Corporate Laws Newsletter: NCLT clarifies that the IBC Notification for enhanced minimum threshold of INR 1 Crore will not apply for defaults before the pandemic outbreak-December-2020
A notification amending the minimum threshold of default under the Insolvency and Bankruptcy Code, 2016 (“IBC”) for initiation of insolvency proceedings under IBC to INR 1 Crore was issued in the month of March 2020. The National Company Law Tribunal (NCLT), Kochi Bench while dealing with an application filed by a corporate debtor seeking declaration of insolvency as not maintainable owing to the March 2020 notification, in the case of M/s Tharakan Web Innovations Private Limited vs. Cyriac Njavally1 , has clarified that the March 2020 notification was issued as a relief measure to protect the corporate debtors from the adverse impact caused on the business due to the Covid-19 outbreak. The NCLT while dismissing the application filed by corporate debtor challenging the maintainability of the application filed by the creditor, has further stated that the March 2020 notification is prospective in nature and hence, the said notification cannot be referred to by corporate debtors for seeking protection from initiation of insolvency proceedings especially when the default has taken place before the Covid-19 pandemic outbreak. Application seeking relief was filed by corporate debtor citing reason that the operational creditor had filed application for initiation of insolvency proceedings in September 2020 when the default was less than INR 1 Crore. However, the operational creditor clarified that the default had occurred before March 24, 2020 i.e. before the notification amending the threshold for default was issued. Similar clarification has been provided by the National Company Law Appellate Tribunal in the case of Madhusudhan Tantia vs. Amit Choraria2 , upholding the decision of NCLT Kolkata Bench.
Amendments to the Companies (Prospectus and Allotment of Securities) Rules, 2014
Rule 14(1) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 has been amended by the Ministry of Corporate Affairs. A new proviso has been added to Rule 14(1) which states that in case of offer or invitation of any securities to qualified institutional buyers, it shall be sufficient if the company passes a previous special resolution only once a year for all the allotments to be made to any buyers during the year.
Covid-19 outbreak, research for vaccine and its impact on the Corporate Social Responsibility norms in India
Covid-19 pandemic outbreak has caused serious impact on the economy in India as well as other parts of the world. As the development of suitable vaccine continues, the Ministry of Corporate Affairs (MCA) has come up with certain new amendments in the corporate social responsibility norms of our country encompassing the current situation of covid-19.
Amendments in a snapshot:
Schedule VII of the Companies Act, 2013:
In the light of the ongoing situation, the activities under item (ix) of Schedule VII has been bifurcated and expanded to include within its purview:
(a) Contribution to incubators or research and development (R&D) in various fields of science, technology, medicine etc. and
(b) Contributions made to public funded universities, IITs, National Laboratories and autonomous bodies established under the Department of Atomic Energy, Indian Council of Medical Research, Council of Scientific and Industrial Research engaged in conducting research in science, technology, engineering and medicine to name amongst the many other institutions.
Thus, companies can now employ their allocated CSR expenditure by contributing to such institutions which are engaged in the research and development in the fields of science, technology, engineering, and medicine. Further, the companies can also spend their CSR funds for covid-19 related activities under the item (i) related to promoting healthcare including preventive healthcare and sanitation and item (xii) relating to disaster management, including relief, rehabilitation and reconstruction activities of the Schedule VII.
The Companies (Corporate Social Responsibility Policy) Rules, 2014:
The definition of the term ‘CSR Policy’ has been amended to include a proviso clause which provides an allowance to the companies involved in research and development (R&D) activity of making vaccines, drugs, medical devices in their normal course of business, to undertake the same for covid-19. The cost incurred for such activities shall be considered as CSR expenditure for the financial years 2020 to 2023 subject to satisfying the conditions as mentioned hereinbelow:
(a) Such R&D activities shall be carried out in collaboration with any of the institutes or organizations mentioned in item (ix) of Schedule VII;
(b) The details relating to such activities shall be disclosed separately in the Annual Report on CSR included in the Board’s Report.
This is a welcome change as it has a two-fold impact with the society benefiting at large and the pharmaceutical companies engaged in research of covid-19 related activities having already spent large sums of amounts for such R&D can claim it as CSR expenditure for the 3 financial years, subject to satisfying the conditions mentioned above.