Snapshot of MCA Notifications JAN - JUN 2014

The Ministry of Corporate Affairs has issued several Notifications on Companies Act 1956 and Rules thereof. The following is the consolidated list of Notifications from January to June 2014 issued by the MCA. The following is just a summary of the subject matter of the notification.  For those Notifications, which are not required to be known, the same lines contained in the MCA website are kept as it is. The rest I have managed to put the subject in crisp.

The link of the Notification number lead to the respective page in MCA website for more information on the same.

S.No	Notification No.	Date	Essence of the Notification
1	G.S.R.130(E)	27.02.2014	Schedule VII of the Companies Act 2013 amended. Areas in which CSR projects can be undertaken, stands modified by this Notification
2	G.S.R.261(E)	31.03.2014	The words ‘‘promoting preventive health care’’ in the above Notification shall read ‘‘promoting health care including preventive health care”
3	S.O.582(E)	27.02.2014	Section 135 of the Companies Act and Schedule VII (Provisions relating to Corporate Social Responsibility) became effective since 01.04.2014
4	S.O 902(E)	27.03.2014	Notification giving effect to provisions of Sections of Companies Act 2013 from 01.04.2014
5	S.O(E)	27.03.2014	Nomenclature of various forms prescribed under the provisions of Companies Act, 2013. Forms under the new Act are named in an Alphanumeric manner.
6	Amendment to Schedule II	31.03.2014	Amendments in Schedule V Part A in Paragraph 3 and part C in Paragraph 5 are amended by this Notification. The heading “Notes ” appearing after Part C of Para 5 stands omitted
7	S.O.1352(E)	21.05.2014	Under Section 458 of the Companies Act 2013, The Central Government delegates its Powers to the Regional Directors at Mumbai, Kolkata, Chennai, Noida, Ahmedabad, Hyderabad and Shillong, with respect to the following sections – 8 (4)(i), 8(6) - Formation of Companies with charitable objects etc 13 (4) & (5), -Alteration of Memorandum 16, - Rectification of Company name 87, - Rectification by Central Government in register of charges  111 (3), - Circulation of member's resolution 140 (1), - Removal / Resignation of Auditors and  giving of special notice. 399(1)(i) - Inspection, Production and evidence of documents kept by Registrar.
8	S.O.1354(E)	21.05.2014	The Central Government delegates its powers to the Regional Director, Joint Director, Deputy Director or Assistant Director posted in the office of Regional Director at Noida in respect of the following sections – 153 and 154 (Allotment of Director Identification Number)
9	S.O.1353(E)	21.05.2014	Under Section 458 of the Companies Act 2013, The Central Government delegates its Powers to the Registrar of Companies, with respect to the following sections –  4(2), - Incorporation of Companies 8 (1), 8(4)(i)[except conversion into another kind of Company], 8 (5), - Formation of Companies with charitable objects etc 13 (2)- Alteration of Memorandum
10	S.O.1459(E)	06.06.2014	Section 74 of the Companies Act 2013 (Repayment of Deposits accepted before the Commencement of the Act) became effective from 06.06.2014
11	S.O.1524(E)	13.06.2014	Establishment of Office of Official Liquidator for the state of Telengana
12	S.O.1525(E)	13.06.2014	Establishment of Office of Registrar of Companies for the state of Telengana

Dishonour of Cheques- Law and practice

Law relating to Dishonour of Cheques is gaining more significance in the recent times, with the ever increasing usage of Negotiable instruments both at the individual and the corporate level. Section 138 of the Negotiable Instruments Act 1881, deals with law relating to Dishonour of Cheques.

Issue of cheque:

According to Section 138 of the N.I Act, a precondition to be satisfied is that, the cheque must be issued in pursuance of discharge of a debt. Such discharge may be whole or in part, but cheques issued for any other purpose will not form part of Section 138

Presentation of the cheque:

The said cheque must be presented in the bank within 6 (Six months) from the date on which  it was drawn or within the date of validity of the cheque, whichever is earlier. Now RBI has reduced the validity period of Cheques to 3 months.

Issue of notice to the drawer:

Once the the bank intimates the payee on the cheque bounce, the payee shall Send a notice in writing to the borrower intimating the same within 30 days from the receipt of the communication from the bnotic For constituting an offence under the Act, the defaulter should have failed to pay the sum within 15 days after the receipt of such notice.

Upon non payment:

A criminal Complaint should be made within 1 month from the date of expiry of the said 15 days before Metropolitan Magistrate or Judicial Magistrate not below the rank of JM-1.

