Buzz on Corporate Laws: eNewsletter: September 2014 issue

P. K. PANDYA & CO.
Practising Company Secretary
www.pkpandya.com
BUZZ ON CORPORATE LAWS
September 2014
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Contents
Ministry of Corporate Affairs...................................................................................................................2
MCA Circulars:.....................................................................................................................................2
Company Law Settlement Scheme, 2014 - General Circular No. 34 dated 12 August 2014: ............2
Clarification with regard to Accounting Standard 10 – Capitalization of Cost - General Circular No.
35 dated 27 August 2014:................................................................................................................4
Notifications........................................................................................................................................5
Amendment in CSR Rules, 2014 vide Notification No. 644 (E) dated 12th
September 2014:............5
Clarification (stand changed!) that salaries to regular CSR staff and company volunteers would
not qualify as CSR expenditure: General Circular no. 36 dated 17 September, 2014: .....................5
Amendment in Companies (Appointment and Qualification of Directors) Rules, 2014 vide
Notification No. 671(E) Dated 18 September 2014 (Gazette copy not yet available): .....................6
Amendment in Schedule II of the Companies Act, 2013 – vide notification 627 (E) dated 29 August
2014: ...............................................................................................................................................8
SEBI.......................................................................................................................................................10
Offer for sale (OFS) of shares through stock exchange – expanding framework – Circular dated 08
August 2014:.....................................................................................................................................10
Revised format of annual disclosure under regulation 30 of Takeover Regulations, dated 25 August
2014:.................................................................................................................................................11
Clarification on ICDR Second Amendment – Circular dated 11 September 2014: .............................11
RBI ........................................................................................................................................................11
ECB in Indian Rupees – flexibility extended – RBI Circular dated 03 September, 2014: ....................11
Issue of equity shares under the FDI Scheme against legitimate dues – Circular dated 17 September,
2014:.................................................................................................................................................12
Disclaimer: The contents are general information and should not be treated as legal advice or legal opinion
by P. K. Pandya & Co. Readers are advised to seek legal advice, refer the applicable law and sole reliance
on the content of this write-up is not recommended. If this write-up is circulated, content of this disclaimer
and credit to P. K. Pandya & Co. shall be retained. Views expressed herein may differ from the position
adopted by P. K. Pandya & Co. while advising clients. © P. K. Pandya & Co. 2014, 2015.

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Ministry of Corporate Affairs
MCA Circulars:
Company Law Settlement Scheme, 2014 - General Circular No. 34 dated 12 August 2014:
For companies who have not filed their annual return and audited financial
statements, one of the major hurdles is additional filing fees – which under the new
law is increased. It is also known that non-filing of these annual documents with
the ROC not only leads to prosecution of officers in default but also disqualification
of directors under section 164 of the Companies Act, 2013 (if not filed for a
continuous period of three financial years). Further, penalty amount is increased
under the Companies Act, 2013 and repeated offence is punishable u/s.451 with
twice the amount of fine.
MCA has introduced Company Law Settlement Scheme (CLSS) 2014 thereby
charging a reduced additional fee of 25% of the actual additional fees payable;
condoning the delay in filing specified documents with the ROC and granting
immunity not only from prosecution but also from disqualification of directors
under the said section 164.
Specified document which can be filed under CLSS, 2014:
1. Annual Return in e-form 20B (form 21A for companies not having share
capital)
2. financial statement in e-form 23AC, 23ACA (including XBRL)
3. Compliance Certificate, if applicable, in e-form 66

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4. Intimation of appointment of auditor in e-form 23B
The Scheme is not applicable to:
1. Companies against whom an action initiated by ROC to striking off its name
under section 560 of the Companies Act 1956;
2. Companies who have filed application with ROC to strike its name u/s.560 of
the Companies Act, 1956
3. An application is filed u/s. 455 of the Companies Act, 2013 for declaring it as
dormant company
4. Vanishing companies.
The CLSS also gives an opportunity to inactive companies to either get itself
declared as ‘Dormant Company’ under section 455 of the Act at a reduced fee or
apply for striking off its name by filing e-form FTE at 25% of the fees payable for the
said form.
Cut-off date is 30 June 2014 i.e. if specified documents are not filed though became
due and required to be filed on or before 30th
June 2014.
After filing said documents under CLSS 2014, Company need to apply for immunity
(as aforesaid) in e-form CLSS-2014. No filing fees payable for the same.
ROC will withdraw prosecution(s), if any, pending before Companies applying for
indemnity under the CLSS, 2014.
Immunity is not made available to matters in appeal before court of law or in cases
of management dispute pending before court of law or tribunal.

