CA Final Law Amendments for May 2020 Examination FEMA 3 ......CA Final Law Amendment (May 2020) Ali Baba Limited is a listed company incorporated under the provisions of Company Law

CA Final Law Amendment (May 2020)

CA Final Law Amendments for May 2020 Examination

FEMA 3 Topics [ECB, ODI & Imports] is also separately uploaded on MY website. Please check. All the

Amendment portions are highlighted in YELLOW for Ease of Reference.

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Company Law

1. Appointment & Qualification of Directors

Topic Detailed Discussion Rule 12A Directors KYC

Every individual who holds a Director Identification Number (DIN) as on 31st March of a financial year as per these rules shall submit e-form DIR-3-KYC for the said financial year to the Central Government on or before 30th September of immediate next financial year.

Provided that every individual who has already been allotted a Director Identification Number (DIN) as at 31st March, 2018, shall submit e-form DIR-3 KYC on or before 5th October, 2018.

Note: For the financial year ending on 31st March 2019, the individual shall submit e-form DIR-3 KYC or web form DIR-3 KYC-WEB, as the case may be, on or before the 14th October, 2019.

Every Year Simple Verification Provided further that where an individual who has already submitted e-form DIR-3 KYC in relation to any previous financial year, submits web-form DIR-3-KYC-WEB through the web service in relation to any subsequent financial year it shall be deemed to be compliance of the provisions of this rule for the said financial year.

Update Mobile & Email Provided also that in case an individual desires to update his personal mobile number or the e-mail address, as the case may be, he shall update the same by submitting e-form DIR-3 KYC only, as this facility of updation is not being proposed in the Web-Based Service DIR-3-KYC-WEB.

Fees Provided also that fee for filing e-form DIR-3 KYC or web-form DIR-3 KYC-WEB through the web service, as the case may be, shall be payable as provided in Companies (Registration Offices and Fees) Rules, 2014.

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2. Meetings of Board & Its Powers

Topic Detailed Discussion

Section 186(11) (Amended)

Exemptions to Banks and NBFCs Nothing contained in this section, except sub-section (1), shall apply— (a) to any loan made, any guarantee given or any security provided or any investment

made by a banking company, or an insurance company, or a housing finance company in the ordinary course of its business, or a company established with the object of and engaged in the business of financing industrial enterprises, or of providing infrastructural facilities;

(b) to any investment— (i) made by an investment company; (ii) made in shares allotted in pursuance of section 62(1)(a) or in shares allotted in

pursuance of rights issues made by a body corporate; (iii) made, in respect of investment or lending activities, by a NBFC registered

under Chapter III-B of the RBI Act, 1934 and whose principal business is acquisition of securities.

Rule 11 - Loan and investment by a company under Section 186 of the Act

For the purposes of Section 186(11)(a), the expression "business of financing industrial enterprises"* shall include, with regard to a NBFC registered with RBI, "business of giving of any loan to a person or providing any guaranty or security for due repayment of any loan availed by any person in the ordinary course of its business".

* Substituted by Companies (Meetings of Board and its Powers) Amendment Rules, 2019 dated 11th October, 2019 in Rule 11, sub-rule 2 for the words; "business of financing of companies" the following words shall be substituted namely, "business of financing industrial enterprises".

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3. Inspection, Inquiry & Investigation

Topic Detailed Discussion Section 212(7) to (13)

Arrest & Trial 7) The limitation on granting of bail specified in sub-section (6) is in addition to the

limitations under the Code of Criminal Procedure, 1973 or any other law for the time being in force on granting of bail.

8) If any officer not below the rank of Assistant Director of SFIO has on the basis of material in his possession reason to believe that any person has been guilty of any offence, he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest [Companies (Amendment) Act, 2019 effective from 15th August 2019].

9) The officer authorised under Section 212(8) shall, immediately after arrest of such person under such sub-section, forward a copy of the order, along with the material in his possession, to the SFIO in a sealed envelope [Companies (Amendment) Act, 2019 effective from 15th August 2019].

10) Every person arrested shall within 24 hours, be taken to Special Court or Judicial Magistrate or a Metropolitan Magistrate having jurisdiction: Provided that the period of 24 hours shall exclude the time necessary for the journey from the place of arrest to the Special Court or Magistrate’s court. [Companies (Amendment) Act, 2019 effective from 15th August 2019].

11) The Central Government if so directs, the SFIO shall submit an interim report to the Central Government.

12) On completion of the investigation, the SFIO shall submit the investigation report to the Central Government.

13) Notwithstanding anything contained in this Act or in any other law for the time being in force, a copy of the investigation report may be obtained by any person concerned by making an application in this regard to the court.

Section 212(14) to (16)

CG may direct SFIO to initiate prosecution On receipt of the investigation report, the Central Government may direct the SFIO to initiate prosecution against the company and its officers or employees, who are or have been in employment of the company or any other person directly or indirectly connected with the affairs of the company.

Where the report under Section 212(11) or Section 212(12) states that fraud has taken place in a company and due to such fraud any director, key managerial personnel, other officer of the company or any other person or entity, has taken undue advantage or benefit, whether in the form of any asset, property or cash or in any other manner, the Central Government may file an application before the Tribunal for appropriate orders with regard to disgorgement of such asset, property or cash and also for holding such director, key managerial personnel, other officer or any other person liable personally

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Topic Detailed Discussion without any limitation of liability. [Companies (Amendment) Act, 2019 effective from 15th August 2019].

Notwithstanding anything contained in this Act or in any other law for the time being in force, the investigation report filed with the Special Court for framing of charges shall be deemed to be a report filed by a police officer under section 173 of the Code of Criminal Procedure, 1973.

Notwithstanding anything contained in this Act, any investigation or other action taken or initiated by SFIO under the provisions of the Companies Act, 1956 shall continue to be proceeded with under that Act as if this Act had not been passed.



