corporate law ppt

Emerging trends in Company law by Vinod Kothari

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Company Law: Recent trends in India and Abroad

Vinod Kothari1012 Krishna

224 AJC Bose RoadCalcutta 700 017. India

Phone 91-33-23233863/23233864/22811276/22817715/22813742Fax: 91-33-23233863

E-mail:[email protected]; [email protected]

Recent Global trends in Company law by Vinod Kothari 2

Relevance of corporate law on enterprise

Company law is directly related to enterprise: it can either promote it or hold it

Most enterprise is corporatised: corporate regulation has a huge impact on the economy


Sources of modern corporate law

Company law in the commonwealth (UK, Australia, Hong Kong, Singapore, India, Malaysia) has common sources and influences

Common features also in European Union, US laws

UK Companies Act 1948 is the great mother of most corporate laws world over: but has undergone several changes over time:

1947 Cohen Committee report consolidated existing law in 1948 Act Jenkins Committee report introduced changes in 1967 Several changes upto 1985 based on EEC Directives New law in 1985 (747 sections and 25 schedules) The new law changed substantially by Insolvency Act 1985 (later replaced

by Insolvency Act 1986) (provisions on insolvency separated), Financial Services Act 1986 (provisions on securities regulation separated) and Companies Act 1989

New Bill prepared in 2002 much smaller: 225 sections and 4 schedule


Australia: based on UK law, but major changes

in 1998

UK Companies Act, 1948is the great mother of most corporate laws

Canada: more than 25 years ago, split its base from UK laws

and is

New Zealand: in 1990 started drifting towards

US laws

United States: each state has its own law; Model Business Corporations

Act 1984

South Africa: mixed influence of UK and Roman Dutch laws

Singapore and Hong Kong: primarily based

on UK laws; Hong Kong reviewed its law in 1999

Indian subcontinent Inspired by UK law


Corporate law reforms

Commercial law as a whole has been subjected to globalisation: Most commercial problems are no more domestic problems

Today’s corporate laws cannot take a domestic approach: Global trade has created the multi-jurisdictional enterprise Leading to greater international interdependence

Global convergence of corporate laws: Securities laws have been more intensively internationalised Company law is still largely a domestic issue

UK reforms: The Department of Trade and Industry, UK started a company law review process in March 1998:

Scathing criticism by leading commentators as LCB Gower, LS Sealy, Law Society

EU reforms: High level Group of Company Law Experts set up in Sept 2001 and public comments were received.

These have now been synthesized and presented in Nov 2003


The outer periphery of company law

A key question before modern company law is what all should the law deal with? Incorporation and regulation of companies Issuance of securities by companies: shifted to legislation dealing

with securities regulation: Perhaps a legacy of the US, where corporations law are a state subject

and securities law a Federal subject Winding up and insolvency of companies: shifted to legislation

dealing with insolvency laws Registration and enforcement of security interests on corporate

assets: shifted to laws relating to enforcement of security interests on personal property

Types of companies to regulate: Quoted companies Public companies Private companies


Major company law reform exercises

UK Companies Act: White paper issued in March 2005 Company Law Reform Bill presented to House of Lords on 1st

November, 2005 [Draft Bill preppared] Company Law Reform - Small Business Summary introduced into

parliament on 1st November, 2005 : summary sets out main elements of Bill affecting small business

Company Law Reform Bill introduced to House of Commons on 24th May, 2006

Company Law Reform Bill : Regulatory Impact Assessment – June, 2006 [An analysis done on cost of compliance v benefits associated from compliance]

Company Law Reform Bill – Draft model articles for public companies – 6th July, 2006

Notice of Amendments in Bill – 6th July, 2006EEC has finalised consultation process and may soon issue DirectivesUS Company law: piecemeal approach, more of a firefightingIndian company law: which way is the reform heading?


