Board Meetings Through Video Conferencing.

Matters which cannot be dealt through video conferencing

• Approval of Financial statements
• Approval of Board of Directors report

General Rules regarding quorum, venue and participation

• Every director has to attend at least one Board Meeting in a financial year by participating in person (physical attendance). As per the Companies Act 2013 read with Secretarial Standard SS1, a Director can attend all the meetings in a year through Video Conferencing and may not be present physically in any of the Board meetings. 

• Participation through video-conferencing will be counted for the purpose of quorum.

• Venue specified in notice shall be taken as the venue of the meeting and all requisite registers to be kept at the venue.

• Registers required to be signed by directors shall be deemed to have been signed by directors who are participating through electronic means once they give their consent and same is recorded in the minutes.

• No person other than directors, Company Secretary, Chairperson and persons whose presence is required pursuant to a legal provision shall be allowed access to the place where any director is attending the meeting either physically or through video conferencing.

Requirements regarding notice

• Notice to contain details regarding availability of facility of video conferencing.
  

Duties of Directors

• Director to intimate, in writing, to Chairperson/CS regarding his intention to participate through video conferencing, at least 3 days in advance (unless waived by Chairperson), else he will be taken as participating in person.

• At the beginning of the meeting, all directors participating through video conferencing to state on record – their name, location, confirmation regarding clarity in hearing/seeing other participants, confirmation regarding receipt of agenda of meeting and confirmation that no one other than the concerned director is attending or having access to the proceedings of the meeting at their location.

• To identify themselves before speaking on any agenda.

• To identify themselves before casting their vote on any motion which is objected to.

• To confirm the draft minutes within 7 days of circulation.

Role of Chairperson/Company Secretary

Functions to be discharged by Chairman

• To make roll call at the beginning of the meeting
• To make a roll call and record the votes in case any motion is objected to.
• To make roll call at the end of the meeting and after every break.
• To summarise the decisions taken during the meeting on each item of agenda transacted along with the voting details, at the end of the meeting.

Functions to be discharged by Company Secretary

• To maintain record of requests received from directors regarding their intention to participate through video conferencing.

Functions to be discharged either by Chairperson or Company Secretary

• After roll call, to call out the name of persons who are attending meeting through permission of Chairperson and confirm regarding presence of quorum.
• To state the identity of speaker of agenda, if the speaker fails to do so.

Requirements regarding minutes and secretarial records

• Video recording of the part of the meeting where chairperson summarises the decisions taken at the meeting shall form part of the secretarial records and be preserved by the company.
• Minutes shall disclose the particulars of the directors who attended the meeting through video conferencing or other audio visual means.
• The draft minutes of the meeting shall be circulated among all the directors within 7 days of the meeting either in writing or in electronic mode as may be decided by the Board.
• Directors to confirm the minutes within 7 days, else their confirmation will be presumed.
• Thereafter, minutes to be entered in minutes book.

Credits: S.Dhanapal

independent director - companies act 2013

Requirements:

An independent director is someone who does not have any material or pecuniary relationship with the company/directors. Section 149(6) of the Companies Act 2013 [Act] prescribes the criteria for independent directors which are as follows: 

1. such individuals must possess integrity and relevant industrial expertise; 
2. such individuals must not have any material or pecuniary relationship with the company or its subsidiaries; 
3. they or their relatives should not have had any pecuniary relationship with the company or its subsidiaries, amounting to 2% or more of its gross turnover or total income or INR 5 million, whichever is less, during the two immediately preceding financial years or in the current financial year; 
4. such appointees or their relatives should not have any key managerial position in the company or its subsidiary companies during any of the three preceding financial years; 
5. such persons or their relatives should not have been an employee of the company or its subsidiary companies during any of the three preceding financial years; 
6. they or their relatives must not be a director of a nonprofit organization, which receives 25% or more of its receipts from the company or its subsidiary companies or its promoters/directors or from anyone who holds 2% of voting rights in such companies;
7. such individuals must not be a promoter of the company or its subsidiaries; 
8. they must not hold more than 2% voting rights in the company either by themselves or together with their relatives.

However 'independence' is not affected if a relative of the independent director holds a key position in a competitor entity. Both under the Companies Act and SEBI's Listing Agreement, it is possible for a director to be an independent director of a company, though his or her spouse/ relative is a director of a competitor company,

Remuneration:

The Act expressly disallows independent directors from obtaining stock options and remuneration other than sitting fees and reimbursement of travel expenses for attending the board and other meetings. Profit related commission may be paid to them, but subject to the approval of the shareholders. The reason for restricting the remuneration was to prevent personal financial nexus with the company and to safeguard their independence. However, the flip side is if the remuneration is not attractive then it would be difficult for companies to attract suitable and experienced persons for the position.

