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19 Key Relaxations In Corporate Laws In Times Of COVID-19

Neha Somani
1 April 2020 2:10 PM GMT
19 Key Relaxations In Corporate Laws In Times Of COVID-19
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From China to Canada, from U.K. to U.S.A., from Senegal to Singapore, from Italy to India – the entire world has been fighting incessantly with the pandemic, the novel Corona Virus, that has been given the nomenclature of COVID-19 by the World Health Organization. It is a global health crisis, affecting all and sundry, and the numerous ways in which the countries worldwide are attempting to stymie the disease's outbreak are wide-ranging and commendable.

The COVID-19 cases have risen drastically since the last month, hurting major economies and disrupting supply chains, including that of India. Since the advent of COVID-19 in India, our economy has been crumbling, especially the equities market. On March 23, 2020, both S&P BSE Sensex and the NSE Nifty 50 ended with their worst ever one-day decline. The 30-scrip Sensex fell 13.15% to 25,981, the lowest level since December, 2016. The 50-stock Nifty fell 12.98% to end at 7,610, the lowest level since April, 2016. All 50 stocks ended on that day with cuts, with four of them falling over 20%.

In light of the current dismal situation of the country, culminating into a complete lockdown now, it became imperative for the government to introduce relaxations in compliances of applicable statutes, so that the corporate sector is able to cope up with the financial and other losses, and does not have to bear the brunt of the pandemic leading to their breakdown as well.

In response to the increasing pandemic, relaxations have been granted from certain regulatory compliances under the Companies Act, 2013 ("CA, 2013"), Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements), Regulations, 2015 ["SEBI (LODR) Regulations, 2015"], Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ["SEBI (SAST) Regulations, 2011"], and the Insolvency and Bankruptcy Code, 2016 ("IBC").

The key relaxations in the regulatory compliances have been discussed in brief, hereunder :

1. Spending of CSR funds for COVID-19 : Eligible under Schedule VII as a CSR activity

  • CSR funds may be spent under item no. (i) of Schedule VII "Eradicating hunger, poverty and malnutrition, promoting health care including preventive health careand sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.

  • Funds may be spent under item no. (xii) of Schedule VII :

"Disaster management, including relief, rehabilitation and reconstruction activities."

  • The Circular further clarified that the other item nos. in Schedule VII may also be interpreted liberally for this purpose.

  • Further, MCA vide its circular dated March 28, 2020[2], has clarified that any contribution made to the Prime Minister's Citizen Assistance and Relief in Emergency Situations Fund ('PM CARES Fund') which has been set up by the government with the primary objective of dealing with any kind of emergency or distress situation such as that posed by COVID 19 pandemic, shall qualify as CSR expenditure under the Companies Act 2013, under Item no. (viii) of the Schedule VII of the Companies Act, 2013

  • This is a welcome move by the government that will surely encourage companies to come forward and provide immense support to effectively deal with the pandemic and help the country in combating the troubled times.

2. Board meetings may be held through video conferencing or other audio visual means :

  • MCA amended the Companies (Meetings of Board and its Powers) Rules, 2014 vide the Companies (Meetings of Board and its Powers) Rules, 2020, on March 19, 2020[3]

  • As per Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014, the following matters shall not be dealt with in any meeting held through video conferencing or other audio visual means.-

(i) the approval of the annual financial statements;

(ii) the approval of the Board's report;

(iii) the approval of the prospectus;

(iv) 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; and

(v) the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.

Provided that where there is quorum presence in a meeting through physical presence of directors, any other director may participate conferencing through video or other audio visual means.

  • On March 19, 2020, MCA amended the Rules, and provided that for the period beginning from the commencement of the Companies (Meetings of Board and its Powers) Amendment Rules, 2020 and ending on the 30th June,2020, the meetings on the above-mentioned matters may also be held through video-conferencing or other audio visual means in accordance with Rule 3.

