EASY EXIT SCHEME 2010 INDIA - Highlights & FAQs

EASY EXIT SCHEME 2010
Highlights and FAQs
This is a scheme provided by the Ministry of Corporate Affairs to the bona fide companies who are either not doing any business on and from 1st April 2008 or have not been able to start any business activity at all and there being no asset or liability want an exit route with minimum hassle.
The Scheme will be in effect for ?
30/05/2010 to 31/08/2010
Which are the eligible companies ?
Defunct companies, that is, companies not carrying any business or operation on or from 01st April, 2008 and includes such companies, which have not raised their share capital to the required minimum of Rs 1 Lac and Rs 5 Lac in cases of private and public companies respectively.
Government companies would be required to submit NOC from the respective ministry or department of the government
Which are the Ineligible entities ?
(a) Listed companies
(b) Companies registered under section 25 of the Companies Act, 1956
(c) Vanishing companies
(d) Companies where inspection or investigation is ordered and being carried out or yet to be taken up or where completed prosecutions arising out of such inspection or investigation are pending in the court;
(e) Companies where order under section 234 of the Companies Act, 1956 has been issued by the Registrar and reply thereto is pending or where prosecution if any, is pending in the court
(f) Companies against which prosecution for a non compoundable offence is pending in court
(g) Companies accepted public deposits which are either outstanding or the company is in default in repayment of the same
(h) Company having secured loan
(i) Company having management dispute
(j) Company in respect of which filing of documents have been stayed by court or Company Law Board(CLB) or Central Government or any other competent authority
(k) Company having dues towards income tax or sales tax or central excise or banks and financial institutions or any other Central Government or State Government Departments or authorities or any local authorities.
How to apply for this scheme ?
Form EES has to be filled up and filed electronically. The company representative can sign the form digitally. In case digital signature by the company representative is not possible, it may be signed manually and a physical copy of the manually signed form EES should be attached to the electronic form EES before filing.
Is there any pre certification needed ?
The Form EES must be pre certified by a PCS or PCA or PICWA.
Is there any attachments needed ?
( 1 ) Affidavit by each director sworn before a 1st Class Judicial Magistrate or Executive Magistrate, Oath Commissioner or Notary to the effect that
the Company did not carry any business since incorporation or
carried business up to ____________ and thereafter has not been carrying any business on or after 01/04/2008
( 2 ) Indemnity Bond by each director individually or collectively, duly notarized that any loss, claim, liability on the company shall be met in full by the directors individually or collectively, even after the name of the company is struck off.
( 3 ) Statement of account On a date not prior to one month from the date of filing the form EES duly certified by the statutory auditor or by a PCA
( 4 ) Board Resolution authorizing the directors to file the application EES
( 5 ) NOC in case of government companies
( 6 ) PAN / Passport of directors duly notarized
( 7 ) Proof of present address and proof of permanent address, duly notarized

Has any format been prescribed ?
( 1 ) Annexure A for affidavit
( 2 ) Annexure B for Indemnity and
( 3 ) Annexure C for the Statement of Account
What would be the process after filing the Form EES ?
The application having found in order, the ROC will send a notice to the company under section 560, giving 30 days to raise any cause to the contrary, else the name will be struck off.
The names of the applicant companies will be put on the mca website on daily basis, for giving a chance to the stakeholders or any other interested party to raise objections.
Where there are other regulators like RBI, SEBI etc., the ROC will intimate them on weekly basis of the application received
The specified period being over, unless any contrary reason is found, the name of the company will be struck off the register and will be sent for publication in the official gazette.

{ This write up on Easy Exit Scheme 2010 Highlights and FAQs is an exclusive work of ANJAN KUMAR ROY, Fellow of the Institute of Company Secretaries of India, he is the author of this write up and he has copy write of this write up. Any imitation or copying of this write up shall constitute violation of copy write of the author }

ANJAN KUMAR ROY
FCS
Vice Chairman, EIRC of ICSI
ANJAN KUMAR ROY & CO.
Company Secretaries
5/1 Bondel Road. Kolkata 700019
09830201949 ( M )