Special needs of small companies

Current foundations of company law are inclined towards larger companies

Today’s reality: lots of small businesses which are individual enterprises are corporatised:

The starting point of company law reform should be small companies

Public versus private companies: Original UK legislation treated public companies as the residual form, and private

companies only if they satisfied certain criteria In 1980, this structure was changed – private company now became the residual form Under the amended law, in either case, it is by mere declaration

Single member corporations are already permitted by UK law: The concept was borrowed from US laws New amendments permit even public companies to be formed by single person

Formation of companies: There will be no charter: companies to be formed based on a simple signed declaration at

the time of formation: Constitutional documents required only if the company opts the same; different from model

constitution appended to the law


Objects clause and ultra vires dumped

UK govt has accepted the suggestion to dump objects clause: Where required, objects clause may be there, but it will only

have an internal effect Doctrine of indoor management also dropped:

Provision inserted in law to say that the Board has full authority for all the powers of the company

Has full authority to delegate This applies inspite of restrictions in the constitution

Ultra vires doctine had been dropped long time ago under the European Communities Act 1972Memorandum and articles to be merged into one Alteration of the constitution permitted with special resolution Companies may insert “entrenching provision” making alteration

more difficult


Capital maintenance

Traditional foundations of law treat capital as the basis for limited liability: The Fourth EEC Directive required UK law to dump that concept and introduced

concept of redeemable equity shares/ shares buyback (1981 amendment)

The concept of authorised capital to be done away withThe amendment continues with par value concept

Also bars issuance of shares at a discount; capital payment for subscribing to shares:

Such payment can be made out of distributable profits

Public companies required to obtain a trading certificate: Trading certificate to be given if the intended initial capital obtained

Reduction of capital permitted with mere solvency statement, and not court approval:

No restrictions on private companies Public companies – public notification required; creditors have a right to move to

Court

Funding by private companies for their own shares to be permitted


Decision-making by shareholders

UK Companies Act in 1989 allowed private companies opt out of annual general meetingsAlso allowed companies to ascertain the sense of the members without a meeting:

Common law rule of unanimous consent has always existed

Amendment Bill proposes to dispense with annual general meetings altogether for private companies:

Approval of accounts, appointment of auditors/directors dispensed with

In case of public companies too, with unanimous consent, the company may opt out of AGMsTwo sets of provisions:

For private companies, the “mandatory requirements” (holding AGM and laying accounts) applicable only if opted in

For public companies, mandatory requirements not applicable if opted out; Unanimous consent of all members at a meeting required Current draft law allows any member or auditor to requisition the meeting


More reforms on meetings

Written resolutions: Special set of provisions for ordinary and special resolutions

in writing: 75% of the total voting strength or more than 50% of total voting

strength Requires “formal agreement” – not voting is not treated as

consent

Proxies may be deposited in advanceDemand for poll may be made before the meetingProxies may speak at the meeting, and vote on a show of hands: Proxy has all the powers of the member in person Also has the power to demand a poll


Rights of beneficial shareholders

Companies would be permitted to recognise rights of beneficial interest holders


Duties of directors

Instead of relying on complex and inaccessible caselaw, the law will lay down significant duties of directors Schedule 2 lays down the general duties of

directors: Broad principles of trust law and significant case law

developed over time incorporated

Directors duties to creditors: Duty to make contribution in certain cases

Codification of civil remedies against directors


Corporate directors

Most of states in the US permit individual directors

UK Companies Act permits corporate directors

Australia, New Zealand, Singapore and Canada recently prohibited corporate directors

France permits Company law reform in UK seeks to prohibit

corporate directors


Distribution of annual reports

Law seeks to avoid sending of annual reports to debentureholders: This may be required under the terms of the

debentures

A new form of sending statements: website publication Law avoids sending of statements, if shareholders

given web access: The option is to be exercised by the shareholder The shareholder is to be notified of the statement having

been put on website


Operating and financial review

A new reporting requirement for “operating and financial review” to be applicable: “major company” based on certain financial

parameters: turnover, balance sheet total and employees

OFR is mandatory for all public companies OFR also required for private companies if the

same are major companies: The monetary parameters are 10 times in case of private

companies

Apart from historical information, this also includes projections


Corporate governance: the role of the independent director

Derek Higgs committee recommendations in Jan 2003: role of non-executive directors No of board meetings and the attendance of

individual directors should be reported in annual report

Chairman and chief executive should not be the same person

Non-executive directors must meet separately at least once in a year

Non-executive directors should serve 2 3-year terms


Company secretaries

Realising that companies secretaries are not essential to corporate governance, the Bill allows private companies to opt out of keeping them.


