COVID-19 - Temporary Relaxations for Corporate Compliances

The global outbreak of coronavirus (COVID-19) is an unprecedented event that has led to lockdowns and unexpected restrictions on the public as well as the corporate sector across the world. In order to control its spread, the Government of India (GoI) has inter alia ordered all establishments, except organisations providing essential goods and services, to temporarily close their physical offices. Employees are working remotely, but due to difficulties faced in coordination and lack of office facilities, companies are likely to face difficulties in undertaking timely compliances of various applicable laws. Keeping in mind the aforesaid, the GoI has temporarily relaxed a number of compliance requirements for the corporate sector. We have analysed below some of the major relaxations from securities and companies law perspective.

Relaxations introduced by the Securities and Exchange Board of India

In order to reduce compliance burden on listed entities, the Securities and Exchange Board of India (SEBI) has, inter alia, issued three circulars on March 19, 2020[1], March 23, 2020[2] and March 26, 2020[3], respectively. These state that various compliances have been relaxed, including periodic filing requirements for listed entities under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR). The major relaxations are as below:

A. Extension of time for compliances/ filings: SEBI has extended the last date for conduct of meetings and various quarterly, half yearly, and annual submissions to be made to the stock exchanges, as mentioned below:

S. No. Required Actions Applicable Regulations Original Due Date Revised Due Date
Conduct of Meetings
1. NRC Meeting / Stakeholders Relationship Committee Meeting / Risk Management Committee Meeting (Once in FY 2019-20) Regulations 19(3A) / 20(3A) / 21(3A) of the LODR March 31, 2020 June 30, 2020
2. Annual General Meeting by top 100 Listed Entities by Market Capitalization Regulation 44(5) of the LODR August 31, 2020 September 30, 2020
Periodic Filings/Disclosures
3. Compliance Certificate (Half Yearly) Regulation 7(3) of the LODR April 30, 2020 May 31, 2020
4. Statement of Investor Complaints (Quarterly) Regulation 13(3) of the LODR April 21, 2020 May 15, 2020
5. Secretarial Compliance Report (Yearly) Regulation 24A of the LODR read with circular No. CIR/CFD/CMD1/27/2019 dated February 08, 2019 May 30, 2020 June 30, 2020
6. Corporate Governance Report (Quarterly) Regulation 27(2) of the LODR April 15, 2020 May 15, 2020
7. Shareholding Pattern (Quarterly) Regulation 31 of the LODR April 21, 2020 May 15, 2020
8. Financial Results (Quarterly) Regulation 33 of the LODR May 15, 2020 June 30, 2020
9. Financial Results (Annual) Regulation 33 of the LODR May 30, 2020 June 30, 2020
10. Certificate from Practising Company Secretary (Half Yearly) Regulation 40(9) of the LODR April 30, 2020 May 31, 2020
11. Initial Disclosure by Large Corporate SEBI Circular HO/DDHS/CIR/P/2018/144 dated November 28, 2018 April 30, 2020 June 30, 2020
12. Annual Disclosure by Large Corporate SEBI Circular HO/DDHS/CIR/P/2018/144 dated November 28, 2018 May 15, 2020 June 30, 2020

 
13. Financial results of entities having listed non-convertible debentures (NCDs) / non-convertible redeemable preference shares (NCRPSs) (Half Yearly) Regulations 52(1) and (2) of the LODR May 15, 2020 June 30, 2020
14. Financial results of entities having listed NCDs/NCRPS (Annually) Regulations 52(1) and (2) of the LODR May 30, 2020 June 30, 2020
15. Financial results of entities having listed Commercial Papers (CPs) (Half Yearly) SEBI Circulars SEBI/HO/DDHS/CIR/P/2019/115 dated October 22, 2019 and SEBI/HO/DDHS/CIR/P/2019/167 dated December 24, 2019 May 15, 2020 June 30, 2020
16. Financial results of entities having listed CPs (Annually) May 30, 2020 June 30, 2020