Nature of the offence : Compoundable

Some judicial pronouncements:

1. Pendency of Criminal matter would not be an impediment to proceed with civil suit -State of Rajasthan vs. Kalyan Sundaram Cement Industries Ltd (1996) 86 CC 433

2. Prosecution under Section 420 of IPC and Section 138 of the Negotiate Instruments Act is not hit by Article 20(2) of the Constitution. Prosecution under Section 138 is not a constitutional bar to prosecute under section 420 of IPC.-    Anto (KS) v. UOI (1993) 76 CC 105 (ker), Trisuns Chemical Industry V. Rajesh Agarwal (1999) 8 SCC 686, Meenakshi Sundharam Textile Limited V. Gokul Chand Rakhabchand (2002) (2) Crimes 432, Rajat Mittal v. State (2002) 108 cc 55 (Del)

3. There are 5 facts to be considered for Jurisdiction under section 138 - Drawing of Cheque / Presentation of Cheque / Returning of Cheque unpaid / Giving notice in writing / failure to make payment. Complainant can choose anyone of the 5 places for invoking Jurisdiction - Bhaskaran K vs. Sankaran Vaidhyan Balance 1994 (4) Crimes 212 (SC), ( 2000) 99 CC 268 (SC).

However the above Judgment was overruled recently on 01.08.2014, by the Supreme court in Dasrath Rupsing rathod Vs. State of maharashtra and another where the Jurisdiction under Section 138 of the NI Act is conferred only to place where the cause of action arises. Therefore the place of the bank where the Cheque is presented and the same is dishonored is the place where the complaint has to be filed. 

Defining 'Willful default'

In the legal parlance, usage of the term “willful default” or “Willfully” is very common. Many enactments use these terms interchangeably in different sections. These terms when added to a particular act, make the person committing the act, liable under most cases.  Here the term “Willfully” gains more significance in this section. This has now given the need for us to interpret the term “Willful”

DICTIONARY MEANING:

The term “Will default” does not have a legal definition. General Clauses Act also does not define the term “Willful”. Here reference to legal dictionaries becomes relevant.

Black’s law dictionary:

The term “willful” means an act which is done intentionally voluntarily and deliberately knowing and intending the result which actually comes to pass. A willful act may be described as one done intentionally, knowingly, and purposely without justifiable excuse.

An act or omission willfully done, if done voluntarily and intentionally and with the specific intent to do something which the law forbids, or with the specific intent to fail to do something the law requires to be done; with the bad purpose either to disobey or disregard the law.[1]

JUDICIAL INTERPRETATIONS:

• “A consensus of the meaning of the words ‘willful default’ appears to indicate that default in order to be willful must be intentional, deliberate, calculated and conscious, with full knowledge of legal consequences flowing therefrom.”[2]
• “The adjective “willful” in “willful acts or defaults” has evidently been used as a description and not as a definition. The idea intended to be conveyed is that the default is occasioned by the exercise of volition or as the result of the non-exercise of will due to supine indifference, although the defaulter knew or was in a position to know that loss or harm was likely to result. The word does not necessarily suggest the idea of moral turpitude. We have also to eliminate the elements of accident or inadvertence or honest error of judgment. The default must be the result of deliberation or intent or be the consequence of a reckless omission. “Willful default” therefore is indicative of some misconduct in the transaction of business or in the discharge of duty by omitting to do something either deliberately or by a reckless disregard of the fact whether the act or omission was or was not a breach of duty.”[3]
• “A consensus of the meaning of the words ‘willful default’ appears to indicate that default in order to be willful must be intentional, deliberate, calculated and conscious, with full knowledge of legal consequences flowing therefrom.”[4]
• “Willfulness” implies an act done intentionally and designedly; a conscious failure to observe care; Conscious; knowing; done with stubborn purpose, but not with malice.”[5]

My personal opinion:  Defining willful default is quite possible, but each and every case identifying whether a person’s default is willful or not has a lot of difficulty. As a principle of law, an accused is presumed innocent unless his guilt is proved. This is true but unfortunately it is always not possible for the prosecution to prove the “Willfulness” in the act of the accused. This position will not easily change irrespective of our technological advancement!

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[1] Screws Vs. United States325, U.S. 91, 101

[2] Chordia Automobiles v. S. Moosa & Ors. (2000)3SCC282

[3] L. Hudson v. Official Liquidator of Dehra Dun Mossoorie Electric Tramway Co.  AIR1929All826

[4]P. Rajanna v. K. Lalitha Reddi alias Chinnamma Devi and another   AIR1996AP113

[5] S. Sundaram Pillai and Ors. v. V.R. Pattabiraman and Ors.  AIR1985SC582

Corporate Social Responsibility & Companies Act 2013 - The new Law!

