Company Law Archives - Taxmann Blog

SEBI Amends Alternative Investment Funds Regulations, 2012 | Introduces a New Regulation w.r.t ‘dissolution Period’

Taxmann — Sat, 27 Apr 2024 09:55:26 +0000

Notification No. SEBI/LAD-NRO/GN/2024/168; Dated: 25.04.2024

SEBI has notified the SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2024. As per the amended norms, a new regulation 29B relating to the dissolution period has been inserted. It states that a scheme of an Alternative Investment Fund may enter into a dissolution period in the manner and subject to the conditions specified by the Board. Further, SEBI has introduced definitions of ‘dissolution period’ and ‘encumbrance’ under Regulation 2 of existing regulations.

Click Here To Read The Full Notification

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SEBI Relaxes the Requirement of Publishing ‘Fit and Proper’ Text on Contract Notes to Enhance Ease of Doing Business

Taxmann — Fri, 26 Apr 2024 12:37:05 +0000

Circular No. SEBI/HO/MRD/MRD-PoD-2/P/CIR/2024/25; Dated: 24.04.2024

SEBI received representations from market participants via the Industry Standards Forum (ISF) to relax the requirement outlined in Chapter 6 at Para 2.4.2.2.2 of the Master Circular dated October 16, 2023, regarding the publication of text related to ‘fit and proper’ on contract notes.

Accordingly, SEBI has now waived the requirement of publishing ‘fit and proper’ text on contract notes as a step to enhance the ease of doing business. Only a reference to the applicable regulation about ‘fit and proper’ must be made a part of the contract note.

Click Here To Read The Full Circular

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SEBI Extends Cross-margin Benefits for Index and Stock Futures in Offsetting Positions With Different Expiry Dates

Taxmann — Thu, 25 Apr 2024 12:29:29 +0000

Circular No. SEBI/HO/MRD/TPD-1/P/CIR/2024/24; Dated: 23.04.2024

SEBI has extended cross-margin benefits on offsetting positions having different expiry dates subject to certain conditions. A spread margin of 40% would be levied in case of offsetting positions in correlated indices having different expiry dates. A spread margin of 30% would continue to be levied in case of the same expiry date (i.e. the existing requirement). Presently, cross-margin benefits are provided if both the correlated indices or an index and its constituents have the same expiry date.

Click Here To Read The Full Circular

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[Opinion] Consequences of Failure to Report Transactions With Related Parties in Form AOC-2 Along With Financials

Taxmann — Wed, 24 Apr 2024 14:01:33 +0000

Prof R Balakrishnan – [2024] 161 taxmann.com 624 (Article)

1. Background of the case

The Registrar of Companies of Coimbatore passed an adjudication order on 28th March 2014 in respect of M/s Arise Industries and Agency Private Limited for the violation of section 134(3)(h) of the Companies Act 2013 and penalized the company and its directors to a tune of Rs.2.25 lakh (being a small company). The gist of the case is that the company had filed its annual financial statements for the financial years 2017-18 and 2019-20 in the AOC-4 XBRL format with the Ministry of Corporate Affairs portal. While filing the financial statements, the company omitted to file the AOC-2 form which was required to be attached with the financial statements showing the particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 of the Companies Act 2013 pursuant to the provisions of section of 134 (3) (h) of the Companies Act 2013 relating to statements showing the particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 of the Companies Act 2013.

The company, realizing the default committed, filed the suo-moto adjudication application with the Registrar of Companies. The Registrar of Companies, after having given an opportunity in the interest of natural justice, to follow the legal procedure, passed the adjudication order. Let us go through this case in detail in order to understand the provisions of the Companies Act 2013 read with the relevant rules and consequences of default/non-compliance.

2. Relevant provisions of the Companies Act 2013 relating to this case

Sub-section (3)(h) of section 134 of the Companies Act 2013 provides that there shall be attached to statements laid before a company in general meeting a report by its board of directors, which shall include particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the prescribed form.

