• Where FDI-linked performance related condition is attached (minimum capitalization, lock-in period);
• Sectors which are prohibited;
• Sectors which are restricted with caps; and
• Sectors which are under the FIPB approval route.

-LLPs having foreign investment would not be eligible to make any downstream investment.
-Indian companies having foreign investments would be eligible to make downstream investment in LLPs, only if the Indian company as well as LLP are operating in 100% automatic route sector and there are no FDI linked performance related conditions.
-Contribution in the capital of the LLP should be through inward remittance or by debit to NRE/FCNR account of the designated partner
-Investment by FIIs and FVCI in LLP is not permitted, even LLP would not be eligible to raise External Commercial Borrowing.
-In case LLP has a body corporate as a partner, companies registered under the Companies Act can only become partner in LLP.
-The definition of “persons resident in India” as contained in FEMA would be applicable instead of that given in the LLP Act.
-Conversion of a company into LLP would be allowed with prior FIPB approval
- The partners would be responsible for compliance and would be held liable for all penalties for any contravention
As the proposal has been approved by the CCEA, the Department of Policy & Promotion will introduce the policy changes in the form of a Press Note.

• on his behalf or on behalf of any other person deal in securities or
• communicate such information to any other person, who while in possession of such information shall not deal in securities.

“Insider means any person who, is or was connected with the company or is deemed to have been connected with the company, and who is reasonably expected to have access to unpublished price sensitive information in respect of securities of company, or who has received or has had access to such unpublished price sensitive information”

The requirements under the SEBI Insider Trading regulations are as follows:

• The Company shall frame a code of internal procedures and conduct as near thereto the Model Code specified in Schedule I of the Regulations without diluting it in any manner and ensure compliance of the same.
• The Company shall abide by the Code of Corporate Disclosure Practices as specified in Schedule II of the Regulations.
• The Company shall adopt appropriate mechanisms and procedures to enforce the codes.

Initial Disclosures

1. Disclosure of interest or holding by substantial shareholders: Any person who holds more than 5% shares or voting rights in any listed company shall disclose to the company [in Form A], the number of shares or voting rights held by such person, on becoming such holder, within 2 working days of:—
   • the receipt of intimation of allotment of shares; or
   • the acquisition of shares or voting rights, as the case may be
2. Disclosure of interest or holding by directors and officers: Any person who is a director or officer of a listed company, shall disclose to the company [in Form B], the number of shares or voting rights held by such person and positions taken in derivatives by such person and his dependents, within 2 working days of becoming a director or officer of the company.

Continual disclosure

3. Substantial shareholder: Any person who holds more than 5% shares for voting rights in any listed company shall disclose to the company [in Form C]
   • the number of shares or voting rights held and
   • change in shareholding or voting rights, even if such change results in shareholding falling below 5%,

   if there has been change in such holdings from the last disclosure made as initial disclosure or continual disclosure and such change exceeds 2% of total shareholding or voting rights in the company.

4. Directors and officers: Any person who is a director or officer of a listed company, shall disclose to the company [in Form D], the total number of shares or .voting rights held and change in shareholding or voting rights, if there has been a change in such holdings of such person and his dependents (as defined by the company) from the last disclosure, and the change exceeds Rs. 5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower.
5. The disclosure mentioned under continual disclosure shall be made within 2 working days of:
   • the receipts of intimation of allotment of shares, or
   • the acquisition or sale of shares or voting rights, as the case may be.

Disclosure by company to stock exchanges

6. Every listed company, within two days of receipt, shall disclose to all stock exchanges on which the company is listed, the information received as initial and continual disclosures by substantial shareholders, directors and officers [in the respective formats specified in Schedule III of the Regulations]

Trading window

7. The company shall specify a trading period, to be called “trading window”, for trading in the company’s securities. The trading window shall be closed during the time the price sensitive information is unpublished. When the trading window is closed, the employees/directors shall not trade in the company’s securities in such period.
   All directors/officers/designated employees of the company shall conduct all their dealings in the securities of the Company only in a valid trading window and shall not deal in any transaction involving the purchase or sale of the company’s securities during the periods when trading window is closed or during any other period as may be specified by the Company from time to time
   The Company shall decide the date of commencement of ‘closing of trading window’ which shall be opened, 24 hours after the price sensitive information is made public.
   The trading window shall be, inter alia, closed at the time:—
   • Declaration of financial results (quarterly, half-yearly and annually).
   • Declaration of dividends (interim and final).
   • Issue of securities by way of public/rights/bonus etc.
   • Any major expansion plans or execution of new projects.
   • Amalgamation, mergers, takeovers and buy-back.
   • Disposal of whole or substantially whole of the undertaking.
   • Any changes in policies, plans or operations of the company.