Private Companies can accept loan from Directors and Relatives of Directors

Companies (Acceptance of Deposits) Second Amendment Rules, 2015

Ministry of Corporate affairs vide its notification dated 15/09/2015 has provided that with immediate effect a private company can accept unsecured loans from directors and also from a relative of Director provided that at the time of lending money the relative of director from whom money is received must furnish to the company, a declaration in writing stating that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others and the company shall disclose the details of money so accepted in the Board’s report (Annual Report). Further more such relative need not be a shareholder of the company.

With this amendment a private company is allowed to take loans, deposits from members, Directors and relatives of directors not exceeding aggregate of 100% of its paid up capital, free reserves and securities premium account..

Privileges, Concessions to private companies

The Ministry of Corporate Affairs has issued a notification to give exemptions to private companies under the Companies Act to improve ease of doing business in India.

Some important exemptions that have been provided in the Notification with respect to the private companies are that the transactions between any company which is holding, subsidiary or an associate of such company and subsidiary of holding shall not be treated as Related Party Transactions. With the removal of restrictions on the powers of Board, it would be easy for the private companies to operate their business.

The Notification provides that the interested directors of a private company may participate in such meeting wherein contract or arrangement or proposed contract or arrangement entered into or to be entered into is discussed after disclosure of interest. Also, the member of a private company can vote on such resolution, to approve any contract or arrangement which may be entered into by the company, if such member is a related party.

Further, Loan to Directors etc., may be provided by a private company in whose share capital another body corporate has invested any money and if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower, and such a company has no default in repayment of such borrowing subsisting at the time of making transactions under this section.

Now, a big relief to the private companies which will help in the capital formation is that the companies can accept deposits from members which is not exceeding 100 % of aggregate of the paid up share capital and free reserves.

The private companies need not file with the Registrar the resolutions passed by the Board with respect to Section 179 (3) which will in turn help the private companies to reduce cost of compliance.

For appointment of managing director, whole-time director or manager by a private company, there is no requirement that the terms and conditions of such appointment and remuneration payable be approved by the Board of Directors at its meeting and by the Central Government in case such appointment is at variance to the conditions specified in that Schedule.

The Private company can have its own regulations in its article of association for the following sections of companies Act, 2013:- 

 Section 101 – Notice of general meetings 
 Section 102 – Explanatory Statement 
 Section 103 – Quorum for meeting 
 Section 104 – chairman of meetings 
 Section 105 – Proxies 
 Section 106 – Restriction of voting rights 
 Section 107 – Voting by show of hands 
 Section 109 – demand for poll

When to file form MGT 14 under Companies Act 2013

Passing of below mention Resolutions necessitates filing form MGT 14. The resolution should be filed with ROC within 30 days of passing the resolution.

Section- 8

For a company registered under Section- 8 to convert itself into a company of any other kind or alteration of its Memorandum or Articles

Section – 12

Shifting of Registered Office address

Section-13 

Alteration in MOA.

Section - 14

Alteration in Article.

Section 13(8)

A company, which has raised money from public through Prospectus and still has any unutilized amount out of the money so raised, shall not Change its objects for which it raised the money through prospectus unless a special Resolution is passed by the company.

Section 27(1)

A company shall not, at any time, vary the terms of a contract referred to in the prospectus or objects for which the prospectus was issued, except subject to the approval of, or except subject to an authority given by the company in general meeting by way of special resolution.

Section 48(1)

Where a share capital of the company is divided into different classes of shares, the rights attached to the shares of any class may be varied with the consent in writing of the holders of not less than three-fourths of the issued shares of that class or by means of a special resolution passed at a separate meeting of the holders of the issued shares of that class.

Section 54

Issue of Sweat Equity Shares.

Section 62(1) (c)

Preferential allotment of shares.

Section 65

Conversion of Unlimited company into limited company.

Section 66(1)

Reduction of Share Capital.

Section 67(3) (b)

Special resolution for approving scheme for the purchase of fully-paid shares for the benefit of employees.

Section 68(2)(b)

Buy Back of Shares.

