This article is written by Kushang, from Himachal Pradesh National Law University (HPNLU). This article talks about various measures taken by SEBI and the Ministry of Corporate Affairs to help the corporate sector in the country during COVID-19. The article mentions key relaxation measures in the corporate field.
‘Special Situation needs Special Reactions.’ The pandemic COVID-19 has created a very special situation for the whole world. Many people have been affected by the coronavirus and thousands of them have died. But the pandemic not only affects these people but also the system and the normal day to day practices of the people. Measures like lockdown and social distancing have changed the whole world. The corporate field is also no exception to it. They are facing many problems due to the pandemic and this has led to certain changes in the corporate law environment of the country as well. Corporate law is the body of law relating to companies, businesses, and organizations. The corporate environment all over the world is suffering and India is no exception. Many changes are taking place to make this tough and complex situation easier for the stakeholders. Various regulations have been relaxed, non-compliances of provisions have been made non-violative and various measures are being taken to condone the delay in the work. In these exceptional times, it has become almost impossible to conduct meetings physically. Thus measures are being taken to extend or amend various provisions relating to the annual general meeting of the companies. Auditing has also become hard to conduct in these situations. Thus, there was a need to bring some changes by the government to decrease the burden on the organizations and make it easier for them to proceed with their work. To counter these challenges, the Indian government also took steps. These were mostly related to the relaxation of dates to complete various compliances. The Ministry of Corporate Affairs and Securities and Exchange Board of India have taken various key relaxation measures.
As stated above, COVID-19 has affected the corporate field as well. To counter the challenge posed by the pandemic, the Government of India allowed certain relaxation to the corporate sector in various aspects.
Measures by SEBI
Extension of time for meetings and filings
SEBI extended the last date of various meetings like the Annual General Meeting to September 3, 2020. It also extended the dates of submitting various annual, half-yearly, and quarterly submissions that had to be submitted to the stock exchanges. This was a necessary step as lockdown had made it difficult for filling and completing the compliances.
The exemption was also provided for the board of directors and the audit committee of listed entities from observing a maximum time gap of 120 days between two meetings as required under Regulation 17(2) and 18(2) of the LODR (Listing Obligation and Disclosure Requirements) Regulation, 2015 for meetings between the period from December 1, 2019, to June 30, 2020.
The requirement of sending physical copies of annual reports to shareholders has been relaxed for listed entities who conduct their AGMs ( Annual General Meetings) during the calendar year 2020.
Standard operating procedure in delay
The imposition of fines and other actions for non-compliance with the provision of LODR for which effective date of operation was the compliance period ending on or after March 31, 2020, was shifted to June 30, 2020. SEBI also exempted the requirement of publication of advertisement in newspapers as required under Regulation 47 of LODR for all events mentioned until May 15, 2020.
Relaxation related to procedural matters
SEBI granted one-time relaxation to listed entities from certain procedural requirements relating to buying back tenders offers and opening till 31 July 2020.
Thus, these were a few key relaxations granted by SEBI to corporates.
Measures by Ministry of Corporate Affairs (MCA)
The ministry also took some measures. They issued a circular dated 24 March 2020 mentioning relief measures to address issues related to COVID-19. These measures reduced compliance burden-
- MCA directed that no extra money shall be levied for delay in filing during a moratorium period from 1.04. 2020 to 30.09.2020 with respect to any document, return etc. as required to be filled in MCA-21 registry, irrespective of the due date.
- Section 173 of the Companies Act, 2013 prescribes the interval time limit for conducting meetings of the board. The interval period which was 120 days has been extended by 60 days i.e now interval period of 180 days is allowed until September 30, 2020. Thus, the gap between two consecutive meetings can be 180 days. For listed companies, the meeting has to be scheduled as per the exemption provided by SEBI.
- The Companies Auditor’s Report Order, 2020 shall be applicable from the financial year 2020-2021 instead of being applicable from the 2019-2020 financial year. The step was very necessary to ease off the burden on companies and their auditors.
- Schedule 4 of the Act states about the situation when independent directors of a company are unable to conduct at least one meeting without the presence of non-independent directors and members in 2019-20. Not complying with the schedule would not amount to a violation of the provision stated above.
- The date for transferring at least 20 % of the number of deposits (from members) which are due to mature during the financial year 2020-21 into the deposit repayment reserve account, as mentioned under Section 73 (2) (c) of the Act, has been extended by 60 days i.e from April 30, 2020, to June 30, 2020.
- Also, the last date for investing or depositing at least 15% of the number of debentures maturing during a particular year as per Companies Rule 2014 had been extended to June 30, 2020.
- Problems are being faced by newly incorporated companies in filing the declaration for the commencement of business. Thus, MCA has allowed additional time of 6 months in addition to the existing 6 months given or filing the declaration.
