Govt to set up NCLT bench in Chennai

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Apart from decision to set up the NCLAT Bench in Chennai, five new Benches of the NCLT were set up during 2018-2019 in Jaipur, Cuttack, Kochi, Indore and Amaravati. Benches of the NCLT are set up in states depending on the case load and other relevant factors.

The Centre has decided to set up a Bench of the National Company Law Appellate Tribunal (NCLAT) in Chennai for clearing pending litigations.

 

Apart from decision to set up the NCLAT Bench in Chennai, five new
Benches of the NCLT were set up during 2018-2019 in Jaipur, Cuttack, Kochi, Indore and Amaravati.

 

The government has recently appointed another 28 members in the NCLT and 4 more members in the NCLAT. For capacity building of members, regular colloquiums are being held, apart from e-Court project being implemented in a few Benches with heavy case load.

 

Anurag Singh Thakur, Union minister for state for finance & corporate affairs, in a written reply to a question in the Lok Sabha said the Chennai NCLAT Bench is being set up in pursuance of judgment of the Supreme Court.

Benches of the NCLT are set up in states depending on the case load and other relevant factors. Considering the heavy case load at some existing Benches, additional members have been appointed and additional courts have been operationalised from time to time.

Thakur also said the government is taking steps to strengthen the NCLT and NCLAT in terms of number of Benches, number of courts and number of members to reduce pendency.

Press Information Bureau
Government of India
Ministry of Corporate Affairs

 

02-December-2019 15:12 IST

Government to set up National Company Law Appellate Tribunal Bench in Chennai

In pursuance of judgement of Hon’ble Supreme Court, the Government has decided to set up a bench of National Company Law Appellate Tribunal (NCLAT) at Chennai.

This was stated by Shri Anurag Singh Thakur, Union Minister for State for Finance & Corporate Affairs, in a written reply to a question in Lok Sabha today.

Benches of National Company Law Tribunal (NCLT) are set up in various States depending on the case load and other relevant factors. Considering the heavy case load at some existing benches, additional members have been appointed and additional courts have been operationalised from time to time.

The Minister further stated that the Government is taking all steps to strengthen the NCLT and NCLAT in terms of number of benches, number of courts and number of members, to reduce the pendency.

Apart from decision to set up NCLAT bench at Chennai, five new benches of NCLT have been set up during 2018-2019 at Jaipur, Cuttack, Kochi, Indore and Amaravati. The Government has recently appointed 28 more members in NCLT and 4 more members in NCLAT. For capacity building of members, regular colloquiums are being held. e-Court project has also been implemented in a few benches with heavy  case load.

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Source: Financial Express

MCA amends threshold limits for Related Party Transactions.

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On November 18, 2019 the Companies (Meetings of Board and its Powers) Second Amendment Rules, 2019 (“Amendment Rules“) amended certain threshold limits prescribed by the Rules.

The central government notified the Companies (Meetings of Board and its Powers) Second Amendment Rules, 2019 on 18 November 2019. The amendment rules amend sub-clause 3 of rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014. The amendment rules alter the various transaction thresholds within which the board may authorize a related party transaction without referring the matter to the shareholders pursuant to section 188(1) (Related party transactions) of the Companies Act, 2013.

Rule 15 provides for conditions applicable to the board taking up, discussing and approving a related party contract or arrangement. The first proviso to section 188(1) of the act provides that no contract or arrangement which exceeds certain monetary thresholds, in relation to the company’s paid-up share capital or otherwise, may be entered into without the prior approval of the shareholders by a resolution. The thresholds in relation to this proviso to section 188(1) of the act are prescribed by the rules and have been amended through the amendment rules as follows:

  • For a contract or arrangement in relation to a sale, purchase or supply of any goods, previously the threshold, was the lower of: (1) 10% or more of the turnover of the company; or (2)₹1 billion. The amendment rules have relaxed the threshold and fixed it at 10% or more of turnover of the company.
  • Similarly, for a contract or arrangement for selling or otherwise disposing of, or buying property of any kind, previously the threshold for requiring a shareholder resolution was the lower of: (1) 10% or more of the turnover of the company; or (2)₹1 billion. The amendment rules have relaxed the threshold and fixed it at 10% or more of turnover of the company.
  • The amendment rules has similarly amended the threshold for a contract or arrangement in relation to leasing of property any kind, and in relation to availing or rendering of any services (directly, or through the appointment of an agent). The amendment rules now fix the threshold at 10% or more of turnover of the company.