Section 71(1)

A company may issue debentures with an option to convert such debentures into shares, either wholly or partly at the time of redemption: Provided that the issue of debentures with an option to convert such debentures into shares, wholly or partly, shall be approved by a special resolution passed at a general meeting.

Section 76

Inviting deposits from person other then members.

Section-94

Keep registers at any other place in India.

Section 140(1)

The auditor appointed under section 139 may be removed from his office before the expiry of his term only by a special resolution of the company, May appoint more than 15 directors by passing of Special resolution.

Section- 149(10)

Re-appointment of Independent Director.

Section 165(2)

Subject to the provisions of sub-section (1), the members of a company may, by special resolution, specify any lesser number of companies in which a director of the company may act as directors.

Section- 180

The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely-

1. To sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings. 
2. to invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation. 
3. to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company’s bankers in the ordinary course of business. 
4. to remit, or give time for the repayment of, any debt due from a director.

Section- 185

For approving scheme for giving of loan to MD or WTD.

Section- 188

To enter into related party transaction with the company if paid up capital of company exceed Rs.10/- Crore.

Section- 186(3)

Loan& Investment by company exceeding 60% of paid up share capital or 100% of free reserve. 

Section- 196

Appointment of a person as Managerial Personnel if, the age of Person is exceeding 70 year.

Schedule V

Payment of remuneration to Managerial personnel if, profits of company are Inadequate.

Section 271(1)(b)

Special Resolution for winding up of the company by Tribunal.

Section 304(b)

Special Resolution for winding up of company

AS PER SECTION 179(3)

The Board of Directors of a company shall exercise the following powers on behalf of the company by means of resolutions passed at meetings of the Board, namely:—these resolutions are also necessary to file in MGT-14.

1. To make calls on shareholders in respect of money unpaid on their shares. 
2. To authorize buy-back of securities under section 68.
3. To issue securities, including debentures, whether in or outside India; 
4. To borrow monies; 
5. To invest the funds of the company; 
6. To grant loans or give guarantee or provide security in respect of loans; 
7. To approve financial statement and the Board’s report; 
8. To diversify the business of the company; 
9. To approve amalgamation, merger or reconstruction; 
10. Take over a company or acquire a controlling or substantial stake in another company; 
11. Any other matter which may be prescribed.

In addition to the items mention above the following resolutions should also to be filed with ROC in MGT-14 per Rule 8 of Companies (Meetings of Board and its Powers), Rules 2014-

1. To make political contributions. 
2. To appoint or remove key managerial personnel (KMP) 
3. To take note of appointment(s) or removal(s) of one level below the Key Management Personnel; 
4. To appoint internal auditors and secretarial auditor; 
5. To take note of the disclosure of director’s interest and shareholding; 
6. To buy, sell investments held by the company (other than trade investments), constituting 5% or more of the paid up share capital and free reserves of the investee company; 
7. To invite or accept or renew public deposits and related matters; 
8. To review or change the terms and conditions of public deposit; 
9. To approve quarterly, half yearly and annual financial statements or financial results as the case may be.

Items 3, 5, 6, 7, 8 and 9 have been omitted vide Companies (Meetings of Board and its Powers) Amendment Rules, 2015

Appointment of Company Secretary

Whole-time Company Secretary

As per Companies Act 2013 every company should appoint a whole time company secretary whose paid up share capital is not less than Rs. 5.00 Crores.

A whole time Company secretary of a company can be appointed as a non executive Director of another company. However a Company secretary can not be appointed as whole-time company secretary of another company.

A whole time Company secretary can be appointed as a non-executive director of the same company provided there are more than two directors in the company.

Secretarial Audit Report

As per sub-section (1) of section 204 of the Companies Act 2013 every company that attracts the below listed criteria should carry out a Secretarial Audit and submit the Secretarial Audit Report in form No.MR.3

1. Every public company having a paid-up share capital of not less than Rs.50 crores or
2. Every public company having a turnover of not less than Rs.250 Crores

Inter-corporate Loans and Investments, Loans to employees

Companies Act 2013

section 186 of Companies Act 2013 governs loans, investments and guarantees by a company. Section 186 provides that a company may give loans or provide security/guarantee up to 60% of its (paid up capital + free reserves + securities premium) or 100% of (free reserves + securities premium), whichever is higher. For transactions exceeding these limits, approval of members is required to be sought by way of a special resolution.
on 10th March 2015, Ministry of Corporate Affairs clarified that loans and/or advances made by the companies to their employees, other than the Managing or Whole time directors (which is governed by section 185) are not governed by the requirements of section 186 of the Companies Act, 2013, if it is in accordance with the condition of services to all employees and are also in accordance with the remuneration policy, in cases where such policy is required to be formulated. Due to this clarification now a Company is not required to maintain a register of loans given to its employees in the format MBP2 and does not disclose the details of loans given to its employees in the Directors report as specified u/s 186(9)