Offences

Offences classified in 6 types: Type A: summary conviction, fine upto level 3 on standard scale Type B: summary conviction; fine upto level 5 Type C: on either indictment or summary conviction, fine upto

statutory maximum Type D:

Indictment: imprisonment upto 2 years or fine or both Summary conviction: imprisonment upto 6 months or fine or both

Type E: Indictment: imprisonment upto 7 years or fine or both Summary conviction: imprisonment upto 6 months or both

Type F: Indictment: imprisonment upto 10 years or fine or both Summary conviction: imprisonment upto 6 months or fine or both


US corporations law : a different breed altogether

The corporation in the US is much different from the “joint stock company”: The latter was a business association clothing

itself with a corporate character

US corporations emanated from chartered corporations, allowing people to form corporations under a general corporation law: Single member corporations are common No need for a “contract” among members Object of association, or Ultra vires have been

been there


The German model

Germany has separate regulatory structure for public and private companies: AG is a German public company

Minimum capital of 100000 DM GmbH is a German private company

Single shareholder is possible Minimum capital of 50000 DMs Share certificates not required

Incorporation of GmbH is very simple – single constitutional documentUltra vires rule is not applicableAG has two tier board structure: supervisory board and managerial board: The former is supposed to take care of shareholder and employee

interests For AG’s with more than 2000 employees, there will be equal

participation


The French modelTwo types of companies: Public companies Societe Anonyme (SA):

Minimum 7 members; capital of 250000 FFs Public companies are required for investment and real estate businesses

Private companies: separate law exists; called Societe a Responsabilite Limitee, or abbreviated as SARL:

Maximum membership of 50 and minimum capital 50000 FFs Share certificates are not required: participation or book entry ownership is

possible Single member companies, called EURL (Enterprise Unipersonnelle a

Responsabilite Limite)

Public companies are very common: approx 200000 SA’s exist

Board structures are mostly unitary with minimum 3 and maximum 12 directors


Recommendations of the EU Group of Experts

Types of companies: public and private company distinction is not relevant. Three main types exist today: Listed companies Open companies: whose shares can be traded Closed companies

Corporate governance: Pre-meeting materials (notices, etc) to be put on companies’ websites Electronic voting or voting in absentia Obligation on the part of institutional shareholders to disclose their

beneficial shareholdings and voting directions Rights of minority shareholders to apply for investigation Nomination, remuneration and audit committees Remuneration to be disclosed; shares and


EU group recommendations: legal capital

The relevance of legal capital as a protection to creditors and lenders put to questionShares without par values: Shares expressed as fractions of total capital

Capital reduction: instead of all capital reductions to require protection, shareholders to be given right to apply for protectionBuyback of shares by companies upto a distributable profits to be allowed: Financial assistance for purchase of self-shares

should also be allowed upto distributable profits


EU recommendations: Creditors’ protection

Before distribution of dividends, directors should make a solvency statement:Balance sheet solvencyLiquidity solvency

Alternative regime of subordination of insiders’ claim has been recommended


EU recommendations: restructuring and mobility

Members to be given right to approach Court to seek protection in case of restructuring


Company law reform in India: Naresh Chandra recommendations

Private companies should have minimal regulationsSees a new class of companies called “small private companies” to which added exemptions to be allowed from the Act including a simplified exit scheme Either

Paid up capital and free reserves upto Rs 50 lacs (this covers 93% of private companies) AND

Turnover or other receipts upto Rs 5 crores OR SSI

SPCs must have a single main object

Recent Global trends in Company law by Vinod Kothari

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JJ Irani Committee recommendations


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Access to Capital


Broad assessmentSome bold thinking, international awareness, in tune with global efforts at company law rewritingHowever: Full of glib talk and statements of pious intentions:

