Hi Folks
At a recently held conference of Company Secretaries, two eminent speakers on the dias, one an industry veteran and the other a seasoned bureaucrat cried hoarse that India is over-regulated. Both of them expressed concern that in the name of governance we are moving from ‘licence raj‘ to ‘regulation raj‘. So much so that wannabe entrepreneurs who are aplenty nowadays are shifting base to outside India albeit serving customers here.
Even as I am writing this, yesterday’s The Hindu headline screams “Hemmed in by red tape, India’s tech stars flock to Silicon Valley”. Why, even our Prime Minister has time and gain emphasised the need to deregulate and even scrap some of the redundant laws.
On the other hand is one of my associates, a Chartered Accountant who works with early stage entrepreneurs and start ups looking at their books of accounts to draw up Business Plans and Valuation figures. She screams “the quality of book-keeping is horrendous” and reflects an utter disdain to even the basic tenets of corporate accounting resulting in inflated turnover and profits. Are there no accounting standards ? Is there no body to oversee this ? Are there no qualified professionals ? of course, there are but unless policed (read regulated) they gloss over governance requirements, more so in early stage enterprises. Same is the case with respect to Company Secretarial records. Most of the first-time entrepreneurs do not even know what a Board is, what it is supposed to do, how is it different from the shareholders (which in most private limited companies consists of the same Board members) etc. While it is ok not to be aware, it is definitely not ok running a company like a partnership or a family business with the attitude of “we will close issues at the time of auditing”. Under the new Companies Act there is just no time to put off things. It can be done only at the risk of huge penalties and prosecution. It is an open secret that in many small companies, share certificates are “printed only for due diligence by the investor”, board and shareholder meetings are “minuted for the auditor to see”. The question asked is “who is going to check this?”, “what happens if I don’t comply?”, “is there a penalty?”, “will I go to jail?”. Perhaps this is the reason a very prescriptive Secretarial Standards (which tells you how to conduct meetings, number them, who sits where, put up a route map for a shareholders’ meeting etc.) has come up, effective 1st July, 2015.
There are extremities in the entrepreneurial ecosystem and a balancing act is the need of the hour by the Government. Thankfully we are already seeing reversal of several provisions of the Companies Act, SEBI relaxing listing norms for start ups and a Government Committee to draw up special norms for SMEs. Perhaps a more self-disciplined attitude towards governance early on by start ups is also required so that when the investors come calling they need not “spruce up their books and be ready” so to say. If compliance is a habit, they will be geared up always. A little bit of compliance costs incurred consistently will surely go a long way in building enterprise value and reducing the investment transaction time. There are several technology-based compliance solutions in the market today. It would be worthwhile checking out www.cimplyfive.com, which has launched BLISS, a cloud-based software solution for company law compliances to begin with.
Do hope you continue to find our fortnightly communication useful and interesting. Should you wish to refer to any of our older issues of Lexspeak, do visit our Resource Centre at sharadasc.com.

Warm regards

MCA has clarified that Companies can repay deposits accepted prior to 1st April, 2014 in accordance with terms and conditions under which the deposits had been accepted. Depositor is free to file application under the provisions of Sec. 73(4) of Companies Act, 2013 with the Company Law Board (CLB), if company fails to make repayment of deposits accepted by it. CLB is authorized to excise the powers of National Company Law Tribunal (NCLT) until the latter is effective.
The Income Tax Department has notified simplified new ITR (Income Tax Return) forms for Financial Year 2014-2015 for different categories of taxpayers.

Major changes:

  • Individuals having exempt income without any ceiling (other than agricultural income exceeding Rs. 5,000) can now file Form ITR 1.
  • No need for bank balance details, foreign trip info in new ITR Forms. Taxpayers will need to disclose passport numbers in place of travel details.
  • Those who have Long-term capital gains from transactions on which Securities Transaction Tax is paid which are exempt from tax can still use ITR-2A income tax return form.
  • An individual who is not an Indian citizen and is in India on a business, employment or student visa (expatriate), would not mandatorily be required to report the foreign assets acquired by him during the previous years in which he was non-resident if no income is derived from such assets during the relevant previous year.

RBI has again extended the due date for exchange of the pre-2005 currency notes till 31st December, 2015. Notes can be exchanged for their full value either in one’s bank account or at a bank branch convenient to the holder.
SEBI has issued guidelines relating to disclosure and process requirements under the new regulations. The disclosure in directors’ report related to ESOPs has been elaborated. It also provides for specific terms, conditions and disclosure requirements for ESOP trusts. Companies operating ESOP schemes through trusts need to review their current trust deeds and disclosure requirements and comply with the SEBI regulations.
Securities and Exchange Board of India (SEBI) has relaxed its norms and regulations for start-up companies in India. The underlying objective behind this is to enable startups to raise funds within the domestic market rather than having to go overseas. This step is likely to be a major boost for Indian start-ups.

For start-ups, following regulations shall be applicable:

  • The number of allottees in case of a public offer shall be 200 or more.
  • Will get an institutional trading platform
  • All investors lock-in period in start-up IPOs will be 6 months
  • Issue price disclosure to be mandatory in offer for sale, etc.
It is mandatory for all establishments contributing above Rs. 1,00,000 to make compulsory payment of EPF through online mode only with immediate effect. Those contributing less than Rs. 1,00,000 may deposit EPF contribution through offline mode till September, 2015. From September 2015, all establishments (without any minimum Limit) shall be required to deposit EPF contribution only through online banking.
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. Lex Valorem disclaims all liability on action taken without professional advice.

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