Monday, 21 February 2022

Certain provisions of Cos. Act, 2013 applicable to LLP

MCA has issued a Notification (dated Feb. 11, 2022) and has stated that certain provisions of Cos. Act, 2013 will be applicable to LLP (with modifications). This post relates to analysis of the said notification:

Provisions of maintaining register of SBO now applies to LLP. By the notification ‘company’ is substituted by ‘LLP’, ‘member’ is substituted by ‘partner’, ‘officer’ is substituted by ‘partner/designated partner’. Complex provisions of SBO are made so easily applicable for LLPs!! Without such substitution of words, MCA ought to have drafted a separate provision drafted for LLP as the amount capital contribution could be different than the voting rights in LLP. Not clear from MCA notification, whether Cos. SBO Rules are applicable for LLPs. Also, provisions similar to section 89(10) of Cos. Act, 2013 should have been applicable to LLPs.

Provisions of disqualification for appointment of directors now applies to designated partners of the LLPs. Sub-section (1) and (2) of section 164 of the Companies Act, 2013 are now applicable to LLPs. No reference to other provisions applicable to LLPs.

Provisions of number of directorships for directors in company are now applicable for number of LLPs in which a person can be DP (i.e. 20). There is no restriction for a person to be a partner in no. of LLPs.

Provisions relating to vacation of office of director are not applicable for DP of LLP. There is also a possibility provided where all DPs of LLP vacate their office (similar to Co. Act, 2013).

Central Govt. may if it is satisfied direct inspection of books and papers of LLP by inspector appointed by it for the purpose. The ROC or Inspector making an inspection or inquiry shall have all the powers as are vested in a civil suit in respect of certain matters (as prescribed).

Govt. has also introduced a provision for ‘Appeal to NCLAT’ in case of dissolution of LLP under section 75 of the LLP Act.

Provisions of section 439 of Cos. Act (relating to ‘offenses to be non-cognizable’) are now applicable to LLP with certain modifications.

Basically, all these provisions applicable to LLPs could have been drafted and made applicable to LLPs instead of substitution of words/phrases. Also, the LLP Act ought to have been amended for such significant amendments. There could have been many provisions of the Cos. Act, 2013 that could have been made applicable to LLPs. There ought to have been some clarity in applicability of provisions relating to RPTs under Cos. Act, 2013 to transaction between Co. and LLP.

Amendments to LLP Rules, 2009 - Adjudication of penalties & its impact.

 Last week, the LLP Rules, 2009 were amended (effective from April 1, 2022). The amendments are quite significant. One of the amendments relates to adjudication of penalties. Provisions are a bit similar to adjudication under the Cos. Act, 2013. These provisions in the Rules are to be read with the penal provisions under the LLP Act. The amendment Rules states that the requirement of submission of replies in electronic mode shall become mandatory after creation of e-adjudication platform. Amendment to LLP Rules also provide for appeal against order of adjudicating officer i.e. to Regional Director having jurisdiction.

Another important amendment to the Rules is a change in the filing fees by LLP for filing, registering, or recording any document, form, statement, notice, Statement of Accounts and Solvency, annual return and an application along with the statement for conversion of a firm or a private co. or an unlisted public co. into LLP. Different statutory fees for Small LLPs and other than Small LLPs.

Changes proposed w.r.t. the name resembling Trademark and remedies.

Also, quite a few provisions of Cos. Act are now applicable to LLPs (will share my analysis on this soon). The provisions of LLP (Amendment) Act are also notified.

My views: For India Inc., 2022 is a year for adjudication of penalties under Cos. Act and LLP Act, both. For Cos., the process has already started. LLP Act and Rules gives necessary powers to initiate adjudication proceedings for non-compliances. The orders for LLPs would be available on the MCA website. Just like Cos., now the compliances for LLPs would be required to be taken seriously. It is now not only about paying hefty annual filing fees for LLPs. However, there should be some rationale (justified in writing) in initiating action against LLP for the non-compliances and also there should be specific parameters for imposing penalties. Parameters could be capital contribution, turnover of LLP, whether public interest is affected, nature of non-compliance, etc. Otherwise, instead of promoting compliance, such adjudication proceedings would be harassment for LLPs (presently, the case is for Cos.).