Companies Act 1956
The new provisions of section 372A (1956) is applicable only to Public Limited Companies and provide for a combined limit of sixty percent of the paid up share capital and free reserves (which term includes reserves free for distribution as dividend including the amount in the securities premium account) or one hundred percent of free reserves whichever is higher, for grant of loan (which term includes debentures) to any other body corporate, giving of any guarantee or provision of security in respect of a loan to or by any body corporate and acquisition of securities (which term includes shares, debentures, bonds and other marketable securities, etc.) of any other body corporate by way of subscription, purchase or otherwise. These powers are given to the board of a company by the statute .The scope of section 372A is much larger than the erstwhile section 372. Needless to say that there must a basic provision in the memorandum/articles of a company authorizing the board to make inter-corporate loans and investments.However, in exceptional circumstances, the board may provide guarantee without the previous authorization of shareholders. The Board needs to take approval of shareholders in the immediately succeeding meeting of members.

Conditions

1. No loan, provision of guarantee or security or investment can be made unless the resolution sanctioning the same is passed at a meeting of the board with the consent of all the directors present at the meeting and with the prior approval of the public financial institution where any term loan is subsisting. However, prior approval of the financial institution is not required, if the aggregate of the investments made, loan granted, guarantees given or security provided together with the proposals in this regard does not exceed 60% of the limit referred to above, provided there is no default in repayment of loan or interest thereon.
2. No loan can be given to any body corporate at a rate of interest lower than the prevailing bank rate.
3. If a company has defaulted in the matter of public deposits under section 58A of the Act, such a company is prohibited from availing of the provision in section 372A of the Act. This is a temporary restriction, as the prohibition does not apply when the default under section 58A is made good.

EXCEPTIONS

The regulatory provisions of section 372A are not applicable in the following cases : -

1. to any loan made, any guarantee given or any security provided or any investment made by a banking or insurance company or a housing finance company in the ordinary course of their business or to a company established with the object of financing industrial enterprises or of providing infrastructural facilities;
2. to a company whose principal business is the acquisition of shares, stock, debentures or other securities;
3. to a private company unless it is a subsidiary of a public company;
4. to any investment made in rights issue;
5. to any loan made, any guarantee given or security provided to or acquisition of shares by a holding company in its wholly owned subsidiary.

(c) 2015, Shreerang Ketkar, All rights reserved.

Appointment of Managing Director

Appointment of Managing Director

1. Every Public company having a paid up share capital of Rs. 5.00 crores or more must appoint a Whole time director or Managing Director. 
2. A managing Director must essentially be a Director of the Company. In case the proposed MD is not a Director he must be appointed as Additional Director.
3. Being an Additional director he will assume the office of Director till the next AGM, wherein he has to be reappointed.
4. Managing director can be appointed for the period of 5 years. [Sec. 317]
5. A copy of Board resolution appointing MD should be filed with the ROC within 30 days. [Sec. 192 (1)]
6. Section 269 applies to every Public Company and Pvt. Co. which is a subsidiary of Pub. Co.
7. After appointment of MD form 25-C should be to be filed as specified u/s 269(2) within 90 days of appointment.
8. In case of omission of filing such form the appointment does not become void.
9. Schedule XIII specifically provides that appointment of MD should be approved by shareholders in General meeting.
10. Approval of Central Govt. is necessary in case the appointment is not according to Sch. XIII. An application in form 25A has to be submitted within 90 days of such appointment. U/s 269(6), even in case Central Govt. rejects the appointment, the individual can continue occupying the position by payment of Fine / Penalty.
11. The above-mentioned provisions do not apply to Pvt. Company.
12. There is no restriction on Remuneration payable to MD of a Pvt. Company.
13. Restrictions on Appointment: An individual cannot be managing director or manager of more than two companies, public or private, where out of two companies at least one is a public company or private company, which is a subsidiary of a public company. An individual may hold the office of managing director or manager in any number of private companies, which are not subsidiaries of public company. But if the office is held in a public company or a private company which is subsidiary of a public company, the same individual can not, in addition thereto, hold the office of managing director in more than one company whether such company is a public company or private company which is subsidiary of public company or any private company. (Section 316) 
14. Terms of Office: The term of office of a managing director must not exceed 5 years at a time. The term, however, may be extended for further period not exceeding 5 years at a time. (Section 317) 
15. It is important to note that the person ceases to be managing director with a censure of directorship on account of his retirement by rotation at the Annual General Meeting. But if such a person is re-elected as director at the AGM and thereby he continues as the director of the company, he shall continue as a managing director also for the period for which he is so elected by the AGM and for the unexpired period of present term of appointment as managing director.
16. Disqualifications for appointment: A managing director must be a director and therefore, all the disqualifications rendering impossibilities for the appointment of a person as director (Section 274) will apply in the case of appointment of a managing director. Section 267 specifically provide that company must appoint or continue the appointment of a person as managing or whole time director who is: 
1. An undischarged insolvent or has at any time been adjudged insolvent; 
2. Suspends or has at any time suspended payment to his creditor or has made a composition with them or 
3. Has at any time been convicted of an offence involving moral turpitude. Meaning of the term moral turpitude: According to American encyclopedia of Law, it comprises anything contrary to justice, honesty, and principle of good morals, an act of baseness, vileness or depravity in the private and social duties, which a man owes to his fellowmen or society in general. The term also comprises anything contrary to the accepted and customary rule of right and duty between humans. 
17. u/s 117(3) of the Companies Act 2013 any resolution of the Board of Directors of a company or agreement executed by a company, relating to the appointment, re-appointment or renewal of the appointment, or variation of the terms of appointment, of a Managing Director needs to be re filed with ROC within 30 days of passing the same.

