MCA Update: Compulsory Demat rules not applicable to Nidhi Co, Govt Co and WOS

Ministry of Corporate Affairs (MCA) has exempted such unlisted public companies, which are Nidhi Companies, Government Companies and Wholly Owned Subsidiary Companies, from complying with compulsory dematerialisation rules

Ministry of Corporate Affairs (MCA) issued a notification dated 22nd January, 2019 to alter Companies (Prospectus and Allotment of Securities) Rules, 2014 by adding a sub-rule to Rule 9 which states that all unlisted public companies are required to demat all its shares before 01st April, 2019.

This new sub-rule is giving an exemption to all unlisted public companies which are Nidhi Companies, Government Companies and Wholly Owned Subsidiary Companies from compliance of Rule 9 of such rules. This means that physical shares of such companies can still be transferred without dematerialisation even after the deadline of 01st April, 2019. Such companies are not required to do compliance of Rule 9.

Copy of Notification can be accessed below:

Appointment of First Auditor in General Meeting by Members - OR

Ordinary Resolution passed at a General Meeting appointing the First Auditor(S) where board fails to appoint within thirty days of Incorporation date

“RESOLVED THAT pursuant to provisos to Sub-section (6) of Section 139 of the Companies Act, 2013, Shri _________, Chartered Accountant, _________, be and is hereby appointed as the auditor of the company to hold office until the conclusion of the first Annual General Meeting on a remuneration of `________ plus reimbursement of out-of-pocket expenses that may be incurred by the auditor in the performance of his duties as auditor of the company."

Explanatory Statement;

The company was registered on ________. The Board of directors of the company failed to exercise its power under Sub-section (6) of Section 139 of the Companies Act, 2013 within thirty days of the date of registration of the company and did not appoint the first auditor of the company.

Therefore, in exercise of its power under the proviso to Sub-section (6) of Section 139 of the Act, the company may appoint the first auditor of the company by passing the proposed ordinary resolution as set out in the notice of the meeting.

None of the directors of the company is concerned or interested in the proposed resolution.

Appointment of Auditor to fill casual vacancy caused by resignation - OR

Ordinary Resolution for appointment of an Auditor of the Company to fill casual vacancy caused by resignation

“RESOLVED THAT, pursuant to proviso to Sub-section (8) of Section 139 of the Companies Act, 2013, M/s________________ Chartered Accountants ____________, New Delhi, be and are hereby appointed as the auditors of the company to fill the vacancy caused by the resignation of M/s___________ Chartered Accountants, ____________ New Delhi, present auditors of the company, to hold the office from the date of this meeting until the conclusion of the next annual general meeting of the company on a remuneration of _________ plus reimbursement of out-of-pocket expenses that may be incurred by the auditors in the performance of their duties as auditors of the company.”

Explanatory Statement

M/s. ______________, the existing auditors have submitted their letter of resignation, citing personal reasons.

Proviso to Section 139 (8) of the Companies Act, 2013, lays down that where vacancy in the office of an auditor is caused by the resignation of the existing auditor, the vacancy shall be filled by the Board of Directors and the appointment made by the Board shall be approved in a general meeting within 3 months of the recommendation of the Board.

The letter of resignation of M/s._____________ may be inspected at the registered office of the company at_____________ during the business hours on any working day.

None of the directors is interested or concerned in the proposed resolution.

Authorising Board of Directors to appoint Branch Auditor - OR

Ordinary Resolution to be passed at an Annual General Meeting to authorise Board Of Directors to appoint Branch Auditor

“RESOLVED THAT pursuant to section 143(8) of the Companies Act, 2013, the accounts for the year ending 31^st  March, _____ of the Company’s branch office/s at _______ be audited by such person/s, other than the Company’s Auditor, as is/are qualified for appointment as Auditor of the Company under section 139 of the Companies Act, 2013, and the Board of Directors be and is hereby authorised to appoint such Branch Auditor/s in consultation with the Company’s Auditor and on such terms and conditions and on such remuneration as may be fixed by the Board.

Approval for preparing Annual Report in Form AOC-3 - BR

Board Resolution for approval for preparing Annual Report in Form AOC-3 for sending to the members

“RESOLVED THAT pursuant to the provisions of First proviso of sub – section (1) of Section 136 of the Companies Act, 2013 and Rule 10 of the Companies (Accounts) Rules 2014, the Annual Reports comprising of the Balance Sheet, Profit and Loss Account etc. of the company for the financial year ended 31st March _____ be also prepared, finalised and audited in the prescribed Form No AOC – 3 for sending to the members of the company.

