CONTRADICTIONS BETWEEN COMPANIES ACT AND FEMA FOR THE NUMBER OF DAYS WITHIN WHICH ALLOTTMENT OF SHARES HAVE TO BE MADE

CONTRADICTIONS BETWEEN COMPANIES ACT AND FEMA FOR THE NUMBER OF DAYS WITHIN WHICH ALLOTTMENT OF SHARES HAVE TO BE MADE

Time Limit for allotment of securities under the Companies Act, 2013:

Under the new Companies Act, Sections 62 & 42 and Rule 13 of Companies (Share Capital and Debentures) Rules, 2014 deals with issue of shares on preferential basis. Rule 13 prescribes that any such issue on preferential basis has to comply with conditions laid down in section 42 of the Companies Act, 2013. Section 42(6) further provides that-

“(6) A company making an offer or invitation under this section shall allot its securities within sixty days from the date of receipt of the application money for such securities and if the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within fifteen days from the date of completion of sixty days and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of twelve per cent. per annum from the expiry of the sixtieth day:

Provided that monies received on application under this section shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than—

(a) for adjustment against allotment of securities; or

(b) for the repayment of monies where the company is unable to allot securities.

Further, as per Unlisted Public Companies (Preferential Allotment) Amendment Rules, 2011 amended the erstwhile Rules of 2003. The 2011 Rules provided that allotment of securities should be completed within 60 days from the receipt of application money. If not so allotted, the company should repay application money within 15 days thereafter, failing which it should be repaid along with an interest at 12% p.a. However, please note that these Rules applied only to unlisted public companies, and no such conditions were prescribed for private companies back then.

However, under FEMA , Provisions Relating to Issue/ Transfer of Shares  as per Annexure 3 of Consolidated FDI Policy issued by the Department of Industrial Policy and Promotion with effect (Effective from June 07, 2016) says that

1. The capital instruments should be issued within 180 days from the date of receipt of the inward remittance received through normal banking channels including escrow account opened and maintained for the purpose or by debit to the NRE/FCNR (B) account of the non-resident investor. In case, the capital instruments are not issued within 180 days from the date of receipt of the inward remittance or date of debit to the NRE/FCNR (B) account, the amount of consideration so received should be refunded immediately to the non-resident investor by outward remittance through normal banking channels or by credit to the NRE/FCNR (B) account, as the case may be. Non-compliance with the above provision would be reckoned as a contravention under FEMA and would attract penal provisions. In exceptional cases, refund of the amount of consideration outstanding beyond a period of 180 days from the date of receipt may be considered by the RBI, on the merits of the case.

Thus, there is a contradiction between Companies Act 2013 and Ministry of Commerce and Industry of India as regards to number of days within which shares have to be allotted.

·        As per Companies Act , Shares have to be issued within 60 days , if not shall repay the application money to the subscribers within fifteen days from the date of completion of sixty days and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of12%.

·        As per FEMA , shares can be allotted within 180 days of receipt of money . 

The contradictory provisions relating to number of days within which a company has to allot shares has created a lot of confusion and misunderstanding among professionals.

It is to be noted that RBI vide its press release dated 4th February 2016 stated that  is proposed  for Changes in Timeframe for Issue of Shares and Reporting of FDI; Invites Comments from Stakeholders, it is yet to be modified or altered.
Pl click the following link :https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=36158

Will the Government of India through the Ministry of Commerce and Industry will amend the Industrial policy issued in June 2016 by making amendment as “shares have to be allotted within 60 days of receipt of inward remittance by the non-resident investor.

This will go long way to remove the confusions and misunderstandings as regards to number of days within which the shares have to be allotted.

NOW 100% FDI in Limited Liability Partnerships (LLPs) IS ALLOWED UNDER AUTOMATIC ROUTE From June 7 2016 onwards

NOW 100% FDI in Limited Liability Partnerships (LLPs) IS ALLOWED UNDER AUTOMATIC ROUTE From June 7 2016 onwards

As per Consolidated FDI Policy issued by the Department of Industrial Policy and Promotion with effect (Effective from June 07, 2016)

FDI in LLPs is permitted subject to the following conditions:

(i) FDI is permitted under the automatic route in Limited Liability Partnership (LLPs) operating in sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions. 

(ii) An Indian company or an LLP, having foreign investment, is also permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions. 

