3rd issue post Lockdown, I intend to carry the positive outcomes of this New Normal because there is just too much negativity around it. While I am not turning away from the reality, it is time to notice the goodness in people too that is healing all of us. Just as the Earth is healing herself thanks to our forced ‘self-imprisonment’. After several decades, Earth Day has not been limited to only 22nd April – it has spanned the last several weeks when our Mother Earth and her other children have enjoyed freedom from our ‘oppressive ways’. Childish and silly it may seem but I imagine how good Mr.Road must be feeling too? ….no one to stamp on him, walk on him, rough-ride on his chest, bruise and wound him multiple times by multiple teams, dig and carve him out, create craters of death, barricade him mindlessly, give him a shabby and hurried tar-face lift, throw garbage on his painted face irresponsibly, spit and pee on him shamelessly, stress him out for hours with long traffic jams, abandon his parts with half-completed construction rubble…..imagination can run wild……OMG, how peaceful and rested the poor Mr. Road must be feeling now ! With cities never sleeping, vehicular traffic and noise was so high that my heart would always go out to the helpless Mr. Road which was silently bearing all the atrocities along with the plants, trees, birds, insects and animals. True or not, I visualise the much-needed healing all around us, alongside ill-health, death, migration, shutdown, lockin, social distancing, loss of jobs, assets, people etc…..birth of a New Way of Life amidst the Dance of Death !
Watching Ramayana and Mahabharata, I may have got carried away a bit philosophically but surely not distracted from my opening statement about the goodness of people. A few weeks back, when the first of my customers asked me to consider a fee cut, I was taken aback and disturbed about why he should be asking a sacrifice from a small player like me. But then it set me thinking. Why don’t I do this voluntarily when I know the liquidity crunch in the market. And this is what I did – offered reduced fee to the really deserving customers for a few months and existing fee to the rest without the annual increment. It worked. Each one of them appreciated my ‘squirrel seva’ and agreed to continue with our firm. I got appreciative emails about my team’s work as well.
Surprisingly some of the customers were gracious enough to refuse the reduced fee and continue with the full amount itself. One overseas customer assured that without waiting for the due date, he would release the amount ……reciprocating my gesture of support since it would help ease the overall liquidity in the ecosystem. What a beautiful thought ! For the first time I noticed all business emails beginning with a “Hope all of you are fine” and ending with a caring “Stay Safe. Stay Home. Take Care” message. The world is passing through turmoil, going through a churn and the common goal is to emerge stronger, resilient and caring. Unless we deal with issues and people with compassion and empathy, the shared vision will not be achieved.
The seed for my action was sown long back, when I received a surprising email from the Founder of a hugely successful and reputed food company whom we service. A ‘rags to riches’, self-made, entrepreneur and sought-after speaker, he had emailed asking if we needed any financial assistance during these trying times. The self-assured tone of his email that extended a hand of support to his ‘valued partners and family members’ (no, he didn’t say vendors), despite his scaled down production and services touched and inspired me. Only a matured leader who has seen the worst side of life can bring himself to offer support and emphasise the need to stay connected during these unprecedented times. While I didn’t need to take his offer thankfully, I did feel connected and grateful to be part of his value chain. Friends, I know all business transactions cannot be viewed like this through the lens of humanity, but unusual problems require unusual solutions. Wherever possible, can we adopt the philosophy of “I for You. You for Me”. This will undoubtedly result in “We for Earth. We for Future”.
From life in general to our specific regulatory world, in this 235th issue of Samhita, we continue to focus on the changes pouring down from the various regulators and their consequences. Some are meant to remove biz hurdles for domestic entrepreneurs during the Corona times while some are meant to set up clear regulatory walls for foreign investors – both retaliatory as well as protective. Moving with times. After a long list of regulatory highlights is our Associate, Ashwini Hegde’s attempt to explain “Transmission of Securities” with focus on practical aspects. Do read it. Don’t exit this issue before you turn your eyes to in-house English Teacher, Balaji’s column “Let’s excel in English”.
I heard a notification alert when I was trying to sauté something. I immediately *sprinted* towards the mobile phone.A few minutes later, I saw my mom *bolting* towards the kitchen on smelling burnt food. In no time, I saw her *racing* towards me with a laddle as I tried to *scamper*?
The highlighted words refer to running fast/moving quickly
Extension of due date for holding AGM – Companies having FY ended 31.12.2019
Companies whose financial year (FY) ended on 31.12.2019 are required to hold their AGM within a period of 6 months from the end of the FY. However, in view of the COVID-19 pandemic and the difficulties in holding AGM while adhering to social distancing norms, now they been granted an extension of 3 months to hold AGM i.e. they are can hold AGM on or before 30.09.2020.
