Alerts & Updates 3rd Jun 2022

Various changes introduced by MOF IFSCA MCA & SEBI

Authors

Manendra Singh Partner | Mumbai
Tanvi Goyal Principal Associate | Mumbai
Aditi Ladha Associate | Mumbai

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FOREIGN UNIVERSITIES IN INDIA | FEE STRUCTURE UNDER THE IFSCA FUND MANAGEMENT REGULATIONS | FOREIGN EXCHANGE LAWS VIS-À-VIS DIRECTORS, SUBSCRIBERS, M&A | SEBI ISSUES GUIDELINES FOR SEEKING NOC TO SET UP WOS/SDS/JV IN GIFT IFSC | CERTAIN RELAXATIONS PROVIDED UNDER THE LODR REGULATIONS, TO LLP AND CSR REPORTINGS.

  • CHANGES PERTAINING TO GIFT CITY

    A. Courses offered by foreign universities/institutions notified as a “financial service”Ministry of Finance has notified certain courses offered by foreign universities or foreign institutions in the IFSC, as “financial service”, hence, opening the gates for foreign universities to set up their presence in GIFT City.

    B. Fee structure under the IFSCA (Fund Management) Regulations, 2022: Pursuant to the notification of the (Fund Management) Regulations, 2022, the International Financial Services Centre Authority (IFSCA) has issued a fee structure for applications to and registration with IFSCA, along with fees for other activities. Further, it has clarified the requirement of fresh registration and waiver of fees for certain fund management entities in the IFSCA.

    C. Guidelines for seeking NOC by Stock Brokers / Clearing Members for setting up WOS/SDS/JV in GIFT IFSC: SEBI has issued certain guidelines for seeking a no-objection certificate (NOC) for setting up wholly owned subsidiaries (WOS), step down subsidiaries (SDS), Joint Ventures (JV), etc. in the International Financial Services Centre (IFSC) set up in GIFT City (GIFT IFSC). SEBI has prescribed a format of the application to be submitted with general information on the applicant along with supporting documents, and the process of seeking the NOC through a stock exchange where the applicant is a member.

  • CHANGES PERTAINING TO COMPANY LAW VIS-À-VIS FOREIGN EXCHANGE LAWS, OTHER CHANGES

    D. Subscribers and first directors to provide declaration of government approval under NDI Rules: The Companies (Incorporation) Rules, 2014 have been amended to substitute Form INC-9 which now includes a declaration in respect of compliance under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (NDI Rules). The subscriber/ first director must declare whether such person is required to obtain government approval under the NDI Rules prior to subscription of shares.

    E. Declaration of prior approval under NDI Rules while effecting corporate reorganizations/ restructuring: Declaration in respect of compliance with NDI Rules to be made in Form No. CAA-16 at the stage of submission of application under Section 230 of the Companies Act, 2013 in case of a compromise or an arrangement or merger or demerger between an Indian company and a company or body corporate which has been incorporated in a country which shares land border with India.

    F. Security clearance and declaration required for appointment as directors: MCA has amended the Companies (Appointment and Qualifications of Directors) Rules, 2014 whereby necessary security clearance will be required from Ministry of Home Affairs in case the person seeking appointment to act as director shares land border with India, along with the consent and application for Director Identification Number.

    G. Relaxation in filing Form CSR-2 for the financial year 2020-21 up to June 30, 2022.

    H. Relaxation in paying additional fees in case of delay in filing Form 11 (Annual Return) by Limited Liability Partnerships up to June 30, 2022.

  • CHANGES PERTAINING TO LODR REGULATIONS

    I. Relaxation from requirement of sending hard copy of annual report to shareholders and other relaxations: SEBI has provided certain relaxations under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulationsinter alia including relaxation to listed entities from sending hard copy of annual report to the shareholders who have not registered their email addresses; however, listed entities are required to send hard copy of full annual report to those shareholders who request for the same. It has been further clarified that the notice of annual general meeting (AGM) published by advertisement, shall contain a link to the annual report, so as to enable shareholders to have access to the full annual report.

    The above changes have been analyzed in detail below:

  • CHANGES PERTAINING TO GIFT CITY

    A. Courses offered by foreign universities/institutions notified as a financial service

    In a move to boost the education sector in India, the Ministry of Finance recently notified courses offered in financial management, fintech, science, technology, engineering and mathematics by foreign universities or foreign institutions in the International Financial Services Centre (IFSC) at GIFT City, as financial services.