- Section 149 of the act states that there should be a minimum residency in India for a period of at least 182 days by at least one director of every company. Now MCA has ordered that for the financial year 2019-2020, the non-compliance of this section won’t be treated as a violation.
- The MCA also clarified that companies that use Corporate Social Responsibility (CSR) funds for the pandemic are eligible for Corporate Social responsibility activity. The funds may be spent on activities like the promotion of health care related to COVID-19. The MCA also clarified that contribution to ‘PM CARES Fund’ also qualifies as CSR expenditure under item (viii) of Schedule VII of the Companies Act. However, it is to be noted that contributing to any ‘State Relief Fund’ or ‘CM Relief Fund’ is not included in CSR activity.
- The MCA amended the Companies (Meetings of Board and its Powers) Rules 2014, wherein meetings may be held through video conferencing or other audiovisual means in accordance with rule 3 for a period till September 30, 2020.
- Section 62 of the act mentions further issues of shares. The subsection of the provision states that notice regarding the same has to be dispatched to shareholders through post or any other electronic means at least 3 days before the opening of the issue. However, MCA provided relief to companies in this aspect. Non Compliance of the said provision won’t be termed as a violation till July 31, 2020.
- The MCA also introduced the scheme for relaxation of time for filing forms related to the creation or modification of charges under the Companies Act 2013. This was done to approve the delay in filing certain forms related to modification or creation of charges, particularly during COVID-19. The relaxation has been provided until September 30, 2020.
- The MCA also introduced a new scheme ‘ Company Fresh Start Scheme, 2020’. The scheme was introduced to adjust the delay in filing the specified documents with the Registrar, in so far as it relates to charging of additional fees and granting of immunity from launching prosecution or proceedings for imposing a penalty on account of delay of filing of the document. The scheme also makes it easier for inactive companies to get their companies declared as ‘dormant company’ under Section 455 of the act by filing a simple application at a nominal fee.
Thus there were few key relaxations allowed by the Ministry of Corporate Affairs to the Companies in these difficult times. Most of them dealt with the relaxation of compliances and time periods. This has certainly reduced the burden as well as confusion which may have developed due to circumstances posed by the pandemic.
Companies Amendment Bill, 2020
The government of India introduced the bill “Companies Amendment Bill, 2020” and was approved by Lok Sabha in March. The Bill has brought various amendments to the corporate law of the country. Some of the key elements of the bill are-
- The bill introduced aims to decriminalize various penal provisions of the Companies Act, 2013. They are mostly related to provisions that are minor, technical, and lack subjective determination. This reform will be brought by-
- 23 compoundable offences to be re-categorized to in-house adjudication Mechanism.
- Removal of compoundable offences (7) from the penal provisions.
- Limiting certain compoundable offences to fines.
- Alternate Framework for 5 offences.
- Penalties or punishment for specific types of companies has been reduced.
- The bill also has provisions for Corporate Social Responsibility. In the present situation, any company which has a net worth of Rs 500 Crore or turnover of Rs 1000 crore or net profit of Rs 5 Crore or more in the last 3 financial years is required to spend 2% of its average net profit towards CSR policy and set up a CSR committee as well. However, the bill proposes to exempt companies from constituting a CSR committee with a CSR obligation of fewer than 50 lakhs.
- The bill mentions the insertion of chapter XXIA in the companies acts to provide a framework for the classification of producers companies. A producer company is a body of farmers and agriculturalists who work together to gain easier credit facilities, access to technology, and market. The bill also proposes to provide certain benefits and relaxations to these companies which consist of conducting meetings, membership, etc.
- The bill also proposes to set up more National Company Law Appellate Tribunal (NCLAT) benches. This would help to give easier access to the tribunal and also reduce the pending cases. Presently, National Company Law Appellate Tribunal is in New Delhi. The new NCLAT is proposed to be set up in Chennai which would serve the issues related to the southern part of the country.
The current scenario has led to these relaxations from the Ministry of Corporate Affairs (MCA) and Securities Exchange Board Of India (SEBI) for the companies and other stakeholders of the corporate environment. In a time like this, it was very important and has reduced the burden on these companies to a large extent. Although the changes have been for a temporary period the impact of such key measures has helped the companies in this exceptional time of the pandemic. Relaxation in the dates and comparatively lenient provisions for the delay has given a sense of satisfaction to the stakeholders of the corporate world. These changes have been related to various provisions of the Companies Act or various regulations by SEBI. Now the real problem that has arisen in front of the government is that the pandemic is still not over and especially in our country, the situation has become worse. It will be very important for the government to analyze the situation as to grant further extension related to filing or completing other required regulations. Many of the provisions stated above had the deadline in September. Thus, the time has come when the government needs to think again on the issue of whether to extend further and provide relaxation or to go with set deadlines. In these times, the corporate sectors require help and support from the authorities. With the lockdown being lifted in the nation it would be exciting to see what would be the next step of the government for the corporate sector and corporate law environment of the country.
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