Buy Back of shares under Companies Act 2013

Section 68(1) of the new Act, deals with the issue of ‘buy-back’. The corresponding provision in the old Act is Section 77A. There has been no significant change in the laws regarding buy-back. The changes have only been in terms of

• the procedure of odd-lots applicable to listed stocks: The same has been done away with and 
• the punishment for contravening the section has been enhanced.

 The old Act provided that any offer of buy-back cannot be made within a period of 365 days reckoned from the date of the preceding offer of buy-back. Under the new Act, this period of 365 days has been provided as one year which has to be reckoned from the date of the closure of the preceding offer of buy-back. Furthermore, Rule 17 of the Companies (Share Capital and Debentures) Rules, 2014 also makes certain deviations from the erstwhile Private Limited Company and Unlisted Public company (Buy Back of Securities) Rules,1999 prescribed under the old Act in respect of buy-back. These are-

1. Vide rule 17(1)(n)(iii) the new Act requires that a report addressed to the Board of directors by the company’s auditors should state that the audited accounts on the basis of which calculation for the purpose of buy-back is made, is not more than six months old from the date of the Offer Document;
2. Rule 17(14) of the Companies (Share Capital and Debentures) Rules, 2014 requires that a Certificate of Compliance in respect of buy-back of securities has to be annexed to the return filed with the Registrar in Form No. SH.11. This Certificate of Compliance has to be signed by two directors of the company including the managing director, if any, certifying that the buy-back of securities has been made in compliance with the provisions of the Act and the rules made thereunder. The above requirement was there in the old Act.

Corporate Social Responsibility

Corporate Social Responsibility [CSR]

Under CSR regime companies above certain threshold needs to spend 2% of their average 3 years Net profit towards activities that will bring betterment of society.

The threshold specified under Companies Act 2013 is companies with 

1. at least R.5 crores of net profit in any year or 
2. Rs. 1,000 crore of Turnover or 
3. Rs.500 crore Net worth.

Funds given to political parties and spending towards benefit of companies own empoyees and their families will not count as CSR spending.

Companies are required to have a CSR policy approved by its Board of Directors and must have a monitoring mechanism. CSR policy must be displayed on company's website.

Chief Financial officer [CFO] - Companies Act 2013

Position of CFO under companies Act 2013

• CFO is identified as Key Managerial Personnel u/s 2(19) 
• CFO is identified as ‘officer in default’ u/s 2(59) and 2(60). 
• CFO to be appointed by means of a Board Resolution u/s 203 
• CFO shall not hold office in more than one company unless it is a subsidiary u/s 203(3) 
• CFO to be named in the prospectus or information memorandum for issue of securities u/s 26. 
• CFO is responsible for statements in prospectus, if he authorises the issue. section 34, 35. 
• CFO is directly responsible for maintenance of books of accounts sec. 128(6). 
• CFO is responsible for furnishing ‘true and fair’ view of the state of affairs in the financial statements u/s 129. 
• CFO is responsible for filing financial statements with Registrar of Companies sec. 137. 
• CFO authorises financial statements sec. 134. 
• CFO is responsible for adhering to accounting standards Sec. 133. 
• A director may be appointed as CFO (Table A -77). CFO can be a director. 
• Where a CFO has to authorise a statement, and if the CFO is also a director, he shall authorise the statement as CFO. (Table A – 78)

Merger and Amalgamation Companies Act 1956 and 2013

What is merger?

