BANKING LAW

Depositor Education and Awareness Fund Scheme, 2014

The Reserve Bank of India released the guidelines on the criteria for registering institutions, organisations and associations for grant of financial assistance from the Depositor Education and Awareness Fund ("Fund"). All Banks need to deposit the amount with RBI under this scheme. But how much and from where they need to deposit is as below.

Ø  The amount to be credited to the Fund shall be the credit balance in any deposit account maintained with banks which have not been operated upon for ten years or more, or any amount remaining unclaimed for ten years or more.

Ø  It is clear that any amount lying with bank unclaimed will be credited to Depositor Education and Awareness Fund Scheme, 2014.

Accounts covered under Fund

• Savings bank deposit account
• fixed or term deposits
• cumulative/recurring deposit accounts
• current deposit accounts
• other form of deposit account in any form and with any name
• cash credit accounts
• loan accounts after due appropriation with banks
• margin money against issue of letter of Credit/Guarantee etc. or any security deposit
• outstanding telegraphic transfer
• DDs, pay orders, bankers cheques, sundry deposit account
• unadjusted NEFT credit balances or other such transactions
• unreconciled credit balances on account of ATM transactions
• undrawn balance in any prepaid card
• Any other amounts which may be specified by RBI from time to time.

So any type of balance which mentioned above idle for ten or more years with bank will be transferred to this scheme. Such collected amount will be invested by RBI and used for spreading the depositor education and awareness about dealing with such issues.

Important Highlights

Ø  Pursuant to the amendment of The Banking Laws (Amendment) Act, 2012, Section 26A has been inserted in the Banking Regulation Act, 1949 that empowers the Reserve Bank to establish Fund.

Ø   The Depositor Education and Awareness Fund Scheme, 2014 (Scheme) was notified in the Official Gazette on May 24, 2014.

Ø  The Scheme envisages registration of institutions, organisations or associations and grant of financial assistance to them for promotion of depositor's interests.

Ø  If you claim such unclaimed amount then bank have to give it back to customers. But customers will not get any interest from this scheme. So it is clear that RBI came with this idea to protect the depositors interest. Banks deposit this amount with RBI and in return RBI will take of such unclaimed amount.

 [This update is from Founding Partner Legal Imperials, Jyoti Srivastava Head Litigation Desk]

PHARMA SECTOR

Delhi High Court stop sale of Cipla Drug 

Delhi HC decided in favour of MNC Novartis and restrained the firm Cipla from selling its cheap  version of the respiratory drug Onbrez in domestic market. The court has granted interim injunction and has asked the drug manufacturer to apply for license if it feels the availability of the drug is not sufficent in the market. Novartis had approached the Delhi HC to restrain Cipla from selling the generic version[1] of the drug. Under the WTO, TRIPS Agreement, compulsory licenses are legally recognised means to overcome barriers in accessing affordable medicines, where a government allows to manuafcture a patented drug, without the consent of the innovator company.

[This news is contributed for blog by Adv. Deepak Dahiya, Managing Partner, Legal Imperials]

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[1] Bio equivalent of the brand name drug in terms of dosage, safety, strength, route of administration, performance characteristics, intended use, chemical composition and sold at substantial discounts from branded drug.

PROCEDURAL LAW UPDATE

Social Justice Bench

Hon’ble Chief Justice of India is of the view that cases falling under domain of social justice would be given specialised approach to help in early disposal. The Hon’ble Chief Justice has ordered formation of a special bench, Social Justice Bench to deal with matters related to society. This bench has become functional on December 12, 2014. The special bench would comprise of Justice Madan Lokur and Justice U.U. Lalit.

[This update is contributed by Jyoti Srivastava, Partner Legal Imperials, Head Litigation Desk]

COMPANY LAW UPDATE

The Companies Amendment Bill, 2014

The Companies Act, 2013 (“Act”) was passed by both the Houses of the Parliament and was notified on 29^th August 2013 to replace the 57 year old Companies Act, 1956 with the vision and mission to increase transparency, corporate accountability, enhanced responsibilities of the professionals like Company Secretaries, Chartered Accountants and other professionals and to contribute towards society at large. The Act was passed with 470 sections in totality, out of which 283 sections and 22 rules corresponding with such sections have so far been notified. The new Act has proved to be a welcoming step in the history of India wherein India has become one of the country in the world wherein the corporate social responsibility has been made mandatory to be followed by specified companies.  Albeit, there have been pitfalls in the said new Act which must be ratified in the interests of all the stakeholders.

