LUNAWAT & CO. Chartered Accountants 16 th April 2016, Pune CA. PRAMOD JAIN FCA, FCS, FCMA, LL.B, MIMA, DISA

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1 SHARE CAPITAL & DEPOSITS LUNAWAT & CO. Chartered Accountants 16 th April 2016, Pune CA. PRAMOD JAIN FCA, FCS, FCMA, LL.B, MIMA, DISA

2 Lunawat & Co.

3 ISSUE OF SECURITIES Lunawat & Co. Public Public Issue Private Placement Preferential Issue Right Private Private Placement Preferential Issue Right Bonus Bonus

4 Lunawat & Co.

5 Lunawat & Co. AUDITOR S DUTY SHARES CARO New - Whether moneys raised by way of IPO / FPO (including debt instruments) & term loans were applied for purposes for which those are raised. If not, details together with delays / default & subsequent rectification 14 - Whether Co. has made preferential allotment / PP of shares or fully or partly convertible deb. during yr. Whether S. 42 complied & amount raised used for purposes for which funds were raised. If not, details of amount involved and nature of non-compliance.

6 Lunawat & Co. PRIVATE PLACEMENT - PROCEDURE Special Resolution MGT -14 (earlier offer should be complete) Send letter of offer to persons from whom money to be raised < 50 persons > 200 per year Send the detail of persons to whom offer sent to ROC within 30 days If not refunded pay 12% If not allotted refund within 15 days On receiving amount, allot within 60 days

7 Lunawat & Co. PRIVATE PLACEMENT - PROCEDURE Offer letter in PAS 4 + application form serial numbered + addressed to specific person to be sent in writing or electronic mode While passing special resolution basis or justification of pricing (including premium) to be made in explanatory statement Offer per person can not be for less than Rs. 20K Payment to be made from bank A/c of person subscribing Company to keep record of such Bank A/c To maintain complete record in PAS 5 and PAS -4 to be filed with ROC

8 Lunawat & Co. PRIVATE PLACEMENT OFFER LETTER Business carried out by Co & subsidiaries Management s perception of risk factors Details of default including interest statutory dues, deposit, loan, etc Time schedule for which offer is valid Price of offer and its justification Name & Address of the valuer who did valuation Purpose and object of offer Contribution by promoters or directors Disclosure of interest of director, promoter or KMP Details of litigation pending

9 Lunawat & Co. PRIVATE PLACEMENT OFFER LETTER Remuneration of directors for current + last 3 years Related party transaction for last 3 years relating to loans, guarantee or securities Auditors reservations or qualifications or adverse remarks for last 5 years its impact on FS & corrective action taken / proposed for each comment Material frauds last 3 years

10 PRIVATE PLACEMENT OFFER LETTER Financial Position Capital structure before & after; Profit before & after tax for 3 years Dividend last 3 years Interest coverage ratio for last three years (Cash profit after tax plus interest paid/interest paid) Summary of financial position including Cash Flows - last 3 years audited Change in Accounting policies in last 3 years and its effect on profits & Reserves Declaration by director of compliance Lunawat & Co.

11 PRIVATE PLACEMENT - CAUTION Money to be kept in separate bank A/c On allotment file PAS -3 in 30 days, detail to include PAN & id Cannot be in cash If not followed - Penalty on company, promoters and directors Amount involved or 2 Cr, whichever is high Lunawat & Co. high Refund money within 30 days of imposing penalty Effective from Auditors to be careful

12 Lunawat & Co. PP COMPANIES AMENDMENT BILL 2016 PP shall not contain right to renounce Money cannot be utilized until shares allotted & Return of allotment in PAS 3 is filed PAS 3to be filed within 15 days from allotment instead 30 days. Late filing of PAS 3 Penalty Rs. 1k p.d. Max 25L

13 Lunawat & Co. PP COMPANIES AMENDMENT BILL 2016 Can have more than one offer at one time, however offer to no. of persons to be within limit of 50 identified persons. Penalty for contravention changed to amount involved or Rs. 2 Cr whichever is lower. Amount to be refunded within 30 days of imposing penalty along with interest If offer not as per ss.(2) 50 limit public offer SEBI Act would also apply

14 FURTHER ISSUE (62) To existing shareholders (Right Issue) Lunawat & Co. To send letter of offer by notice time days [Pvt. Cos lesser if 90% members agree] Notice to be sent at least 3 days before by Registered Post, Speed post or electronic mode - [Pvt. Cos lesser if 90% members agree] Renunciation unless articles provide otherwise After time board to dispose of them in such manner not disadvantageous to shareholder & Company

15 FURTHER ISSUE (62) Lunawat & Co. ESOP subject to SR and Rules - employee of Associate co. not included Pvt. Co - OR Shares other than Cash - No specific provision in the Act except (62 (1) (c)) Form PAS 3 - SR required Property and Assets acquired Goodwill Services Conversion of Debentures Conversion of Loans

16 PREFERENTIAL ISSUE (62)(1)(C) Lunawat & Co. Preferential Issue to comply with PP Exemption from Offer Letter & Filing PAS 4 & PAS 5 if issue made to one or more members No partly paid shares in Preferential issue Not applicable to Conversion of deb. Or loan into equity if earlier SR already passed Conversion when loan or debenture taken from Govt.

