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Company Law: Recent trends in India and Abroad

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Title: Company Law: Recent trends in India and Abroad


1
Company Law Recent trends in India and Abroad
  • Vinod Kothari1012 Krishna224 AJC Bose
    RoadCalcutta 700 017. IndiaPhone
    91-33-23233863/23233864/22811276/22817715/22813742
    Fax 91-33-23233863E-mailvinod_at_vinodkothari.com
    vinodk_at_vsnl.com

2
Relevance of corporate law on enterprise
  • Company law is directly related to enterprise it
    can either promote it or hold it
  • Most enterprise is corporatised corporate
    regulation has a huge impact on the economy

3
Sources of modern corporate law
  • Company law in the commonwealth (UK, Australia,
    Hong Kong, Singapore, India, Malaysia) has common
    sources and influences
  • Common features also in European Union, US laws
  • UK Companies Act 1948 is the great mother of most
    corporate laws world over but has undergone
    several changes over time
  • 1947 Cohen Committee report consolidated existing
    law in 1948 Act
  • Jenkins Committee report introduced changes in
    1967
  • Several changes upto 1985 based on EEC Directives
  • New law in 1985 (747 sections and 25 schedules)
  • The new law changed substantially by Insolvency
    Act 1985 (later replaced by Insolvency Act 1986)
    (provisions on insolvency separated), Financial
    Services Act 1986 (provisions on securities
    regulation separated) and Companies Act 1989
  • New Bill prepared in 2002 much smaller 225
    sections and 4 schedule

4
UK Companies Act, 1948 is the great mother of
most corporate laws
Singapore and Hong Kong primarily based on UK
laws Hong Kong reviewed its law in 1999
Canada more than 25 years ago, split its base
from UK laws and is
United States each state has its own law Model
Business Corporations Act 1984
Australia based on UK law, but major changes
in 1998
South Africa mixed influence of UK and Roman
Dutch laws
Indian subcontinent Inspired by UK law
New Zealand in 1990 started drifting towards
US laws
5
Corporate law reforms
  • Commercial law as a whole has been subjected to
    globalisation
  • Most commercial problems are no more domestic
    problems
  • Todays corporate laws cannot take a domestic
    approach
  • Global trade has created the multi-jurisdictional
    enterprise
  • Leading to greater international interdependence
  • Global convergence of corporate laws
  • Securities laws have been more intensively
    internationalised
  • Company law is still largely a domestic issue
  • UK reforms The Department of Trade and Industry,
    UK started a company law review process in March
    1998
  • Scathing criticism by leading commentators as LCB
    Gower, LS Sealy, Law Society
  • EU reforms High level Group of Company Law
    Experts set up in Sept 2001 and public comments
    were received.
  • These have now been synthesized and presented in
    Nov 2003

6
The outer periphery of company law
  • A key question before modern company law is what
    all should the law deal with?
  • Incorporation and regulation of companies
  • Issuance of securities by companies shifted to
    legislation dealing with securities regulation
  • Perhaps a legacy of the US, where corporations
    law are a state subject and securities law a
    Federal subject
  • Winding up and insolvency of companies shifted
    to legislation dealing with insolvency laws
  • Registration and enforcement of security
    interests on corporate assets shifted to laws
    relating to enforcement of security interests on
    personal property
  • Types of companies to regulate
  • Quoted companies
  • Public companies
  • Private companies

7
Major company law reform exercises
  • UK Companies Act
  • White paper issued in March 2005
  • Company Law Reform Bill presented to House of
    Lords on 1st November, 2005 Draft Bill
    preppared
  • Company Law Reform - Small Business Summary
    introduced into parliament on 1st November, 2005
    summary sets out main elements of Bill
    affecting small business
  • Company Law Reform Bill introduced to House of
    Commons on 24th May, 2006
  • Company Law Reform Bill Regulatory Impact
    Assessment June, 2006 An analysis done on cost
    of compliance v benefits associated from
    compliance
  • Company Law Reform Bill Draft model articles
    for public companies 6th July, 2006
  • Notice of Amendments in Bill 6th July, 2006
  • EEC has finalised consultation process and may
    soon issue Directives
  • US Company law piecemeal approach, more of a
    firefighting
  • Indian company law which way is the reform
    heading?

