In India, the corporates are governed by several different regulators viz. the Ministry of Corporate Affairs (‘MCA’), Reserve Bank of India (‘RBI’), Department for Promotion of Industry and Internal Trade (‘DPIIT’) Securities and Exchange Board of India (‘SEBI’), Ministry of Finance (‘MoF’). Based on the type of corporate sectoral regulator, the specific rules and regulations are also required to be followed.
Due to the current scenario existent due to the spread of the COVID -19 pandemic, various relaxations have been offered by these regulators in order to ease the functioning of such corporates. Here we are summarizing the relaxations which are common to all type of corporate as follows:
Relaxation Given by the Ministry of Corporate Affairs (‘MCA’)
- The relaxations pertaining to the conduction of Board Meetings through Video Conferencing (‘VC’) or other Audio Visual Means (‘OAVM’)- The Companies Act, 2013 read with the rules framed thereunder allows the Company’s Board of Directors (‘BoD’) to conduct their meetings through VC or OAVM. All sorts of business agendas can be discussed and approved by the BoD where their approval is required through VC and OAVM except the following business agendas which require that the BoD meet in person to discuss and approve:
- the approval of the annual financial statements;
- the approval of the Board’s report;
- the approval of the prospectus;
- the Audit Committee Meetings for consideration of financial statement including consolidated financial statement if any, to be approved by the board under sub-section (1) of section 134 of the Act;
- the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.
Since the Financial Year of almost all companies in India ends on March 31 every year, the MCA has introduced the Companies (Meetings of Board and its Powers) Amendment Rules, 2020 wherein the MCA has allowed the Company’s BoD to discuss and approve the above restricted business agendas through their VC or OAVM meeting till June 30, 2020. Thus, the BoD can discuss and approve the above said business agendas through VC or OAVM till June 30, 2020 only.
- The extension for the conduction of Annual General Meetings for companies whose: financial year ended on December 31st, 2019: Every Company in India follows a financial year beginning from April 1 and ending of March 31 each year. However, Companies are allowed to follow different financial years in terms of Section 2(41) of the Companies Act, 2013. Also, every Company is required to hold its Annual General Meeting (‘AGM’) in terms of Section 96 of the Companies Act, 2013 within 6 months of closure of the financial year in cases where the AGM is other than the first AGM of the Company. Therefore, the Company whose financial year ends on December 31, 2019 is required to hold an AGM on or before June 30, 2020.
Under the current circumstances, where the means of communication and transportation has stopped due to the nationwide lockdown, it is tough for the companies to conduct an AGM within the due timeline. Taking into account the current situation, the MCA vide its circular dated April 21, 2020 offered an extension period of 3 months wherein the companies are allowed to hold their AGM for an extended period till September 30, 2020 without seeking an extension for holding the AGM from the jurisdictional Registrar of Companies (‘RoC’).
- The Postponement of the Applicability of CARO 2020: The MCA introduced the Companies (Auditor's Report) Order, 2020 [CARO, 2020] on February 25, 2020 wherein the Auditors of the Company are required to report upon certain specific financial matters. Prior to the induction of CARO, 2020, the Companies (Auditor's Report) Order, 2016 was in force. With the introduction of CARO, 2020 the auditor of the Company, to which CARO, 2020 is applicable, is required to mandatorily annex to his report a report on CARO, 2020 also from the financial Year 2019-2020 itself. Given the quantum of details required to be reported in CARO 2020, additional audit procedures are required to be followed by the Auditor which is not possible for the auditor under the given pandemic situation. Therefore, the MCA vide its circular dated March 24, 2020 has directed to follow the CARO, 2020 from the financial year 2020-21 onwards.