3. Filing of e-forms with MCA : No additional fee

  • MCA issued a Circular on March 25, 2020[4], stating the special measures under Companies Act, 2013 (CA-2013) and Limited Liability Partnership Act, 2008 in view of COVID-19 outbreak.

  • As per the Circular, all e-forms, documents, statements can be filed from April 1, 2020 till September 30, 2020 with the MCA, without any additional fee.

  • Due dates are immaterial since it is applicable for all the forms, documents, statements, etc.

4. Introduction of Companies Fresh Start Scheme, 2020 & revision of LLP Settlement Scheme, 2020

  • MCA issued a Press Release on March 30, 2020[5] and a detailed Circular[6] thereafter, introducing the "Companies Fresh Start Scheme, 2020" and revising the "LLP Settlement Scheme, 2020", thereby providing an opportunity to companies and LLPs to make good any filing related defaults, irrespective of the duration of default, in order to allow companies and LLPs to make a fresh start as a fully compliant entity.

  • The Companies Fresh Start Scheme, 2020 and modified LLP Settlement Scheme, 2020 incentivize compliance and reduce compliance burden during the unprecedented public health situation caused by COVID-19.

  • Both the schemes provide a one-time waiver of additional filing fee for delayed filings by the companies or LLPs with the Registrar of Companies during i.e. during the period starting from April 1, 2020 and ending on September 30, 2020.

5. Section 173 of CA, 2013 - Maximum gap between 2 consecutive board meetings : Increased to 180 days

  • Maximum gap of 120 days between 2 consecutive board meetings has been increased to 180 days.

  • It is applicable for the quarters ending on June 30, 2020 & September 30, 2020.

6. CARO, 2020 shall now be applicable from FY 2020-2021

  • CARO, 2020 shall now be applicable from FY 2020-2021, instead of FY 2019-2020.

  • This is one of the major relaxations provided by the government since CARO, 2020 has enhanced reporting requirements and is more stringent as compared to the erstwhile CARO, 2016.

7. Relaxation for mandatory meeting of Independent Directors as per Schedule IV of CA, 2013 :

  • Inability in fulfilling the mandatory requirement as per Para VII (1) of Schedule IV for holding at least 1 meeting of Independent Directors, without non-independent directors & management : Not a violation for FY 2019-2020

  • Independent Directors may share their views with each other via mails, phone, etc. However, it is voluntary.

8. Compliance with Section 73(2)(c) of CA, 2013 : Extension till June 30, 2020 :

  • Compliance of maintaining Deposit Repayment Reserve A/C for depositing 20% of deposits maturing during FY 2020-2021 on or before April 30, 2020 – Extended till June 30, 2020.

9. Compliance with Rule 18 of Companies (Share Capital & Debenture) Rules, 2014 : Extension till June 30, 2020 :

  • Compliance of depositing 15% of amt. of debentures maturing during FY 2020-2021 on or before April 30, 2020 – Extended till June 30, 2020.

10. Compliance with Section 10A of CA, 2013 : Increased to 360 days

  • Companies incorporated on or after January 12, 2019 are mandatorily required to file declaration for commencement of business with RoC within 180 days of incorporation.

  • Timeline for filing of the declaration has been extended to 360 days (180 days + additional 180 days).

11. Relaxation for mandatory one resident director as per Section 149 (3) of CA, 2013 :

  • Section 149(3) mandatorily requires every company to have at least one director who has stayed in India for at least 182 days in the previous calendar year.

  • This requirement has been relaxed for the FY 2019-2020 & shall not be treated as a non-compliance.

12. Relaxations in SEBI (LODR) Regulations, 2015

SEBI has provided several relaxations vide its Circulars of March 23, 2020[7] and March 26, 2020[8].

The key relaxations have been presented in the form of a table below :

SL NO.

REGULATION & ASSOCIATED FILING

DUE DATE

EXTENDED DATE

1.