RESOLVED FURTHER THAT the draft audited statement containing salient features of financial statements for the year ended 31st March 20__, prepared in the prescribed Form No. AOC – 3 in accordance with First proviso of sub – section (1) of Section 136 of the Companies Act, 2013 and Rule 10 of the Companies (Accounts) Rules, 2014 as submitted to the meeting, be and are hereby approved and the same be authenticated by the directors of the company as required under Section 136 of the Act and be sent to the statutory auditors of the company for their report thereon and thereafter be sent to the members of the company for adoption at the ensuing annual general meeting of the company.”

Keeping Books of accounts at a place other than Registered office - BR

Board Resolution for keeping and maintaining books of Accounts at a place other than the Registered Office

“RESOLVED THAT pursuant to the proviso to Section 128(1) of the Companies Act, 2013, the books of accounts of the company be kept and maintained at the company’s head office at __________ with effect from ____________ and that Mr. ____________, secretary of the company, be and is hereby authorised to file electronically E-Form No AOC-5 with the Registrar of Companies __________ at ______________ by affixing his digital signature thereon and with the requisite filing fees within the prescribed time of seven days hereof and to take all necessary actions in this respect.”

Declaration of dividend out of current profits - BR

Board Resolution for recommending payment of dividend on equity shares out of current profits

“RESOLVED THAT in accordance with the provisions of Section 123 and other applicable provisions, if any, of the Companies Act, 2013 and the Companies (Declaration and Payment of Dividend) Rules, 2014, the Board of directors of the company do hereby recommend a dividend at the rate of Rs _________ per equity share out of the current profits of the company for the year ended on ____________ 20__ on the ________ fully paid equity shares of the company absorbing Rs. _________ out of the profits of the year and that, subject to the declaration by the members of the company at the ensuing annual general meeting, such dividend be paid to the registered holders of the equity shares whose names would appear on the register of members on _______ 20__.”

Declaration of Dividend out of Reserves - BR

Board Resolution for recommending declaration of dividend out of reserves

"RESOLVED THAT the Board of directors of the company do hereby recommend to the members of the company, the declaration and payment of a dividend at the rate of ten per cent on all the fully paid equity shares of the company out of the free reserves of the company that stood in the books of the company on _______ 20__ absorbing a total of ` ______, with due compliance of the Companies (Declaration and Payment of Dividend) Rules, 2014, and that, subject to the declaration by the members at the forthcoming annual general meeting, to the holders of the equity shares whose names will appear on the register of members on ________ 20__."

Change of Name of Company

Following is the basic procedure to change the name of Company.

1. Name Availability

Company is required to file an application for availability of proposed name of the Company. This application is filed in RUN Application.

2. Shareholders Approval

Once the new name is reserved, shareholders’ approval is required to pass following special resolution.

- the change in name of the Company and to alter the Memorandum and Article of Association with regard to change in name of the Company

3. Central Government's approval

Once the shareholders' approval is obtained, the Company is required to file application in Form INC-24 to Registrar of Companies (ROC) within 30 days for shareholders' approval.

4. Issue of Fresh Certificate of Incorporation

Upon approval of application (as per point 3 above), the Fresh Certificate of Incorporation upon change of name will be issued by ROC.

Pre-requisites for change of name of Company

Pursuant to Rule 29 of Companies (Incorporation) Rules, 2014, the change of name shall not be allowed to a company which has defaulted in filing its annual returns or financial statements or any document due for filing with the Registrar or which has defaulted in repayment of matured deposits or debentures or interest on deposits or debentures.

Hence, before moving forward, it is necessary to complete pending filings of annual returns or financial statement, if any.

Steps to complete this Process

Step - 1: Send atleast 7 days' notice to hold Board Meeting

Step - 2: Hold the Board meeting at decided date for passing following resolutions

- to authorise any Director to file application for availability of new name (RUN Application)

- to approve change of name of the Company, subject to approval of Shareholders

- to decide the date, time and place for holding Extraordinary General Meeting (EGM) and issuing atleast 21 days' notice to all the shareholders.