Class Action Suit in the Companies Bill, 2009

Clause 216 of the bill introducing Class Action Suits, has the potential to provide huge power in the hands of a member and a creditor. This power in the hands of a single member or a single creditor to represent a class seeking orders to restrain the company and its directors from acting on a resolution can be utilized for ulterior motives and can open a Pandora’s Box.
Class Action Suit is prevalent in the United States and it operates on the basis of contingency fees. Indian laws do not allow contingency fees. In the absence of contingency fees it would be difficult to get a small shareholder or creditor who would spend so much time and money to fight a case against a big company. However, on the other hand someone with and adverse or ulterior motive and money power may find a small shareholder or a small creditor to act in the front to accomplish the vested interest of the said someone.
This provision, therefore, instead of helping small shareholders and creditors may end up being a weapon for corporate rivals.
Just to refer, part 11 of the UK Companies Act, 2006, vide Sections 260 to 269 provide for derivative actions. Derivative actions are actions against the directors of the company by a member or a shareholder, on behalf of the company. Derivative actions can be taken, when the directors are doing anything which is ultravires or which is beyond their authority. However, there are some important precautions, such as
( A ) The Appellant has to take judicial clearance
( B ) Company has to be a defendant and
( C ) The claim, if any, can be awarded to the company and not to the member or shareholder ( Appellant )
Clause 216 of the Companies Bill, 2009 combines Class Action and Derivative Action. Further, unlike many other clauses, this clause has no reference to any future prescription, that is, rules. May we then understand that the procedure to make these actions ( class & derivative actions ) would be just as much as it is mentioned in the Clause 216 ?

Companies Bill, 2009 The Impact

Companies Bill, 2009 was introduced to the Parliament of India on the 3rd Day of August, 2009 and at present it is before the departmentally related parliamentary standing committee.
India Inc. has been dealing with the provisions of the Companies Act 1956 for over five decades. The said Act was drafted, debated and implemented for a newly independent, long suppressed, economically weak nation with welfare and nationalistic motive. Over the course of about five decades the original Act has been amended several times. However, over these decades India has also changed from a newly independent, long suppressed, economically weak nation to an open economy with vibrant democracy, large and young consumer base, large English speaking population, large number of skilled and professional manpower and lot of prospects. India has become one of the prime locations for global investment and has the potential to become an even more prospective economy.
India also has mighty competitors like China, Brazil, Russia and others which are also progressing very fast and some are faster than we do.
Our prospects as Indian nationals depend largely on the rate of growth of the Indian Economy or more specifically “on the rate of growth of the India Inc.” Company law of a country plays a major role in the corporate growth of the country. Companies Act, 1956 is the Umbrella Act for India Inc. This Act needs change because it has to ensure a faster rate of growth for India Inc. MSMEs can add a lot of strength to an economy and therefore development of MSMEs is also an important need.
Companies Bill, 2009 contains the following provisions which can have significant impact on the economy.
Encouragement to entrepreneurs
Special provisions for smaller companies
Clear definitions
Greater responsibility of the Board
Speedy redress of grievances
Easy entry and exit route
Standardization of regular processes and policies
Minimum Bottlenecks
Encouragement to entrepreneurs
Companies Bill, 2009 introduces the concepts of One Person Company and Dormant Company.
Under the existing provisions there has to be a minimum of two persons to start any company as there has to be a minimum of two directors and a minimum of two shareholders. Therefore under the existing laws, if a person want to do business in the form of a company, which has greater acceptance in the market than any other form of business, he must be ready to share his control over the business with at-least one person by appointing him as a director in his company and he will also have to share the ownership by accepting at-least one more shareholder. One Person Companies will address this issue. In a One Person Company there can be only one director and one shareholder.
Under the existing laws, once a company is incorporated, all statutory formalities must be complied. Statutory compliances as mandated under the provisions of the Companies Act, 1956 are same for all types of companies, except in very few cases. However, in practical life, when a person starts a new business as an entrepreneur, he faces many a hurdles, such as, problems in arranging finance, getting licenses, land, buyers, distributors and several other problems. A new venture requires some time to come to a steady and comfortable position and this time varies case to case, business to business. There are some defaults like non filing or delayed filing of Annual Accounts and Annual Returns where the Registrar of Companies is empowered to prosecute the defaulting companies and it’s directors and these are criminal prosecutions. There are several instances where genuine entrepreneurs have got entangled into criminal prosecutions and penalties due to non filing or delayed filing of accounts and returns and in many a cases there were genuine problems, which are quite common with business start ups. Companies Bill, 2009 proposes the concept of Dormant Companies. The Ministry of corporate Affairs will designate a company as dormant company on an application having been made by the company seeking dormant status. A dormant company will enjoy a number of relaxations and they can revert to a full fledged company once they apply for it. Dormant Companies can be used for holding patents, trademarks, copyrights, designs, other rights and intellectual properties. Many prospective entrepreneurs, such as, scientists with their research products, artists with their registered artwork, singers with their music compilations, authors with their books can think of starting their own companies to hold these intellectual properties and they can get their company designated as a dormant company. When a dormant company comes to a position to do business as a normal company they can apply to get re-designated as a full fledged company.
The provisions for One Person Company and Dormant Company have the potential to encourage a lot of entrepreneurs to start business in corporate form and will have a very positive impact on Micro and Small companies.
Special provisions for smaller companies
Companies Bill, 2009 has defined a Small Company as a company whose paid up capital to be prescribed but not to exceed Rs 5 crores, turnover to be prescribed but not to exceed Rs 20 crores and which will not include holding co. / subsidiary co. / section 4 co. / company formed under a special act. There are several benefits available to Small Companies in the this bill, such as, simpler provision for mergers.
Clear definitions
The bill attempts to define a number of terms where there were ambiguities, such as Independent Directors, Small Companies etc.
Greater responsibility of the Board
The bill defines the responsibility of the board. It also makes certain stringent but much needed provisions, like making insider trading by directors and key managerial personnel as criminal liability. These are the provisions which will make our law meet global demands.
Easy entry and exit route
Easy entry and exit provisions are important features of a developed economy. This bill makes the process of mergers and acquisitions simpler. The bill also makes modern and simpler provisions for winding up. These provisions will make this law a modern law similar to the laws of other developed nations.
Standardization of regular processes and policy

