All Directors are equally responsible

• 30 November, 2018

All directors are equally responsible for filing income tax return in time, and not the MD alone - Delhi High Court order dated 1.10.2018: http://lobis.nic.in/ddir/dhc/RKG/judgement/26-10-2018/RKG01102018CRLMM6022015.pdf

mCA has introduce new subsection (9)

• 21 November, 2018

*Update* MCA has introduced a new sub-section (9) in section 12 of the companies act, 2013 wherein it gives powers to the Registrar to visit any registered office of a company where it believes that there is no business going on in that premises, and in case there is default, i.e. he finds that there is actually no business or operations going on in that premises, he can take action for striking off the name of the company from the records of MCA.  Therefore, compliance for companies to show that business or operations are taking place in their registered offices - name plate of the company on the outside of the regd office, copy of certificate of incorporation and other statutory licenses to be displayed prominently on the walls of the R/O, keeping books of accounts, statutory registers, original documents, licences, share certificates, common seal, invoice books, bank documents (passbook, cheque book etc.) etc. to be kept at the R/O. All official documents like letter heads should carry the name, CIN, registered office address, GST no., telephone no., e-mail id, website (if any).   Where any registered office does not carry any business or operations, then request to shift the registered office itself to a new address, in the MCA records, where business or operations are taking place.

MCA update ,presidental gives nod to companies(Amendent) ordinance

• 21 November, 2018

*MCA Update* *Presidential gives nod to Companies (Amendment) Ordinance, 2018* Another set of complainces an oppoturnites to Professionals. These time atleast we all should join hands and come with a revenue structure which will be good enough fir the stress we would go thru in assisting client in there compliance. * *Key amendments (SECTION WISE)* which are to come through the Ordinance:- *1.* Decriminalization of over 80 offences. *2.* Tightening Disclosure of Benificial Interest. *3.* Simplying penalties for minor offences _(moving towards adjudication from prosecution)_. System of e-adjudication wherein ROC shall send online show cause notice, if not replied by company /director physical shall automatically be sent to the company, submission of reply online and posting of order online by ROC. Appeals to lie with RD. *Section 2(41) -* Change in Financial Year to be done by CG (to be delegated to RD). *Section 11 -* Re-introducing the Requirements of Obtaining Certificate of Commencement of Business. _Non-obtaining of the same to be a ground of Striking Off._ *Section 12 -* Non - Maintenance of Registered Office to be a ground for striking off of the Company. *Section 14 -* Conversion of Public Co to Private to be with Central Govt who can delegate it to ROC/RD & in case of bigger companies to NCLT. *Section 73 to 76 & Deposit Rules-* An e-form to be introduced for reporting transactions which are exempted deposits. *Section 77, 78 & 87 -* Maximum time period for registration/modification of charges to be 30 days + additional 30 days. _Further condonation to be done in 60 days._ *After total of 120 days Charge Cannot be Registered.* *Section 149 -* Stricter norms for IDs & capping of their sitting fee & remuneration. *Section 164, 165 & 167 -* Breach in Maximum no of Directorships to be a Ground for Disqualification. *Section 248-* Non-obtaining of Certificate of Commencement of Business and Non maintenance of Registered Office to be a Ground for Striking off by ROC. *Section 441 -* Compounding Compounding Threshold for going to NCLT to be revised to 25 lakhs from 5 lakh. Prior permission of Special Court not required for Compounding of offences punishable with imprisonment or fine or with both by NCLT. Minimum Compounding fee shall be as minimum fine mentioned in the section. *#CA_CS_Network*

