I am writing this message to give you an overall update about various compliance and legal matters pertaining to your company. As you are aware of, the Compliance of the laws are the prime most factor which is used as a barometer for the measuring the health of the Corporates. Moreover, with the introduction of the plethora of new laws, amendment of the provisions of the existing laws and high level of compliance standards it is now mandatory for the management of the company to devote their quality time for improving the governance aspects of their company.
I would like to give you a run through on some of the laws and regulations which can impact you, positively or negatively, in short run. The given are only to give you a very basic idea about those matters and in order to get a detailed update on the same, we can have a one to one meeting based on your time schedules.
Insolvency and Bankruptcy Code(IBC)
With the introduction of this law, an avenue has been opened up for Corporates to improve their credit worthiness by remitting the dues on time as well as by collecting the due amount from others. This law has been introduced as a part of ease of doing business in India. The law is enabling a creditor to claim his debt from a company or LLP without fighting a long and tiring legal battle . The Code is enabling a Creditor to extract his due amount from the defaulting debtor without affecting the business of the said debtor. The said law is a double edged sword and if not used properly it can hurt the user also. If you are dealing with real estate companies or is owning a real estate company, you have to be very much conscious about this law, as a “Home buyer “ can stop your running. There is a famous saying that “ Ignorance of law is not an excuse”, and the same should be re-read as “ Ignorance of IBC can result in losing control over your company and no excuse will hold good in that case”. So please ensure that, you are consulting qualified persons to resolve your issues. At ARTIS LAW HOUSE, myself and Adv Asish Mohan , LLM, FCS, RP are qualified to act as Insolvency Professionals and we are here to help you out in such kind of situations
Companies Amendment Act 2017.
Much awaited Companies Amendment Act 2017 has been notified recently and the same had brought in some sigh of reliefs and few are adequate enough to raise your Blood pressure to a new high. In terms of section regarding , Loan to Directors, related party disclosures etc there are certain relaxing provisions which is really commendable from the point of view of ease of doing business. Whereas the Amendment came up with some stringent provisions on the time limits for filing the Annual forms with Registrar of Companies. Forms will carry a fine of Rs. 100/- per day instead of previous slab based fee system. The major disadvantage of the said system is that the delay beyond 300 days may lead to compounding of the offense. So the management have to be very much proactive to get the accounts audited well before the due dates and convene the annual general meeting to adopt the accounts. Timely completion of the auditing and convening of the AGM will enable us to file the returns on time.
Introduction of New KYC form for Directors – DIR 3 KYC
At present a person with a valid DIN (Directors Identification Number ) can only join the board of the company as a Director. However, no one is really bothered about the accuracy of the details entered in the DIN. In many cases, the email id and phone numbers given there in are of an associate or or a consultant. The wise minds at MCA think that as a possibility to escape legal compliance by the Directors and they want to put a cap on that now. So they came up with a new form- DIR 3 KYC, which is to be updated with latest email and Phone numbers. Hold, that is not the end. The Phone number has to be Aadhar linked and the verification should be based on an OTP. All these exercises have to be carried out annually and the form is to be certified by a Practising CA/CS. Even though all these are adding financial burden on the companies we have to see the intention behind the same in a positive manner . The last date for filing the said return is 31st of August, 2018 for this year and from next year onwards the same to be done on or before 30th April, 2018.
More companies are getting default notices
The Government is continuing its cleansing process in Corporate filed through various modes and ways. Post demonetization, some stringent measures against the defaulting companies has been successfully initiated which end up in striking off of those companies and disqualifying the directors of those companies. As a continuation measure, the Government has already started sending reminder mails to another set of defaulters, 2 Lakhs as per MCA data, as a prelude of the striking off. As we already had a bad and bitter experience, it is not advisable to wait till the last moment to update the records. Once it got affected, we have to shell out a lot of time and money to get every thing back to the track. So be cautious and be aware.
Reporting in single Master Form about Foreign Investment in your company.
The Reserve Bank, in the First Bi-monthly Monetary Policy Review dated April 5, 2018 announced that, with the objective of integrating the extant reporting structures of various types of foreign investment in India, it will introduce a Single Master Form (SMF) subsuming all the existing reports. In the second phase, the second module containing 9 reports would be made available with effect from August 01, 2018. With the implementation of SMF, the reporting of FDI, which is presently a two-step procedure viz., ARF and FC-GPR would be merged into a single revised FC-GPR. The SMF also introduces reporting of indirect foreign investment through form DI and reporting of inflows in investment vehicles through Form InVi. Further, the reporting in FC-TRS, LLP-I, LLP-II, ESOP, DRR and CN would also be made in SMF only. The finalized structure of SMF and operational instructions thereof would be made available in the Master Direction on Reporting under FEMA, 1999. Indian entities not complying with these instructions will not be able to receive foreign investment (including indirect foreign investment) and will be treated as non-compliant with Foreign Exchange Management Act, 1999 (FEMA) and regulations made thereunder and liable for action as laid in FEMA or the regulations made thereunder.
Annual Return on Foreign Liabilities and Assets.
The annual return on the Foreign Assets and Liabilities (FLA) has to be filed by the Indian Resident Companies whosoever has received Foreign Direct Investment (FDI) and /or made Overseas Direct Investment (ODI) in previous years(s), including the current year under FEMA 1999. The FLA Retrun has to be filed on or before 15th Of July, every year. Even if there is no fresh FDI/ODI in the current year, but has outstanding FDI/ODI then the company is required to comply with the regulation. Non Compliance of the law may lead to penalties under FEMA.
Reviewing the penal provisions under the Companies Act, 2013- A welcome move
Operating a business means a lot to the economy. It adds lot of employment opportunities to various levels of the society and also creates a competitive environment for its stakeholders. Prosperity and sluggishness are cyclical for everyone with no exception to companies and Countries. Due to several reasons, financial or business, corporates can run into trouble. In some cases, innocent omission to comply with the laws can happen. All these are part of business. In some cases, such omissions may be intentional or with ulterior motives. Whatever it may be we cannot put all the eggs in same baskets or cannot term those who are not complying with laws a Criminals. In many cases, the omissions are due to inadvertence. The Companies Act 2013 is terming most of the omissions and delays are criminal offense and beating the offenders with brick bats and trying to put them behind the bars. There is no logic behind that. The Act should be revisited by decriminalising the non-compliance of some provisions whereas some provisions to be retained as such.
The Ministry of Corporate Affairs has recently constituted a committee to review the penal provisions under the Companies Act and examine decriminalisation of the certain offenses. According to the ministry, it has been decided that the existing compoundable offences in the Act – offences punishable with fine only or punishable with fine or imprisonment or both, may be examined.
This is certainly a welcome more from the part of MCA and then offences under the Act may be considered as “Civil Wrongs” or penalty where the penalty by an adjudicating officer may be imposed in the first instance and only subsequent non-compliance of the Order to such authority may be categorised as an offense triable by special court.