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SSrana Newsletter 2021 Issues 05

March 31, 2021

RULES FOR FAST TRACK MERGERS BETWEEN STARTUPS & SMALL COMPANIES AMENDED.

mcaThe Ministry Of Corporate Affairs (MCA) has notified an amendment to the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2016. The amended rules will be known as the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2021 and will be enforced on the date of its publication in the official Gazette.

Vehicle Scrappage Policy announced.

vehicleOn March 18, 2021 the Minister for Road Transport and Highways Mr. Nitin Gadkari announced the Vehicle Scrappage Policy. The said announcement was made by the Hon’ble Minister in the Parliament in the interest of a clean environment and to reduce population.

HYBRID HEARINGS: THE NEW NORMAL.

online-streamIn addition to the various challenges already faced by the Indian Judicial and Legal System, the pandemic has added another challenge of conducting court hearings. During lockdown, the Courts across the country embraced a novel way to conduct hearings virtually.

INDIA: NRIs CAN NOW FORM ONE PERSON COMPANY.

vehicleThe Ministry Of Corporate Affairs has notified an amendment to the Companies (Incorporation) Rules, 2014. The amended rules will be known as the Companies (Incorporation) Second Amendment Rules 2021 and will be enforced from April 01, 2021.


RULES FOR FAST TRACK MERGERS BETWEEN STARTUPS & SMALL COMPANIES AMENDED.

mca

The Ministry Of Corporate Affairs (MCA) has notified an amendment to the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2016. The amended rules will be known as the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2021 and will be enforced on the date of its publication in the official Gazette.

Fast track merger is a shorter option for merger between Holding Company and its wholly owned subsidiary company and between two or more small companies only. Fast track merger does not require approval from the National Company Law Tribunal (NCLT) as compared to regular mergers, and requires procedure to be followed by the respective transferor & transferee Company which is as follows:

  1. Initial Procedure
  • A notice of proposed scheme to be served to the Registrar of Companies and Official Liquidator or to the Persons affected by the scheme inviting suggestions or objections.
  • Holding a General meeting of shareholders to approve the proposed scheme taking into account objections & suggestions by the Registrar of Companies & Official Liquidator.
  • A declaration of solvency must be filed by both the companies in Form CAA-10, with the respective Registrar of Companies.
  • Holding a meeting of creditors to approve the proposed scheme.
  1. Filing of Scheme and approvals
  • File a copy of Scheme and report of the result of each of the meetings with the Regional Director, Registrar of Companies & Official Liquidator.
  • On the receipt of the scheme, if the Registrar of Companies or the Official Liquidator has no objections or suggestions to the scheme then Regional Director shall register the same and issue a confirmation order.
  • If the Registrar of Companies or Official Liquidator has any objections or suggestions he shall communicate the same in writing to Regional Director. If no such communication is made, it shall be presumed that he has no objection to the scheme.
  • If the Regional Director after receiving the objections or suggestions or for any reason is of the opinion that such a scheme is not in public interest or in the interest of the creditors, Regional Director may apply to the National Company Law Tribunal stating the reasons for objections. The objections and suggestions given should be clearly mentioned for the National Company Law Tribunal to consider the scheme.
  1. Post Confirmation of Scheme:

If the scheme is approved by Regional Director or National Company Law Tribunal it shall be registered by the Registrar of Companies and after registration following steps:

  • Transfer of all the property or the liabilities of the transferor company to the transferee company;
  • Charges on the property of the transferor company shall be enforceable as charges on the property of the transferee company;
  • Any or all the legal proceedings initiated by the transferor company shall be carried on by the transferee company and
  • All the other additional liability for purchase of shares by dissenting shareholders or settlement of dues to dissenting creditors of the transferor company shall become the liability of the transferee company.

KEY CHANGES

The key amendments made are as follows:

Basis Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2016 Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2021
Fast track merger between start-ups & small company. Earlier Fast track merger could be entered into between

1.       Two or more small companies or;

2.       Between a holding company and its wholly-owned subsidiary company.

The new amendment inserted section 1(a) to the existing rule 25 wherein:

Fast track merger can now be entered into between any of the following class of companies:

1.       Two or more start-up companies or;

2.       One or more start-up company with one or more small company.

Explanation of Small Company & Startup

  1. Small company – means a company, other than a public company, which fulfils the following criteria:
  • The paid-up share capital of does not exceed 50 lakh or:
  • Turnover of which as per its last profit and loss account does not exceed two crore rupees
  • A small company cannot be a holding company or a subsidiary company of another company; a company registered under section 8 or; a company or body corporate governed by any special Act.
  1. Startup shall mean companies as recognized by the Department for Promotion of Industry and Internal Trade which fulfills the following criteria
  • A company incorporated or registered in India with up to 10 years from its date of incorporation.
  • With Annual turnover not exceeding 100 crores in any of the preceding financial years.
  • Is engaged in innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

This move is expected to benefit the startups by making the merger process simplified, shorter. The amendment which provides fast track merger option for startups will create more room for mergers and acquisitions between startups or small companies.