Examples: “raising money fraudulently should be subject to strict penalty regime” “Companies should be allowed to raise capital so long as they provide true and

correct information to investors and regulators” “The legal process associated with prosecution should be revisited so as to make

such process more effective” Baby may be thrown with bathwater

Makes several recommendations which are already a part of the law: Disclosure requirements for deposits by advertisement:

All that has been recommended already exists Provision similar to sec. 68 for fraudulent inducement to invest should be

inserted for deposits: Actually, the definition of “prospectus” includes the invitation to deposits; hence,

those provisions apply already Makes several recommendations which have been made over years, with

no headway at all: Insurance of depositors:

Has been made over years since Sachar Committee


Streamlining Capital Issues Regulation

Need for separate Financial Services regulation ruled: By itself, this is a very large, macro issue In UK, integration of financial sector supervision into the FSA

is a model India still goes by separation of regulatory regime:

These authorities have proliferated over time

Harmonisation of activities of regulators: Core provisions on maintenance and management of

capital, rights flowing from various types of capital may be left to the Companies Act:

Details may be left for the securities regulator Avoid intrusive regulation so as not to revert to the Capital

Issues Control regime More coordination between SEBI and the Department


A complex web of regulation over financial services sector

Financialsector

Insuranceservices

Banking &non-banking

financial services

Capital Market Services

Pensionsand OASIS

Housing finance

IRDA SEBI PFRDA? NHBRBI


Making capital issues faster, simplerCapital issues approval may be made faster with concept of “deemed approval”:

Also in case of filing and registration of docs with the RegistrarDissemination of information: electronic media should be recognisedShelf prospectus:

Currently has limited applicability: Only specified financial institutions (sec. 60A) can use it

May be extended to other classes of companiesWell-known Seasoned Issuers concept may be evolved:

These companies file only a main document once a year, and then only make incremental changes

US SEC practice recognises concept of WKSIs: Current in its filings and $ 700 mn of common equity or $1 bn of debt over last 3 years Several facilities were granted in 2005 reforms

Except in case of debt issues (which are mostly unlisted), there is not much relevance of this concept in India; however, forward-looking

Time taken in rights issues to be reducedDeemed public offers: recommends exemption to:

Exemption to rights offers by unlisted companies: Concept of sec. 67 has been misinterpreted

Issues of shares to employees by private companies: Private company meaning sec 3 (1) (iii) companies – question of more than 50 does not

arise Issuance of shares to QIBs


New forms of securities

Tracking stocks: Stocks that derive dividends only from profits of a particular division:

If this concept is to work, it can only work under the frame of “Cellular Companies” or “protected cell companies”

Permitted in several countries : USA, Japan, Germany However, note:

No tracking stocks issued since 2002; between 1984 to 2001, 38 issues came of which only 5 are trading now

Treasury stocks: Companies buy back their shares but hold them as a part of their treasury Committee realises lots of preparatory steps are required to bring these

changes into effect Many countries permit them: USA, Japan, Hong Kong, most EU countries,

proposed in UK also Companies allowed to buyback shares:

No dividends No voting rights Shares may be cancelled or reissued

Target shares buyback: Buyback of shares on a preferential basis from a shareholder block:

Negatively recommended by the Committee Permitted in many countries


Preference shares

Perpetual preference shares: Recommended Floating rate preference with a benchmark rate Call and put provisions may provide optionality to

issuer/shareholder

Arrears of Dividends on preference shares: Committee recommends, may be capitalised even if the

company did not make profits: Erroneous concept, as dividends on preference shares are

never guaranteed; the only concept of dividend is distribution of profit

Ambiguity on arrears of preference shares Some rulings have held that preference dividend can be

converted into equity on redemption: Mr A R Ramnathan’s rulings in Caledonian Jute, British India

Corporation, etc


Capital reduction

May be made easier by transfer of powers to NCLT:Already enacted.


Disclosure norms for capital issues

Glib talk - there is a need for proper disclosure at every stage No detailing as to what is currently not disclosed

that requires to be disclosed

Shareholders should be informed about all material facts: Such as?

