PCS Jitesh Gupta

FCS, PGD-TL, MIMA, MBA, IP

Presentation by:

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TOPICS TO BE COVERED IN TODAY’S PRESENTATION

Latest Amendments under Companies Act, 2013 and other laws

❑ DIR-3 KYC

❑ Dematerialization of Securities of Unlisted Public Companies

❑ ACTIVE (Active Company Tagging Identities and Verification)

❑ Companies (Incorporation) 2nd Amendment Rule 2019

❑ MSME (Micro, Small and Medium Enterprises)

❑ Registered Valuer

❑ DPT-3

❑ Banning of Unregulated Deposits

❑ Significant Beneficial owner

❑ Insolvency and Bankruptcy Code, 2016 2

TYPES OF

COMPANIES

PRIVATE

COMPANY

PUBLIC

COMPANY

ONE PERSON

COMPANY

SMALL

COMPANY

LISTED

COMPANY

UNLISTED

COMPANY

SECTION 8

COMPANY

GOVERNMENT

COMPANY3

Private CompanySection 2(68) of Companies Act, 2013 : It means a company

having a minimum paid-up share capital as may be prescribed, and which by its articles,—(i) restricts the right to transfer its shares;(ii) Except in case of One Person Company, limits the number of its members to two hundred: Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member:Provided further that—(A) Persons who are in the employment of the company; and(B) Persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased,Shall not be included in the number of members; and (iii) prohibits any invitation to the public to subscribe for any securities of the company;

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Small CompanyA company, other than a public company,—

(i) paid-up share capital of which does not exceed fifty lakh

rupees or such higher amount as may be prescribed and

(ii) turnover as per profit and loss account for the immediately

preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed Provided that nothing in this clause shall apply to—(A) a holding company or a subsidiary company;(B) a company registered under section 8; or(C) a company or body corporate governed by any special Act;

One Person CompanyA company which has only one person as a member;

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Public CompanyA company which—(a) is not a private company ;(b) has a minimum paid-up share capital, as may be prescribedProvided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles

Unlisted CompanyUnlisted company means a company which does not have any of its securities listed.

Listed CompanyListed Company means a company which has any of its securities listed on any recognized stock exchange;

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Section 8 company Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company—(a) Has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;(b)Intends to apply its profits, if any, or other income in promoting its objects; and (c) intends to prohibit the payment of any dividend to its members,the Central Government may, by licence issued in such manner as may be prescribed, and on such conditions as it deems fit, allow that person or association of persons to be registered as a limited company under this section without the addition to its name of the word "Limited", or as the case may be, the words "Private Limited" , and thereupon the Registrar shall, on application, in the prescribed form, register such person or association of persons as a company under this section. 7

Government Company: Any company in which not less than fifty-one per cent of the paid-up share capital is held by the

Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more

State Governments, and includes a company which is a subsidiary company of such a Government company;

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NOTIFIED ON:5TH JULY, 2018INCLUSION UNDER COMPANIES ACT:RULE 12A UNDER COMPANIES (APPOINTMENT AND QUALIFICATIONOF DIRECTORS) RULES, 2014

LAST DATE OF FILING:30TH APRIL EVERY YEAR

FEE FOR FILING:NIL

LATE FEE OF FILING:RS 5,000

APPLICABILITY AND PURPOSE:

Every individual who has been allotted a Director Identification Number (DIN) as on 31st March of a financial year as per these rules shall, submit e-form DIR-3-KYC to the Central Government on or before 30th April of immediate next financial year. Purpose of new e-form DIR-3 KYC is to get update the exact data of the din holders.

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1) Active and unique email Id for OTP Verification2) Active and Unique Mobile No (not used by any other director) for OTP Verification3) Copy of Aadhaar Card, pan card, Driving License, Voter Id and Passport4) Permanent and Present Address Proof5) Digital signature of Director Concerned6) Certification from Practicing professional

REQUIREMENTS FOR FILING

THIS FORM:

DIN status shall bechanged to ‘Deactivateddue to non-filing ofDIR-3 KYC by which hecan not be appointed asDirector in any otherCompany and He can’tmention his DIN onany document inrelation to Company

CONSEQUENCES

OF NOT FILING OF

DIR-3 KYC:

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DATED10th

September, 2018

INCLUSION UNDER COMPANIES ACT 2013: -Rule 9A has been added to

Companies (Prospectus and Allotment of Securities)

Rules, 2014

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ABOUT THE AMENDMENT:Unlisted Public Company shall:Issue the securities only in dematerialized form after 02nd October 2018; andFacilitate dematerialization of all its existing securities Every holder of securities who intends to transfer such securities on or after 2nd October 2018 shall get such securities dematerialized before the transfer; orsubscribes to any security on or after 2nd October 2018 shall ensure that all his existing securities are held in dematerialized form before such subscriptionThe audit report provided under regulation 55A of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 shall be submitted by the unlisted public company on a half-yearly basis to the Registrar under whose jurisdiction the registered office of the company is situated.