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4. Compromises, Arrangements & Amalgamations

Clarification under Section 232(6) of the Companies Act, 2013

A clarification has been issued by the MCA on 21st August, 2019 regarding Section 232(6).

According to the Clarification: -

Topic Detailed Explanation Appointed Date The provision of Section 232(6) of the Act enables the Companies in question to choose

and state in the scheme an 'Appointed Date'.

This date - (1) may be a Specific Calendar Date OR (2) may be tied to the Occurrence of an Event

such as - (a) grant of license by a competent authority OR (b) fulfilment of any preconditions agreed upon by the parties, OR (c) meeting any other requirement as agreed upon between the parties, etc., which are relevant to the scheme.

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Ind-AS 103 The 'Appointed Date' identified under the scheme shall also be deemed to be the - (1) 'Acquisition Date' and (2) ‘Date of Transfer of Control’ for the purpose of conforming to AS (including Ind-AS 103 Business Combinations).

Specific Calendar Date may precede Application Date before NCLT

Where the 'Appointed Date' is chosen as a Specific Calendar Date, it MAY precede the date of filing of the application for scheme of Merger/Amalgamation in NCLT.

Note: If the 'Appointed Date' is significantly ante-dated beyond a year from the date of filing, the justification for the same would have to be specifically brought out in the scheme and it should not be against public interest.

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Indicate the Appointed Date on the Scheme

(1) The scheme may identify the 'Appointed Date' based on - (a) the occurrence of a trigger event which is key to the proposed scheme and (b) agreed upon by the parties to the scheme.

(2) This event would have to be indicated in the scheme itself upon occurrence of which the scheme would become effective.

Note: In case of such event-based date being a date subsequent to the date of filing the order with the ROC under Section 232(5), the Company shall file an intimation of the same with the ROC within 30 days of such scheme coming into force.

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5. Prevention of Oppression & Mismanagement


Section 241(2) Application by CG

The Central Government, if it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this Chapter.

Provided that the applications under this sub-section, in respect of such company or class of companies, as may be prescribed, shall be made before the Principal Bench of the Tribunal which shall be dealt with by such Bench.

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Section 241(3) CG may initiate a case and refer the same to the Tribunal

Where in the opinion of the Central Government there exist circumstances suggesting that–– (a) any person concerned in the conduct and management of the affairs of a company

is or has been in connection therewith guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law or of breach of trust;

(b) the business of a company is not or has not been conducted and managed by such person in accordance with sound business principles or prudent commercial practices;

(c) a company is or has been conducted and managed by such person in a manner which is likely to cause, or has caused, serious injury or damage to the interest of the trade, industry or business to which such company pertains; or

(d) the business of a company is or has been conducted and managed by such person with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose or in a manner prejudicial to public interest,

the Central Government may initiate a case against such person and refer the same to the Tribunal with a request that the Tribunal may inquire into the case and record a decision as to whether or not such person is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company [Companies (Amendment), Act 2019 effective from 15th August 2019].

Section 241(4) Respondent to the Application

The person against whom a case is referred to the Tribunal under Section 241(3), shall be joined as a respondent to the application [Companies (Amendment), Act 2019 effective from 15th August 2019].

Section 241(5) Application under Section 241(3)

Every application under Section 241(3) - (a) shall contain a concise statement of such circumstances and materials as the

Central Government may consider necessary for the purposes of the inquiry; and




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Topic Detailed Discussion (b) shall be signed and verified in the manner laid down in the Code of Civil Procedure,

1908, for the signature and verification of a plaint in a suit by the Central Government. [Companies (Amendment), Act 2019 effective from 15th August 2019].


Section 242(4A) Tribunal shall record its Decision

At the conclusion of the hearing of the case in respect of Section 241(3), the Tribunal shall record its decision stating therein specifically as to whether or not the respondent is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company [Companies (Amendment), Act 2019 effective from 15th August 2019].


Section 243(1A)

Disqualified to hold the office of Director

The person who is not a fit and proper person pursuant to Section 242(4A) shall not hold the office of a director or any other office connected with the conduct and management of the affairs of any company for a period of 5 years from the date of the said decision.

Provided that the Central Government may, with the leave of the Tribunal, permit such person to hold any such office before the expiry of the said period of 5 years.

[Companies (Amendment), Act 2019 effective from 15th August 2019].

Section 243(1B)

No compensation for Loss or Termination of Office

Notwithstanding anything contained in any other provision of this Act, or any other law for the time being in force, or any contract, memorandum or articles, on the removal of a person from the office of a director or any other office connected with the conduct and management of the affairs of the company, that person shall not be entitled to, or be paid, any compensation for the loss or termination of office [Companies (Amendment), Act 2019 effective from 15th August 2019].

Section 243(2) Punishment for Contravention

Any person who knowingly acts as a managing director or other director or manager of a company in contravention of clause (b) of sub-section (1) or sub-section (1A) and every other director of the company who is knowingly a party to such contravention,






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Topic Detailed Discussion shall be punishable as follows: [Companies (Amendment), Act 2019 effective from 15th August 2019].

On Officer in default Imprisonment ≤ 6 months Or

Fine ≤ ` 5,00,000 Or

Both

Topic Detailed Discussion Rule 84 Right to apply u/s 245

(1) An application under sub-section(1) of section 245, read with sub-section (3) of section 245 of the Act, shall be filled in Form NCLT-9.

(2) A copy of every application under sub-rule (1) shall be served on the COMPANY, other respondents and all such persons as the Tribunal may direct.

(3) In case of a company having a share capital, the requisite number of member or MEMBERS to file an application under sub-section (1) of section 245 shall be –

(i) Number-wise

Lower of :- (a) at least 5% of the total number of members of the

company. (b) 100 members of the company.

(ii) Value-wise (a) member or members holding not less than 5% of the issued share capital of the company, in case of an UNLISTED company

(b) member or members holding not less than 2% of the issued share capital of the company, in case of a LISTED company.