Monday, 14 February 2022

My observations on MCA directing Cos. to furnish CSR Report in e-Form CSR-2:

MCA has issued a notification and amended Companies (Accounts) Rule, 2014. MCA has directed every Co. (to whom CSR provisions are applicable) to furnish a report on CSR in e-Form CSR-2 to the ROC for the preceding year (2020-2021). For FY 2020-2021, e-Form CSR – 2 shall be filed separately on or before March 31, 2022.

My observations (after going through the notification): Very precise and micro-details asked by the MCA about the compliance of section 135 of the Act and Rules. After going through the Form, it seems that the Rules have been converted into an e-Form. Some extra financial information is also asked by the MCA. This means that Cos. have to take CSR provisions very seriously from the perspective of compliance. The form has no certification of practising professional. The e-Form will require a lot of co-ordination between CS Dept., CSR Dept. and finance dept. (at least for the first return).

Good for ESG consultants and analyst. a lot of sorted information.

SEBI’s rules governing related party transactions requires immediate amendment

SEBI’s rules governing related party transactions requires immediate amendment


Business Standard article titled 'India Inc sees red over new rules governing related party transactions': https://www.business-standard.com/article/markets/india-inc-sees-red-over-new-rules-governing-related-party-transactions-122021100437_1.html


3 months back, when the SEBI board approved the proposal, I had mentioned that RPT amendments are made extremely stringent and would require another round of amendment.

In fact, on the SEBI consultation paper on RPTs, I had written an article titled - Regulating ‘unrelated party transactions’ under the provisions of ‘related party transactions’.

Various industry and business associations are now taking efforts and seeking amendments to the SEBI regulations. Amendments would now take place in due course.

Interestingly, everything other than harmonization of company law provisions and SEBI regulations is being done. Not sure, if this is ease of doing business.

Tough days for listed entities, compliance officers and secretarial auditors.

My LinkedIn post for reference:

Tuesday, 11 January 2022


 Book Review – Let’s Talk Money by Monika Halan

By Gaurav Pingle, Practising Company Secretary.

 

To begin with, there are many books on investing, personal finance, insurances, mutual funds, etc. However, not all the books fascinate a common man to read it. The reason could be legal jargon, technical concepts, statistical information, graphs/charts, discussion on macro-economic factors, global factors, financial crises, etc. There are very few books in simple language on investing and personal finance that address important questions of common man. ‘Let’s Talk Money’ by Ms. Monika Halan is one such unique book.

The book covers various topics of investing and personal finance which ultimately empowers readers in taking important decisions relating to his investments. The book is written in very simple English language (which has been further translated into many vernacular languages in India). The simplicity of language makes the book as ‘finance for non-finance’. Even software engineer or electrical engineer or doctor or an architect (non-commerce professionals, as they are not taught personal finance as part of their academic course) will find this book interesting and relevant. The book is a practical guide and helps the reader to take informed decisions relating to personal finance.

The author has given many practical examples of her friends and relatives, which makes the book very relatable to the readers. The author doesn’t recommend the use of any spreadsheets or complex calculations, etc. In fact, the author empowers the readers in asking right question to right people about financial product. The book is a conversation about money. The book also empowers common man in taking unbiased financial decisions. At relevant places in the book, the author has also recommended to take help of financial planner.

217-pages book has 14 chapters. At the end of each chapter, author has summarised important action points or preliminary questions to be asked by the reader and important financial ratios discussed in few chapter (e.g. living cost vis-à-vis take-home income, EMI payouts vis-à-vis take-home income, savings vis-à-vis take-home income, etc.). The book is helpful for employed as well as self-employed professional and even for students.

The author has explained the concept of ‘money box’ in detail with practical tips for the readers. ‘Money Box’ helps us properly maintain the cash flow system, monitoring income and expenses, and investments on regular basis. ‘Emergency Fund’ – its importance, way to maintaining funds, amount, etc. has also been explained in a separate chapter in the book. There is a detailed discussion on medical cover, types policies, premiums, benefits, important questions to be asked to an insurance agent for getting the right policy. In a separate chapter, the author explains the need and importance of life cover. There is a detailed discussion on investment (+) life cover or only life cover. There is reference to coverage, amount of premium, time of buying the policy, taxation aspect, etc. In 6th Chapter, the author now discusses ‘investing’. The author suggests the reader to note their short term, medium term and long-term investment goals based on which investments can be classified.

In the chapter titled as ‘let’s de-jargon investing’, the author has explained investment products in very simple language. The investment products include debt, gold, real estate, equity, index funds, etc. The author has given some important rules of equity investing, which includes: patience, risk, alternative option, lock-in, continuous education by reading good material on personal finance.