In merger two or more existing companies combine into one company. The transferor company merges its identity into the transferee company by the transfer of its business (assets and liabilities). The shareholders of the transferor company receive shares in the merged company in exchange for the shares held by them in the transferor company as per the agreed exchange ratio.

What is Amalgamation?
In amalgamation two or more existing transferor companies merge together to form a new company, whereby all the transferor companies lose their existence and their shareholders become the shareholders of the new company.

Who can object the scheme of merger.

As per the newly introduced Companies Act 2013 an objection to scheme of merger can be raised only by persons holding not less than 10% of the shareholding or persons holding outstanding debt amounting to not less than 5% of the total outstanding debt as per the latest audited financial statement. These provisions are intended to ensure that insignificant minority interest do not hold the majority at ransom. This will also enable a faster approval of scheme with the reduction of number of objections.

The Merger and Amalgamation [M&A] is allowed under the Companies Act [CA] 1956 vide section 391 to 394. The Companies Act 2013 contains 10 clauses i.e. from 230 to 240 regarding M&A whereas Companies Act,  1956 contained  only  7  sections  of  which  only  4  particularly  dealt  with  M&A.

Types of Mergers

Horizontal merger is the merger of firms engaged in the same line of business. 

Vertical Merger is backward or forward expansion. In a Conglomerate, there is a merger of firms engaged in unrelated businesses.

Process

High court of respective state where the registered offices of the companies are located has the jurisdiction to sanction the scheme. 

Merger of Foreign company

By virtue of Sec. 584 of Companies Act 1956 a foreign company having a place of business in India, is eligible to be merged with an Indian Co. U/s 394(4)(b) a foreign incorporated company could be a transferor company in the scheme of merger.

The Companies Act 2013 has opened doors for cross- border mergers by  allowing both ways merger subject to certain  conditions. Permission of Reserve Bank of India shall also be a pre-requisite in cross-border Mergers. The RBI is empowered in to analyze cross border mergers.

It is necessary that the law under which the foreign company is incorporated allow the foreign company to merge with an Indian Company. Merger can’t take place in case the foreign laws do not allow the foreign company to merge with Indian companyIn case a foreign company does not have a place in India the Indian courts have no jurisdiction to sanction the merger. However if the foreign co. has a branch office in India the respective court has the jurisdiction. Ever branch of a foreign company needs to register with ROC and submit returns to ROC at Delhi. Although the foreign company is filing the returns at Delhi ROC the High court of the state where the branch office is located shall have the jurisdiction over the M&A scheme and not the Delhi High court.

The Indian Company can carry forward the losses of the foreign company u/s 72A of the Income Tax act, after the merger of the foreign company with Indian company. 

Before issue of shares to the shareholders of the foreign company under the scheme the Indian company needs to get permission from RBI under FEMA for the issue of shares to NRI and must give declaration that the merged entity will not indulge in the business of Agriculture, plantation, Real estate etc.

Stamp Duty 

Only in the state of Maharashtra the order of the High court sanctioning the M&A attracts Stamp duty at the rate applicable on the Conveyance of Property. When the tranaferor and the transferee companies are located at two different states and if stamp duty is applicable at both the states the double payment of stamp duty can be avoided by applying for exemption in either state.

Income Tax Act 1961

It provides for not only carry forward and set off of accumulated losses but also un-absorbed depreciation allowance of the amalgamating company.

Registered Valuer - Companies Act 2013

Section 247 of the Companies Act, 2013 contains provisions regarding registered valuers.

Definition (Rule 17.1):

‘Registered Valuer’ means a person registered as a Valuer under Chapter XVII of the Act.

Who can act as a registered valuer?

A person who is registered as a Registered Valuer in pursuance of Section 247 of the Act with the Central Government and whose name appears in the register of Registered Valuers maintained by the Central Government or any authority, institution or agency, as may be notified by the Central Government only can act as a registered valuer. An application for registration as valuer shall be made in Form No. 17.1 by individuals and firms and Form No. 17.2 by others, along with the fee as provided.