Regulation 7(3) relating to compliance certificate on share transfer facility

April 30, 2020

May 31, 2020

2.

Regulation 13(3) relating to Statement of Investor complaints

April 21, 2020

May 15, 2020

3.

Regulation 24A read with circular No CIR/CFD/CMD1/27/201 9 dated February 8, 2019 relating to Secretarial Compliance report

May 30, 2020

June 30, 2020

4.

Regulation 27(2) relating to Corporate Governance report

April 15, 2020

May 15, 2020

5.

Regulation 31 relating to Shareholding Pattern

April 21, 2020

May 15, 2020

6.

Regulation 33 relating to Financial Results

May 15, 2020

(Quarter)

May 30, 2020

(Annual)

June 30, 2020 (Quarter)

June 30, 2020

(Annual)

7.

Regulation 40(9):Certificate from Practicing Company Secretary on timely issue of share certificates

April 30, 2020

May 31, 2020

8.

Regulation 44(5) : Holding of AGM by top 100 listed entities by market capitalization for FY 19-20

August 31, 2020

September 30, 2020

9.

Regulation 47 : Publishing, in the newspapers, information such as notice of the board meeting, financial results etc.

EXEMPTION FROM PUBLICATION FOR ALL EVENTS SCHEDULED TILL MAY 15, 2020.



RELEVANT PROVISIONS

RELAXATIONS GIVEN

· Regulation 17(2):

The board of directors shall meet at least four times a year, with a maximum time gap of 120 days between any two meetings.

· Regulation 18(2)(a):

The audit committee shall meet at least four times in a year and not more than 120 days shall elapse between two meetings

The BOD & AC are exempted from observing the maximum stipulated time gap between 2 meetings for the meetings held or proposed to be held between the period December 1, 2019 and June 30, 2020.

However the BOD & AC shall ensure that they meet atleast 4 times a year, as stipulated under regulations 17(2) and 18(2)(a) of SEBI (LODR).

· Regulation 19(3A)

The nomination and remuneration committee shall meet at least once in a year

· Regulation 20(3A)

The Stakeholders Relationship committee shall meet at least once in a year.

· Regulation 21(3A)

The Risk Management Committee shall meet at least once in a year.

Relaxation for 3 months

Due Date : March 31, 2020

Extended Date : June 30, 2020

Relaxation for 3 months

Due Date : March 31, 2020

Extended Date : June 30, 2020

Relaxation for 3 months

Due Date : March 31, 2020

Extended Date : June 30, 2020

13. Relaxation of the operation of SEBI Circular on Standard Operating Procedure (SoP) dated January 22, 2020

  • SEBI vide Circular no. SEBI/HO/CFD/CMD/CIR/P/2020/12 dated January 22, 2020[9] issued the SoP on imposition of fines and other enforcement actions for non-compliances with provisions of LODR, the effective date of operation of which is for compliance periods ending on or after March 31, 2020.

  • The Circular dated January 22, 2020 shall now come into force w.e.f. compliance periods ending on or after June 30, 2020.

  • The SoP Circular dated May 3, 2018 would be applicable till such date.

14. Relaxations in SEBI (SAST) Regulations, 2011

  • SEBI has provided several relaxations vide its Circular dated March 27, 2020[10], with respect to the disclosure filings under Regulations 30(1), 30(2) and 31(4) of the SEBI (SAST) Regulations, 2011, that require the shareholders to compile, collate, and disseminate information of their consolidated shareholding as on March 31, 2020, to the company and the stock exchanges within seven working days from the end of the financial year. The Regulations are re-produced below:

  • Regulation 30(1) :

Every person, who together with persons acting in concert with him, holds shares or voting rights entitling him to exercise twenty-five per cent or more of the voting rights in a target company, shall disclose their aggregate shareholding and voting rights as of the thirty first day of March, in such target company in such form as may be specified.

