This newsletter aims to briefly discuss the key corporate law developments for the month of February 2022.

MCA

MCA notifies delegation of powers under Section 17 of LLP Act to Regional Directors.

February 11, 2022: The MCA vide its notification S.O 623(E) dated February 11, 2022, notified the delegation of powers by the Central Government vested in it under Section 17 of the LLP Act, to the Regional Directors at Mumbai, Kolkata, Chennai, New Delhi, Ahmedabad, Hyderabad and Guwahati, the powers and functions (6 of 2009). However, such delegated powers may be revoked or exercised by the Central Government, if the Central Government is of the opinion that such an action is necessary in the public interest.

Link here.

MCA notifies LLP (Amendment) Rules 2022, with effect from 1st April 2022.

February 11, 2022:  MCA vide its notification G.S.R.(E) dated February 11, 2022 notified the LLP (Amendment) Rules, 2022 (“Amendment”) to amend the Limited Liability Partnership Rules, 2009 (“LLP Rules”), to be effective from 1st April 2022, wherein the below amendments are being brought out:

1. Rule 5(2) of the LLP Rules provides that for the fees payable in pursuance to the Limited Liability Partnership Act, 2008 (“LLP Act”) or any rules or notifications thereunder, shall be paid into the Public Account of India. The first two provisos of Rule 5(2) that provided for mode of payment have now been omitted.
2. Rule 5(3) has been inserted which provides that the National Company Law Appellate Tribunal Rules, 2016 shall apply, mutatis mutandis, for filing an appeal under Section 72(2) and 72(3) of the LLP Act, 2008. Section 72 of the LLP Act, 2008 deals with the ‘Jurisdiction of the Tribunal and Appellate Tribunal’.
3. Rule 18(2)(xi) has been substituted to provide that the name of a Limited Liability Partnership (“LLP”) shall not generally be reserved if the proposed name is identical with or too nearly resembles the name of any other LLP or Company. Erstwhile, the Rule 18(2)(xi) posed similar restriction on resemblance to the name of a “firm” as well.
4. Rule 19(1) has been substituted to provide that a proprietor of a registered trade mark under the Trade Marks Act, 1999, alongside an LLP and a body corporate, as an entity can apply for changing the name of a subsequently incorporated LLP. Erstwhile, the provision extended to LLPs, body corporate or any other entity. The application under Rule 19(1) may be made to the Regional Director in Form 23, as opposed to Registrar under the previous rule. Further, a proviso to the Rule is added to provide that the application made by the proprietor of a registered trademark under Rule 19(1) shall be maintainable within a period of three years from the date of incorporation or registration or change of name of LLP under the Act.
5. Rule 19A has been inserted to provide for “Allotment of new name to existing LLP under sub-section (3) of Section 17”. Under Rule 19A(1), if an LLP fails to change its name or a new name according to the direction issued under Section 17(1) of the LLP Act within three months from when the direction was issued, then the new name of the LLP shall become - the letters ‘Order of Regional Director Not Complied’ (ORDNC), the year of passing of the direction, the serial number and the existing LLPIN of the LLP. Further, the Registrar shall accordingly make entry of the new name in the register of LLP and issue a fresh certificate of incorporation in Form No. 16A. Additionally, the proviso to Rule 19A(1) provides that Rule 19A(1) shall not apply in case e-Form LLP Form No-5 filed by the LLP is pending for disposal at the expiry of three months from the date of issue of direction by Regional Director unless the said e-Form is subsequently rejected.
6. Rule 19A(2) provides that in case of an LLP whose name has been changed according to Section 17(3) of the LLP Act shall immediately comply with the provisions of Section 21 which provides the requirements that invoices, official correspondence and publications of LLP need to bear. Accordingly, and the statement “Order of Regional Director Not Complied (under Section 17 of the LLP Act, 2008)” shall be mentioned in brackets below the name of LLP on its invoices, official correspondence, and publications. However, no such statement shall be required to be mentioned in case the LLP subsequently changes its name in accordance with Section 19 of the LLP Act which deals with ‘Change of Registered Name’.
7. Further, Rules 37A, 37B, 37C and 37D have been inserted wherein, (i) Rule 37A provides for the authority for adjudication of Penalties under the LLP Act, 2008; (ii) Rule 37B provides for the provision of appeal against the orders of the adjudicating officer; (iii) Rule 37C provides for the registration of the aforementioned appeal; and (iv) Rule 37D provides for the Regional Director disposing off the appeal against the said order of the adjudicating officer.

Link here.

MCA notifies the Appointment of ROCs as Adjudicating Officers under the LLP Act.

