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Government livered ease of doing business in 2019: MCA

The government of India in 2019, made several policies and recommendations to improve the ease of doing business (“EODB”) index ranking of the country. Among other subsidiary policies, some significant decisions relating to – resolution of insolvency, speedier processing of property registrations, a grant of approvals to construction projects, government acquisitions, trading across borders, payment of taxes, etc were also made as key changes.

India now ranks at 63rd position in the EODB index ranking of the World Bank. In 2018, it was placed at 77th position, where the country experienced the longest jump of 23 batch points after being positioned at 100 in 2017.

In 2019, intending to enhance compliance administration and EODB index, the government brought several landmark initiatives and decisions through the Ministry of Corporate Affairs to strengthen compliance of corporate policies and transparency in compliance by companies or LLP, as the case may be.

Some of the keys take of MCA in 2019 which led to improved EODB Rankings

1) Electronic Standalone form for Incorporation – SPICe with AGILE INC – 35:

Introduced in 2018, the form named SPICe which stands for Simplified Performa for Company Incorporation, changes notified in 2019 made such form comprehensive by extending to 8 more services through the AGILE i.e., Form INC – 35 to help companies register their business with ESIC, EPFO, and GST through a single common registration form along with, NAME approval, delivery of CIN, PAN, TAN, Directors Identification Number (‘” DIN”) for proposed directors/partners altogether, simplifying the company incorporation process.

2) De-criminalization of offenses:

To reduce the burden on criminal courts & National Company Law Tribunal (“NCLT”) , near about 16 classes of offenses of technical and procedural nature of violations under the Companies Act, 2013, were bought under the penalty regime via Companies (Amendment)Act, 2019 notified on 31st July 2019.

3) Re-engineering government processes through RUN & DIN:

Introduced web services for easy Name reservations for companies as well as for  LLP online through RUN which stands for Reserve Unique Name and for easy recognition of directors through allotment of DIN digitally.

4) Compliance relief to Companies:

Granted relief of “Zero MCA fee” for company incorporation with an authorized capital up to Rs. 15 lakhs. Allowed companies to file their financial statements for past years without many penal consequences issuing Condonation of Delay Scheme (CODS), 2018.

5). Revision of De-Minimis exemption and Introduction of Green Channel:

MCA revised the De-Minimis exemption for speeding up mergers and acquisitions of companies as restricted under Competition Act, 2002.

(Ref: https://www.cci.gov.in/sites/default/files/quick_link_document/Revised%20thresholds.pdf ).

The CCI (Competition Commission of India ) introduced an automated system for approval of combinations under the Green Channel Clearance route for Mergers and Acquisitions to reduce their time and cost of transactions.

* Green Channel clearance to Combinations (i.e., Mergers or Demergers ) here signifies for the simplifications made in the process of taking approvals from the regulator for undertaking such combinations.

6). Exemptions from the provision of Companies Act to certain entities:

Several exemptions from provisions of the Companies Act, 2013 have been allowed to Private,  Government,  Charitable companies, Nidhi Companies, and IFSC (Gift city) companies.

7). Issue of Shares with Differential Voting Rights (DVRs):

To enable promoters of Indian companies to retain control over their companies, when they raise equity capital from other or some foreign investors, several policies in respect of Differential Voting Rights were introduced through the Companies (Share Capital & Debentures ) Rules, 2019.

The rules also incorporated a change in the status of Differential Voting Right (DVR ) from 26% to 74% and removed the requirement of distributable profits for 3 years for companies to become eligible to issue DVRs.

8). Reduction in the time limit of public offers:

Based on the norms of the Securities Exchange Board of India (“SEBI”), the time limit for public offers for delivery of securities to investors was reduced to 3 days instead of 6 days.

9). Revision of provisions relating to Debenture Redemption Reserve (DRR):

To reduce the cost of capital, the provisions for DRR were revised which included removal of the requirement of creation of minimum 25% of the nominal amount of the outstanding amount as DRR for listed companies, registered Non-Banking Finance Companies (NBFCs) and Housing Finance Companies (HFCs) and reduction in DRR level for unlisted companies to 10% from 25%.

10). IICA to maintain Independent director databank:

To provide easy access and navigation platform for registration of independent directors and maintenance of directors data bank, a registration facility managed by the Indian Institute of Corporate Affairs (“IICA”) was introduced.

11). Introduction of some new compliance policies and rules:

  • Dematerialization of Securities of Unlisted Public Companies (Section 29 read with rule 9 &9A of companies(Prospectus& Allotment of Securities) Rules, 2014
  • Introduction of Companies (Registered Valuers & Valuation) Rules.
  • Companies (Adjudication of Penalties) Rules amended making the process transparent and non-discretionary.
  • National Guidelines on Responsible Business Conduct.
  • Withdrawal of more than 14,000 prosecutions under the Companies Act, 2013.
  • Provisions related to Rationalization of Related Party Transaction
  • Initiation of Phase-II of Decriminalization of Penal provisions under Companies Act, 2013.
  • Distribution of First National CSR Awards.

12). Recommendations made in the Insolvency and Bankruptcy Code:

The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019 was introduced on 12th December 2019 to assure priority is given to repayment and resolutions on time as required by corporate debtors.

The Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 notified on 15th November 2019 which guided for insolvency issues related with Financial Service Providers (FSPs) excluding banks.

The rules aimed at serving an interim mechanism to deal with any exigency pending,  with the introduction of a full-fledged enactment of Financial Resolution and Deposit Insurance Bill to deal with the financial resolution of Banks and other systemically important financial service providers.

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