Updates on Companies Act, 2013
- Covid-19 Vaccination Qualifies As Csr Expenditure:
Vide notification dated 30th July, 2021, MCA clarified that the spending of CSR funds for COVID-19 vaccination for persons other than employees and their families is an eligible CSR activity under Schedule VII of the Companies Act, 2013.
- Amendments Relating To Rectification Of Name Of Companies:
As per the notification, the time limit for compliance of direction given by the Central Government to change the name of the company has been reduced from 6 months to 3 months and the Central government is empowered to allot a new name to the company instead of imposing punishment for non-compliance.
Further the Companies (Incorporation) Rules, 2014 has also been amended to provide that in case a company defaults to change its name within a period of 3 months from the date of issue of such direction, the letters ORDNC (abbreviation for “Order of Regional Director Not Complied), the year of passing the direction, serial number and the existing CIN of the company shall become the new name of the company without any further act or deed by the Company and the Registrar shall record accordingly make entry of the new name in the register of Companies and issue fresh Certificate of Incorporation in Form INC-11C.
- Directive note on Review of Instructions on Interest on overdue domestic deposits:
It has been decided that if a Term Deposit (TD) matures and proceeds are unpaid, the amount left unclaimed with the bank shall attract rate of interest as applicable to savings account or the contracted rate of interest on the matured TD, whichever is lower.
- New Definition of Micro, Small and Medium Enterprises (MSMEs):
It has been decided to include Retail and Wholesale trade as MSMEs for the limited purpose of Priority Sector Lending and they would be allowed to be registered on Udyam Registration Portal for the following NIC Codes and activities mentioned against them.
• Wholesale and retail trade and repair of motor vehicles and motorcycles: 45
• Wholesale trade except of motor vehicles and motorcycles: 46
• Retail trade except of motor vehicles and motorcycles: 47
The Enterprises having Udyog Aadhaar Memorandum (UAM) under above three NIC Codes are now allowed to migrate to Udyam Registration Portal or file Udyam Registration afresh.
- Roadmap for LIBOR Transition:
The Reserve Bank of India had, in August 2020, requested banks to frame a Board-approved plan, outlining an assessment of exposures linked to the London Interbank Offered Rate (LIBOR) and the steps to be taken to address risks arising from the cessation of LIBOR, including preparation for the adoption of the Alternative Reference Rates (ARR).
The Financial Conduct Authority (FCA), UK has announced on March 05, 2021 that LIBOR will either cease to be provided by any administrator or no longer be a representative rate:
(a) Immediately after December 31, 2021, in the case of all Pound sterling, Euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings; and
(b) Immediately after June 30, 2023, in the case of the remaining US dollar settings.
Banks / financial institutions are encouraged to cease, and also encourage their customers to cease, entering into new financial contracts that reference LIBOR as a benchmark and instead use any widely accepted ARR, as soon as practicable and in any case by December 31, 2021.
- Access for Non-banks to Centralised Payment Systems (CPS):
The RBI has earlier announced in the Statement on Developmental and Regulatory Policies issued dated April 07, 2021 the proposed steps for encouraging the participation of non-banks in Reserve Bank of India-operated Centralised Payment Systems (CPS) viz. Real Time Gross Settlement (RTGS) and National Electronic Fund Transfer (NEFT) systems, in a phased manner.
The RBI observed that the direct access for non-banks to CPS lowers the overall risk in the payment’s ecosystem. It also brings advantages to non-banks like reduction in cost of payments, minimizing dependence on banks, reducing the time taken for completing payments, eliminating the uncertainty in finality of the payments as the settlement is carried out in central bank money, etc.
Pursuant to the above observation, now it is decided that, in the first phase, authorised non-bank PSPs, viz. PPI Issuers, Card Networks and White Label ATM Operators shall be eligible to participate in CPS as direct members.
- Issue of No Objection Certificate of 1% of Issue Amount:
SEBI vide Circular dated 5th July, 2021 has decided to reduce the time period after listing for submitting application for issue of No objection certificate for release of 1% of issue amount from the existing period of 4 months to 2 months. This will continue to be subject to the condition that all issue related complaints have been resolved by the merchant banker/ issuer.