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APPLICABILITY:Every Unlisted Public

Company having Share Capital

EXEMPTED•A Nidhi company•A government company •A wholly owned subsidiaryPrivate Companies

BENEFITS OF DEMATERIALIZATION :1) The risks pertaining to physical certificates like loss, theft, forgery and damage are eliminated completely with a DEMAT account.2) The lack of paperwork enables quicker transactions and higher efficiency in trading.3) There is no need for stamp duty for transfer of securities; this brings down the cost of transaction significantly.4) Loan against securities which are held in a DEMAT account is available by offering them as a collateral to the lender.5) Trading has become more convenient. 15

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DATED: 21st February 2019INCLUSION UNDER COMPANIES ACT 2013: - Rule 25A

has been added under Companies(incorporation) Rules,

2014.

E FORM: INC 22A

LAST DATE OF FILING 25TH April 2019

FEE FOR FILING Nil

LATE FEE FOR FILING 10,00017

COMPANIES

ELIGIBLE Every company (this means every company has to file this form irrespective of its constitution status) incorporated on or before the 31st December 2017 shall file Form INC 22A to provide particulars of the company relating to Registered Office, Directors of the Company, Auditors of the company and Annual filing Status of the Company

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RESTRICTEDCompanies who has notdone Annual Filing for theyear ending March 2018.

Companies, whose directorsKYC has not been filed

EXEMPTED Companies under Strike off or Liquidation by the registrar

Companies under merger or Amalgamation

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REQUIREMENT AS PER THE E FORM ACTIVE

• Latitude & Longitude of the Registered Office of the company

• Active EMAIL Id of the company as OTP will come on suchEMAIL ID

• Details of no. of director/s and also, SRN of MGT-14 ifMaximum Number of Directors are beyond limits prescribed inCompanies Act, 2013

• Details of statutory auditor/S

• Details of cost auditor/S (if any)

• Details of KMP20

• Photographs of inside office with sitting of at least one Directorand outside office also

• Digital Signature of Director who is present in photographmentioned above and Digital Signature of one KMP if Companyhas KMP otherwise Digital Signature of Other Director

• SRN no. of Annual Filing forms of 2017-18

• Certification of Form from Practicing Professional

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CONSEQUENCES OF NOT FILING E FORM ACTIVE

• The company shall be marked as “ACTIVE- non-complaint” thereupon till the default subsist.

• The “ACTIVE- non-complaint” companies berestrained from filing the following forms:➢SH-07 (Increase in Authorized Capital),➢ PAS-03 (Allotment of Shares),➢DIR-12 (Changes in Director except Cessation),➢ INC-22 (Change in Registered Office)➢ INC-28 (Amalgamation & Demerger)

• Physical Verification of Registered Office by theConcerned Registrar of companies

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Companies

(Incorporation) 2nd

Amendment Rule

2019

DATE OF NOTIFICATION:

6TH March, 201923

RULE 30(5)-The companies (Incorporation) Rules, 2014

The company shall, not more than thirty daysbefore the date of filing the application in Form No.INC.23 –(a)Advertise in the Form No.INC.26 in the

vernacular newspaper in the principal vernacularlanguage in the district and in Englishlanguage in an English newspaper with the widecirculation in the State in which the registeredoffice of the company is situated:

Provided that a copy of advertisement shall be servedon the Central Government immediately on its

publication.24

The application for allotment of DirectorIdentification Number upto three Directors,reservation of a name, incorporation of companyand appointment of Directors of the proposed for OnePerson Company, private company, public companyand a company falling under section 8 of the Act.Shall be filed in [FORM No. INC-32] (SPICe),. withthe Registrar, within whose jurisdiction theregistered office of the company is proposed to besituated along with the fee of rupees five hundred inaddition to the registration fee as specified in theCompanies (Registration of Offices and Fees)Rules. 2014.

Rule 38(2)The Companies(Incorporation) Rules, 2014:

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➢Provided that where an applicant has applied for reservation of a name under Rule 9 and which has been approved therein, he may fill the reserved name as proposed name of the company

➢Provided further that in case of companies incorporated, with effect from the 26th day of January, 2018, with a nominal capital of less than or equal to rupees fifteen lakhs or in respect of companies not having a share capital whose number of members as stated in the articles of association does not exceed twenty, fee on INC-32 (SPICe) shall not be applicable]

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COMPANIES

(AMENDMENT)

ORDINANCE, 2019

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DATE OF NOTIFICATION

14th JANUARY, 2019

INCLUSION UNDER COMPANIES ACT,

2013

SECTION10A Commencement of business etc.

INSIGHT TO THE ORDINANCE

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Section 10A: Commencement of business etc.