8
Special needs of small companies
  • Current foundations of company law are inclined
    towards larger companies
  • Todays reality lots of small businesses which
    are individual enterprises are corporatised
  • The starting point of company law reform should
    be small companies
  • Public versus private companies
  • Original UK legislation treated public companies
    as the residual form, and private companies only
    if they satisfied certain criteria
  • In 1980, this structure was changed private
    company now became the residual form
  • Under the amended law, in either case, it is by
    mere declaration
  • Single member corporations are already permitted
    by UK law
  • The concept was borrowed from US laws
  • New amendments permit even public companies to be
    formed by single person
  • Formation of companies
  • There will be no charter companies to be formed
    based on a simple signed declaration at the time
    of formation
  • Constitutional documents required only if the
    company opts the same different from model
    constitution appended to the law

9
Objects clause and ultra vires dumped
  • UK govt has accepted the suggestion to dump
    objects clause
  • Where required, objects clause may be there, but
    it will only have an internal effect
  • Doctrine of indoor management also dropped
  • Provision inserted in law to say that the Board
    has full authority for all the powers of the
    company
  • Has full authority to delegate
  • This applies inspite of restrictions in the
    constitution
  • Ultra vires doctine had been dropped long time
    ago under the European Communities Act 1972
  • Memorandum and articles to be merged into one
  • Alteration of the constitution permitted with
    special resolution
  • Companies may insert entrenching provision
    making alteration more difficult

10
Capital maintenance
  • Traditional foundations of law treat capital as
    the basis for limited liability
  • The Fourth EEC Directive required UK law to dump
    that concept and introduced concept of redeemable
    equity shares/ shares buyback (1981 amendment)
  • The concept of authorised capital to be done away
    with
  • The amendment continues with par value concept
  • Also bars issuance of shares at a discount
    capital payment for subscribing to shares
  • Such payment can be made out of distributable
    profits
  • Public companies required to obtain a trading
    certificate
  • Trading certificate to be given if the intended
    initial capital obtained
  • Reduction of capital permitted with mere solvency
    statement, and not court approval
  • No restrictions on private companies
  • Public companies public notification required
    creditors have a right to move to Court
  • Funding by private companies for their own shares
    to be permitted

11
Decision-making by shareholders
  • UK Companies Act in 1989 allowed private
    companies opt out of annual general meetings
  • Also allowed companies to ascertain the sense of
    the members without a meeting
  • Common law rule of unanimous consent has always
    existed
  • Amendment Bill proposes to dispense with annual
    general meetings altogether for private
    companies
  • Approval of accounts, appointment of
    auditors/directors dispensed with
  • In case of public companies too, with unanimous
    consent, the company may opt out of AGMs
  • Two sets of provisions
  • For private companies, the mandatory
    requirements (holding AGM and laying accounts)
    applicable only if opted in
  • For public companies, mandatory requirements not
    applicable if opted out
  • Unanimous consent of all members at a meeting
    required
  • Current draft law allows any member or auditor to
    requisition the meeting

12
More reforms on meetings
  • Written resolutions
  • Special set of provisions for ordinary and
    special resolutions in writing
  • 75 of the total voting strength or more than 50
    of total voting strength
  • Requires formal agreement not voting is not
    treated as consent
  • Proxies may be deposited in advance
  • Demand for poll may be made before the meeting
  • Proxies may speak at the meeting, and vote on a
    show of hands
  • Proxy has all the powers of the member in person
  • Also has the power to demand a poll

13
Rights of beneficial shareholders
  • Companies would be permitted to recognise rights
    of beneficial interest holders

14
Duties of directors
  • Instead of relying on complex and inaccessible
    caselaw, the law will lay down significant duties
    of directors
  • Schedule 2 lays down the general duties of
    directors
  • Broad principles of trust law and significant
    case law developed over time incorporated
  • Directors duties to creditors
  • Duty to make contribution in certain cases
  • Codification of civil remedies against directors