(4) The requisite number of depositor or DEPOSITORS to file an application under sub-section (1) of section 245 shall be – (i) Number-

wise Lower of :- (a) at least 5% of the total number of depositors of the

company. (b) 100 depositors of the company.

(ii) Value-wise Depositor or depositors to whom the company owes 5% of total deposits of the company.

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6. Winding Up


Section 272(3) Registrar to Present a Petition for Winding Up The Registrar shall be entitled to present a petition for winding up under section 271, except on the grounds specified in clause (a) of that sub-section [Companies (Amendment), Act 2019 effective from 15th August 2019].

Provided that the Registrar shall obtain the previous sanction of the CG to the presentation of a petition:

Provided further that the CG shall not accord its sanction unless the company has been given a reasonable opportunity of making representations.

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7. Nidhis

Topic Detailed Discussion Section 406 Meaning of Nidhi Company

In this section, “Nidhi” or “Mutual Benefit Society” means a company which the Central Government may, by notification in the Official Gazette, declare to be a Nidhi or Mutual Benefit Society, as the case may be.

Section 406 Modification of Provisions of this Act in its application to Nidhis The Central Government may, by notification in the Official Gazette, direct that any of the provisions of this Act specified in the notification— (a) shall not apply to any Nidhi or Mutual Benefit Society; or (b) shall apply to any Nidhi or Mutual Benefit Society with such exceptions,

modifications and adaptations as may be specified in the notification.

Section 406 Parliament The copies of every notification issued under this section shall, as soon as may be after it has been issued, be laid before each House of Parliament.

These rules shall apply to,- (a) every company which had been declared as a Nidhi or Mutual Benefit Society under sub-section (1)

of section 620A of the Companies Act, 1956; (b) every company functioning on the lines of a Nidhi company or Mutual Benefit Society but has either not

applied for or has applied for and is awaiting notification to be a Nidhi or Mutual Benefit Society under sub-section (1) of section 620A of the Companies Act, 1956; and

(c) every company incorporated as a Nidhi pursuant to the provisions of section 406 of the Act. (d) every company declared as Nidhi or Mutual Benefit Society under sub-section (1) of section

406 of the Act.







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Topic Detailed Discussion Nidhi (New) “Nidhi” means a company which has been incorporated as a Nidhi with the object of

cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with the rules made by the Central Government for regulation of such class of companies.

The Central Government, on receipt of application (in Form NDH-4 along with fee thereon) of a public company for declaring it as Nidhi and on being satisfied that the company meets the requirements under these rules, shall notify the company as a Nidhi in the Official Gazette.

Provided that a Nidhi incorporated under the Act on or after the commencement of the Nidhi (Amendment) Rules, 2019 shall file Form NDH-4 within 60 days from the date of expiry of: - (a) 1 year from the date of its incorporation; or (b) the period up to which extension of time has been granted by the Regional Director.

Provided further that nothing in the first proviso shall prevent a Nidhi from filing Form NDH-4 before the period referred therein.

Provided also that that in case a company does not comply with the requirements of this rule, it shall not be allowed to file Form No. SH-7 (Notice to Registrar of any alteration of share capital) and Form PAS-3 (Return of Allotment).

(1) A Nidhi to be incorporated under the Act shall be a public company and shall have a minimum paid up equity share capital of ` 5,00,000.

(5) Every company incorporated as a “Nidhi” shall have the last words ‘Nidhi Limited’ as part of its name.

(1) Every Nidhi shall, within a period of 1 year from the commencement of these rules date of its incorporation, ensure that it has- (a) not less than 200 members; (b) Net Owned Funds of ` 10,00,000 or more; (c) Unencumbered term deposits of not less than 10% of the outstanding deposits; and

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(d) Ratio of Net Owned Funds to deposits of not more than 1:20. (3) If a Nidhi is not complying with above 4 conditions, it shall within 30 days from the close of the first

financial year, apply to the Regional Director in Form NDH-2 for extension of time and the Regional Director may consider the application and pass orders within 30 days of receipt of the application. Provided that the Regional Director may extend the period upto 1 year from the date of receipt of application.

(4) If the failure to comply extends beyond the second financial year, Nidhi shall not accept any further deposits from the commencement of the second financial year till it complies with the provisions and gets itself declared under Section 406(1), besides being liable for penal consequences as provided in the Act.

(1) Every Nidhi shall issue fully paid up EQUITY shares of the nominal value of not less than ` 10 each. (2) Every Nidhi shall allot to each deposit holder at least a minimum of 10 equity shares or shares equivalent

to ` 100.

Provided that a savings account holder and a recurring deposit account holder shall hold at least 1 equity share of ` 10.

(1) Every application form for placing a deposit with a Nidhi shall contain the following particulars, namely: (a) Name of Nidhi; (b) Date of incorporation of Nidhi;

(ba) The date of declaration or notification as Nidhi (c) The business carried on by Nidhi with details of branches, if any; (d) Brief particulars of the management of Nidhi (name, addresses and occupation of the directors,

including DIN); (e) Net profits of Nidhi before and after making provision for tax for the preceding 3 financial years; (f) Dividend declared by Nidhi during the preceding 3 financial years; (g) Mode of repayment of the deposit; (h) Maturity period of the deposit; (i) Interest payable on the deposit; (j) The rate of interest payable to the depositor in case the depositor withdraws the deposit prematurely; (k) The terms and conditions subject to which the deposit may be accepted or renewed; (l) A summary of the financials of the company as per the latest two audited financial statements as given

below: (i) Net Owned Funds (ii) Deposits accepted (iii) Deposits repaid (iv) Deposits claimed but remaining unpaid (v) Loans disbursed against-

• immovable property; • deposits; and • gold and jewellery

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(vi) Profit before tax (vii) Provision for tax (viii) Profit after tax (ix) Dividend per share

(m) any other special features or terms and conditions subject to which the deposit is accepted or renewed.