Step - 3: File Application for availability of new name (RUN Application) with following attachments
- Board Resolution for availability of new name (refer Step - 2)
- Any other document as required on case to case basis

Step - 4: Upon approval of application, ROC will issue a certificate for reserving a new name

Step - 5: Hold an EGM at decided date for passing following special resolution

- to approve change of name of the Company and authorising any Director to file application to ROC for Central Govt's approval (Form INC-24) (Click here for format of resolution)

Step - 6: File Form MGT-14 within 30 days from the date of passing of resolutions in EGM with following attachments

- signed copies of Special Resolutions with Explanatory Statement

- altered Memorandum of Association

- altered Article of Association

It is to be noted that SRN of Form MGT-14 will be filled up in Form INC-24.

Step - 7: File Form INC-24 within 30 days from the date of passing of resolutions in EGM

- Minutes of EGM in which special resolutions were filed (refer Step - 5)

- altered Memorandum of Association

- altered Article of Association
- Declaration by Directors with respect to deposits, debentures etc.

Step - 8: Upon approval of application (Form INC-24) by ROC, ROC will issue a fresh certificate of Incorporation.

Notice for Appointment as Director

This is a notice to be submitted under Section 160 of Companies Act, 2013 by a person who wants to be appointed as Director in a Company.

MCA Update: MCA notified significant beneficial ownership rules

Ministry of Corporate Affairs (MCA) issued a notification notifying the Companies (Significant Beneficial Owners) Rules, 2018 with effect from 13th June, 2018.

This step is taken by MCA after notifying Section 90 of Companies Act, 2013 with effect from 13th June, 2018. Section 90 deals with "significant beneficial owner".

These rules are in respect to provide for significant beneficial ownership aimed at tracking the real beneficiaries of shares as often benami holdings are found in shell companies. The new section (Section 90) that was inserted in the Companies Act is also part of the global fight against money laundering and came at the behest of Paris based Financial Action Task Force with countries such as the UK already incorporating the provisions. 

This section and the rules provide for maintaining of a register of “beneficial owners”. MCA has set the limit at 10% to whom such rules will be applicable, thereby increasing the ambit of the provisions to cover a larger base of shareholders, who may be warehousing the shares for someone else.

These rules provide for mandatory disclosure within a stipulated period and once the rules are notified there will be a rush of filings as shares in most companies are not widely held. A failure to disclose beneficial ownership can result in a fine of up to Rs 50,000 with a daily penalty of Rs 1,000, if the failure to comply with the rules continues. The Companies Act also allows the Centre to investigate cases of beneficial ownership.

The copy of rules can be found below.

Authorisation Letter for Form DIR-11

This Authorisation Letter is required to be signed by a Foreign Director who has given resignation to the Company and wants to authorise someone else to file Form DIR-11 on his behalf.

Pursuant to Rule 16 of Companies (Appointment and Qualification of Directors) Rules, 2014, when a Director resigns from his office, he shall file Form DIR-11 within 30 days from the date of resignation. However, Director needs to use his Digital Signature to file this form. This rule further provides that, foreign director can authorise practicing professional and other resident Director to file Form DIR-11 on his behalf.

Confirmation Letter about Director's resignation

The Confirmation Letter is issued by a Company to the Director, who has given a resignation from the office of a Director, acknowledging the receipt of Director's resignation and confirming the date of resignation. This letter can be attached in Form DIR-12 as "proof of cessation".

Form DIR-8 - Intimation about Disqualification

Pursuant to Section 164(2) of Companies Act, 2013 read with Rule 14 of Companies (Appointment and Qualification of Directors) Rules, 2014, Every Director shall inform to the Company concerned about his disqualification under sub-section (2) of Section 164, if any, in Form DIR - 8 before he is appointed or re-appointed. 

Intimation Letter to Auditor

Intimation Letter to Auditor is required to be sent by Company to an Auditor informing / intimating them about their appointment by the Company as Statutory Auditor under Section 139 of Companies Act, 2013. This Intimation letter shall be send to Auditor by Company within 15 days from the date of Appointment. 