The concept of Corporate Social Responsibility (CSR) is not new to Indians.  History reveals that even in the pre independence phase, Indian merchants who made huge money in their businesses gave considerable importance to CSR through Philanthropy. 

Many corporate giants in India make have their own policies in order to contribute their share to the social welfare. 

Now the Companies Act 2013 has brought provisions relating to CSR.  Section 135 of the Companies Act 2013 along with Schedule VII of the Act provides for Provisions relating to CSR.  It is significant to note that this section for the first time makes CSR mandatory for certain companies and there are no corresponding provisions in the previous Act.

Provisions relating to CSR in Companies Act 2013:

Section 135 of the Companies Act 2013 (along with Schedule VII of the Act) deals with provisions relating to CSR. Also the Central Government has issued Companies (Corporate Social Responsibility Policy) Rules, 2014. The provisions were notified and the same are effective from 01.04.2014.

Applicability:

Section 135 is applicable to the following Companies:

1. Companies having Net worth of Rs. 500 Crores or More
2. Companies having Turnover of Rs. 1000 Crores or more.
3. Companies having Net Profit of Rs. 500 Crores or more.

Any Company which attains any of the above criteria in any financial year shall comply with the provisions of Section 135.

From the above it is very clear that the provisions relating to CSR apply to all the Companies (Whether Listed, Unlisted or private) if the Company attains any of the above mentioned criteria in a particular financial year.

Also the eligibility is based on the financial position of the Company. Therefore if at a financial year if a Company does not fall under any of the conditions prescribed, then the provisions of CSR does not apply for that year.  

CSR Committee:

According to section 135, A company that fits under any of the above criterion shall constitute a Corporate Social Responsibility Committee (CSR Committee) of the Board of Directors.

The Committee shall contain at least 3 or more Directors and at least one of whom shall be Independent Directors. Section 149 (6) of the Act has to be taken into consideration for the definition of an Independent Director.

According to the Companies (CSR) Rules 2014, an unlisted public company or Private Company need not appoint an independent director in the Committee. In case of a Private Company with 2 Directors, the CSR Committee can be constituted only with the 2 directors.

According to Section 135 (2), the Composition of the CSR Committee shall be mentioned in the Report prepared in accordance with Section 135 (3).

Functions of the CSR Committee:

According to Section 135 (3), the CSR Committee shall perform the following roles:

a)      Formulation of CSR policy indicating the activities to be undertaken and recommending the same to the Board of Directors. Section 135 stipulates that the committee shall include any of the activities prescribed under Schedule VII to  be undertaken as a part of CSR.

b)      Recommend amount to be spent on such activities

c)      Monitoring CSR policy from time to time.

Activities listed for CSR:

Schedule VII enlists the following activities to be undertaken by the Company as a part of its CSR policy.

1. eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water:
2. promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;
3. promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;
4. Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water;
5. protection of national heritage, alt and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts:
6. measures for the benefit of armed forces veterans, war widows and their dependents;
7. training to promote rural sports, nationally recognized sports, Paralympic sports and Olympic sports;
8. contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;
9. contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government
10.  rural development projects.

Minimum Amount to be spent on CSR Activities:

Every Company to which the provisions of CSR apply shall in any financial year, spend at least 2 % of the average net profits of past 3 years.

Duties and Responsibilities of the Board of Directors of the Company:

1. Approval of CSR policy
2. Disclosure of the same in the Directors Report and place it in the Company’s website if any
3. Ensure that the statutory amount prescribed is spent on the CSR activities 

In event of failure in implementing the CSR policy, the Board shall disclose the reasons for failure of the same in its Report.

Manner of conducting CSR activities:

According to Rule 4 the Companies (CSR) Rules 2014, CSR activities can be undertaken in the following manner:

1. Activities can be undertaken by the Company itself other than its normal course of business.
2. Activities can be undertaken through a Trust or a registered society established by the company after following the prescribed Conditions.
3. Collaboration with other Companies 

Activities that does not constitute CSR:

1. Activities undertaken outside India
2. Activities undertaken for the benefit of the employees and their families
3. Contribution of funds to any political party directly or indirectly.

 My personal opinion: The provisions relating to CSR has brought new trend to the Corporate environment. On one hand it gives a positive feeling that we are going back to our origin by bringing our philanthropic values back. On the other hand, many may of the areas that are enlisted in the schedule are duties of the state which the government must do as a mandate. Secondly as there is no proper awareness about the law, lot of Anti national powerful NGO's misuse this opportunity and the funds may be deviated illegally without the same being used for genuine small NGO's.

I personally feel that some kind of authority is required to check the overall mechanism at regional or at state level.

SAVITHA.G