The chapter on Mutual Funds explains the concepts, legal structure, ‘safety’, kinds of funds, NAV, growth vs. dividend options, how does MFs make money, direct plan, systematic investment plan, etc. In the Chapter titled ‘putting it all together’, the author explains the parameters on which investment-oriented financial products must be evaluated, which includes: cost of investing, returns, lock-in, cost to exit early, holding period, taxes. The chapter concludes with a discussion on ‘asset allocation’ – a very important concept in investing.

There is a separate chapter on ‘retirement’. Taking into consideration the possibility of change in financial needs/requirements, and the plan, the author has suggested a review of goals on periodical basis. Without going much in legal jargon, the author has explained the importance of Wills and prescribed Do’s and Don’ts in preparation of Will.

In the last chapter, the author discusses and explains the factors that ‘kills the money box’ – the concept (‘money box’) that was discussed in the first chapter. Some of the factors are spending too much, high cost of borrowing on credit cards, investing in multi-level marketing schemes, investments in high-risk IPOs, bitcoins, etc.

After reading the book, the reader will be able to organise his/her finances in a rational manner. The book will help the reader to build a system and is not a ‘single shot’ solution for personal finance. It is also not a get-rich-quick book but a book that will develop good habits and discipline which will ultimately make us more confident about our investments. The book has been revised and updated with financial lessons from Covid-19.

In my view, everyone should read the book – Let’s Talk Money. The book should also be basic reading material for all graduation courses in India. This would significantly improve the financial literacy, which is also the objective of the author. It is a book that empowers readers in taking important financial decisions in unbiased manner.

Amazon Link: https://www.amazon.in/Lets-Talk-Money-Youve-Worked/dp/9352779398

Monday, 10 January 2022

Book Review - CSR, ESG & Charitable Institutions - authored by Dr. KS Ravichandran

 



CSR, ESG & Charitable Institutions authored by Dr. KS Ravichandran

Book review by Gaurav Pingle, Practising Company Secretary

Along with Related Party Transactions & Independent Directors, Corporate Social Responsibility (CSR) has been one of the most deliberated concepts of the Companies Act, 2013. Interestingly, CSR (section 135 of the Companies Act, 2013 and CSR Rules) is also one of the most amended provisions. The book (published by Lexis Nexis) titled – CSR, ESG & Charitable Institutions, authored by Dr. KS Ravichandran helps the readers in understanding the concepts of CSR, Environmental, Social and Governance (ESG) reporting practices and Charitable Institutions.

This book provides 360-degree perspective of CSR. The author has explained the concepts in very simple language, which would be very helpful for corporate law professionals and students pursuing CS/CA/CMA course or students of law school and management institutions. The discussion is not only about company law but also, about foreign exchange laws, foreign contribution regulation law, income tax law and accounting practices.


Philosophy of CSR: Initially, the author has discussed in detail nine principles that constitute the social responsibility of the company (as provided in National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business). At necessary places, the author has given reference to the practical application of the said principles. He has also given practical and latest examples of unethical and undesirable corporate practices (e.g. Volkswagen, Mitsubishi, Ranbaxy, Johnson & Johnson, etc.). The author has also given references and details of the CSR initiatives at Paris, CSR principles in Indonesia, OECD principles on CSR, etc. By reading the first chapter, the reader gets a global outlook, ‘principle-based’ approach and not just as compliance-oriented perspective.

ESG reporting practices: After discussing the concept of ESG, the author has presented a thorough study of ESG activities of top 50 listed companies. This study will be helpful in understating the effectiveness of ESG in India. The author has concluded this important chapter by stating that “it is essential to note that the concept of business responsibility and sustainability reporting, introduced by SEBI under the provisions of LODR Regulations has brought much needed changes to bring a lot of thrust on the significance of Socio-Enviro Governance 

CSR & CSR expenditure: There is a detailed discussion on the provisions of section 135 of the Companies Act and the CSR Rules made there under. There is detailed analysis of the said provisions, accounting aspects, accounting of CSR assets, grants received, disclosure in financial statements, audit and action for fraud, falsification of books of accounts. This discussion will help compliance officers, finance heads and accountants to understand and apply the said provisions.

