CORPORATE LAW UPDATES
SECTION 7 OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016 – CORPORATE INSOLVENCY RESOLUTION PROCESS
Initiation by financial creditor: Where settlement had been arrived between corporate debtor and financial creditor and, NCLAT set aside order of admission of CIRP, however, there was breach of payment terms by corporate debtor under settlement agreement, thus, instant petition filed by financial creditor to set in motion CIRP against corporate debtor was to be admitted – Satish Sadashiv Rane v. Shah Group Builders Ltd. – [2021] 131 taxmann.com 270 (NCLT – Mum.)
CIRCULAR NO. SEBI/HO/MIRSD/ DOP/P/CIR/2021/653, 28-10-2021
Stock Brokers should maintain current accounts in multiple banks for holding of client funds: SEBI clarifies
Editorial Note: In order to facilitate seamless settlement of funds and for the convenience of investors, the SEBI has clarified that Stock Brokers should maintain current accounts in appropriate number of banks (subject to the maximum limit prescribed by Stock Exchanges / SEBI from time to time) for holding the client funds (i.e., Client Account), for settlement purposes and any other accounts mandated by Stock Exchanges.
BYE-LAW 15.32 OF THE MULTI-COMMODITY EXCHANGE OF INDIA LTD. – ARBITRAL TRIBUNAL, COMPOSITION OF
By virtue of Bye-laws of Multi-Commodity Exchange of India Ltd., Exchange is always entitled to legitimately constitute an Arbitral Tribunal afresh if an attempt fails or proceedings could not be concluded within prescribed time – JMC Metals (P.) Ltd. v. Kunvarji Commodities Brokers (P.) Ltd. – [2021] 131 taxmann.com 248 (Bombay)
NOTIFICATION NO. SEBI/LAD-NRO/GN/2021/53, DATED 26-10-2021
SEBI authorizes practicing Cost Accountants to issue share reconciliation capital audit report
Editorial Note: The market regulator, SEBI has amended the Securities and Exchange Board of India (Depositories and Participants) (Second Amendment) Regulations, 2018. The amendment has made in regulation 76 to authorize practicing cost accountants for issuing the share reconciliation audit report. Earlier, practicing Chartered Accountants and Company Secretaries were allowed to issue such report.
NOTIFICATION NO. SEBI/LAD-NRO/GN/2021/54, DATED 26-10-2021
SEBI amends eligibility criteria for registration of FPIs; permits AIFs set up in IFSCs as eligible FPIs
Editorial Note: The SEBI has amended the norms for eligibility criteria of foreign portfolio investor.
The amendment has been made in regulation 4 which provides eligible criteria for registration of FPIs. Now AIFs set up in the IFSCs shall be permitted as eligible applicant for registration of FPIs in India.
NOTIFICATION NO. SEBI/LAD-NRO/GN/2021/52, DATED 26-10-2021
SEBI amends ICDR norms; tweaks eligibility requirements for issuers to make IPOs
Editorial Note: The SEBI has amended the SEBI (ICDR) Regulations, 2018. The amendment tweaks eligibility norms for issuer for making an IPO. As per revised regulation 6(3), an issuer who has issued SR equity to its promoter will be allowed to do an IPO of ordinary shares subject to compliance of a condition that net worth of the SR shareholder, as determined by a Registered Valuer, shall not be more than Rs. 1000 crore.
CIRCULAR NO. SEBI/HO/IMD/IMD-II DF3/P/CIR/2021/652, DATED 27-10-2021
SEBI comes up with a ‘Two-Tiered Structure’ for benchmarking of Mutual Fund schemes
Editorial Note: In order to standardize and bring uniformity in the Benchmarks of Mutual Fund Schemes and taking into account the
recommendations of the Mutual Fund Advisory Committee (MFAC), SEBI has decided that there would be a two-tiered structure for benchmarking of schemes for certain categories of schemes. The first tier benchmark shall be reflective of the category of scheme, and the second tier benchmark should be demonstrative of the investment style / strategy of Fund Manager within the category.
CIRCULAR NO. 16/2021, DATED 26-10-2021
Now LLPs can file ‘Statement of Account and Solvency’ in e-form 8 without additional fees up to Dec 30, 2021: MCA
Editorial Note: To promote ease of living and compliances for MSMEs doing business through LLP, the Ministry of Corporate Affairs (MCA) has decided to allow LLPs to file Form 8 for the Financial Year 2020-2021 without paying additional fees up to 30th December 2021.
