Important Steps Taken by India’s Corporate and Securities Regulators in View of COVID-19
In view of the COVID-19 outbreak and as India has moved to a mandatory lockdown in most states, the Ministry of Corporate Affairs (the “MCA”) has taken certain steps to liberalize compliance requirements for companies. Additionally, in a media briefing held this afternoon (March 24, 2020), the Finance Minister has announced certain exemptions for Indian companies (which will be notified by the MCA shortly). In addition, several public company disclosure and filing deadlines have been pushed back by the Securities and Exchange Board of India (the “SEBI”).
No penalty for late filing
Indian companies are subject to certain periodic and event-based filings which need to be filed with the MCA within a specific time-period. Typically, a filing delay entails a late filing penalty. The MCA has clarified that it will not levy a late filing fee for any delay in filing of forms by companies under the provisions of the Companies Act, 2013 (the “Companies Act”) and its rules between April 1 and September 30.
Time for board meetings extended
All companies are required to have at least four (4) meetings of the board and the audit committee in a calendar year, and the maximum gap between two (2) meetings can only be one hundred and twenty (120) days. The Finance Minister has mentioned that the foregoing requirements will be relaxed by sixty (60) days for the next two (2) quarters.
Director residency requirement waived
Every company is required to have at least one (1) director who stays in India for one hundred and eighty-two (182) days or more during a financial year (April 1 to March 31) in which he or she is appointed as a director and every subsequent financial year in which he or she intends to be the resident director. Companies will not be penalized if their directors are unable to fulfil the residency criteria.
Restrictions on board meetings via video conference relaxed
Under the Companies Act, board meetings may be held by video conference or other audio-visual means. However, for matters relating to approval of: (i) the annual financial statements or the board’s report; (ii) a prospectus for offer of securities; or (iii) an amalgamation, merger, demerger, acquisition or takeover, the directors need to be physically present at the meeting venue to form a quorum, and directors who are present by video conference are not counted for the purpose of quorum for the meeting.
In view of the travel restrictions imposed due to COVID-19, the MCA has relaxed the foregoing restriction until June 30, 2020. Therefore, directors present by video conference for a board meeting at which any of the aforesaid matters are discussed will form part of the quorum. Nevertheless, it must be noted that all other requirements for board meetings to be held by video conference, including recording of the proceedings, have to be complied with by the company. These compliance requirements may pose to be a challenge given that most companies are working from home for the past week or so.
Business commencement exemption for new companies
Newly incorporated companies are required to file an intimation of commencement of business within six (6) months of incorporation. They are also required to ensure that the initial share capital has been paid by the shareholders. The foregoing requirements have been extended by a period of six (6) months for newly incorporated companies.
New filing to declare compliance with COVID-19 guidelines made voluntary
On March 23, 2020, the MCA issued a web-based Form CAR 2020 (Company Affirmation of Readiness Towards Covid-19) required to be filed by all Indian companies and limited liability partnerships (“LLPs”) to affirm that they are in compliance with the guidelines issued in respect of COVID-19, including the work from home policy. The MCA also mentioned that all companies and LLPs are expected and strongly advised to adopt a work from home policy, to the maximum extent possible, and it was mandatory to file Form CAR 2020 on the same day. However, today, the MCA has clarified that this is a voluntary initiative, and that companies and LLPs can file the form, whenever possible. Also, the MCA has noted that no penalty will be imposed, or enforcement action taken, in case of failure to file this form.
Form CAR 2020 is a simple form and relatively easy to file, as it does not require to be signed (digitally or in wet ink) by the authorized representative of the company or LLP. The clarification issued by the MCA to confirm that companies and LLPs will not be penalized for not filing this form is helpful.
Clarification on corporate social responsibility
Indian companies are subject to mandatory corporate social responsibility (“CSR”) contributions, provided, that, they meet the prescribed turnover, net worth and/or profit thresholds. For this purpose, the Companies Act lists the social activities which are eligible to be accounted as CSR activities. The MCA has clarified that contributions towards measures taken for COVID-19 will be eligible to be accounted as CSR. This is a welcome move and will encourage Indian conglomerates to contribute to the various efforts to combat COVID-19.
Relaxed compliance and filing requirements for listed companies
Listed companies are subject to extensive compliance and reporting requirements under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. On March 19 and 23, 2020, the SEBI has issued notifications relaxing certain compliance and reporting requirements for listed companies. Set out below are some of the important ones:
• All listed companies are required to have at least four (4) meetings of the board and the audit committee in a calendar year, and the maximum gap between two (2) meetings can only be one hundred and twenty (120) days. The SEBI has exempted listed companies from complying with the maximum gap requirement for board and audit committee meetings to be held between December 31, 2019 and June 30, 2020, provided that at least four (4) meetings are held in the calendar year.
• Listed companies are subject to various reporting requirements which trigger on a quarterly, half-yearly and yearly basis. The SEBI has extended the due dates of filings such as the compliance certificate of share transfer agents, statement of investor complaints, annual secretarial compliance report, and quarterly reports on corporate governance, shareholding pattern and financial results.
• The SEBI has extended the due dates for filing of financial results by companies having listed non-convertible debentures, non-convertible redeemable preference shares and commercial papers.
Other than the foregoing, the SEBI has also relaxed various compliance requirements for issuers of municipal debt securities, mutual funds, brokers, trading members and other market participants.