The following persons shall be eligible to apply for being registered as a valuer:

• A chartered accountant, company secretary or cost accountant who is in whole-time practice, or retired member of Indian Corporate Law Service or any Indian Citizen holding equivalent Indian or foreign qualification as the Ministry  of Corporate Affairs may by an order recognize.

• A Merchant Banker registered with SEBI and having in his employment persons having qualifications as mentioned above to carry out valuation services by such qualified persons

• A member of the Institute of Engineers and who is in whole-time practice

• A member of the Institute of Architects and who is in whole-time practice

5 years of continuous post membership experience is mandatory in all the above cases.

In the case of merchant banker the valuation report shall be signed by the qualified person.

For the purposes of this rule, a person shall be deemed “to be in whole-time practice”, when individually or in partnership or in limited liability partnership or in merchant banker with other persons in practice who are members of other professional bodies, he, in consideration of remuneration received or to be received:

(i) engages himself in the practice of valuation; or

(ii) offers to perform or performs services involving valuation of any assets with the object of arriving at financial value of the asset being valued; or

(iii) renders professional services or assistance in or about matters of principle or detail relating to valuation.

• A person or entity possessing necessary competence and qualification as may be notified by the Central Government from time to time.
  

Where valuation by a registered valuer is required?

Any property, stocks, shares, debentures, securities or goodwill or any other assets or net worth of a company or its liabilities which requires valuation under the provision of the Companies Act, 2013 shall be valued by a registered valuer.

In the Act, specific mention about valuation by registered valuer has been made in the following Sections:

Section 62(1)(c) – Further issue of share capital, other than Rights Issue and Issue under a Scheme of Employee Stock Option.

Section 192(2) – Non cash transaction involving directors

Section 230(2) – Valuation report in case of a scheme of compromise or arrangement with creditors or members

Section 236(2) – Purchase of minority shareholding

Section 281(1)(a) proviso – Submission of report by company liquidator

Section 305(2)(d) – Declaration of solvency in case of proposal to wind up voluntarily

Section 319(3)(b) – Power of Company Liquidator to accept shares, etc., as consideration for sale of property of company.

Methods of valuation

• Before adoption of the methods of valuation, the registered valuer shall decide the approach to valuation based upon the purpose of valuation:

(a) Asset approach;

(b) Income approach;

(c) Market approach

• The valuer shall consider the following points while undertaking valuation

(a)Nature of the business and the History of the Enterprise from its inception;

(b) Economic outlook in general and outlook of the specific industry in particular;

(c) Book value of the stock and the financial condition of the business;

(d) Earning capacity of the company;

(e) Dividend –paying capacity of the company;

(f) Goodwill or other intangible value;

(g) Sales of the stock and the size of the block of stock to be valued

(h) Market prices of stock of corporations engaged in the same or a similar line of business;

(i) Contingent liabilities or substantial legal issues, within India or abroad, impacting the business;

(j) Nature of instrument proposed to be issued, and nature of transaction contemplated by the parties.

• Methods of valuation:

(a) Net asset value method – represents the value of an entity’s assets less the value of its liabilities

(b) Market Price method: Under this method the current price at which the subject of valuation is bought or sold in the market between unrelated third parties is taken into account;

(c) Yield method / Profit Earning Capacity Value (PECV): Under this method the value is calculated by capitalizing the average of the after tax profits for the preceding three years (or such other period. Provided adequate justification is available for choosing another period) at capitalisation rates specified in the report

(d) Discounted Cash Flow Method (DCF): This method expresses the present value of the business as a function of its future cash earnings capacity.

(e) Comparable Companies Multiples Methodology (CCM): This Method uses the valuation ratios of a publicly traded company and applies that ratio to the company being valued (after applying appropriate discount or premium, as the context may require).

(f) Comparable Transaction Multiples Method (CTM) – entails valuation on the basis of similar transactions among unrelated parties in the peer group companies.

(g) Price of Recent Investment method (PORI) – entails valuation on the basis of recent investment received in the company from an independent investor.

(h) Sum of the parts valuation (SOTP) – where each part of the business is valued according to method(s) appropriate to that business, and the results are summed up to obtain total value of the business

(i) Liquidation value – if the value is being calculated in a liquidation scenario

(j) Weighted Average Method – Under this method the weights are assigned to the values calculated under different valuation approaches.

