Regulatory Updates: Companies Act, Bankruptcy and Insolvency Code, SEBI, Ministry of Corporate Affairs

1. Clarification on “Relevant Date”: Scheme of Arrangement during Preferential Allotment for Listing Entities
2. The Companies (Audit and Auditors) Amendment Rules, 2017
3. The Companies (Meetings of Board and its Powers) Amendment Rules, 2017
4. Amendment in Schedule III to the Companies Act 2013
5. The Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017

Securities and Exchange Board of India (SEBI)

Clarification on Relevant Date: Scheme of Arrangement During Preferential Allotment for Listing Entities

SEBI has issued a notification clarifying on “Relevant Date” in case of any preferential issue of equity share of listed entities.

Earlier, the relevant date for the purpose of computing price per security for preferential issue was thirty days, prior to the date on which the meeting of shareholders is held to consider the preferential issue. With this notification, the “relevant date” shall be the date of Board meeting in which the scheme is approved. Source

Ministry of Corporate Affairs (MCA)

The Companies (Meetings of Board and it's Powers) Amendment Rules, 2017

The Ministry of Corporate Affairs (MCA) vide its notification dated 30 March 2017 has notified the Companies (Meetings of Board and its Powers) Amendment Rules, 2017, applicable w.e.f 30 March 2017 and modified the Rule 15 (3) with respect to the provisions relating to Related Party Transactions under Sub Rule 3 of Rule 15 in pursuant to Sub section 1 of Section 188 of the Companies Act, 2013.

With this notification, a Company shall not enter into transactions without the previous approval of shareholders, where the transaction(s) to be entered into involves the following:

• Sale, purchase or supply of any goods or materials, whether directly or through any agents- amounting to ten per cent. or more of the turnover of the company or rupees one hundred crore, whichever is lower.
• Selling or otherwise disposing of or buying property of any kind, directly or through any agent- amounting to ten per cent. or more of net worth of the company or rupees one hundred crore, whichever is lower.
• Leasing of property of any kind - ten per cent. or more of turnover of the company or rupees one hundred crore, whichever is lower.
• Availing and rendering of any kind of services, directly or through appointment of agent - amounting to ten per cent. or more of the turnover of the company or rupees fifty crore, whichever is lower

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Amendment in Schedule III to The Companies Act, 2013

The Ministry of Corporate Affairs (MCA) vide its notification dated 30 March 2017 has amended Schedule III of the Companies Act 2013 applicable w.e.f 30 March 2017, to include formats to disclose holding/ dealings of specified bank notes of Rs. 500/ Rs. 1000 by the Companies during the period of demonetization in India.

The Schedule III to the Companies Act, 2013 provides general instructions for preparation of the balance sheet and the statement of profit and loss of a company. Applicability

• It is applicable to every company to which Ind AS apply in preparation of its financial statements.
• The provisions of Schedule III also apply when a company is required to prepare consolidated financial statements, in addition to the disclosure requirements specified under Ind AS.

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The Companies (Audit and Auditors) Amendment Rules, 2017

The Ministry of Corporate Affairs (MCA) has notified the Companies (Audit and Auditors) Amendment Rules, 2017, applicable w.e.f 30 March 2017, amending the requirements for reporting by the Company about the requisite disclosures of holding/ dealings of specified bank notes of Rs. 500/ Rs. 1000 during the period from 8 November 2016 to 30 December 2016, (the period of demonetization in India ) for assessing whether it is in accordance with the books of accounts maintained by the Company.

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Insolvency and Bankruptcy Board of India

The Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017

The Insolvency and Bankruptcy Board of India (IBBI) vide its notification dated 31 March 2017 has notified the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 applicable w.e.f 1st April, 2017. The gist of this regulation is as below:

1. The regulation provides for complete procedure for voluntary liquidation of corporate persons (i.e. companies, limited liability partnership and any other person incorporated with limited liability till its dissolution) which has not committed any default.
2. A corporate person may initiate a voluntary liquidation proceeding, if majority of the directors or designated partners of the corporate person shall make following declaration to the effect that:
   • There is no debt on corporate person
   • In case of debt, it has to be paid in full from the proceeds of the assets sold under proposed liquidation.
   • The corporate person is not being liquidated to defraud any person
   In case of non-fulfilment of the above conditions the liquidator has to write an application to the Adjudicating Authority and, hence, process of liquidation will be suspended
3. The winding up process shall commence on the date on which a special resolution is passed by the members/partners of the corporate person to liquidate the corporate person and appoint an insolvency professional to act as the liquidator. On the appointment of a liquidator, the corporate person shall cease to carry on its business.
4. A liquidator needs to be independent and impartial, therefore, an insolvency professional of a corporate person is prohibited from acting as a liquidator.
5. Insolvency professional is also required to disclose any pecuniary or personal relationship with any of the stakeholders or the corporate person.
6. The regulations specify the manner and content of public announcement, receipt and verification of claims of stakeholders, reports and registers to be maintained, preserved and submitted by the liquidator, realisation of assets and distribution of proceeds to stakeholders, distribution of residual assets, and finally dissolution of corporate person.
7. The regulation requires a liquidator to preserve a physical or an electronic copy of the reports, registers and books of account for at least 8 years after the dissolution of the corporate person, either with himself or with an information utility. On the completion of the liquidation process, the liquidator shall prepare and submit the final report to the NCLT and after the affairs of the corporate person are wound up, he will make an application to NCLT for dissolution of the corporate person.
8. It also provides for the manner and procedure for dealing with extortionate credit transactions, unclaimed proceeds of liquidation/undistributed assets, detection of fraud, etc.

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