Exemptions to Companies Established in International Finance Service Centers

Public unlisted companies and private companies, which have been licensed to operate by the Reserve Bank of India (‘RBI’), Securities and Exchange Board of India (‘SEBI’), or the Insurance Regulatory and Development Authority of India (‘IRDAI’) from an International Financial Services Centre (‘IFSC’) located in an approved multi services Special Economic Zone (‘Specified IFSC Companies’), have been exempted from the applicability of certain provisions of the Companies Act, 2013 (‘CA 2013’). Pursuant to the notifications dated January 4, 2017, the MCA has granted certain general exemptions to the Specified IFSC Companies from compliance with the following provisions of CA 2013:

i. prohibition under Section 42(3) on making fresh offer for private placement of securities during pendency of allotment under an earlier;

ii. restriction under Section 54(1)(c) on issuing sweat equity shares within a period of one year from the commencement of business;

iii. requirement under Section 118(10) requiring all companies to observe secretarial standards with respect to general and board meetings;

iv. compliance with corporate social responsibility under Section 135 to not apply for a period of five years from the commencement of business;

v. restriction under Section 139(2) on the ability of a company to appoint / re-appoint statutory auditors for more than the prescribed period;

vi. director residency requirement under Section 149(3) of having at least one director who has stayed in India for a total period of not less than 182 days, to not apply for the first financial year from the date of its incorporation;

vii. prohibition on making investments through more than two layers of investment companies under Section 186(1); and

viii. directors of Specified IFSC Companies will be entitled to exercise powers either by means of resolutions passed at board meetings or through circular resolutions, including for those matters prescribed under Section 179(3).

In addition to the general exemptions, specific exemptions from applicability of the following provisions of CA 2013 have been granted to public unlisted companies located in IFSC:

i. restriction under Section 47 on the voting rights of preference shareholders, provided that the charter documents provide for it;

ii. restrictions under Section 73(2)(a) to (e) on raising public deposits from members, provided that the deposits accepted do not exceed 100% of the aggregate of the paid-up share capital and free reserves and the details of monies so accepted has been filed with the Registrar of Companies in the manner prescribed;

iii. requirement under Section 149(1) to have a woman director;

iv. requirement under Section 152(6) providing for retirement of directors of public companies by rotation;

v. requirement to appoint the audit committee, nomination and remuneration committee or stakeholders’ relationship committee under Sections 177 and 178;

vi. consent of board of directors as stipulated under Section 188(1) for related party transactions;

vii. requirement under Section 196(4) to appoint a whole-time director, managing director or manager; and

viii. restriction under Section 197 on the remuneration payable to managerial personnel.

Published In:Inter Alia - Quarterly Edition - April 2017 [ English Chinese japanese ]
Date: April 1, 2017