Pending Matters related to Companies Act 1956

• 08 September, 2018

All matters under Companies Act 1956 to be transferred to NCLT: Calcutta HC* While interpreting provisions of the old and new Companies Act, a division bench of the Calcutta High Court has held that all matters that were pending before High Courts under the old law will be transferred to the NCLT. The division bench comprising Chief Justice Jyotirmay Bhattacharya and Justice Shekhar B. Saraf has upheld the single judge bench ruling in the same matter. The case in question is of oppression and mismanagement, which was filed under provisions of the Companies Act, 1956. In 1988, the 1956 Act was amended to transfer cases to the Company Law Board. Cases which were pending before the High Court prior to enforcement of 1988 amendment, were however retained with the High Courts. The Companies Act, 2013 (which repealed the 1956 law) then inserted Section 434 which expressly transferred, “all proceedings under the Companies Act, 1956, including proceedings relating to arbitration, compromise, arrangements and reconstruction and winding up of companies, pending immediately before such date before any District Court or High Court” to NCLT. The appellants argued that the legislature did not intend to transfer the proceedings pending prior to 1988, which are the ones which were saved by the 1988 amendment. They argued that only proceedings which were filed before the CLB would be transferred to the NCLT. And while Section 434 expressly transfers ‘all’ proceedings under the 1956 law to the NCLT, the appellants sought to take advantage of the language that follows in the provision, which limits those proceedings to those of compromise, arrangements and winding-up. They then asserted that the word ‘all’ in several instances has been interpreted in a restrictive manner depending on the context and subject, and also sought to apply a restrictive meaning to the term ‘includes’. The appellants also argued that Section 68 of the Amendment Act, 1988 being a transitional provision, which stands independently, would remain as long as the matters contemplated therein are not heard and disposed of by the High Court. With this backdrop, the division bench bucketed the dispute into the following four issues: (a) Whether the ouster of the jurisdiction of the High Court in relation to company matters needs to be express or the same may be ousted by implication? The Court held that the no express repealing of the jurisdiction is required and the same can be repealed by implication. It said the jurisdiction of the High Court in company matters being a special jurisdiction conferred by the 1956 Act, and not being a civil jurisdiction under the Code of Civil Procedure,1908, can always be ousted by the amendment of the enactment that conferred the said jurisdiction. (b) Whether parties to a lis can insist on continuing their dispute in the forum the same was initiated or have to bow down to the wishes to the legislature for transfer of the said jurisdiction to another forum? On this point, the Court ruled that a change of forum is not a choice of parties, but is the choice of the legislature. It further said the parties cannot contend that they have a vested right to continue in the forum the lis was initiated. “Forum is a matter of procedure and change of the same does not result in change of substantive rights of parties”, the Court ruled. (c) Whether the term “all” and “including” in Section 434(1)(c) of the 2013 Act are expansive in nature or the same is to be read in a restrictive manner? The Court found the term ‘including’ used in Section 434 of the 2013 Act to be expansive and not restrictive in nature. Accordingly, it ruled that all matters, without any exception, pending before the District Courts and High Courts would have to be transferred to the NCLT. (d) Whether Section 68 of the Amendment Act, 1988 continues to subsist regardless of the coming into force of Section 434(1)(c) of the 2013 Act in relation to matters that were filed in the High Court prior to coming into force of the Amendment Act, 1988? “The moment a new enactment comes into the statutory books, dealing with the same subject matter and specifically dealing with the same issue, and the transitional provision becomes inconsistent with the new enactment, the transitional provision has to go due to repugnancy”, the Court ruled. Accordingly, it ruled that Section 68 of the Amendment Act, 1988 would be (impliedly) repealed in view of the clear inconsistency.

SAT refuses to lift Sebi ban on Price Waterhouse

• 10 July, 2018

SAT allowed Price Waterhouse to continue the existing business till pendency of plea, but refused to grant stay on a two-year audit ban put in effect by Sebi.

The Securities Appellate Tribunal (SAT) on Friday did not grant relief to the Price Waterhouse (PW) network of audit firms on its interim plea seeking a stay on the Securities and Exchange Board of India (Sebi) ban of two years.

However, as a partial relief, the tribunal allowed PW to continue the existing business till pendency of plea even of companies whose business cycle or financial year started January 2018 though PW cannot take any new business.

SAT also said the plea would be disposed of within six weeks. The matter would be heard next on 13 February.

“We are happy that SAT has expressed its intention to resolve our appeal against Sebi on an expedited basis, and has set an expectation of a tight timeline of six weeks to dispose the appeal. The clarification that current engagements can continue through the year, is welcome,” said PW in a written statement.

Sebi on 10 January had banned all firms in the PW network from auditing listed companies for two years. Sebi found the audit firm guilty in the nine-year-old Rs7,136 crore Satyam Computer Services Ltd scam. In its 108-page order, the markets regulator said the firm was complicit with the main perpetrators of the accounting fraud and did not comply with auditing standards.

the audit firm filed an appeal in SAT on 17 January stating that remedial measures cannot take the form of a ban.

The petition also says that the Sebi order is not in line with the directions of the Bombay high court order of 2010.

In August 2010, the high court had ruled that no direction can be issued against PW if there is only some omission without proof of connivance and intent to fraud.

PNB Scam

• 10 July, 2018

The Punjab National Bank (PNB) scam could negatively impact around 10,000 people working in the gems and jewellery sector as business woes of Gitanjali Group and Nirav Modi firms continue.

