Over 2 lakh directors to be barred from board posts

Over 2 lakh directors to be barred from board posts

 

At least two lakh directors on the board of companies, whose names have been struck off by the Registrar of Companies (RoC), will be barred from holding any board position in new ventures although they will not have to step down from the board of other companies on which they are currently directors. 

So far, names of 2.1 lakh companies have been struck off for not filing returns and not completing other formalities related to compliance after notices were served on 2.97 lakh companies that had failed to respond to show-cause notices. Sources told TOI that this number is expected to rise in coming months. The crackdown against directors will begin over the next few days. 

The move to crack down on non-compliant companies by the ministry of corporate affairs (MCA) is part of an action on so-called shell companies, many of which exist only on paper and are often used as vehicles for round-tripping of funds or for money laundering. The government has set up a task force comprising MCA and revenue department officials to plug this gap in the system as it seeks to clamp down on black money . While the law allows oneperson companies, a majority of the companies have at least two directors, if not more. There are over 10 lakh companies in the country and the total number of directors will be in excess of 20 lakh. 

The law allows the government to bar these directors from taking up any board po sition for five years, sources said. They will, however, be allowed to fulfil obligations related to the companies whose names have been struck off. In addition, their directorship on other boards is not being disturbed, a source said.“There is no intention to create problems in other companies. So we are for the moment staying away from acting against the boards of other companies,“ a source said. 

On July 2, TOI was the first to report that MCA was launching an assault against directors on these companies and also informing banks about names of companies being struck off. Sources said the Reserve Bank of India as well as the Indian Banks' Association have been informed about the decision to strike off the names so that fund flow is choked. In the past, there have been instances where companies whose names had been struck off managed to have access to funding. 

Courtesy -Economic Times 

Directors disqualified under Section 164(2)(a) of the Companies Act, 2013 and who are associated with struck off companies (S.248) are advised not to make any application for Name Availability(INC-1), Incorporation of Companies (INC-7/SPICe-INC-32/URC-1/INC-12). Forms filed by such Directors shall be rejected summarily by the Central Registration Centre(CRC). Further, attention is drawn to the provisions of Section 7(5) and 7(6) which, inter-alia, provides that furnishing of any false or incorrect particulars of any information or suppression of any material information shall attract punishment for fraud under Section 447. Attention is also drawn to the provisions of Section 448 and 449 which provide for punishment for false statement and punishment for false evidence respectively.

Exemptions to Private Companies under Companies Act, 2013:

Exemptions to Private Companies under Companies Act, 2013:

As we all know that some exemptions were granted by MCA to Private Companies on 05.06.2015, the MCA has added more exemptions by amending the notification issued on 5th June, 2015 and by notifying further exemptions on 13th June, 2017:

1. New Concept of Start-up/ Start-up Companies has been introduced:

Start up Private Companies are not required to prepare the Cash Flow Statements under Companies Act, 2013.

For the purposes of this Act, the term 'start-up' or "start-up company" means a private company incorporated under the Companies Act, 2013 (18 of 20'l3) or the Companies Act, 1956 ('l of 1956) and recognized as start-up in accordance with the notification issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry."

2. The Private Companies which are small companies are not required to mention the amount of remuneration drawn by Directors in Annual Return.

3. The disclosure requirement of Adequacy of Internal financial control in Auditor’s report has been removed for a private company which is One Person Company or a small company or which has turnover less than rupees fifty crores as per latest audited financial statement or which has aggregate borrowings from banks or financial institutions or anybody corporate at any point of time during the financial year less than rupees twenty-five crore.

4. The Startup Private Companies are also not required to hold minimum number of four board meetings in a year. 

Earlier there were only One Person Company, small company and dormant company in this category of exemption.

WHETHER NCLT CAN WAIVE THE REQUIREMENT OF CREDITOR’S / SHAREHOLDER’S MEETING IN CASE OF MERGER /DEMERGER/AMALGAMATION

WHETHER NCLT CAN WAIVE THE REQUIREMENT OF CREDITOR’S / SHAREHOLDER’S MEETING IN CASE OF MERGER /DEMERGER/AMALGAMATION

In JVA Trading Pvt. Ltd. and C&S Electric Limited.