3. Penal action for default/non-compliance if any

Sub-section (8) of section 134 of the Companies Act 2013 provides that if a company is in default in complying with the provisions of this section, the company shall be liable to a penalty of three lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.

4. Consequences of any default

To understand the consequences of any default while complying with section 134 (3) (h) of the Companies Act 2013 relating to statements to be laid before a company in a general meeting, the particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the prescribed form. Let us go through the decided case law by the Registrar of Companies, Coimbatore of Tamil Nadu on 27th March 2024 – in the matter of M/s. M/s. Arise Industries and Agency Private Limited.

5. The relevant case law on this matter

We shall go through the adjudication order by the Registrar of Companies, Coimbatore, Tamil Nadu vide order no. ROC/CBE/A.O/134/13519/2024 dated 28th March 2024 order for penalty under section 454 of the Companies Act 2013 for violation of section 134 of the Companies Act 2013 read with Companies (Adjudication of Penalties) Rules 2014, in the matter of M/s Arise Industries and Agency Private Limited.

Click Here To Read The Full Article

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Baseless Findings or Awards Ignoring Evidence Are Legally Flawed, Subject to Challenge for Patent Illegality | SC

Taxmann — Wed, 24 Apr 2024 13:59:47 +0000

Case Details: Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express (P.) Ltd. - [2024] 161 taxmann.com 618 (SC)

Judiciary and Counsel Details

- Dr Dhananjaya Y Chandrachud, CJI. B R Gavai & Surya Kant, JJ.

Facts of the Case

In the instant case, the petitioner/DMRC was a state-owned company wholly owned by the Government of India and the National Capital Territory of Delhi. The DMRC entered into an agreement with respondent/DAMEPL for the construction, operation and maintenance of Airport Metro Express Ltd (AMEL) in 2008.

The Delhi Airport Metro Express Pvt. Ltd. (DAMEPL) issued a notice to DMRC informing that there were defects in the civil structure of the metro line and requested the DMRC to cure defects within 90 days, failing which it stated that it would be considered that a “Material Breach”.

The notice stated that defects were attributable to DMRC’s faulty design. The “DMRC Event of Default” had occasioned, entitling the DAMEPL to terminate the agreement. The DAMPEL issued a notice terminating the 2008 agreement. The DMRC initiated the arbitration proceedings.

The DAMEPL halted operations and handed over the line to DMRC. The Arbitral Tribunal passed an award in favour of DAMEPL. The Single-Judge of the High Court upheld the award. The Division Bench of the High Court partly set aside the award as perverse and patently illegal.

According to the Division Bench, some defects were cured in their entirety and steps were taken by the DMRC to cure the remainder, based on which the parties had jointly sought permission from the Commissioner of Metro Railway Safety (CMRS) to sanction the re-opening of AMEL for the public carriage of passengers. After a thorough inspection of operations, CMRS sanction the same subject to certain conditions.

The Division Bench further held that the award overlooked statutory certification deeming it irrelevant without reasons. Thereafter, an appeal was made before the Supreme Court.

Supreme Court Held

The Supreme Court held that the judgement of the Division Court provided more than adequate reasons to come to the conclusion that the arbitral award suffered from perversity and patent illegality.

Thus, the Supreme Court was not justified in restoring the arbitral award whose judgment remained undisturbed in the exercise of review jurisdiction of the Supreme Court. Therefore, the instant curative petition was to be allowed.

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[Opinion] Consequences of Delay in Filing a Return of Declaration of Beneficial Interest in Form MGT-6

Taxmann — Mon, 22 Apr 2024 13:00:12 +0000

Prof R Balakrishnan – [2024] 161 taxmann.com 565 (Article)

