SECTION 372A OF THE COMPANIES ACT, 1956:

Inter-corporate loans, guarantee, deposits and investments

When a Company invest in the shares of other company, they give loan to other company and some time issues guarantee on their behalf, other than its ordinary course of business. At the time of doing so the company’s management need to check the compliances of provisions of section 292, 58A and 372A of the companies act, 1956.

To make it EASIER to understand lets first list out the transactions on which section 372A will not be applicable.

# Under section 372A(8), following transactions are exempted from the provisions of section 372A:

a)                  to any loan made, any guarantee given or any security provided or any investment made by:

(i)a banking company, or an insurance company, or housing finance company in the ordinary course of its business

(ii)a company whose principle business is the acquisition of shares, stocks, debentures or other securities,

(iii) a private company which is not a subsidiary of any public company.

b) To investment made in shares pursuant to sec. 81(1) (a) – Rights shares.

e) To any loan made by holding company to it’s wholly owned subsidiary
f) To any guarantee / security by holding company, in connection with loan made to it’s wholly owned subsidiary company
g) To acquisition by a holding company, by way of subscription, purchases or otherwise, the securities of its wholly owned subsidiary.

# If the transaction is not one of the transactions mentioned above, then the limit of loan/guarantee/deposit etc. needs to be checked. The amount of loan/guarantee/deposit etc. exceeds:

(i)                 60% of paid-up capital + free reserves

or

(ii)               100% of free reserves

Whichever is more,

For giving any such loan/guarantee/deposit etc. the company needs to take prior approval of shareholders by passing a special resolution. The explanatory statement shall mention the specific amount, purpose, name of body corporate, term of loan/guarantee/deposit etc.

In case of urgent necessity, where taking prior approval of shareholders possibly can be taken, board may grant such loan/guarantee/deposit etc. by passing a board resolution with the consent of all the directors present at the meeting, provided that the transaction shall be approved by the shareholders in the general meeting within 12 months of passing of the board resolution of annual general meeting whichever is earlier.

If the amount does not exceeds the limits specified above such a loan/guarantee/deposit etc. can be granted by approval of board of the company.

# Any such loan/guarantee/deposit etc. shall be given at an interest rate equal or more of the prevailing bank rate.

# All the transaction of loan/guarantee/deposit etc. shall be entered in the statutory register within 7 days of making of such loan/guarantee/deposit etc.

Explanations:

(i)                 Loan: includes debentures or any deposit of money made by one company with another company, not being banking company

(ii)               “free reserves”: means those reserves which, as per the latest audited balance sheet of the company, are free for distribution as dividend and shall include balance to the credit to the security premium account but shall not include share application money

# In case of default in compliance of the provisions of this section every officer of the company who is in default shall be punishable with imprisonment which may extend to 2 years or with fine which may extend to 50,000 rupees.

REGISTRATION OF DESIGNS IN INDIA:

In today’s .com India not only the patent and copy is what people is willing to get registered, but they also want their designs to be registered so that the unique features of the products developed by them can’t be reproduced without their permission. Though registration of design is not new from part of Indian legislature, option to register the design was provided since 1911 with the Designs Act, 1911. Registration of designs get more recognition when Design Act, 2000 came into force.

Picture via : http://www.fubiz.net

What is Design?

As Per Section  2 (d) of Design Act, 2000 : “design” means only the features of shape, configuration, pattern, ornament or composition of lines or colours applied to any article whether in two dimensional or three dimensional or in both forms, by any industrial process or means, whether manual, mechanical or chemical, separate or combined, which in the finished article appeal to and are judged solely by the eye; but does not include any mode or principle of construction or anything which is in substance a mere mechanical device, and does not include any trade mark as defined in clause (v) of sub-section (1) of section 2 of the Trade and Merchandise Marks Act, 1958 or property mark as defined in section 479 of the Indian Penal Code or any artistic work as defined in clause (c) of section 2 of the Copyright Act, 1957.

In simple words a bike mask could be registered as a design but a painting by Mr. M. F. Husain is not a design.

Why to get your design registered?

The benefit of getting registered the design is any person involved in unauthorized imitation of the registered design on been proven of such a use shall be liable for any contravention to pay up to Rs. 25000/- to the registered proprietor. Moreover the proprietor may sue for recovery and injunction for use of design, in that case penalty will be the sum decided by the court but not exceeding Rs. 50,000/-

Which type of designs could be registered?

For getting any design registered it shall be the original design not previously used or published in the country. The design should relate to features of shape, configuration, pattern or ornamentation applied or applicable to an article. Thus, designs of industrial plans, layouts and installations are not registrable under the Act.

Procedure for registration of designs:

A resident of india may apply for registration of his design by himself or through an authorised agent, a person resident outside india shall apply for registration of his design through an agent resident of india.

The application for registration of design specifying the class in which the design to be registered along with the specimen of design in form of drawing, tracing, photograph etc. shall be submitted to the Controller of Designs, The Patent Office at Kolkata, or at any of its branch offices at New Delhi, Mumbai and Chennai.