15
Corporate directors
  • Most of states in the US permit individual
    directors
  • UK Companies Act permits corporate directors
  • Australia, New Zealand, Singapore and Canada
    recently prohibited corporate directors
  • France permits
  • Company law reform in UK seeks to prohibit
    corporate directors

16
Distribution of annual reports
  • Law seeks to avoid sending of annual reports to
    debentureholders
  • This may be required under the terms of the
    debentures
  • A new form of sending statements website
    publication
  • Law avoids sending of statements, if shareholders
    given web access
  • The option is to be exercised by the shareholder
  • The shareholder is to be notified of the
    statement having been put on website

17
Operating and financial review
  • A new reporting requirement for operating and
    financial review to be applicable
  • major company based on certain financial
    parameters turnover, balance sheet total and
    employees
  • OFR is mandatory for all public companies
  • OFR also required for private companies if the
    same are major companies
  • The monetary parameters are 10 times in case of
    private companies
  • Apart from historical information, this also
    includes projections

18
Corporate governance the role of the independent
director
  • Derek Higgs committee recommendations in Jan
    2003 role of non-executive directors
  • No of board meetings and the attendance of
    individual directors should be reported in annual
    report
  • Chairman and chief executive should not be the
    same person
  • Non-executive directors must meet separately at
    least once in a year
  • Non-executive directors should serve 2 3-year
    terms

19
Company secretaries
  • Realising that companies secretaries are not
    essential to corporate governance, the Bill
    allows private companies to opt out of keeping
    them.

20
Offences
  • Offences classified in 6 types
  • Type A summary conviction, fine upto level 3 on
    standard scale
  • Type B summary conviction fine upto level 5
  • Type C on either indictment or summary
    conviction, fine upto statutory maximum
  • Type D
  • Indictment imprisonment upto 2 years or fine or
    both
  • Summary conviction imprisonment upto 6 months or
    fine or both
  • Type E
  • Indictment imprisonment upto 7 years or fine or
    both
  • Summary conviction imprisonment upto 6 months or
    both
  • Type F
  • Indictment imprisonment upto 10 years or fine or
    both
  • Summary conviction imprisonment upto 6 months or
    fine or both

21
US corporations law a different breed altogether
  • The corporation in the US is much different from
    the joint stock company
  • The latter was a business association clothing
    itself with a corporate character
  • US corporations emanated from chartered
    corporations, allowing people to form
    corporations under a general corporation law
  • Single member corporations are common
  • No need for a contract among members
  • Object of association, or Ultra vires have been
    been there

22
The German model
  • Germany has separate regulatory structure for
    public and private companies
  • AG is a German public company
  • Minimum capital of 100000 DM
  • GmbH is a German private company
  • Single shareholder is possible
  • Minimum capital of 50000 DMs
  • Share certificates not required
  • Incorporation of GmbH is very simple single
    constitutional document
  • Ultra vires rule is not applicable
  • AG has two tier board structure supervisory
    board and managerial board
  • The former is supposed to take care of
    shareholder and employee interests
  • For AGs with more than 2000 employees, there
    will be equal participation

23
The French model
  • Two types of companies
  • Public companies Societe Anonyme (SA)
  • Minimum 7 members capital of 250000 FFs
  • Public companies are required for investment and
    real estate businesses
  • Private companies separate law exists called
    Societe a Responsabilite Limitee, or abbreviated
    as SARL
  • Maximum membership of 50 and minimum capital
    50000 FFs
  • Share certificates are not required
    participation or book entry ownership is possible
  • Single member companies, called EURL (Enterprise
    Unipersonnelle a Responsabilite Limite)
  • Public companies are very common approx 200000
    SAs exist
  • Board structures are mostly unitary with minimum
    3 and maximum 12 directors

