Corporate Law Updates – Nov. 2020

The following is a digest of the major notifications and circulars issued by the regulators during the month of November, 2020, which may be of interest to the corporates and professionals, in general.

MCA

Extension of LLP Settlement Scheme, 2020

MCA has issued the General Circular No. 37/2020 dated 9^th November, 2020, which is accessible here: http://www.mca.gov.in/Ministry/pdf/GeneralCircularNo.37_09112020.pdf

The Circular is in continuation of the earlier circular dated 28^th September, 2020, which extended the applicability of the LLP Settlement Scheme, 2020 till 31^st December, 2020.

Now the present Circular, states that the documents due for filing till 30^th November, 2020 can be filed under the Scheme. Earlier, only those due for filing upto 31^st August, 2020 could be filed under the Scheme.

The present Circular further states that if the statement of account and solvency for FY 2019-20 has been signed beyond 6 months from end of financial year but on or before 30^th November, 2020, the same shall not be deemed as non-compliance.

Source: MCA website

SEBI

Schemes of Arrangement by Listed Entities and (ii) Relaxation under Sub-rule (7) of Rule 19 of the Securities Contracts (Regulation) Rules, 1957

SEBI has issued a circular on the aforesaid subject on November 3, 2020, which is available here: https://www.sebi.gov.in/legal/circulars/nov-2020/schemes-of-arrangement-by-listed-entities-and-ii-relaxation-under-sub-rule-7-of-rule-19-of-the-securities-contracts-regulation-rules-1957_48064.html

The circular has been issued to further streamline the processing of draft schemes filed with stock exchanges and make certain amendments to the framework for Schemes of Arrangements by listed entities given in SEBI Circular No.CFD/DIL3/CIR/2017/21 dated March 10, 2017. The amendments are applicable for all filings of draft scheme of arrangement filed with stock exchanges after November 17, 2020. The amendments, inter alia, include valuation report to be placed before the audit committee of the listed entity, report from the committee of independent directors, issue of no-objection letter by stock exchanges to SEBI, commencement of listed and trading of specified securities within 60 days of receipt of NCLT order.

Creation of Security in issuance of listed debt securities and ‘due diligence’ by debenture trustee(s) – 3^rd November, 2020

To give effect to the amendments to SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and SEBI (Debenture Trustees) Regulations, 1993 issued in October, 2020, SEBI has issued the aforesaid circular to provide guidelines in respect thereof, which is available here: https://www.sebi.gov.in/legal/circulars/nov-20https20/creation-of-security-in-issuance-of-listed-debt-securities-and-due-diligence-by-debenture-trustee-s-_48074.html  These relate to documents or consents required at the time of entering into debenture trustee agreement, due diligence by debenture trustees for creation of security, disclosure in offer documents, and creation and registration of charge by issuer. The circular is applicable for new issues proposed to be listed on or after 1^st January, 2021.

Monitoring and Disclosures by Debenture Trustee(s) – 12^th November, 2020

Circular on the aforesaid subject has been issued by SEBI, which is available here: https://www.sebi.gov.in/legal/circulars/nov-2020/monitoring-and-disclosures-by-debenture-trustee-s-_48159.html   The provisions of the circular take effect from the quarter ended 31^st December, 2020 for listed debt securities. The circular includes manner of carrying out periodical monitoring of security created and assets on which security is created, timeline for submission of reports by trustees to stock exchanges like asset cover certificate, statement on value of pledged securities, etc., action to be taken in case of breach of covenants, disclosure on website by trustee, and reporting of regulatory compliance.

Investor Grievance Redressal Mechanism (IGRM) – 6^th November, 2020

In order to further strengthen the IGRM, SEBI has issued a circular, which is available here:  https://www.sebi.gov.in/legal/circulars/nov-2020/investor-grievance-redressal-mechanism_48105.html. The circular lays down timeline for resolution of complaints by stock exchanges, handling of service-related complaints, complaints to be referred to IGR Committee, handling of complaints by the Committee and arbitration. This shall come into effect from 1^st January, 2021.