Subsequently, SEBI vide Circular dated 23.04.2020 has also granted the same relaxation of 9 months time to hold AGM for top 100 listed companies (by market capitalisations) whose FY ended on 31.12.2019.
First AGM of a company continues to enjoy 9 months’ time from the close of FY.
Extension of names reserved and resubmission of forms
Extended due date
New company incorporation and change of name– SPICe+ Part B needs to be filed within 20 days of name reservation.
INC-24 needs to be filed within 60 days of name reservation.
Names expiring any day between 15.03.2020 and 03.05.2020 would be extended by 20 days beyond 03.05.2020
New LLP registration and change of name– FiLLiP / Form 5 needs to be filed within 90 days of name reservation.
Names expiring any day between 15.03.2020 to 03.05.2020 would be extended by 20 days beyond 03.05.2020.
Extension of RSUB validity for companies and LLPs.
SRNs where last date of Resubmission (RSUB) falls between 15.03.2020 to 03.05.2020, additional 15 days beyond 03.05.2020 would be allowed. However, for SRNs already marked under NTBR, extension would be provided on case to case basis.
Note: Forms will not get marked to (Not to be taken on Record) ’NTBR’ due to non-resubmission during this extended period as detailed above.
FDI from China and other countries under Approval route
Responding to representations from the vulnerable MSME sector as well as to fortify Indian businesses from being acquired through exploitative foreign investments, in particular from China during the current damp economic conditions, the Government has set up a regulatory “Great wall” by requiring all foreign investments, coming in either directly or indirectly from certain countries to pass through the Government approval route. Press note dated 17.04.2020 of Ministry of Finance followed by FEMA Notification dated 22.04.2020 may be referred to.
W.e.f. 22.04.2020 FDI in any sector from an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in / is a citizen of any such country, can invest in India only under the Government route.
Any change in such beneficial ownership referred to above due to transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly shall also require Government approval.
Restriction on investment from Pakistan and Bangladesh in defence, space, atomic energy and such other sectors or other activities prohibited for foreign investment sectors requiring Government approval continues.
Countries sharing land border means China, Pakistan, Bangladesh, Taiwan, Nepal, Bhutan, Myanmar and Afghanistan. Since no threshold is mentioned, any percentage of direct or layered investment coming in from these countries would attract Government approval. So also transfers resulting in change in beneficial ownership of investments held by persons / entities belonging to such restricted countries.
FEM (Non-debt Instruments) (Second Amendment) Rules, 2020
Following changes have been effected through FEM (Non-debt Instruments) (Second Amendment) Rules, 2020 effective from 27.04.2020
1. Pricing guidelines to be followed for Rights Issue-
Currently a non-resident can acquire equity instruments* (except share warrants) pursuant to Rights Issue made by a company at the same price at which such instruments are offered to a resident shareholder. Since no pricing guidelines are applicable to a resident holder under the Rights Issue method, the non- resident holder can also acquire equity instruments at face value.
Companies have been using the renunciation of Rights Issue method to issue equity instruments to non-residents without following the pricing guidelines under FEMA, since Explanation to Rule
7 permitted the same by providing that the guidelines applicable for Rights Issue will hold good.
The said Explanation has been deleted and in its place a new Rule 7A has been inserted in terms of which a non-resident can acquire equity instruments renounced by an existing shareholder under the Rights Issue method, provided pricing guidelines indicated in Rule 21 are followed. In effect the acquisition through renunciation route without following pricing guidelines i.e. issue of equity instruments at less than fair market value under the Rights Issue method which was prevalent till now, has been closed.
However there is no clarity if Rule 7A applies to acquisition of declined equity instruments also under Rights Issue method.
* “equity instruments” means equity shares, convertible debentures, preference shares and share warrants issued by an Indian company
2. Sourcing norms for Single Brand Product Retail Trading (SBPRT)
Currently, sourcing norms shall not be applicable to SBRT of state-of-the-art and cutting-edge-technology products for a period of up to 3 years from commencement of business i.e. opening of first store. Now the first store includes start of online retail store as well.
3. 100% FDI in Insurance intermediaries, brokers etc.:
Insurance sector / activity in Schedule I has been split to continue 49% FDI in Insurance company and permit 100% FDI under Automatic route by Insurance intermediaries, insurance brokers, consultants, corporate agents, TPA, surveyors and loss assessors and other entities as notified by Insurance Regulatory and Development Authority of India (IRDAI) from time to time. This was under the 49% restriction along with Insurance companies earlier.
4. Investment by Foreign Portfolio Investors (FPI) in excess of the prescribed limits –
FPIs are required to disinvest, failing which the portion of investment in excess of the prescribed limit will be treated as FDI, subject to conditions specified by SEBI and RBI.
