MCA clarifies about the closure of business by Foreign Company

Section 391(2) of Companies Act states that "The provisions of Chapter XX shall apply mutatis mutandis for closure of the place of business of a foreign company in India as if it were a company incorporated in India"

These provisions came into force on 15th December, 2016.

MCA has clarified that subsection(1) and subsection(2) of Section 391 needs to be read harmoniously. Accordingly, it is clarified that provisions of Section 391(2) would apply only in case of foreign company which has issued prospectus or IDRs pursuant to provisions of Chapter XXII of Companies Act, 2013.  

Participation in derivatives market by Mutual Funds

In terms of SEBI circular no. DNPD/Cir-29/2005 dated September 14, 2005, existing schemes of the Mutual Funds, whose Scheme Information Documents (SIDs) do not envisage investments in derivatives, are required to obtain positive consent from majority of the unit holders before commencing investment in derivatives. An exit option has to be provided to the dissenting unit holders and such option is to be kept open for a period of one month prior to the scheme commencing trading in derivatives.

SEBI has received representations that for existing schemes’ whose SIDs do not currently envisage investments in derivatives, obtaining positive consent from majority of unit holders as mandated above is challenging on account of vast geographical spread of unit holders and hence the request for doing away with such requirements. This matter was discussed in Mutual Fund Advisory Committee, wherein it was recommended that for participation in derivatives market by such schemes, the requirement of obtaining positive consent should be dispensed with and all investors of the scheme should be given exit option with no exit load, in line with the guidelines for changes in any other fundamental attribute of the scheme.

Based on the above considerations and in view of prudent investment norms that are in place for investment in derivatives by Mutual Funds, it has been decided that for introduction of derivative investments in an existing scheme, whose SIDs do not currently envisage such investments, the requirement of obtaining positive consent from majority of unit holders shall no longer be applicable. However, prior to the scheme commencing participation in derivatives, all investors of such schemes shall be given exit option with no exit load for 30 days, as against exit option to only dissenting unit holders mandated earlier. 

In view of the above, in point 2 of SEBI circular no. DNPD/Cir-29/2005 dated September 14, 2005, clause I) b shall be read as follows: 

“Existing schemes of Mutual Funds, whose SIDs do not envisage investments in derivatives, may participate in derivatives market subject to the following conditions: 

    i. The extent and the manner of the proposed participation in derivatives shall be disclosed to the unit holders.

  ii. The risks associated with such participation shall be disclosed and explained by suitable numerical examples. 

    iii. Prior to commencing participation in derivatives, the scheme shall comply with the provisions of Regulation 18 (15A) of SEBI (Mutual Funds) Regulations, 1996 and all unit holders shall be given at least 30 days to exercise option to exit at prevailing NAV without charging of exit load.”  

All other provisions of the the above mentioned circular remains unchanged. 

This circular is applicable with immediate effect. This circular is issued in exercise of the powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act 1992, read with the provision of Regulation 77 of SEBI (Mutual Funds) Regulation, 1996 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. 

Procedures for Exchange Listing Control Mechanism

Regulation 45 of the SECC Regulations provides for listing of stock exchanges on any recognised stock exchange, other than itself and its associated stock exchange. As per Regulation 45(2) of the SECC Regulations, the Board may specify such conditions as it may deem fit in the interest of the securities market.

In order to address any conflict arising out of aforesaid provisions of listing of a stock exchange on any recognised stock exchange, other than itself, and also to ensure effective compliance with the applicable laws, it has been decided that :

a.       The Listing Department of the listing stock exchange (i.e. a stock exchange on which the listing is done) shall be responsible for monitoring the compliance of the listed stock exchange (i.e. a stock exchange which is getting listed) as in the case of listed companies.

b.      The Independent Oversight Committee of the listing stock exchange shall exercise oversight at the second level to deal with the conflicts, if any. The listed stock exchange may appeal to the Independent Oversight Committee of the listing stock exchange, if aggrieved, with the decision on disclosure of the listing stock exchange as referred under para 2 (I).

c.       An independent Conflict Resolution Committee (CRC) constituted by SEBI, with an objective for independent oversight and review, shall monitor potential conflicts between listed and listing stock exchange on a regular basis. The listed stock exchange aggrieved by the decision of the Independent Oversight Committee of the listing exchange may appeal to the CRC.

This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

Major Achievements of MCA for the Month of January, 2017

THE IMPORTANT POLICY DECISIONS TAKEN AND MAJOR ACHIEVEMENTS DURING THE MONTH OF JANUARY, 2017 BY MCA ARE AS FOLLOWS:

(1) Notifications:-

(i) During the month two notification(s) (one for private companies and the other for public companies) under section 462 of the Companies Act, 2013 [CA-13] have been issued providing for exceptions, modifications and adaptations from some of the provisions of the CA-13 for companies licensed to operate by the Reserve Bank of India or Securities and Exchange Board of India or Insurance Regulatory and Development Authority of India from the International Financial Services Centre (IFSC) located in an approved multi-services special economic zone set-up under Special Economic Zones Act, 2005 read with Special Economic Zones Rules, 2006.

(ii) These notifications were issued on 4th January, 2017 after the corresponding draft notifications have completed the requisite laying period provided under Section 462 of the CA-13. Issue of these two notifications addresses the request made by Gujarat International Finance Tec-City (Gift City) for providing relevant exemptions etc. to such private/public companies operating from Gift City IFSC Area.

(2) During the month, a draft Cabinet Note was circulated to the Ministries/Departments concerned for obtaining ex post facto approval of the Cabinet for Companies (Amendment) Bill, 2016 and for approval of the Cabinet for moving official amendments in the Bill in view of the recommendations made by Honourable Standing Committee on Finance in its Thirty Seventh Report.