February 11, 2022: The MCA vide its order S.O(E) dated February 11, 2022, notified that the Central Government in exercise of powers conferred under Section 76A (Adjudication of Penalties) of the LLP Act, 2008 appointed specific Registrar of Companies as adjudicating officers in respect of specific jurisdictions.

Link here.

MCA notifies the Companies Accounts (Amendment) Rules, 2022.

February 11, 2022: MCA vide its notification G.S.R 107(E) dated February 11, 2022 notified the Companies (Accounts) Amendment Rules, 2022 to amend the Companies (Accounts) Rules, 2014, wherein the below amendments are being brought out:

1. Rule 12(1A) has been inserted which provides that every Non-Banking Financial Company (NBFC) that is required to comply with Indian Accounting Standards (Ind AS) shall file the financial statements with Registrar together with Form AOC-4 NBFC (Ind AS) and the consolidated financial statement, if any, with Form AOC-4 CFS NBFC (Ind AS).
2. Rule 12(1B) has been inserted which provides that every company covered under Section 135(1) of the Companies Act, 2013 (Corporate Social Responsibility), shall furnish a report on Corporate Social Responsibility in Form CSR-2 to the Registrar for the preceding financial year (2020-2021) and onwards as an addendum to Form AOC-4 or AOC-4 XBRL or AOC-4 NBFC (Ind AS), as the case may be. Further, the proviso to Rule 12(1B) provides that for the preceding financial year (2020-2021), Form CSR-2 shall be filed separately on or before 31st March 2022, after filing Form AOC-4 or AOC-4 XBRL or AOC-4 NBFC (Ind AS). Further, an additional Form (CSR 2) is required to be attached along with Form AOC-4 CFS.

Link here.

MCA notifies Section 1 to Section 29 of the LLP (Amendment) Act, 2021 with effect from April 01, 2022.

February 11, 2022: MCA vide its notification S.O (E) dated February 11, 2022, notified April 01, 2022 as the date on which the provisions of Section 1 to Section 29 of the LLP (Amendment) Act, 2021 shall come into force. In furtherance of the ‘ease of doing business’ in India, The LLP (Amendment) Act, 2021 provided for decriminalizing certain offences, introduced the concept of small LLPs and appointment of adjudicating officers/ special courts, etc.

Link here.

MCA notifies application of various provisions of Companies Act, 2013 to LLPs.

February 11, 2022: The MCA vide its notification G.S.R (E), dated February 11, 2022, exercising powers conferred under Section 67(1) of the LLP Act, 2008 has directed that the following provisions of the Companies Act, 2013 shall be, mutatis mutandis, applicable to LLPs–

1. Section 90 (meaning, LLPs will now have to maintain a register of significant beneficial owners in the LLP);
2. Section 164 (meaning, the provisions for disqualification of appointment of directors shall be applicable to the designated partners of an LLP);
3. Section 165 (meaning, no person shall become a designated partner in more than 20 LLPs);
4. Section 167 (meaning, the grounds as to the vacation of directors of a company shall be applicable to the designated partners of an LLP);
5. Section 206(5) (meaning, the central government may, in certain necessary cases direct the inspection of certain books and papers of an LLP by an inspector appointed by the central government);
6. Section 207(3) (meaning, notwithstanding anything or any other law, the inspector in-charge of inquiry shall have all the powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit in respect of the said inquiry);
7. Section 252 (meaning, any person aggrieved by an order of the Registrar, notifying an LLP as struck off pursuant to Section 75, may file an appeal to the Tribunal within a period of three years from the date of the order of the Registrar and if the Tribunal is of the opinion that the removal of the name of the company from the register of LLP  is not justified in view of the absence of any of the grounds on which the order was passed by the Registrar, it may order restoration of the name of the LLP in the register of the LLP); and
8. Section 439 (notwithstanding anything in the CrPC, 1973, every offence under this Act shall be non-cognizable).

Link here.

MCA relaxes levy of additional fees in filing of e-forms for financial year ended on March 31, 2021 under the Companies Act, 2013.

February 11, 2022: The MCA vide a General Circular No. 01/2022, dated February 14, 2022, relaxed levy of additional fees for annual financial statement/ return filings required to be done for the financial year ended March 31, 2021 keeping in view various requests received from stakeholders. It has been decided that no additional fees shall be levied up to March 15, 2022 for the filing of e-Forms AOC-4, AOC-4 (CFS), AOC-4 XBRL, AOC-4 Non-XBRL and up to March 31, 2022 for filing of e-Forms MGT-7/ MGT-7 A in respect of the financial year ended on March 31, 2021, respectively. During the said period, only normal fees shall be payable for the filing of the aforementioned e-Forms.