(k) Any other method accepted or notified by the Reserve Bank of India, Securities and Exchange Board or Income Tax Authorities.

(l) Any other method(s) that the valuer may deem fit to adopt in the given circumstances of the case, provided that adequate justification for use of such method(s) (and not any of the methods above) must be included in the report.

• A registered valuer shall make a valuation of any asset as on valuation date, in accordance with the applicable standards, if any, as may be stipulated for this purpose.
  

For the purposes of this rule, ‘valuation date’ means the date on which the estimate of value is applicable. It may be different from the date of the valuation report or the date on which the investigations were undertaken or completed.

Appointment of registered valuer [Section 247(1)]:

The registered valuer needs to be appointed by the audit committee or in its absence, by the Board of Directors.

Duties of Registered Valuer [Section 247(2)]:

(a) make an impartial, true and fair valuation of any assets which may be required to be valued;

(b) exercise due diligence while performing the functions as valuer;

(c) make the valuation in accordance with such rules as may be prescribed; and

(d) not undertake valuation of any assets in which he has a direct or indirect interest or becomes so interested at any time during or after the valuation of assets.

Contents of Valuation Report

The report of valuation by a registered valuer shall be as near to and shall contain such information as set out in Form No. 17.3.

Conditions that lead to cessation as "Registered Valuer"

Where any person who is registered as a valuer under section 247 or who has made an application for registration as a valuer under that section is, at any time thereafter,—

(a) sentenced to a term of imprisonment for any offence; or

(b) found guilty of misconduct in his professional capacity by any association or institute or other body of which he is a member or with which he is registered;

he shall immediately after such conviction or finding, intimate the particulars thereof to the Central Government, institution or agency with which he is registered as a valuer and cease to act as valuer unless

• permitted by the Central Government, institute or agency with which he is registered as a valuer, or
• the order imposing penalty/sentence has been stayed by competent authority.

In case valuer is found guilty of professional misconduct or otherwise by the Institute of which he is a member or by NFRA or where the SEBI removed the registration of the merchant banker, such valuer shall cease to be the valuer automatically and their name shall be removed from the register of valuer unless such order has been stayed by the Competent Authority.

Any ongoing assignment of such valuer, who has ceased to be a valuer, shall be assigned to other valuer from the panel maintained by Central Government or any authority or institution to complete the assignment, if no stay is granted on such appeal, if any.

Removal and restoration of names of valuers from register

Removal:

The name of a registered valuer can be removed from the register by the Central Government if the government is satisfied –

• that his name has been entered in the register by error or on account of misrepresentation or suppression of a material fact
• that he has been convicted of any offence and sentenced to a term of imprisonment or has been guilty of misconduct in his professional capacity which, in the opinion of the Central Government or any authority, institution or agency, renders his name unfit to be kept in the register.
• that his performance is such that his name should not remain on the register of valuers, satisfied, after giving that person a reasonable opportunity of being heard and after such further inquiry, if any, as it thinks fit to make.

The Central Government or any authority, institution or agency may appoint one or more competent persons as enquiry officer(s) for conducting an enquiry as referred above. The officer(s) conducting an enquiry shall have the same powers as are vested in a Civil Court under the Code of Civil Procedure, 1908 while make an enquiry and he may also call upon such experts from the field of law, economics, business, finance, accountancy, international trade, management, technology or such other discipline as he deems necessary to assist him in conducting the enquiry.

Appeal:

A registered valuer aggrieved by an order passed for removal of name may prefer an appeal in accordance with the procedure laid down in the respective Acts, regulations or bye-laws governing the respective professional. An appeal against the order of the Central Government shall be preferred to the Tribunal.

Restoration:

The name can be restored on sufficient cause being shown to the satisfaction of the Central Government.

Penal Provisions [Section 247(3) & (4)]:

• If a valuer contravenes the provisions of this section or the rules made thereunder, the valuer shall be punishable with fine which shall not be less than Rs. 25,000/- but which may extend to Rs. 1,00,000/-.
• If the valuer has contravened such provisions with the intention to defraud the company or its members, he shall be punishable with imprisonment for a term which may extend to 1 year and with fine which shall not be less than Rs. 1,00,000/- but which may extend to Rs. 5,00,000/-.
• Where a valuer has been convicted as above, he shall be liable to—

(i) refund the remuneration received by him to the company; and

(ii) pay for damages to the company or to any other person for loss arising out of incorrect or misleading statements of particulars made in his report.