    The above change was introduced vide notification dated May 23, 2022 (available here).

    B. Fee structure under the IFSCA (Fund Management) Regulations, 2022

    Recently, the IFSCA notified the IFSCA (Fund Management) Regulations, 2022 (Fund Management Regulations) vide notification dated April 19, 2022 (available here), which shall come into force on the thirtieth day from the date of its publication in the Official Gazette. The Fund Management Regulations were introduced to regulate the framework for investment funds in IFSC. Accordingly, IFSCA issued the fee structure for the various activities to be undertaken by Fund Management Entities (FME) under the Fund Management Regulations.

  • I. Fee Structure:

    (1) Application and Registration Fees for applicants seeking registration as a FME in the IFSCA:

    Application Fee USD 2,500
    Registration Fee
    (i)         Authorised FME (except Family Investment Fund) USD 5,000
    (ii)        Registered FME (Non -retail) USD 7,500
    (iii)      Registered FME (Retail) USD 10,000
    (iv)      Family Investment Fund USD 15,000

    (2) Fees for various activities

    A.      Filing of placement memorandum/ offer document with IFSCA
    Venture Capital Scheme USD 7,500
    Restricted Scheme
    (i)         Category I Alternative Investment Fund USD 7,500
    (ii)        Category II Alternative Investment Fund USD 15,000
    (iii)      Category III Alternative Investment Fund USD 22,500
    Retail Scheme USD 22,500
    Exchange Traded Fund (ETF) USD 22,500
    Investment Trust 0.05% of the offer size
    B.      FME desirous of undertaking the activity of Portfolio management services USD 5,000

    (3) Applications for Regulatory / Innovation Sand box, Fund lab, etc.: USD 2,500 along with requisite application

    (4) Annual Fee: Each FME shall pay an annual fee of USD 2,000. The annual fee shall be applicable for financial year after the year in which certificate of registration is granted by IFSCA and shall be payable in the first month of each financial year i.e. in April.

  • II. Fresh registration for entities already registered with IFSCA:

    It has been clarified that all existing entities providing portfolio management services, and managers of alternative investment funds (AIFs) registered with and registered with IFSCA shall seek fresh registration within 6 months from the effective date of the Fund Management Regulations. However, all AIFs already registered with IFSCA before the effective date of Fund Management Regulations shall be considered as grandfathered and fresh registration for such funds / schemes shall not be required.

  • III. Waiver of fee for registered FME filing ESG schemes and ETFs:

    Registered FMEs filing ESG schemes with IFSCA will be waived the scheme filing fee as if the disclosures in the scheme are in line with the disclosures provided by IFSCA for such schemes.  The waiver of fee shall be applicable to only the first 10 ESG schemes registered with IFSCA and each FME shall be permitted to avail the waiver only once. Further, Registered FMEs filing ETFs with IFSCA will be waived the filing fee for the first 3 ETFs filed by such FME with IFSCA. The waiver of fee shall be applicable only to the first 30 ETFs registered with IFSCA.

    The above fee structure has been issued vide circular dated May 19, 2022 (available here).

    C. Guidelines for seeking NOC by Stockbrokers / Clearing Members for setting up WOS/SDS/JV in GIFT IFSC

    With the objective of streamlining the process of applications from stockbrokers/ clearing members for granting no-objection certificates (NOC) for setting up wholly owned subsidiaries (WOS), step down subsidiaries (SDS), Joint Ventures (JV), etc. in the IFSC set up in GIFT City (GIFT IFSC), SEBI has issued the following guidelines:

    (1) Format of application for NOC: Application shall be made in the format as prescribed by SEBI along with a list of supporting documents for seeking NOC for setting up WOS/SDS/JV in GIFT IFSC. Further, pursuant to setting up WOS/ investment in SDS/JV, etc., the applicant shall be required to maintain net worth for each category of registration in accordance with the relevant laws and directions issued by respective stock exchanges/depositories.

