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Recent Changes Brought in by the Ministry of Corporate Affairs (“MCA”)

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Arvind Ray

A. Name Availability Guidelines, 2011 Implemented w.e.f. 24 July 2011

In continuation of the MCA’s earlier Circular No. 45, dated 8 July 2011 on this subject, the MCA on 22 July 2011 issued another circular, General Circular No. 48/2011 stating that:

1. The Name Availability Guidelines, 2011 and revised e-form 1A shall be implemented with effect from 24 July 2011.

2. A fee of Rs. 1,000 shall be charged w.e.f. 24 July 2011 for making an application for availability of name in revised e-form 1A as provided under Companies (Central Government’s) General Rules and Forms (Amendment) Rules, 2011, dated 14-7-2011.

The Circular may be accessed at http://mca.gov.in/Ministry/pdf/Circular_48-2011_22july2011.pdf

B. Scrutiny Inspection and Investigation In All Winding Up Cases

Noticing that winding up petitions are being filed by management after having committed major violations under the Companies Act, 1956 as well as misappropriation of funds of the company, the MCA issued General Circular Number 55/2011 on 26 July 2011, establishing procedures required to be followed in such cases:

1.  The moment winding up petition is filed before the Court; Official Liquidator (“OL”) will obtain a copy of petition and forward the same to the Registrar of Companies (“ROC”) concerned.

2.  ROC will have scrutinise details/documents available in respect of the company in MCA 21 registry and will submit a preliminary report to the Ministry within a week time for inspection or investigation, if so required, containing following information for the past five years of the date of filing of petition:—

(i)  History of the company, viz. incorporation, maintenance of registered office, main object and present business activities;

(ii)  Management pattern, including details of directors/nominee directors and their directorship in other companies;

(iii)  Capital structure and shareholding pattern;

(iv)  Financial position and working results;

(v)  Comments on filing position and compliances of Schedule VI read with Accounting Standards;

(vi)  Nature of complaints registered on MCA-21, their nature and any noticeable findings;

(vii) Whether any complaint was received alleging that the company is involved in fraudulent activities, siphoning of funds etc. If so, the details thereof.

(viii)Whether any scrutiny/inspection was carried out, if so, the details thereof;

(ix)  Whether the company is having any holding or subsidiary company, if so, details thereof;

(x)  Whether company has raised funds through IPO, if so, the utilization of amount collected, compliance of provisions of the Act for deviation from the object stated in Prospectus/Offer Document; transactions with related parties;

(xi)  In case of public company, whether it has accepted public deposit. If so, whether the payment of matured amount including interest was made as per schedule. In case any amount is still pending, the details of amount and interest thereon.

(xii) The quantum of unsecured loan amount and related party transactions thereto.

(xiii) Secretarial reports and qualifications made by the auditors on accounts of the company;

(xiv) Whether company or its members/creditors have requested for investigation into the affairs of the company, if so, the details thereof.

3. MCA will take a final view in the matter within a period of 15 days from the date of receipt of preliminary report from ROC. If any inspection under section 209A and/or investigation under section 235/237 of the Act is ordered, the same will be completed by the ROC and forwarded to the OL within 30 days.

4. The OL will place the report before the Hon’ble High Courts for seeking appropriate order/action under sections 539 to 544 and other relevant provisions of the Act. Simultaneously, necessary action as per law will be initiated against the director, ex-director and key management of the company for any violation of law/Companies Act, 1956.

5. These cases will be monitored in the monthly staff meeting of Regional Directors.

This Circular may be accessed at http://mca.gov.in/Ministry/pdf/Circular_55-2011_26july2011.pdf.

C. Pro-active Action in Case of Winding Up Petitions

In order to avoid filing of winding up petitions by creditors, stakeholders and management before Hon’ble High Courts without providing full information, the MCA issued General Circular No. 54/2011 on 26 July 2011, requiring the following to be taken in such cases:

1. Official Liquidators (“OLs”) shall post one of the staff members to the Company Court to keep track of all cases where applications have been filed for winding up, but orders for winding up are yet to be issued by the Court.

2. For all cases pending till date and in future as well, information shall be obtained by OL from “institution register” maintained in High Court and action as below must be taken in all cases.

3. In each case the OL will file an application praying to the Court to direct the management of the company to submit following information duly verified by a chartered accountant:—

(i)  The current addresses of the Directors, Company Secretary and Statutory Auditor of the company;

(ii)  Location and physical details of each immovable asset of the company along with its current valuation;

(iii)  The details of all the debtors and creditors with their complete addresses and occupations;

(iv)  The details of each movable asset of the company along with value;

(v)  The details of workmen/employees and any amount outstanding to them;

(vi)  The details of all movable and immovable assets held in the personal names of director by providing its location, value, dates of acquisition and nature of right, title and interest therein;

(vii) Copies of last three years audited balance sheet of the company; and

(viii)The details of location of the registered office of the company.

4.  Regional Directors (“RDs”) will ensure that in all pending cases, the applications are moved by OL before the Court before the next date of hearing and in all new cases, these are filed before the Hon’ble Court before the second hearing of the case.

5. RDs will ensure that a standard draft is prepared by them after taking legal advice and the same is used in all cases by OLs.