(1) A company incorporated after the commencement of theCompanies (Amendment) Ordinance, 2019 and having ashare capital shall not commence any business or exerciseany borrowing powers unless—

(a) A declaration is to be filed by adirector within a period of one hundredand eighty days of the date ofincorporation of the company in suchform and verified in such manner asmay be prescribed, with the Registrarthat every subscriber to thememorandum has paid the value of theshares agreed to be taken by him on thedate of making of such declaration; and

b) The company has filed with the

Registrar a verification of its registered office as provided in sub-section (2) of section 12.

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(2) If any default is made in complying with the requirements of this section, the company shall be liable to

a penalty of Rs. 50,000 and every officer who is in default shall be liable to a penalty of Rs. 1,000 for each

day during which such default continues but not exceeding an amount of Rs 1,00,000

(3) Where no declaration has been filed with the Registrar under clause (a) of sub-section (1) within a period of one hundred and eighty days of the date of incorporation of the company and the Registrar has reasonable cause to believe that the company is not

carrying on any business or operations, he may, without prejudice to the provisions of sub-section (2), initiate

action for the removal of the name of the company from the register of companies under Chapter XVIII 30

CHARGE AMENDMENT

The Ordinance seeks to reduce the timeline of 300 days

available under the first proviso to Section 77(1) dependingupon the timing of the creation of a charge by a company.In terms of the Ordinance, IN CASE OF CHARGES CREATEDBEFORE THE commencement of the Companies (Amendment)Ordinance, 2019, it should be filed within a period of threehundred days of such creation and if not filed in such periodthen the registration of the charge shall be made within sixmonths from the date of commencement of the Companies(Amendment) Ordinance, 2019, on payment of such additionalfees as may be prescribed and different fees may be prescribedfor different classes of companies.

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And In case of charges CREATED AFTER THE COMMENCEMENT OF THE COMPANIES

(AMENDMENT) ORDINANCE, 2019, it should be filed within a period of sixty days of such creation, on payment of such additional fees as may be prescribed

and if not filed in such period then the Registrar may, on an application, allow such registration to be made

within a further period of sixty days after payment of such ad-valorem fees as may be prescribed

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DATED: 2ND November 2018 and

further on 22nd January 2019

FORM: MSME FORM I

(form is not available for filing yet)

APPLICABILITY :Specified Companies means All companies who

get supplies of good and service from micro or small enterprises and

whose payment to micro or small enterprise suppliers exceeds forty

five days from the date of acceptance or deemed acceptance of the

goods or services) shall file Form MSME 1 to furnish details of all

outstanding dues to Micro or small enterprises suppliers existing on

the date of notification of this order. 34

NOTIFICATION NO 18 OF 2O13

GOVERNING PROVISION: -

Specified Companies

(Furnishing of information

about payment to

micro and small enterprise

suppliers) Order, 2019

PURPOSE:

With a view to assess the overall

financial health of MSME sector

and the promptness of payments

to MSME.

NON-APPLICABILITY:

Companies dealing

with Medium

Enterprises are not

covered here.

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BENEFITS OF REGISTRATION AS A MSME

1.Collateral Free loans from banks:The Credit Guarantee Fund Scheme for Micro and SmallEnterprises (CGS) was launched by the GOI to make availablecollateral-free credit to the micro and small enterprise sector. Boththe existing and the new enterprises are eligible to be covered underthe scheme. The Ministry of Micro, Small and MediumEnterprises, Government of India and Small IndustriesDevelopment Bank of India (SIDBI), established a Trust namedCredit Guarantee Fund Trust for Micro and Small Enterprises(CGTMSE) to implement the Credit Guarantee Fund Scheme forMicro and Small Enterprises.

2. A hefty 50% subsidy on Patent registrationEnterprises that have MSME Registration Certificate can avail 50% subsidy for patent registration by making application to respective ministry.

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3. 1% exemption on interest rate on overdraftEnterprises that have MSME Registration can avail benefit of 1% exemption on interest rate on OD as mentioned in the scheme (this is bank dependent).

4. Eligible for Industrial Promotion subsidyEnterprises that have MSME Registration are eligible for Industrial Promotion Subsidy as may be prescribed by the government in this behalf.

5. Concession in electricity bills:Enterprises that have MSME Registration Certificate can avail Concession on electricity bill by making application to electricity department along with MSME Registration Certificate.

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6. Protection against delayed paymentsIf any micro or small enterprise that has MSME registration, supplies any goods or services, then the buyer is required to make payment on or before the date agreed upon between the buyer and the micro or small enterprise. In case there is no payment date on the agreement, then the buyer is required to make payment within fifteen days of acceptance of goods or services. Further, in any case, a payment due to a micro or small enterprise cannot exceed forty-five days from the day of acceptance or the day of deemed acceptance. In case of failure by the buyer to make payment on time, the buyer is required to pay compound interest with monthly interest rests to the supplier on that amount from the agreed date of payment or fifteen days of acceptance of goods or service. The penal interest chargeable for delayed payment to a MSME enterprise is three times of the bank rate notified by the Reserve Bank of India.