References:

https://www.thehindubusinessline.com/economy/policy/fast-track-mergers-mca-keen-to-extend-facility-to-more-classes-of-companies/article31669393.ece

https://www.startupindia.gov.in/content/dam/invest-india/Templates/public/198117.pdf

https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf

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Vehicle Scrappage Policy announced.

justice

By Lucy Rana and Rupin Chopra

On March 18, 2021 the Minister for Road Transport and Highways Mr. Nitin Gadkari announced the Vehicle Scrappage Policy. The said announcement was made by the Hon’ble Minister in the Parliament in the interest of a clean environment and to reduce population of old and defective vehicles, achieving reduction in vehicular air pollutants, improve road and vehicular safety, achieving better fuel efficiency and formalizing the informal vehicle scrapping industry.

While making the said announcement, Mr. Nitin Gadkari stated that “Older vehicles pollute the environment 10 to 12 times more than fit vehicles and pose a risk to road safety”. It was also stated that “in the interest of clean environment and rider and pedestrian safety, the Ministry of Road Transport and Highways is introducing the Voluntary Vehicle – Fleet Modernization Program (VVMP) or Vehicle Scrapping Policy which is aimed at creating an Eco-System for phasing out of unfit and polluting vehicles”.

It was outlined that the Eco-System is expected to attract additional investments of around Rs 10,000 Crores and 35 Thousand job opportunities.

Proposed features of Vehicle Scrappage Policy

  • Commercial Vehicles – It is proposed that commercial vehicles be de-registered after 15 years in case of failure to get the fitness certificate. Moreover increased fees for fitness certificate and fitness test maybe applicable for commercial vehicles 15 years onwards from the date of initial registration.
  • Private Vehicles – It is proposed that private vehicles be de-registe red after 20 years if found unfit or in case of failure to renew the registration certificate. Moreover increased fees for re-registration maybe applicable for private vehicles 15 years onwards from the date of initial registration.
  • Vehicles owned by Central/State Government – It is proposed that all vehicles of the Central Government, State Government, Municipal Corporation, Panchayats, State Transport undertakings, Public Sector Undertakings and Autonomous bodies with the Union and State Governments may be de-registered and scrapped after 15 years from the date of registration.

It was further outlined that the scheme shall provide strong incentives to owners of old vehicles to scrap old and unfit vehicles through registered scrapping centers which shall provide the owners a scrapping certificate.

Proposed incentives under the Policy

  • Road Tax Rebate – The State Governments may be advised to offer a road tax rebate of up to 25% for personal vehicles and up to 15% for commercial vehicles.
  • Scrap Value – Scrap value for the old vehicles will be given by the scrapping centers which is proposed to be approximately 4 to 6 % of ex showroom price of new vehicle.
  • Waiver of Registration Fees – The registration fees may also be waived off for purchase of new vehicles against scrapping certificates.

The criteria for scrapping of vehicles shall be primarily based on the fitness of vehicles through Automated Fitness Centers in case of commercial vehicles and non-renewal of registration in case of private vehicles.

Integrated Scrapping Facilities

It was also announced by Mr. Nitin Gadkari that the Ministry of Road Transport and Highways will promote setting up of registered vehicle scrapping facilities across India and will encourage public and private participation of centers for opening up of such centers. Some of the identified places include Alang in Gujrat where it is being planned to develop a highly specialized center for scrapping, among many other potential centers, where different scrapping technologies can be synergized together.

Similarly the Ministry shall also promote setting up of Automated Fitness Centers by State Government, Private Sector, and Automobiles Sector etc. It is proposed that these centers may have adequate space for test lanes, IT Servers, parking and free movement of vehicles. To avoid any conflict of interest the operators of Automated Fitness Centers shall only provide testing facilities and shall not provide repairs/sales of spare services.