This case involved a scheme of amalgamation of JVA Trading with C&S Electric. JVA Trading had only four shareholders, all of who had granted their consent to the amalgamation. Hence, the question was whether the shareholders’ meeting of JVA Trading could be dispensed with. Here, after analysing the provisions of the Companies Act, 2013, the NCLT held:

 Section 230(9) of the Companies Act, 2013

In relation to the dispensation of the meeting of the equity shareholders of the Transferor Company is concerned we are not inclined to grant dispensation taking into consideration the provisions of the Companies Act, 2013 and the rules framed there under both of which expressly do not clothe this Tribunal with the power of dispensation in relation to the meeting of shareholders/members. On the other hand reference to Section 230(9) of the Companies Act, 2013 … discloses that the Tribunal may dispense with calling of a meeting of creditor or class of creditors where such creditors or class of creditors, having at least ninety per cent value, agree and confirm, by way of affidavit, to the scheme of compromise or arrangement and does not provide for the dispensation of the meeting of members.

Companies (Compromises, Arrangements and 

Amalgamations) Rules, 2016)

Further, the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 more specifically Rule 5 which provides for directions to be issued by this Tribunal discloses that determining the class or classes of creditors or of members meeting or meetings have to be held for considering the proposed compromise or arrangement; or dispensing with the meeting or meetings for any class or classes of creditors in terms of sub-section (9) of section 230.

Keeping in view the above provisions, dispensation of the meetings of members of the company cannot be entertained by NCLT.

This effectively means that the NCLT can never dispense with the holding of a meeting of a class of shareholders or creditors (except under section 230(9)) even if such a meeting turns out to be an empty formality. This will certainly add to the costs and inefficiencies in effecting a scheme of arrangement. Under the Companies Act, 1956, courts did regularly grant dispensation despite the absence of any express provision in that legislation or the accompanying rules. It is not as if the affected minority shareholders are without any recourse. It is always possible for them to raise their objections when the scheme is taken up for consideration by the NCLT after the requisite classes of shareholders and creditors have approved it.

Whether NCLT has General Powers to dispense 

the creditor's Meeting ?

From a legal perspective, the NCLT does have general powers that it is at liberty to exercise in order to give effect to a scheme, for example in rule 24(2) of the rules pertaining to compromises and arrangements. However, the NCLT seems to be constrained by the existence of sub-section (9) of section 230, which expressly provides for dispensation of creditors’ meetings so long as they have been consented to by 90% of the creditors in value. The NCLT’s position is that this is only dispensation possible, and no other.

Section 230(9) of the Companies Act, 2013 … discloses that the Tribunal may dispense with calling of a meeting of creditor or class of creditors where such creditors or class of creditors, having at least ninety per cent value, agree and confirm, by way of affidavit, to the scheme of compromise or arrangement and does not provide for the dispensation of the meeting of members.

Thus , we can come to a conclusion that NCLT will not have any 
authority to dispense with the requirement of creditors meeting except under Section 230(9) of the Companies Act, 2013.

RANSOME Cyber Attack - Incident Response Requirements in Indian Law by Affected Companies

RANSOME Cyber Attack - Incident Response Requirements in Indian Law by Affected Companies

Yesterday’s Ransome cyber-attack. There are legal & regulatory requirements on affected Indian companies to report cyber incident under Information Technology Act, RBI guidelines and telecom license conditions. The relevant reporting authority depends upon the nature of the business of the company. There are stringent penalties (including imprisonment) if such incidents are not reported in certain cases.

