RECKONER ON THE CHANGE IN COMPLIANCE
REQUIREMENTS IN TIMES OF COVID
REQUIREMENTS IN TIMES OF COVID
Bhargavi Ravi, Senior Associate
With the
single mindedness of a conquering army, COVID-19, continues to sweep through the
world, punishing countries that consistently underinvested in their public
health infrastructures. While we grapple in India with this evolving situation,
as part of a holistic approach towards easing the burden of lockdowns, in
addition to a slew of measures aimed at individuals, several Indian regulators have
announced relaxations in compliance burdens to help companies and economies
weather the pandemic.
single mindedness of a conquering army, COVID-19, continues to sweep through the
world, punishing countries that consistently underinvested in their public
health infrastructures. While we grapple in India with this evolving situation,
as part of a holistic approach towards easing the burden of lockdowns, in
addition to a slew of measures aimed at individuals, several Indian regulators have
announced relaxations in compliance burdens to help companies and economies
weather the pandemic.
This article seeks to
explain some key regulatory decisions taken by the Ministry of Corporate
Affairs and the Securities and Exchange Board of India, as of 01 April 2020,
that will have an impact on the corporate governance compliances of businesses[1].
explain some key regulatory decisions taken by the Ministry of Corporate
Affairs and the Securities and Exchange Board of India, as of 01 April 2020,
that will have an impact on the corporate governance compliances of businesses[1].
1.
Relaxation
of Board meeting requirements:
Relaxation
of Board meeting requirements:
On 18 March 2020,
the MCA issued a notice granting in-principle approval for relaxation of the
requirement of physical presence of directors in board meetings until 30 June
2020. On 19 March 2020, the MCA formally amended the Meeting Rules to reflect
the relaxation. The statute governing Companies amended in 2013 permitted directors to attend board meetings through
video/audio-visual conference and further permitted that attendance through
video/audio-visual conference would countas quorum. However, the Rules (Meeting
Rules, 2014) required that certain enumerated matters not to be dealt with in
any meeting held through video conferencing unlessa quorum of directors is
physically present. This Rule has now been relaxed by the MCA.
the MCA issued a notice granting in-principle approval for relaxation of the
requirement of physical presence of directors in board meetings until 30 June
2020. On 19 March 2020, the MCA formally amended the Meeting Rules to reflect
the relaxation. The statute governing Companies amended in 2013 permitted directors to attend board meetings through
video/audio-visual conference and further permitted that attendance through
video/audio-visual conference would countas quorum. However, the Rules (Meeting
Rules, 2014) required that certain enumerated matters not to be dealt with in
any meeting held through video conferencing unlessa quorum of directors is
physically present. This Rule has now been relaxed by the MCA.
The matters the Rule required physical presence of quorum pertain to (1)
the approval of the annual financial statements; (2) the approval of the board’s report; (3) the approval of the prospectus; (4) the audit committee meetings for
consideration of financial statement (including consolidated financial
statement if any), to be approved by the board; and (5) the approval of the matter relating to
amalgamation, merger, demerger, acquisition and takeover.
2.
Relaxation
on gap between two Board meetings:
Relaxation
on gap between two Board meetings:
The Companies Act requires that there
shall be no more than 120 days’ gap between two successive board meetings. On
24 March 2020, the MCArelaxed this requirement by a further 60 days, until 30
September 2020. Therefore, the interval between 2 board meetings can now extend
up to 180 days.
3.
Relaxation
of Independent Director meeting requirements:
Relaxation
of Independent Director meeting requirements:
Schedule IV of the Act requires
independent directors of a Company to meet at least once each year without the
presence of the non-independent directors. The requirement of a physical
meeting of independent directors has been dispensed with for financial year
2019-20, so the non-occurrence of such a meeting will not be considered a
violation.
4.
The
Companies Fresh Start Scheme, 2020:
The
Companies Fresh Start Scheme, 2020:
This Scheme was introduced by the
Ministry of Corporate Affairs (“MCA”) on 30 March 2020 vide General
Circular 12/2020, with the aim of easing the compliance burden of law abiding
companies, which are reeling under the uncertainty induced by COVID.