SECTION 241 OF THE COMPANIES ACT, 2013 – OPPRESSION AND MISMANAGEMENT
Where despite a case of oppression and management was not successfully established by appellant-director/shareholder of company, NCLT, though dismissed said petition but in an act to provide succor to appellant, had ordered that appellant be provided a flat and monthly salary of Rs. 75 thousand and certain other perquisites, which had been complied by respondents, said were reasonable relief and there were no grounds for interfering with impugned order of NCLT – Ms. Vidhya Achu Roy v. Suraj Mani Engineers (P.) Ltd. – [2021] 131 taxmann.com 179 (NCLAT- New Delhi)
CIRCULAR NO. SEBI/HO/CDMRD/ DOC/P/CIR/2021/649, DATED 22-10-2021
Forming of exclusive panel for appellate arbitration is not required: SEBI
Editorial Note: The market regulator, SEBI has decided to amend SEBI Circulars pertaining to Investor Grievance Redressal System and Arbitration Mechanism whereby it has been clarified that forming of exclusive panel for appellate arbitration is not required and members can serve on both the panels. However, it is imperative for the exchanges to ensure that in the same matter, the members of arbitration panel are not considered for constituting the appellate arbitration panel if the matter goes to appeal.”
CIRCULAR NO. SEBI/HO/CDMRD/ DOC/P/CIR/2021/651, DATED 22-10-2021
SEBI amends norms for determination of legitimate claims
Editorial Note: With the objective to align with the practices in securities market, based on the internal deliberations/discussions, and the feedback received from the Stock Exchanges, the SEBI has decided to modify the clause pertaining to determination of legitimate claims. The Stock Exchanges need to ensure that once a member has been declared defaulter, the claim shall be placed before member core settlement committee for sanction and ratification.
SECTION 230 OF THE COMPANIES ACT, 2013 – COMPROMISE AND ARRANGEMENT
Where Future Group’s transferor companies and Reliance Group’s transferee companies filed first motion application under section 230 seeking an order to hold meetings of creditors and/or class of creditors, members and/or class of members to consider and approve scheme, application was to be allowed as it is well within rights of NCLT to allow applicants to hold meeting of various stakeholders, creditors etc., which is only initial stage in process of approval of composite scheme and objection of objector, i.e., Amazon as regards composite scheme of arrangement would be considered at relevant stage at time of filing of company petition for sanction/approval of scheme, by Reliance Group and, therefore application of Amazon raising such objections was to be dismissed – Future Consumer Ltd., In re – [2021] 131 taxmann.com 257 (NCLT – Mum.)
PR NO.30/2021, DATED 21-10-2021
SEBI directs ‘Investment Advisers’ not to deal in unregulated activities
Editorial Note: The SEBI has directed registered investment advisors not to deal in unregulated activities i.e., advisory, distribution and execution/ implementation services in digital gold and other unregulated instruments. According to market regulator, SEBI, any dealing in unregulated activities by Investment Advisers may entail action as deemed appropriate under the SEBI Act, 1992 and regulations framed thereunder.
CIRCULAR NO. SEBI/HO/IMD/IMD-I/DF6/P/CIR/202 1/645, DATED 21-10-2021
SEBI unveils modalities for filing of ‘Placement Memorandum’ through Merchant Banker
Editorial Note: The market regulator, SEBI has come out with modalities for filing of placement memorandum through Merchant Banker. The Merchant Banker shall independently exercise due diligence of all the disclosures in the placement memorandum, satisfy itself with respect to veracity and adequacy of disclosures and provide a due diligence certificate. However, this circular shall come into effect from November 11, 2021
SECTION 164 OF THE COMPANIES ACT, 2013 – DIRECTORS – DISQUALIFICATIONS FOR APPOINTMENT OF
Section 164(2) disqualifying directors of companies for a period of 5 years on failure to submit annual returns/financial statements for 3 consecutive years is not ultra vires constitution – Zacharia Maramkandathil Mohan v. Union of India – [2021] 131 taxmann.com 87 (Kerala)
Section 164(2) which had come into force from 1-1-2014 would have prospective and not retrospective effect and defaults contemplated under section 164(2)(a) with regard to non-filing of financial statements or annual returns for any continuous period of three financial years to be counted from financial year 2014-15 only – Zacharia Maramkandathil Mohan v. Union of India – [2021] 131 taxmann.com 87 (Kerala)
Disqualification under section 164(2) is of temporary nature, thus, rule 11 of Companies (Appointment and Qualifications of Directors) Rules, 2014 does not empower any authority to cancel or deactivate DIN upon disqualification under section 164(2) – Zacharia Maramkandathil Mohan v. Union of India – [2021] 131 taxmann.com 87 (Kerala)
CIRCULAR NO. SEBI/HO/MIRSD/MIRSD_RTAMB/P /CIR/2021/644, DATED 18-10-2021
RTA to comply with norms pertaining to ‘Transmission of Securities’ as provided in Cos. Act: SEBI
Editorial Note: The SEBI has observed that in some cases due to dispute from the legal representative of one of the deceased holders, the RTAs have not effected transmission to the surviving joint holder(s). Therefore, SEBI to protect the interests of investors in securities market advised RTAs to comply with the provisions of the Companies Act 2013 and transmit securities in favour of surviving Joint holder(s), in the event of demise of one or more joint holder(s), unless contrary prescribed in AOA.