Incident Reporting under CERT Rules

In India, section 70-B of the Information Technology Act, 2000 (the “IT Act”) gives the Central Government the power to appoint an agency of the government to be called the Indian Computer Emergency Response Team. In pursuance of the said provision the Central Government issued the Information Technology (The Indian Computer Emergency Response Team and Manner of Performing Functions and Duties) Rules, 2013 (the “CERT Rules”) which provide the location and manner of functioning of the Indian Computer Emergency Response Team (CERT-In). Rule 12 of the CERT Rules gives every person, company or organisation the option to report cyber security incidents to the CERT-In. It also places an obligation on them to mandatorily report the following kinds of incidents as early as possible:

·         Targeted scanning/probing of critical networks/systems;

·         Compromise of critical systems/information;

·         Unauthorized access of IT systems/data;

·         Defacement of website or intrusion into a website and unauthorized changes such as inserting malicious code, links to external websites, etc.;

· Malicious code attacks such as spreading of virus/worm/Trojan/botnets/spyware;

·         Attacks on servers such as database, mail, and DNS and network devices such as routers;

·         Identity theft, spoofing and phishing attacks;

·         Denial of Service (DoS) and Distributed Denial of Service (DDoS) attacks;

·         Attacks on critical infrastructure, SCADA systems and wireless networks;

·         Attacks on applications such as e-governance, e-commerce, etc.

Incident Reporting under Intermediary Guidelines

Section 2(1)(w) of the IT Act defined the term “intermediary” in the following manner;

“Intermediary” with respect to any particular electronic record, means any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record and includes telecom service providers, network service providers, internet service providers, web hosting service providers, search engines, online payment sites, online-auction sites, online market places and cyber cafes.

Rule 3(9) of the Information Technology (Intermediaries Guidelines) Rules, 2011 (the “Intermediary Guidelines”) also imposes an obligation on any intermediary to report any cyber incident and share information related to cyber security incidents with the CERT-In. Since neither the Intermediary Guidelines not the IT Act specifically provide for any penalty for non-conformity with Rule 3(9) therefore any enforcement action against an intermediary failing to report a cyber security incident would have to be taken under section 45 of the IT Act containing a penalty of Rs. 25,000/-.

Incident Reporting under the Unified License

·         Clause 39.10(i) of the Unified License Agreement obliges the telecom company to create facilities for the monitoring of all intrusions, attacks and frauds on its technical facilities and provide reports on the same to the Department of Telecom (DoT). Further clause 39.11(ii) provides that for any breach or inadequate compliance with the terms of the license, the telecom company shall be liable to pay a penalty amount of Rs. 50 crores (Rs. 50, 00, 00,000) per breach.

A recent example of such an attack that we have seen from India is the recent data breach involving an alleged 3.2 million debit cards in India. In the case of this hack the payment processing networks such as National Payments Corporation of India, Visa and MasterCard, informed the banks regarding the leaks, based on which the banks started the process of blocking and then reissuing the compromised cards. It has also been reported that the banks failed to report this incident to the Computer Emergency Response Team of India (CERT-In) even though they are required by law to do so.

Courtesy: The Center for Internet & Society 

Recognition of CS as Goods and Service Tax Practitioner

Recognition of CS as Goods and Service Tax Practitioner 

Dear Professionals,

Pursuant to the Section 48 of the approved Central Goods and Service Tax Act (CGST), read with Rule 24 of the Revised Return Rules as available on www.cbec.gov.in , Any person who has passed Final Examination of the Institute of Company Secretaries of India (ICSI) is Eligible for enrolment as Goods and Services Tax Practitioner by making an application in Form GST PCT-1 to the Authorised Officer.

http://www.cbec.gov.in/


Please see my earlier post on 6 October 2016 

http://rvseckarcompanylaw.blogspot.in/2016/10/requesting-government-of-india-to.html

E-STAMPING TO BE MADE MANDATORY FOR TRANSACTIONS ABOVE RS 1 LAKH

E-STAMPING TO BE MADE MANDATORY FOR TRANSACTIONS ABOVE RS 1 LAKH

The government has made e-stamping mandatory for transactions above Rs 1 lakh.

A gazette notification has been issued in this regard after amending the Stamp rules of 1960.

The present method will continue for two more months after which e- stamping will be mandatory.