Accordingly, the ministry has relaxed the thresholds and made it simpler for companies to ensure ease of business, and the ease of entering into related party transactions.

 Nature of Related Party Transactions Earlier Threshold Limit* Amended Threshold Limit*
Sale, purchase or supply
of any goods or material (directly or through an agent).		 Amounting to ten percent (10%) or more of turnover or Rs. 100 Crore, whichever is lower. Amounting to ten percent (10%) or more of the turnover of the company.
Selling or otherwise
disposing of, or buying, property of any kind (directly or through an agent).		 Amounting to ten percent (10%) or more of net worth or Rs. 100 Crore, whichever is lower. Amounting to ten percent (10%) or more of the turnover of the company.
Leasing of property of
any kind.		 Amounting to ten percent (10%) or more of net worth or 10 percent (10%) or more of turnover Rs. 100 Crore, whichever is lower. Amounting to ten percent (10%) or more of the turnover of the company.
Availing or rendering of any services (directly or through an agent) Amounting to ten percent(10%)or more of turnover or Rs. 50 Crore, whichever is lower Amounting to ten percent (10%) or more of the turnover of the company
*limits specified above shall apply for transaction or transactions to be entered into either individually or taken together with the previous transactions during a financial year.
Appointment to any
office or place of profit in the company, subsidiary company or associate company		 Remuneration exceeding
Rs. 2,50,000 per month		 No Change
Underwriting the
subscription of any securities or derivatives of the company		 Remuneration exceeding
one percent (1%) of net worth		 No Change

Insolvency regime for personal guarantors to corporate debtors from December 1

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The provisions for resolution for individuals under the Insolvency and Bankruptcy Code (IBC) is being implemented in a phased manner. On Friday, the corporate affairs ministry said the provision pertaining to personal guarantors to corporate debtors will be in force from December 1
A case is taken up for resolution under the law only after approval from the National Company Law Tribunal.

The insolvency regime for individual guarantors to corporate debtors will be in force from December 1, according to the government.

The provisions for resolution for individuals under the Insolvency and Bankruptcy Code (IBC) is being implemented in a phased manner.

On Friday, the corporate affairs ministry said the provision pertaining to personal guarantors to corporate debtors would come into force from December 1.

The Code provides for a market-driven and time-bound resolution for stressed assets.

A case is taken up for resolution under the law only after approval from the National Company Law Tribunal (NCLT).

In October, Corporate Affairs Secretary Injeti Srinivas said personal insolvency regime would be fully operational in one year.

“In the first phase, personal guarantor to a corporate debtor is almost under commencement. The next would be the fresh start process, basically giving relief to very small borrowers who are not in a position to repay the debt. That may be in another four to six months. Then proprietorship and partnership and others,” he had said.

Source : Economic Times

IBC proceeds formula may be reworked to avoid squabbles, legal delays

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The Centre is looking at further changes to the IBC as it doesn’t want to leave any room for litigation on the distribution of proceeds.

The government is considering a formula for distributing the proceeds of insolvency resolution among financial and operational creditors in a fixed proportion, said people with knowledge of the matter. The goal is to protect the interests of operational creditors and reduce delays due to litigation, ensuring that the objective of the Insolvency and Bankruptcy Code (IBC) is preserved.

“This is one of the solutions that is being looked at,” an official said. The government will take a final call only after extensive deliberations, he added.

Distribution of resolution proceeds has emerged as one of the key factors behind the extended litigation, delaying major insolvency cases. Dissatisfied operational creditors have been the source of such cases in some instances.