CIRCULAR NO. SEBI/HO/OIAE/IGRD/CIR/P/2021/6 42, DATED 14-10-2021
SEBI introduces online system to obtain SCORES credentials of Cos intending to list their securities on exchanges
Editorial Note: The SEBI has decided to introduce an online mechanism for obtaining SCORES credentials for all “companies intending to list their securities on SEBI recognized stock exchanges”. The online form can be accessed on the SCORES website www.scores.gov.in . This has been done as part of SEBI’s green initiative and to streamline the redressal of investor grievances against companies before listing.
CIRCULAR NO. SEBI/HO/DDHS/CIR/2021/0000000 638, DATED 14-10-2021
SEBI issues revised formats for limited review/ audit report for issuers of non-convertible Securities
Editorial Note: SEBI has issued the revised formats of limited review/ audit reports (to be submitted to Stock Exchanges and placed on listed entity’s website). Regulation 52 of the SEBI (LODR), Regulations 2015 requires entities that have listed nonconvertible securities to disclose financial results on a quarterly basis, including assets & liabilities and cash flows as well as requiring certain changes in the line items in the financial results.
SECTION 15T OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 – SECURITIES APPELLATE
A shareholder of MCX cannot be considered to be ‘person aggrieved’ within meaning of section 15T by a decision of SEBI in favour of MCX – IGL Finance Ltd. v. Securities & Exchange Board of India, Mumbai – [2021] 131 taxmann.com 65 (SAT – Mumbai)
PRESS RELEASE NO. 29/2021, DATED 08-10-2021
SEBI restricts NCDEX from launching new mustard seed contracts till further orders
Editorial Note: The SEBI has issued Directions to NCDEX debarring it from launching new mustard seeds
contracts till further orders with a view to curb rising prices of mustard oil. In respect of running contracts, no new position will be allowed to be taken. Only squaring up of position will be allowed, SEBI said. The directions will be implemented with immediate effect.
SECTION 100 OF THE COMPANIES ACT, 2013 – EXTRAORDINARY GENERAL MEETING – CALLING OF
Where respondent, foreign portfolio investor and shareholder of appellant (Zee), had filed petition before NCLT for holding of Extraordinary general meeting of appellant as soon as possible and NCLT by impugned order granted only two days to appellant to file its reply to company petition, it was held that NCLT had committed an error in not granting reasonable and sufficient time for filing a reply, which was a complete violation of rule 37 of NCLT Rules, 2016 and Principles of Natural Justice and, therefore, reasonable and sufficient opportunity should be given to appellant for filing a reply – Zee Entertainment Enterprises Ltd. v. Invesco Developing Markets Fund – [2021] 131 taxmann.com 97 (NCLAT- New Delhi)
CIRCULAR NO. SEBI/HO/IMD/IMD-II DOF3/P/CIR/2021/641, DATED 06-10-2021
SEBI requires MFs to undertake minimum 25% in Corporate Bonds & 10% in Commercial Papers of total trades
Editorial Note : The SEBI has revised requirement for mutual funds to undertake on monthly basis from Minimum 10 % to 25% of total secondary market trades by value in Corporate Bonds on the Request for Quote (RFQ) platform of stock exchanges. In addition, the Mutual Funds shall now undertake minimum 10% of their total secondary market trades by value in Commercial Papers by RFQ platform of stock exchanges. This circular shall come into force with effect from December 1, 2021.
NOTIFICATION NO. S.O. 4075 (E), DATED 29-09-2021
NFRA constitutes search-cum- selection committee
Editorial Note: In pursuance of rule 4 of the National Financial Reporting Authority (Manner of Appointment and other Terms and Conditions of Service of Chairperson and Members) Rules, 2018, the Govt. has constituted a search-cum-selection committee. The committee shall make its recommendations in regard to appointment of chairperson or the members, as the case may be, to the Central Government.
