MCA vide notification G.S.R. 413.(E) as published in e-gazette on 18.06.2014, in exercise its powers conferred under relevant provisions as per the details provided in the Notification has amended the Companies (Share Capital and Debentures) Rules, 2014. Following are the brief of amendments made in the Companies (Share Capital and Debentures) Rules, 2014 through the above said notification:

(i) in rule 4 – after sub-rule (6), for the Explanation, the following Explanation shall be substituted, namely:-

“Explanation.- For the purposes of this rule it is hereby clarified that equity shares with differential rights issued by any company under the provisions of the Companies Act, 1956 (1 of 1956) and the rules made thereunder, shall continue to be regulated under such provisions and rules.”.

Thus, the MCA has now made clear that there would be no need of conversion of differential rights attached to shares issued pursuant to the provisions of Companies Act, 1956 as such rights shall continue to be regulated under such provisions and rules. Without this amendment in the Explanation, the wordings were giving impression that all the existing shares with deferential voting rights were required to be converted to new deferential voting right shares in compliance with new Act.

(ii) in rule 13,

(a) in sub-rule (2), after clause (j), the following Explanation shall be inserted, namely:-

“Explanation. – For the purposes of these rules, it is hereby clarified that, till a registered valuer is appointed in accordance with the provisions of the Act, the valuation report shall be made by an independent merchant banker who is registered with the Securities and Exchange Board of India or an independent Chartered Accountant in practice having a minimum experience of ten years”.;

As the section 247 and rules thereunder relating to Registered Valuers are not yet notified. It their absence, the requirement of Rule 13(2)(j) of Companies (Share Capital and debentures) Rules, 2014 was creating confusion for industry. It is thus clarified that the valuation report prepared by an independent merchant banker registered with SEBI or an independent Chartered Accountant in practice having a minimum experience of ten years; would suffice for the purpose of the stated rules; till registered valuer is appointed pursuant to the provision of Companies Act, 2013.

(b) after sub-rule (2), the following sub-rule shall be inserted, namely:-

“(3) The price of shares or other securities to be issued on preferential basis shall not be less than the price determined on the basis of valuation report of a registered valuer.”.

The Section 62(1)(c) of the Companies Act, 2013 required that the issue price for referential offer shall be determined by a Register Valuer. Again, Rule 13 (2) (d) required disclosure of basis of determination of price. But it was not clear whether the company can issue shares and other securities at a price different from what determined by the Valuer. In many cases the negotiated price may be higher than the price so determined and it would be in the interest of companies to have such flexibility. Hence, now MCA has inserted this new sub-rule to make it clear that the price determined by Valuer shall be only the minimum price for issuance of shares on preferential basis.

(iii) in rule 18,

(a) in sub-rule (1), in clause (a), for the proviso, the following proviso shall be substituted, namely:- “Provided that the following classes of companies may issue secured debentures for a period exceeding ten years but not exceeding thirty years,

(i) Companies engaged in setting up of infrastructure projects;

(ii) ‘Infrastructure Finance Companies’ as defined in clause (viia) of sub-direction (1) of direction 2 of Non-Banking Financial (Non-deposit accepting or holding) Companies Prudential Norms (Reserve Bank) Directions, 2007;

(iii) ‘Infrastructure Debt Fund Non-Banking Financial companies’ as defined in clause of (b) direction 3 of Infrastructure Debt Fund Non-Banking Financial Companies (Reserve Bank) Directions, 2011”.

Based on industry representations, the government has found it logical to allow, besides the companies engaged in the setting up of infrastructure projects, Infrastructure Finance Companies and Infrastructure Debt Fund Non-Banking Financial companies to issue secured debentures for a period exceeding 10 years but not exceeding 30 years.

(b) in sub-rule (7), in clause (b), in sub-clause (ii), after the letters, brackets, words and figures “RBI (Amendment) Act, 1997”, the words “and for Housing Finance Companies registered with the National Housing Bank” shall be inserted.

