed solution of the applicant.

This is introduced to create an ecosystem which promotes innovation in the securities market. SEBI feels that startups including FinTech firms should have access to market related data, and test environments which are otherwise not readily available to them, to enable them to test their innovations effectively before the introduction of such innovations in a live environment.

Click here to access circular

3. Revised disclosure formats under Regulation 7 of SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulation”):

In light of amendments to the PIT Regulations effecting the inclusion of member of the promoter  group,  and  designated  person  in  place  of  employee,  in  Regulation  7  of  PIT  Regulations; and on the basis of feedback received from market participants and stock exchanges, the relevant disclosure formats (Forms B to D) have been suitably revised vide SEBI Circular dated February 09, 2021

Click here to access circular

4. Pre-Expiry Margin on commodities under Alternate Risk Management Framework:

SEBI vide Circular CIR/CDMRD/DRMP/01/2015 dated October 01, 2015 and SEBI/HO/CDMRD/DNPMP/CIR/P/2019/83 dated July 26, 2019, inter alia, had prescribed norms related to Pre-Expiry Margins

In light of an unprecedented event of negative final settlement price in the crude oil futures markets in the recent past and the  matter of  negative  crude  oil  price event was  deliberated  upon  in  the  Risk Management  Review  Committee  (RMRC)  of  SEBI.

In line with the recommendations of the RMRC, it has been decided in consultation with Clearing Corporations that pre-expiry margins shall be imposed on cash settled contracts wherein the underlying commodity is deemed susceptible to possibility of near zero and/or negative prices as identified by exchange/CC under ARMF circular. In case of these contracts, pre-expiry margins shall be levied during the last five trading days prior to expiry date, wherein they shall increase by 5% every day.

Click here to access the circular.

5. Extension of facility for conducting meeting(s) of unitholders of REITs and InvITs through Video Conferencing (VC) or through other audio-visual means (OAVM):

SEBI vide circular no.  SEBI/HO/D DHS/DDHS/CIR/P/2020/102 dated June 22, 2020 read with circular no. SEBI/HO/DDHS/DDHS/CIR/P/2020/201 dated October 08, 2020 permitted REITs/InvITs to conduct annual meetings and other meetings of unit holders through VC or OAVM up to December 31, 2020.

Further, pursuant to relaxation given by MCA vide its Circular dated December  31,2020 and January  13,  2021 w.r.t to conducting their General  Meeting  through  Video  Conferencing  (VC)  or  through  other  audio-visual  means  (OAVM) (hereinafter referred to in this circular as ‘electronic mode’), SEBI has extended the  facility  to  conduct  meetings  of unit holders, through VC or OAVM for REITs/InvITs, as under;

1. Annual  meetings  of  unit holders  in  terms  of  Regulation  22(3)  of  SEBI  (Real  Estate Investment Trusts) Regulations, 2014 an d Regulation 22(3)(a) of SEBI  (Infrastructure Investment Trusts) Regulations, 2014, (which becomes due in  the calendar year 2021) to be conducted till December 31, 2021.
2. For meetings other than annual meeting of unit holders till June 30, 2021

Click here to access the circular.

6. Master Circular for Depositories:

SEBI issued Master Circular for Depositories dated on February 05, 2021 in order to enable the users to have access to all the applicable circulars/directions at one place.

The Master Circular consists of four sections i.e. Beneficial Owner (BO) Accounts, Depository Participants (DP) Related, Issuer related and Depositories Related. Efforts have been made to include provisions of circulars/ communications relevant to each section. Users may refer other sections also for compliance to provisions applicable to them.

Click here to access the circular.

RBI & FEMA Updates

1. Investments By Foreign Portfolio Investors (FPI) In Defaulted Bonds – Relaxations:

Currently, FPI investments in corporate bonds are subject to a minimum residual maturity requirement, short-term investment limit and the investor limit.

However, FPI investments in security receipts and debt instruments issued by Asset Reconstruction Companies and debt instruments issued by an entity under the Corporate Insolvency Resolution Process as per the resolution plan approved by the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016 are exempt from these requirements.

It has now been decided to exempt investments by FPI in NCDs/bonds which are under default, either fully or partly, in the repayment of principal on maturity or principal installment in the case of amortizing bond from the mentioned requirements as notification.