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7. Reimbursement of ISO Certification chargesEnterprises that have MSME Registration Certificate can claim reimbursement of ISO Certification expenses by making application to respective authority.

8.Market assistance from the government and Export Promotion:

The Government of India organizes several exchange programs, craft fairs, exhibitions, and trade-related events internationally. Being categorized as a micro, small or medium enterprise gives access to all of these platforms for international cooperation on trade-related aspects with different countries and fosters new business connections. The government also incentivizes export of goods and services by MSMEs by way of subsidies, tax exemption, and technical support.

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FORM FILING

RETURNS TO BE FILED• Initial return within 30 days from the

date of MSME form available on MCA

portal.

• Subsequent Half yearly returns by

30th April and 31st October

respectively every year.

FEE FOR FILING Not Yet Specified

LATE FEE FOR FILING Not Yet Specified

DETAILS REQUIRED

❑Total outstanding amount due❑Reasons for the delay of payment and documents evidencing the same ❑Digital signature of Director❑Particulars of the supplier as required.

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Section 405 (4) of the Companies Act, 2013

FINE

On Company Fine up to Rs. 25,000

Officer in default Fine: minimum25,000 which may extend up to 3,00,000 ORImprisonment – up to 6 Months OR Both

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PURPOSE OF VALUATION :

We have to understand why valuation and respective valuers are required. There are two reasons:

❑ Legislative or Regulatory for example certain Section/Provision in Company Act, Income Tax Act, SEBI & RBI etc.

❑ Decision Making Buy or sale of business, Merger, Amalgamation, Acquisition or determination of fair market value etc.

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INSIGHTS TO THE NOTIFICATION

DATE OF NOTIFICATION:

18TH OCT, 2017

PURPOSE OF THE NOTIFICATION

1. To make uniformity in valuation process & outcome2. To make the professional working in disciplinedmanner.

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INCLUSION UNDER COMPANIES ACT, 2013

Section 247 Valuation by Registered Valuers

The valuation with respect to the Following any property, stocks, shares, debentures, securities or goodwill or any other assets (herein referred to as the assets) or net worth of a company or its liabilities Shall be valued by a person having prescribe qualification and registered as valuer under the provision of the Act.

Appointment by audit committee or in its absence by the Board of Directors of that company.

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Eligibility For Registered Valuers

(1) A person shall be eligible to be a registered valuer if he-

(a)Is a valuer member of a registered valuers organization;

Explanation.- For the purposes of this clause, "a valuer member" is a

member of a registered valuers organization who possesses the

requisite educational qualifications and experience for being

registered as a valuer;

(b)Is recommended by the registered valuers organization of which he

is a valuer member for registration as a valuer;

(c)Has passed the valuation examination under rule 5 within three

years preceding the date of making an application for registration

under rule 6;

(d)Possesses the qualifications and experience as specified in rule 4;46

(e)Is not a minor;

(f)Has not been declared to be of unsound mind;

g)Is not an undischarged bankrupt, or has not applied to be

adjudicated as a bankrupt;

(h)Is a person resident in India;

(i)Has not been convicted by any competent court for an offence

punishable with imprisonment for a term exceeding six months or for

an offence involving moral turpitude, and a period of five years has

not elapsed from the date of expiry of the sentence:

Provided that if a person has been convicted of any offence and

sentenced in respect thereof to imprisonment for a period of seven

years or more, he shall not be eligible to be registered;47

(j) Has not been levied a penalty under section 271J of Income-tax

Act, 1961 (43 of 1961) and time limit for filing appeal before

Commissioner of Income-tax (Appeals) or Income-tax Appellate

Tribunal, as the case may be has expired, or such penalty has been

confirmed by Income-tax Appellate Tribunal, and five years have not

elapsed after levy of such penalty; and

(k)Is a fit and proper person:

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QUALIFICATIONS AND EXPERIENCE

An individual shall have the following qualifications and experience

to be eligible for registration: -

• Post-graduate degree or post-graduate diploma, in the specified

discipline, from a University or Institute established, recognized

or incorporated by law in India and at least three years of

experience in the specified discipline thereafter; or

• A bachelor’s degree or equivalent, in the specified discipline, from

a University or Institute established, recognized or incorporated

by law in India and at least five years of experience in the

specified discipline thereafter; or

• Membership of a professional institute established by an Act of

Parliament enacted for the purpose of regulation of a profession

with at least three years' experience after such membership and

having qualification mentioned at clause above 49

CLASSIFICATION OF ASSETS:

All assets and Liabilities have been classified in three categories along with their specified domain professionals.

