News Details- (Get Professional Updates on Whatsapp, Msg on 8285393786) More News

MCA silently inserting backdated changes in Rules

Posted Date : 21-May-2014 , 08:01:56 am | Posted By CASANSAAR print Print

The Ministry of Corporate Affairs (MCA) came up with the finalised rules on Companies Act, 2013 after comments from the stakeholders on the draft rules on and from 27 March 2014 without bearing any date or notification number on the same as the same was apparently not published in the Official Gazette. However, all the rules were supposedly effective from 1 April 2014. Subsequently, one by one all the Rules were being notified and by now corporates had started taking action based on the Rules already available on the MCA portal. To the surprise of all—the notified rules contained changes as from the so called final rules earlier available on the MCA portal. Therefore, what appeared before though were final rules, but what appear now in the Gazette are actually the final-final rules!

 
One such recent blunder is the publication of the Companies (Share Capital and Debentures) Rules, 2014 (Rules) in the Official Gazette on 12 May 2014 (Notified rules). Though in disguise the MCA has rectified its mistake, however, the issue is that the so called final-final Rules do not rectify merely a clerical error but are materially and substantially different in terms of the various important provisions dealing with debentures and creation of debenture redemption reserve (DRR). In fact, if one looks at the website of MCA, the date of publication of Rules still appears to be 27 March 2014 and the document appearing on the MCA Portal bears the date as 3 April 2014 (under the Hindi version) and 31 March 2014 (under the English version).  Therefore, what follows is that MCA also indulges in back dating of documents as the Rules are supposedly to be effective from 1 April 2014.
 
The Rules as appearing earlier on the MCA portal along with the single PDF document scanned and put on the website of MCA, which states that such Rules are effective from 1 April 2014 purported to be signed by MCA official cannot be said to have any clerical error and why would one assume such error also. The MCA never admitted or came out with any clarification to at least sound the stakeholders that the notified rules “may” at all be different from the ones uploaded earlier on the its portal. So how do we ascertain which are the final rules and which one to follow? The notified Rules are materially different from what they appeared earlier and thus having significant impact on the corporates and will continue to cause a chaos in reading and re-reading the Rules so as to ascertain where in disguise has MCA posed minor changes and corrections which in effect are substantial.
 
In respect of the Companies (Share Capital and Debentures) Rules, 2014, the rules as appearing earlier required creation of DRR by all the Companies to the extent of 50% and further did not provide any exemption or exception to non-banking financial companies (NBFCs) even in case of privately placed debentures and all India financial institutions (AIFIs) unlike as available to them earlier vide the MCA Circular on 11 February 2013  for creation of DRR by NBFCs.  The final-final rules are a breather to the corporate sector inasmuch as not only is the DRR amount reduced from 50% to 25% but also the exceptions as available to NBFCs earlier has been retained in terms of creation of DRR for privately placed debentures. In other words, the notified Rules bounce back verbatim to the position which existed prior to publication of the rules on 27 March 2014 and thus, the situation remains the same as before.
 
The position that stands now in comparison with the earlier rules after the issue of the Notified rules is:
 
 
Another requirement of the Rules is that in case, where DRR is required to be created, companies were to park 15% of amount of debentures and invest the same in mutual funds, deposits and  government securities by 30 April 2014. Therefore, the problem that now poses is that there may be some NBFCs, which had issued debentures on private placement basis, and thus, no do not require to creation of DRR but which have already issued debentures worth Rs200 crore and therefore gone ahead with parking of funds to the extent of Rs30 crore. How does the company now do away with the action already taken? Though the final-final Rules really are a boon to NBFCs, which are the primary issuers of debentures in the bond market but the issue is not that MCA has gone ahead and corrected merely a mistake—the larger issue is that can Ministry keep on playing with the law as and how it feels like and leaves it to the understanding of all and sundry of its blunders and corrections without a hint of the same. Can MCA act so irresponsibly? 
 
The MCA has already gained powers as an executive to not only make the law but also amend it without any understanding of its impact and this is only going to be prejudicial to the Indian Inc at large as the department goes ahead boldly to commit mistakes and sadly there is no one to put a halt to it. In a very recent ruling in the case of Godrej Industries Ltd, the Bombay High Court has tried to curb the practice by slapping MCA saying that how can the Rules which are not even notified can be said to be effective merely by signing on a piece of paper. How can we rely on a law maker as volatile as MCA, which brings something with a bang and then silently creeps in to correct the same without any indication? On one side where the law makers aim at corporate governance whereas on the other hand with such goof-ups all are we creating a mockery of the Indian legal system to the world at large! (Aditi Jhunjhunwala , Money Life)

 

Category : Corporate Law | Comments : 0 | Hits : 1002

Search News
News By Categories More Categories