(2) The application form shall also contain the following statements, namely: - (a) in case of non- payment of the deposit or part thereof as per the terms and conditions of such deposit,

the depositor may approach the ROC Bench of the NCLT having jurisdiction over Nidhi. (b) in case of any deficiency of Nidhi in servicing its depositors, the depositor may approach the National

Consumers Disputes Redressal Forum, the State Consumers Disputes Redressal Forum or District Consumers Disputes Redressal Forum, as the case may be, for redressal of his relief.

(c) a declaration by the Board of Directors to the effect that the financial position of Nidhi as disclosed and the representations made in the application form are true and correct and that Nidhi has complied with all the applicable rules.

(d) a statement to the effect that the Central Government does not undertake any responsibility for the financial soundness of Nidhi or for the correctness of any of the statement or the representations made or opinions expressed by Nidhi.

(e) the deposits accepted by Nidhi are not insured and the repayment of deposits is not guaranteed by either the Central Government or the Reserve Bank of India; and

(f) a verification clause by the depositor stating that he had read and understood the financial and other particulars furnished and representations made by Nidhi in his application form and after careful consideration he is making the deposit with Nidhi at his own risk and volition.

(1) For the purposes of enforcing compliance with these rules, the Registrar of companies may call for such information or returns from Nidhi as he deems necessary and may engage the services of chartered accountants, company secretaries in practice, cost accountants, or any firm thereof from time to time for assisting him in the discharge of his duties.

(2) In respect of any Nidhi which has violated these rules or has failed to function in terms of the Memorandum and Articles of Association, the concerned RD Central Government may appoint a Special Officer to take over the management of Nidhi and such Special Officer shall function as per the guidelines given by such RD Central Government.

Provided that an opportunity of being heard shall be given to the concerned Nidhi by the RD Central Government before appointing any Special Officer.

Every company referred to in clause (b) of rule 2 and every Nidhi incorporated under the Act, before the commencement of Nidhi (Amendment) Rules, 2019, shall also get itself declared as such in accordance with rule 3A within LATER of :-

(a) 1 year from the date of its incorporation or (b) 6 months from the date of commencement of Nidhi (Amendment) Rules, 2019.

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Provided that in case a company does not comply with the requirements of this rule, it shall not be allowed to file Form No. SH-7 (Notice to Registrar of any alteration of share capital) and Form PAS-3 (Return of Allotment).

Every company referred in clause (a) of rule 2 shall file Form NDH-4 alongwith fees as per the Companies (Registration Offices and Fees) Rules, 2014 for updating its status.

Provided that no fees shall be charged under this rule for filing Form NDH-4, in case it is filed within 6 months of the commencement of Nidhi (Amendment) Rules, 2019.

Provided further that, in case a company does not comply with the requirements of this rule, it shall not be allowed to file Form No. SH-7 (Notice to Registrar of any alteration of share capital) and Form PAS-3 (Return of Allotment).

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Economic Laws

1. Foreign Exchange Management Act, 1999

Topic Detailed Discussion Restrictions imposed by RBI Section 6(2)

[Amended vide Finance Act, 2015 w.e.f 15.10.2019] The RBI may, in consultation with the CG, specify— (a) any class or classes of capital account transactions, involving debt instruments,

which are permissible; (b) the limit up to which foreign exchange shall be admissible for such transactions; (c) any conditions which may be placed on such transactions.

Provided that the RBI or the CG shall not impose any restrictions on the drawal of foreign exchange for payment due on account of amortisation of loans or for depreciation of direct investments in the ordinary course of business.

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Restrictions imposed by CG Section 6(2A)

[Inserted vide Finance Act, 2015 w.e.f 15.10.2019] The CG may, in consultation with the Reserve Bank, prescribe— (a) any class or classes of capital account transactions, not involving debt

instruments, which are permissible; (b) the limit up to which foreign exchange shall be admissible for such transactions;

and (c) any conditions which may be placed on such transactions.

Capital Account transactions u/s 6(3) [Omitted vide Finance Act, 2015 w.e.f 15.10.2019]

[Omitted vide Finance Act, 2015 w.e.f 15.10.2019] Without prejudice to the generality of the provisions of sub-section (2), the RBI may, by regulations prohibit, restrict or regulate the following— a. transfer or issue of any foreign security by a person resident in India; b. transfer or issue of any security by a person resident outside India; c. transfer or issue of any security or foreign security by any branch, office or agency

in India of a person resident outside India; d. any borrowing or lending in foreign exchange in whatever form or by whatever

name called; e. any borrowing or lending in rupees in whatever form or by whatever name called

between a person resident in India and a person resident outside India; f. deposits between persons resident in India and persons resident outside India; g. export, import or holding of currency or currency notes; h. transfer of immovable property outside India, other than a lease not exceeding five

years, by a person resident in India; i. acquisition or transfer of immovable property in India, other than a lease not

exceeding five years, by a person resident outside India;

TOPIC

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Topic Detailed Discussion j. giving of a guarantee or surety in respect of any debt, obligation or other liability

incurred— (i) by a person resident in India and owed to a person resident outside India; or (ii) by a person resident outside India.

Debt Instruments Section 6(7)

[Inserted vide Finance Act, 2015 w.e.f 15.10.2019] For the purposes of this section, the term "Debt Instruments" shall mean, such instruments as may be determined by the CG in consultation with the Reserve Bank.

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2. Prevention of Money Laundering Act, 2002

Topic Detailed Discussion Adjudicating Authority to confirm the Attachment [Section 8(3)]

Where the Adjudicating Authority decides under sub-section (2) that any property is involved in money-laundering, he shall, by an order in writing, confirm the attachment of the property made under Section 5(1) or retention of property or record seized or frozen under Section 17 or Section 18 and record a finding to that effect, whereupon such attachment or retention or freezing of the seized or frozen property or record shall— (a) continue during investigation for a period ≤ 365 days* or the pendency of the

proceedings relating to any offence under this Act before a court. (b) become final after an order of confiscation is passed under sub-section (5) or sub-

section (7) of Section 8 or Section 58B or Section 60(2A) by the Special Court. . *Substituted for "90 days" by the Finance Act, 2019, w.e.f. 20-3-2019 **For the purposes of computing the period of 365 days under clause (a), the period during which the investigation is stayed by any court under any law for the time being in force shall be excluded.