24
Recommendations of the EU Group of Experts
  • Types of companies public and private company
    distinction is not relevant. Three main types
    exist today
  • Listed companies
  • Open companies whose shares can be traded
  • Closed companies
  • Corporate governance
  • Pre-meeting materials (notices, etc) to be put on
    companies websites
  • Electronic voting or voting in absentia
  • Obligation on the part of institutional
    shareholders to disclose their beneficial
    shareholdings and voting directions
  • Rights of minority shareholders to apply for
    investigation
  • Nomination, remuneration and audit committees
  • Remuneration to be disclosed shares and

25
EU group recommendations legal capital
  • The relevance of legal capital as a protection to
    creditors and lenders put to question
  • Shares without par values
  • Shares expressed as fractions of total capital
  • Capital reduction instead of all capital
    reductions to require protection, shareholders to
    be given right to apply for protection
  • Buyback of shares by companies upto a
    distributable profits to be allowed
  • Financial assistance for purchase of self-shares
    should also be allowed upto distributable profits

26
EU recommendations Creditors protection
  • Before distribution of dividends, directors
    should make a solvency statement
  • Balance sheet solvency
  • Liquidity solvency
  • Alternative regime of subordination of insiders
    claim has been recommended

27
EU recommendations restructuring and mobility
  • Members to be given right to approach Court to
    seek protection in case of restructuring

28
Company law reform in India Naresh Chandra
recommendations
  • Private companies should have minimal regulations
  • Sees a new class of companies called small
    private companies to which added exemptions to
    be allowed from the Act including a simplified
    exit scheme
  • Either
  • Paid up capital and free reserves upto Rs 50 lacs
    (this covers 93 of private companies) AND
  • Turnover or other receipts upto Rs 5 crores OR
  • SSI
  • SPCs must have a single main object

29
JJ Irani Committee recommendations
30
Access to Capital
31
Broad assessment
  • Some bold thinking, international awareness, in
    tune with global efforts at company law rewriting
  • However
  • Full of glib talk and statements of pious
    intentions
  • Examples
  • raising money fraudulently should be subject to
    strict penalty regime
  • Companies should be allowed to raise capital so
    long as they provide true and correct information
    to investors and regulators
  • The legal process associated with prosecution
    should be revisited so as to make such process
    more effective
  • Baby may be thrown with bathwater
  • Makes several recommendations which are already a
    part of the law
  • Disclosure requirements for deposits by
    advertisement
  • All that has been recommended already exists
  • Provision similar to sec. 68 for fraudulent
    inducement to invest should be inserted for
    deposits
  • Actually, the definition of prospectus includes
    the invitation to deposits hence, those
    provisions apply already
  • Makes several recommendations which have been
    made over years, with no headway at all
  • Insurance of depositors
  • Has been made over years since Sachar Committee

32
Streamlining Capital Issues Regulation
  • Need for separate Financial Services regulation
    ruled
  • By itself, this is a very large, macro issue
  • In UK, integration of financial sector
    supervision into the FSA is a model
  • India still goes by separation of regulatory
    regime
  • These authorities have proliferated over time
  • Harmonisation of activities of regulators
  • Core provisions on maintenance and management of
    capital, rights flowing from various types of
    capital may be left to the Companies Act
  • Details may be left for the securities regulator
  • Avoid intrusive regulation so as not to revert to
    the Capital Issues Control regime
  • More coordination between SEBI and the Department

33
A complex web of regulation over financial
services sector
Financialsector
Insuranceservices
Banking non-bankingfinancial services
Capital Market Services
Pensionsand OASIS
Housing finance
PFRDA?
NHB
IRDA
SEBI
RBI
34
Making capital issues faster, simpler
  • Capital issues approval may be made faster with
    concept of deemed approval
  • Also in case of filing and registration of docs
    with the Registrar
  • Dissemination of information electronic media
    should be recognised
  • Shelf prospectus
  • Currently has limited applicability
  • Only specified financial institutions (sec. 60A)
    can use it
  • May be extended to other classes of companies
  • Well-known Seasoned Issuers concept may be
    evolved
  • These companies file only a main document once a
    year, and then only make incremental changes
  • US SEC practice recognises concept of WKSIs
  • Current in its filings and
  • 700 mn of common equity or 1 bn of debt over
    last 3 years
  • Several facilities were granted in 2005 reforms
  • Except in case of debt issues (which are mostly
    unlisted), there is not much relevance of this
    concept in India however, forward-looking
  • Time taken in rights issues to be reduced
  • Deemed public offers recommends exemption to
  • Exemption to rights offers by unlisted companies
  • Concept of sec. 67 has been misinterpreted
  • Issues of shares to employees by private
    companies