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It is also clarified that companies who have filed documents (as specified above)
after 01 April 2014 but before commencement of CLSS, 2014 i.e. 15 August 2014,
immunity from disqualification u/s.164 (2) of the Companies Act, 2013 is extended
to them as well. [General Circular no. 41/2014 dated 15 October 2014]
The scheme is valid till December 31, 2014 (vide General Circular no.44 dated 14
November, 2014). Originally it was valid till 15 October 2014. Later it was extended
till 15 November 2014 vide General Circular no. 40/2014 dated 15 October 2014.
For a copy of circular, click here.
http://mca.gov.in/Ministry/pdf/circular_34_13082014.pdf
Clarification with regard to Accounting Standard 10 – Capitalization of Cost - General
Circular No. 35 dated 27 August 2014:
It is clarified that only those borrowing cost incurred during extended delay in
commercial production, which increases worth of the fixed assets can be
capitalized.
MCA also clarified that cost incurred during the extended delay in commencement
of commercial production after the plant is otherwise ready does not increase the
worth of the fixed assets and hence such cost, shall not be capitalized. It is also
clarified that AS 16 and AS 10 shall be applicable to all Power Projects “Cost Plus
Projects” and “Competitive Bid Projects”
For copy of circular, click here.

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Notifications
Amendment in CSR Rules, 2014 vide Notification No. 644 (E) dated 12th September
2014:
Rule 4(6) is amended to provide that administrative overheads shall also be
considered while calculating upper limit of 5% of total CSR Expenditure that a
company make in one financial year.
For copy of notification, click here.
http://mca.gov.in/Ministry/pdf/NCA_Rules_12092014.pdf
Clarification (stand changed!) that salaries to regular CSR staff and company
volunteers would not qualify as CSR expenditure: General Circular no. 36 dated 17
September, 2014:
As per CSR Rules, 2014 notified on 27.02.2014, companies were allowed to build
CSR capabilities of their personnel as well as those of their implementing agencies
through institutions with an established track records of at least three (3) financial
years. And expenditure for the same were capped at five per cent. (5%) of the total
CSR expenditure of the company in one financial year.
MCA vide notification dated September 12, 2014 included overhead and
administrative expenses within the limit of (5%) five per cent cap that companies
are allowed to spend on CSR capabilities.
MCA Circular No. 21 of 2014 dated 18th
June, 2014 issued few clarifications relating
to provisions of section 135 of the Companies Act, 2013 and CSR Rules, 2014. As
per clause (iv) of the said circular, salaries paid by the companies to regular CSR
staff as well to volunteers of the companies (in proportion to company’s

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time/hours spent specifically on CSR) were qualified as CSR expenditure towards
CSR project.
However MCA has now clarified vide this circular, that the clause (iv) of the circular
stands as deleted and therefore salaries paid by the companies to regular CSR staff
as well as to volunteers of the companies now do not qualify as CSR expenditure
towards the cost of CSR project. Thus, these expense would not attract cap of 5%
total CSR expenditure in a financial year.
Amendment in Companies (Appointment and Qualification of Directors) Rules, 2014
vide Notification No. 671(E) Dated 18 September 2014 (Gazette copy not yet
available):
Certain provisions in Companies (Appointment and Qualification of Directors)
Rules, 2014 has been amended.
While disclosing all the details in the data bank of persons offering to become
independent director, Income-tax PAN shall not be disclosed. Only father’s name is
required to be disclosed, mother’s or spouse name is not required.
Any person who desires to get his name included in the data bank of independent
directors can make an application to agency in any format for the time being, since
Form DIR-1 has been omitted vide this notification.

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Form DIR-3 (Application for DIN) has to be verified before signing the form by the
applicant. There is no requirement of giving verification in Form DIR-4 at the time
for applying DIN since Form DIR-4 has been omitted vide this notification.
New Form DIR-3A has been introduced for those persons who does not have a last
name, then his or her father’s or grandfather’s surname shall be mentioned in the
last name along with the declaration in aforesaid form.
Now, the application number will be generated automatically on submission of
Form DIR-3 on MCA portal. There is no such concept of provisional DIN since DIN
having status as approved is being allotted to the applicant as per new guidelines.
Those companies who cannot file their returns on MCA since the view signatory
details is not updated due to non-filing of Form DIN-2 and DIN-3. MCA vide this
notification has introduced Form DIR-3B and Form DIR-3C in lieu of Form DIN-2 and
Form DIN-3 for those companies to update their view signatory details and update
their filing status.
Every directors who has been appointed on or before the 30th
June, 2007 and who
has not yet intimated his DIN to such company or companies shall, within 1 month
of the receipt of DIN from the Central Government, intimate his DIN to the
company or all companies wherein he is a director in Form DIR-3B and the company
shall within 15 days of receipt of Form DIR-3B intimate the DIN to ROC in Form DIR-
3C
The particulars in Form DIR-3 (Application for DIN) and DIR-6 (Intimation of change
in particulars of DIN Application) has been changed. Verification in Form DIR-7 is
not required to be given at the time of filing Form DIR-6.

