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Corporate Governance Reliefs announced in view of COVID-19

The Union Finance & Corporate Affairs Minister, Government of India, Ms. Niramla Sitharaman, in her interactions with the press yesterday, i.e., on March 24, 2020, has announced multiple relaxations to statutory and regulatory compliances under various legislations viz., the Companies Act, 2013 (“CA2013”), Limited Liability Partnership Act, 2008 (“LLP Act”), Insolvency and Bankruptcy Code, 2016 (“IBC”), Income Tax Act, 1961, the Goods and Services Tax legislations, Customs Act, 1962 etc. The complete press release vis-à-vis all measures announced can be accessed at http://pib.nic.in/newsite/PrintRelease.aspx?relid=200639.

The measures announced under the IBC have been brought into vide gazette notification no. S.O. 1205(E). dated March 24, 2020 and those announced under the CA2013 and LLP Act have also been implemented by the Ministry of Corporate Affairs, Government of India vide General Circular No. 11/2020 dated March 24, 2020.

For ease of reference, we have briefly encapsulated below the broad reliefs announced under the IBC and CA2013:

1.        Minimum Amount of Default under the IBC.

Under the IBC, the minimum amount of default for initiating insolvency proceedings against the defaulting company has been increased from INR 100,000/- (approximately USD 1,300) to INR 10,000,000 (approximately USD 131,000). Suspension of IBC for a few months is also on the cards, and a decision on this will be taken soon. Please see our newsletter of March 24, 2020 on some related discussion.

2.        Moratorium for filings required under CA2013 and LLP Act.

A moratorium period between April 1, 2020 through September 30, 2020 has been announced. During this period filing of any document, return, statement etc., required to be filed in the MCA-21 Registry, irrespective of its due date would not attract any additional fees. This provides an excellent opportunity to companies and Limited Liability Partnerships (“LLPs”) to cure their ongoing and past non-compliances during this window significantly reducing the compliances and financial burden on these entities.

3.        Periodicity of Board Meetings.

In terms of the CA2013, all companies are required to hold a minimum number of 4 meetings of its board of directors (“Board”) every year with a period of not more than 120 days between 2 consecutive meetings of the Board. This requirement has been relaxed for a period of 60 days till next 2 quarters and accordingly the gap between 2 consecutive meetings of the Board till the next 2 quarters may extend to 180 days.

4.        Requirement of Resident Director.

Non-compliance of a minimum residency in India for a period of 182 days by at least one director on the Board would not be treated as a non-compliance for the financial year 2019-20.

5.        Applicability of Companies (Auditor’s Report) Order, 2020.

Applicability of Companies (Auditor’s Report) Order, 2020 has been shifted to financial year 2020-21 instead of financial year 2019-20.

6.        Meetings of Independent Directors.

Independent Directors are required to hold at least 1 meeting without the attendance of Non-independent directors and members of management. For the financial year 2019-20, if independent directors of a company have not been able to hold even 1 meeting, the same would not be viewed as a violation.

7.        Extension of Time for Creation of Deposits Repayment Reserve.

Requirement to create the deposit repayment reserve of 20% of the deposits maturing during financial year 2020-21 before April 30,2020 has now been extended till June 30, 2020.

8.        Extension of Time for Investment or Deposit of Maturing Debentures.

Requirement to invest or deposit 15% of the debentures maturing during financial year 2020-21 in specified methods of deposit or investments before April 30,2020 has now been extended till June 30, 2020.

9.        Extension of Time for Declaration of Commencement of Business.

A company incorporated after January 12, 2019 and having a share capital could not commence any business or exercise any borrowing powers unless a declaration of commencement of business is filed by the company within 180 days of its incorporation. This requirement has been relaxed and an additional period of 180 days has been provided in this regard.