For transactions less than Rs 1 lakh, either stamp paper or e- stamp can be used. However, the amendment notification says that transactions less than Rs 1 lakh can also shifted to e-stamping method if the government issues such an order.

If the details of the title deed are submitted in the registration department’s website, people can get the user id and password.

After this, money should be paid online. As soon as the transaction is complete, the department reference number (DRN) will be issued.

The customer can download the e-stamp certificate from the registration department’s portal using the DRN. It can be downloaded only once. Facility will be provided to examine the authenticity of the e-stamp in the website.

The print of the e-stamp should be taken in A-4 size paper. The paper thickness should not be less than 100 GSM. It should have a margin of 35 mm on the left side and 15 mm on the right.

A space of 20 mm should be left on the top. With the introduction of e-stamp, those who sell stamp paper will suffer losses. However, the government will make profit as the printing of stamp paper and other related expenses can be avoided. Moreover, there is no need to fear the menace of fake stamp papers.

NCLT USES ITS AUTHORITY TO REMOVE THE MANAGEMENT OF CHURCH OF SOUTH INDIA TRUST ASSOCIATION FOR THE IRREGULARITIES BY waiving off all or any of the requirements specified under Clause (a) or Clause (b) of Section 244 (1) of the Companies Act, 2013

NCLT USES ITS AUTHORITY TO REMOVE THE MANAGEMENT OF CHURCH OF SOUTH INDIA TRUST ASSOCIATION FOR THE IRREGULARITIES BY waiving  off all or any of the requirements specified  under Clause (a) or Clause (b) of Section 244 (1) of the Companies Act, 2013

John S.Dorai Vimal Sukumar

Vs

M/s. Church of South India Trust Association (CSITA)

Decided by NATIONAL COMPANY LAW TRIBUNAL, CHENNAI

Facts of the case

Interlocutory Application was raised mainly to look into the maintainability of the CP on the ground that the Respondent/Petitioner is neither a member of CSITA company nor 24 persons who had given consent to file the company petition are members of CSITA company.

It is stated in the IA that neither of them are entitled under provisions of Section 244 of the Act, 2013, to file the instant company petition invoking the provisions of Section 241 of the Act, 2013.

Based upon this fact, a prayer has been made to dismiss the company petition as not maintainable.

CSITA Company is a public religious and charitable trust known by the name and style “The Church of South India Trust Association” and it is registered as registered under Section 25 of the Companies Act.

It is observed that the main object of the company as set out  in Sub  Clause  'A ' of Clause III of the Memorandum of Association, is to promote the objects of the charity.

As per the Articles of Association,  the total number of members  who are directors  is restricted to  ten  and  total  number  of  office  bearers  is  four.

Members shall  be elected only by the Synod of the Church, and election shall be conducted every two years.  The tenure of the present Synod was expired in January2016. Thereafter, no such Synod is in its place.

It was mentioned in the petition that It has been stated that in W.P.No.21343/2011 the Hon’ble Madras High Court directed the Registrar of Companies, Tamilnadu, Chennai, to carry out a detailed inspection of the Company u/s 209A of the Companies Act, 1956 and the Registrar of Companies has pointed out 27 irregularities and issued show-cause notice to the Respondents mentioned in the company petition.

There are 43 criminal cases instituted against the respondents which are pending before the Economic Offences Court, Egmore and also before the Regional Director, Ministry of Corporate Affairs, Chennai.

When explanation was called for by the ROC with respect to irregularities, the reply that was filed on behalf of the Company is as follows:

"The official members of CSITA  are of on honorary basis and they keep changing over two years and these committee members are religious heads and they are not conversant with the provisions of the Companies Act. "

The   Registrar   of   Companies   has   rejected   the   explanation   and recommended action against the company and its office bearers through Serious Frauds Investigation Office (SFIO).  

 Allegation against the Present Management of the Church

·       The reason for such action is stated that the office bearers without any authority borrowed heavily on the properties of the company by way of creating charges on its properties.

·       The present committee members stated to have been indulging in selling the property elsewhere in South India, for throw away prices.

·       The present management committee is said to have executed powers of attorney to non-members of the company to deal with company's properties without any authorization.