CSR Vehicles: There are 3 separate chapters on CSR vehicles, which covers section 8 companies, trusts and societies. There is detailed discussion on grant of license to section 8 companies, grounds of revocation, corporate restructuring in such entities, etc. There is also detailed discussion on establishment of societies, registration requirements, procedural & administrative aspect of societies, de facto doctrine & legal status of societies as not body corporate. On the trust as CSR vehicle, after explaining the concepts of public trusts and private trust, the author has discussed in detail provisions relating to duties, authorities, general powers & rights of trustees, etc. There is detailed discussion on other important concepts of trust law, which becomes relevant when promoters of company / social entrepreneurs decide to set up a trust for CSR activities.

Income Tax aspect of CSR: In a separate chapter, the author has also discussed the procedure and critical aspects of registration of trusts under the Income Tax Act, 1961 and exemptions from income tax. There is also a detailed discussion on section 12A of the Income Tax Act along with registration procedure, factors considered by prescribed authority, conditions for being entitled to exemption under section 11 and 12 of Income Tax Act. In a separate chapter, the author explains the benefits of contributions to funds, trusts and Institutions registered under section 80G of Income Tax Act. There is clause by clause analysis of Section 80G of Income Tax Act. The author has also analyzed in the detail the taxation aspects of CSR expenditure (under section 30 to 36 of Income Tax Act).

Foreign contributions as CSR: There is a separate chapter and detailed discussion on CSR vis-a-vis Foreign Contribution Regulation Act, 2010. There section-wise commentary on the said Act. This will be helpful for the readers who are connected with companies accepting foreign donations. There are references to notifications issued by the Ministry of Home Affairs.

CSR spend pattern analysis: The author has also presented a study of CSR spend pattern analysis. Top 50 listed companies are considered by the author for this study. The statistical analysis relates to applicability of CSR provisions by average threshold, analysis of CSR required to be spent, actually spent and unspent CSR in 3 financial years, amount spent on various categories of CSR activities during last 3 FYs, amount spent on most preferred and least preferred categories of CSR activities, CSR amount spent on funds specified in Schedule VII in 3 FYs. The author has also presented detailed statistics and analysis on amount spent directly and amount spent on CSR activities through implementation agencies in 3 FYs. After every statistical information and presentation, author has provided his analysis and views on the same. There is detailed discussion on the findings of such research and statistical information. This will be helpful for the Government agencies/ departments in further refining, amending and implementing CSR provisions effectively.

In the book, the author has also discussed 100 FAQs on CSR provisions. The answers are not simply – yes or no. But there is a short discussion on the relevant question and references to the provisions of the Companies Act, CSR Rules, MCA Circulars, etc. The FAQs covers discussion on the critical questions w.r.t. CSR applicability, spending, reporting, calculation of net profits, nature of expenditure included and excluded in CSR spending, coverage of policy, CSR activities vis-à-vis CSR policy, approval process, role of board of directors / CSR committee, corporate restructuring and applicability of CSR provisions, etc. All these questions are relevant and the replies / answers to the same are researched-based and practical. Some of the important questions relates to: frequency of meetings of CSR committee, whether systems required for monitoring CSR expenditure, consequences of the failure to undertake CSR activities, including at least one KMP as member of CSR committee, whether creating awareness constitutes CSR activity, display of CSR activities on website, mandatory requirement of 3 years track record, reference to various MCA Circulars in relation to MCA notification dated January 22, 2021, etc.

 

For the benefit of readers, the author has given a model memorandum of association and articles of association of a section 8 company for undertaking CSR activities and project report. There is also a model trust deed for undertaking CSR activities.

 

The overall deliberations in the book would be useful to professionals, directors, officers, trustees, office bearers of NGOs, social entrepreneurs, academicians, Government officers, law makers, students, etc. Every reader will get a different and unique experience on CSR. In my view, every corporate law professional and student must have this book for having a global and broader perspective of CSR, ESG & Charitable Institutions.

Thursday, 19 December 2019

Book Review - Company Law for Private Companies [Marathi Edition]

Book Review
Company Law for Private Companies [Marathi Edition]


Shri. Mahesh Janardhan Risbud, Practising Company Secretary, Pune has authored a book on Company Law in Marathi Language. The book covers compliances and procedures for Private Companies and also covers a separate chapter on Limited Liability Partnerships (‘LLP’).