1. Background of the case

The Registrar of Companies of Madhya Pradesh, Gwalior had passed an adjudication order on 27th March 2024, imposing penalties on M/s Realworks Infrabuild Private Limited and its directors for violations of section 89(1A) of the Companies Act 2013. The Registrar of Companies on his scrutiny, found out that the company was in non-compliance with the provisions of section 89 of the Companies Act, 2013. Section 89 of the Companies Act 2013, mandates that the declaration of beneficial interests in company shares as and when received by the company is required to be filed timely through the e-form MGT-6. Though the company had received the declarations in form MGT4 and MGT 5 on 20th April 2014, the company had filed the MGT-6 form only on 16th March 2024 – after a delayed period of 3587 days. When the Registrar of Companies took up the matter with the company by issuing a show cause notice and an opportunity to respond, the company and its officers did not furnish a satisfactory explanation. However, at the time of the personal hearing, the directors of the company submitted their defence. Consequently, the Adjudicating Officer proceeded with the adjudication proceeding and imposed penalties upon the company and its directors to the tune of Rs. 13 lakh as per the provisions of the Companies Act, 2013. Let us go through this case in order to understand the applicable provisions, procedure involved and the manner in which the Adjudicating Officer dealt with this case and penalized the company and its directors.

2. Relevant provisions of the Companies Act 2013 relating to this case

Section 89 of the Companies Act 2013 is the relevant provision which spells out the requirement of declaration in respect of a beneficial interest in any share read with Rule 9 of Companies (Management and Administration) Rule, 2014 on this matter. The relevant provisions of the Act and Rules are given below.

Companies Act 2013 Chapter VIIX – Management and Administration Section 89 – Declaration in respect of a beneficial interest in any share.
Section	Provisions
89 (1)	Where the name of a person is entered in the register of members of a company as the holder of shares in that company but who does not hold the beneficial interest in such shares, such person shall make a declaration within such time and in such form as may be prescribed to the company specifying the name and other particulars of the person who holds the beneficial interest in such shares.
89 (2)	Every person who holds or acquires a beneficial interest in a share of a company shall make a declaration to the company specifying the nature of his interest, particulars of the person in whose name the shares stand registered in the books of the company and such other particulars as may be prescribed.
89 (3)	Where any change occurs in the beneficial interest in such shares, the person referred to in subsection (1) and the beneficial owner specified in sub-section (2) shall, within a period of thirty days from the date of such change, make a declaration to the company in such form and containing such particulars as may be prescribed.
89 (6)	Where any declaration under this section is made to a company, the company shall make a note of such declaration in the register concerned and shall file, within thirty days from the date of receipt of declaration by it, a return in the prescribed form with the Registrar in respect of such declaration with such fees or additional fees as may be prescribed.
Companies (Management and Administration) Rules 2014 Rule 9. Declaration in respect of beneficial interest in any shares
Rule	Provisions
9 (1)	A person whose name is entered in the register of members of a company as the holder of shares in that company but who does not hold the beneficial interest in such shares (hereinafter referred to as 9 “the registered owner”), shall file with the company, a declaration to that effect in form no. MGT-4 within a period of thirty days from the date on which his name is entered in the register of members of such company:
Proviso	Provided that where any change occurs in the beneficial interest in such shares, the registered owner shall, within a period of thirty days from the date of such change, make a declaration of such change to the company in form no. MGT-4.
9 (2)	Every person holding and exempted from furnishing a declaration or acquiring a beneficial interest in shares of a company not registered in his name (hereinafter referred to as “the beneficial owner”) shall file with the company, a declaration disclosing such interest in form no. MGT-5 within thirty days after acquiring such beneficial interest in the shares of the company:
Proviso	Provided that where any change occurs in the beneficial interest in such shares, the beneficial owner shall, within a period of thirty days from the date of such change, make a declaration of such change to the company in form no. MGT-5.
9 (3)	Where any declaration under section 89 is received by the company, the company shall make a note of such declaration in the register of members and shall file, within a period of thirty days from the date of receipt of declaration by it, a return in form no.MGT-6 with the Registrar in respect of such declaration with fee.
Proviso	Provided that nothing contained in this rule shall apply about a trust which is created, to set up a Mutual Fund or Venture Capital Fund or such other fund as may be approved by the Securities and Exchange Board of India.
Companies Act 2013 Chapter VIIX – Management and Administration Section 89 – Declaration in respect of a beneficial interest in any share.
Penal provision for any default/violation
89 (5)	If any person fails, to make a declaration as required under sub-section (1) or sub-section (2) or sub-section (3), he shall be liable to a penalty of fifty thousand rupees and in case of continued failure, with a further penalty of two hundred rupees for each day after the first during which such failure continues, subject to a maximum of five lakh rupees.
89 (7)	If a company, required to file a return under sub-section (6), fails to do so before the expiry of the time specified therein, the company and every officer of the company who is in default shall be liable to a penalty of one thousand rupees for each day during which such default continues subject to a maximum of five lakh rupees in the case of a company and two lakh rupees in case of an officer who is in default.