Assets Class Domain Professionals

A- Land & Building Civil Engineering

B- Plant & Machinery Mechanical OR Electrical Engineering

C- Securities and Financial Assets

Cost and Management Accountant, Company Secretary,

Chartered Accountant50

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REQUIREMENT FOR FILING DPT-03•Outstanding Amount of money or Loan taken by company in any manner•Auditor Certificate Certifying that amount

DATE OF NOTIFICATION: 22nd

January, 2019

EFFECTIVE DATE:

22nd January, 2019

FORM NO.: DPT-3

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ELIGIBLE COMPANY All Companies

EXEMPTED COMPANYGovernment Company

Onetime Return for disclosure of details ofoutstanding money or loan received by acompany but not considered as deposits in termsof rule 2(1)(c) of the Companies( Acceptance ofDeposits) Rules, 2014

23rd April 2019

Return of deposit OR Return for disclosures ofmoney or loan received by a company but notconsidered as deposits in terms of rule 2(1)(c) ofthe Companies(Acceptance of Deposits) Rules,2014 OR both

30th JuneEvery Year

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SECTION 2(31) of Companies Act, 2013

Deposit includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as prescribed under Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014

i) Any amount received from: • Central Government or a State Government, or

• any other source whose repayment is guaranteed by the Central Government or a State Government, or• from a local authority, or any amount received from a statutory authority constituted under an Act of Parliament or a State Legislature;

Rule 2(1)(c)

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ii) Any amount received from• foreign Governments,• foreign or international banks,• multilateral financial institutions (including, but not

limited to, International Finance Corporation, AsianDevelopment Bank, Commonwealth Development Corporationand International Bank for Industrial and FinancialReconstruction),

• foreign Governments owned development financialinstitutions,

• foreign export credit agencies, foreign collaborators, foreignbodies corporate and

• foreign citizens, foreign authorities or persons residentoutside India subject to the provisions of Foreign ExchangeManagement Act, 1999(42 of 1999) and rules andregulations made there under;

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iii) Any amount received as a loan or facility from• any banking company or from the State Bank of India or

any of its subsidiary banks or• from a banking institution notified by the Central

Government , or a corresponding new bank as defined.

iv)Any amount received as a loan or financial assistance from• Public Financial Institutions notified by the Central

Government in this behalf in consultation with the ReserveBank of India or

• any regional financial institutions or Insurance Companiesor Scheduled Banks as defined in the Reserve Bank of IndiaAct, 1934 (2 of 1934);

v) Any amount received against issue of commercial paper orany other instruments issued in accordance with the guidelinesor notification issued by the Reserve Bank of India;

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vi) Any amount received by a company from any other company;

vii) Any amount received and held pursuant to an offer made inaccordance with the provisions of the Act towards subscription toany securities, including share application money or advancetowards allotment of securities pending allotment, so long as suchamount is appropriated only against the amount due on allotmentof the securities applied for;

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viii) Any amount received from a person who, at thetime of the receipt of the amount, was a director of thecompany or a relative of the director of the Privatecompany:Provided that the director of the company or relative of thedirector of the private company, as the case may be,from whom money is received, furnishes to the companyat the time of giving the money, a declaration inwriting to the effect that the amount is not being givenout of funds acquired by him by borrowing or acceptingloans or deposits from others and the company shalldisclose the details of money so accepted in the Board'sreport;".

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ix) Any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pari passu with the first charge on any assets referred to in Schedule III of the Act excluding intangible assets of the company or bonds or debentures compulsorily convertible into shares of the company within ten years.Provided that if such bonds or debentures are secured by the charge of any assets referred to in Schedule III of the Act, excluding intangible assets, the amount of such bonds or debentures shall not exceed the market value of such assets as assessed by a registered valuer;

x) any amount received from an employee of the company notexceeding his annual salary under a contract of employmentwith the company in the nature of non-interest bearing securitydeposit;

xi) any non-interest bearing amount received and held in trust59

xii) any amount received in the course of, or purposes of, the business of the company,-(a) as an advance for the supply of goods or provision of services accounted for in any manner whatsoever provided that such advance is appropriated against supply of goods or provision of services within a period of three hundred and sixty five days from the date of acceptance of such advance:Provided that in case of any advance which is subject matter of any legal proceedings before any court of law, the said time limit of three hundred and sixty five days shall not apply:(b) as advance, accounted for in any manner whatsoever, received in connection with consideration for an immovable property under an agreement or arrangement , provided that such advance is adjusted against such property in accordance with the terms of agreement or arrangement;(c) as security deposit for the performance of the contract for supply of goods or provision of services;