The Supreme Court is currently deciding on the distribution of proceeds in the case of Essar Steel, which entered the National Company Law Tribunal (NCLT) system in August 2017. The process was thought to have ended when Arcelor Mittal’s Rs 42,000-crore bid for the debt-ridden steel manufacturer was approved in March 2019. But the original promoters, the Ruias, opposed approval of the plan, questioning Arcelor Mittal’s eligibility.

Operational creditors rejected the plan on the grounds of discriminatory treatment. Financial creditor Standard Chartered Bank has also gone to court against the resolution plan on the same grounds. Financial creditors moved the Supreme Court after the National Company Law Appellate Tribunal (NCLAT) ordered proportional recovery for both financial and operational creditors. Under the IBC, cases have to be decided within a 330-day window.

The decision to change the rules to grant greater protection to operational creditors had come from the “highest levels of the government,” said one of the persons.

The Centre is looking at further changes to the IBC as it doesn’t want to leave any room for litigation on the distribution of proceeds, the person said. The IBC is regarded as one of the signal reforms of the first Narendra Modi government. The process got bogged down in litigation over some of the biggest cases, blunting the IBC’s aspiration of speeding up bankruptcy resolution and cleaning up banks’ books. The 2016 IBC has already been tweaked several times toward this end.

Operational creditors had slightly higher recoveries than financial creditors, according to data available with the government, said the person cited above. The Insolvency and Bankruptcy Board of India has pegged the average recovery for financial creditors in cases where there was successful resolution at 41.5% at the end of the September quarter.

In the latest set of amendments to the IBC, carried out in the budget session of parliament, the government had clarified that the CoC would have the right to decide on the distribution of proceeds but that all creditors must receive liquidation value or the amount they would receive if resolution proceeds were distributed according to the ‘waterfall mechanism,’ whichever is higher.

The waterfall mechanism under the IBC outlines the order of priority for repayment to creditors in the event of liquidation.

Under this, secured creditors have to be paid fully before any payments can be made to unsecured financial creditors who in turn have priority over operational creditors.

Experts said the government will have to come up with a balanced formulation. Setting a high fixed proportion for operational creditors could prompt CoCs to opt for liquidation instead of resolution. “At present, in many cases, operational creditors are not getting anything,” said Manoj Kumar, partner at Corporate Professionals.

Source: Economic Times

Income tax department eyes over Rs 100 bn from ‘struck off’ firms

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The income-tax (I-T) department is estimating tax recovery of over Rs 100 billion from companies that have been struck off from records of the Registrar of Companies (RoC) last year.

The tax department is in the process of filing a petition before the National Company Law Tribunal (NCLT) for restoration of registration in as many as 50,000 such companies.

The RoCs had struck off 300,000 companies after it was found they had not filed their statutory returns. Directors of these companies have been prohibited from holding directorships in any other company.
The move follows Central Board of Direct Taxes’ (CBDT) directive to identify, process and file petition to restore these companies by August 31. The board also asked the Ministry of Corporate Affairs (MCA) not to oppose the restoration application in the tribunal, as such a move would refrain them from launching tax recovery proceedings against these firms.
“Several of these companies are restricted to operate their bank accounts and movable and immovable properties until they are restored. The restoration will compel these firms to make relevant disclosures of credentials under Companies Act, and then accordingly tax proceeding will be initiated for tax recovery,” said an I-T official.

Tax industry experts, too, believe that restoration is essential to recover taxes due from these firms.

“The tax department is contesting the strike off of so-called companies as in several cases there would be pending tax demands that cannot be recovered if the company is not active. Also, even in cases where genuine companies have been struck off, with the best intentions, the companies would not be able to pay the tax dues as all their assets including bank accounts would be non-operational,” said Amit Maheshwari, partner at Ashok Maheshwary & Associates LLP.

The I-T department is of the view that these companies abused their corporate structure by creating multi-layering during  demonetisation for cash deposits. I-T probe also reveals that many individuals have used these firms for siphoning money or converting undisclosed cash to legitimate money post the note ban.

Official data say that 35,000 companies deposited and withdrew cash worth over Rs 170 billion after the note ban, through about 60,000 bank accounts.

It was noticed that the accounts that had negligible balance on November 8, 2016, have seen significant cash deposits and withdrawal during this period.

