Temporary Relaxations for Corporates amid COVID-19- India

By Reetika Wadhwa and Vibhuti Vasisth

The global pandemic outbreak of coronavirus has become an unprecedented event that has led to unexpected restrictions on the citizens individually, as well as on the corporates collectively across the globe. In order to control its spread, various governments around the world, including the Government of India (“GoI”) has directed all establishments, except organisations providing for essential goods and services, to temporarily shut-down their physical offices. The employees are working remotely, but due to certain difficulties that can be possibly faced in coordination and lack of’ office facilities, the companies are likely to face more difficulties in undertaking timely compliances of various applicable regulations. Having said so, the Government of India has temporarily relaxed a number of compliances and requirements for the corporate sector. Please find herein an analysis of some of the major relaxations from securities and companies law outlook.

A. Relaxations notified by the Securities and Exchange Board of India (“SEBI”)

So as to reduce compliances on listed entities, SEBI has issued three (3) circulars on March 19, 2020[1], March 23, 2020[2] and March 26, 2020[3], respectively. These enumerate the various compliances that have been relaxed, including the periodic filing requirements for listed entities under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”). Major relaxations, among others, are listed herein below:

• Time Extension for filings and compliances: SEBI has extended the last date for conduct of meetings and various quarterly, half yearly, and annual submissions that were required to be made to the stock exchanges, such as:

COVID-19

	Action(s) Required	Applicable Regulations	Due Date	Revised Due Date
Relating to Conduct of Meetings
1.	NRC Meeting / Risk Management Committee Meeting/ Stakeholders Relationship Committee Meeting	Regulations 19(3A)/ 21(3A)/ 20(3A) of LODR	March 31, 2020	June 30, 2020
2.	Annual General Meeting (“AGM”) by top 100 Listed Entities by Market Capitalization	Regulation 44(5), the LODR	August 31, 2020	September 30, 2020
Relating to periodic filings and disclosures
3.	Compliance Certificate (required half yearly)	Regulation 7(3), the LODR	April 30, 2020	May 31, 2020
4.	Statement of Investor Complaints (required quarterly)	Regulation 13(3), the LODR	April 21, 2020	May 15, 2020
5.	Secretarial Compliance Report ( required yearly)	Regulation 24A, LODR r/w Circular No. CIR/CFD/CMD1/27/2019 dated February 08, 2019	May 30, 2020	June 30, 2020
6.	Corporate Governance Report (required quarterly)	Regulation 27(2), LODR	April 15, 2020	May 15, 2020
7.	Shareholding Pattern (required quarterly)	Regulation 31, the LODR	April 21, 2020	May 15, 2020
8.	Financial Results (required quarterly)	Regulation 33, LODR	May 15, 2020	June 30, 2020
9.	Financial Results (required annually)	Regulation 33, LODR	May 30, 2020	June 30, 2020
10.	Certificate from a Practising Company Secretary (required half yearly)	Regulation 40(9), LODR	April 30, 2020	May 31, 2020
11.	Initial Disclosure, Large Corporate	SEBI Circular No. HO/DDHS/CIR/P/2018/144 dated November 28, 2018	April 30, 2020	June 30, 2020
12.	Annual Disclosure, Large Corporate	SEBI Circular No. HO/DDHS/CIR/P/2018/144 dated November 28, 2018	May 15, 2020	June 30, 2020
13.	Financial results of entities having listed non-convertible debentures (“NCDs”) / non-convertible redeemable preference shares (“NCRPSs”) (required half yearly)	Regulations 52(1) & (2), the LODR	May 15, 2020	June 30, 2020
14.	Financial results of entities that have listed NCDs/NCRPS (required annually)	Regulations 52(1) & (2), the LODR	May 30, 2020	June 30, 2020
15.	Financial results of entities having listed Commercial Papers (“CPs”) (required half yearly)	SEBI Circulars No. SEBI/HO/DDHS/CIR/P/2019/115 dated October 22, 2019 and Circular No. SEBI/HO/DDHS/CIR/P/2019/167 dated December 24, 2019	May 15, 2020	June 30, 2020
16.	Financial results of entities that have listed CPs (required annually)	SEBI Circulars No. SEBI/HO/DDHS/CIR/P/2019/115 dated October 22, 2019 and Circular No. SEBI/HO/DDHS/CIR/P/2019/167 dated December 24, 2019	May 30, 2020	June 30, 2020