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Application for surrender of DIN has to be made in Form DIR-5 along with the
required fees.
http://mca.gov.in/Ministry/pdf/NCA_Rules_18092014.pdf
Amendment in Schedule II of the Companies Act, 2013 – vide notification 627 (E)
dated 29 August 2014:
Schedule II to the Act relates to useful lives for computing depreciation.
(a) Amendment in paragraph 3 in Part A – sub-para (i) substituted.
It is amended to provide that “The useful life of an asset shall not ordinarily be
different from the useful life specified in Part C and the residual value of an asset
shall not be more than 5% of the original cost of the asset.
Provided that where a company adopts a useful life different from what is specified
in Part C or uses a residual value different from the limits specified above, the
financial statement shall disclose such difference and provide justification in this
behalf duly supported by technical advice”
MCA has clarified vide this notification, that provided proper justification
supported by technical advice is given, the company can adopts a different useful
life of an asset than stated in Part C and can use a different residual value than
stated above.
(b) After Part C, paragraph 4 substituted.

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Useful life specified in Part C of the Schedule is for whole of the asset and where
cost of a part of the asset is significant to total cost of the asset and useful life of
that part is different from the useful life of the remaining asset, useful life of that
significant part shall be determined separately.
MCA vide this notification has clarified that the aforesaid requirement shall be
voluntary in respect of the financial year commencing on or after the 1st
April, 2014
and mandatory for financial statements in respect of financial years commencing
after 1st
April, 2015
(c) Amendment in Paragraph 7 (b)
Prior to the amendment, the company was mandatorily required to adjust the
carrying value of an asset to opening balance of retained earnings where the
remaining useful life of an asset is nil.
Now, MCA vide this notification has clarified that the company has an option to
adjust the carrying value of an asset to retained earnings. It is not a mandatory
requirement.
http://mca.gov.in/Ministry/pdf/Amendment_Notification_29082014.pdf

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SEBI
Offer for sale (OFS) of shares through stock exchange – expanding framework –
Circular dated 08 August 2014:
OFS mechanism has been successfully used to divest promoter stake. Its guideline
has been modified.
Per modification:
More companies are eligible to use OFS through stock exchange.
Even non-promoter shareholders with 10% or more holding in a company are
allowed to use OFS route. In such case, promoter can bid and purchase offered
under OFS by non-promoter shareholder, subject to compliance of applicable laws,
including SEBI Takeover regulations.
Under OFS, retail participation is reserved – i.e. minimum 10% of OFS shall be
reserved for retail investors (i.e. bid value of Rs. 2 lakh or less across exchanges).
Cut off price shall be determined separately for retail and non-retail category.
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1407495883694.pdf

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Revised format of annual disclosure under regulation 30 of Takeover Regulations,
dated 25 August 2014:
SEBI has revised format of annual disclosure under regulation 30 (1) and 30 (2) of
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
Clarification on ICDR Second Amendment – Circular dated 11 September 2014:
SEBI at its meeting has approved certain reforms to revitalize the market including
increasing the investment bucket for anchor investor and making certain
amendments to regulations concerning the preferential issue norms.
RBI
ECB in Indian Rupees – flexibility extended – RBI Circular dated 03 September, 2014:
All eligible borrowers are eligible to raise ECB in Indian Rupees from foreign equity
holders as per the extant ECB guidelines.
With a view to providing greater flexibility for structuring of ECB arrangements, it
has been decided that recognised non-resident ECB lenders may extend loans in
Indian Rupees subject to the following conditions:

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a) The lender should mobilise Indian Rupees through swaps undertaken with an
Authorised Dealer Category-I bank in India.
b) The ECB contract should comply with all other conditions applicable to the
automatic and approval routes as the case may be.
c) The all-in-cost of such ECBs should be commensurate with prevailing market
conditions.
http://rbidocs.rbi.org.in/rdocs/notification/PDFs/AP25E030914F.pdf
Issue of equity shares under the FDI Scheme against legitimate dues – Circular dated
17 September, 2014:
An Indian company under the automatic route may issue shares/convertible
debentures to a person resident outside India against lump-sum technical know-
how fee, royalty External Commercial Borrowings (ECBs) (other than import dues
deemed as ECB or Trade Credit as per RBI guidelines) and import payables of capital
goods by units in Special Economic Zones subject to certain conditions like entry
route, sectoral cap, pricing guidelines and compliance with the applicable tax laws.
Now issue of equity shares is permitted against any other funds payable by the
investee company, remittance of which does not require prior permission of the

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Government of India or Reserve Bank of India under FEMA, 1999 or any rules/
regulations framed or directions issued thereunder, provided that:
(i) The equity shares shall be issued in accordance with the extant FDI guidelines on
sectoral caps, pricing guidelines etc. as amended by Reserve bank of India, from
time to time;
Explanation: Issue of shares/convertible debentures that require Government
approval in terms of paragraph 3 of Schedule 1 of FEMA 20/2000-RB dated May 3,
2000 or import dues deemed as ECB or trade credit or payable against import of
second hand machinery shall continue to be dealt in accordance with extant
guidelines;
(ii) The issue of equity shares shall be subject to tax laws as applicable to the funds
payable and the conversion to equity should be net of applicable taxes.
All the other conditions for issuance of equity shares under the automatic route
and Government approval route are unchanged.
http://rbidocs.rbi.org.in/rdocs/notification/PDFs/APD31FDI0914.pdf
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