According to people with knowledge of the matter, along with restoration, the I-T department will also start issuing notices to these firms under Section 179 of the I-T Act, which makes the company’s directors/promoters liable to pay dues on behalf of the firm, without adjudication by the court.

Further, tax recovery officers have been asked to conduct survey operations on select firms where the tax demand is high. In cases where assets or bank accounts are lying abroad, the department will seek the foreign tax authority’s assistance to recover tax claims with the provisions in the relevant treaty, said another senior official.

Sources said that in a meeting of a task force on shell companies set up by the Prime Minister’s Office, on November 30 last year, the director general of corporate affairs (DGCoA) had suggested that the tax department approach RoCs for taking up the matter of reviving these companies. It was also suggested that revenue considerations should weigh in favour of restoring them.

Apart from these companies, another set of above 200,000 firms have been sent notices and action will soon be taken against them. However, the tax department wants MCA to keep them posted before striking off any company, since there could be tax dues.

 Taxing Affair
  • I-T pursuing restoration of 50,000 struck-off companies
  • RoCs had struck off 300,000 companies, prohibited their directors from holding directorship in other firms
  • Tax industry experts believe that restoration is essential for recovery of taxes from these firms
  • Restoration will allow companies to operate bank account, assets
  • After restoration, I-T to issue notices under Section 179 of I-T Act
  • Directors/promoters would be liable to pay tax dues
  • These firms abused corporate structure to facilitate significant cash transactions post note ban

Source: Business Standard

GST annual return due date extended till 31 August 2019 for FY 2017-18

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35th GST Council Meeting Highlights

35th GST Council Meeting was held on 21 June 2019 at New Delhi, after a gap of more than three months, chaired by Union Finance Minister, Mrs Nirmala Sitharaman.

This GST Council meeting has been called at a time when the countdown to upcoming Union Budget 2019 is less than a month away. A lot of expectations piled up over months concerning various indirect tax issues will be addressed in this meeting.

Highlights of 35th GST Council Meeting

The 35th GST Council meeting concluded with consensus on the following matters

  1. GST annual return due date extended till 31 August 2019 for FY 2017-18

The due date for filing GSTR-9, GSTR-9A, and GSTR-9C for the FY 2017-18 has been extended by two months, till 31 August 2019. Official notification can be made anytime soon.

  1. Aadhaar-enabled GST Registration introduced:

In order to ease the current process of GST registration and reduce the paperwork involved, GST Council has given a go-ahead to a new system for verification of taxpayers registering themselves under GST.  Aadhaar number shall be linked to the GSTIN while generation.

  1. NAA tenure extended by two years

Tenure of National Anti-profiteering Authority (NAA) was due to end by 30 November 2019. GST Council has further extended this tenure by two years, to enable it to take up all the pending cases. Hence, the authority can take up new cases in future due to rate cut issues, indicating that the GST Council has plans for further rationalisation of GST rates.

  1. 10% penalty to apply for any delay in depositing profiteered amount

GST Council has approved a levy of 10% penalty for delay in depositing the profiteered amount by more than 30 days. This is a fair measure that would encourage timely compliance by the taxpayer.

  1. E-invoicing to start from January 2020

The new system for raising all the tax invoices on the GST portal has received in-principle approval for implementation from 1 January 2020. This applies to only B2B invoicing. By this system, no separate e-way bill will be required in case of e-invoice. Returns to be framed from these e-invoices. A phased implementation is being worked out.
Earlier, the government had fixed Rs 50 crore as the limit for the applicability of e-invoicing.

  1. E-ticketing made mandatory for multiplexes

Among other major decisions, the GST Council approved the electronic ticketing system, for multiplexes, having multi-screens. This will help curb cases of tax evasion and the use of black tickets that have been prevalent.

  1. Rate cut decision on electric vehicles, chargers & leasing thereof deferred; Committee to submit its report

The decision to cut GST rates for electric vehicles and electric chargers have been postponed to the next Council meeting. The matter has been referred to the Fitment Committee for checking the feasibility of the rate cut. At present, the GST rates for electric vehicles and electric chargers are 12% and 28% respectively.