- Relaxations with regards to the Non Dispatch of Notces under Section 62 of the Companies Act, 2013 by the Listen Companies: The Listed Companies are going for Rights issue of Equity Shares to finance its activities in order to combat the liquidity crunch caused by the COVID-19. In terms of Section 62 of the Companies Act, 2013 companies are required to send the notices to its shareholder through a registered post or speed post or through electronic mode or courier or any other mode having proof of delivery to all the existing shareholders at least three days before the opening of the issue. The MCA has received various representations wherein requests were made to exempt the delivery of notices due to threat posed by the COVID 19 therefore, taking into consideration the various representations MCA vide its circular dated May 11, 2020 has allowed that right issue of all listed Companies opening till July 31, 2020 will be exempted from the violation of Section 62 of the Companies Act, 2013 with regard to non delivery of notices.
- The extension of the last date of filing of the NFRA Form: The Companies which are required to file Form NFRA for the financial year 2018-19 were given a timeline to file the said form within 150 days from the date of deployment of the said form on the website of National Financial Reporting Authority (‘NFRA’). Since the form is not deployed yet therefore, the timeline has been extended from 150 days to 210 days from the date of deployment of the form.
- Extension of time to register as an Independent Director: In terms of Rule 6 of the Companies (Appointment and Qualifications of Directors) Rules, 2014 an individual who has been or intends to become an Independent Director on the Board of a Company is required to apply online to the institute for the inclusion of his name in the data bank for a period of one year or five years or for his life-time within 5 months. Now this 5 month period has been extended to 7 months vide an MCA notification dated March 29, 2020.
- The Companies Fresh Start Scheme, 2020 (‘CFSS Scheme’): Every Company in India is required to file various Statutory Compliances with the Registrar of Companies through E-forms within certain time slots failing which causes different amounts of penalties and even prosecution in some cases.. These compliances, amongst others, include, the filing of Financial Statements, Annual Return, Resolutions, Agreements etc. The MCA has received various representations from companies asking to provide one time opportunities to file various statutory returns or forms with the RoC without any penalty i.e. additional fee. After considering the representations and in the interest of the companies in India the MCA introduced, the “Companies Fresh Start Scheme, 2020” which shall provide a one-time opportunity to the companies which failed to file the various forms and returns within the due timeline thereby allowing companies a waiver from paying additional fees and granting of immunity from launching of prosecution or proceedings for imposing a penalty on account of delay associated with certain flings. Companies can take advantage of this scheme beginning from April 01, 2020 till September 30, 2020. Companies are allowed to file a total number of 78 E-forms under this scheme.
- Conduction of Extraordinary General Meetings (‘EGM’) through Video Conferencing (‘VC’) or Other Audio Visual Means (‘OAVM’): An EGM is convened by a Company in order to get approval from members of the company upon business agendas other than the ordinary business items. In the current pandemic situation where the gathering of members at a common venue is not possible due to nationwide lockdown and it is unavoidable on the part of company to defer EGM convening, the MCA after taking into account the various representations from stakeholders, allowed the companies to convene and conduct the EGM till 30.06.2020 through VC or OAVM. A detailed procedure is prescribed by the MCA for convening and conducting the EGM through VC or OAVM in its circular dated April 08, 2020.
- Conduction of the Annual General Meeting (‘AGM’) through Video Conferencing (‘VC’) or Other Audio Visual Means (‘OAVM’): After allowing the companies to convene and conduct urgent EGM’s through VC or OAVM, the MCA has received representations from several companies to allow AGM’s through VC or OAVM also. During representations and continuing restrictions on the movement of persons at several places in the country, it has been decided by the MCA to allow the companies to conduct their AGM’s through VC or OAVM during the calendar year 2020. A detailed procedure is prescribed by the MCA for convening and conducting AGM through VC or OAVM in its circular dated May 05, 2020.
- The LLP Settlement Scheme, 2020: It has come to the notice of Government that a large number of LLPs have defaulted in filing of Form (3), Form-8 and Form-1. In the event of requisite forms not being filed within the prescribed time, the LLPs may file such documents upon payment of additional fee for one hundred rupees for every day of such a delay in addition to any fee as is payable for filing of such document or return. The MCA has received various representations on the above issue and after considering the issue the MCA has issued a scheme dated March 04, 2020. According to the scheme, the defaulting LLPs which have not been filed or registered in time the required documents can file such documents upon the payment of an additional fee of Rs 10/ - per day only for the delay in addition to any fee as is payable for filing of such document or return, provided that such payment of additional fee shall not exceed Rs. 5,000/- per document.