 

• Board of Directors and Audit Committee Meetings: The board of directors and audit committee of listed entities are exempted from observing the maximum stipulated time gap i.e. 120 days between two consecutive meetings as required under Rr. 17(2),18(2)(a), the LODR, regarding meetings between the period from December 01, 2019 until June 30, 2020. However, the board of directors/ audit committee is required to ensure that at least four meetings are held in a year, as stipulated under Rr 17(2),18(2)(a), LODR;
• Issuance of NCDs/NCRPSs/CPs: Listed entities can make use of the audited financial statement as on September 30, 2019, so as to make public issue of the NCDs, NCRPSs and/or CPs until May 31, 2020 (instead of March 31, 2020);
• Additionally, SEBI has clarified that the relaxations introduced vide circular dated March 19, 2020, as common obligations under Chapter III, LODR, shall apply to both, listed companies with listed specified securities as also the listed companies with listed NCDs / NCRPSs;
• Delayed applicability of Standard Operating Procedure (“SOPs”): The Standard Operating Procedure[4] enumerating imposition of fines and other enforcement actions relating to non-compliances with the provisions of LODR, the effective date of operation of which was earlier ‘ending on or after March 31, 2020’, would now come into force with effect from ‘ending on or after June 30, 2020’. The SOP circular dated May 3, 2018[5]would continue to be applicable until June 30, 2020;
• Exemptions from Newspaper Advertisements: SEBI has exempted the requirement for publication of advertisements in the newspapers as is required under Regulation 47, LODR for all events mentioned therein. The said exemption lasts until May 15, 2020; and
• Certain exemptions under the Takeover Regulation: Along with the aforementioned, relaxations to holders of 25% or more shares or voting rights and to the promoters of listed entities, from filing disclosure of their aggregate shareholding and voting rights as on March 31, 2020. SEBI has also provided relaxations to promoters and the person acting in concert from filing the declaration on yearly basis, upon creation of encumbrance on shares in the company. Both such disclosures were earlier required to be made within seven working days from the end of the financial year. However, a circular dated March 27, 2020[6] has been issued, by virtue of which the due date of filing the above-noted disclosures under Regulations 30(1), 30(2), 31(4), SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, for the financial year ending on March 31, 2020, had been extended until June 01, 2020.

B. Corporate Social Responsibility

The MCA has clarified that spending CSR funds for COVID-19 and making contributions to the PM-CARES Fund is an eligible CSR activity[7]. The fund may be spent for various other activities related to COVID-19 under item nos. (i) and (xii) of Schedule VII of the Companies Act, which relates to promotion of health care, including preventive health care and disaster management.

Furthermore, a voluntary FORM CAR (Companies Affirmation of Readiness towards COVID-19) has also been introduced to access the companies’ compliances with COVID-19 related measures, one such being, implementation of the work from home policy[8].

C. Relaxations introduced by the Ministry of Corporate Affairs

The Ministry of Corporate Affairs (“MCA”) issued a notice dated March 18, 2020, followed by the Companies (Meetings of Board and its Powers) Amendment Rules, 2020, dated March 19, 2020, whereby it inserted a new sub-rule under Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014, for providing relaxations in holding board meetings with physical presence of directors under S. 173 (2) r/w Rule 4, Companies (Meetings of Board and its Powers) Rules, 2014, for board meetings, approval of annual financial statements,  etc. Accordingly, such meetings shall/may be held through video conferences or any other audio-visual means starting from March 19, 2020 till 30th June, 2020[9].

