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Hi Folks

A few weeks back I got a frantic call from one of my friends, Krish. When I didn’t reply, he messaged me “Crisis. Please call back”. Was it a medical emergency ? Was it a financial crisis ? Was it a relationship issue ? Was it a business setback ? The brief but startling message distracted me from the workshop I was in. One of my colleagues was explaining how to incorporate a company, what are the compliances and what are the consequences of violations to a bunch of fresh engineering graduates at a leading incubator, who were to begin their journey as entrepreneurs. Here I was, wondering how are these young things going to manage the compliance-chakkar which is increasing by the day ? How long will these businesses last ? Not that I doubted their capability but the sheer amount of compliances under the various law is quite overwhelming to say the least, to a 20+ year old who has never worked in a corporate before. How many cofounders will drop out to take up a corporate job or pursue further education ? How many will part ways due to differences ? How many will take compliances seriously ? What if the burden falls only on the ones left behind in the company ? Of course the purpose of the workshop was not to intimidate the young entrepreneurs but to sensitise and alert them about the pitfalls of not paying attention to compliances. I shook myself from these thoughts and gave them a friendly advice to choose a good professional within their budget and set up a process of 2 way communication.

Soon after, there was a 2nd reminder about the ‘crisis’. I stepped out and called my friend Krish. He sounded anxious and impatient. All that he could say was “Sharada, one of my friends is in deep trouble. Some trouble with his business. Please help him out immediately”. The agitated friend Kumar came on line and pleaded “Madam, somebody told me that my company is going to be struck off. I don’t know what it means but I fear Government is shutting down my business. I have employees to pay. Customers to serve and family to take care. I have not done any mistake or fraud. Can you please stop this closure ?” While at the workshop, I was extolling the advantages of having a company and also alerting them of the pitfalls, here I was, listening to a desperate cry for help from an entrepreneur to save his company. Truly, an existential crisis ! Though Kumar claimed that he had filed all the returns with the Registrar of Companies, I knew some gaps must be there and hence he must have got a ‘Strike-off Notice” from ROC. I didn’t assure him any relief but I said I will check and revert. Needless to say, contrary to his claims of 100% filings, his company had failed to file the Audited Accounts and Annual Return (mandatory annual filings) with the ROC since incorporation i.e. 2013. Consequently in line with the Governments’ consistent action against errant companies, his company was listed as “Under strike-off”. He had received a notice a few months back and on the advise of someone had sent some non-committal reply. And he had completely forgotten about it. When we enquired with the ROC, they said they had provided enough opportunities to make good the lapse and now it was a matter of few days before the company would be legally struck off, meaning it would be ‘dead’. No business can be carried on after that, unless it is legally revived. This was not a shell company but a hale and hearty, thriving one with consistent turnover, stocks, employees, customers, vendors and orders. And here was the sword dangling on Kumar’s neck….he was likely to lose them all in one stroke of the ROC. How unfortunate !

Normally I do not sympathise with promoters who do not even complete their basic responsibility of atleast filing the annual accounts. But with Kumar it was a bizzare story of how an unqualified professional, claiming to be a Company Secretary had duped him. Kumar travelled 40kms on his 2 wheeler braving the Bangalore traffic to come to my office with whatever files he had. He explained in detail how he did approach Sankar, a ‘professional’ in his neighbourhood to help him with his accounts, audit and ROC filings. Having known Sankar for years, he trusted him completely when he said “Don’t worry saar, I will take care of everything. Just focus on your business”. Initially I was sceptical about all that Kumar was saying since it is easy to blame a professional for your own lapses. But when I heard the entire story of how Sankar had mishandled the compliance affairs, how he had got moneys transferred to his account from time to time but failed to file with ROC, how he had used different auditors to get the audit done, with Kumar not even being aware of who his company auditor was and how he had finally abandoned the city after duping Kumar and several others, I was shocked. How can a Company Secretary do this ? Why would he do this if he were a professional actually ? As I heard more and more about Sankar, I was convinced he was not a member of our Institute at all. My fears were proved right when I checked ICSI Member directory and didn’t find his name or registration number. Obviously he had fooled Kumar into believing that he was a CS and that he would take care of everything. Little did Kumar know that a CS is a professional registered with a professional body to which he is accountable. He didn’t know what filing with ROC meant, what proofs he could expect, how to verify if the filing was actually done or not. You may wonder if a company director would be so ignorant and gullible. May be. May be not. But Sankar had taken him for a royal ride and swallowed large chunks of money on the pretext of professional fee and filing fee over the years, without filing any documents. And 6 years later, Kumar was facing the heat from ROC. He was on the brink of losing his company.