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(d) as advance received under long term projects for supply of capital goods except those covered under item (b) above:(e) as an advance towards consideration for providing future services in the form of a warranty or maintenance contract as per written agreement or arrangement, if the period for providing such services does not exceed the period prevalent as per common business practice or five years, from the date of acceptance of such service whichever is less;(f) as an advance received and as allowed by any sectoral regulator or in accordance with directions of Central or State Government;(g) as an advance for subscription towards publication, whether in print or in electronic to be adjusted against receipt of such publications;

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(xiii) Any amount brought in by the promoters of the companyby way of unsecured loan in pursuance of the stipulation of anylending financial institution or a bank subject to fulfillment ofthe following conditions, namely:-(a) the loan is brought in pursuance of the stipulation imposedby the lending institutions on the promoters to contribute suchfinance;(b) the loan is provided by the promoters themselves or by theirrelatives or by both; and(c) the exemption under this sub-clause shall be available onlytill the loansof financial institution or bank are repaid and not thereafter;

xiv) any amount accepted by a Nidhi company in accordancewith the rules made under section 406 of the Act.

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xv) any amount received by way of subscription in respect of achit under the Chit Fund Act, 1982 (40 of 1982);

(xvi) any amount received by the company under any collectiveinvestment scheme in compliance with regulations framed bythe Securities and Exchange Board of India;

(xvii) an amount of twenty five lakh rupees or more received bya start-up company, by way of a convertible note (convertibleinto equity shares or repayable within a period not exceeding fiveyears from the date of issue) in a single tranche, from a person.

xviii) any amount received by a company from AlternateInvestment Funds, Domestic Venture Capital Funds,Infrastructure Investment Trusts, Real Estate InvestmentTrusts and Mutual Funds registered with the Securities andExchange Board of India in accordance with regulations madeby it.” 63

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The Banning of Unregulated Deposit Schemes Ordinance, 2019

The Banning of Unregulated Deposit Schemes Ordinance, 2019 was promulgated on February 21, 2019. Previously, a similar Bill was passed by Lok Sabha on February 13, 2019. However, it will lapse

with the dissolution of the 16th Lok Sabha. The Ordinance provides for a mechanism to ban unregulated deposit schemes and protect the

interests of depositors. It also seeks to amend three laws, i.e., the Reserve Bank of India Act, 1934, the Securities and Exchange Board

of India Act, 1992 and the Multi-State Co-operative Societies Act, 2002

Deposit: The Ordinance defines a deposit as an amount of moneyreceived through an advance, a loan, or in any other form, with apromise to be returned with or without interest. Such deposit may bereturned either in cash or as a service, and the time of return may ormay not be specified. Further, the Ordinance defines certainamounts which shall not be included in the definition of depositssuch as amounts received in the form of loans from relatives andcontributions towards capital by partners in any partnership firm

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Currently, nine regulators oversee and regulate various deposit-taking schemes.

These include:(i) the Reserve Bank of India (RBI),(ii) the Securities and Exchange Board of India (SEBI),(iii) the Ministry of Corporate Affairs, and(iv) state and union territory governments. For example, RBI regulates deposits accepted by non-banking financial companies, SEBI regulates mutual funds, state and union territory governments regulate chit funds, among others. All deposit-taking schemes are required to be registered with the relevant regulator. 66

INSIGHTS TO THE ORDINANCE

UNREGULATED DEPOSIT SCHEME:

A deposit-taking scheme is defined asunregulated if it is taken for a business purposeand is not registered with the regulators listed inthe Ordinance.

DEPOSIT TAKER:The Ordinance defines deposit takers as anindividual, a group of individuals, or a companywho asks for (solicits), or receivesdeposits. Banks and entities incorporated underany other law are not included as deposit takers.

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DESIGNATED COURTS:

The Ordinance provides for the constitution of one or more Designated Courts in specified areas. This Court will be headed by a judge not below the rank of a district and sessions judge, or additional district and sessions judge.

After provisional attachment of the deposit taker’s assets, the Competent Authority will approach the Designated Court to: (i) make the provisional attachment absolute, and (ii) (ii) ask for permission to sell the assets. The Competent

Authority will have to approach the Court within 30 days (extendable to 60 days). It will also open a bank account to realise and disburse money to depositors under the instructions of the Designated Court.

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DESIGNATED COURTS:

The Designated Court will have the power to:(i) make the provisional attachment absolute,(ii) vary or cancel the provisional attachment,(iii)finalize the list of depositors and their respective dues,(iv)direct the Competent Authority to sell the property and

equitably distribute the money realised among the depositors. The Court will seek to complete the process within 180 days of being approached by the Competent Authority.

Central database: The Ordinance provides for the central government to designate an authority to create an online central database for information on deposit takers. All deposit takers will be required to inform the database authority about their business. The Competent Authority will be required to share all information on unregulated deposits with the authority.