17 SHARE CAPITAL & DEBENTURES Lunawat & Co. Share capital may be equity (with voting / differential rights to voting, dividend, etc ) or Preference - Pvt. Cos as per their MOA / AOA Company cannot issue shares at a discount other than as sweat equity shares Can issue preference shares redeemable after 20 years for infrastructure projects No Debentures carrying with voting rights Debentures secured as per prescribed procedure Convertible fully or partially can be issued

18 Lunawat & Co. PF ISSUE COMPANIES AMENDMENT BILL 2016 Preferential issue u/s 62(1)(c) compliance of Chapter III also required apart from valuation Right Issue offer letter can be given by courier /any other mode of having proof of delivery Shares can be issued at discount to Creditors when loan is converted into equity in pursuance of any statutory resolution plan or debt restructuring scheme as per RBI guidelines Sweat equity can be issued before end of 1 year from commencement now

19 Lunawat & Co.

20 Lunawat & Co. AUDITOR S DUTY DEPOSITS CARO In case, co. has accepted deposits, whether directives issued by RBI & provisions of ss. 73 to 76 or any other relevant provisions of Companies Act, 2013 & rules framed thereunder, where applicable, have been complied with? If not, nature of such contraventions be stated; If an order has been passed by CLB or NCLT or RBI or any court or any other tribunal, whether same has been complied with or not?

21 DEPOSITS Lunawat & Co. Following may invite, accept or renew deposits : Banking companies - (RBI); Non Banking Financial Companies (NBFC) (RBI); Notified companies; Public company having net worth > 100 Cr or turnover > 500 Cr (Rules) Others only from its members subject to certain conditions (73(2)). Pvt. Cos. upto 100% of capital + free reserves

22 Lunawat & Co. ACCEPTANCE OF DEPOSIT RULES 2014 Apply to all companies except Bank, NBFC & HFC Deposit includes receipt of money by way of loan, deposit or other form, but does not include: Amount received from CG, SG, L Auth., Stat. Auth. Amount from Foreign Govt ovt, Bank, etc as per FEMA Amount received from Banks, PFIs, CPs ICD From director out of his own funds to report in D.R. w.e.f From relative of director out of his own funds to report in D.R. w.e.f Convertible bond / debenture shares within 5 years Interest free security deposit employee 1 yr salary

23 SHARE APPLICATION Lunawat & Co. Share appl. money, except not allotted / refunded If subscription received before 31 st March 2014 And the allotment is still pending till 31 st March 2015 Then return by 1 st June 2015 or comply with Companies Act 2013 Notification dated

24 ACCEPTANCE OF DEPOSIT RULES 2014 Interest free amount received in Trust Business advances: Lunawat & Co. Supply of goods / services within 365 days Against Imm property if adjusted as per agreement Security deposit for performance of contract for supply of goods or provision of services Advance under long term projects for supply of capital goods If Co. accepting money does not have necessary permission or approval to deal in goods or properties or services -Deposit

25 ACCEPTANCE OF DEPOSIT RULES 2014 Promoters - stipulation of any FI or a banks:- Lunawat & Co. Loan is brought in pursuance of stipulation imposed by lending institutions on promoters to contribute such finance; and Loan is provided by the promoters themselves and/or by their relatives. Exemption available only till loans are repaid Amt. received by Nidhi companies Public / Eligible deposit 6 m to 36 m If <6, 3 months - 10% of capital + free reserves Total deposit from members <25% of C + F. Reserve Rate of Intt & commission not to exceed NBFC norms Auditors should take suitable note of violation of these provisions

26 DEEMED DEPOSITS Lunawat & Co. Deposit would also include: Amounts received by company, whether in form of instalments or otherwise, from a person with promise or offer to give returns, in cash or in kind, on completion of the period specified in the promise or offer, or earlier, accounted for in any manner whatsoever, Any additional contributions, over and above the amount received by company, whether in form of instalments or otherwise, made by the company as part of such promise or offer.

27 EXISTING DEPOSITS Prepare a list and file with ROC within 3 months from in DPT 4 Shareholders & Director Relative of Pvt. Co. Prior to Not deposits (5/2015) Repay to the depositors within 1 year Non-compliance (effective from 6 th June 2014): Amount to be repaid along with interest Fine on Company Minimum Rs. 1 Crore, Maximum Rs. 10 crore Every officer in default Lunawat & Co. Imprisonment upto 7 years or Fine minimum Rs , maximum Rs. 25 L or both

28 ANNUAL RETURN OF DEPOSITS Lunawat & Co. Annual Return to be filed in DPT -3 by 30 th June. To be pre-certified by auditor Computation of Net Worth in Form DPT- 3 requires data of latest audited balance sheet preceding the date of the return i.e., 31 st March???

29 DEPOSITS COMPANIES AMENDMENT BILL 2016 From members: Lunawat & Co. Amount to be deposited 20% (E-15%) by 30 th April Deposit insurance not required now In case of default in repayment of deposits which is made good later and 5 years has elapsed can raise deposits Existing deposits period increased from 1 year to 3 years. Renewal to be done as per Chapter V Penalty u/s 76A lower limit changed 1 Cr or twice the amount of deposit

30 CA. Pramod Jain CA. Pramod Jain, Lunawat & Co