CBDT CIRCULAR PRESCRIBING CONDITIONS FOR RELAXATION FROM HIFGHER TDS U/S 206AA OF THE INCOME TAX ACT 1961 FOR NON-RESIDENTS AND FOREIGN COMPANY:

CBDT CIRCULAR PRESCRIBING CONDITIONS FOR RELAXATION FROM HIFGHER TDS U/S 206AA OF THE INCOME TAX ACT 1961 FOR NON-RESIDENTS AND FOREIGN COMPANY:

Section 195 of the Income-Tax Act, 1961 states that the income earned by non-residents in the form of royalties, technical fees, etc. is subjected to TDS by the person who is responsible to make such payment to the non-resident assessee. The section does not mention any rate at which the TDS is to be done by the person liable to make the payment.

However, the rates are referred in PART-II of the First Schedule to the relevant Act.

Further, as per Section 206AA, PAN is mandatorily required to be furnished by the deductee, otherwise income is to be taxed at the higher of the following rates:

a) The Rate in Force

b) The rate specified in the Act

c) The rate of 20%

Further Finance Act 2016 provided that provisions of section 206AA regarding higher TDS in case of non availability of PAN shall not apply to non-resident, not being a company, or to a foreign company, subject to such conditions as may be prescribed.

Now CBDT has come up with Notification No 53/2016 dated 24^th June providing conditions and for relaxation of higher TDS u/s 206AA of the Act for non availability of PAN Card in case of Non-Resident/Foreign Company.

 As per said notification section 206AA will not be applicable for following nature of transactions:

ü  Interest

ü  Royalty

ü  Fess for technical services

ü  Payments on transfer of any capital asset,

However deductee will be required to furnish following details to the deductor for taking benefit of this notification:

ü  Name, e-mail id, contact number;

ü   Address in the country or specified territory outside India of which the deductee is a resident;

ü   A certificate of his being resident in any country or specified territory outside India from the Government of that country or specified territory if the law of that country or specified territory provides for issuance of such certificate; (iv) Tax Identification Number of the deductee in the country or specified territory of his residence and in case no such number is available, then a unique number on the basis of which the deductee is identified by the Government of that country or the specified territory of which he claims to be a resident.

What is ITES : “Information Technology Enabled Service?

What is ITES : “Information Technology Enabled Service?

ITES Registration is mandatory to the business when they enter into IT business, IT enabled services, E commerce business, BPO, etc.


Steps to obtain ITES Registration:

1)      Obtain Udyog Aadhar no of the business. It is same like Aadhar no of individual (link: udyogaadhaar.gov.in)

2)      Make the application to Industrial Development Corporation

3)      Govt Department will issue Letter of Intent (“LOI”) / Registration Certificate

Documents to be submitted to obtain ITES:

1)      Application Form
2)      Memorandum, Article and COI of the Company
3)      Board resolution authorising Director to apply for ITES
4)      KYC documents of all Directors
5)      KYC documents of authorised signatory
6)      Undertaking that Management will undertake only IT based businesses
7)      Authority Letter to the owner of the premises to apply for any approval, clearance, etc in favour of business
8)      Udyog Aadhar No
9)      Project report of the business
10)   Building completion certificate
11)   Agreement between company and IT Park
12)   Premise proof

Why ITES Policy and ITES Registration is mandatory ?

1)      State Government wants to develop the IT park in their state which will attract large investor to invest in IT business.

2)      Creating more employment opportunity to young guns

3)      Investment flow to industrially underdeveloped region of the state

4)      To use IT as a tool for economic and socio – culture development of the country


IT Park can sublet the premises only to IT business:

1)      It is mandatory for the IT Park to obtain ITES certificate

2)      IT Park are not allowed to sublet the premises to the non IT business for setting up their offices.

3)      IT Park have to apply to Industrial Development Corporation that they are subletting the premise(s) to the IT based business, whenever new business wants to occupy the space for setting up their office.

4)      IT Park have to adhere with the terms and condition of the Certificate, failure of which can attract the penalty, even cancellation of their Registration.


Benefits to the IT Park:

1)      Exemption from the payment of Electricity Duty

2)      Property tax are levied at the rate as applicable to the residential premises

3)      Exemption from the Entry Tax / Octori duty from the import of goods for the self-consumption


Validity of the ITES Registration:

1)      For IT Park: It is one time license, till the time it is not surrender / cancelled by the Department

2)      For Company: Till the duration of the period of Leave and License Agreement.

Courtesy : Mr Ashish Baid