Relaxations for Rights Issue under ICDR regulations
Following temporary relaxations have been granted w.r.t. Rights Issue for the period 21.04.2020 to 31.03.2021, under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations) in view of the COVID-19 pandemic for easing conditions related to raising capital:
The eligibility threshold of companies which are required to comply with the requirements of Chapter III of the Regulations – increased to Rs.25 crores from Rs.10 crores
Minimum subscription to be received – reduced to 75% from 90%, provided at least 75% of the issue size is used for the objects of the issue other than general corporate purposes
Eligibility criteria for Fast Track Rights issue:
Period for which equity shares are to be listed – reduced from 3 years to 18 months preceding the reference date
Required average market capitalisation of public shareholding – reduced to Rs. 100 crore from Rs. 250 crores
The issuer is now required to have complied with the SEBI (LODR) requirements w.r.t. composition of Board of directors for a period of 18 months instead of 3 years
The equity shares of the issuer should not have been suspended from trading for a period of 18 months immediately preceding the reference date as against the earlier requirement of 3 years
Reduced restriction period for raising capital after buy back
Currently, companies are restricted from raising further capital for a period of 1 year from the expiry of buy back of securities, except to discharge subsisting obligations. This period is now reduced to 6 months and will remain applicable till 31.12.2020.
Extended validity of SEBI observations & increased threshold for filing of fresh offer document
A public issue / rights issue under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations) is required to be completed within 12 months of receiving comments from SEBI. However, in view of the impact of COVID-19 pandemic, validity of such SEBI observations which have expired / will expire between 01.03.2020 and 30.09.2020 stand extended by 6 months.
Increase / decrease of up to 50% of the estimated fresh issue size does not require filing of a fresh offer document with prescribed fees (provided there have been no changes in the objectives), as against the existing 20% limit for increase / decrease of the estimated fresh issue size requiring filing of a fresh offer document.
In view of the COVID-19 pandemic following relaxations have been given to listed entities under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR):
Intimation to Stock exchange regarding holding of Board Meeting in which financial statements are to be considered – reduced to 2 days from 5 days up to 31.07.2020.
Failure in informing the Stock exchange regarding issue of duplicate share certificate or loss of share certificate within 2 days of receipt of information for the period 01.03.2020 to 31.05.2020 will not be treated as a violation and shall not attract penal provisions.
All filings / submissions to Stock exchanges under LODR can be made using digital signature.
Publication of newspaper advertisements (2 days after the Board meeting approving the financial results) by entities that have listed their NCDs and NCRPS’ has been exempt till 15.05.2020.
CBIC has clarified the queries raised on the following matters:
GST paid on advance received by a supplier for a Service contract which is subsequently cancelled- Credit note to be issued by him and no refund claim can be made. If there is no output tax liability he can file a claim for “Excess payment of tax”. This is the method clarified where invoice is issued by supplier. If no invoice is issued, the taxpayer can apply for “Refund of excess payment of tax”.
Goods supplied by a supplier under cover of a tax invoice are returned by the recipient- Credit note to be issued and claim filed for “Excess payment of tax”.
Letter of Undertaking (LUT) furnished for the purposes of zero rated supplies which has expired on 31.03.2020- Time limit extended up to 30.06.2020
1% TDS deducted under CGST- Time available up to 30.06.2020 to deposit the same
CBDT has clarified the queries raised on the following matters:
Circular C1 of 2020 dated 13.04.2020: Section 115BAC was inserted by Finance Act 2020 with effect from 01.04.2021 and provides that an individual can opt for being taxed under section 115BAC which provides a concessional rate of tax without deductions being availed. It further provides that the option can be exercised at the time of filing the return which is after the financial year. The query which was raised is how an employer would know of this exercise of option for the purposes of TDS on salary?
Clarification: The department has clarified that the employee having income other than income under the head “profits and gains of business and profession” may intimate the employer of his option and that this option will not be treated as “exercise of option” as per Section 115BAC.
Circular No. 8/2020 dated 13.04.2020: The Finance Bill 2019 was tabled on 05.07.2019 and received the assent of the President on 01.08.2019. The said Finance Bill increased the rates of Surcharge for certain categories of income. However assesses who have deducted / collected TDS /TCS at the old rates would be held to be an “assesse in default” if they failed to deduct tax including surcharge at the rates in force especially prior to 01.07.2019.
Clarification: The department has clarified that in the following cases, the assesse would not be “in default” where tax has been deducted at rates in force on transactions that have been completed before 01.07.2019 and no subsequent transaction has taken place vis-à-vis the recipient , such sum has been deposited within the due date and the TDS/TCS statement has been furnished before the due date mandated. Further if the deductor/ collector has deducted / collected shortfall of tax after 05.07.2019 from the transactions made subsequent to the said date, interest if any for delay in collection/ deduction will not be levied.
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.
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