Click Here To Read The Full Article

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SEBI Introduces a Standard Reporting Format of ‘Private Placement Memorandum Audit Report’ for AIFs

Taxmann — Sat, 20 Apr 2024 10:12:23 +0000

Circular No. SEBI/HO/AFD/SEC-1/P/CIR/2024/22; Dated: 18.04.2024

As per Regulation 28 of the SEBI (AIF) Regulations, 2012 and Clause 2.4 of the SEBI Master Circular dated July 31, 2023, it is mandatory for Alternative Investment Funds (AIFs) to carry out an annual audit of compliance with the terms of the Private Placement Memorandum (PPM).

In terms of Clause 2.4.2 of the Master Circular, AIFs are required to submit Annual PPM Audit Reports to the Trustee, Board of Directors or Designated Partners of the AIF, Board of directors or Designated Partners of the Manager and SEBI, within 6 months from the end of the Financial Year.

In order to ensure uniform compliance standards and facilitate compliance reporting, the SEBI has introduced a standard reporting format for the Private Placement Memorandum (PPM) Audit Report. This format is applicable to various categories of AIFs and has been prepared in consultation with the pilot Standard Setting Forum for AIFs (SFA).

The said reporting format must be hosted on the websites of the AIF Associations that are part of the SFA within 2 working days of the issuance of this circular. The associations are required to assist all AIFs in understanding the reporting requirements and in clarifying or resolving any issues that may arise in connection with reporting to ensure accurate and timely reporting.

Further, the PPM audit reports must be submitted to SEBI by AIFs online via the SEBI Intermediary Portal (SI Portal) as per the aforesaid format. Also, the reporting requirement shall be applicable for PPM audit reports to be filed for the financial year ending March 31, 2024 onwards.

Click Here To Read The Full Circular

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[Opinion] ROC Penalizes Co. & Board Members for Delayed Appointment of KMP and Spares CS & CFO for Not Being Part of Board

Taxmann — Thu, 18 Apr 2024 13:07:55 +0000

Prof R Balakrishnan – [2024] 161 taxmann.com 465 (Article)

1. Background of the case

The Registrar of Companies/Adjudication Office of Delhi passed an adjudication order on 19th March 2024, in respect of M/s. Mawana Foods Private Limited for violation of section 203 of the Companies Act 2013. In this case, the Registrar of Companies/Adjudication Officer held a view that KMPs who are not part of the board i.e. company secretary and chief financial officer both cannot be held liable for violation committed by the company for the delay in appointing the key managerial position of managing director or chief executive officer or manager.

In the speaking order issued by the Registrar of Companies/Adjudication Office of Delhi, he stated that the scope of KMP was wider, as it covers officers other than the directors of the company. But section 203(4) clearly casted the obligation for appointment of a KMP in timely manner on the board of directors only. Therefore, the Registrar of Companies/Adjudication Officer, held that a KMP who was not part of the board was not under an obligation under section 203(4) as no onus was casted upon him to ensure the appointment was made as per the said provision. Based on the above the Registrar of Companies/Adjudication Officer concluded in his adjudication order that as per the harmonious interpretation of the section 203 (4) and section 203(5), the entire board of directors of the company were liable for the period in which the default occurred. Other KMPs of the company who were not part of the board were not liable.