Hence, with reference to Housing Finance Companies registered with the National Housing Bank for the creation of Debenture Redemption Reserve (DRR), the adequacy of DRR would be 25% of the value of debentures issued through public issue as per present SEBI (Issue of Listing of Debt Securities) Regulations, 2008 and no DRR is required in the case of privately placed debentures.

MCA has received several references seeking clarity about the status of subsidiaries incorporated/to be incorporated by companies incorporated outside India in the absence of provision similar to sub-section (7) of section 4 of the Companies Act, 1956 in the Companies Act, 2013. Keeping in view these representations MCA has issued a clarification vide circular no 23/2014 dated 25th June 2014that in the light of sections 2(68), 2(71) and 2(87) of the Companies Act, 2013:

• There is no bar in the new Act for a company incorporated outside India to incorporate a subsidiary either as a public company or a private company. Thus, now there can be a private limited subsidiary of a Foreign Public Companies.
• An existing company, being a subsidiary of a company incorporated outside India, registered under the Companies Act, 1956, either as private company or a public company by virtue of section 4(7) of that Act, will continue as a private company or public company, as the case may be, without any change in the incorporation status of such company.

In line with the clarification with regard to voting through electronic means through general circular no 20/2014 date 17th June, 2014 MCA vide its notification G.S.R. 415(E) dated 23rd June, 2014, which deferred the implementation of mandatory requirement of e-Voting facility by all listed companies and other companies having at least one thousand shareholders, the Ministry has amended the Companies (Management and Administration) Rules, 2014. The amended rule 20(1) says that such companies may provide to its members the facility to exercise their vote at general meetings by electronic means on or before the 1st day of January 2015. The sub-rule (3) is also amended a little to give more clarity.

In brief the notification provides the following:

In the Companies (Management and Administration) Rules, 2014, in rule 20

(i) In sub rule (1), the following shall be inserted, namely:-

“Provided that the Company may provide the facility referred to in this sub rule on or before the 1st day of January 2015”

(ii) In sub-rule (3), for the words “which opts to provide”, the words “which provides” shall be substituted.

These amendments/clarification has no significant impact keeping in view the existence of amended Clause 35B of the Listing agreement, which is applicable to all listed companies and mandates them to provide e-Voting Facility with immediate effect. SEBI has not yet clarified its position after MCA issued the above Circular dated 17th June 2014. Hence, these amendments are applicable only to unlisted companies with 1000 or more shareholders.

MCA in furtherance to the General Circular No. 20/2013 dated 27/12/2013, has clarified vide the General Circular no. 24/2014 dated 25.06.2014 that the shares held by a company in another company in a 'fiduciary capacity' shall not be counted for the purpose of determining the relationship of 'associate company' under section 2(6) of the Companies Act, 2013. Thus, now it is clear that for determining whether a company is “Associate Company” only absolute ownership of shares shall be considered and share held in trust of other or where the beneficial ownership of shares not with the company, shall not be considered.

MCA vide its General Circular No. 25/2014 in regards to the section 149(3) of the Companies Act, 2013 (hereinafter referred as “Act”) which requires to have a resident director (i.e. person who stayed in India for a period of at least 182 in the previous calendar year) on the board of every company, has made it clear that the section has no retrospective effect and that the residency requirement would be calculated from commencement of section 149 i.e. 1st April, 2014. The previous calendar year for calculating the presence of director in India in compliance with section 149(3) shall be calendar year 2014. As the section came into force on 1st April hence for the existing companies, the minimum days of stay in India for any director to qualify him as resident director shall be calculated on proportionate basis i.e. 136 days.

Therefore, it is pertinent to note that for complying with the provisions of section 149(3) every company which is existing before 1st April, 2014, should have a person as its director who stayed in India for more than 136 days during Calendar year 2014 at the end of the current calendar year.

Clarification on this issue for the newly incorporate Companies is as following:
 

Form the above clarification, MCA has tried to remove the confusion/difficulty arising out of the wordings of section 149(3) that this provision have a retrospective effect and all companies needed to appoint a new director who qualifies the residency test on immediate basis, in case none of the existing director were qualified on that criteria. In the absence of these clarifications, many companies which were owned and controlled by foreign residents/companies, were finding it difficult to ensure compliance of the section.