Topic Detailed Discussion Verification of Identity [Section 11A(1)]

Every reporting entity shall verify the identity of its Clients and the Beneficial Owner, by: - (a) Authentication under the Aadhaar (Targeted Delivery of Financial and Other

Subsidies, Benefits and Services) Act, 2016 (18 of 2016) if the reporting entity is a Banking Company; or

(b) Offline verification under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016); or

(c) Use of passport issued under Section 4 of the Passports Act, 1967 (15 of 1967); or (d) Use of any other officially valid document or modes of identification as may be

notified by the CG in this behalf.

Provided that the CG may, if satisfied that a reporting entity other than Banking Company, complies with such standards of privacy and security under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016), and it is necessary and expedient to do so, by notification, permit such entity to perform authentication under clause (a).

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Provided further that no notification under the first proviso shall be issued without consultation with the Unique Identification Authority of India established under Section 11(1) of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016) and the appropriate regulator.

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Other Modes of Identification [Section 11A(2)]

If any reporting entity performs authentication Section 11A(1)(a), to verify the identity of its Client or the Beneficial Owner it shall make the other modes of identification under clauses (b), (c) and (d) of Section 11A(1) also available to such Client or the Beneficial Owner.

Voluntary Choice [Section 11A(3)]

The use of modes of identification under Section 11A(1) shall be a voluntary choice of every Client or Beneficial Owner who is sought to be identified and no Client or Beneficial Owner shall be denied services for not having an Aadhaar number.

No Storage of Informations [Section 11A(4)]

If, for identification of a Client or Beneficial Owner, authentication or offline verification under clause (a) or clause (b) of Section 11A(1) is used, neither his core biometric information nor his Aadhaar number shall be stored.

Additional Safeguards [Section 11A(5)]

Nothing in this section shall prevent the CG from notifying additional safeguards on any reporting entity in respect of verification of the identity of its Client or Beneficial Owner.

Explanation

The expressions "Aadhaar number" and "core biometric information" shall have the same meanings as are respectively assigned to them in of Section 2(a) and Section 2(j) of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016).

Topic Detailed Discussion Maintenance of Records

Section 12 of Prevention of Money Laundering Act, 2002 provides for the obligation of Banking Companies, Financial Institutions and Intermediaries of securities market. Every banking company, financial institution and intermediary shall: (a) Maintain a record of all transactions, the nature and value of which may be prescribed

for a period of 5 years from the date of cessation of the transactions between the clients and the banking company or financial institution or intermediary, as the case may be.

(b) Furnish information of the above transactions to the Director within the prescribed time.

(c) Verify and maintain the records of the identity of all its clients, in the prescribed manner. *

(d) identify the beneficial owner, if any, of such of its clients, as may be prescribed; * (e) maintain record of documents evidencing identity of its clients and beneficial owners

as well as account files and business correspondence relating to its clients.

*Omitted by Aadhaar and Other Laws (Amendment) Act, 2019, w.e.f. 25-7-2019.

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3. Foreign Contribution (Regulation) Act, 2010

Nothing contained in section 3 shall apply to the acceptance, by any person specified in that section, of any foreign contribution where such contribution is accepted by him, subject to the provisions of section 10— (a) By way of salary, wages or other remuneration due to him or to any group of persons working under

him, from any foreign source or by way of payment in the ordinary course of business transacted in India by such foreign source; or

(b) By way of payment, in the course of international trade or commerce, or in the ordinary course of business transacted by him outside India; or

(c) As an agent of a foreign source in relation to any transaction made by such foreign source with the CG or SG; or

(d) By way of a gift or presentation made to him as a member of any Indian delegation, provided that such gift or present was accepted in accordance with the rules made by the CG with regard to the acceptance or retention of such gift or presentation; or

(e) From his relative; or (f) By way of remittance received, in the ordinary course of business through any official channel, post office,

or any authorized person in foreign exchange under the FEMA, 1999; or (g) By way of any scholarship, stipend or any payment of like nature.

Provided that in case any foreign contribution received by any person specified under section 3, for any of the purposes other than those specified under this section, such contribution shall be deemed to have been accepted in contravention of the provisions of section 3.

Example: Whether foreign remittances received from a relative are to be treated as foreign contribution as per FCRA, 2010? Answer: No. As per Section 4(e) of FCRA, 2010 and Rule 6 of FCRR, 2011, even the persons prohibited under section 3, i.e., persons not permitted to accept foreign contribution, are allowed to accept foreign contribution from their relatives. However, in terms of Rule 6 of FCRR, 2011, any person receiving foreign contribution ≥ ` 1,00,000 in a F.Y from any of his relatives shall inform the CG by uploading details electronically online* in prescribed Form within 30 days from the date of receipt of such contribution.

*Amended vide the Foreign Contribution (Regulation) Amendment Rules, 2019 notified on 7th March, 2019.

Example: Whether donation given by Non-Resident Indians (NRIs) is treated as ‘foreign contribution’? Answer: Contributions made by a citizen of India living in another country (i.e., Non-Resident Indian), from his personal savings, through the normal banking channels, is not treated as foreign contribution. However, while accepting any donations from such NRI, it is advisable to obtain his passport details to ascertain that he/she is an Indian passport holder.

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Manner in which Foreign Hospitality is received

Foreign hospitality may be received by specified categories of persons in the following manner: (1) Any person belonging to any of the categories specified in section 6 who wishes

to avail of foreign hospitality shall apply electronically online* to the CG in prescribed Form for prior permission to accept such foreign hospitality. *Amended vide the Foreign Contribution (Regulation) Amendment Rules, 2019 notified on 7th March, 2019.

