REGULATORY UPDATES – 8TH AUGUST, 2018

MCA HAS NOTIFIED THE AMENDED SECTION 42 OF THE COMPANIES ACT, 2013

MCA has notified the amended Section 42 of Companies Act, 2013 and has also released revised Rule No. 14 of Chapter III Rules. Following are the broad changes:

  1. The revised section specifically restricts any right of renunciation of the private placement offer of the issuer company.
  2. The PAS-4 has been revised and it will carry a format of application letter that the applicant shall fill and submit along with the subscription money paid either by cheque, demand draft or other banking channel and not by cash.
  3. Earlier section provided a restriction that no fresh offer or invitation can be made under section 42 unless the allotment with respect to any earlier offer has been completed or the offer has been withdrawn or abandoned. This restriction is carried under the revised framework as well, except with a new proviso that if the number of persons to whom the offer is made does not exceed 200, then the company may, at any time, make more than one issue of securities to such class of identified persons.
  4. Earlier section prescribed a restriction on usage of money till allotment of securities was completed. But, now, filing of return of allotment with the ROC is mandatory in order to use the subscription money.
  5. The return of allotment has to be filed within 15 days instead of earlier prescribed timeline of 30 days.
  6. Separate penal provisions have been prescribed for delay in filing the return of allotment and other contraventions of section 42.
  7. For contravention of the section other than non-filing of return, instead of the penalty of Rs. 2 Crore or private placement amount whichever is higher, the revised section provides for private placement amount or Rs. 2 Crore, whichever is lower.
  8. The earlier rules prescribed a restriction on the value of offer per person which was a minimum investment size of Rs. 20,000/- of face value of such securities. This restriction has now been removed.

SUPREME COURT HAS STAYED BOMBAY HIGH COURT ORDER WHICH GAVE RELIEF TO THE DISQUALIFYING DIRECTORS OF THE STRUCK-OFF COMPANIES:

The Supreme Court on 6th August, 2018 has admitted a special leave petition of the Ministry of Corporate Affairs (MCA) and stayed a Bombay High Court order, which gave relief to directors of the companies struck off by the Registrar of Companies (ROC) last year. The Bombay High Court had directed the ROC to accept physical documents of these struck-off companies and treat them as applications for voluntary striking off. This would mean that the directors of these companies, who had been disqualified by the MCA, would no longer be considered disqualified. As a result of the Supreme Court order, other orders issued by various high courts in around 2,000 cases of disqualification of directors have also been stayed.

SEBI DISCONTINUES SUB-BROKER CATEGORY:

SEBI has done away with the category of sub-brokers as market intermediaries, which require registration with the regulator. Those, who are already registered will have time till the end of the current fiscal for migrating to act as an authorized person or trading member.

Under the current framework, sub-brokers need to seek registration from the regulator under SEBI (stock broker and sub-broker) norms, while authorised persons need to seek registration from the concerned exchange.

SEBI WINS AUSTRALIA COURT CASE AGAINST GROUP ACCUSED OF FINANCIAL FRAUD:

Market regulator Securities and Exchange Board of India has won a case against the PACL group in an Australian court. As per the order passed by the Australian court, SEBI will be entitled to receive sale proceeds of hotel and villas acquired by PACL in Australia. The group is accused of siphoning off investors’ money through 43 Indian front entities and four Australian front entities. The victory assumes significance since it forms a precedent for SEBI in approaching foreign courts to recover money of the collective investment schemes (CIS) frauds stashed overseas.

GOVT PLANS EIGHT SPECIAL COURTS UNDER NCLT TO DEAL WITH INSOLVENCY CASES

The Corporate Affairs Ministry is planning to set up eight special courts under the National Company Law Tribunal (NCLT) to deal with insolvency cases, according to a report by Business Standard. “These courts will be set up in Mumbai, Delhi, Chennai, Kolkata, and Hyderabad,” a senior ministry official was quoted as saying. It is being told that three courts will be established in Mumbai, two in Delhi, and one each in Chennai, Kolkata, and Hyderabad.

MCA HAS ORDERED INQUIRY IN 87 REAL ESTATE COMPANIES IN 2017-18

Union Minister of State for Law & Justice and Corporate Affairs Shri P.P. Chaudhary said in Lok Sabha that during the year 2017-18 and till 30.06.2018, the Ministry of Corporate Affairs has ordered inquiry in 87 companies, inspection of books and papers in 17 companies and investigation in 7 cases involving 149 entities including 5 Limited Liability Partnerships (LLPs) engaged in real estate activities. The Minister in his reply said that the Companies Act, 2013 (the Act) provides for details of compliances with respect to books of account and other matters to be made by companies of all categories and there are no separate provisions in the Act for real estate companies.

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