Well, we worked round the clock to help him complete the filings and rescue him from the death-bed of ‘strike-off’ but the filing fee alone came to a whopping 4.5 lac, considering the normal fee, additional fee and per day fee. Kumar had to struggle to gather this kind of an amount which he paid us in instalments for completing the filing. Why am I sharing this long story ? Because all of us need to follow the doctrine of “Trust but Verify” even in case of a ‘so-called professional’. Sad but true. In this context, I believe UDIN (Unique Document Identification Number) introduced by all the 3 professional bodies – ICAI, ICSI & ICAI (Cost Accountnats) – for certifications and authentications done by a Chartered Accountant, Company Secretary & Cost Accountant in practice is very, very relevant and timely. There can be no back-dating, no duplication, no professional signing as a practitioner and at the same time working in some corporate, no faking of documents etc. It is true that all these unholy acts are being done by qualified professionals. What to talk of unqualified crooks like Sankar ? UDIN has been made compulsory by ICAI since 1st July, 2019 while the other 2 bodies have made it mandatory from 1st October, 2019. This is a welcome use of technology for improving governance, transparency and accountability. Hopefully the stakeholders at large will begin to trust us more. Sankars will not thrive and Kumars will become alert !

After a long time there seems to be a drought in the regulatory updates. Nothing under Company Law. Nothing under GST. Nothing under IBC. Nothing under FEMA. Unbelievable. Does not mean that the law is settled. It is only a pause before a downpour. This 220th issue of Samhita carries news about the 2019 Arbitration Amendment Act and UDIN. After 20 successful articles on Mediation, we are beginning a new series of articles titled “Labour Law” by Mr. Vittal Rao, a veteran labour law consultant with over 50 years of work experience implementing, interpreting, teaching and advising labour law. The first article is on the newly enacted “Code on Wages, 2019”. More to follow.

For any previous issues of Samhita and the readers feedback, please visit https://sharadasc.com/resource-center/

Happy Reading

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For the last three decades, the Indian Industry has been continuously prevailing upon the Central Government to bring in Labour Reforms to address the highly dynamic & volatile global business, where the labour laws are stagnant buttechnology is changing at a lightning speed. An unfortunate scene is – lack of political will on the part of the Government and resistance by the Trade Unions.However, the Industry is seeing some light since 2017 as some steps are being initiated.The Central Government has expressed its intent to drastically reduce number of labour legislations to a single Code, thus decentralizing the functions and resulting in a single window approach for both Employer as well as Employee. Code on Wages, Code on Social Security, Code on Occupational Health, Safety & Environment and Code on Industrial Relations are some of the radical steps…Read more

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ICSI updates
UDIN mandatory for professionals

UDIN (Unique Document Identification Number) enables the stakeholders to verify the authenticity of various documents certified by CA / CS / CWAs in practice.

UDIN is applicable for professionals w.e.f the following dates:

CA – 01.07.2019
CS – 01.10.2019
CMA – 01.10.2019

IBBI updates
Valuation Report by RV – Mandatory

Valuation report required under CA, 2013 and IBC, 2016 is to be mandatorily obtained from a Registered Valuer (RV). The IBBI (Insolvency and Bankruptcy Board of India) has issued a circular on 16.09.2019, which lists down the transactions for which valuation report by RV is mandatory under CA, 2013 and IBC, 2016. Kindly refer the Annexure I & II for the list of transactions.

Noteworthy transactions for which RV’s report is required –

  • Issue of Shares under preferential allotment (S.62(1)(c))
  • Purchase of Company Shares by employees / trustees
  • Sweat equity
  • Issue of shares for non-cash consideration whether towards asset / services
  • Market value of assets in relation to charge created for public deposits
MCA updates
NFRA Rules Amended

Vide National Financial Reporting Authority (Amendment) Rules, 2019, Form NFRA-2 (Annual return to be filed by the Auditor) has been notified and the due date for filing the same has been shifted from 30th April every year to 30th November every year.

ML&J updates
Arbitration & Conciliation (Amendment) Act, 2019

The Parliament has enacted the Arbitration and Conciliation (Amendment) Act, 2019 which received the assent of the President on 09.08.2019. Certain sections of the Act have become effective from 30.08.2019. Following are the highlights:

I – Insertion; S – Substitution; O – Omission

Sl.No. Section No. Remarks
1 2(1) (ca) I – Constitution of Arbitral Institution by the SC / HC under this Act
2 2(1)(i) I – I – Definition of the term “prescribed” has been added to mean rules prescribed under this Act
3 2(1)(j) I – Definition of the term “regulation” has been added to mean regulations made by the Arbitration Council of India
4 11(3A) I – Power has been given to the SC to designate Arbitral Institutions graded by the Council. Suppose, a particular HC does not have a graded Institution then the CJ of the HC shall have a right to set up a panel of Arbitrators to discharge such duties of an Institution
5 11(4),(5) S – Power to appoint Arbitrator under sub section 4 & 5 has been given to the Arbitral Institutions set up by the SC / HC. In case of International Commercial Arbitrations the power to appoint Arbitrator u/s (4) & (5) has been given to the Arbitral Institutions set up by the SC
6 11 (6A) and (7) O – These sections have been removed since it has become redundant due to substitutions made in 11(4) and (5)
7 11 (8) and (9) Pursuant to substitutions made in subs sections (4) and (5), the words SC and HC have been replaced with “Arbitral Institutions”
8 11(10) O – These sections have been removed since it has become redundant due to substitutions made in 11(4) and (5)
9 17 O – An application for interim measures u/s 17 can be made only during the pendency of the Arbitral proceedings. Earlier, an application could be made during the pendency of the proceedings as well as at any time after the making of the award but before enforcement of the same.
10 23(4) I – Time limit has been set for submission of claims and defences by the parties to the Arbitration proceedings i.e., 6 months from the date of appointment of Arbitrators
11 29A(1) S – The time limit for Arbitral Tribunal to make awards (in matters other than International Commercial Arbitrations) has been changed to 12 months from the date of completion of proceedings (23(4)). This brings in certainty to the upper time limit available to the Tribunal to make awards
12 Proviso to 29A(4)