(2) Every application for acceptance of foreign hospitality shall be accompanied by an invitation letter from the host or the host country, as the case may be, and administrative clearance of the Ministry or department concerned in case of visits sponsored by a Ministry or department of the Government.

(3) The application for grant of permission to accept foreign hospitality must reach the appropriate authority ordinarily 2 weeks before the proposed date of onward journey.

(4) In case of emergent medical aid needed on account of sudden illness during a visit abroad, the acceptance of foreign hospitality shall be required to be intimated to the CG within 1 month# of such receipt giving full details including the source, approximate value in Indian Rupees, and the purpose for which and the manner in which it was utilized.

#Amended vide Notification No. G.S.R. 659(E), dated 16th September, 2019.

(1) Every certificate of registration issued to a person shall be liable to be renewed after the expiry of five years from the date of its issue on proper application.

(2) Every person shall apply to the CG electronically online* in Form FC-3C #with an affidavit executed by each office bearer and key functionary and member in Performa ‘AA’ appended to these rules 6 months before the date of expiry of the certificate of registration, for its renewal.

(3) An application made for renewal of the certificate of registration shall be accompanied by a fee of ̀ 1500*. (4) The fee for renewal of the certificate of registration shall be remitted by demand draft or banker's cheque

in favour of the "Pay and Accounts Officer, Ministry of Home Affairs", payable at New Delhi or through online electronic payment gateway as specified by the CG.

(5) In case no application for renewal of registration is received or such application is not accompanied by the requisite fee, the validity of the certificate of registration of such person shall be deemed to have ceased from the date of completion of the period of five years from the date of the grant of registration.

(6) If the validity of the certificate of registration of a person has ceased in accordance with the provisions of

these rules, a fresh request for the grant of a certificate of registration may be made by the person

to the CG as per the provisions of rule 9.

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(7) In case a person provides sufficient grounds, in writing, explaining the reasons for not submitting the

certificate of registration for renewal within the stipulated time, his application may be accepted for

consideration along with the requisite fee, but not later than 4 months after the expiry of the original

certificate of registration.

*Amended vide the Foreign Contribution (Regulation) Amendment Rules, 2019 notified on 7th March, 2019. #Amended vide Notification No. G.S.R. 659(E), dated 16th September, 2019.

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4. Arbitration & Conciliation Act, 1996

(1) This Act may be called the Arbitration and Conciliation Act, 1996. (2) It extends to the whole of India.

*Provided that Parts I, III and IV shall extent to the State of Jammu and Kashmir only insofar as they relate to international Commercial arbitration or, as the case may be, international Commercial Conciliation

*Omitted by the Jammu and Kashmir Reorganisation Act, 2019, dated 9-8-2019, w.e.f. 31-10-2019.

Explanation In this sub-section, the expression "international commercial conciliation" shall have the same meaning as the expression "international commercial arbitration" in clause (f) of Section 2(1) , subject to the modification that for the word "arbitration" occurring therein, the word "conciliation" shall be substituted.

(3) It shall come into force on such date as the CG may, by notification in the Official Gazette, appoint.

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5. Insolvency & Bankruptcy Code, 2016

Term Definition “Resolution Plan” [Section 5(26)]

It means a plan proposed by resolution applicant for insolvency resolution of the corporate debtor as a going concern in accordance with Part II.

*Explanation - A Resolution Plan may include provisions for the restructuring of the Corporate Debtor, including by way of Merger, Amalgamation and Demerger. *Inserted by IBC (Amendment) Act, 2019.

.

Topic Detailed Explanation

Fast Action by NCLT Section 7(4)

NCLT shall, within 14 days of the receipt of the application, ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor.

*Provided that if the Adjudicating Authority has not ascertained the existence of default and passed an order under Section 7(5) within such time, it shall record its reasons in writing for the same.

*Inserted by IBC (Amendment) Act, 2019.

Topic Detailed Explanation Only One-Time Extension Section 12(3)

On receipt of an application under sub-section (2), if the NCLT is satisfied that the subject matter of the case is such that corporate insolvency resolution process cannot be completed within 180 days, it may by order extend the duration of such process beyond 180 days by such further period as it thinks fit, but not exceeding 90 days.

Provided that any extension of the period of corporate insolvency resolution process under this section shall not be granted more than once.

*Provided further that the CIRP shall mandatorily be completed within a period of 330 days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under this section and the

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time taken in legal proceedings in relation to such resolution process of the corporate debtor.

*Provided also that where the insolvency resolution process of a corporate debtor is pending and has not been completed within the period referred to in the second proviso, such resolution process shall be completed within a period of 90 days from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019.

*Inserted by IBC (Amendment) Act, 2019.

Topic Detailed Explanation Authorised Representative to cast Vote Section 25A(3A) [Inserted by IBC (Amendment) Act, 2019]

Notwithstanding anything to the contrary contained in Section 25A(3), the authorised representative under Section 21(6A) shall cast his vote on behalf of all the financial creditors he represents in accordance with the decision taken by a vote of > 50% of the voting share of the financial creditors he represents, who have cast their vote.

Provided that for a vote to be cast in respect of an application under Section 12A, the authorised representative shall cast his vote in accordance with the provisions of Section 25A(3).”

.


RP examines R/Plan Section 30(2)

The RP shall examine each R/Plan received by him to confirm that each R/Plan - (a) provides for the payment of insolvency resolution process costs in a manner

specified by the Board in priority to the payment of other debts of the corporate debtor;

(b) *provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than—

(i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under Section 53; or

(ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in Section 53(1),

whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in

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Topic Detailed Explanation accordance with Section 53(7) in the event of a liquidation of the corporate debtor.

Explanation 1 For the removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors.