35
New forms of securities
  • Tracking stocks
  • Stocks that derive dividends only from profits of
    a particular division
  • If this concept is to work, it can only work
    under the frame of Cellular Companies or
    protected cell companies
  • Permitted in several countries USA, Japan,
    Germany
  • However, note
  • No tracking stocks issued since 2002 between
    1984 to 2001, 38 issues came of which only 5 are
    trading now
  • Treasury stocks
  • Companies buy back their shares but hold them as
    a part of their treasury
  • Committee realises lots of preparatory steps are
    required to bring these changes into effect
  • Many countries permit them USA, Japan, Hong
    Kong, most EU countries, proposed in UK also
  • Companies allowed to buyback shares
  • No dividends
  • No voting rights
  • Shares may be cancelled or reissued
  • Target shares buyback
  • Buyback of shares on a preferential basis from a
    shareholder block
  • Negatively recommended by the Committee
  • Permitted in many countries

36
Preference shares
  • Perpetual preference shares
  • Recommended
  • Floating rate preference with a benchmark rate
  • Call and put provisions may provide optionality
    to issuer/shareholder
  • Arrears of Dividends on preference shares
  • Committee recommends, may be capitalised even if
    the company did not make profits
  • Erroneous concept, as dividends on preference
    shares are never guaranteed the only concept of
    dividend is distribution of profit
  • Ambiguity on arrears of preference shares
  • Some rulings have held that preference dividend
    can be converted into equity on redemption
  • Mr A R Ramnathans rulings in Caledonian Jute,
    British India Corporation, etc

37
Capital reduction
  • May be made easier by transfer of powers to NCLT
  • Already enacted.

38
Disclosure norms for capital issues
  • Glib talk - there is a need for proper
    disclosure at every stage
  • No detailing as to what is currently not
    disclosed that requires to be disclosed
  • Shareholders should be informed about all
    material facts
  • Such as?
  • Disclosure about shareholding controls, direct or
    indirect
  • If indirect is discrete, it can never be
    disclosed.
  • If not discrete, it is hardly indirect
  • Clause 49 requires control disclosures already

39
Deposit taking
  • Non-banking non-financial companies should be
    banned from accepting public deposits
  • This suggestion was considered and rejected by
    the Committee
  • The committee, instead, recommends stricter norms
    for public deposits
  • Facts
  • Public deposits by NBNCs is a rare practice
    India is possibly the only example
  • It was allowed as an adhoc measure way back in
    1960s
  • Public deposits are very costly - financial
    viability of a company may be severely affected
    by public deposits
  • Public does not need it savings are getting
    increasingly institutionalised.
  • Public deposit has been grossly abused instrument
    over time people have miserably lost money
  • There is greater case than ever before in the
    past to ban public deposits completely
  • Stricter norms recommended
  • Disclosure requirements already there
  • Credit rating if a company has a good rating,
    there is no reason for it to access public
    deposit
  • Cash Reserve requirements out of profits
    liquidity requirement already there cash reserve
    further increases the cost of public deposits
  • Dispute resolution mechanism the problem with
    public deposits is not dispute it is default
  • Need for bolstering confidence it is not
    confidence but greed that drives people to put in
    money in deposits
  • Provisions similar to sec 68 for fraudulently
    accepting public deposits in fact, prosecution
    provisions for public deposits are much stricter
    than those for any other form of capital
  • Suspension of further deposit taking in case of
    default already exists
  • Insurance of depositors the matter has been
    discussed ever since 1975 with no resolution