Further, subsequent to the announcements made by Union Finance & Corporate Affairs Minister, Nirmala Sitharaman, the MCA issued a circular dated March 24, 2020, wherein several important relief measures were taken to address the threat imposed by COVID-19 and to reduce the compliance burden as follows[10]:

• No additional fees will be charged for late filings during the moratorium period April 01, 2020 onwards till September 30, 2020, in respect of any document, return, statement etc., required to be filed in MCA-21 Registry, irrespective of the due date;
• Companies (Auditor’s Report) Order, 2020, shall be made applicable from the financial year 2020-21 instead of the financial year 2019-20 as had been notified earlier;
• The prescribed interval period for holding meetings of the board under S.173, Companies Act, 2013 has been extended by 60 days, i.e. from the existing 120 days to 180 days until the next two quarters, which is until September 30, 2020. Therefore, the gap between two consecutive meetings of the board may extend up to 180 days until the next two quarters. For listed companies and entities, the meetings of the board will have to be scheduled in accordance with the exemption provided by SEBI, as discussed in the preceding paragraphs;
• If in case the independent directors of the company fail to hold (at least) one meeting without the attendance of the non-independent directors and members of management in the year 2019-20, as is required under Schedule 4 to the Companies Act, then the same shall not be viewed as a violation under the Companies Act;
• The date for transferring at minimum of 20% of the amount of deposits (received from members) which are due to maturity during the financial year 2020-21 into the deposit repayment reserve account, as prescribed under S.73(2)(c) of the Companies Act, has been extended by 60 days, i.e. till June 30, 2020;
• The date for compliance with the requirements to invest or deposit at minimum of 15% of the amount of debentures maturing during a particular year in accordance with Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014 has now been extended till June 30, 2020 which was earlier April 30, 2020;
• Additional 6 months have been granted to the newly incorporated companies to file their declaration for commencement of business, in addition to the existing period of 6 months; and
• For the financial year 2019-20, a non-compliance of minimum residency in India for a period of a minimum 182 days by at least one director of every company, as prescribed under S.149 of the Companies Act, shall not be treated as a violation.

Conclusion

In view of the present lock-down scenario and with restrictions imposed, the abovementioned temporary relaxations would enable companies to avoid penalties on account of unavoidable delay in meeting their regulatory compliances. However, companies must comply with any other regulatory requirement, that has not been specifically relaxed, one such relating to the disclosures as mentioned under Regulation 30, (Listing Obligations and Disclosure Requirements) Regulations, 2015.

This update is intended to provide an overview of the relevant-applicable legal framework, however, since the subject matter pertains to an evolving issue, the author strongly recommends to seek specific legal advice relevant to your business scenario before implementing any of the definitive measures mentioned herein above.

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[1] SEBI Circular on relaxation from compliance with certain provisions of the SEBI Regulations, 2015 due to the CoVID-19 virus pandemic, SEBI/HO/CFD/CMD1/CIR/P/2020/38 dated March 19, 2020.

[2] SEBI Circular on relaxation from compliance with certain provisions of the SEBI Regulations, 2015 and certain SEBI Circulars due to the CoVID -19 virus pandemic – continuation, SEBI/HO/DDHS/ON/P/2020/41 dated March 23, 2020.

[3] SEBI/HO/CFD/CMD1/CIR/P/2020/48 dated March 26, 2020

[4] SEBI circular no. SEBI/HO/CFD/CMD/CIR/P/2020/12 dated January 22, 2020.

[5] SEBI circular no. SEBI/HO/CFD/CMD/CIR/P/2018/77 dated May 3, 2018.

[6] SEBI Circular on Relaxation from compliance with certain provisions of the SEBI (Substantial Acquisitions of Shares and Takeovers) Regulations, 2011 due to the CoVID-19 pandemic, SEBI/HO/CFD/DCR1/CIR/P/2020/49 dated March 27, 2020

[7] MCA General Circular 10/2020 dated March 23, 2020, available at http://www.mca.gov.in/Ministry/pdf/Covid_23032020.pdf and MCA Office Memorandum CSR-05/1/2020-CSR-MCA dated March 28, 2020

[8] The details regarding the form are available at http://www.mca.gov.in/Ministry/pdf/Car_22032020.pdf.

[9] MCA Notice dated March 18, 2020, available on http://www.mca.gov.in/Ministry/pdf/Meeting_18032020.pdf and Companies (Meetings of Board and its Powers) Amendment Rules, 2020 dated March 19, 2020, available on http://www.mca.gov.in/Ministry/pdf/Rules_19032020.pdf.

[10] MCA General Circular 11/2020 dated March 24, 2020, available on http://www.mca.gov.in/Ministry/pdf/Circular_25032020.pdf