Corporate Laws Newsletter: Notification of certain provisions of the Companies (Amendment) Act, 2020-Jan-2021
The Companies (Amendment) Act, 2020 received assent from the President on September 28, 2020 and the proposed amendments mainly consist of provisions for decriminalisation of offences under the Companies Act, 2013. Certain provisions of the Companies (Amendment) Act, 2020 have come into force with effect from December 21, 2020 and these provisions inter alia consist of:
(a) Reduction in the time limit for companies to rectify the name of the company from six months to three months.
(b) Certain minor procedural and technical offences under the Companies Act, 2013 have been decriminalized and such offences have been categorized as civil wrongs prescribing only penalties for the offences.
(c) Modifications in the penalty amounts charged for non-compliances with certain provisions of the Companies At, 2013.
(d) Power of the Central Government to exempt the foreign companies from certain provisions of Companies Act, 2013 has been revoked.
While few sections of the Companies (Amendment) Act, 2020 are now enforced, it remains to be seen whether these amendments actually result in benefits for various stakeholders as envisaged.
MCA amends the Companies (Incorporation) Rules, 2014
Companies (Incorporation) Rules, 2014 were amended by the Ministry of Corporate Affairs vide the Companies (Incorporation) Third Amendment Rules, 2020 dated December 24, 2020. The amendment inserts a new rule, Rule 9A allowing the registrar of Companies to extend the period for reservation of names for companies basis the payment of fees received as follows:
(a) Upon payment of INR 1000 before the expiry of 20 days from the date of receipt of approval, the Registrar to extend the period of reservation up to 40 days from the date of approval.
(b) Upon payment of INR 2000 before the expiry of 40 days from the date of payment of fees referred above in point (a), the Registrar to extend the period of reservation up to 60 days from the date of approval.
(c) Upon payment of INR 3000, before the expiry of 20 days from the date of receipt of approval, the Registrar to extend the period of reservation up to 60 days from the date of approval.
These amendments in the incorporation rules would provide more flexibility to stakeholders in the entire process of name reservation process and incorporation of a company. Levy of fees which is different for extension of period for number of days varying from 20, 40 and 60 will enable applicants to pay fees based on their requirement of the name reservation instead of a standard lumpsum fee payable for the reservation of name.
Clarification on passing of ordinary and special resolutions by Companies under Companies At, 2013
The Ministry of Corporate Affairs (MCA) vide its General Circular No. 39/2020 dated December 31, 2020 has clarified that it has been decided to allow companies to conduct extra-ordinary general meetings through video conference or other audio-visual means or transact items through postal ballot in accordance with the framework provided in the circulars for relaxations issued by the MCA in the past few months. This relaxation has been granted till June 30, 2021. This extension of relaxation is much need for entities which are gearing up for business post pandemic considering the flexibility involved in conducting virtual meetings.
Extension for holding of annual general meetings through video conferencing
The MCA has vide its General Circular No. 2/2021 dated January 13, 2021, clarified that companies whose annual general meetings were due to be held in the year 2020 or become due in the year 2021 may conduct their annual general meetings through video conferencing or other audio-visual means up to December 31, 2021. Compliance with the framework and requirements as listed in the MCA circular dated May 5, 2020 is a prerequisite for meetings to be held through video conferencing and other audio-visual means. The circular further clarifies that the clarification provided through the circular should not be construed as an extension of time for holding the annual general meeting by the companies under the Companies At, 2013. This extension of relaxation for holding annual general meetings through video conferencing is need of the hour as it will help businesses to focus on operations post pandemic. Virtual general meetings prove to be a win-win situation for all as virtual meetings involve reduced costs (as compared to physical meetings) and have also seen greater participation from shareholders as compared to physical meetings.
Perpetual Validity of Certificate of Authorization (CoA) issued to Payment System Operators (“PSOs”) under Payment and Settlement Systems Act, 2007 (PSS Act)
The Reserve Bank of India (“RBI”), vide its notification dated December 4, 2020 (“Notification”), has notified its decision to grant authorization for all PSOs (both new and existing) on a perpetual basis with a view to reduce licensing uncertainties and enable PSOs to focus on their business. Prior to the Notification, RBI granted authorizations to new entities desirous of operating a payment system for a period up to 5 years and a similar approach was adopted for the renewal of authorizations granted to existing entities. The grant of perpetual validity to existing PSOs shall be examined as and when the CoA becomes due for renewal subject to their adherence to the following:
(a) Full compliance with terms and conditions subject to which the authorization was granted;
(b) Fulfilment of entry norms such as capital, net worth requirements, etc.;
(c) No major regulatory or supervisory concerns related to operations of the PSO observed during onsite/offsite monitoring;
(d) Efficacy of customer grievance redressal mechanism;
(e) No adverse reports from the other departments of RBI/regulators/statutory bodies, etc.
Existing PSOs will be granted a renewal of 1 year upon failing to satisfy all conditions in order to enable them to comply. RBI may withdraw the authorization of any entity failing to achieve compliance within reasonable time. Further, a cooling period of 1 year from the date of revocation/non-renewal/acceptance of voluntary surrender/rejection of application has been introduced, vide a separate notification, to inculcate discipline, encouraging applications by serious players, and effective utilization of regulatory resources.
The Notification has clarified that PSOs can now seek perpetual validity for the CoA subject to compliance with conditions laid down in the notification. This is a welcome change as PSOs will be able to ensure focus on business activities instead of burden of regulatory and licensing restrictions. New as well as existing PSOs would benefit from this grant of perpetual validity.