40
Registration of charges
  • Makes only a tinkering suggestion
  • Documents requiring signature of both the lender
    and the borrower create difficulties
  • In fact, more fundamental thinking is required
    here
  • Globally, there is a move for a completely
    independent system of registration of security
    interests
  • UK Law Commission has also recommended the same
  • There is no reason why charges should be
    registered only in case of companies
  • Increasing use of non-corporate or JV form of
    businesses
  • Registration of charges should be done by the
    lender, in the lenders own interest

41
Issue of shares other than for cash
  • Valuation of consideration by independent valuer
  • Difficult to understand the intent of this
    thought
  • X Ltd buys property from Y, and issues shares
  • This is issue of shares for non-cash
    consideration
  • The committee is worried about this
  • X Ltd buys property from Y, pays for the same in
    cash. Y subscribes to shares of X Ltd., pays for
    in cash
  • This is NOT an issue of shares for non-cash
    consideration
  • The Committee has no worries here why?
  • The fear on which this recommendation is founded
    is only results out of conflict of interest in
    related party transactions
  • No reason to single out issue of shares for
    non-cash consideration
  • Similar recommendation in case of transfer of
    assets by the company and receipt of
    consideration other than in cash

42
Restrictions on inter-corporate loans and advances
  • Observations relating to stock market scam
    corporate funds diverted for price rigging
  • Suggests prohibition on companies lending to
    stock brokers
  • Provides for special resolution for allowing to
    do so
  • Detailed disclosure by a lending company on
    end-use of funds by the borrowing company
  • Disclosures to be made in explanatory statement
    for seeking approval also to be laid down

43
Preferential allotments
  • SEBI-type regulations on preferential allotments
    in case of unlisted companies also recommended
  • Recommends valuation of shares
  • Difficult to understand the genesis of this
    proposal
  • Preferential allotment by any public company
    requires special resolution
  • If a special majority of shareholders approves of
    the action of the company, whose protection are
    we seeking?
  • Valuation of shares of an unlisted company is
    itself most inefficient
  • Market value provides a transparent method of
    fair valuation
  • There is no consistent or reliable method of
    valuation in case of unquoted shares

44
Minimum subscription
  • The law should permit retention of actual
    subscription even if minimum subscription not
    reached
  • Difficult to understand the suggestion
  • Minimum subscription is the minimal amount needed
    to accomplish the purpose for which the issue was
    made
  • If the minimum subscription is not reached, where
    will be the issue funds be invested?
  • The concept of minimum subscription has not been
    properly appreciated
  • Partly to blame is mistaken understanding over
    time to equate the issue amount and the minimum
    subscription
  • Sec 69 of the Companies Act expects the
    prospectus to mention the minimum subscription
  • Item 5 of Part I of Schedule 2 specifically lists
    out
  • Since CCI regime, 90 of the issued amount has
    been taken as minimum subscription
  • The practice has no basis.

45
Shares with differential voting rights
  • Provisions were inserted but not effective
  • Provisions should be retained anomalies to be
    removed
  • Essentially, Companies Act envisaged years ago
    preference shares as non-voting shares
  • Artificial restriction brought in Indian law to
    say shares to be of only two classes
  • This restriction may be done away with
  • Instead, provision may be inserted to prevent
    management perpetuating control by issuing
    management shares
  • In other words, curb shares with higher voting
    rights, than shares with lower or no voting rights

46
Other provisions
  • DRR
  • to regulate creation of DRR by non-banking
    finance companies
  • For other companies, flexibility to be ruled by
    the Central Government
  • Deletion of sec. 208
  • No companies in the present times are using sec
    208 at all
  • But that is not the only provision in Companies
    Act which is deadwood

47
Minority rights
48
Minority rights
  • Elaborate paras in Chapter VI dealing with
    minority interests
  • Para 1 to 2.4 in essence seem to say nothing
  • They only describe the existing provisions
  • And say, new Act should bring in a reasonable
    framework for minority interest by bringing
    specific provisions
  • Neither is there any suggestion that the exiting
    framework is not reasonable, or not specific
  • Should minority directors/ directors by
    proportional representation be made mandatory
  • Committee favoured existing optionality
  • Stringent disclosures for Companies accessing
    funds through public offers
  • Glib talk, as no discussion on what disclosures
    other than those required at present
  • Board and management to be protected from
    undue/unjustified interference by minority
  • Again, no details
  • Extensive use of postal voting and voting by
    electronic media