Powers to Board for borrowing - SR

Special Resolution under Section 180(3)(c) authorising the Board to borrow for Company’s business upto a limit beyond paid-up capital and free reserves

“RESOLVED THAT pursuant to the provisions of Section 180(3)(c) and other applicable provisions, if any, of the Companies Act, 2013, and subject to such approval as may be necessary, consent of the company be and is hereby accorded to the Board of directors of the company for borrowing, from time to time, such sum of money as may not exceed Rs. ____________ (Rupees _____________), for the purpose of the business of the company, notwithstanding that the moneys to be borrowed together with the monies already borrowed (apart from temporary loans obtained from the company’s bankers in the ordinary course of business) will exceed the aggregate of the paid-up capital of the company and its free reserves, that is to say, the reserves not set apart for any specific purpose, provided that the total amount upto which the monies may be borrowed by the Board of directors of the company shall not exceed the aggregate of the paid-up capital and free reserves of the company by more than the sum of ‘_______________ (Rupees ______________) at any one time. Resolved further that the Board be and is hereby authorized to do all the acts, deemed and things as it may in its absolute discretion deem necessary and appropriate to give effect to the above resolution”

Explanatory Statement:

The shareholders of the company had, at the extraordinary general meeting of the company held on ___________, passed a special resolution under Section 180 (3) (c) for borrowing the maximum amount of Rupees __________, up to which the Board of directors of the company could borrow funds from financial institutions and banks in excess of the company’s paid-up capital and free reserves. However, in view of the increased business activities of the company, the said ceiling of Rupees (____________) has been found to be inadequate. Your directors are of the opinion that the ceiling of borrowings by the Board be raised to rupees ____________.

Hence the Board is proposing a resolution for consideration and approval of the members of the company. None of the directors is concerned or interested in the proposed resolution.

Creating charge on Company’s assets and properties - SR

Special Resolution under Section 180(1)(A) for creating charge on Company’s assets and properties

“RESOLVED THAT consent of the Company be and is hereby accorded in terms of Section 180(1) (a) and other applicable provisions, if any, of the Companies Act, 2013 or any modification or re-enactment thereof, to mortgaging and/or charging by the Board of directors of the Company by way of equitable and/or legal mortgage on such immovable and movable properties of the Company, both present and future, together with power to take over the assets of the Company in certain events, to or in favour of Industrial Development Bank of India (IDBI) and The Industrial Finance Corporation of India Ltd. (IFCI) by way of first pari passu Charge to secure the Rupee Term Loans of ` 1000.00 lacs and ` 880.00 lacs respectively granted to the Company together with interest at the agreed rate(s), liquidated damages, front end fees, premia on prepayment, costs, charges, expenses and all other moneys payable by the Company under the Loan Agreements, Deeds of Hypothecation and other documents executed/to be executed by the Company in respect of the Term Loans of IDBI and IFCI.

RESOLVED FURTHER THAT the Board of directors be and is hereby authorised and shall always be deemed to have been authorised to finalise with IDBI and IFCI the documents for creating the aforesaid mortgage and/ or charge and to do all acts, deeds and things as may be necessary for giving effect to the above resolution.”

2. To consider and, if thought fit, to pass with or without modification(s), the following as Special Resolution;

“RESOLVED THAT consent of the Company be and is hereby accorded in terms of Section 180(1)(a) and other applicable provisions, if any, of the Companies Act, 2013 or any modification or re-enactment thereof, to mortgaging and/or charging by the Board of directors of the Company by way of equitable and/or legal mortgage on such immovable and movable properties of the Company, both present and future, in favour of State Bank of India, New Delhi the Company’s Bankers by way of Second Charge to secure the various fund based/non-fund based credit facilities granted/to be granted to the Company and the interest at the agreed rate, costs, charges, expenses and all other moneys payable by the Company under the Deed(s) of Hypothecation and other documents executed/to be executed by the Company in respect of credit facilities of State Bank of India, in such form and manner as may be acceptable to State Bank of India.

RESOLVED FURTHER THAT the Board of directors be and is hereby authorised and shall always be deemed to have been authorised to finalise with State Bank of India the documents for creating the aforesaid mortgage and/or charge and to do all acts, deeds and things as may be necessary for giving effect to the above resolution.”

Explanatory Statement

Industrial Development Bank of India (IDBI) and The Industrial Finance Corporation of India Ltd. (IFC) have sanctioned Term Loans of ` ________ and ` ________ respectively to the company. These loans are to be secured by First Charge on immovable and movable properties of the Company, both present and future, in the manner, as may be required by IDBI and IFCI.

Such mortgage/charge shall rank first pari passu Charge with the Charges already created/to be created in favour of the participating Institutions/Banks for their assistance. State Bank of India, New Delhi has also agreed to grant, in principle, various fund based/non-fund based Cash Credit facilities to the Company.