    Topic Discriptions
    Details to be included in the application
    • Details of all registrations of the applicant company in India and abroad
    • Net worth of the applicant company
    • Relevant details of promoters, directors and key persons of the applicant
    • Details of regulatory action taken/ initiated/ pending, if any, against the applicant/ promoters/ directors/ key personnel/ principal officer of the applicant company (in India/abroad)
    • Any fee remaining unpaid to SEBI by applicant/ associates
    • Amount of proposed investment
    • Whether the applicant is setting up a WOS/SDS or entering into a JV or acquiring stake in an existing company
    • Details of the proposed WOS/SDS/JV in GIFT IFSC
    Supporting documents
    • Certificate of Net worth based on the latest audited results
    • NOC obtained from all stock exchanges/ depositories where the applicant is a member/ participant, in case the applicant is a stock broker/ depository participant
    • Details of any non-compliance with respect to the “fit and proper person” criteria
    • Declaration cum undertaking with respect to the “fit and proper person” criteria duly stamped and signed by the authorised signatories of the applicant
    • Latest shareholding pattern of the applicant and list of shareholders who have controlling interest

    (2) Process of obtaining NOC:

    (a) Stockbrokers and clearing members shall apply through a stock exchange where the applicant is a member, along with the required information, documents and NOC received from all stock exchanges/clearing corporations/depositories in which the applicant is a member/participant.

    (b) Stock exchanges/ clearing corporations (where the applicant is only clearing member) are then directed to forward the complete application to SEBI, after verification along with its recommendation.

    The above guidelines were issued vide SEBI circular SEBI/HO/MIRSD/DoR/P/CIR/2022/61 dated May 13, 2022 (available here).

  • CHANGES PERTAINING TO COMPANY LAW VIS-À-VIS FOREIGN EXCHANGE LAWS, OTHER CHANGES

    D. Subscribers and first directors to provide declaration of government approval under NDI Rules at the time of incorporation of a company

    Section 7(1)(c) of the Companies Act, 2013 (CA2013) read with Rule 15 of the Companies (Incorporation) Rules, 2014 requires subscribers to the memorandum of association and each of the first directors named in the articles of association of the company to submit Form INC-9. Recently, the Ministry of Corporate Affairs substituted the existing Form INC-9; the new form consists of a declaration in respect of compliance under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (NDI Rules). The subscriber/ first director must declare whether such person is required to obtain government approval under the NDI Rules prior to subscription of shares.

    Further, a declaration has been inserted in Part B of Form INC-32 (SPICe+) which is the application for incorporation of a company whereby the declaration shall provide that if any of the proposed directors seeking appointment are nationals of a country which shares a land border with India, necessary security clearance from Ministry of Home Affairs, Government of India shall be attached with the consent.

    The above amendments were introduced vide the Companies (Incorporation) (Second Amendment) Rules, 2022 dated May 20, 2022 (available here) and shall come into effect from June 1, 2022.

    E. Declaration of prior approval under NDI Rules while effecting corporate reorganizations/ restructuring

    MCA has notified the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2022 (Amendment Rules), to further amend the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (CAA Rules) whereby companies submitting applications under Section 230 of CA2013 (Power to compromise or make arrangements with creditors and members) will be required to furnish a declaration in respect of prior approval under the NDI Rules.

    Rule 25A of the CAA Rules, inter alia provides for a merger or amalgamation of a foreign company with an Indian company and vice-versa. In this regard, MCA has inserted sub-rule (4) vide the Amendment Rules to specifically deal with cases of a compromise or an arrangement or merger or demerger between an Indian company and a company or body corporate which has been incorporated in a country which shares land border with India wherein a declaration (in Form No. CAA-16) shall be required at the stage of submission of application under Section 230 of the CA2013.

    The following declaration has been inserted in new Form No. CAA.16:

    • When Government approval under NDI Rules is NOT required:

    “the Company/body corporate is not required to obtain prior approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019”; 

    OR 

    • When Government approval under NDI Rules IS required, and if the same is procured and enclosed prior to the transfer:

    “the company/body corporate is required to obtain prior approval under the Foreign Exchange Management (Non-debt Instruments) Rules, and the same has been obtained and is enclosed herewith.”

    The aforesaid amendment has been introduced vide the Amendment Rules dated May 30, 2022 (available here).