This Circular may be accessed at http://mca.gov.in/Ministry/pdf/Circular_54-2011_26july2011.pdf

D. Guidelines for Regional Directors and Registrar of Companies In The Matter Of Scheme Of Arrangement/Amalgamation Under Sections 391-394

In order to streamline the procedure for sending comments to the Hon’ble High Courts in respect of scheme of arrangement/amalgamation under sections 391-394 of the Companies Act, 1956 on behalf of the Central Government, the MCA through General Circular No. 53/2011 dated 26 July 2011, has established the following guidelines for the Registrar of Companies (“ROCs”) and Regional Directors (“RDs”), the issues required to be examined by the ROCs and the RDs are given in Annexure 1 and Annexure 2, respectively:

1. On receipt of notice from the court under section 394A regarding the scheme, the RD should make an entry in a register or in electronic form. If the petition has already been filed with ROC in Form 61 in the system, the same can be monitored directly from the system.

2. Thereafter within three days of receipt, Regional Director shall send a mail to ROC concerned for the report.

3. ROC should furnish his report online to RD within 7 days from receipt of Form 61 without waiting for RD’s communication.

4. Within seven days of receipt of notice RD should send a letter to local branch of Law Ministry/Assistant Solicitor General appointed for the State by Law Ministry as the case may be (furnishing copy of the notices received under section 394A) requesting for nomination of an advocate.

5. Regional Director should send a letter within five days of receipt of notice to company/its Advocate to provide material of valuation report, Chairman’s report regarding creditors/members meeting and on receipt of the information, the matter should be processed and finalized within a week’s time.

6. The finalized affidavit should be sent to designated Standing Counsel for the particular case for signature and then to Law Ministry (local branch) for identification. This exercise should not take more than five days after which the affidavit should be filed in Court Registry.

The ROCs may examine the matter in respect of issues mentioned in Annexure ‘I’ and send their report to concerned RDs who would take into consideration the report of the ROC before finalizing their comment.

Annexure – I

Issues to be examined by ROCs

1.  Filing Position.

2.  Investor Grievances.

3.  Inspection/Investigation/Technical Scrutiny.

4.  Pending Prosecution.

5.  Furnishes comments on the scheme.

Annexure – II

Issues to be examined by Regional Directors

Regional Director should ensure that all requisite statutory procedure for supporting the schemes has been complied with. For this he should examine the following:

(1)  Whether companies forming part of scheme are sensitive sectors categories companies such as,Defence Equipment Manufacturing Companies/Telecommunication/Insurance/Business/Companies/Media News /Channels/Television Broadcasting Companies/Aviation section/Power, Energy, Natural Gas/Petroleum etc.? If so, whether notices served on the concerned Regulatory Authorities/Ministry?

(2)  Whether any of the Transferor/Transferee Company is listed company at any Stock Exchanges? If so, NOC from Stock Exchange is submitted?

(3)  Whether there is any NRI holding/foreign interest in any of the Transferor or Transferee Company?

(4)  Whether Petitioner Company and/or its director have prima facie contravened any provisions of Companies Act, 1956?

(5)  Whether Transferor and Transferee Company are regular in filing its statutory returns?

(6)  Reports sent by concerned Registrar of Companies should be examined.

(7)  Investors/or other companies regarding affairs of the company should be examined.

(8)  In case of complicated legal/technical issues, opinion of Law Ministry/Government Advocates should also be obtained.

(9)  Whether Transferor or Transferee Company was inspected under section 209A of the Companies Act, 1956 by this Directorate and position of latest follow up of penal actions arising out of inspection?

(10) Whether Valuation Report submitted, if so, whether share exchange ratio in the scheme is as per Valuation Report and as per general accepted accounting principles?

(11) Whether transfer of Employees and their interest is protected ?

(12) Whether Accounting Treatment clause is as per Accounting Standard-14 and in tune with the provisions of section 211 3A/3C of the Companies Act, 1956?

(13) Whether meeting is conducted by the company in respect of equity shareholders/secured creditors/unsecured creditors ? If not, whether any exemption is granted by the Hon’ble High Court ?

(14)  Whether details of transactions entered with related parties of directors falling under section 295, 297 and 299 of the Act is furnished?

(15) Whether consideration is made in cash other than of shares?

(16) Whether provisions of section 77 in respect of buy-back of shares is attracted?

(17) Whether any reduction of share capital is involved in the scheme of demerger and provisions of sections 100-104 is complied with?

(18) Where no such reduction of capital is involved, it is made sure that necessary adjustment is made in the books of account duly incorporating in the scheme?

(19) Whether the authorized share capital of the Transferee Company is sufficient for allotment of new shares for the shareholders of the Transferor Company?

(20) Whether any foreign entity is involved and if so necessary permission is obtained from Regulatory Authorities?

(21) Whether compliance of FEMA/RBI Guidelines has been done wherever applicable?

(22) Whether any qualification has been made by the Statutory Auditor, if so, whether company has complied with section 217(3) of the Companies Act, 1956?

(23) How the qualification and reservations of the Auditors are complied with by the company?

(24) Whether a listed company is merging with an unlisted company ? In such a case he should ensure that share of unlisted company also gets listed.

(25) Whether consequent to merger, the promoters holding in the listed company is substantially increased?

(26) Whether the companies have come up with schemes to circumvent the Law in the garb of obtaining approval of the Hon’ble High Court under the accepted principle of “Single Window” approval and other grounds laid down by the Courts in its rulings? If so, the Regional Director should bring out his objection in his statement/report/affidavit irrespective of the fact whether Court accepts it or not.

This Circular may be accessed at http://mca.gov.in/Ministry/pdf/Circular_53-2011_26july2011.pdf

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