Lawyer Monthly Magazine - April 2020 Edition

Clarification on prosecutions filed or internal adjudication proceedings initiated against independent directors, non- promoters and non-KMP/ non- executive directors On 2 March 2020, the MCA issued a circular clarifying the aspects with respect to the initiation of prosecution against directors of Indian companies, which inter alia provides for the following: (a) Whole-time director (WTD) and key managerial personnel (KMP) associated with the day to day functioning of the company shall ordinarily be liable for the defaults of the company. In absence of WTD/ KMP, such director or directors who have expressly given their consent for incurring liability (by filing intimation in e-formGNL-3 with the MCA) would be liable for defaults of the company. However, in a case wherein the penal provisions under the Companies Act, 2013 (Act) provides that a specific director, or officer, or any other person would be accountable for the default, in such case prosecution would be initiated by the Registrar of Companies (“ROC”) only against the concerned director, or officer, or any other person accountable for the default and not against the other directors/ officers. (b) Independent directors or non- executive directors shall not be arrayed in any civil or criminal proceedings under the Act, unless the default has occurred with their knowledge, attributable through board process, and with their consent or connivance or where they had not acted diligently as per the provisions of the Act. (c) All the instances of filing of information/records with the registry, maintenance of statutory registers or minutes of the meetings, or compliance with the orders issued by the statutory authorities (including NCLT), are not the responsibility of independent directors or non-executive directors. Accordingly, independent directors and non-executive directors would not be ordinarily liable for the default of the company, unless any specific requirement is provided in the Act or in the orders of any statutory authority. However, where there are no WTDs and KMPs in the company, non-executive directors may be liable for the defaults of the company. At the time of serving notices to the company during an investigation, inquiry, or an adjudication proceeding, necessary documents may be sought by the ROC so as to ascertain the involvement of the concerned officers of the company. In case the lapses are attributable to decisions taken by the board or its committees, all care would need to be taken by the ROC so as to ensure that any proceedings are not unnecessarily initiated against the independent directors or non-executive directors, except in cases where sufficient evidence exists to the contrary. Cabinet approves the Foreign Direct Investment policy on Civil Aviation On 2 March 2020, the Union Cabinet approved to amend the extant Foreign Direct Investment (FDI) Policy to permit foreign investment(s) in M/s Air India Ltd by non-resident Indians (NRIs), who are Indian Nationals, up to 100% under the automatic route. As per the present FDI Policy, 100% FDI is permitted in scheduled Air Transport Service/Domestic Scheduled Passenger Airline (up to 49% under automatic route and Government route beyond 49%). However, for NRIs, 100% FDI is permitted under automatic route in Scheduled Air Transport Service/Domestic Scheduled Passenger Airline. The amendment in FDI policy will permit foreign investment in M/s Air India Ltd at par with other Scheduled Airline Operators i.e. up to 100% in M/s Air India Ltd by those NRIs, who are Indian Nationals. Further, this amendment to the FDI Policy is meant to liberalize and simplify the FDI policy to provide ease of doing business in the country leading to largest FDI inflows and thereby contributing to the growth of investment, income and employment. Companies (Appointment and Qualification of Directors) Amendment Rules, 2020 On 28 February 2020, the MCA notified the Companies (Appointment and Qualification of Directors) Amendment Rules, 2020 (“Appointment Amendment Rules”) which amends the Companies (Appointment and Qualification of Directors) Rules, 2014 (“Appointment Rules”). The Appointment Amendment Rules have introduced the following key amendments: (a) The time provided to an individual appointed as an independent director to apply online for the inclusion of his/ her name in the databank of the list of independent directors maintained as per the Appointment Rules (“Databank”) , has been extended from three months (i.e. by 1 March 2020) to five months (i.e. by 1 May 2020) from the date of commencement of the Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019; and (b) The Appointment Rules stipulated that every individual whose name is included in the Databank is required to pass a proficiency test within one year of such inclusion. However, the Appointment Amendment Rules have introduced an additional exception for individuals who have served as directors or key managerial personnel for a minimum period 10 years, as on the date of inclusion of their names in the Databank, in body corporates listed on a recognized stock exchange. Further, it has been clarified that individuals acting as directors or key managerial personnel in two or more companies or bodies corporate (as opposed to only companies, as provided earlier) at the same time will be counted only once for the purpose of determination of the aforesaid 10 year period. WWW.LAWYER-MONTHLY.COM | APR 2020 18 REGULATORY UPDATE OF THE MONTH - INDIA