Click here to access the circular.

2. Large Exposure Framework – Exemptions:

Large Exposure Framework:

A bank’s exposures to its counterparties may result in concentration of its assets to a single counterparty or a group of connected counterparties. As a first step to address the concentration risk, the Reserve Bank, in March 1989, fixed limits on bank exposures to an individual business concern and to business concerns of a group.

In order to foster a convergence among widely divergent national regulations on dealing with large exposures, the BCBS issued the Standards on ‘Supervisory framework for measuring and controlling large exposures’ in April 2014. The Reserve Bank has decided to suitably adopt these standards for banks in India and, accordingly, the instructions on banks’ Large Exposures (LE) were brought in to effect.

UPDATE:

The instructions have described the exposures that are exempt from the LEF. On a review (update), it has been decided to further exempt the following exposures from the LEF:

Exposures to foreign sovereigns or their central banks that are:

• Subject to a 0% risk weight under Table 2 of paragraph 5.3.1 of the Master Circular – Basel III Capital Regulations dated July 1, 2015, as modified vide circular dated October 8, 2015; and,
• Denominated in the domestic currency of that sovereign and met out of resources of the same currency.

Click here to access the circular.

3. Master Direction on Digital Payment Security Council:

Going by the pre-eminent role being played by digital payment systems in India, RBI gives highest importance to the security controls around it.

Now the RBI has issued a Master Direction, Reserve Bank of India (Digital Payment Security Controls) Directions 2020, for regulated entities to set up a robust governance structure for such systems and implement common minimum standards of security controls for channels like internet, mobile banking, and card payments, among others. While the guidelines will be technology and platform agnostic, it will create an enhanced and enabling environment for customers to use digital payment products in more safe and secure manner.

Click here to access the circular.

4.  Capital and Provisioning Requirements For Exposures To Entities With Unhedged Foreign Currency Exposure (‘UFCE’):

The guidelines mandate that information on UFCE may be obtained by banks from entities on a quarterly basis, on self-certification basis, and preferably should be internally audited by the entity concerned.

As representations have been received from banks expressing their inability in obtaining UFCE certificates from listed entities for the latest quarter due to restrictions on disclosure of such information prior to finalization of accounts, It has been decided that in such cases, banks may use data pertaining to the immediate preceding quarter for computing capital and provisioning requirements in case of Unhedged Foreign Currency Exposures.

Click here to access the circular.

5. Master Direction – Non-Banking Financial Company – Housing Finance Company (Reserve Bank) Directions 2021:

The Reserve Bank of India, having considered it necessary in the public interest, and being satisfied that, for the purpose of enabling the Bank to regulate the financial system to the advantage of the country and to prevent the affairs of any Housing Finance Company (‘HFC’) from being conducted in a manner detrimental to the interest of investors and depositors or in any manner prejudicial to the interest of such HFCs, hereby issues to every HFC, (in supersession of the regulations/ directions as given in Chapter XVII of these directions), the Non-Banking Financial Company – Housing Finance Company (Reserve Bank) Directions, 2021 hereinafter specified.

Click here to access the circular.

6. Remittances to International Financial Services Centres (IFSCs) In India Under Liberalized Remittance Scheme (LRS):

With a view to deepen the financial markets in International Financial Services Centres (IFSCs) and provide an opportunity to resident individuals to diversify their portfolio, the extant guidelines on Liberalized Remittance Scheme (LRS) have been reviewed and it has been decided to permit resident individuals to make remittances under LRS to IFSCs set up in India under the Special Economic Zone Act, 2005, as amended from time to time. Accordingly, AD Category – I banks may allow resident individuals to make remittances under LRS to IFSCs in India, subject to the following conditions:

1. The remittance shall be made only for making investments in IFSCs in securities, other than those issued by entities/companies resident (outside IFSC) in India.
2. Resident Individuals may also open a non interest bearing Foreign Currency Account (FCA) in IFSCs, for making the above permissible investments under LRS. Any funds lying idle in the account for a period upto 15 days from the date of its receipt into the account shall be immediately repatriated to domestic INR account of the investor in India.
3. Resident Individuals shall not settle any domestic transactions with other residents through these FCAs held in IFSC.

Click here to access the circular.