Considering the convenience of decision making, Private Companies – as a form of business organisation is preferred by many businessmen and entrepreneurs. In a private company, the minimum number of directors and shareholders are two. Generally, the decisions are taken mutually by the two directors & shareholders. In private companies, it is very convenient and cost-effective process to call and conduct a meeting of directors and shareholders and take the necessary decisions. Also, private companies are exempted from compliances of strict regulations under the Companies Act.

Under the Companies Act, 1956, there were specific exemptions given to private companies w.r.t. calling of meetings, directors / directors relative funding the private companies, drafting the Articles of Association of the company, disclosures to the shareholders and Government, etc.

Under the Companies Act, 2013, there were very few exemptions given to private companies. With an objective of ‘ease of doing business’ and promote entrepreneurship, the Government has issued several notifications and introduced certain exemptions for private companies.

The book ‘Company Law for Private Companies’ authored by Shri. Mahesh Janardhan Risbud is a compilation of the relevant provisions for private companies in Marathi language. The author has explained the provisions of the Companies Act and LLP Act is simple and lucid language. Initially, the author has explained the concept of ‘company’, its features and advantages. This part of the book will help the businessmen and entrepreneurs to decide whether to incorporate a partnership firm or company. The author has also explained different types and classes of companies, e.g. One Person company, private companies, companies with charitable objects, small companies, start-ups, etc.

Considering that the reader has decided to incorporate a company, the author then provides a detailed process for its incorporation. In simple language, he explains the process of selecting the name of the company, online application and its approval. Then he explains the Memorandum of Association and Articles of Association, which are the constitution documents of the company. Recently, the Govt. has re-introduced a concept of ‘commencement of business’, wherein the promoters are required to report to the Govt. about their infusion of share capital in the company after its incorporation. The author has rightly captured the latest amendment which would ensure timely compliance of the new regulation by business and entrepreneurs.

The directors are responsible for day-to-day functioning of the company. The author has lucidly explained the various provisions relating to appointment of directors, their tenure, duties and responsibilities. The author has also explained in simple language about the procedure of conducting and convening board meetings. 

On the share capital of the company, the author explains the different types of share capital, i.e. authorised share capital, issued share capital, subscribed share capital, paid-up share capital etc., along with different types of shares i.e. equity shares, preference shares, equity shares with differential voting rights, etc. With an objective of having a basic understanding of raising of finance by companies, the author has explained the different ways of raising it, i.e. Rights Issue, Private Placement, Preferential Issue, ESOPs. In a different chapter, the author has explained the various provisions relating to acceptance of loans and deposits by a company. The author has pointed out important aspects from the perspective of compliance under the Companies Act, 2013 and the Rules made thereunder. In a separate Chapter, the author has discussed some important aspects about the appointment of Statutory Auditor and Company Secretary and their role in functioning of company.

Running a business comes with its own challenges. Sometimes when things do not work out, necessary steps shall be taken for closure of company. In this part of the book, the author has adequately covered the provisions relating to winding-up of company, dormant companies, striking off of companies, liquidation of company. 

For the convenience of the readers, the author has presented the special provisions applicable to private companies, list of Registrar of Companies along with their updated addresses, list of applicable e-Forms, etc. in tabular format. This part of the book will be helpful for corporate law professionals from the perspective of routine compliance and audit.

The Author has also covered another important topic – Limited Liability Partnership. In this topic, the author has explained the process of incorporation, points to be considered in the LLP agreement, working and operations of LLP, roles and responsibilities of the partners and designated partners of the LLP. From the perspective of restructuring, the author has also covered important topics relating to conversion of company into LLP, conversion of partnership firm into LLP, closure of LLP, etc. This topic will help the readers in comparing the advantages and disadvantages of incorporating a company vis-à-vis LLP.

The book will be quite helpful for businessmen, entrepreneurs, non-commerce students, corporate law professionals and non-corporate law professionals for understanding the basic provisions of the companies and LLP. The book will be good addition to the Marathi curriculum and libraries of school/college/university. The book is presented in a very lucid and comprehensible manner to provide the readers an insight of the Companies Act as applicable to small private companies and LLP Act.


The book can be purchased from:
Vyapari Mitra
Parshuram Kuti 106/9, Erandwana, 
Near Old Shamrao Kalmadi High School,
Pune – 411004, Maharashtra, IN.
+91 94218 80290
https://www.vyaparimitra.com/ 
sampadak@vyaparimitra.com 

Book review prepared by Gaurav Pingle, Company Secretary, Pune.