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COMPETENT AUTHORITY:The Ordinance provides for the appointment of one or more government officers, not below the rank of Secretary to the state or central government, as the Competent Authority. Police officers receiving information about offences committed under the Ordinance will report it to the Competent Authority. Further, police officers (not below the rank of an officer-in-charge of a police station) may enter, search and seize any property believed to be connected with an offence under the Ordinance, with or without a warrant. The Competent Authority may: (i) provisionally attach the property of the deposit taker, as well as all deposits received,(ii) summon and examine any person it considers necessary for the purpose of obtaining evidence, and (iii) order the production of records and evidence.

The Competent Authority will have powers similar to thosevested in a civil court. 70

OFFENCES AND PENALTIES:The Ordinance defines three types of offences, and penaltiesrelated to them. These offences are:(i) running (advertising, promoting, operating or accepting

money for) unregulated deposit schemes,(ii) fraudulently defaulting on regulated deposit schemes, and(iii) wrongfully inducing depositors to invest in unregulated

deposit schemes by willingly falsifying facts.

For example, accepting unregulated deposits will be punishablewith imprisonment between 2 and 7 years, along with a fineranging from 3 to 10 lakh rupees.

Defaulting in repayment of unregulated deposits will bepunishable with imprisonment between 3 and 10 years, and a fineranging from 5 lakh rupees to twice the amount collected fromdepositors. Repeated offenders under the Ordinance will bepunishable with imprisonment between five to 10 years, alongwith a fine ranging from Rs 10 lakh to5 crore rupees.

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DATE OF NOTIFICATION:

08/02/2019

APPLICABILITY AND PURPOSE:It is applicable to every significant beneficial owner(SBO) of the Company.The notification of Section 90 of the Act and the SBO Rules demonstrates the resolve of the Government of India to prevent the misuse of corporate vehicles by bringing in transparency regarding both the legal and beneficial owners (natural persons who are significant beneficial owners), the source of the Corporates assets, and its activities. This would allow the authorities to "follow the money" in financial investigations involving suspect accounts/assets heldby Corporates.

INCLUSION UNDER COMPANIES ACT, 2013

Section 90

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SIGNIFICANT BENEFICIAL OWNER

As per section 90 of Companies Act, Every individual, who, actingalone or together, or through one or more persons or trust,including a trust and persons resident outside India, holdsbeneficial interests, of not less than 25% or such other percentageas may be prescribed, in shares of a company or the right toexercise, or the actual exercising of significant influence orcontrol as defined in section 2(27) of the Act.

Rules Prescribed:

“Significant Beneficial Owner in relation to a reporting companymeans an individual referred to in section 90(1), who actingalone or, together, or through one or more persons or trust,

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who possesses one or more of the following rights or entitlementsin such company, namely: -1) Holds indirectly, or together with any direct holdings, not lessthan ten percent of the shares;2) Holds indirectly, or together with any direct holdings, not lessthan ten percent of the voting rights in the shares;3) Has the right to receive or participate in not less than tenpercent of the total distributable dividend, or any otherdistribution, in a financial year through indirect holdings alone,or together with any direct holdings;4) Has the right to exercise or actually exercises, directly orindirectly, significant influence or control, in any manner otherthan through direct holdings alone.

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Company Return

(BEN- 2)

The Company is required to file such declaration as received from a SBO within 30 days from the receipt, in form No.BEN-2 to the Registrar of Companies

RETURN FILING

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Initial Disclosure

Every individual who is an SBO in a reportingcompany, is required to file a declaration in Form No.BEN-1 to the reporting company within 90 days from8 February 2019

Continual Disclosure

Every individual, who subsequently becomes anSBO/ or where his significant beneficial ownershipundergoes any change, shall file a declaration inForm No. BEN-1 to the reporting company, within30 days of acquiring such significant beneficial

ownership or any change therein.

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REQUIREMENTS FOR FILING THIS FORM

•Name of the Significant beneficial owner•Address and e-mail id•Date of birth/ Age•Father’s/ Mother’s/ Spouse’s name• Occupation•Nationality•Passport No. (in case of foreign national)•Nature of indirect holding or exercise of right in the reportingcompany through member of the reporting company•Status of significant beneficial owner in the member of thereporting company•Whether significant Beneficial owner has any direct holdingor right in the reporting company.