I – The term of the Tribunal shall continue pending the application for extension of period.

The Arbitrator shall have the right to be heard before the Court decides on the reduction of fee payable to the said Arbitrator

13 34(2)(a) S – A court may set aside an Arbitral Award based on the record of the Arbitral Tribunal as opposed to the proof furnished by the applicant, earlier.
14 37(1) S – Non-Obstante clause has been added to this sub-section to give power to appeal Orders mentioned under this section
15 42A I – All matters pertaining to the Arbitral proceedings shall remain confidential except the Arbitral award where it needs to be disclosed for the purpose of implementation and enforcement
16 42B I – Protection has been given to the Arbitrator U+0066or acts done in good faith. No suit / legal proceedings shall lie against him
17 43A-N I – Part I A has been inserted for constituting the Arbitral Council of India
18 45 S – The words ‘prima facie’ has been added to state that if the judicial authority prima facie finds the Arbitration Agreement null and void, it shall not have the right to refer the parties to Arbitration
19 50 S – Non-Obstante clause has been added to this sub-section to give power to appeal Orders mentioned under this section
20 87 I – The provisions of this Amendment Act shall be applicable to proceedings which have commenced on or after the Amendment Act, 2015. An option is given to the parties to adopt the amendments made under this Act for proceedings which have commenced before Amendment Act, 2015
21 Sch.VIII I – Qualifications and Experience to be an Arbitrator :

  • Advocate, CA, CS, CMA having 10 years practice experience
  • Office of Indian Legal Service
  • Legal Officers with 10 years’ experience in government bodies, Autonomous bodies, PSUs
  • Engineer with 10 years’ experience in the Government, Autonomous Body, Public Sector Undertaking or at a senior level managerial position in private sector or self-employed
  • Senior level officer with admin experience in government, PSUs or reputed private company
  • Graduate with 10 years’ experience in scientific or technical stream in the fields of telecom, IT, IPR or other specialised areas in the Government, Autonomous Body, PSUs or a senior level managerial position in a private sector

New career opportunities in Arbitration have opened up for experienced professionals from across various domains.

IT updates
Modified application for tax exemption by Charitable Institutions

CBDT (Central Board of Direct Taxed) amends rules 2C and 2CA related to Application for the purpose of grant of approval for the exemption under sub-clause (iv), sub-clause (v), sub-clause (vi) and sub-clause (via) of clause (23C) of section 10 and Rule 11AA related to Requirements for approval of an institution or fund under section 80G.

Form No. 56D is omitted and following forms are revised –

  • FORM No. 10G -Rule 11AA-Application for grant of approval to fund or institution under clause (vi) of sub-section (5) of section 80G of the Income-tax Act, 1961
  • FORM No. 56 – See rule 2C-Application for grant of the exemption under sub-clauses (iv), (v), (vi) and (via) of clause (23C) of section 10 of the Income-tax Act, 1961

TDS on high value cash payments

Effective 01.09.2019, a TDS of 2% is applicable on total cash withdrawals in excess of INR 1 Cr across all bank accounts under a PAN in a Financial Year.

TDS will be charged only on the amount withdrawn above INR 1 Cr. If an amount exceeding INR 1 Cr is already withdrawn before 01.09.2019 then, TDS will be charged on subsequent cash withdrawals.

Following persons / entities are exempted from TDS on cash withdrawals:

  • Government
  • Banking company or co-operative society engaged in carrying on the business of banking or a post office
  • Business correspondent of a banking company or co-operative society engaged in carrying on the business of banking
  • Any white label automated teller machine operator of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the authorization issued by the Reserve Bank of India
  • Such other person(s) as the Central Government may notify

Note: The contents of this Newsletter are only a summary and has not dealt with any issue in detail. Any action taken or proposed to be taken must be in consultation with professionals and not merely based on the articles / news updates. S. C. Sharada & Associates disclaims all liability on action taken without professional advice.

S. C. Sharada & Associates,

Company Secretaries. #405, 7th Cross, IV Block, Koramangala, Bangalore – 560 034.
sharadasc.com Phone : +91 80 25534374 , +91 80 25536618 Email: [email protected]

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