Explanation 2 For the purposes of this clause, it is hereby declared that on and from the date of commencement of the IBC (Amendment) Act, 2019, the provisions of this clause shall also apply to the CIRP of a Corporate Debtor— (i) where a resolution plan has not been approved or rejected by the

Adjudicating Authority; (ii) where an appeal has been preferred under Section 61 or Section 62 or

such an appeal is not time barred under any provision of law for the time being in force; or

(iii) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan.

*Inserted by IBC (Amendment) Act, 2019. (c) provides for the management of the affairs of the Corporate debtor after approval

of the R/Plan; (d) the implementation and supervision of the R/Plan. (e) does not contravene any of the provisions of the law. (f) confirms to IBBI’s requirements.

Explanation. — Deemed Approval of Shareholders under (e) For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 or any other law for the time being in force for the implementation of actions under the R/Plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law. (Also See Clarification after Section 31)

Topic Detailed Explanation NCLT approval Section 31(1)

If the NCLT is satisfied that the R/Plan as approved by the CoC meets the requirements of section 30(2), it shall by order approve the R/Plan which shall be binding on the corporate debtor and its employees, members, creditors, *[including the CG, any SG or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] guarantors and other stakeholders involved in the R/Plan.

Provided that the NCLT shall, before passing an order for approval of R/Plan under this sub-section, satisfy that the R/Plan has provisions for its effective implementation.

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Topic Detailed Explanation *Inserted by IBC (Amendment) Act, 2019.

Topic Detailed Explanation NCLT initiates Liquidation 2 GROUNDS & 3 ACTIONS Section 33(1)

Where the NCLT, - (a) before the expiry of the insolvency resolution process period or the maximum

period permitted for completion of the CIRP u/s 12 or the fast track CIRP u/s 56, as the case may be, does not receive a resolution plan under section 30 (6); or

(b) rejects the resolution plan u/s 31 for the non-compliance of the requirements specified therein,

it shall - (i) pass an ORDER requiring the corporate debtor to be liquidated in the manner

as laid down in this Chapter; (ii) issue a PUBLIC ANNOUNCEMENT stating that the corporate debtor is in

liquidation; and (iii) require such order to be sent to the AUTHORITY (ROC) with which the

corporate debtor is registered.

3rd Ground Section 33(2)

Where the RP, at any time during the CIRP but before confirmation of resolution plan, intimates the NCLT of the decision of the committee of creditors approved by not less than 66% of the voting share to liquidate the corporate debtor, the NCLT shall pass a liquidation order.

*Explanation For the purposes of this Section 33(2) it is hereby declared that the Committee of Creditors may take the decision to liquidate the corporate debtor, any time after its constitution under Section 21(7) and before the confirmation of the Resolution Plan, including at any time before the preparation of the Information Memorandum. *Inserted by IBC (Amendment) Act, 2019.

.

4th Ground Section 33(3)(4)

(3)Where the RESOLUTION PLAN IS CONTRAVENED by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the NCLT for a liquidation order. (4) On receipt of an application under sub-section (3), if the NCLT determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order.

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Integrated Case Scenarios

Lagus Transport Services Limited (LTSL) is operating in logistics and public transport domain. The company has pan-India presence. As per its Articles of Association, the company can appoint a maximum of 15 directors and all of them shall be rotational directors. Presently, the company has a strength of 14 directors, of which 9 are executive directors and the remaining 5 are non-executive directors. As on 31st March, 2018, its paid-up share capital was ` 8.42 crore; the turnover was ` 84 crore; and it had, in the aggregate, outstanding loans, debentures and deposits to the tune of ` 42 crore.

In the Annual General Meeting (AGM), held on 20th August, 2018, Anil, Badal, Chanchal and Damodar were appointed as directors in place of Mohan, Navin, Om and Prasad by passing a single resolution with simple majority. It is to be noted that earlier, a motion authorising the appointment of Anil, Badal, Chanchal and Damodar by a single resolution was passed in the meeting and not a single vote was cast against such motion.

As on 31st March, 2019, the turnover of the company increased to ` 120.52 crore but the aggregate of outstanding loans, debentures and deposits reduced to ` 40 crore. The paid- up share capital was the same as earlier. Due to the increased turnover there arose the requirement of appointing two independent directors.

Since the company was required to appoint two independent directors, the total strength of the Board with such appointments would go up to 16 directors from the present 14 whereas according to the Articles, the company can have a maximum of 15 directors. Accordingly, the Articles were altered and the total strength was increased to 20 directors.

After altering the Articles, the company proceeded to appoint four independent directors instead of the mandatorily required two since it was felt that such step would strengthen the corporate governance to the maximum extent. The independent directors were - Mrs. Eekam, who is considered ‘influencer’ on supply chain management and has a lot of expertise in the logistics field; Mrs. Prajna who is a marketing expert; Mrs. Ruchita, who is MBA (Finance and Accounting) from IIM, Ahmedabad; and Mr. Amit, who is skilled in developing customised software. Subsequent to the above developments, the time to hold Annual General Meeting (AGM) approached and it was held on 12th August, 2019, at the registered office of the company at Mumbai.

Multiple Choice Questions (MCQs) 1. In this case scenario, Anil, Badal, Chanchal and Damodar were appointed as directors by passing a

single resolution at the AGM. Is such appointment valid? (a) The appointment of Anil, Badal, Chanchal and Damodar by a single resolution is valid

because beforehand, a motion authorising their appointment by a single resolution was passed in the meeting and not a single vote was cast against such motion.

(b) The appointment of Anil, Badal, Chanchal and Damodar by a single resolution is not valid because passing of resolution by simple majority indicates that it was not passed unanimously.

(c) The appointment of Anil, Badal, Chanchal and Damodar by a single resolution with simple majority is not valid because such resolution is required to be passed as a special resolution.

(d) The appointment of Anil, Badal, Chanchal and Damodar by a single resolution is not valid because in no case more than one director can be appointed by passing a single resolution.