Pre-clearance of trades

8. All directors/officers/designated employees of the company who intend to deal in the securities of the company (above a minimum threshold limit to be decided by the company) should pre-clear the transaction by making an application to the Compliance Officer providing the details as prescribed in the Model Code

Reporting Requirements for transactions in securities

9. All directors/officers/designated employees of the listed company shall be required to forward the following details of their securities transactions including the statement of dependent family members (as defined by the company in the Model Code) to the Compliance Officer:
   • all holdings in securities of that company by directors/officers/designated employees at the time of joining the company;
   • Periodic statement of any transactions in securities (the periodicity of reporting may be defined by the company. The company may also be free to decide whether reporting is required for trades where pre-clearance is also required); and
   • Annual statement of all holdings in securities.

Consequences of Non compliance

Liability under Sections 11, 11B, 11D, Chapter VIA and Section 24 of the Act.”

In absence of any specific provision in the statute, the resignation of a Director should be dealt with reference to Articles of Association of the Company. Hence subject to the articles of association, resignation of a Director is effective from the date of communication of his intention to the Company or the Board of Directors of the Company.

Articles containing provision for resignation of Director

If the articles contains a provision for resignation of Director, then the said procedure has to be complied accordingly. This contention is further supported by the following case law: In Pandurang Camotim Sancoalcar v. Suresft Prabhakar Prabhu [2003] 53 CLA 265, the Bombay High court has held that since the articles of association of the company in the said case provided how it should be dealt with, the immediate effect of resignation was that the person resigning would cease to be a director, without having to wait for ‘its acceptance by the Board of directors’.

Articles not containing provision for resignation of Director

In the absence of the any provision in memorandum or articles, it is settled that the resignation of Director is effective immediately when the intention to resign is made clear to the Company.

Conclusion

In Abdul Huq v. Katpadi Industries Ltd. AIR 1960 Mad 482, 483, it was held that
“The net result of this analysis is that a director, who has submitted his resignation, will be deemed to have resigned from the date of his resignation, without prejudice, of course to his liabilities and obligation which has occurred up to that date and which he cannot evade by severing his connection with the company.”

The filing of necessary forms with the Registrar of Companies with respect to the resignation of the Director has to be done by the Company as required under Section 303(2).

Provision:

A person shall not be capable of being appointed director of a company, if such person is already a director of a public company which-

(A) Has not filed the annual accounts and¹ annual accounts for any continuous three financial years commencing on and after 1^st day of April 1999;

(B) Has failed to repay its deposit or interest thereon on due date or redeem its debentures on due date or pay dividend and such failure continues for one year or more.

Provided that such person shall not be eligible to be appointed as a director of any other² public company for a period of five years from the date on which such public company, in which he is a director failed to file annual accounts and annual return under sub clause (A) or has failed to repay its deposit or interest or redeem its debentures on due date or pay dividend referred to in sub clause (B)

Rules

On October 21, 2003 the Central Government made the a set of rules to carry out the purpose of clause (g) of sub-section (1) of section 274 of the said Act, namely Companies (Disqualification of Directors under section 274(1)(g) of the Companies Act, 1956) Rules, 2003

Guidance Note

The Institute of Chartered Accountants of India came out with a guidance note on disqualification of Directors in the month March 2005.

Notes

• ¹Under sub clause (A), disqualification attracts when both annual account and annual return are not filed in due time for consecutive period of three years, i.e. if either of them is filed within due time in any one year in a block of three years then no disqualification attracts.
• All the directors who have been directors in the relevant year, from the due date to the expiry of one year after the due date, will be disqualified
• The provision and rules shall also apply to the reappointment of a director
• ²The Rules have made distinction between ‘disqualifying company’ and ‘appointing company’. A Director is disqualified from being appointed or reappointed in appointing company but he can be reappointed in disqualifying company.
• The provision of Section 274(1)(g) does not apply to Government Company.
• Statutory Auditors responsibility to report the disqualification of Directors u/s 227(3)(f)
• Company to intimate disqualification of Director in Form DD-B to Registrar of Companies

For any detailed opinion in the matter, please contact neha@nehasinghi.com or call at +91-33-40083385