In this particular case pertaining to M/s. Mawana Foods Private Limited, the Adjudication Officer penalized the company and its four present directors plus one of the past director a penalty to a tune of Rs. 19.13 lakh and held that the company secretary and chief financial officer who were KMPs but not part of the Board were not liable for penalty. This being an very interesting case, let us go through the same in threadbare with reference to the applicable provisions along with the interpretation, procedure involved and the manner in which the Registrar of Companies dealt with this case and penalized the company and its directors alone leaving the company secretary and chief financial officer from the levy of penalty.

2. Relevant provisions of the Companies Act 2013 relating to this case

The following are the relevant provisions of the Companies Act 2013 and the relevant extracts are as stated below.

Companies Act 2013 Chapter XIII – Appointment and Remuneration of Managerial Personnel Section 203 – Appointment of Key Managerial Personnel
Section	Provision
203 (1)	Every company belonging to such class or classes of companies as may be prescribed shall have the following whole-time key managerial personnel—
	(i) Managing Director, or Chief Executive Officer or Manager and in their absence, (ii) Whole-Time Director. (iii) Company Secretary and (iv) Chief Financial Officer
203 (4)	If the office of any whole-time key managerial personnel is vacated, the resulting vacancy shall be filled up by the Board at a meeting of the Board within a period of six months from the date of such vacancy.
203 (5)	There shall be a minimum period of one year between the grant of options and vesting of option.
Penal provisions in case of default/non-compliance
203(5)	If any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.

3. Consequences of any default

To understand the consequences of any default while in complying with the section of 203 of the Companies Act 2013 relating the appointment of key managerial personnel and the related procedure thereto, let us go through the decided case law by the Registrar of Companies, Delhi on 19th March 2024 – in the matter of M/s. Mawana Foods Private Limited.

4. The relevant case law on this matter

We shall go through the adjudication order by the Registrar of Companies, Delhi on 19th March 2024 – in the matter of M/s. Mawana Foods Private Limited – adjudication order bearing no. ROC/D/Adj/Order/203/Mawana/1510 – 1518 – order for penalty pursuant to section 203 of the Companies Act 2013

5. Details of the company

M/s. Mawana Foods Private Limited is a registered company effective from 3rd January 2006 under the provisions of the Companies Act 1956 having its registered office at 5th Floor Kirti Mahal 19, Rajendra Place, Central Delhi, New Delhi in the union territory of Delhi. The company comes under the jurisdiction of the Registrar of Companies of NCT of Delhi and Haryana and the Registrar of Company’s office is situated at Delhi. The company currently have four directors on its board and also have a Manager. The company also have a chief financial officer and a company secretary in whole time employment. The company is involved in the business of marketing and distribution of FMCG food products.

Click Here To Read The Full Article

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No Oppression or Mismanagement Found in Selling Land Below Market Value Due to Unclear Titles, Urgency, and Mortgage | NCLT

Taxmann — Tue, 16 Apr 2024 13:01:20 +0000

Case Details: Arun Kumar Kedia v. Om Shiv Shakti Iron Industries (P.) Ltd. - [2024] 161 taxmann.com 461 (NCLT - Hyd.)

Judiciary and Counsel Details

Dr Venkata Ramakrishna Badarinath Nandula, Judicial Member & Charan Singh Technical Member
S. Radha Krishnan, PCS for the Applicant.
A. Venkatesh, Hari Krishna & Mayur Mundra for the Respondent.

Facts of the Case

In the present case, the petitioner, a shareholder of the company (i.e. Om Shakti) had filed a petition under sections 397 and 398 of the Companies Act, 1956 alleging that respondent directors of the company had illegally sold different parcels of land at a throw-away price. To substantiate the said claim, the petitioner also filed a valuation report from the government-approved valuer.

The petitioner also alleged allotment of certain equity shares to respondents without any offer to them, being existing shareholders.

It was noted that the valuation report filed by the petitioner could not be relied upon in view of the facts that first of all valuation report was filed without seeking any permission from the Tribunal, secondly valuation report contains many caveats in it and also it was not exactly for the same properties under dispute.