SECTION 441 OF THE COMPANIES ACT, 2013 – SPECIAL COURT
Compounding of certain offence: Where Registrar of Companies, had filed a complaint before competent Court against petitioner alleging violation of section 165 on ground that he was a director of more than 20 companies and said complaint was filed without considering fact that petitioner had already filed an application for compounding of alleged offence, complaint filed by Registrar was not sustainable and was to be quashed – Praveen Agarwal v. Deputy Registrar of Companies, Tamilnadu – [2021] 130 taxmann.com 462 (Madras)
CIRCULAR NO. SEBI/HO/DDHS/ DDHS_DIV3/P/CIR/2021/639&640, DATED 05-10-2021
SEBI amends mechanism of providing exit option to dissenting unit holders pursuant to REITs and InvIT Regulations
Editorial Note: The SEBI has amended the manner and mechanism of providing exit option to dissenting unit holders pursuant to Regulation 22(6A) and Regulation 22(8) of SEBI (Real Estate Investment Trusts) Regulations, 2014 and Regulation 22(5C) and Regulation 22(7) of SEBI (Infrastructure Investment Trusts) Regulations, 2014. The new mechanism has provided the new timelines for disclosures.
CIRCULAR NO. SEBI/HO/CDMRD / DOC/P/CIR/2021/636,DATED 04-10-2021
Stock Exchanges and Clearing Corporation are required to disclose data on complaints on their website: SEBI
Editorial Note: In order to bring about transparency in the Investor Grievance Redressal Mechanism, the SEBI has decided that all the Stock Exchanges and the Clearing Corporations shall disclose on their websites, the data on complaints received against them and redressal thereof, latest by 7th of succeeding month.
CIRCULAR NO. SEBI/HO/DDHS/CIR/2021/0000000 637, DATED 05-10-2021
SEBI revises formats for filing ‘Financial Information’
Editorial Note: The SEBI has decided to revise the formats for reporting of financial information and limited review report. The new format shall contain the items mentioned in the Statement of Profit and Loss (excluding notes and detailed sub classification) as prescribed in Schedule III of the Companies Act, 2013 and the extent and nature of security created and maintained in case of secured non-convertible debt securities, details of which are required as per regulation 54(3) of Listing Regulations.
CIRCULAR NO. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2021/635, DATED 04-10-2021
SEBI discontinues usage of pool accounts for mutual fund transactions
Editorial Note: With an aim to protect mutual fund investors against misuse of their investments, the SEBI has decided to discontinue the usage of pool accounts by all platforms in transactions of mutual fund schemes. In addition, stock brokers/clearing members facilitating mutual fund transactions shall not accept mandates for SIPs or Lump sum transactions in their name.
CIRCULAR NO. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2021/634, DATED 04-10-2021
Financial & non-financial transactions to be executed only if there is a service agreement between AMC and service provider: SEBI
Editorial Note: Based on the discussions with stakeholders and recommendations of the Mutual Fund Advisory Committee, the SEBI has decided with respect to transactions in the units of Mutual Funds undertaken through service providers/platforms other than stock exchanges. As a result, AMCs need to ensure that the transactions (financial/ non-financial) can be executed only if there is a service agreement between the AMC and the service provider / platform.
CIRCULAR NO. SEBI/HO/CFD/DIL2/CIR/P/2021/63 3, DATED 01-10-2021
SEBI further relaxes procedural matters related to Issues and Listing
Editorial Note: Based on the representations received from the market participants, the SEBI has decided to extend the validity of relaxations for Rights Issues till 31-03-2022 with respect to Refund for un-allotted partial allotted application. In addition to foregoing, the issuer along with Lead Manager(s), Registrar, and other recognized intermediaries shall also ensure that issuer company shall conduct a Vulnerability Test for optional mechanism.
NFRA issues consultation Paper on Statutory Audit and Auditing Standards for MSMCs
Editorial Note: The NFRA has prepared a Consultation Paper on Statutory Audit and Auditing Standards for MSMCs explaining the issues involved and providing the data and information required for responding to the questions raised in an informed manner, with the objective to seek the comments/suggestions of the wider stakeholder group and the public at large on questions raised. The last date for receipt of comments is 10 November, 2021.
SECTION 232 OF THE COMPANIES ACT, 2013 – AMALGAMATION
Where applicant filed PIL and writ petition to recall order for amalgamation of respondent company on ground of fraud and collusions in view of fact that on same core issue applicant had also filed complaints before various forums, wherein, said complaints were dismissed as applicant was not an aggrieved person and that applicant had unconditionally withdrawn PIL, it could be said that applicant was indulged in forum shopping and thus, instant writ petition could not be entertained and same was to be dismissed – India Awake For Transparency v. Hasham Investment & Trading Co. (P.) Ltd. – [2021] 130 taxmann.com 330 (Karnataka)
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