- Standard Operating Procedure for listed subsidiary company desirous of getting delisted through a Scheme of Arrangement wherein the listed parent holding company and the listed subsidiary are in the same line of business:
SEBI has notified SOP for a listed subsidiary company getting delisted through a scheme of arrangement wherein the listed parent holding and subsidiary are of same line of business. In continuation to this, SEBI vide circular dated 6th July, 2021, SEBI has clarified the criteria that needs to be fulfilled for “same line of business” and the same are as follows:
- The principal economic activities of both the companies are under the same group code as per National Industrial Classification.
- Not less than 50% of revenue from operations of the listed holding company subsidiary shall come from the same line of business as per the last audited financial results submitted by both companies in accordance with LODR regulations.
- Not less than 50% of net tangible assets of listed holding and subsidiary shall be invested in the same line of business as per the last audited financial results.
- In case of change of name of listed entities, within last one year, at least 50% of the revenue calculated on restated and consolidated basis for the preceding one full year has to be earned by it from the activity indicated by its new name.
- Both the companies shall provide a self-certification with respect to both companies being in same line of business.
- Valuation of securities with multiple put options present ab-initio:
SEBI vide circular dated 9th July, 2021, has specified valuation of securities with multiple put options present ab-initio with effect from 1st October, 2021.
In respect of valuation of securities with multiple put options present ab-initio wherein put option is factored into valuation of the security by the valuation agency, the following is decided based on the recommendation of Mutual Fund Advisory Committee.
If the put option is not exercised by a Mutual Fund, while exercising the put option would have been in favour of the scheme;
- A justification for not exercising the put option shall be provided by the Mutual Fund to the Valuation Agencies, Board of AMC and Trustees on or before the last date of the notice period.
- The Valuation Agencies shall not take into account the remaining put options for the purpose of valuation of the security.
The detailed circular can be accessed by clicking the link mentioned below:
- Block Mechanism in demat account of clients undertaking sale transactions
SEBI vide circular dated July 16, 2021 has introduced Block mechanism in demat accounts of clients undertaking sale transactions with effect from 1st August, 2021. When the client intends to make a sale transaction, shares will be blocked in the demat account of client in favour of Clearing corporation. If the sale transaction is not executed, the shares shall continue to remain in the client’s demat account and will be unblocked by the end of the T day. Thus this mechanism will do away with the movement of shares from client’s demat account for early pay-in and back to client’s account if the trade is not executed.
- Introduction of Expected Loss (EL) based Rating Scale and Standardisation of Rating Scales Used by Credit Rating Agencies:
In addition to the standardized rating scales prescribed, vide circular dated 16th July, 2021, SEBI has introduced Expected Loss based rating scale for ratings of projects/ instruments associated with Infrastructure sector to begin with.
- Segregation and Monitoring of Collateral at Client Level:
SEBI has put in place a framework of ‘Margin obligations to be given by way of Pledge/Re-pledge in the Depository System’ to mitigate the risk of misappropriation or misuse of client’s securities available with the Trading Member (TM)/Clearing Member (CM)/Depository Participant (DP), including use of one client’s securities to meet the exposure, margin or settlement obligations of another client or of the TM / CM.
Further to strengthen the mechanism of protection of client collateral from-
(i) misappropriation/ misuse by TM/CM and
(ii) default of TM/CM and/or other clients
SEBI has indicated a framework for segregation and monitoring of collateral at client level vide its circular dated 20th July,2021.
- Relaxation in timelines for compliance with regulatory requirements by Debenture Trustees due to COVID- 19:
In view of the COVID-19 pandemic, challenges arising out of the local restrictions placed by various state governments and based on representations received from the Debenture Trustees, SEBI has extended the timelines for compliance with the regulatory requirements of SEBI circular dated 12th November, 2020 for the quarter/ half year/ year ending 31st March, 2021.
- Continuous disclosures in compliances by InvITs – Amendments:
SEBI has prescribed the format for disclosing the SCORES complaints received by the InvIT on its website and the same shall also be filed with the recognized stock exchanges where its units are listed within 21 days from the end of the financial year or end of the quarter as the case may be in order to enhance the investor protection and to increase the transparency in grievance redressal.