Disclosure about shareholding controls, direct or indirect: If “indirect” is discrete, it can never be disclosed. If not discrete, it is hardly ‘indirect” Clause 49 requires control disclosures already


Deposit takingNon-banking non-financial companies should be banned from accepting public deposits:

This suggestion was considered and rejected by the Committee The committee, instead, recommends stricter norms for public deposits

Facts: Public deposits by NBNCs is a rare practice: India is possibly the only example It was allowed as an adhoc measure way back in 1960s Public deposits are very costly - financial viability of a company may be severely affected by

public deposits Public does not need it – savings are getting increasingly institutionalised. Public deposit has been grossly abused instrument over time – people have miserably lost

money There is greater case than ever before in the past to ban public deposits completely

Stricter norms recommended: Disclosure requirements: already there Credit rating – if a company has a good rating, there is no reason for it to access public deposit Cash Reserve requirements out of profits – liquidity requirement already there; cash reserve

further increases the cost of public deposits Dispute resolution mechanism – the problem with public deposits is not dispute; it is default Need for bolstering confidence – it is not confidence but greed that drives people to put in

money in deposits Provisions similar to sec 68 for fraudulently accepting public deposits – in fact, prosecution

provisions for public deposits are much stricter than those for any other form of capital Suspension of further deposit taking in case of default – already exists Insurance of depositors – the matter has been discussed ever since 1975 with no resolution


Registration of chargesMakes only a tinkering suggestion: Documents requiring signature of both the lender and

the borrower create difficulties

In fact, more fundamental thinking is required here: Globally, there is a move for a completely independent

system of registration of security interests: UK Law Commission has also recommended the same

There is no reason why charges should be registered only in case of companies:

Increasing use of non-corporate or JV form of businesses Registration of charges should be done by the lender,

in the lender’s own interest


Issue of shares other than for cash

Valuation of consideration by independent valuer: Difficult to understand the intent of this thought

X Ltd buys property from Y, and issues shares This is issue of shares for non-cash consideration The committee is worried about this

X Ltd buys property from Y, pays for the same in cash. Y subscribes to shares of X Ltd., pays for in cash

This is NOT an issue of shares for non-cash consideration The Committee has no worries here – why?

The fear on which this recommendation is founded is only results out of conflict of interest in related party transactions

No reason to single out issue of shares for non-cash consideration

Similar recommendation in case of transfer of assets by the company and receipt of consideration other than in cash


Restrictions on inter-corporate loans and advances

Observations relating to stock market scam – corporate funds diverted for price rigging

Suggests prohibition on companies lending to stock brokers: Provides for special resolution for allowing to do so

“Detailed” disclosure by a lending company on end-use of funds by the borrowing company

Disclosures to be made in explanatory statement for seeking approval also to be laid down


Preferential allotments

SEBI-type regulations on preferential allotments in case of unlisted companies also recommended: Recommends valuation of shares

Difficult to understand the genesis of this proposal: Preferential allotment by any public company requires

special resolution If a special majority of shareholders approves of the action

of the company, whose protection are we seeking? Valuation of shares of an unlisted company is itself most

inefficient: Market value provides a transparent method of fair valuation There is no consistent or reliable method of valuation in case of

unquoted shares


Minimum subscription

The law should permit retention of actual subscription even if minimum subscription not reached: Difficult to understand the suggestion; Minimum subscription is the minimal amount needed to accomplish

the purpose for which the issue was made If the minimum subscription is not reached, where will be the issue

funds be invested? The concept of minimum subscription has not been properly

appreciatedPartly to blame is mistaken understanding over time to equate the issue amount and the minimum subscription Sec 69 of the Companies Act expects the prospectus to mention

the minimum subscription: Item 5 of Part I of Schedule 2 specifically lists out

Since CCI regime, 90% of the issued amount has been taken as minimum subscription:

The practice has no basis.