Non-compliance with provisions related to continuous disclosures – 13^th November, 2020

SEBI has issued a circular on the aforesaid subject, which is available here:  https://www.sebi.gov.in/legal/circulars/nov-2020/non-compliance-with-provisions-related-to-continuous-disclosures_48171.html  The circular provides for levying of fine and taking of action in respect of non-compliance with provisions related to continuous disclosures by issuers of listed non-convertible debt securities or non-convertible redeemable preference shares or commercial papers. The amount of fine as given in Annexure I to the circular shall be credited to Investor Protection Fund. The fines shall continue to accrue till default is rectified. The circular takes effect for periods ending on or after 31^st December, 2020.

Introduction of Unified Payments Interface (UPI) mechanism and Application through Online interface and Streamlining the process of Public issues of debt securities

SEBI has issued a circular on the aforesaid subject on 23^rd November, 2020, which is available here: https://www.sebi.gov.in/legal/circulars/nov-2020/introduction-of-unified-payments-interface-upi-mechanism-and-application-through-online-interface-and-streamlining-the-process-of-public-issues-of-securities-under-sebi-issue-and-listing-of-debt-_48235.html As per this circular, investors must be provided an option to block funds for applying to public issues of debt securities through UPI mechanism for application value upto Rs. 2 Lakhs and the process flow is given in Annex I to the circular. The circular is applicable to issues which open on or after 1^st January, 2021.

Source: SEBI website

RBI

Foreign Exchange Management Act, 1999 (FEMA)- Compounding of Contraventions under FEMA, 1999          

RBI has issued notification dated 17^th November, 2020 on compounding of contraventions under FEMA, which is available here:  https://www.rbi.org.in/scripts/FS_Notification.aspx?Id=11995&fn=5&Mode=0 The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 and Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 i.e. Notification No. FEMA.395/2019-RB, both notified on October 17, 2019, by Government of India and Reserve Bank of India respectively have since superseded the earlier Notification No. FEMA 20(R)/2017-RB. Accordingly, the compounding powers stand delegated to the Regional Offices/ Sub Offices of the Reserve Bank to compound the various contraventions thereunder.

It must be noted that with respect to the classification of a contravention under FEMA as ‘technical’ or ‘material’ or ‘sensitive/serious in nature’. On a review RBI has decided to discontinue the classification of a contravention as ‘technical’ that was dealt with by way of an administrative/ cautionary advice and regularize such contraventions by imposing minimal compounding amount as per the compounding matrix as contained in the ‘Master Direction – Compounding of Contraventions under FEMA, 1999’ dated January 01, 2016, as amended from time to time.

With respect to public disclosure of Compounding Orders. On a review of public disclosure of compounding orders, RBI decided that in respect of the Compounding Orders passed on or after March 01, 2020 a summary information, instead of the Compounding Orders, shall be published on the Bank’s website.

Establishment of Branch Office (BO) / Liaison Office (LO) / Project Office (PO) or any other place of business in India by foreign law firms

The circular dated 23^rd November, 2020 was issued further to the Hon’ble Supreme Court’s disposing of the case Bar Council of India vs A.K. Balaji & Ors. in which it held that advocates enrolled under the Advocates Act, 1961 alone are entitled to practice law in India and that foreign law firms/companies or foreign lawyers cannot practice profession of law in India. As such, foreign law firms/companies or foreign lawyers or any other person resident outside India, are not permitted to establish any branch office, project office, liaison office or other place of business in India for the purpose of practicing legal profession. Accordingly, AD Category – I banks have been directed not to grant any approval to any branch office, project office, liaison office or other place of business in India under FEMA. Further, they shall bring to the notice of the Reserve Bank in case any such violation of the provisions of the Advocates Act comes to their notice. This circular is available here: https://www.rbi.org.in/scripts/FS_Notification.aspx?Id=11997&fn=5&Mode=0   

Source: RBI website

IBBI

IBBI (Liquidation Process) (Fourth Amendment) Regulations, 2020 

IBBI has issued the aforesaid amendment regulations on 13^th November, 2020, which is available here: https://ibbi.gov.in//uploads/legalframwork/df8a1ae89b93af1cc7f6e5560421ac5f.pdf The amendment provides for transfer or assignment of debt due to creditors to any other person during the liquidation process and the consequent modification of list of stakeholders by the liquidator. Further, in respect of an asset, which is not readily realizable, the liquidator, through a transparent process and in consultation with the stakeholders’ consultation committee transfer or assign the asset to any person who is eligible to present a resolution plan, for a consideration.