- The
Companies Fresh Start Scheme (“CFSS”) comes into effect on 01 April 2020
and shall remain in force until 30 September 2020 (“Scheme Period”). - During the
Scheme Period, the MCA will condone all delays in filing forms. - For each
belated form that is filed, the defaulting company will only be required to pay
the regular fees prescribed by the Companies (Registration Offices and Fees)
Rules, 2014. - No late
fees or penalties will be imposed. - Companies
can seek immunity from prosecution for belated documents filed under this
scheme (by filing Form CFSS-2020) - Form CFSS
2020 shall be filed within 6 months from the closure of the Scheme, i.e., the
form seeking immunity shall be filed between 01 October 2020 and 31 March 2021. - No
immunity will be given for (a) prosecution on grounds not related to delays;
(b) shareholder or management disputes; (c) orders of conviction passed by a
court or tribunal against which no appeal has been filed; or (d) matters where
appeals are pending before a court of law (unless the appeal is withdrawn
before filing for immunity). - The CFSS
also permits inactive companies with defaults in filings to apply for dormant
status/striking off.
5.
LLP
Settlement Scheme 2020:
LLP
Settlement Scheme 2020:
The LLP Settlement Scheme 2020 was
modified on 30 March 2020, on the same lines as the CFSS above. The LLP
Settlement Scheme has also been extended to 30 September 2020 and is structured
to condone delayed filings.
modified on 30 March 2020, on the same lines as the CFSS above. The LLP
Settlement Scheme has also been extended to 30 September 2020 and is structured
to condone delayed filings.
6.
Spending
on COVID combat efforts shall constitute valid CSR expenditure:
Spending
on COVID combat efforts shall constitute valid CSR expenditure:
On 23 March 2020,
the MCA, announced that corporate expenditure on fighting COVID-19 will
constitute eligible CSR expenditure. This was followed by a clarification on 28
March 2020, when the MCA issued an Office Memorandum notifying that
contributions to the Prime Minister’s Citizen Assistance and Relief in
Emergency Situations Fund, or PM CARES Fund, which was established to handle
the COVID-19 crisis, shall constitute valid CSR expenditure.
the MCA, announced that corporate expenditure on fighting COVID-19 will
constitute eligible CSR expenditure. This was followed by a clarification on 28
March 2020, when the MCA issued an Office Memorandum notifying that
contributions to the Prime Minister’s Citizen Assistance and Relief in
Emergency Situations Fund, or PM CARES Fund, which was established to handle
the COVID-19 crisis, shall constitute valid CSR expenditure.
CSR or Corporate Social
Responsibility is the obligation laid on companies to spend a small portion of
their income in giving back to the society to which they owe their existence
and prosperity. Under Section 135 of the Companies Act, 2013, every company
having net worth of INR 500,00,00,000 (Indian Rupees Five Hundred Crores) or
more, or turnover of INR 1000,00,00,000 (Indian Rupees One Thousand Crores) or
more or a net profit of INR 5,00,00,000 (Indian Rupees Five Crores) or more
during 3 the immediately preceding financial years shall be required to spend
at least 2% of its average net profits from the 3 preceding financial years
towards CSR. Such companies are also required to set up a CSR Committee.
Responsibility is the obligation laid on companies to spend a small portion of
their income in giving back to the society to which they owe their existence
and prosperity. Under Section 135 of the Companies Act, 2013, every company
having net worth of INR 500,00,00,000 (Indian Rupees Five Hundred Crores) or
more, or turnover of INR 1000,00,00,000 (Indian Rupees One Thousand Crores) or
more or a net profit of INR 5,00,00,000 (Indian Rupees Five Crores) or more
during 3 the immediately preceding financial years shall be required to spend
at least 2% of its average net profits from the 3 preceding financial years
towards CSR. Such companies are also required to set up a CSR Committee.
Schedule VII of
the Act lists out the acceptable areas of CSR expenses.
the Act lists out the acceptable areas of CSR expenses.