Proposed timelines for application of proposed Vehicle Scrapping Policy

S No. Rules Timeline
1 Rules for Fitness Test and Scrapping Centers October 01, 2021
2 Scrapping of Government and PSU Vehicles April 01, 2022
3 Mandatory Fitness Testing for Heavy Commercial Vehicles (HMV) April 01, 2023
4 Mandatory Fitness Testing (Phased Manner for other categories) June 01, 2024

The Ministry of Road Transport and Highways shall publish draft notifications in due course which shall be in the public domain for a period of 30 days to solicit comments and views of all stakeholders.

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HYBRID HEARINGS: THE NEW NORMAL.

online-stream

By Lucy Rana and Nihit Nagpal

In addition to the various challenges already faced by the Indian Judicial and Legal System, the pandemic has added another challenge of conducting court hearings. During lockdown, the Courts across the country embraced a novel way to conduct hearings virtually. As things are coming back to normal with resumption of physical hearings, and even though appearing in Courts poses its own challenges, primarily owing to the crowding that goes hand-in-hand, there is dissection of group of lawyers having separate opinions and reservations on resumption of physical hearings.

The Supreme Court had recently rolled out the Standard Operating Procedures (SOPs) for a Hybrid System of hearing before itself. However, these Standard Operating Procedures have not been received well by the Supreme Court Bar Association (SCBA).

In the recent order of the Hon’ble Supreme Court in Supreme Court Bar Association & Anr. vs Supreme Court of India[1] has given considerable thought and advise on a series of connecting Special Leave Petitions that were heard on March 16, 2021.

Virtual hearings on Mondays and Fridays and Physical hearings on Tuesdays, Wednesdays and Thursdays

Under the latest Standard Operating Procedures of the Hon’ble Supreme Court, it has been laid down that the Court shall hear matters virtually on Mondays and Fridays, whereas there shall be physical hearing on Tuesdays, Wednesdays, and Thursdays. This raised a major concern for the Supreme Court Bar Association with special mention of the fact that the Hon’ble Judges have their separate corridors and passage, with appropriate screens between the Judges and the Lawyers, for protection. However, there is no such added protection for lawyers who are open to the crowds that the physical hearings shall bring in with it.

Though the Hon’ble Supreme Court has not considered whether the physical hearings with parallel running of virtual hearings should be made a mode of hearing for a long run, calling it a separate remit from the current situation, the Hon’ble Court has definitely made sincere efforts to iron out the differences cropping up in the Supreme Court Bar Association vis-à-vis the Standard Operating Procedures. The Learned Secretary General has been called out to request the Judges Committee to fix an early meeting with the Supreme Court Bar Association to chalk out a plan regarding the same. The matter is now adjourned for March 23rd, 2021[2] in this regard.

The Hon’ble Supreme Court has given certain observations on the decision of the Delhi High Court dated March 9th, 2021 (calling it an impugned order keeping in view its nature) to resume physical hearings completely in the Hon’ble Delhi High Court and the lower courts.

Vide the impugned order, the Hon’ble Delhi High Court has specified that parties may opt for virtual hearings before the Hon’ble Court which the Hon’ble Court may decide on merits. However, the Court shall allow the same only in “exceptional cases” and hence, the Court would have to apply its mind to allow the same. Also, as per the order, the lawyers must disclose their location from where they are hearing the matter. It is a known fact that there are persisting issues of connectivity breakage and keeping the same in view, deciding on lawyers’ requests for virtual hearings will be an added responsibility for the Hon’ble Courts already loaded with the pendency of cases.

On the above decision of the Hon’ble Delhi High Court, the Hon’ble Supreme Court has observed that equal opportunity should be given to lawyers who want to make submissions via physical hearings or virtual hearings.

The Hon’ble Delhi High Court, in the impugned order, has observed in Para 5 of the judgement that requisite infrastructure should be made available in all Courts so that request for virtual hearings may be entertained on merits. In view of the same, the Hon’ble Supreme Court have expressed their expectations towards judges to show accommodation wherever a lawyer requests a virtual hearing provided he connects it and that is not used as an excuse for adjournment. The place from where they connect is immaterial. It would be appropriate for the Hon’ble High Court to facilitate virtual hearing wherever so sought.

