SC : Home buyers plea against the Ordinance

A group of home buyers have challenged the additions made to Section 7 of the Insolvency and Bankruptcy (Amendment) Ordinance, 2019. The amendment stated that to initiate insolvency against a builder/developer an application to initiate insolvency must be moved by at least 100 or 10 of the total allottees from the same project.

The main ground for filing the said writ petition was that the ordinance discriminated against the home buyers, as no such pre-conditions were imposed on other financial creditors under IBC.

The writ petition further stated "The Ordinance is completely against the fundamental rights guaranteed to the home buyers (Financial Creditors) under Article 14 and 21 of the Constitution of India. The Union of India has brought in the Ordinance with absolute discrimination by putting a precondition/threshold in the form of minimum number of allottees of a particular project required for filing an application for triggering the code under Section 7 of the IBC, which is not applicable to other financial creditors under IBC,".

"Because the Ordinance runs in complete contradiction to IBC and imposing such a pre-condition on the filing of the application under Section 7 of the IBC is completely against the objective of the IBC, as the pre-condition for any financial creditor to approach the adjudicating authority is quantum of the debt and not the number of financial creditors,"

Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2020

The Insolvency and Bankruptcy Board of India has introduced the below mentioned amendments to The Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 and notified the same as the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2020 on January 6.

• Bar ineligible persons from being a party to the Scheme- A person, who is not eligible under Insolvency and Bankruptcy Code, 2016 (IBC) to submit a resolution plan for insolvency resolution of a corporate debtor, shall not be a party in any manner to a compromise or arrangement of the corporate debtor under section 230 of the Companies Act, 2013.
• A secured creditor cannot sell or transfer an asset, which is subject to security interest, to any person, who is not eligible under IBC to submit a resolution plan for insolvency resolution of the corporate debtor.
• Secured Creditors Subject to Time lines- A secured creditor, who proceeds to realise its security interest, shall contribute its share of the insolvency resolution process cost, liquidation process cost and workmen’s dues, within 90 days of the liquidation commencement date. Such a creditor shall also pay excess of realised value of the asset, which is subject to security interest, over the amount of its claims admitted, within 180 days of the liquidation commencement date. Where the secured creditor fails to pay such amounts to the Liquidator within 90 days or 180 days, as the case may be, the asset shall become part of Liquidation Estate.
• Creation of Corporate Liquidation Account- The Amendment Regulation substitutes regulation 46 to provide for creation of a Corporate Liquidation Account, to be maintained and operated by IBBI in the Public Accounts of India. The Amendment provides that a liquidator shall deposit the amount of unclaimed dividends, if any, and undistributed proceeds, if any, in a liquidation process along with any income earned thereon till the date of deposit into the Corporate Liquidation Account before making an application for dissolution
• The Amendment also lays down a process for a stakeholder to seek withdrawal from the Corporate Liquidation Account.

Amendment in Secretarial Audit applicability and mandatory appointment of Whole Time Company Secretary

The Ministry of Corporate Affairs (MCA) has vide an amendment dated 3rd January 2020 to the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 amended the thresholds for applicability of Secretarial Audit and the thresholds for mandatory appointment of Whole Time Company Secretary. This amendment is applicable in respect of financial years commencing on or after 1st April 2020.

A. Applicability of Secretarial Audit

1. Thresholds:- 

Before this amendment, Secretarial Audit was applicable to all types of companies (public or private) having any securities listed and such public companies having paid up capital of Rs. 50 crores or more, OR such public companies having turnover of Rs. 250 crores or more. 

Now vide this amendment, with effect from the financial years commencing on or after 1st April 2020, Secretarial Audit has been made applicable to all types of companies (public or private) having outstanding loans or borrowings from banks or public financial institutions of Rs. 100 crores or more. Hence, now secretarial audit is applicable to even private companies which are heavily leveraged as mentioned above (irrespective of whether it is long term or short term borrowing). 

2. From which year Secretarial Audit is applicable?

a. Companies which have already crossed the new threshold:-

Since this Amendment is applicable in respect of financial years commencing on or after 1st April 2020, in case of companies (private or public) which already have outstanding loans or borrowings from banks or public financial institutions of Rs. 100 crores or more, Secretarial Audit will be applicable for the financial year 2020-21 onwards. 

b. Companies which cross the new threshold after 1st April 2020:-

In the above Rules, an Explanation has been inserted to the effect that the paid up share capital, turnover, or outstanding loans or borrowings as the case may be, existing on the last date of latest audited financial statement shall be taken into account.

The governing section, i.e., Section 204 states about annexing the Secretarial Audit Report to the Board’s report, i.e., an event which happens post the audit of financial statements of a particular year. Hence it can be said that if Secretarial Audit is newly applicable to any Company for a particular financial year, then Secretarial Audit must be undertaken for that particular financial year only, and not beginning from the next financial year. For example: if Secretarial Audit is applicable to any Company as per the financial statements of the financial year 2020-21, then Secretarial Audit is applicable with effect from financial year 2020-21 only.

B. Thresholds for the appointment of Whole Time Company Secretary

In the above Rules, the thresholds for the appointment of Whole Time Company Secretary has been increased from paid-up capital of Rs. 5 crores to Rs. 10 Crores. It is to be noted that even if a private company has paid-up capital of less than Rs. 10 crores but has its equity shares or any other securities listed, then this exemption is not available to such listed companies.

Union Cabinet approves promulgation of IBC( Amendment ) Ordinance ,2019

The Union Cabinet on 24^th December, 2019 approved a proposal to promulgate an ordinance for the amendment of the Insolvency and Bankruptcy Code (IBC).The changes protect the ‘going concern status ‘of a company facing insolvency proceedings while providing protection to last –mile funding in financially distressed sectors.

·       The amendments absolve a corporate debtor of liability for an offence committed before the commencement of the corporate insolvency resolution process.

·       The corporate debtor will not be prosecuted for such an offence from the date the resolution plan has been approved by the adjudicating authority, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not a promoter or in the management or control of the corporate debtor or a related party of such a person.

·       The amendments also propose that the debtor will not be prosecuted if a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted a report or a complaint to the relevant statutory authority or court.

The Insolvency and Bankruptcy Code (Second Amendment Bill), 2019

The proposal to make amendments in the Insolvency and Bankruptcy Code , 2016 through the Insolvency  and Bankruptcy Code ( Second Amendment ) Bill 2019 has been approved by the Union Cabinet. These amendments aim to reduce certain difficulties being faced during insolvency resolution process to realise the objects of the code and to further ease of doing business.

The amendment Bill seeks to amend various sections and introduce a new section 32A in the Insolvency and Bankruptcy Code,2016 .

Key Highlights of the Bill

·     The code to remove bottlenecks, streamline the CIRP and grant protection to last mile funding which will boost investment in financially distressed sectors and ensure that the foundation of the business of corporate debtor is not lost, and it continues as a going concern by clarifying that the licenses, permits concessions clearances etc. cannot be terminated or suspended or not renewed during that moratorium period.

·     Insolvency Commencement date in all cases will mean the date of admission of application for initiating CIRP.

·      Minimum threshold for homebuyers to file insolvency application An application for initiating Insolvency shall be filed jointly by at least 100 allottees under a real estate project or not less than 10% of the total number of allottees whichever is less. Additional thresholds introduced for Financial Creditors represented by authorised representative due to large numbers in order to prevent frivolous triggering of Corporate Insolvency  Resolution Process

·    Clarification regarding initiation of CIRP by Corporate Debtor- The bill seeks to clarify that corporate debtor who is disqualified from making an application for CIRP initiation u/s 11(a) to (d), shall not be prevented from initiating CIRP against another corporate debtor.

·        Resolution Professional’s role after the expiry of CIRP Period-

The Amendment Bill has  clarified that the affairs of the Corporate Debtor during the time-gap between the period of conclusion of CIRP and implementation of the successful resolution plan/ commencement of liquidation shall now be the responsibility of the RP only.

·       A new section 32Ahas been inserted. The section operates on three fronts

i)               Cessation of liability of corporate debtor in respect of offences committed prior to the commencement of the CIRP.

ii)              Prohibition on any action against any property if the corporate debtor covered under the resolution plan.

iii)           Requirement from corporate debtor and other persons to extend assistance and cooperation to any investigating authority .

Highlights of Amendment in Indian Stamp Act, 1899

The Finance Bill, 2019 had proposed certain amendments in the Indian Stamp Act, 2019. The amendments are related to levy and administration of stamp duty on securities market instruments by the states at one place through one agency viz. stock exchanges or it’s clearing corporations or depositories. The agency will share collected stamp duty appropriately with respective states based on the state of domicile of the ultimate buying client.

The Highlights of the same are as follows:

• Inserted certain definition such as allotment list, securities, debentures, market value
• Definition of instruments is broadened to provide for documents in electronic form or otherwise created for a transaction in a stock exchange or depository
• Stamp duty is levied on transfer of securities in demat form.
• Stamp Duty is not applicable in case of Demat or Remat of Securities
• All the transactions (Issue, transfer of securities etc.) through stock exchanges and depositories are now under the purview of stamp duty in addition to issue/transfer of securities held physically.

The stamp duty will be collected by stock exchange/clearing corporation/depositories as the case may be, from issuer/seller at the time of settlement of transactions. The Applicable Rate for various transactions and who will be responsible for paying stamp duty is given in table below:

Transaction	Earlier Stamp Duty	Revised Stamp Duty
Securities other than Debentures
Issue of Security	As per State Stamp Act – 0.1% as per Maharashtra Stamp Act	0.005% [new Article 56A]
Transfer of securities on delivery basis	0.25% as per Indian Stamp Act [earlier Article 62(a)]	0.015%
Transfer of securities on non-delivery basis	0.25% as per Indian Stamp Act [earlier Article 62(a)]	0.003%
Debentures
Issue of Debentures (Marketable)	As per State Stamp Act – As per Maharashtra Stamp Act - Under Article 1 -Acknowledgement of Debt – Rs. 100 for value Rs. 10 lakhs or more	On delivery basis – 0.015% [new Article 56A] On non-delivery basis – 0.003% [new Article 56A]
Issue of Debentures (Non - Marketable)	No stamp duty prescribed
Derivatives
Futures (equity and commodity)	No stamp duty prescribed	0.002%
Options  (equity and commodity)	No stamp duty prescribed	0.003%
Currency and Interest rate derivatives	No stamp duty prescribed	0.0001%
Other Derivatives	No stamp duty prescribed	0.002%
Repo on Corporate Bonds	No stamp duty prescribed	0.00001%
Government Securities	No stamp duty prescribed	0%

Who will be responsible for paying stamp duty?

Transaction	Instrument Chargeable	Who will pay stamp duty?	Who will collect stamp duty?
Sale through Stock Exchange	Clearance List	Buyer	Stock Exchange or Clearing Corporation authorised by it
Transfer of securities by a Depository	delivery instruction slip	Transferor	Depository
Issue of securities, any creation or change in the records of a depository	Allotment list	Issuer	Depository
Issuance of securities otherwise than through a stock exchange or depository	Share Certificate	Issuer	Depository
Sale / Transfer or re-issue of securities with consideration otherwise than through a stock exchange or depository	Share Transfer Deed	Transferor	Depository

The amendments proposed in Stamp Act, 1899 through Finance Bill, 2019 made effective from 9^th January, 2020.[1]

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[1] Notified vide notification no. S.O. 4419(E) dated 10th December, 2019

Disclosures of Defaults in Payment of dues to Banks/Financial Institutions by Listed Entities

                                                                                                                                                             

Disclosures of Defaults in Payment of dues to Banks/Financial Institutions by Listed Entities

1.             Applicability:

This circular is applicable to all listed entities which have listed any of their specified securities (equity and convertible securities), Non-convertible Debt (“NCD”) and Non-Convertible Redeemable Preference Shares (“NCRPS”).

2.             Definition of default for the purpose of this circular:

·         In case of loans from banks/financial institutions or NCD or NCRPS, default will be considered if company fails to pay interest / dividend or principal in full on the pre-agreed payment date.

·         In case of revolving facilities like cash credit from banks/financial institutions, default wound be considered if the outstanding balance remains unpaid continuously for more than 30 days in excess of the sanctioned limit or drawing power, whichever is lower.

3.             Due date of disclosures:

a.       In case of loans from banks/financial institutions:  Disclosure shall be made promptly but not later than 24 hours from 30^th day of default.

b.      In case of revolving facilities like cash credit from banks/financial institutions: Disclosure shall be made promptly, but not later than 24 hours from the 30^th day of such default.

c.       In case of unlisted debt securities: Disclosure shall be made promptly but not later than 24 hours from the occurrence of the default.

4.             Which defaults to disclose:  Disclosure of defaults is to be given in the prescribed format by following entities:

a.       Entities having Equity or convertible securities listed:

a.       default in payment of interest / installment obligations on loans, including revolving facilities like cash credit, from banks / financial institutions and

b.      Default with respect to unlisted NCDs and unlisted NCRPS.

b.      Entities having listed their NCD’s /NCRPS/ Commercial paper:

a.       Disclosure of defaults as are applicable to entities that have equity or convertible securities listed [(i.e. 4(i)(a) and 4(i)(b)] of this newsletter.

b.      Disclosure of default pertaining to listed NCD/listed NCRPS/listed commercial paper to continue as per respective regulations.

5.             Initial Disclosure:  Initial disclosure of default needs to be given on 1^st January 2020 in format C1 and Initial quarterly disclosure for listed entities is to be given by 7^th January 2020 in format ‘C2’.

6.             These initial and quarterly disclosures are to be given if there are outstanding defaulted loans including revolving cash credit facility or outstanding defaulted debt securities as on 31^st December 2019. As far as disclosures pertaining to default of listed NCDs/listed NCRPS/listed commercial paper are concerned, the same would continue to be made as per present SEBI regulations and circulars.