49
Oppression and mismanagement, takeovers
  • No recommendations at all
  • Objections to a scheme of takeover, a limit to be
    prescribed for minimum shareholding
  • Courts preside over these matters discretion of
    court should be reserved
  • In case of takeover of 90 voting control, there
    must be an option to the 10 holder to sell their
    shares
  • Fair valuation of shares of minority
  • By a valuer to be appointed by Tribunal
  • A company that has delisted its shares should
    give a buyback offer with 3 years of delisting
  • Superfluous, as delisting procedures currently
    provide buyback offer before delisting

50
Class action/ derivative law suits
  • Suits by a shareholder on behalf of a company to
    be allowed
  • Class action/ derivative suits are legally
    allowed in many countries
  • USA, Korea

51
MCA 21
52
MCA 21
  • WHAT IS MCA-21?
  • MCA-21 is an e-governance initiative that builds
    on the Government vision to introduce a service
    oriented approach in the design and delivery of
    Government services.
  • OBJECTIVE OF MCA-21
  • To meet the expectation arising from
    globalisation
  • Easy and secure access to MCA services
  • To move from the traditional paper based
    operation to a near paperless environment
  • Enable convenience for statutory compliance in a
    manner that best suits the stakeholders

53
MCA 21
  • SCOPE
  • Covers only the offices of ROCs, RDs and the HQs
    at New Delhi
  • Does not include other offices of MCA like
    Official Liquidators, CLB/Tribunal and Court
  • SERVICES AVAILABLE ON MCA 21
  • Registration and incorporation of new companies
  • Filing of forms for change of names/address/
    Directors details
  • Registration and verification of charges
  • Inspection of documents
  • Application for various statutory services from
    MCA
  • Investor grievance redressal

54
MCA 21 KEY BENEFITS
  • On-line incorporation of companies
  • Simplified and easy mode of filing of
    forms/returns
  • Registration as well as verification of charges
    anytime and from anywhere
  • Inspection of public documents anytime and from
    anywhere
  • Total transparency through e-governance
  • Building up a centralized database repository of
    corporate operations in India
  • Timely redressal of investor grievance
  • Availability of more time for MCA employees for
    qualitative analysis of corporate information

55
MCA 21 PRESS NOTES/CIRCULARS
  • Press Note dated 17-2-2006
  • MCA 21 Handbook
  • MCA 21 Initiation Guide
  • DIN Process Document
  • Frequently Asked Questions
  • FAQs on DIN
  • Proposed E-forms
  • Instruction Kit
  • Details of New forms and fees
  • General Instruction kit for form filing in
    physical mode
  • Guidelines to be followed during E-filing
  • Scheme for Certified Filing Centres
  • Bulletin form Banks/FIs for Operation under MCA
    21

56
MCA 21 LEGISLATIVE CHANGES
  • Companies (Central Governments) General Rules
    and Forms (Amendment) Rules, 2006 Notification
    No. 56(E) dated 10-02-2006
  • Application of Section 159 to Foreign Companies
    (Amendment) Rules, 2006 Notification No. 132
    (E), dated 03-03-2006
  • Companies (Disqualification of Directors under
    Section 274(1)(g) of the Companies Act, 1956)
    Amendment Rules, 2006 Notification No. 133(E),
    dated 03-03-2006
  • Companies (Declaration of Dividend Out of
    Reserves) Amendment Rules, 2006 Notification
    No. 134(E), dated 03-03-2006
  • Investor Education and Protection Fund (Awareness
    and Protection of Investors) Amendment Rules,
    2006 Notification No. 135(E), dated 03-03-2006
  • Companies (Amendment) Regulations, 2006
    Notification No. 157(E), dated 16-03-2006
  • Companies (Appointment of Sole Agents) Amendment
    Rules, 2006 Notification No.147 (E), dated
    08-03-2006
  • Cost Audit Report (Amendment) Rules, 2006
    Notification No. 148 (E), dated 08-03-2006
  • The Companies (Amendment) Act, 2006
    Notification No.