According to the conditions of granting such facilities to the Company, these facilities are required to be secured by a second charge by way of equitable and/or legal mortgage on all the immovable and movable properties of the Company, both present and future on such terms as may be agreed to between the Company, State Bank of India and other existing lenders.

Section 180(1)(a) of the Companies Act, 2013 provides, inter alia, that the Board of directors of a public company shall not, without the consent of a public company in general meeting, sell, lease or otherwise dispose of the whole, or substantially the whole, of the undertaking(s) of the Company or where the Company owns more than one undertaking, of the whole or substantially the whole of any such undertaking. Mortgaging/charging of the immovable and movable properties of the Company as aforesaid to secure Rupee Term Loans and the various Cash Credit facilities may be regarded as disposal of the whole or substantially the whole of the said undertaking(s) of the Company and therefore requires consent of the Company pursuant to Section 180(1)(a) of the Companies Act, 2013.

The Directors recommend the resolutions for approval of the shareholders as ordinary resolutions under Section 180(1)(a) of the Companies Act, 2013.

None of the Directors are concerned or interested in the proposed resolutions.

Getting the Name of the Company Removed from Register of Companies - BR

Board Resolution for getting the name of the Company removed from Register of Companies (striking off of Company)

“RESOLVED THAT pursuant to provisions of sub section (1) and (2) of section 248 of Companies Act, 2013 and rules pertaining to the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016, the company, __________________ Limited, is not carrying on any business since its incorporation / is not in operation for a period of more than two preceding financial years / has not made an application to obtain the status of a dormant company under section 455 and since it does not intend to carry on any business in future, it is hereby approved that an application be made to the Registrar of Companies, ____________, for removal of its name from the Register of Companies subject to approval of shareholders in general meeting by way of a special resolution or the consent of seventy-five per cent of members, in terms of paid-up share capital, is required.”

“RESOLVED FURTHER THAT Mr./Ms_________, Director and Mr./Mrs_________, Director be and are hereby jointly and severally authorized to make an application to the Registrar of Companies, _________ and to do all the acts, deeds, things and file forms that are necessary or incidental, for removal of name of company from the Register of Companies under section 248 of the Companies Act 2013 and the guidelines issued by the Ministry of Corporate Affairs in this regard.”

Authority to Board of Directors to make Investment in excess of the prescribed limit - SR

Special Resolution to give authority to Board of Directors to make investment in excess of the prescribed limit (Powers of Board)

“RESOLVED THAT pursuant to the provisions of Section 186 of the Act and other applicable provisions, if any, the consent of the members of the company be and is hereby granted to make investments of a sum not exceeding Rs. ___ Crore by way of subscription and/or purchase of equity shares of M/s _____ Ltd., notwithstanding that such investment or such investment together with the company’s existing investment in all other body corporate shall be in excess of the limits prescribed under section 186 of the Act.

RESOLVED FURTHER THAT the Board of directors of the company be and is hereby authorized to do all such acts, deeds, matters and things as, in its absolute discretion, may be considered necessary, expedient or desirable and to settle any question or doubt that may arise in relation thereto in order to give effect to the foregoing resolution or otherwise considered by the Board of directors to be in the interest of the company.”

Explanatory Statement;

As on date the aggregate amount of the investments in shares/debentures, loans and guarantee(s)/security(ies) made, given, or provided by the company to other bodies corporate are within the limits provided in Section 186 of the Companies Act, 2013. Since the Board wants to invest in excess of the prescribed limit specified in Section 186 of the Act, approval of the shareholders of the company is required.

The Board of Directors in its meeting held on _________ decided to recommend the special resolution as set out in the notice for approval of the shareholders.

None of the directors save and except Mr. ____ and Mr. _____ are concerned or interested in this resolution.

Acquire shares of another Company - BR

Board Resolution to acquire shares of another Company under Section 186 of Companies Act, 2013 (Acquisition of shares)

“RESOLVED THAT pursuant to Section 186 of the Companies Act, 2013, the consent of the Board of Directors of the company be and is hereby accorded to make investments of Rs. ____________/- (Rupees __________ only) for acquisition of _________ equity shares of Rs.__/- each fully paid up in M/s _____ Ltd. from various existing shareholders of M/s _____ Ltd.

RESOLVED FURTHER THAT Mr. _______, Managing Director of the company be and is hereby authorised to make payment of consideration to the transferors and to do all such necessary act as may be necessary for this act.”