Likewise, the valuation rules for goods and services pertaining to solar power generating systems and wind turbines will be placed before the next Fitment Committee. The suggestions made by this Committee will be placed before the next GST Council meeting.

  1. Rate cut for lottery put on hold; Matter to be referred before an Attorney General

The previous council meet had not tabled the rate cut matter for lotteries. The 35th GST Council meeting discussed the matter at length and also brought to light two pending cases on this matter before the high court and supreme court respectively. Although the courts had referred the matter back to GST Council, the Council has decided to consult the Attorney General of India.

  1. GSTAT to be GST Appellate Tribunal.

The GST council also definitively stated the Goods and Service Tax Appellate Tribunal will be the appellate authority and will adjudicate on appeals arising from central and state tax authorities’ in-house dispute resolution system. The states will decide the number of GSTAT required by them as a result of which there can be two tribunals in a single state.

  1. Other Due date extensions
Form New due date
ITC-04 for July 2017- June 2019 31 August 2019
CMP-02 for opting into the composition scheme for service providers under Notification 2/2019-CT rate 31 July 2019
  1. For non-filing of GST returns, E-way bills to be blocked

The law stated that where the GST returns in GSTR-3B/ GSTR-4 is not filed for two consecutive tax periods, e-way bill generation for such taxpayers would be disabled. This will be brought into effect from 21 August 2019, instead of the earlier notified date of 21st June 2019.

MCA sees Rs 2.8 lakh cr recovery from IBC-led resolution process

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Section 12 (A) of IBC allows for a withdrawal of an insolvency application if 90% of the creditors’ committee (CoC) by voting share approving it.

Terming the current insolvency process and its outcomes as ‘super success, Ministry of Corporate Affairs sees total recovery amount touching Rs 2.8 lakh crore through resolutions with the settlement of two key accounts, including some others — Essar Steel, where financial creditors have approved the resolution and Bhushan SteelNSE 5.27 % and Power.

“The 100 cases that have been settled through resolution accounts, Rs 1.8 lakh crore have been netted which is not a small amount and the accounts sitting on margin (Bhushan Steel and Power & Essar Steel), another Rs 1 lakh crore along with some other mid-sized resolutions can come, so Rs 2.8 lakh crore out of Rs 10 lakh crore of NPA that time is not a small amount, IBC is a super success”, says MCA senior officials on the insolvency processes

In case of Essar Steel, the CoC has approved the resolution process but the process got stuck after operational creditor Standard Chartered moved NCLAT for higher share from the funds. The debt-ridden steel firm had Rs 42,000 crore coming from the resolution plan of global steel major ArcelorMittal.

JSW Steel had revised its offer for Bhushan Power & Steel from Rs 11,000 crore to Rs18,000 crore and later to over Rs 19,000 crore which the CoC had approved.

And it is not just resolution process-led recoveries, the official said pre-resolution processes have also yielded results in 6,500 cases netting Rs 3 lakh crore on dead assets.

“6500 cases settled involving claims of close to Rs 3 lakh crore where they have been have settled before admission. And now after 12 (A) has been introduced, another 100 cases which are at stages of 90% CoC approval are moving towards out of court settlements. Both (in and outside resolutions and NCLT) are happening. About 500 cases have got settled through the court process and 6,500 cases settled even before admission”, said the officials.

Section 12 (A) of IBC allows for a withdrawal of an insolvency application if 90% of the creditors’ committee (CoC) by voting share approving it.

MCA officials dismissed the notion of high haircuts through resolution process. They said: “It (IBC) is super success. There should not be any brouhaha over haircuts. Will anybody pay more than what is the value? Suppose an asset is used for 20 years, there is nothing more to it, there is a Rs 50,000 crore loan, liquidation value is Rs 1,000 crore, so you get (the creditors) Rs 1,000 crore only.”

“Wherever a resolution has taken place, creditors are getting 200% of the liquidation value. So definitely value maximisation is the context, demand and supply will fix the value”, the officials said.

Source: Economic Times