57
COMPANIES (AMENDMENT) ACT, 2006
  • Act to come into force on the notified date 1st
    June 2006 as the effective date
  • Section 253-A new proviso inserted making DIN
    Compulsory for directors
  • DIN New Section 266A to 266G inserted
  • E-Filing Section 610B and 610C inserted
  • CG to provide Value Added Services 610D
  • IT Act applicable 610E

58
E-FILING
  • MCA 21 project facilitates e-filing of forms and
    applications under the Companies Act, 1956.
  • E-filing initiative started from Companies
    Amendment Act, 1960 by inserting Section 610A
  • Also, Recommendation of J.J. Irani Committee for
    e-filing of documents adopted
  • E-filing would include incorporation of new
    companies, filing annual and other statutory
    returns, registration and verification of charges
    and applying for various approvals/clearances
  • Directors Identification Number (DIN) and Digital
    Signature Certificate (DSC) are pre-requisite
    under e-filing regime
  • Companies Amendment Act, 2006 on E-filing
  • CG to make Rules for
  • Filing of applications, BS, Prospectus, Return,
    declaration, MAOA, charges, etc in
  • E-form
  • Service or delivery of document, notice,
    communication or intimation in E-form
  • Maintenance of Applications, BS, etc by Registrar
    in E Form

59
E-FILING
  • Inspection of documents through E Form
  • Payments of Fees, Charges or other sums through E
    Form
  • Registration of Documents/incorporation
    certificates, record/receive notice in E Form
    Section 610B
  • CG may frame a scheme to facilitate the above
    Section 610B
  • CG to notify that any provisions of Companies
    Act, 1956 be made inapplicable or made applicable
    in modified form to suit e-filing Section 610C
  • Information Technology Act, 2000 to be made
    applicable in relation to electronic records
    Section 610E
  • Companies (Central Government) General Rules and
    Forms, Companies (Declaration of Dividend out of
    Reserves) Rules etc. modified to make them
    compatible with e-filing

60
DIRECTORS IDENTIFICATION NUMBER (DIN)
  • DIN is a pre-requisite for e-filing of certain
    company related documents
  • Applicable to existing as well as new directors
    except directors of foreign companies having
    branch offices in India
  • Form, manner and fees to be prescribed by Central
    Government At present no fees is required to
    get DIN
  • CG to allot DIN within one month from the receipt
    of the application
  • Only 1 DIN permitted
  • DIN not an alternative to PAN
  • Existing Director to intimate his DIN within one
    month to all the companies wherein he is a
    director
  • Companies to intimate DIN to Registrar within one
    week
  • DIN to be quoted in all returns/information/partic
    ulars in case they relate to directors
  • Penal Provision Rs.5000/- and in case of
    continuing default Rs500/- per day

61
DIN SOME ISSUES
  • What happens to existing DINs taken before the
    commencement of Companies Amendment Act, 2006?
    Second Proviso to Section 266A weird drafting
  • What if the existing director is out of station
    or incapacitated for 60 days?

62
Some significant recent rulings
  • SC ruling in the Gaekwad family case the only
    relevant restriction on allotment is the
    provisions of articles/memorandum
  • Directors are not trustees for individual
    shareholders they are only for the company
  • In a significant ruling dealing with mergers,
    Rajasthan high court dispensed holding of
    meetings of shareholders and creditors based on
    sanction of concerned parties Rajasthan Telecom
    Company Ltd., In Re (Raj) 2006 69 SCL 71
  • Revaluation reserves can be used for issuing
    bonus shares SC ruling in Bhagwati Developers
    v. Peerless Finance
  • House of Lords charges of future assets are
    floating charges National Bank of Westminster
  • Auditors report relating to sec. 274 (1) (g) is
    to be based on verification of facts and not just
    statement made by the company Calcutta High
    Court in Hindustan Club
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