Link here.

SEBI

SEBI once again amends the Schemes of Arrangement by listed entities with respect to submission of NOC from banks, financial institutions and debenture trustees.

February 01, 2022: The Securities and Exchange Board of India (“SEBI”) vide master circular no. SEBI/HO/CFD/DIL1/CIR/P/2020/249 dated December 22, 2020 (“Master Circular”), had laid down the framework for schemes of arrangement by listed entities. Subsequently, the SEBI vide circular no. SEBI/HO/CFD/DIL1/CIR/P/2020/249 dated November 16, 2021, and circular no. SEBI/HO/CFD/DIL2/CIR/P/2021/659 dated November 18, 2021 (“Circulars”), notified certain changes to the Master Circular.

Per the Circulars, listed entities desirous of undertaking a scheme of arrangement are required to submit a No Objection Certificate (“NOC”) from the lending scheduled commercial banks/ financial institutions/ debenture trustees.

Now, the SEBI, vide this circular no.: SEBI/HO/CFD/DIL2/CIR/P/2022/11, has stated that listed entities desirous of undertaking a scheme of arrangement are required to submit a NOC only from the lending scheduled commercial banks/ financial institutions/ debenture trustees, from not less than 75% of the secured creditors in value.

Link here.

SEBI lays guidelines for mutual funds with respect to Indian Accounting Standards.

February 04, 2022: The SEBI, vide circular no. SEBI/HO/IMD-II/DOF8/P/CIR/2022/12 has come out with guidelines for Asset Management Companies (“AMCs”) with respect to following Indian Accounting Standards (“Ind AS”). This comes after SEBI vide notification dated January 25, 2022, amended the SEBI (Mutual Funds) Regulations, 1996 (“MF Regulations”), which inter-alia mandated that the AMCs shall prepare the financial statements and accounts of the mutual fund schemes in accordance with Ind AS with effect from April 01, 2023.

As per the circular, mutual fund schemes will have to prepare the opening balance sheet as on date of transition and the comparatives as per the requirements of Ind AS.

As per the MF Regulations, perspective historical per unit statistics requires disclosure of scheme wise per unit statistics for the past three years. In this regard, the circular states that mutual fund schemes may not be mandatorily required to restate the previous years published perspective historical per unit statistics as per requirement of Ind AS for the first two years from first time adoption of Ind AS.

However, mutual fund schemes will have to furnish certain additional information in perspective historical per unit statistics.

The additional information is related to labelling the previous Generally Accepted Accounting Principles (GAAP) information prominently as not being prepared in accordance with Ind AS; and disclosing the nature of the adjustments that would be required to make it comply with Ind AS. However, mutual funds schemes need not quantify those adjustments.

Further, the circular also provides the format in which the financial statements of the mutual fund schemes will have to be prepared.

Link here.

SEBI revises the format of disclosures in the abridged prospectus and specifies information to be disclosed on the cover page of the offer document.

February 04, 2022: The SEBI, vide circular no. SEBI/HO/CFD/SSEP/CIR/P/2022/14, has come out with a revised format for an abridged prospectus to further simplify, provide greater clarity and consistency in the disclosures on the front page of the offer document.

An abridged prospectus is a memorandum containing salient features of a prospectus as may be specified by the SEBI by making regulations in this behalf. The Companies Act, 2013 also stipulates that every application form for the purchase of any securities of a company must be accompanied by an abridged prospectus.

The SEBI has come up with a revised format as it felt that due to the multitude of information, which is required to be disclosed, the look and text on the front page appears to be crowded.

Further, the SEBI has mandated that a copy of the abridged prospectus must be made available on the website of issuer company, lead managers, registrar to an issuers and a link for downloading abridged prospectus must be provided in price band advertisement.

Further, it is the responsibility of the issuer company/ merchant bankers to ensure that the disclosures in the abridged prospectus are adequate, accurate and does not contain any misleading or misstatement.

Furthermore, the issuer company/ merchant banker is required to ensure that the qualitative statements in the abridged prospectus will be substantiated with key performance indicators (“KPIs”) and other quantitative factors. Also, no qualitative statement must be made which cannot be substantiated with KPIs.

Under the revised format, a company will have to disclose about name of the promoter, details of offer to public -- types of issue, fresh issue and Offer For Sale (“OFS”) component, total issue size -- and share reservations details on the front page of the abridged prospectus.

Also, the company is required to make disclosure about details of OFS by promoter, promoter group and other shareholders.

In the abridged prospectus containing salient features of the Red Herring Prospectus, the company will have to disclose about price band and minimum bid lot under the revised format.