The bill recognizes the Auditing Standards and Secretarial Standards for the first time. It proposes that companies must follow such auditing standards as may be notified by the Central Government in consultation with the National Advisory Committee on Accounting and Auditing Standards and until such time the standards published by the Institute of Chartered Accountants of India will be the auditing standards. The bill also proposes to make it mandatory for companies to follow such secretarial standards for board and general meetings as may be prescribed.
However it is also in the interest of the industry that a law as important as company law must have the Certainty in law
Certainty in law is extremely important for the society. People must clearly know their position in comparison to the legal requirements to ensure compliance with the law of the land. Certainty in commercial laws is extremely important for the purpose of a proper business decision. Precedence is an important form of law mainly to ensure certainty in law.
Companies Bill, 2009 is shorter in comparison to the Companies Act 1956 but in this bill a large part of the procedural law has been left to future prescriptions, that is, to Rules. It is difficult to make a wholesome understanding of the provisions and their impact, until Rules are published. Company law is different from fiscal laws. Fiscal laws, for instance, tax laws are generally rule based because they have to address to the needs arising out of dynamic changes in fiscal and monetary conditions of the economy. Company law, on the other hand, deals with important business policy decisions of medium and long term nature. Rule making power of the Government is delegated legislation, in other words, bureaucratic procedure, which does not require the sanction of the Parliament of India. Important provisions of company law should have the sanction of the Parliament of India.
Just to quote an example, clause 150 of the Bill provides that a company may remove a director, other than a director appointed by the tribunal, by passing an ordinary resolution and by following such procedure as may be prescribed. The procedure for removal of directors being subject to Rules may not be a good proposition for Joint Ventures, Venture Capital entities and others as the respective parties to these agreements would not be able to fathom the stability of their nominated directors. In the event they will have to make appropriate provisions in the Articles, but, in view of latest High Court decisions, viz related to Section 111A of the Companies Act 1956, these provisions in Articles may not have enough legal strength.
In the Companies Act, 1956 the removal of a director requires a Special Notice and an Ordinary Resolution. While the special notice takes care of the necessary information to the members, the ordinary resolution ensures a democratic majority.
Important provisions, even though procedural in nature, which have potential to impact long term decisions should be specifically mentioned along with the substantive law.

Competition Commission of India - The New Regulator

India bade farewell to the MRTP Act of 1969, quite ceremoniously on 28th August, 2009 by notifying the Section 66 of the Competition Act 2002 and the rest was taken care by the promulgation of the Competition ( Amendment ) Ordnance, 2009 dated 14th October 2009.

The Competition Commission of India is our new regulator. Although the Competition Act 2002 came into being in the year 2003 but the relevant sections were notified very recently, only in 2009 and about the same time Mr. Dhanendra Kumar was appointed as the full time Chairman of the Commission.

Competition Act 2002 ( the said Act, here in after ) and the Competition Commission ( The Commission, here in after ) has professional orientation from it’s inception and it is expected to emerge as one of the most powerful regulators, if not the most powerful regulator, in the days to come.