Keeping the above in view, in a welcome office order dated March 19, 2021[3], the Hon’ble Delhi High Court has directed the High Court itself as well as the Delhi District Courts to conduct hybrid hearings wherever possible and feasible, to avoid unnecessary crowding in the Courts. Since the infrastructure for facilitating hybrid hearing is not completely in place in the District Courts, the Hon’ble Delhi High Court has directed the following steps to be incorporated:

  1. Judicial Officers may not insist physical presence of parties, unless unavoidable;
  2. In case advocates / parties / witnesses seek adjournments on account of old age, health condition, taking care of a family member, etc, the Courts may suitably accommodate such requests;
  3. All Principal District and Sessions Judges and Principal Judges, Family Courts have also been directed to take appropriate measures to:
  4. Regulate entry of litigants and stakeholders in the Court complex;
  5. Ensure sufficient sitting place for them;
  6. Ensure regular deep cleaning and sanitization of Court complexes and Lawyers’ Chambers Blocks;
  7. Ensure strict adherence by all to social distancing norms and Covid-19 guidelines and regulations.

The Hon’ble Delhi High Court has further issued advisories to the Advocates to further advise their Clients to refrain from being physically present in the Court premises. The District Bar Associations have also been duly informed that suitable advisories may be issued from time to time to avoid crowding in Lawyers’ Chamber Blocks.

With the second wave of Covid-19 hitting the nation, the pandemic does not seem to end any time soon. Keeping this in view, a hybrid system of Court hearings only seems the appropriate way to adjudicate the pending hearings and with this order, the Hon’ble Supreme Court has also endorsed going the hybrid, the new normal way.

[1] W.P. (C) No. 329/2021 and W.P. (C) No. 310/2021 ; SLP(C) No.4516/2021 & Diary No.7210/2021

[2] W.P. (C) No. 329/2021 and W.P. (C) No. 310/2021

[3] https://delhihighcourt.nic.in/writereaddata/Upload/PublicNotices/PublicNotice_YZ1V40N8F2T.PDF

https://delhihighcourt.nic.in/writereaddata/Upload/PublicNotices/PublicNotice_SK2DXQBWT0U.PDF

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INDIA: NRIs CAN NOW FORM ONE PERSON COMPANY.

company-registration

The Ministry Of Corporate Affairs has notified[1] an amendment to the Companies (Incorporation) Rules, 2014. The amended rules will be known as the Companies (Incorporation) Second Amendment Rules 2021 and will be enforced from April 01, 2021[2].

The amended Rules provides for the amended definition of “One Person Company” under Rule 3 and also provides for the Conversion of One Person Company (OPC) into a Public Company or a Private Company under Rule 6.

What is One Person Company?

OPC is a type of private company which is incorporated by one member. The concept is very similar to sole proprietorship with a difference of liability on member. The liability of member is limited to the extent of his share capital whereas in Sole Proprietorship, the liability is unlimited.

KEY CHANGES IN RULES

The key amendment made in Companies (Incorporation) Second Amendment Rules 2021 are as follows:

Basis Company incorporation rules 2014

(Old Rules)

Companies (Incorporation) Second Amendment Rules 2021

(New Rules)

NRIs can form OPC

 

 

 

 

 

 

No provision for NRI to incorporate OPC.

It was only a resident of India who was allowed to start a OPC

The number of days for residential status is 182 days.

NRI will be allowed to form a One Person Company in India, through Substitution of words-“whether resident in India or otherwise”.

 

The residential status of individual shall be computed on 120 days. Instead of 182 days.

In addition to the above change MCA has also amended rules regarding conversion of OPC to Private Limited Company or Public Limited Company and requirement of paid up share capital and turnover.

Conversion of OPC to Private or Public company.

 

 

 

 

 

 

 

 

Deletion of E-FORM INC-5

Voluntary Conversion was followed for OPC to convert into public or Private Company.

 

It also requires to:

a.     Complete Two Years of Incorporation.

 

 

Form No.INC-5 submitted to Registrar, when OPC converts into a private company or a public company.

 

 

Voluntary conversion has been omitted by MCA to convert OPC into Company.

The amendment has omitted:

 

a.     two year period has been omitted

 

 

 

 

 

FORM INC-5 has been omitted.

Paid Up Share Capital and Turnover A.    Paid up share capital of an One Person Company  must exceeds fifty lakh rupees or;

B.    Average annual turnover during the relevant period must exceed two crore rupees.

 

The requirement of paid up share capital and turnover has been omitted.

 

 

E-FORM INC-6

 

E-FORM INC-6 was used for conversion into One Person Company.

 

The new regulation substitutes E-FORM INC-6 with a new contents.

The amendment provides relaxations for NRIs to set up a One Person Company in India. It also eases doing of business in India, with establishment of OPC. It allows a choice of converting to OPC from private limited company by omitting the minimum threshold of paid share capital of INR 50 lakhs earlier.

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[1] http://www.mca.gov.in/Ministry/pdf/SecondAmndtRules_02022021.pdf

[2] https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1694828

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