- Schedule VII (i) states that “Eradicating
hunger, poverty and malnutrition, promoting health care including
preventive health care and 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” are eligible CSR
expenses. (emphasis supplied); and - Schedule VII (xii) notes that “disaster
management, including relief, rehabilitation and reconstruction activities”
is a valid CSR expense under the Act.
Further, the MCA,
through its General Circular No. 21/2014 dated 18 June 2014, has categorically
stated that the activities mentioned in Schedule VII must be interpreted as
liberally as possible. This, read with the MCA clarifications on 23 March and
28 March 2020, incentivises corporate expenditure to combat COVID-19.
through its General Circular No. 21/2014 dated 18 June 2014, has categorically
stated that the activities mentioned in Schedule VII must be interpreted as
liberally as possible. This, read with the MCA clarifications on 23 March and
28 March 2020, incentivises corporate expenditure to combat COVID-19.
All contributions
to the PM-CARES Fund before 31 March 2020, and all contributions on and from 01
April 2020 by companies that have chosen the old tax structure, will also be
eligible for Section 80G deductions under the Indian Income Tax Act, 1961.
to the PM-CARES Fund before 31 March 2020, and all contributions on and from 01
April 2020 by companies that have chosen the old tax structure, will also be
eligible for Section 80G deductions under the Indian Income Tax Act, 1961.
7.
Offsetting extra CSR
expenditure on COVID:
Offsetting extra CSR
expenditure on COVID:
On 01 April 2020, a message has been posted on MCA by the Secretary,
Minister of Corporate Affairs, urging companies to contribute over and above
the minimum amount towards CSR expenditure and permitting the set off of extra
CSR spending against future obligations.
Minister of Corporate Affairs, urging companies to contribute over and above
the minimum amount towards CSR expenditure and permitting the set off of extra
CSR spending against future obligations.
8.
Web Form CAR-2020:
Web Form CAR-2020:
In continuation of the above, in March 2020, the MCA introduced a
purely voluntary filing through a web form called Company Affirmation of
Readiness towards COVID-19 (CAR-2020). This is a simple web form that does not
require digital signature or attachments. It is a statement from each company
on whether it has a COVID-19 preparedness plan in place. There is no penalty
attached to not having a preparedness plan, nor is the non-filing of the form
penalised. As at the time of writing, 1,91,397 companies have filed their Form
CAR-2020 signalling their readiness to face COVID head-on.
purely voluntary filing through a web form called Company Affirmation of
Readiness towards COVID-19 (CAR-2020). This is a simple web form that does not
require digital signature or attachments. It is a statement from each company
on whether it has a COVID-19 preparedness plan in place. There is no penalty
attached to not having a preparedness plan, nor is the non-filing of the form
penalised. As at the time of writing, 1,91,397 companies have filed their Form
CAR-2020 signalling their readiness to face COVID head-on.
9.
Other
relaxations:
Other
relaxations:
Vide its General Circular 11/2020,
the MCA also announced the following relaxations:.
the MCA also announced the following relaxations:.
- The
Companies (Auditor’s Report) Order,2020 will now come into force only in
financial year 2020-21, instead of the earlier planned 2019-20; - Deadline
for compliance with deposit repayment reserve requirements has been tended to
30 June 2020; - Deadline
for depositing/investing 15% of debentures maturing in specific time periods
has been extended to 30 June 2020; - Newly
incorporated companies are allowed 360 days to file declaration for
commencement of business (i.e., the time period has been doubled); and - Non-compliance
with the resident director requirement for financial year 2019-20 is not
considered a violation (since travel restrictions could have prevented a
director from spending the requisite 182 days in India)
10. Extension of Limitation Periods:
The Supreme Court of India took suo moto
cognizance of the impact of COVID and passed an order on 23 March 2020, stating
that, if the limitation period for any petition, application, suit or other
legal proceeding expires on or after 15 March 2020, then such limitation period
would stand extended until further orders are passed by the Court.Given that
COVID containment measures would make it difficult, if not impossible, to participatein
court proceedings, the Supreme Court took this laudable step of its own
volition, thus protecting the rights of parties until COVID containment
measures are eased sufficiently to permit a return to the judiciary.