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REGISTER OF SBO IN A

COMPANY

Every company is required to maintain a register of SBOs in Form No. BEN-3. Also, this register shall be open to for inspection during business hours, at such reasonable time of not less than two hours, on every working day as the board may decide, by any member of the company on payment of such fee as may be specified by the company but not exceeding fifty rupees for each inspection

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Every reporting company should in all cases where its member(other than an individual), holds not less than 10% of its; -(a) shares, or voting rights; or right to receive or participate in thedividend or any other distribution payable in a financial year,give notice to such member whom the company knows or hasreasonable cause to believe—to be a significant beneficial owner of the company; to be havingknowledge of the identity of a significant beneficial owner oranother person likely to have such knowledge; or to have been asignificant beneficial owner of the company at any time duringthe three years immediately preceding the date on which the noticeis issued, and who is not registered as a significant beneficialowner with the company as required under this section. Seekinginformation from such person, in Form No. BEN-4:

DUTY OF THE REPORTING

COMPANY 80

NON-APPLICABILITY OF

RULES:

• Investor Education and Protection Fund•Holding Reporting Company of the Reporting Company (however,details of such holding company have to be filed in Form No.BEN-2)•the Central Government, State Government or any localAuthority•any entity controlled by the Central Government or by any StateGovernment or Governments or partly by the Central Governmentand partly by one or more State Governments;

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•Investment Vehicles such as mutual funds, alternativeinvestment funds (AIF), Real Estate Investment Trusts(REITs), Infrastructure Investment Trust (InVITs)regulated by the Securities and Exchange Board ofIndia;•Investment Vehicles regulated by Reserve Bank ofIndia, or Insurance Regulatory and DevelopmentAuthority of India, or Pension Fund Regulatory andDevelopment Authority.

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The recovery action by creditors, either through the Contract Actor through special laws such as the Recovery of Debts Due toBanks and Financial Institutions Act, 1993 and theSecuritization and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002, has not had desiredoutcomes. Similarly, action through the Sick IndustrialCompanies (Special Provisions) Act, 1985 and the winding upprovisions of the Companies Act, 1956 have neither been able toaid recovery for lenders nor aid restructuring of firms. Lawsdealing with individual insolvency, the Presidential Townsinsolvency Act, 1909 and the Provincial Insolvency Act. 1920 arealmost a century old. This has hampered the confidence of thelender. When lenders are unconfident, debt access for borrowers isdiminished.

PURPOSE

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The objective of the new law is to promote entrepreneurship,availability of credit, and balance the interests of all stakeholdersby consolidating and amending the laws relating toreorganization and insolvency resolution of corporate persons,partnership firms and individuals in a time bound manner andfor maximization of value of assets of such persons and mattersconnected therewith or incidental thereto.The IBC offers a time-bound resolution process aimed atmaximizing the value of a distressed business. This will benefitnot just the creditor and debtor companies, but also the overalleconomy because capital and productive resources will getredeployed relatively quickly.

OBJECTIVE

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Insolvency

When an individual or organization is unable to meet its outstanding financial debt towards its lender as it become due.•an be resolved by way of changing the repayment plan of the loans or writing off a part thereof. If it cannot be resolved, then a legal action may lie against the insolvent and its assets will be sold to pay off the outstanding debts.

Insolvency vs Bankruptcy

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Bankruptcy

Legal procedure for liquidating a business (or property owned by an individual) which cannot fully pay its debts out of its current assets. Bankruptcy can be brought upon itself by an insolvent debtor (called 'voluntary bankruptcy') or it can be forced on court orders issued on creditors' petition (called 'involuntary bankruptcy')•On declaring him as ‘bankrupt’, the court is responsible to liquidate the personal property of the insolvent and hand it out to its creditors. It provides a fresh lease of life to the insolvent.

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A KEY NOVELTY OF THE INSOLVENCY AND BANKRUPTCYCODE IS FOUR PILLARS OF INSTITUTIONALINFRASTRUCTURE

(1) Insolvency ProfessionalsRegulated persons, the ‘Insolvency Professionals’. They would playa key role in the efficient working of the bankruptcy process. Theywould be regulated by ‘Insolvency Professional Agencies’.

(2) Information UtilitiesThese would store facts about lenders and terms of lending in electronic databases. This would eliminate delays and

disputes about facts when default does take place.88

(3) AdjudicationThe NCLT along with their Appellate bodies, viz., NCLAT and DRATs will be the forum where firm insolvency will be heard and DRTs will be the forum where individual insolvencies will be heard.

(4) RegulatorThe Insolvency and Bankruptcy Board of India’. This body will haveregulatory over-sight over the Insolvency Professional, InsolvencyProfessional agencies and information utilities.

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APPLICABILITY OF THIS CODE

Any company incorporated under the Companies Act, 2013 or under any previous company law;

Any Limited Liability Partnership incorporated under the Limited Liability Partnership Act, 2008;

Any other company governed by any special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act;

Partnership firms and individuals..

Such other body incorporated under any law for the time being in force, as the Central Government may, by notification, specify in this behalf; and

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A PRESENTATION BY:

Jitesh Gupta

FCS, PGD-TL, MIMA, MBA, IP

J. K. Gupta & Associates

( Company Secretaries )

257, Vardhman City Center-II,

Shakti Nagar Extension,

New Delhi-110052.

Contact Nos. : 011-23644447/ 49 / 9810043622

Email: jitesh@jkgupta.com

Website: www.jkgupta.com

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