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2. In the given case scenario, according to the Articles all the directors are rotational. Had this been not the case, how many directors were required to retire at the AGM which was held on 20th August, 2018? (a) Five directors (b) Four directors (c) Three directors (d) Two directors

3. In the given case scenario, if it is presumed that as on 31st March, 2019, the turnover of the company is ` 87.00 crore and the paid-up share capital is ` 12.00 crore, would the company be still mandatorily required to appoint two independent directors? (a) There is no need to appoint two independent directors since the aggregate of turnover and paid-up

share capital has not crossed the threshold of ` 100 crore. (b) Instead of appointing two independent directors, the company is required to appoint only one

independent director since the aggregate of turnover and paid-up share capital is above ` 90 crore but less than ` 100 crore.

(c) The company is required to appoint minimum two independent directors since the paid-up share capital is ` 12 crore.

(d) The company is required to appoint only one independent director since the paid-up share capital is below ` 15 crore.

4. According to the case scenario, the company altered its Articles of Association so as to increase the total strength of directors up to 20 from the present 15 directors. Which of the following options is applicable in such a case of alteration: (a) The articles were altered by passing an ordinary resolution. (b) The articles were altered by passing an ordinary resolution followed by approval sought from the

jurisdictional Registrar of Companies. (c) The articles were altered by passing a Board Resolution with more than seventy-five percent

majority. (d) The articles were altered by passing a special resolution.

5. As on 12th August, 2019, when the AGM of LTSL was held, the total strength of directors reached to 18 due to the appointment of four independent directors. When all the directors are rotational, how many directors shall get retired at this AGM? (a) Six directors (b) Five directors (c) Four directors (d) Two directors

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Ali Baba Limited is a listed company incorporated under the provisions of Company Law having its registered office at Andhra Pradesh. Mrs. Smart is a Managing Director of Ali Baba Limited since its incorporation. She was first director and one of the promoters of the company. She has vast experience of managing the company in very efficient manner.

Ali Baba Ltd. is a holding company of PM Limited with a Fira Private Limited as a subsidiary to PM Limited.

Following are the details pertaining to the incorporation of the related entities and its capital structure:

S. No.

Particulars Ali Baba Limited PM Limited Fira Private

Limited 1. Date of Incorporation 17/09/1985 06/09/1988 28/09/1989

2. Place of Registered Office Andhra Pradesh Delhi Hyderabad 3. Authorised Share Capital ` 100,00,00,000/- ` 20,00,00,000/- `10,00, 00,000/- 4. Paid Up Share Capital ` 99,00,00,000/- ` 10,00,00,000/- ` 10,00,00,000/-

Under the guidance of Mrs. Smart, Ali Baba Limited acquired shareholding in PM Limited and thus resulting it into a subsidiary company of Ali Baba Limited. Now the Board of Directors of Ali Baba Limited wishes to nominate Mrs. Smart for the position of Managing Director in PM Limited and also to appoint her as Whole Time Director (WTO) in Fira Private Limited, which is a wholly owned subsidiary (WOS) of PM Limited.

Therefore, the Board of Directors of PM Limited passed a Board Resolution through resolution by circulation to appoint Mrs. Smart as Managing Director of the company. Subsequently, the Board of Directors of Fira Private Limited passed the Board Resolution at Board Meeting, wherein all directors present in the meeting approved the resolution for appointing her as Whole Time Director of the company and then subsequent to unanimous Board approval, Fira Private Limited also conducted the general meeting for getting approval of shareholders and passed the ordinary resolution to appoint her as Whole Time Director in the company.

Further, for appointment of Mrs. Smart, PM Limited and Fira Private Limited had complied with Schedule V of the Companies Act, 2013 as a result respective companies did not take any approval from Central Government for her appointment as Managing Director and Whole Time Director respectively.

Based on the above provided information and in the light of applicable provisions of the Companies Act, 2013, read with Schedule V of the Act, you are asked to advice on the following Multiple Choice Questions: 1. State on the validity of the appointment of Mrs. Smart as Managing Director in PM Limited in terms of

the provisions of the Companies Act, 2013? (a) Invalid, as no such appointment was made or approved by resolution passed at the board

meeting with the consent of all the directors present at the meeting and supported by general meeting’s ordinary resolution under section 196.

(b) Valid as whole time KMP shall hold office in its subsidiary at the same time. (c) Valid with further approval of the Central Government (d) Invalid because a person cannot hold more than one office as Managing Director

2. Whether Mrs. Smart appointment as Whole Time Director in Fira Private Limited is valid as per provisions of the Companies Act, 2013? (a) No, because being Fira Private Limited is private company so rule 8 & 8A of Companies

(Appointment & Remuneration of Managerial Personnel) Rules, 2014, not applicable (b) Yes, as per section 2(71) it is deemed as public Co. (c) Yes, on further approval of Central Government

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(d) No, because of restriction under section 203(3) on appointment in more than one company.

3. What will be legal position as to the appointment of Mrs. Smart as Managing Director in PM Limited, if Ali Baba Limited is a Government Company? (a) Invalid due to non-compliance of section 203 (b) Valid in light of the provisions 203(4A) (c) Valid with approval of central government (d) Invalid because a person cannot hold office of Managing Director in more than 1 company.

4. What is the status of Fira Private Limited for the purpose of the applicability of the Companies Act, 2013, if Ali Baba Limited is a Government Company? (a) Private Company (b) Public Company (c) Government Company (d) Associate Company

5. Whether appointment of Mrs. Smart as Whole Time Director in Fira Private Limited is legally acceptable, if Ali Baba Limited is a Government Company? (a) No, because being Fira Private Limited is private company so rule 8 & 8A of Companies

(Appointment & Remuneration of Managerial Personnel) Rules, 2014, not applicable (b) Yes, because section 203 is not applicable on Government Companies (c) Yes, with further approval Central Government

(d) No, because of restriction under section 203(3).

CA Final Law Amendments for May 2020 Examination FEMA 3 ......CA Final Law Amendment (May 2020) Ali Baba Limited is a listed company incorporated under the provisions of Company Law

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