B.  Board/ Audit Committee Meetings: The board of directors and audit committee of listed entities are exempt from observing the maximum stipulated time gap of 120 days between two meetings as required under Regulations 17(2) and 18(2)(a) of the LODR, respectively, in respect of meetings between the period from December 01, 2019 to June 30, 2020. However, the board of directors/ audit committee are required to ensure that they meet at least four times a year, as stipulated under Regulations 17(2) and 18(2)(a) of the LODR;

C. Issuance of NCDs/NCRPSs/CPs: Listed entities can use the audited financial statement as on September 30, 2019 in order to make public issue of the NCDs, NCRPSs and/or CPs until May 31, 2020 instead of March 31, 2020;

D. SEBI has also clarified that the relaxations vide circular dated March 19, 2020 in the common obligations under Chapter III of the LODR shall apply to both listed companies with listed specified securities as well as listed companies with listed NCDs / NCRPSs;

E. Delayed applicability of Standard Operating Procedure: The Standard Operating Procedure[4] on imposition of fines and other enforcement actions for non-compliance with provisions of the LODR, the effective date of operation of which was “compliance periods ending on or after March 31, 2020”, will now come into force with effect from “compliance periods ending on or after June 30, 2020”. The Standard Operating Procedure circular dated May 3, 2018[5] will continue to be applicable till June 30, 2020;

F. Exemption from Newspaper Advertisement: SEBI has exempted the requirement for publication of advertisements in newspapers as required under Regulation 47 of the LODR for all events mentioned thereunder until May 15, 2020; and

G. Exemptions under Takeover Regulations: Along with the aforementioned relaxations made by SEBI for listed entities, it has also provided relaxations to holders of 25% or more shares or voting rights and to promoters of listed entities, from filing disclosure of their aggregate shareholding and voting rights as on March 31, 2020. It has also provided relaxation to promoters along with the person acting in concert from filing the declaration on a yearly basis, on creation of encumbrance on shares in the company. Both such disclosures were required to be made within 7 working from the end of the financial year. SEBI has issued a circular on March 27, 2020[6], by virtue of which the due date of filing such disclosures under Regulations 30(1), 30(2) and 31(4) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 for the financial year ending March 31, 2020, has been extended upto June 01, 2020.

Relaxations introduced by the Ministry of Corporate Affairs

The Ministry of Corporate Affairs (MCA) has issued a notice on March 18, 2020, followed by the Companies (Meetings of Board and its Powers) Amendment Rules, 2020 dated March 19, 2020, whereby it has inserted a new sub-rule under Rule 4 of the Companies (Meetings of Board and its Powers) Rule, 2014 for providing relaxation in holding board meetings with physical presence of directors under Section 173 (2) read with Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014 for approval of inter alia the annual financial statements, board’s report, etc. Consequently, such meetings may be held through video conferencing or other audio-visual means from March 19, 2020 until 30th June, 2020.[7]

Subsequent to the announcement made by Union Finance & Corporate Affairs Minister. Niramla Sitharaman on March 24, 2020, the MCA has issued a circular dated March 24, 2020, wherein several important relief measures, have been taken to address the threat imposed by COVID-19 and to reduce the compliance burden as mentioned below:[8]