Initially, this scheme was introduced for a period commencing from 16th March, 2020 which shall remain in force up to 13th June, 2020.But the period for availment of benefits offered under this scheme has been modified by the MCA commencing from April 01, 2020 till September 30, 2020.
Relaxation Given by the RBI, DPIIT and MoF:
- Recovery of Export Proceeds: In terms of Foreign Exchange Management (Export of Goods & Services) Regulations, 2015 the export proceeds shall be realized and repatriated to India within 9 months or within such a period as may be specified by the RBI in consultation with the Government where the goods are exported to a warehouse established outside India. Keeping in view the current pandemic situation the RBI has extended the period of realization upto 15 months or within such period as may be specified by the RBI in consultation with the Government.
Also where the export of goods / software / services has been made by Units in Special Economic Zones (SEZ) / Status Holder exporter / Export Oriented Units (EOUs) and units in Electronics Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) and Bio-Technology Parks (BTPs) the amount representing the full export value of goods or software shall be realized and repatriated to India has been changed to ‘within said time’ from earlier nine months or within such period as may be specified by the Reserve Bank, in consultation with the Government, from time to time, from the date of export.
- Increase in Foreign Portfolio Investment (‘FPI’) Limit in Corporate Bonds for the F.Y. 2020-21: The RBI has increased the investment limit in Corporate Bonds by FPI for the financial year 2020-21 to 15 %..
- No Foreign Investment in Indian Entitie from the Countries with which India shares Land Borders:In order to curb the hostile acquisition of shares from Indian Stock markets at relatively low prices due to the COVID-19 impact, DPIIT has issued a press release (No. 3 of 2020) wherein it restricted the acquisition of shares by the an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country. These entities or citizen can invest only through Government route.
Above press release has modified the para 3.1.1. of the FDI policy, 2017. Further to give effect to the above press release there was a requirement to modify the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 therefore, MoF through its Department Economic Affairs introduced Foreign Exchange Management (Non-debt Instruments) Amendment Rules, 2020 (‘NDI Amendment Rule’) to substitute the exiting proviso in sub clause (a) in the Rule 6. The NDI Amendment Rule was effective from April 22, 2020.
- The Acquisition of shares through Renunciation of Rights and 100% FDI in Insurance Intermediaries: The MoF through its Department Economic Affairs introduced Foreign Exchange Management (Non-debt Instruments) Second Amendment Rules, 2020 wherein it introduces a new Rule 7A relating to acquisition of shares by person resident outside India through renunciation of rights and amended serial number F.8.1. of thee table in Schedule 1 which relates to “Insurance”. Now in terms of the amendment 100% FDI is allowed through automatic route for Insurance Intermediaries including insurance brokers, re-insurance brokers, insurance consultants, corporate agents, third party administrator, Surveyors and Loss Assessors and such other entities, as may be notified by the Insurance Regulatory and Development Authority of India from time to time.
The third phase of lockdown (3.0) in India is going to be completed on May 17, 2020. Given the increase in number of COVID cases it is expected that lockdown 4.0 will be introduced from May 18, 2020 onward till May 29, 2020. Therefore, some more relaxation with regard to compliances and procedures can be introduced in due course by the regulators.
Under the present scenario wherein the lockdown seems imminent owing to the spread of the Covid-19 virus all over the nation, especially the containment zones, the restrictions imposed as well as the above temporary relaxations shall prove to be very beneficial for all companies and will end up enabling such companies to avoid penalties on account of unavoidable delays in meeting with their regulatory compliances. However, these companies ought to comply with any other regulatory requirement that has not been specifically relaxed such as the disclosures under Regulation 30 of the LODR so as to remain up to date with everything else that is yet to see any change or relaxations owing to the current circumstances.
However, in totality, these above relaxations have been deemed as necessary and mandatory by most regulatory authorities as in the absence of these, there would be little avenue left for almost every company to comply with the regular rules and compliances given under the Act.