  • Regulation 30(2) :

The promoter of every target company shall together with persons acting in concert with him, disclose their aggregate shareholding and voting rights as of the thirty first day of March, in such target company in such form as may be specified.

  • Regulation 31(4) :

The promoter of every target company shall declare on a yearly basis that he, along with persons acting in concert, has not made any encumbrance, directly or indirectly, other than those already disclosed during the financial year.

  • Due dates have been extended for filing the disclosures, in terms of Regulations 30(1), 30(2) and 31(4) of the SEBI (SAST) Regulations, 2011, stated above, for the financial year ending March 31, 2020 to June 1, 2020.

15. Revised threshold under IBC

  • MCA raised the threshold of default under section 4 of IBC vide notification dated March 24, 2020[11], to Rs. 1 crore (from the existing threshold of Rs.1 lakh).

  • Due to the emerging financial distress faced by most companies on account of the large-scale economic distress caused by COVID-19, the threshold has been raised, in order to prevent triggering of insolvency proceedings against MSMEs.

16. Insertion of a special provision relating to timelines under IBC:

  • The Insolvency and Bankruptcy Board of India (IBBI) issued a notification on March 27, 2020[12] and inserted Regulation 40C in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2020.

  • Regulation 40C provides that the period of lockdown imposed by the Central Government in the wake of COVID19 outbreak shall not be counted for the purposes of the timeline for any activity that could not be completed due to such lockdown, in relation to a corporate insolvency resolution process.

17. Supreme Court's Suo Moto Writ Petition taking cognizance for extension of limitation

  • The Apex Court of India took suo motu cognizance of the situation arising due to the pandemic leading to difficulties being faced by the litigants across the country in filing their petitions/applications/suits/ appeals/all other proceedings within the period of limitation prescribed under the general law of limitation or under Special Laws (both Central and/or State).

  • Vide Order dated March 23, 2020[13], the Hon'ble Supreme Court exercised its power under Article 142 read with Article 141 of the Constitution of India, and ordered that a period of limitation in all such proceedings, irrespective of the limitation prescribed under the general law or Special Laws whether condonable or not shall stand extended w.e.f. March 15, 2020 till further order/s to be passed by the Hon'ble Supreme Court.

  • The Order is a binding order within the meaning of Article 141 of the Constitution of India, on all Courts/Tribunals and authorities.

18. NCLT's notification for extension of limitation

  • Pursuant to the Order dated March 23, 2020, passed by the Hon'ble Supreme Court, a notification dated March 24, 2020[14], was issued by NCLT, clarifying that with regard to Limitation, the Order passed by the Hon'ble Supreme Court in suo motu WP-03/2020 is binding on everyone in India and that the litigants with regard to the matters falling within jurisdiction of NCLT shall abide by the Order of the Hon'ble Supreme Court.

19. NCLAT's Order for extension of interim orders under all applicable statutes & exclusion of lockdown period u/s 12 of IBC

  • Vide Order dated March 30, 2020[15], NCLAT, suo moto, extended all interim orders under IBC, Companies Act, Competition Act, till the next dates of hearing, which may be notified later.

  • It further ordered that the period of lockdown ordered by the Central Government and the State Governments including the period as may be extended shall be excluded for the purpose of counting of the period for Resolution Process under Section 12 of IBC in all cases where Corporate Insolvency Resolution Process has been initiated and pending before any Bench of the NCLT or NCLAT.

The various relaxations provided by the regulatory authorities and the judiciary of India, were indeed the need of the hour considering the current economic and health conundrum that is rampant and the future seeming unpredictable. With such radical amendments and relaxations, we can surely see a silver-lining that will help our crippling economy in recuperating, in times to come, navigating through the choppy waters, and becoming strong once again.

Views Are Personal Only.

Author is a Practising Company Secretary, working as a Partner of MKB & Associates.

[1] http://www.mca.gov.in/Ministry/pdf/Covid_23032020.pdf

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