    F. Security clearance and declarations required for appointment as directors

    MCA amended the Companies (Appointment and Qualifications of Directors) Rules, 2014 (Appointment Rules) wherein the following changes were notified:

    • Security clearance/ declaration to be attached with consent for appointment as director of a company:

    Rule 8 of the Appointment Rules requires every person who has been appointed to hold the office of a director to, on or before the appointment, furnish to the company a consent in writing to act as such in Form DIR-2. Where the person seeking appointment is a national of a country which shares land border with India, necessary security clearance from the Ministry of Home Affairs, Government of India shall also be attached along with the consent. Consequent changes to Form DIR-2 have also been introduced wherein the person seeking appointment shall be required to declare whether security clearance is required for such person.

    • Security clearance / declaration to be attached with application for Director Identification Number (DIN):

    Rule 10 of the Appointment Rules inter alia provides for allotment of DIN to persons seeking appointment as director. It has been clarified that no application number shall be generated where the person applying for DIN is a national of a country which shares land border with India, unless necessary security clearance from the Ministry of Home Affairs, Government of India has been attached along with application for DIN. Accordingly, a declaration will be required to be given by the applicant in Form DIR-3.

    The above amendment has been introduced vide the Companies (Appointment and Qualification of Directors) Amendment Rules, 2022 dated June 1, 2022 (available here).

    G. Relaxation in filing Form CSR-2 for the preceding financial year 2020-21 till June 30, 2022

    Vide notification dated February 11, 2022 (available here), MCA had introduced Form CSR-2 requiring companies that are mandated to undertake corporate social responsibility (CSR) activities under Section 135 of the CA2013 to furnish a report on CSR for the financial year 2020-21 on or before March 31, 2022.

    In this regard, MCA has provided a relaxation whereby such companies will have to file Form CSR-2 on or before 30th June, 2022, after filing Form AOC-4 or AOC-4 XBRL or AOC-4 NBFC (Ind AS), as the case may be.

    The above relaxation has been provided vide Companies (Accounts) Third Amendment Rules, 2022 dated May 31, 2022 (available here).

    H. Relaxation in paying additional fees in case of delay in filing Form 11 (Annual Return) by Limited Liability Partnerships up to June 30, 2022

    MCA has, in view of the representations seeking extensions on the timelines for filing Form 11 (Annual Return) by limited liability partnerships (LLP) and for the purposes of facilitating a smooth transition from version-2 of MCA-21 to version-3 and to promote compliance on part of LLPs, decided to allow LLPs to file e-Form 11 (Annual Return of Limited Liability Partnerships) for the Financial Year 2021-2022 without paying additional fees up to June 30, 2022.

    This relaxation has been issued vide General Circular dated May 27, 2022 (available here).

  • CHANGES PERTAINING TO LODR REGULATIONS

    I. Relaxations provided for compliance with certain provisions of the LODR Regulations

    SEBI has provided the following relaxations to listed companies under the LODR Regulations:

    Relevant LODR Regulation Relaxation under the regulation
    Regulation 36 (Documents and Information to shareholders) Listed entities are required to send a hard copy of the annual report containing salient features of all the documents prescribed in Section 136 of the CA2013 to the shareholders who have not registered their email addresses, with 21 days before the AGM.

    Relaxation has been provided to listed entities from the above requirement up to December 31, 2022.

    It has been clarified that listed entities are required to send hard copy of full annual report to those shareholders who request for the same.

    Regulation 44 (4) (Meetings of shareholders and voting) In case of general meetings held through electronic mode only, the requirement of sending proxy forms to holders of securities in all cases mentioning that a holder may vote either for or against each resolution is dispensed with, up to December 31, 2022.
    Regulation 47 (Advertisement in Newspapers) It has been clarified that the notice of AGM published by advertisement under Regulation 47, shall contain a link to the annual report, so as to enable shareholders to have access to the full annual report.
  • The above relaxations are provided vide SEBI circular dated May 13, 2022 (available here).

    We trust you will find this an interesting read. For any queries or comments on this update, please feel free to contact us at insights@elp-in.com or write to our authors:

    Manendra Singh, Associate Partner –ManendraSingh@elp-in.com ;
    Tanvi Goyal, Principal Associate –TanviGoyal@elp-in.com;
    Aditi Ladha, Associate – AditiLadha@elp-in.com

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion or advice