IBBI (Insolvency Resolution Process for Corporate Persons) (Fifth Amendment) Regulations, 2020

IBBI has issued the aforesaid amendment regulations on 13^th November, 2020, which is available here:  https://ibbi.gov.in//uploads/legalframwork/f659d8b67003518230543dd56825fffc.pdf   

• Reg. 2A has been inserted to provide for record or evidence of default by corporate debtor. “2A. Record or evidence of default by financial creditor. For the purposes of clause (a) of sub-section (3) of section 7 of the Code, the financial creditor may furnish any of the following record or evidence of default, namely:- (a) certified copy of entries in the relevant account in the bankers’ book as defined in clause (3) of section 2 of the Bankers’ Books Evidence Act, 1891 (18 of 1891); (b) an order of a court or tribunal that has adjudicated upon the non-payment of a debt, where the period of appeal against such order has expired.”
• In the principal regulations, in regulation 13 has been amended to provide that the list of creditors shall also be filed on the electronic platform of the Board for dissemination on its website
• Further, clause (5A) has been inserted under Reg. 39 to provide that the resolution professional shall, within fifteen days of the order of the Adjudicating Authority approving a resolution plan, intimate each claimant, the principle or formulae, as the case may be, for payment of debts under such resolution plan.

Filing of list of creditors under clause (ca) of sub-regulation (2) of regulation 13 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

Circular dated 27^th November, 2020 has been issued by IBBI further to the IBBI (Insolvency Resolution Process for Corporate Persons) (Fifth Amendment) Regulations, 2020 discussed in previous paragraph, which requires the interim resolution professional or the resolution professional to file the list of creditors on the electronic platform of the Board for dissemination on its website. IBBI has made available an electronic platform at http://www.ibbi.gov.in for filing of list of creditors as well as updating it thereof. The platform permits multiple filings by the interim resolution professional or the resolution professional, as the case may be, as and when the list of creditors is updated by him. The format of list of creditors for the purpose of filing has been finalised in consultation with the insolvency professional agencies and is placed as Annexure.

IBBI (Information Utilities) (Amendment) Regulations, 2020 

The aforesaid amendment regulations have been issued on 13^th November, 2020, which is available here:  https://ibbi.gov.in//uploads/legalframwork/1c05b4c5735edfff380a650335907d9b.pdf to provide, inter alia, that an information utility shall disseminate every public announcement it receives or has access to, on the date of its receipt or access, as the case may be, to its registered users, who are creditors of the corporate debtor undergoing insolvency proceeding under the Code. The term “financial information” has been defined to mean any public announcement made under the Code, for the purposes of sub-clause (f) of clause (13) of section 3.

Facilitation Letter on Mistakes Committed by IPs

IBBI has issued a facilitation letter on 13^th November, 2020, observing the mistakes commonly committed by IPs, which is available here: https://ibbi.gov.in//uploads/legalframwork/33ce2304913fe3f24b7bd9b22b631b37.pdf . The letter has been issued with the intention that the mistakes will not be committed by any IP, pre-empting the IBBI/IPA to initiate any disciplinary action. It discusses issues such as taking up assignments without authorization, fee payable to IP, updating of list of claims, etc. The letter states that this communication has been prepared, in consultation with the three Insolvency Professional Agencies, with the sole purpose of sensitising the IPs about some of the mistakes committed by some of them.

Insolvency Professionals to act as Interim Resolution Professionals, Liquidators, Resolution Professionals and Bankruptcy Trustees (Recommendation) (Second) Guidelines, 2020

IBBI has issued the aforesaid Guidelines on 23^rd November, 2020, which is available here: https://ibbi.gov.in//uploads/legalframwork/18c79bb7deb50c0ab7d0a195f155ff82.pdf IBBI is required under the Insolvency and Bankruptcy Code, 2016 to recommend name of an Insolvency Professional (IP) for appointment as Interim Resolution Professional (IRP) or Liquidator. Given that every IP is equally qualified to be appointed under the Code, if otherwise not disqualified, and in the interest of avoiding administrative delays, IBBI has considered it necessary to issue the guidelines for preparing a panel of IPs. These Guidelines shall come into effect for appointments as IRP, Liquidator, RP and BT with effect from January 1, 2021. These Guidelines have been issued in supersession of the earlier Guidelines issued on June 2, 2020.

Source: IBBI website

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