Also, the issuer company has to disclose about indicative timelines for opening and closing of the issue, initiation of refunds, credit of equity shares to demat accounts of allottees and commencement of trading of equity shares among others.

Further, the issuer companies are required to insert a Quick Response code on the front page of the documents such as front outside cover page, abridged prospectus, price band advertisement, etc. as deemed fit by them. 

The scan of QR code must lead to downloading of prospectus, abridged prospectus and price band advertisement, as applicable.

The new framework will be applicable for all issues opening after February 04, 2022.

Link here.

SEBI directs AMCs to form audit committee from August 2022.

February 09, 2022: The SEBI, vide circular no. SEBI/HO/IMD/IMD-I DOF2/P/CIR/2022/17, has directed all AMCs to form audit committees which will be responsible for oversight of financial reporting process, audit process and compliance with laws and regulations, among others. The circular will come into force with effect from August 01, 2022.

This decision has been taken after taking into account the recommendation of Mutual Fund Advisory Committee and the feedback received from the industry and the circular lays down the role, responsibility, membership and other features of the audit committee of AMC.

The key role of the audit committee shall be to review the financial reporting processes, the system of internal controls and the audit processes for the mutual fund operations of the AMC. Besides, it would be required to ensure that the rectifications, if any, suggested by internal and external auditors are acted upon.

The members of the audit committee will be appointed by the Board of Directors of AMC. On composition of the audit committee, the circular states that the audit committee shall have minimum three directors as members and at least two-third members of the committee shall be independent directors of the AMC. If two-third of the total strength results into fraction, then higher number after rounding up shall be considered. Further, the Chairperson of the audit committee shall be an independent director, with adequate experience in the areas of finance and financial services.

As regards meetings of the audit committee, the circular provides that the chairperson is mandated to conduct at least four meetings in a financial year and there should not be a gap of over 120 days between two meetings.

Per the circular, the internal auditor has to submit its report to the audit committees of AMC and the board of AMC. Thereafter, the audit committee shall forward their observations on internal audit report, if any, to the trustees.

The circular also lays down detailed powers and responsibilities of the committee with respect to financial reporting, audit (internal and statutory) and internal controls, regulatory compliance and other functions.

Link here.

Key takeaways from SEBI’s Board Meeting held on February 15, 2022.

February 15, 2022: The SEBI in its meeting held on February 15, 2022 has approved various amendments such as making a segregation of roles of chairperson and MD/ CEO for listed entities on a voluntary basis, approval of amendments to the SEBI (Debenture Trustee) Regulations, 1993, the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 and the SEBI (Listing Obligations and Disclosure Requirements), 2015 (“SEBI (LODR)”) to align the regulatory framework.

Key highlights of the meeting are discussed hereunder:

1. SEBI makes segregation of role of Chairperson and MD/ CEO for listed entities voluntary.

The SEBI (LODR) was amended in May 2018 which mandated the separation of the role of chairperson and Managing Director (MD)/ Chief Executive Officer
(CEO) for the top 500 listed companies w.e.f April 01, 2020.

Per the amendment, the top 500 listed entities were required to ensure that the Chairperson of the board shall –

(a) Be a non-executive director;

(b) Not be related to the Managing Director or the Chief Executive Officer as per the definition of the term “relative” defined under the Companies Act, 2013.

Considering the various representations received from the industry, the deadline to comply with the above mandate was extended by two years in January 2020 i.e., till April 01, 2022.

The SEBI in its meeting held on February 15, 2022, reviewed the compliance status and found that the compliance level of the above norms stood at only 54%. The SEBI noted that expecting the remaining about 46% of the top 500 listed companies to comply with these norms by the target date i.e., April 01, 2022, would be impossible. Further, the SEBI has also received various representations from industry bodies and corporates regarding the difficulties and challenges faced by them to comply with this mandate.

Considering various representations received and constraints posed by the prevailing pandemic situation, the SEBI made the requirement for listed companies to separate roles of chairperson and MD & CEO as voluntary. Thus, the mandatory requirement is now set aside and it is now upon the listed companies to choose whether to separate the role of the chairperson and MD/ CEO or not.

2. Flexibility provided to Category-III Alternative Investment Funds (AIFs).

The SEBI in its meeting approved the amendment to the SEBI (Alternative Investment Funds) Regulations, 2012. The amended provisions will provide flexibility to Category-III AIFs to calculate the investment concentration norm based either on investable funds or net asset value of the fund while investing in listed equity of investee company. This will be subject to the conditions issued by the SEBI on a time-to-time basis.