  1. No additional fees shall be charged for late filing during a moratorium period from April 01, 2020 to September 30, 2020, in respect of any document, return, statement etc., required to be filed in MCA-21 registry, irrespective of its due date;
  2. The prescribed interval period for holding meetings of the board under Section 173 of the Companies Act, 2013 (Act) has been extended by a period of 60 days, i.e. from the existing 120 days to 180 days until next two quarters, i.e. till September 30, 2020. Therefore, the gap between two consecutive meeting of the board may extend up to 180 days (instead of 120 days) till the next two quarters. For listed companies, the meetings of the board will have to be scheduled in accordance with the exemption provided by SEBI, as discussed above;
  3. Companies (Auditor’s Report) Order, 2020 shall be made applicable from the financial year 2020-21 instead of being applicable from the financial year 2019-20 as notified earlier;
  4. If in case the independent directors of a company fail to hold at least one meeting without the attendance of non-independent directors and members of management in the year 2019-20, as required under Schedule 4 to the Act, the same shall not be viewed as a violation under the Act;
  5. The date for transferring at least 20% of the amount of deposits (received from members) which are due to mature during the financial year 2020-2021 into the deposit repayment reserve account, as required under Section 73(2)(c) of the Act, has been extended by 60 days, i.e. from April 30, 2020 to June 30, 2020;
  6. The date for complying with the requirement to invest or deposit at least 15% of the amount of debentures maturing during a particular year as per Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014 has been extended up to June 30, 2020 (instead of April 30, 2020);
  7. Additional time of 6 months has been granted to newly incorporated companies to file a declaration for commencement of business, in addition to the existing period of 6 months; and
  8. For the financial year 2019-20, non-compliance of minimum residency in India for a period of at least 182 days by at least one director of every company, under Section 149 of the Act, shall not be treated as a violation.

Corporate Social Responsibility: The MCA has clarified that the spending of CSR funds for COVID-19 and making contributions to the PM-CARES Fund is an eligible CSR activity.[9] The fund may be spent for various activities related to COVID-19 under item nos. (i) and (xii) of Schedule VII of the Act, relating to promotion of health care, including preventive health care and sanitation, and disaster management.

Further, a voluntary FORM CAR (Companies Affirmation of Readiness Towards COVID-19) has been introduced to access the companies’ compliance with COVID-19 related measures, such as, implementation of work from home policy.[10]

Conclusion

In current scenario of the lockdown and restrictions imposed, the above temporary relaxations will enable companies to avoid penalties on account of unavoidable delay in meeting their regulatory compliances. However, companies ought to comply with any other regulatory requirement, that has not been specifically relaxed such as the disclosures under Regulation 30 of the LODR.

[1] SEBI Circular on relaxation from compliance with certain provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 due to the CoVID-19 virus pandemic, SEBI/HO/CFD/CMD1/CIR/P/2020/38 dated March 19, 2020.

[2] SEBI Circular on relaxation from compliance with certain provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and certain SEBI Circulars due to the CoVID -19 virus pandemic – continuation, SEBI/HO/DDHS/ON/P/2020/41 dated March 23, 2020.

[3] SEBI Circular on further relaxation from compliance with certain provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the SEBI circular dated January 22, 2020 relating to Standard Operating Procedure due to the CoVID -19 virus pandemic, SEBI/HO/CFD/CMD1/CIR/P/2020/48 dated March 26, 2020.

[4] SEBI circular no. SEBI/HO/CFD/CMD/CIR/P/2020/12 dated January 22, 2020.

[5] SEBI circular no. SEBI/HO/CFD/CMD/CIR/P/2018/77 dated May 3, 2018.

[6] SEBI Circular on Relaxation from compliance with certain provisions of the SEBI (Substantial Acquisitions of Shares and Takeovers) Regulations, 2011 due to the CoVID-19 pandemic, SEBI/HO/CFD/DCR1/CIR/P/2020/49 dated March 27, 2020

[7] MCA Notice dated March 18, 2020, available on http://www.mca.gov.in/Ministry/pdf/Meeting_18032020.pdf and Companies (Meetings of Board and its Powers) Amendment Rules, 2020 dated March 19, 2020, available on http://www.mca.gov.in/Ministry/pdf/Rules_19032020.pdf.

[8] MCA General Circular 11/2020 dated March 24, 2020, available on http://www.mca.gov.in/Ministry/pdf/Circular_25032020.pdf.

[9] MCA General Circular 10/2020 dated March 23, 2020, available at http://www.mca.gov.in/Ministry/pdf/Covid_23032020.pdf and MCA Office Memorandum CSR-05/1/2020-CSR-MCA dated March 28, 2020

[10] The details regarding the form are available at http://www.mca.gov.in/Ministry/pdf/Car_22032020.pdf.