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Year End Review 2019: Ministry of Corporate Affairs

  • 20 May 2020
  • 9 min read

The Ministry of Corporate Affairs (MCA) has taken several landmark initiatives in pursuance to the objective of providing greater “ Ease of Doing Business” to all stakeholders.

  • It brings greater transparency in corporate structure and fosters better Corporate compliance so as to enhance the efficiency of the processes under Companies Act, 2013.

Ease of Doing Business Ranking

  • India has improved its ranking on the World Bank’s “Doing Business” 2020 report.
    • As per the report, India has moved up 14 positions to 63rd position as compared to 77th position in 2018.
  • Resolving Insolvency Index: Ministry of Corporate Affairs has contributed towards insolvency resolution. As per the latest Report in the Resolving Insolvency Index, India’s ranking jumped 56 places to 52 in 2019 from 108 in 2018.
    • Recovery rate increased from 26.5% in 2018 to 71.6% in 2019 and time taken in recovery improved from 4.3 years in 2018 to 1.6 years in 2019.

Ease of Doing Business Report

  • The report was introduced in 2003 to provide an assessment of objective measures of business regulations and their enforcement across 190 economies on ten parameters affecting a business through its life cycle.
  • The report measures the performance of countries across 10 different parameters namely-
    • Starting a Business,
    • Dealing with Construction permits,
    • Electricity availability,
    • Property registration,
    • Credit availability,
    • Protecting minority Investors,
    • Paying Taxes,
    • Trading across borders,
    • Contracts enforcement, and
    • Resolving Insolvency.
    • This time two more parameters were considered namely, employing workers and contracting with the government but these are not included in the score and rankings.

Steps Taken to Provide Ease of Doing Business

  • Integrated Incorporation Form - Simplified Proforma for Incorporating Company Electronically (SPICe) introduced which extends 8 services (CIN, PAN, TIN, DIN, Name, EPFO, ESIC and GSTN) from three Ministries through a single form.
  • RUN – Reserve Unique Name: It is a web service used for reserving a name for a new company or for changing its existing name. The web service helps verify whether the name chosen for the company is unique.
  • De-criminalization of technical & procedural violations under Companies Act and reducing the burden on criminal courts & NCLT by shifting 16 offences sections to monetary penalty regime vide Companies (Amendment ) Bill , 2019.
  • Various exemptions:
    • Revised De-Minimis exemption under Competition Act 2002 for speeding up Mergers & Acquisitions of companies in the country.
      • 'The De Minimis' exemption means an investment adviser is exempt from registration if they have 15 or fewer clients over a 12-month period with a physical address.
    • Exemptions from various provisions of Companies Act to Private companies, Government Companies, Charitable companies, Nidhis and IFSC (GIFT city) companies.
  • Differential Voting Rights (DVRs): Provisions relating to issue of shares with DVRs modified with the objective of enabling promoters of Indian companies to retain control of their companies in their pursuit for growth and creation of long-term value for shareholders, even as they raise equity capital from global investors.
    • Promoters or founders of a start up, often lose control of the firm when they dilute their stakes to raise multiple rounds of funding. This issue can be resolved by Differential Voting Rights (DVRs).
    • A DVR share is like an ordinary equity share, but it does not follow the common rule of one share-one vote,
    • It enables promoters to retain control over the company even after many new investors come in, by allowing shares with superior voting rights or lower or fractional voting rights to public investors.
  • Debenture Redemption Reserve (DRR): Provisions relating to creation of DRR revised with the objective of deepening the bond market & reducing the cost of capital by:
    • Removing the requirement for creation of a DRR of 25% of the value of outstanding debentures in respect of listed companies, NBFCs registered with RBI and for Housing Finance Companies registered with National Housing Bank (NHB) both for public issue as well as private placements;
    • Reduction in DRR for unlisted companies from the present level of 25% to 10% of the outstanding debentures.
    • The measure has been taken by the government with a view to reducing the cost of the capital raised by companies through issue of debentures and is expected to significantly deepen the bond market.

Debenture Redemption Reserve

  • Debenture redemption reserve (DRR) is a provision stating that any Indian corporation that issues debentures must create a debenture redemption service in an effort to protect investors from the possibility of a company defaulting.
  • This provision was added to the Indian Companies Act of 1956 through an amendment introduced in the year 2000.
  • This rule offers investors a measure of protection, because debentures are not backed by an asset, a lien, or any other form of collateral.
    • Debentures are debt instruments used to raise capital from the general public, usually backed by the integrity and the creditworthiness of the issuer.
  • Independent Databank: Independent Directors Databank is launched to provide an easy to access & navigate platform for the registration of existing Independent Directors as well as individuals aspiring to become independent directors.
  • Corporate Social Responsibility (CSR):
    • First National CSR Awards were distributed by the President.
    • The term "Corporate Social Responsibility" can be referred to as corporate initiative to assess and take responsibility for the company's effects on the environment and impact on social welfare.
    • In India, the concept of CSR is governed by clause 135 of the Companies Act, 2013.
    • India is the first country in the world to mandate CSR spending along with a framework to identify potential CSR activities.
    • The CSR provisions within the Act is applicable to companies with an annual turnover of 1,000 crore and more, or a net worth of Rs. 500 crore and more, or a net profit of Rs. 5 crore and more.
    • The Act encourages companies to spend 2% of their average net profit in the previous three years on CSR activities.

Insolvency and Bankruptcy Code (Amendment) Bill, 2019

  • The Insolvency and Bankruptcy Code (Amendment) Bill, 2019 was passed by Parliament.
    • This amendment Bill provides for the timely conclusion of cases, greater flexibility for corporate restructuring for maximizing value of assets, protecting primacy of secured creditors and removing voting deadlock of homebuyers, etc.
  • The Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019:
    • It provides a generic framework for insolvency and liquidation proceedings of Financial Service Providers (FSPs) other than banks.
    • The Rules essentially aim to serve as an interim mechanism to deal with any exigency pending introduction of a full-fledged enactment (Financial Resolution and Deposit Insurance Bill) to deal with financial resolution of Banks and other systemically important financial service providers.
  • The Insolvency and Bankruptcy Code, 2016 was amended twice in 2018 to disqualify undesirable persons from regaining control of companies undergoing resolution and to balance the interests of various stakeholders in the Code, especially interests of home buyers and micro, small and medium enterprises, promoting resolution over liquidation of corporate debtor by lowering the voting threshold of committee of creditors and streamlining provisions relating to eligibility of resolution applicants.
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