Shares with differential voting rights

Provisions were inserted but not effectiveProvisions should be retained – anomalies to be removed: Essentially, Companies Act envisaged years ago

preference shares as non-voting shares Artificial restriction brought in Indian law to say –

shares to be of only two classes This restriction may be done away with Instead, provision may be inserted to prevent

management perpetuating control by issuing “management shares”

In other words, curb shares with higher voting rights, than shares with lower or no voting rights


Other provisions

DRR to regulate creation of DRR by non-banking

finance companiesFor other companies, flexibility to be ruled by

the Central Government

Deletion of sec. 208:No companies in the present times are using

sec 208 at allBut that is not the only provision in

Companies Act which is deadwood


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Minority rights


Minority rights

Elaborate paras in Chapter VI dealing with minority interests: Para 1 to 2.4 in essence seem to say nothing They only describe the existing provisions And say, new Act should bring in a “reasonable framework” for

minority interest by bringing “specific provisions” Neither is there any suggestion that the exiting framework is not

reasonable, or not specific

Should minority directors/ directors by proportional representation be made mandatory: Committee favoured existing optionality

Stringent disclosures for Companies accessing funds through public offers: Glib talk, as no discussion on what disclosures other than those

required at presentBoard and management to be protected from undue/unjustified interference by minority: Again, no details

Extensive use of postal voting and voting by electronic media


Oppression and mismanagement, takeovers

No recommendations at allObjections to a scheme of takeover, a limit to be prescribed for minimum shareholding: Courts preside over these matters; discretion of court should

be reserved

In case of takeover of 90% voting control, there must be an option to the 10% holder to sell their sharesFair valuation of shares of minority: By a valuer to be appointed by Tribunal

A company that has delisted its shares should give a buyback offer with 3 years of delisting: Superfluous, as delisting procedures currently provide

buyback offer before delisting


Class action/ derivative law suits

Suits by a shareholder on behalf of a company to be allowed

Class action/ derivative suits are legally allowed in many countries:USA, Korea


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MCA 21


MCA 21

WHAT IS MCA-21?MCA-21 is an e-governance initiative that builds on the Government vision to introduce a service oriented approach in the design and delivery of Government services.

OBJECTIVE OF MCA-21 To meet the expectation arising from globalisation Easy and secure access to MCA services To move from the traditional paper based operation to a

near paperless environment Enable convenience for statutory compliance in a

manner that best suits the stakeholders


MCA 21

SCOPE Covers only the offices of ROCs, RDs and the HQs at New

Delhi Does not include other offices of MCA like Official

Liquidators, CLB/Tribunal and Court

SERVICES AVAILABLE ON MCA 21 Registration and incorporation of new companies Filing of forms for change of names/address/ Directors

details Registration and verification of charges Inspection of documents Application for various statutory services from MCA Investor grievance redressal


MCA 21 – KEY BENEFITS

On-line incorporation of companiesSimplified and easy mode of filing of forms/returnsRegistration as well as verification of charges anytime and from anywhereInspection of public documents anytime and from anywhereTotal transparency through e-governanceBuilding up a centralized database repository of corporate operations in IndiaTimely redressal of investor grievanceAvailability of more time for MCA employees for qualitative analysis of corporate information


MCA 21 – PRESS NOTES/CIRCULARS

Press Note dated 17-2-2006MCA 21 HandbookMCA 21 Initiation GuideDIN Process DocumentFrequently Asked QuestionsFAQs on DINProposed E-formsInstruction KitDetails of New forms and feesGeneral Instruction kit for form filing in physical modeGuidelines to be followed during E-filingScheme for Certified Filing CentresBulletin form Banks/FIs for Operation under MCA 21