3. Alignment of the regulatory framework for ‘security cover’, disclosure of credit ratings and due diligence certificate.

The Board also approved the amendments to the following regulations –

(a) The SEBI (Debenture Trustee) Regulations, 1993;

(b) The SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021; and

(c) The SEBI (LODR).

In order to align the regulatory framework for ‘security cover’ the term ‘asset cover’ has been substituted with the term ‘security cover’ in the SEBI (Debenture Trustee) Regulations, 1993, and the SEBI (LODR).

The SEBI has also approved the amendments to the SEBI (LODR) for prescribing the maintenance of security cover sufficient to discharge both principal and interest thereon.

Lastly, the SEBI has also given its approval for rationalising the disclosure requirement with regard to credit ratings. The SEBI has also decided to put in place the requirement of due diligence certificate for unsecured debt securities in the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021.

Link here.

RBI

Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances – Clarifications.

February 15, 2022: The Reserve Bank of India (“RBI”) vide its circular no. RBI/2021-2022/158 DOR.STR.REC.85/21.04.048/2021-22 provided certain clarifications on Master Circular on Prudential norms on Income Recognition, Asset Classification and Provisioning dated November 12, 2021 (“Circular”).

Vide this circular, RBI brought out the certain clarifications to the several queries received –

1. The definition of ‘out of order’, as clarified in the Circular, shall be applicable to all loan products being offered as an overdraft facility, including those not meant for business purposes and/ or which entail interest repayments as the only credits.
2. The ‘previous 90 days period’ for determination of ‘out of order’ status of a CC/ OD account shall be inclusive of the day for which the day-end process is being run.
3. In case of borrowers having more than one credit facility from a lending institution, loan accounts shall be upgraded from NPA to standard asset category only upon repayment of entire arrears of interest and principal pertaining to all the credit facilities.
4. The circular does not make any changes to the requirements related to reporting of information to CRILC, which will continue to be governed in terms of extant instructions for respective entities¹.
5. The circular does not, in any way, interfere with the extant guidelines on implementation of Ind-AS by non-banking financial companies (“NBFCs”).

RBI vide this Circular has also clarified that, Paragraph 10 of the Circular which stipulates that loan accounts classified as NPAs may be upgraded as ‘standard’ asset only if entire arrears of interest and principal are paid by the borrower. NBFCs shall have time till September 30, 2022 to put in place the necessary systems to implement this provision. All other instructions of the Circular shall continue to be applicable as per the timelines specified therein.

Link here.

New Definition of Micro, Small and Medium Enterprises – Clarification.

February 18, 2022: RBI vide its circular no. RBI/2021-2022/161 FIDD.MSME & NFS.BC.No.16/06.02.31/2021-22 provided a new definition of micro, small and medium enterprises.

Government of India, vide its Gazette Notification S.O. 278(E) dated January 19, 2022, has notified amendments in the paragraph (7) sub-paragraph (3) in the notification of Government of India, Ministry of Micro, Small and Medium Enterprises number S.O. 2119 (E), dated June 26, 2020, published in the Gazette of India.

In view of the above amendment, paragraph 3 of the said circular would stand modified as under –

“The existing Entrepreneurs Memorandum (EM) Part II and Udyog Aadhaar Memorandum (UAMs) of the MSMEs obtained till June 30, 2020 shall remain valid till March 31, 2022.”

Further, it is clarified that the validity of documents obtained in terms of O.M. No.12(4)/ 2017-SME dated March 8, 2017 (RBI Circular FIDD.MSME & NFS.BC.No.10/06.02.31/2017-18 dated July 13, 2017), for classification of MSMEs upto June 30, 2020, are also valid upto March 31, 2022.

Link here.

Withdrawal of Obsolete Regulatory Circulars/ Instructions basis the Interim Recommendations of RRA 2.0.

February 18, 2022: RBI vide its following notifications issued on February 18, 2022, has withdrawn around 100 circulars issued by various departments, as a part of the rationalisation exercise under Regulations Review Authority 2.0 (“RRA 2.0”) and its recommendations, in the manner stipulated under the respective notifications –

1. RBI/2021-22/169 DoR.RRA.89/01.01.101/2021-22
2. RBI/2021-2022/164 CO.DPSS.OVRST.No.S1477/06-08-001/2021-2022
3. RBI/2021-2022/162 DoS.CO.PPG./SEC.09/11.01.005/2021-22

Discontinuation/ Merger/ Online Submission of Returns basis the Interim Recommendations of RRA 2.0.

February 18, 2022: RBI vide its following notifications issued on February 18, 2022, has issued discontinuation/ merger/ online submission of returns of around 52