·       The present management committee members are said to be there for more than six years without any legal base. It is averred that  Income Tax Department has conducted a couple of special audits of the accounts of the company and found several irregularities, due to which the Income Tax Department has not  issued "Income Tax Exemption Certificate" to the company for more than three years.

Seeking Interim Prayers

In the  backdrop of the above stated  facts,   the   interim  prayers that are made for seeking interim directions are as follows :-

·       That the present Management Committee may be suspended

·       To direct the Company to appoint the newly elected persons as Management Committee

·       To permit the newly appointed Management Committee to carry out operations of the Company as per the provisions of the Companies Act, 2013

·       To appoint such other person whom the Tribunal deems fit to supervise the functions of the newly appointed Management Committee.

It was argued by the respondents that petitioners are not having any right to sue the company Section244 of the Companies Act, 2013 as they are qualified members as stated in the above section.

However  , NCLT Chennai bench observed that the  Tribunal suo moto can  waive  off all or any of the requirements specified  under Clause (a) or Clause (b) [as the case may be] of Section 244 (1) of the Act, so as to enable the member to apply under Section 241 of the Act.

NCLT, Chennai bench also observed that the petition, in essence, is a representative petition which falls within the purview of Order 1, Rule 8 of the Civil Procedure Code, 1908.

Once, it is established that R1 Company is a charitable institution which  caters the needs  of the beneficiaries/ stakeholders, the properties  of such religious and charitable  trust must be protected   jealously.    This  has  been  observed   by  the  Apex  Court  in Chenchu Rami Reddy & Anr. Vs Government of Andhra Pradesh & Ors, reported in 1986 SCR (1)989.    In view of the factual and legal position.

In view of the factual  and l legal  posit ion stated above, I am of the view that it is a fit case where all the requirements laid down u/s 244(1) (b) of the Companies Act, 2013 for filing company.

Decision of the NCLT Bench, Chennai

Since the Company Petition is held maintainable and in the given circumstances there is an urgent need to regulate the affairs of R1 Company.  Thus, NCLT, Chennai proceed to remove  all  the  directors  and managing committee including office bearers by appointing Hon'ble Justice Shri (Retd CT Selvam) as the Chairman who is authorised to nominate four suitable persons to be chosen from the sub­ units/Dioceses of Churches and three office bearers.

Now , it is mandatory to mention latitude and longitude of the assets charged with MCA through CH-4 or CH-9 Form.

Now , it is mandatory to mention latitude and longitude of the assets charged with MCA through CH-4 or CH-9 Form.

Corporate India will have to furnish the geo-location data of tangible assets appearing on the balance sheet with the government seeking to establish stringent norms for verifying the details of the properties as recorded with the Registrar of Companies as “Charges for the Company.”

Revising disclosure standards, the ministry of Corporate Affairs has told companies that supplying the latitude and longitude of their tangible assets is now mandatory.

Company Secretaries and asset managing teams might now be engaged with the Google Maps with MCA now revising the form CH 1 and 8 to include a column on the latitude and longitude of asset concerned.

Both forms pertain to application for the creation and modification of charges on a company and were modified through a gazette notification this month.

If the type of the charge is immovable property or any interest thereon , the location parameters  (Latitude and longitude ) shall be mandatory.

As per ICSI President , it is a unique move as there were instances wherein the property entered in the charge registration form is not identifiable and it takes years to take correct positions and location of the property. It will also helpful to the lending institutions and the data would be verifiable on the line with the latitude and longitude.

If the latitude and longitude is made part of the loan agreement itself , the verification process would be more accurate and help all categories of professionals.

The latest move follows the requirement to authenticate the Aadhaar on the  ministry’s e-governance platform. Mandatory geo-location data should ensure stricter documentation and verification of companies and their liabilities.

Highlighting the difficulties that arise when creditors want to review charges , ICSI President said that there are instances where the address details have been charged. Further , if a property is located in a remote area , it can only be identified by the revenue department records and it is very difficult to get the location of the property.