MCA 21 – LEGISLATIVE CHANGES

Companies (Central Government’s) General Rules and Forms (Amendment) Rules, 2006 [Notification No. 56(E) dated 10-02-2006 Application of Section 159 to Foreign Companies (Amendment) Rules, 2006 [ Notification No. 132 (E), dated 03-03-2006]Companies (Disqualification of Directors under Section 274(1)(g) of the Companies Act, 1956) Amendment Rules, 2006 [ Notification No. 133(E), dated 03-03-2006]Companies (Declaration of Dividend Out of Reserves) Amendment Rules, 2006 [ Notification No. 134(E), dated 03-03-2006]Investor Education and Protection Fund (Awareness and Protection of Investors) Amendment Rules, 2006 [Notification No. 135(E), dated 03-03-2006]Companies (Amendment) Regulations, 2006 [ Notification No. 157(E), dated 16-03-2006]Companies (Appointment of Sole Agents) Amendment Rules, 2006 [ Notification No.147 (E), dated 08-03-2006]Cost Audit Report (Amendment) Rules, 2006 [ Notification No. 148 (E), dated 08-03-2006]The Companies (Amendment) Act, 2006 [ Notification No.


COMPANIES (AMENDMENT) ACT, 2006

Act to come into force on the notified date – 1st June 2006 as the effective date

Section 253-A new proviso inserted making DIN Compulsory for directors

DIN – New Section 266A to 266G inserted

E-Filing – Section 610B and 610C inserted

CG to provide Value Added Services – 610D

IT Act applicable – 610E


E-FILING

MCA 21 project facilitates e-filing of forms and applications under the Companies Act, 1956.E-filing initiative started from Companies Amendment Act, 1960 by inserting Section 610AAlso, Recommendation of J.J. Irani Committee for e-filing of documents adoptedE-filing would include incorporation of new companies, filing annual and other statutory returns, registration and verification of charges and applying for various approvals/clearancesDirectors Identification Number (DIN) and Digital Signature Certificate (DSC) are pre-requisite under e-filing regimeCompanies Amendment Act, 2006 on E-filing:

CG to make Rules for – Filing of applications, BS, Prospectus, Return, declaration, M&AOA,

charges, etc in E-form

Service or delivery of document, notice, communication or intimation in E-form

Maintenance of Applications, BS, etc by Registrar in E Form


E-FILING

Inspection of documents through E Form Payments of Fees, Charges or other sums through E Form Registration of Documents/incorporation certificates,

record/receive notice in E Form [Section 610B] CG may frame a scheme to facilitate the above [Section

610B] CG to notify that any provisions of Companies Act, 1956 be

made inapplicable or made applicable in modified form to suit e-filing [Section 610C]

Information Technology Act, 2000 to be made applicable in relation to electronic records [Section 610E]

Companies (Central Government) General Rules and Forms, Companies (Declaration of Dividend out of Reserves) Rules etc. modified to make them compatible with e-filing


DIRECTORS IDENTIFICATION NUMBER (DIN)

DIN is a pre-requisite for e-filing of certain company related documentsApplicable to existing as well as new directors except directors of foreign companies having branch offices in IndiaForm, manner and fees to be prescribed by Central Government – At present no fees is required to get DINCG to allot DIN within one month from the receipt of the applicationOnly 1 DIN permittedDIN not an alternative to PANExisting Director to intimate his DIN within one month to all the companies wherein he is a directorCompanies to intimate DIN to Registrar within one weekDIN to be quoted in all returns/information/particulars in case they relate to directorsPenal Provision – Rs.5000/- and in case of continuing default Rs500/- per day


DIN – SOME ISSUES

What happens to existing DINs taken before the commencement of Companies Amendment Act, 2006? [Second Proviso to Section 266A – weird drafting]

What if the existing director is out of station or incapacitated for 60 days?


Some significant recent rulings

SC ruling in the Gaekwad family case – the only relevant restriction on allotment is the provisions of articles/memorandum

Directors are not trustees for individual shareholders; they are only for the company

In a significant ruling dealing with mergers, Rajasthan high court dispensed holding of meetings of shareholders and creditors based on sanction of concerned parties: [Rajasthan Telecom Company Ltd., In Re (Raj) [2006] 69 SCL 71]Revaluation reserves can be used for issuing bonus shares – SC ruling in Bhagwati Developers v. Peerless FinanceHouse of Lords – charges of future assets are floating charges: National Bank of WestminsterAuditors report relating to sec. 274 (1) (g) is to be based on verification of facts and not just statement made by the company – Calcutta High Court in Hindustan Club