cognizance of the impact of COVID and passed an order on 23 March 2020, stating
that, if the limitation period for any petition, application, suit or other
legal proceeding expires on or after 15 March 2020, then such limitation period
would stand extended until further orders are passed by the Court.Given that
COVID containment measures would make it difficult, if not impossible, to participatein
court proceedings, the Supreme Court took this laudable step of its own
volition, thus protecting the rights of parties until COVID containment
measures are eased sufficiently to permit a return to the judiciary.
The Securities and Exchange Board of India has
also stepped up the compliance relaxations for listed entities during the COVID
pandemic. On 19 March 2020, SEBI issued a circular
(SEBI/HO/CFD/CMD1/CIR/P/2020/38) providing the following relaxations in filing
timelines under the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015 (“LODR”):
also stepped up the compliance relaxations for listed entities during the COVID
pandemic. On 19 March 2020, SEBI issued a circular
(SEBI/HO/CFD/CMD1/CIR/P/2020/38) providing the following relaxations in filing
timelines under the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015 (“LODR”):
|
Reg no.
|
Nature of filing
|
Frequency
|
Original due
date |
Relaxation
period |
Extended due
date |
|
7(3)
|
Compliance
certificate on share transfer facility |
Half yearly
One month from
the end of each half of the financial year |
30 April 2020
|
1 month
|
31 May 2020
|
|
13(3)
|
Statement of
Investor complaints |
Quarterly
21 days from the
end of each quarter |
21 April 2020
|
3 weeks
|
15 May 2020
|
|
24A
|
Secretarial
Compliance Report(Read with circular CIR/CFD/CMD1/27/2019 dated 08 February 2019) |
Yearly
60 days from the
end of the financial year |
30 May 2020
|
1 month
|
30 June 2020
|
|
27(2)
|
Corporate
Governance Report |
Quarterly
15 days from the
end of the quarter |
15 April 2020
|
1 month
|
15 May 2020
|
|
31
|
Shareholding
Pattern |
Quarterly
21 days from the
end of the quarter |
21 April 2020
|
3 weeks
|
15 May 2020
|
|
33
|
Financial
Results |
Quarterly
45 days from the
end of the quarter |
15 May 2020
|
45 days
|
30 June 2020
|
|
Annual
60 days from the
end of Financial Year |
30 May 2020
|
1 month
|
30 June 2020
|
11. SEBI Relaxation in
Meeting requirements:
Meeting requirements:
SEBI has also relaxed the
requirement to have no more than 120 days elapse between 2 successive board
meetings vide its circular (SEBI/HO/CFD/CMD1/CIR/P/2020/38). It states that
although the Board and Audit Committee must meet no less than 4 times each
year, listed companies are exempted from the need to observe the stipulated
time lapse of 120 days between 2 successive meetings. This concession applies
only to meetings that are to be held between 01 December 2019 and 30 June 2020.
requirement to have no more than 120 days elapse between 2 successive board
meetings vide its circular (SEBI/HO/CFD/CMD1/CIR/P/2020/38). It states that
although the Board and Audit Committee must meet no less than 4 times each
year, listed companies are exempted from the need to observe the stipulated
time lapse of 120 days between 2 successive meetings. This concession applies
only to meetings that are to be held between 01 December 2019 and 30 June 2020.
It is expected that these steps will ease the
compliance burden on companies as they face multiple challenges in fighting
COVID. In the long run, it is the hopethat these procedural relaxations are
coupled with fiscal stimuli to help build economic resilience.
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compliance burden on companies as they face multiple challenges in fighting
COVID. In the long run, it is the hopethat these procedural relaxations are
coupled with fiscal stimuli to help build economic resilience.
For more details on J. Sagar Associates visit https://www.jsalaw.com/
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Venture Intelligence, in association with leading national law firm J. Sagar Associates, is happy to announce the availability of the free-to-download Handbook & Directory on Venture Capital in India.
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