- Continuous disclosures in compliances by REITs – Amendments:
SEBI has prescribed the format for disclosing the SCORES complaints received by the ReITs on its website and the same shall also be filed with the recognized stock exchanges where its units are listed within 21 days from the end of the financial year or end of the quarter as the case may be in order to enhance the investor protection and to increase the transparency in grievance redressal.
- Nomination for Eligible Trading and Demat Accounts:
Section 72 of Companies Act, 2013 provides for nomination by a holder of securities. Investors opening new trading and or demat account(s) on or after October 01, 2021, shall have the choice of providing nomination or opting out nomination, as follows;
a. The format for nomination form is given in Annexure –A to this circular.
b. Opt out of nomination through ‘Declaration Form’, as provided in Annexure –B to this circular.
Further, all existing eligible trading and demat account holders shall provide choice of nomination on or before 31st March, 2022 failing which the accounts shall be frozen.
- Extension of time for holding the Annual General Meeting (AGM) by top 100 listed entities by market capitalization:
As per regulation 44(5) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the top 100 listed entities by market capitalization is required to hold their AGMs within a period of 5 months from the date of closing of the financial year. Considering the COVID-19 pandemic, the timeline for conducting AGM has been extended to six months from the date of closing of the financial year for 2020-21.
- Timelines for processing of scheme related applications filed by AMCs:
In order to promote ease of doing business and bring uniformity in the timelines for processing of scheme related applications filed by AMCs, SEBI has stipulated that in case the applications are complete in all respects and in compliance with all relevant regulations and circulars, it shall be taken on record in case no modifications are suggested or no queries are raised by SEBI within 21 working days except in cases where subject matter requires wider consultation. This circular shall be applicable for all the applications received on or after 1st September, 2021.
- Inter-operable Platform for enhancing investors’ experience in Mutual Fund transactions / service requests:
In order to make it more convenient to the existing and future investors to transact and avail services while invested in Mutual Funds and pursuant to discussions with various stakeholders including AMFI, Depositories and the RTAs, SEBI has advised the RTAs to implement standardized practices, system interoperability amongst themselves to jointly develop a common industry wide platform that will deliver an integrated, harmonized, elevated experience to the investors across the industry. AMCs and Depositories shall facilitate the RTAs for development of the proposed platform which shall have a user-friendly interface for execution of mutual fund transactions.
- Relaxations in timelines for compliance with regulatory requirements:
In view of the prevailing situation due to COVID-19 pandemic and representations received from Stock exchanges, the timelines for compliance with regulatory requirements by the Trading Members, Clearing Members, KYC Registration Agencies have been extended. The same may be accessed at the link provided below:
- Deployment of unclaimed redemption and dividend amounts and Instant Access Facility in Overnight Funds:
SEBI has permitted that the unclaimed redemption and dividend amounts that are allowed to be deployed only in call money or money market instruments shall also be allowed to be invested in a separate plan of Overnight scheme / Liquid Scheme / Money Market Mutual Fund scheme floated by the Mutual funds specifically for deployment of such unclaimed amounts. All the Mutual funds are advised to comply with these changes with effect from 1st December, 2021.
Further, Instant access facility can be offered only in Overnight and Liquid schemes of the Mutual funds and the same is applicable with immediate effect.
- Intra-day Net Asset Value (NAV) for transactions in units of Exchange Traded Funds directly with Asset Management Companies:
For transactions in units of Exchange Traded Funds (ETFs) by Authorized participants / large investors directly with AMCs, Closing NAV of the day may not be relevant as these transactions are based on price at which the securities representing the underlying index or underlying commodity(ies), are purchased or sold.
Considering this, it has been decided to clarify that Intraday NAV calculated based on the executed price at which the securities representing the underlying index or underlying commodity(ies) are purchased / sold, shall be applicable instead of Closing NAV of the day.
- Master Circular for Commodity Derivatives Market
Securities and Exchange Board of India (SEBI) has been issuing various circulars/directions from time to time for commodity derivatives market. In order to ensure availability of comprehensive information mentioned in the circulars at one place, SEBI has released Master Circular by compiling all the circulars issued by the department till 30th April, 2021. The same may be accessed at the link provided below: