Note on Companies (Incorporation) Fourth Amendment Rules, 2018 By CS Arundhuthi Bose


Mamta Binani & Associates              
Company Secretaries                                                                 
Kolkata | Pune | Chennai

Contributors: CS Arundhuthi Bose, Partner and CS Madhuri Pandey, Partner

Background

The Companies (Incorporation) Rules, 2014 (the Rules) have been amended for the fourth time; vide the Companies (Incorporation) Fourth Amendment Rules, 2018[1](Fourth Amendment Rules), notified on 18th December 2018. The amendments have been made keeping in mind the suggestions put forth in the Report of the Committee to Review Offences under the Companies Act, 2013[2].
 
Besides the above, on 17th December 2018, the Ministry of Corporate Affairs has also issued a notice inviting comments on the draft amendment to Rule 8 of the Companies (Incorporation) Rules, 2014 by the 31st of December 2018.[3]These amendments have been suggested with the aim to bring more clarity to the rules related to name availability by:-
 
  1. the inclusion of illustrations in the rules;
  2. providing a clear test to determine as to whether the applied name resembles too nearly with the name of an existing company; and
  3. bringing more clarity in the rule related to “general names”/descriptive names and trademark applicability
Changes in form CHG-4 (Particulars of Satisfaction of Charge) has also been made vide the Companies (Registration of Charges) Second Amendment Rules, 2018 notified on the 18th December 2018.[4]

This note specifically deals with the changes introduced through the Fourth Amendment Rules along with a reiteration of the portions of the Rules that have been amended for convenience and better understanding.

Amendments
 
1. Rule 23A (New insertion):-
"23A. Declaration at the time of commencement of business:-  The declaration under section 10A by a director shall be in Form No.INC-20A and shall be filed as provided in the Companies (Registration Offices and Fees) Rules, 2014 and the contents of the said form shall be verified by a Company Secretary or a Chartered Accountant or a Cost Accountant,  in practice:
 
Provided that in the case of a company pursuing objects requiring registration or approval from any sectoral regulators such as the Reserve Bank of India, Securities, and Exchange Board of India, etc., the registration or approval, as the case may be from such regulator shall also be obtained and attached with the declaration."

In a gist rule, 23A encapsulates the following:-
 
  1. The declaration under section 10A by a director shall be in Form No.INC-20A; and
  2. The contents of the said form shall be verified by a Company Secretary or a Chartered Accountant or a Cost Accountant, in practice;
  3. In the case of a company pursuing objects requiring registration or approval from any sectoral regulators such as the Reserve Bank of India, Securities and Exchange Board of India, etc., the registration or approval, as the case may be from such regulator shall also be obtained and attached with the declaration.
2. Rule 40 (New insertion):-
 
"40. Application under sub-section (41) of section 2 for change in financial year
 
(1) The application for approval of concerned Regional Director under sub-section (41) of section 2, shall be filed in e-Form No.RD-1 along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 and shall be accompanied by the following documents, namely:-
 
  1. grounds and reasons for the application;
  2. a copy of the minutes of the board meeting at which the resolution authorising such change was passed, giving details of the number of votes cast in favour and or against the resolution;
  3. Power of Attorney or Memorandum of Appearance, as the case may be;
  4. details of any previous application made within the last five years for a change in the financial year and the outcome thereof along with a copy of the order.
(2) Where the Regional Director on examining the application, referred to in sub-rule (1), finds it necessary to call for further information or finds such application to be defective or incomplete in any respect, he shall give intimation of such information called for or defects or incompleteness, on the last intimated e-mail address of the person or the company, which has filed such application, directing the person or the company to furnish such information, or to rectify defects or incompleteness and to re-submit such application within a period of fifteen days, in e-Form No. RD-GNL-5.
 
Provided that a maximum of two re-submissions shall be allowed.
 
(3) (a) In case where such further information called for has not been provided or the defects or incompleteness has not been rectified to the satisfaction of the Regional Director within the period allowed under sub-rule (2), the Regional Director shall reject the application with reasons within thirty days from the date of filing application or within thirty days from the date of last re-submission made as the case may be.
 
(b) In the case where the application is found to be in order, Regional Director shall allow and convey the order within thirty days from the date of application or within thirty days from the date of the last re-submission, as the case may be.
 
(c) where no order for approval or re-submission or rejection has been explicitly made by the Regional Director within the stipulated time of thirty days, it shall be deemed that the application stands approved and an approval order shall be automatically issued to the applicant.
 
(4) The order conveyed by the Regional Director shall be filed by the company with the Registrar in Form No.INC-28 within thirty days from the date of receipt of the order along with fee as provided in the Companies (Registration Offices and Fees) Rules, 2014.

In a gist Rule, 40 encapsulates the following:-

a) Application requesting a change of financial year
:- The application for approval of concerned Regional Director for a change of financial year shall be filed in e-Form No.RD-1 along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 and shall be accompanied by the following documents, namely:-
 
  1. Grounds and reasons for the application;
  2. A copy of the minutes of the board meeting at which the resolution authorising such change was passed, giving details of the number of votes cast in favor and or against the resolution;
  3. Power of Attorney or Memorandum of Appearance, as the case may be;
  4. Details of any previous application made within the last five years for a change in a financial year and the outcome thereof along with a copy of the order.
b) Where the Regional Director finds it necessary to call for further information or finds such application to be defective or incomplete :- Where the Regional Director finds it necessary to call for further information or finds such application to be defective or incomplete in any respect, he shall give intimation of such information called for or defects or incompleteness, on the last intimated e-mail address of the person or the company, which has filed such application, directing the person or the company to furnish such information, or to rectify defects or incompleteness and to re-submit such application within a period of fifteen days, in e-Form No. RD-GNL-5.
 
c) Number of resubmissions allowed:- A maximum of two re-submissions shall be allowed.
 
d) In case where such further information called for has not been provided or the defects or incompleteness has not been rectified :- In case where such further information called for has not been provided or the defects or incompleteness has not been rectified to the satisfaction of the Regional Director within the period allowed, the Regional Director shall reject the application with reasons within thirty days from the date of filing application or within thirty days from the date of last re-submission made as the case may be.
 
e) In the case where the application is found to be in order:- In the case where the application is found to be in order, Regional Director shall allow and convey the order within thirty days from the date of application or within thirty days from the date of the last re-submission, as the case may be.
 
f) Where no order for approval or re-submission or rejection has been explicitly made by the Regional Director: - Where no order for approval or re-submission or rejection has been explicitly made by the Regional Director within the stipulated time of thirty days, it shall be deemed that the application stands approved and an approval order shall be automatically issued to the applicant.
 
g) Timeline for filing Form No. INC-28:- The order conveyed by the Regional Director shall be filed by the company with the Registrar in Form No.INC-28 within thirty days from the date of receipt of the order along with fee as provided in the Companies (Registration Offices and Fees) Rules, 2014.

3. Rule 41 (New insertion):-
 
[**Please note that there is an error in the numbering of this rule. After sub-rule 6 sub-rule 9 commences indicating a numbering error in the notification]
 
“41. Application under section 14 for conversion of the public company into a private company.
 
(1) An application under the second proviso to sub-section (1) of section 14 for the conversion of a public company into a private company, shall, within sixty days from the date of passing of the special resolution, be filed with Regional Director in e-Form No. RD-1 along with the fee as provided in the Companies (Registration Offices and Fees) Rules,2014 and shall be accompanied by the following documents, namely:-
 
  1. a draft copy of Memorandum of Association and Articles of Association, with proposed alterations including the alterations pursuant to sub-section (68) of section 2;
  2. a copy of the minutes of the general meeting at which the special resolution authorising such alteration was passed together with details of votes cast in favor and or against with names of dissenters;
  3. a copy of Board resolution or Power of Attorney dated not earlier than thirty days, as the case may be, authorising to file an application for such conversion;
  4. declaration by key managerial personnel that pursuant to the provisions of sub-section (68) of section 2, the company limits the number of its members to two hundred and also stating that no deposit has been accepted by the. company in violation of the Act and rules made thereunder;
  5. declaration by key managerial personnel that there has been no non-compliance of sections 73 to 76A, 177, 178, 185, 186 and 188 of the Act and rules made thereunder;
  6. declaration by a key managerial personnel that no resolution is pending to be filed in terms of sub-section (3) of section 179 and also stating that the company was never listed in any of the Regional Stock Exchanges and if was so listed, all necessary procedures were complied with in full for complete delisting of the shares in accordance with the applicable rules and regulations laid down by Securities Exchange Board of India:
Provided that in case of such companies where no key managerial personnel is required to be appointed, the aforesaid declarations shall be filed any of the directors.
 
(2) Every application filed under sub-rule (1) shall set out the following particulars, namely:-
 
  1. the date of the Board meeting at which the proposal for alteration of Memorandum and Articles was approved;
  2. the date of the general meeting at which the proposed alteration was approved;
  3. reason for conversion into a private company, effect of such conversion on shareholders, creditors, debenture holders, deposit holders and other related parties;
  4. details of any conversion made within last five years and the outcome thereof along with a copy of the order;
  5. details as to whether the company is registered under section 8.
(3) There shall be attached to the application, a list of creditors, debenture holders, drawn up to the latest practicable date preceding the date of filing of application by not more than thirty days, setting forth the following details, namely:-
 
  1. the names and address of every creditor and debenture holder of the company;
  2. the nature and respective amounts due to them in respect of debts, claims or liabilities;
  3. in respect of any contingent or unascertained debt, the value, so far as can be justly estimated of such debt:
Provided that the company shall file an affidavit, signed by the Company Secretary of the company, if any, and not less than two directors of the company, one of whom shall be managing director, where there is one, to the effect that they have made a full enquiry into affairs of the company and, having done so, have formed an opinion that the list of creditors and debenture holders is correct, and that the estimated value as given in the list of the debts or claims payable on contingency or not ascertained are proper estimates of the values of such debts and claims that there are no other debts, or claims against, the company to their knowledge.
 
(4) A duly authenticated copy of the list of creditors and debenture holders shall be kept at the registered office of the company and any person desirous of inspecting the same may, at any time during the ordinary hours of business, inspect, and take extracts from the same on payment of ten rupees per page to the company.
 
(5) The company shall, at least twenty-one days before the date of filing of the application
 
  1. advertise in the Form No.INC.25A, in a vernacular newspaper in the principal vernacular language in the district and in the English language in an English newspaper, widely circulated in the State in which the registered office of the company is situated;
  2. serve, by registered post with acknowledgment due, individual notice on each debenture holder and creditor of the company; and
  3. serve, by registered post with acknowledgment due, a notice to the Regional Director and Registrar and to the regulatory body, if the company is regulated under any law for the time being in force.
(6) (a) Where no objection has been received from any person in response to the advertisement or notice referred to in sub-rule (5J and the application is complete in all respects, the same may be put up for orders without hearing and the concerned Regional Director shall pass an order approving the application within thirty days from the date of receipt of the application.
 
(b) Where the Regional Director on examining the application finds it necessary to call for further information or finds such application to be defective or incomplete in any respect, he shall within thirty days from the date of receipt of the application, give intimation of such information called for or defects or incompleteness, on the last intimated e-mail address of the person or the company, which has filed such application, directing the person or the company to furnish such information, to rectify defects or incompleteness and to re-submit such application within a period of fifteen days in e-Form No. RD-GNL-5:
 
Provided that maximum of two re-submissions shall be allowed.
 
(c) In cases where such further information called for has not been provided or the defects or incompleteness has not been rectified to the satisfaction of the Regional Director within the period allowed under sub-rule [6), the Regional Director shall reject the application with reasons within thirty days from the date of filing application or within thirty days from the date of last re-submission made, as the case may be.
 
(d) Where no order for approval or re-submission or rejection has been explicitly made by the Regional Director within the stipulated period of thirty days, it shall be deemed that the application stands approved and an approval order shall be automatically issued to the applicant.
 
(9) (i) Where an objection has been received or Regional Director on examining the application has specific objection under the provisions of Act, the same shall be recorded in writing and the Regional Director shall hold a hearing or hearings within a period thirty days, as required and direct the company to file an affidavit to record the consensus reached at the hearing, upon executing which, the Regional Director shall pass an order either approving or rejecting the application along with reasons within thirty days from the date of hearing, failing which it shall be deemed that application has been approved and approval order shall be automatically issued to the applicant.
 
(ii) In the case where no consensus is received for conversion within sixty days of filing the application while hearing or otherwise, the Regional Director shall reject the application within a stipulated period of sixty days:
 
Provided that the conversion shall not be allowed if any inquiry, inspection or investigation has been initiated against the company or any prosecution is pending against the company under the Act.
 
(10) On completion of such inquiry inspection or investigation as a consequence of which no prosecution is envisaged or no prosecution is pending, conversion shall be allowed.
 
(11) The order conveyed by the Regional Director shall be filed by the company with the Registrar in Form No.lNC-28 within fifteen days from the date of receipt of approval along with fee as provided in the Companies (Registration Offices and Fees) Rules, 2014".  
 
In a gist rule, 41 encapsulates the following:-

a) Application for conversion and the documents required
:- An application for the conversion of a public company into a private company, shall, within sixty days from the date of passing of the special resolution, be filed with Regional Director in e-Form No. RD-1 along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 and shall be accompanied by the following documents, namely:-
 

1.        

a draft copy of Memorandum of Association and Articles of Association, with proposed;

2.        

a copy of the minutes of the general meeting at which the special resolution authorising such alteration was passed together with details of votes cast in favor and or against with names of dissenters;

3.        

a copy of Board resolution or Power of Attorney dated not earlier than thirty days, as the case may be, authorising to file an application for such conversion;

4.        

declaration by key managerial personnel that pursuant to the provisions of sub-section (68) of section 2, the company limits the number of its members to two hundred and also stating that no deposit has been accepted by the. company in violation of the Act and rules made thereunder;

5.        

declaration by key managerial personnel that there has been no non-compliance of sections 73 to 76A, 177, 178, 185, 186 and 188 of the Act and rules made thereunder;

6.        

declaration by a key managerial personnel that no resolution is pending to be filed in terms of sub-section (3) of section 179 and also stating that the company was never listed in any of the Regional Stock Exchanges and if was so listed, all necessary procedures were complied with in full for complete delisting of the shares in accordance with the applicable rules and regulations laid down by Securities Exchange Board of India:

7.        

Provided that in case of such companies where no key managerial personnel is required to be appointed, the aforesaid declarations shall be filed any of the directors.

 
b) List of creditors and debenture holders:- There shall be attached to the application, a list of creditors, debenture holders, drawn up to the latest practicable date preceding the date of filing of application by not more than thirty days.
 
c) Filing of an affidavit to the effect that full enquiry has been made and that the list of creditors and debenture holders is correct:- The company shall file an affidavit, signed by the Company Secretary of the company, if any, and not less than two directors of the company, one of whom shall be managing director, where there is one, to the effect that they have made a full enquiry into affairs of the company and, having done so, have formed an opinion that the list of creditors and debenture holders is correct, and that the estimated value as given in the list of the debts or claims payable on contingency or not ascertained are proper estimates of the values of such debts and claims that there are no other debts, or claims against, the company to their knowledge.
 
d) List of creditors and debenture holders to be kept at the registered office:- A duly authenticated copy of the list of creditors and debenture holders shall be kept at the registered office of the company and any person desirous of inspecting the same may, at any time during the ordinary hours of business, inspect, and take extracts from the same on payment of ten rupees per page to the company.
 
e) Pre-requisites to filing the application:- The company shall, at least twenty-one days before the date of filing of the application
 
  1. advertise in the Form No.INC.25A, in a vernacular newspaper in the principal vernacular language in the district and in the English language in an English newspaper, widely circulated in the State in which the registered office of the company is situated;
  2. serve, by registered post with acknowledgment due, individual notice on each debenture holder and creditor of the company; and
  3. serve, by registered post with acknowledgment due, a notice to the Regional Director and Registrar and to the regulatory body, if the company is regulated under any law for the time being in force.
f) Where no objection has been received from any person in response to the advertisement or notice:- Where no objection has been received from any person in response to the advertisement or and the application is complete in all respects, the same may be put up for orders without hearing and the concerned Regional Director shall pass an order approving the application within thirty days from the date of receipt of the application.
 
g) Where the Regional Director on examining the application finds it necessary to call for further information or finds such application to be defective or incomplete in any respect :- Where the Regional Director on examining the application finds it necessary to call for further information or finds such application to be defective or incomplete in any respect, he shall within thirty days from the date of receipt of the application, give intimation of such information called for or defects or incompleteness, on the last intimated e-mail address of the person or the company, which has filed such application, directing the person or the company to furnish such information, to rectify defects or incompleteness and to re-submit such application within a period of fifteen days in e-Form No. RD-GNL-5.
 
h) Number of resubmissions:- The maximum of two re-submissions shall be allowed.
 
i) In cases where such further information called for has not been provided or the defects or incompleteness has not been rectified :- In cases where such further information called for has not been provided or the defects or incompleteness has not been rectified to the satisfaction of the Regional Director within the period allowed, the Regional Director shall reject the application with reasons within thirty days from the date of filing application or within thirty days from the date of last re-submission made, as the case may be.
 
j) Where no order for approval or re-submission or rejection has been explicitly made:- Where no order for approval or re-submission or rejection has been explicitly made by the Regional Director within the stipulated period of thirty days, it shall be deemed that the application stands approved and an approval order shall be automatically issued to the applicant.
 
k) Where an objection has been received or Regional Director on examining the application has specific objection under the provisions of Act :- Where an objection has been received or Regional Director on examining the application has specific objection under the provisions of Act, the same shall be recorded in writing and the Regional Director shall hold a hearing or hearings within a period thirty days, as required and direct the company to file an affidavit to record the consensus reached at the hearing, upon executing which, the Regional Director shall pass an order either approving or rejecting the application along with reasons within thirty days from the date of hearing, failing which it shall be deemed that application has been approved and approval order shall be automatically issued to the applicant.
 
l) In the case where no consensus is received:- In the case where no consensus is received for conversion within sixty days of filing the application while hearing or otherwise, the Regional Director shall reject the application within a stipulated period of sixty days:
 
Provided that the conversion shall not be allowed if any inquiry, inspection or investigation has been initiated against the company or any prosecution is pending against the company under the Act.
 
m) Allowing the conversion:- On completion of such inquiry inspection or investigation as a consequence of which no prosecution is envisaged or no prosecution is pending, conversion shall be allowed.
 
n) Filing of the order: - The order conveyed by the Regional Director shall be filed by the company with the Registrar in Form No.lNC-28 within fifteen days from the date of receipt of approval along with fee as provided in the Companies (Registration Offices and Fees) Rules, 2014.
Also, besides the above amendments form INC-20A (Declaration for Commencement of Business) and form INC- 25A (Advertisement to be published in the newspaper for conversion of the public company into a private company) have been newly inserted to align with the amended Rules.

This Note is a part of the knowledge resource of Mamta Binani & Associates and any form of plagiarism will not be entertained. This document is only for knowledge sharing purpose and is not to be construed in any other manner whatsoever.


This concludes the Note on the Fourth Amendment Rules. For any further queries and help related to these, please feel free to connect with our team at – mamtabinaniandassociates@gmail.com
 

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