The Union Cabinet approved the introduction of the Companies Amendment Bill, 2014 on December 2, 2014. The amendment bill has been passed after extensive consultations to address the issues raised by the professionals and stakeholders. The amendments in the Bill have been in the form of omission, additional requirement, optional requirement, rectification requirement, exemption and amendment. The important sections, which have been amended under the bill, are briefed as under:

Amendment No.1: Section 2(68) of the Act: Omitting the requirement for the minimum share capital[1] for the incorporation of the company.

Impact – This will facilitate ease of doing business. A company can now be incorporated with any capital similar to LLPs and registration cost shall be lower.

 Amendment No.2: Section 9 of the Act: Optional requirement to keep common seal of the company and consequential changes for authorization for execution of documents.

Impact – This will reduce procedural issues in relation to common seal.

Amendment No. 3: Section 22 (2) of the Act: Omitting the requirement to have facsimile common  Seal to be used generally or at specified places to  nominate an attorney for places in and not situated in India.

Impact – This will reduce procedural issues.

Amendment No.4: Section 76A: Specifying punishment for default in acceptance of deposits or refund of deposits.

Impact – This will facilitate more stringent punishment, which will deter companies from making willful default in repayment of deposits.

Amendment No.5: Section 117 of the Act: Prohibiting public inspection of Board resolution filed with MCA.

Impact – This will maintain the confidentiality of the Board directors.

 Amendment No.6: Section 123 (1) of the Act: Inclusion of the provision for writing off past losses/depreciation before declaring dividend for the year.

Impact – The provision will become part of the Act as was missed out in the Act but included in the Rules.

Amendment No.7: Section 124(1) of the Act: Rectifying the requirement of transferring the equity shares for which unclaimed/unpaid dividend has been transferred to Investor Education Protection Fund (IEPF) even though subsequent dividends have been claimed.

Impact – This will remove the dilemma of transferring the equity shares to IEPF.

Amendment No.8: Section 134(3) and 143 (12) of the Act: Prescribing threshold limits beyond which fraud shall be reported to the Central Government.

Impact – This will reduce some responsibility on the statutory auditors/cost auditors/secretarial auditor to report fraud even for small amount in big multi-national companies. Also, it will enable Central Government to concentrate on important cased, below which will be taken care by the Audit Committee.

Amendment No. 9: Section 185 of the Act: Exemption under Section 185 (Loans to Directors) provided for loans to wholly owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries.

Impact – The exemption was included in the Rules but was inadvertently missed from the Act.

Amendment No.10: Section 177(4) of the Act: Empowering Audit Committee to give omnibus approval for related party transactions on annual basis.

Impact – The omnibus approval will lead to ease of doing business and shall also be in consonance with Clause 49 of revised SEBI guidelines.

Amendment No.11: Section 188(1) of the Act: Replacing ‘special resolution’ with ‘ordinary resolution’ for approval of related party transactions by non-related shareholders.

Impact – This will facilitate passing resolution by simple majority to meet problems faced by large stakeholders who are related parties.

Amendment No.12: Section 188(proviso) of the Act: Exemption under Section 188, related party transactions between holding companies and wholly owned subsidiaries from the requirement of approval of non-related shareholders. 

Impact – The provision is passed to meet corporate demand.

Amendment No.13: Section 212(6) of the Act: Bail restrictions to be applied only for the offences relating to fraud under Section 447.

Impact – This will provide more clarity for the bail restrictions in the case of offences related to fraud.

Amendment No.14: Section 419 of the Act: To remove inadvertent error, winding up cases to be heard by 2-member bench instead of 3-member bench.

Impact – It will result in reducing practical difficulties.

Amendment No.15: Section 435 and 436 of the Act: Special courts to try only offences carrying imprisonment of two years or more.

Impact – This will reduce the burden on special courts.

To conclude, Companies Amendment Bill, 2014 has been passed to remove the anomalies from the new Companies Act, 2013 and to facilitate ease of doing business considering the practicalities of business transactions. The initiative taken by the government is one step ahead to improve its global ranking for ease of doing business, wherein India has been ranked very low at the 142^nd position in the latest World Bank report.

                                                           

[This article is contributed by Dimpy Gulati, Financial Advisor and Partner and Head Chicago office.]

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[1] Paid-up capital is money that a company has received from the sale of its shares, and represents money that is not borrowed. A company that is fully paid-up has sold all available shares, and thus cannot increase its capital unless it borrows money through debt or is authorized to sell more shares.