Recognition to Professionals
Section 35 of the said Act contains provisions related to appearance before the Competition Commission of India. This Section enables Company Secretaries, Chartered Accountants, Cost & Works Accountants and Legal Practitioners to appear before the Commission. Further, Section 53S of the said Act enables the said professionals to appear before the Competition Appellate Tribunal. Involvement of different professionals belonging to different disciplines and organizations will certainly enrich the Commission and further develop professionalism.
Speedy Adjudication Process

Under the said Act, there is a three tier speedy adjudication process,
Tier One - Competition Commission of India
Tier Two – Competition Appellate Tribunal
Tier Three – Supreme Court of India
There is yet another significant provision, that is, the exclusion of the jurisdiction of Civil Courts vide Section 61 of the said Act . This is significant for a modern economy as this provision will stop parties from taking injunction from a civil court. As per the news paper reports a civil court has refused to entertain the petition by Kingfisher Airlines seeking relief against the enquiry by the Competition Commission of India in the Code Sharing issue of Jet – Kingfisher deal.

Latest Significant Developments
Notification of Sections 3 and 4 of the said Act on 15th May, 2009 brought into effect the provisions related to “Prohibition of Anti Competitive Agreements” and “Prohibition of Abuse of Dominant Position”. With these notifications, Bid Rigging, Cartel formation and other anti competitive activities have come under the scanner of the Competition Commission of India. The Commission has recently been engaged by the Government of India to enquire the matter related to the alleged bid rigging in Indian Premier League ( IPL ).
Notification of Section 66 on 28th August, 2009 and subsequent promulgation of the Competition ( Amendment ) ordnance 2009 have repealed the MRTP Act 1969 completely and has also closed the MRTP Commission permanently. This ordnance has the effect of transferring the pending cases to such authorities as mentioned here in below;
( a ) All cases related to Monopolistic and Restrictive Trade Practices, including those in which Unfair Trade Practices have also been alleged have been transferred to the Competition Appellate Tribunal
( b ) All cases related to Unfair Trade Practices ( other that under Clause X of Section 36A ( 1 ) of the MRTP Act 1969 ) have been transferred to the National Commission established under the Consumer Protection Act 1986 and
( c ) All cases related to Unfair Trade Practices (under Clause X of Section 36A(1) of the MRTP Act 1969 ) have been transferred to the Competition Appellate Tribunal

Positive Role of a Regulator
The policy behind the said Act and the Commission is prevention of the abuse of dominant position. The Act recognizes and accepts dominant positions and prohibits it’s abuse. Dominant position of an undertaking is an integral part of economic development and it should not be prevented, unless it can or results in deprivation of consumers or adversity towards healthy competition. In the words of the Chairman, Competition Commission “If you wish to define dominance, you have to first define what is relevant market, and within that relevant market there could be situations of dominance. So every case has to be viewed on a case-by-case basis but the intention is very clear that unless there is a situation there is an undertaking which can abuse its dominance to the detriment with the market we won’t like to step in”.

A Wide Domain
The Commission has within it’s legal jurisdiction a wide range of corporate entities and activities. Competition Act 2002 is applicable to a person or a department of Government as well, except in matter related of sovereign functions, Atomic Energy, Currency, Defence and Space. The Commission can therefore exercise it’s jurisdiction over a large number of sectors and areas such as Banking, Insurance, Telecom, Capital Market, Roads, Railways, Airlines, Ports, Broadcasting, Films, Television, Mines, Minerals, Sports and others. In some areas there are sector specific regulators, say Indian Banks Association and some of these regulators have been trying to restrict the jurisdiction of the Commission in their specified sectors, however, it is unlikely that the powers of the Commission would be curtailed.

Deeming Provision
In case of combinations ( arising out of mergers ), as per Section 31 of the said Act, if the Commission does not reply within 210 days from the date of service of the notice by the applicant under Section 6 ( 2 ) of the Act, seeking approval for the combination, it shall be deemed that the approval has been granted.
Leniency Provision

Section 46 of the Act provides for leniency in penalty and punishment where the party voluntarily intimates the Commission about his involvement in any cartel leading to violation of the Section 3 of the said Act. The Commission can impose lesser penalty in these cases.
Is something still pending ?
Yes India Inc. is eagerly awaiting the notifications of Sections 5 and 6 of the Act and the issue of Combination Regulations, which will set a new course for big scale mergers and acquisitions in India.