In addition, the banking sector’s non-performing assets (NPAs) in the gems and jewellery sector may surge to 30 percent from the current 11 percent of loans disbursed in the troubled segment, said a Care Ratings report.

Following the disclosure of the PNB scam worth Rs 12,700 crore by the Delhi-based bank on February 14, the two group companies involved in the scam – three of Nirav Modi’s firms and his uncle Mehul Chokshi’s Gitanjali Group – have written letters to their employees asking them to look for other jobs as they would not be able to pay them their salaries.

The shutdown of Gitanjali Group and Nirav Modi firms could lead to:

Foreign trade in jewellery could decline by 5-6 percent in 2018-19.

Overall sale of jewellery could be impacted by as much as 16 percent

3,000 permanent staff of the two companies could lose jobs, which could further impact around 7,000-8,000 non-permanent staff directly or indirectly.

A simulation analysis shows that NPA ratio for this sector could climb to 30 percent.

Gitanjali Gems is among the largest jewellery retailers in the country, where the market is estimated at Rs 3,90,000 crore, that consists of 30 percent formal retailers. The two companies - Gitanjali and Nirav Modi - employed 648 and 2,200 employees respectively, as per a March 2017 filing.

"A combined 3,000 persons would be rendered jobless and another 7,000-8,000 temporary workers and employees at franchisees are expected to be affected. The sector employed 22,000 people as per data available for 22 companies of this sample of 34 companies and the two companies constitute 12-15 percent of the total industry workforce excluding craftsmen and temporary employees," Care Ratings said.

Impact of NPAs on banks

Amid large loans totalling over Rs 21,000 crore including direct loans given to the two groups, the Indian gems and jewellery sector may see a substantial increase in bad loans.

According to the ratings agency, stressed assets ratio for the banking system as of September 2017 was 12.2 percent, while the gems and jewellery sector reported 11.7 percent stressed advances ratio, which was lower than the sample average.

“With these two companies having reported borrowings of around Rs 16,000-17,000 crore (as per annual report and other sources and assuming there are no other loans from other banks than is reported), overall gross NPA ratio for this sector based on outstanding as of December 2017 (including the contingent liability falling due) and stressed assets as per RBI data for September 2017 would work out to around 30 percent,” it said.

In the report, Care has also highlighted that apart from employment and banks, the scam could have an adverse impact on developments in international trade and domestic revenue.

Gitanjali Gems Ltd and Firestar Diamonds (which has already filed for bankruptcy in the US) together also accounted for 5.8 percent of the diamond and jewellery trade in value terms in 2015-16. The sector accounted for around 13 percent of exports and 8 percent of imports in 2016-17.

NFRA

• 10 July, 2018

Cabinet approves setting up of NFRA

The union Cabinet today approved the regulatory authority for chartered accountants, the National Financial Regulatory Authority ( NFRA ). Finance Miister Arun Jaitely, while addressing the media today confirmed the same. The provision will initially apply to all listed companies and unlisted large companies. For others, the existing disciplinary mechanism under the Institute of Chartered Accountants of India (ICAI) will continue. Amended rules in this regard will notify later, Jaitley said. The authority will consist of 15 members, he added. Section 132 of the Companies Act, 2013 provides for establishment of National Financial Reporting Authority. However, the provision has not been notified yet. Under the provisions of the Companies Act, 1956, the Centre was to prescribe accounting standards prepared by ICAI in consultation with the National Advisory Committee on Accounting Standards (NACAS). Such powers are to be transferred to NFRA under the 2013 Act. Consequently, NFRA would have taken away several powers that are currently vested with ICAI. There were rumors that several chartered accountants had successfully lobbied with the government to block the notification. The issue had been on the backburner for the last few years but is now simmering again after Prime Minister Narendra Modi publicly aired his criticism over ICAI’s disciplinary record -a charge that the institute is now trying to cope with. At the CA Day event on July 1, Modi had said that just around 25 auditors had faced action in over a decade and around 1,400 cases were pending. ICAI is expected to fix the issue shortly, but that has not stopped the government from reopening the case for NFRA. The law provides for NFRA to look into matters of professional or other misconduct and also suspend CAs and firms from practising for six months to 10 years. This also comes at a time when ICAI is pushing to revise joint audit of Indian companies after its plea for a mechanism was rejected by a committee headed by former Competition Commission of India chairman Ashok Chawla in a report to the Prime Minister’s Office.