The application will be reviewed and response will be given to the application within a maximum period of 6 months.

Time period for which designs gets registered.

When the design gets registered the registered proprietor has copy right in the design for a period of ten years from the date of registration.

This period can be extended for a second period of five years by applying for extension of registration before expiry of this ten years period.

Within a year of lapse of design (due to not applying for extension or failure to pay fee) can be restored by making an application to the Controller in that effect.

Reciprocal arrangement with the United Kingdom and other convention countries or group of countries of intergovernmental organizations:

A Person who’s design has already been registered in UK or any other convention countries and made application for registration of design in india within 6 months of such registration shall have priority over all other applicant for registration of his design in india.

Few interesting case laws regarding registration of designs in india:

RECKITT BENCKISER (INDIA) LTD Vs WYETH LIMITED

http://delhicourts.nic.in/Oct%2010/RECKITT%20BENCHISER%20%28INDIA%29%20VS.%20WYETH%20LIMITED.pdf

DABUR INDIA LTD. Vs AMIT JAIN

http://www.indiankanoon.org/doc/659522/ 

INSIDER TRADING LAWS IN INDIA:

Most talked news of Mr. Rajat Gupta indulgence in insider trading has once again insist people to consider the existing laws on insider trading and their relevance in corporate world. Insider trading is basically the buying or selling of the securities of a listed public company by a person who has unpublished price sensitive information relating to that company. SEBI (Prohibition of Insider Trading) Regulations, 1992 was introduced in india for the first time to define and regulate insider trading. Regulation 3 prohibits an insider who is in possession of unpublished price sensitive information for directly or indirectly dealing in securities of the company. 

AMENDMENT IN ESOP/ESOS GUIDELINES

On 17th January, 2013 SEBI has introduced amendment in the ESOP/ESOS Guidelines, 1999.
The amendment has been introduced to control and avoid manipulation in trading and price of the securities by the promoters and directors by using shares issued by way of trust to be issued to the employees under ESOP/ESOS scheme of the Company.

The amendment is applicable from the immediate effect and the current scheme(s) issuer shall ensure that the schemes shall comply with the guidelines by 30th June, 2013.

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1358405632526.pdf

COMPANIES BILL, 2012 – OPPORTUNITIES FOR COMPANY SECRETARIES

To match the changing requirement of local and global economy government introduces new Companies Bill. Companies Bill, 2012 has been passed by loksabha on 18^th December, 2012 now awaiting approval from Rajya Sabha. This new bill has on platter better and bigger opportunities to the Company Secretaries as professionals. This Bill includes company secretary in the definition of “Key Managerial Personnel” of the Company. Following is the brief of some of the scope and/or position of company secretaries expected to turn on this bill becoming an act:

ONE PERSON COMPANY

ONE PERSON COMPANY (OPC) – Companies Bill, 2012:

To promote Corporatization and to ensure entrepreneurial flexibility Companies Bill, 2012 has introduced the concept of One Person Company/One Man Company in India. As per definition given in Clause 2(62) of the Companies Bill, 2012 “One Person Company” means a company which has only one person as a member.

LEGAL UPDATE: RATIFICATION OF MISTAKE IN FROM 1, 1A AND 44

Ministry of Corporate Affairs has issued a circular dated 21st December, 2012, Mistakes made in the filed e-form 1, 1A and 44 can be rectified via form 68 within 365 days of approval of the said forms by the ministry on payment of fee of  Rs.  1000/- in case of e-form 1 & 1A and Rs. 10,000/- in case of e-form 44.

It has been further stated in this circular such forms filed for the companies incorporated before 2009 can also be rectified within 180 days of the effective date of the circular i.e. 23rd December, 2012.

http://www.mca.gov.in/Ministry/pdf/General_Circular_42_2012.pdf

COMPANIES BILL, 2011 APPROVED BY LOKSABHA

Companies Bill, 2011 get approved by the Loksabha yesterday 18th December, 2012 along with the amendments and now to be presented in the Rajyasabha for approval.

A copy of bill to be presented in loksabha was made available on MCA's site:
http://www.mca.gov.in/Ministry/pdf/The_Companies_Bill_2011.pdf

CHANGE OF NAME OF PRIVATE COMPANY AND UNLISTED PUBLIC COMPANY

Companies usually change their name to match the name of the group of the companies to avail of the goodwill attached to the name of the group, at times they change their name for some other reasons too such as to match their new line of business etc. Procedure for change of name of the Company both for private companies as well as unlisted public companies are as follows:

CSR: CORPORATE SOCIAL RESPONSIBILITY IN INDIA:

Confusing and non-mandatory means voluntary as per Indian laws, Why to bother to know this then????

Because even if not compulsory corporate like TATA and Reliance are fulfilling this part upto their extent and the government is planning to make it mandatory for corporate fulfilling certain criteria. Moreover no knowledge is harmful at all.

In easy words corporate social responsibility commonly known as CSR is the return from the corporate to the society the resources for their intake from society. In more known words its like preserving resources while using them for our next generation.