Exemptions to companies operating from the IFSC

[The following guest post is contributed by Amitabh Robin Singh,
who is a corporate lawyer practising in Mumbai.]
Continuing with
the Government’s efforts to promote the
International Financial Services Centre (“IFSC“), the Ministry of Corporate
Affairs (“MCA“) has issued
notifications dated January 4, 2017, which provide an exemption from (or
modify) certain provisions of the Companies Act, 2013 (“Companies Act“) for financial
services companies licensed to operate from the IFSC.
There have been two separate notifications: one for private
companies in the IFSC
and one for unlisted
public companies in the IFSC
. In this post, I discuss some of the
exemptions granted to unlisted public companies licensed to operate from the
IFSC (“IFSC Public Companies“).
One interesting point on the notification regarding IFSC
Public Companies (“Notification“)
is that it exempts such companies from certain provisions which normal private
companies are already exempt from by virtue of an exemption notification date
June 5, 2015. These include section 117(3)(g) which requires a company to file
certain board resolutions passed by the Company in the form MGT-14 (as I have discussed
earlier
on this Blog) and the second proviso to section 188(1) which debars
related parties from voting on shareholders’ resolutions in which they are
interested.
One relaxation granted to IFSC
Public Companies is by amending section 21 of the Companies Act to allow
an
officer or any other person
” to authenticate documents and execute
contracts on behalf of a company. The existing position mandates that such
powers may only be vested in key managerial personnel and officers of a
company. This is in line with the Companies (Amendment) Bill, 2016 (“Amendment Bill“) which aims to broaden
the ambit of section 21 based on the recommendations of the Companies Law
Committee. However, there is one interesting divergence between the Amendment
bill and the Notification: the Amendment Bill uses the terms “an officer or employee of the company
while the Notification uses the phrase “an
officer or any other person
”. This dichotomy is interesting, seeing that
IFSC Public Companies have been given more leeway than the legislature proposes
to grant normal companies.
Also, IFSC Public Companies have been granted exemption from
sections 42(3) and 42(7) which relate to the private placement process. Section
42(3) lays down that when one offer of securities is already open, it is not
permissible to make a fresh offer of securities. While the Notification gives a carte blanche exemption from this
requirement, the Amendment Bill lays down that such offers shall only be
permitted to be made in accordance with rules which are to be prescribed.
Further, the requirement of a company under section 42(7) to
keep a record of all private placements and file them in the Form PAS-5 has
been done away with for IFSC Public Companies.
There has also been a relaxation in the timelines specified
for the rights issue process under section 62(1)(a). Normally, a minimum of 15
days is required to be given to a person to whom shares have been offered to
respond to the offer. However, the Notification adds the following proviso:
Provided that notwithstanding anything
contained in sub-clause (i), in case of a Specified IFSC public company, the
periods lesser than those specified in the said sub-clause shall apply if
ninety per cent. of the members have given their consent in writing or in
electronic mode
.”
While the language is slightly unclear due to the usage of
the phrase “the periods lesser than
those specified
“, the intent appears to be to permit IFSC Public Companies
to speed up their rights issue process by permitting them to truncate the offer
period if the requisite majority approves.
Interestingly, the Notification has
exempted IFSC Public Companies from many corporate governance requirements such
as constituting an audit committee and nomination and remuneration committee
for certain companies (sections 177 and 178). Also, the caps on managerial
remunerations prescribed under Schedule V, by way of section 197, have been
made inapplicable to IFSC Public Companies. Further along these lines IFSC
Public Companies have been exempted from having to follow the secretarial
standards prescribed by the Institute of Company Secretaries of India which lay
down minute details on the conduct of board and shareholders’ meetings (section
118(10)). Also, the corporate social responsibility provisions will not apply
to an IFSC Public Company for the first five years of its existence.
One more exemption which has been
granted along similar lines with the exemptions to normal private companies
(mentioned above) is regarding the limitations on the powers of the board
contained in section 180 of the Companies Act. IFSC Public Companies will also not
be required to pass special resolutions to execute the actions specified in section
180 (such as disposing of assets or borrowing money beyond specified limits).
However, there is a rider here that does not apply to normal private companies
– the articles of association of the IFSC Public Company must provide for this
exemption.
The requirement for certain classes of
companies to appoint a woman director on its board will also not apply to IFSC
Public Companies. Another pertinent relaxation granted to IFSC Public Companies
is that the mandate to have at least one director resident in India for at
least 182 days in a year will only be applicable from its second financial year
of existence onwards.
Another exemption which has been granted to IFSC Public
Companies, which is contemplated in the Amendment Bill, is making the
requirement cast upon a director to forward his resignation to the Registrar of
Companies in his individual capacity in the form DIR-11 optional. The Companies
Law Committee had recommended this change while reasoning that very few
companies misuse the names of erstwhile directors. However, as a matter of
prudence going forward, it would still be advisable for a director to make the
requisite filing (despite it not being mandatory) to avoid any liability issues
which may happen to arise.
Hence, as it can be seen, the MCA has looked to the
Amendment Bill and the exemption notification for private companies of 2015 for
some of the exemptions that it has granted to IFSC Public Companies. While this
is an interesting move by the MCA, it is yet to be seen whether it succeeds in
providing tailwinds to the idea of an IFSC in India.
Amitabh
Robin Singh

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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