As far as the issue of selling properties at a lower than market value was concerned, there was no illegality in it since stamp duty had been paid at applicable valuation and rates.

NCLT Held

The NCLT noted that it was a common practice that many companies/individuals make conscious decisions to sell the property at a lower price than market value in view of exigency and other factors.

Further, it was clear from the facts produced that the company was in urgent need of funds at that point of time. Further, land parcels were not clear and marketable (mortgaged to SBI) and admittedly properties which were not clear and marketable would fetch a lower than market value.

The NCLT held that sub-section 3 of section 81 of the Companies Act, 1956 which deals with further issues of capital clearly says that this condition would not apply to a private company, and thus, the said allotment was not illegal and did not necessitate any need for rectification of register of members. Therefore, the instant petition being devoid of any substance was to be dismissed.

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[Opinion] ROC Imposes a Penalty of Rs 7 Crore on Co., Its Directors Along With CEO for Violating Private Placement Norms

Taxmann — Mon, 15 Apr 2024 12:40:34 +0000

Prof R Balakrishnan – [2024] 161 taxmann.com 373 (Article)

1. Background of the case

In a recent adjudication order dated 3rd April 2024 passed by the Registrar of Companies, New Delhi has imposed a huge amount of penalty aggregating to a total amount of Rs.7 crore upon M/s. Planify Capital Limited, its chief executive officer, non-executive director and as also upon two of the independent directors for the violation committed by them in the issue of private placement of shares. The company i.e. Planify Capital Limited is a company, mainly engaged in fundraising for start-ups through the start-up platform to invest in start-ups, pre-IPO & Unicorns and the company is an integrated marketplace that connects entrepreneurs with investors for hassle-free equity fundraising and provides an opportunity to new investors to invest in these Start-ups. In this particular case, the company M/s. Planify Capital Limited, despite the restrictions imposed by the regulators under the provisions of the Companies Act 2013, the company facilitated and assisted the sale of shares to investors through its start-up platform, by violating the provisions of section 42 of the Companies Act 2013 in a case of issue of shares through private placement.

The company’s unauthorised issuance of securities and public advertising has led to this punitive action. The MCA issued a show cause notice to Planify Capital, highlighting several violations, including exceeding the limit of 200 persons for private placement offers and utilising public advertisements to inform the public about securities issues. Planify Capital’s response claimed a single allotment to Planify Enterprises Private Limited, followed by transfers to 76 investors. However, investigations revealed a more complex transaction structure, implicating the company in breaching regulations. The adjudication process uncovered discrepancies, including misleading valuation reports and improper use of the company’s platform for securities transactions.

Despite attempts to justify actions, Planify Capital’s conduct breached legal provisions. The company’s mode of operandi resulted in an unauthorised issuance of securities and public advertisement which led to a penalty of 7 Crore upon the company, its chief executive officer, non-executive director and two of the independent directors as well. This particular order is one of the speaking orders issued by the Registrar of Companies of Delhi wherein, he discussed the multiple violations committed by the company such as exceeding the prescribed limit of 200 persons for making an offer for private placement, utilization of public advertisements to inform and invite public about the issue of securities, pending the provisions by way of making one single allotment to an intermediary company followed by transfer of shares to 76 investors ultimately etc. The regulator had taken an extensive investigation on this matter which revealed a more complex transaction structure, implicating the company for breaching the mandatory regulatory requirements and compliance of the Companies Act 2013.

Though the company tried to justify its actions on the breeches committed, the regulator uncovered the discrepancies which included the misleading valuation reports submitted by the company and the improper use of the company’s start-up platform for the transactions of the securities which finally resulted in a hefty penalty of 7 crore. The order also reasoned out the penalty levied upon the independent directors and non-executive directors since the approval was given by all the directors of the company through their knowledge, attributable through the board processes, and with their consent. The order is worth reading order in order to understand the various issues involved and the way the breeches happened and were discovered by the regulators. Let us go through the case in detail to have a better understanding.

Click Here To Read The Full Article

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