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Getting your dues: Procedure for creditors to file under IBC

31, Aug 2019

Micro, Small and Medium Enterprises (MSME) have a duel battle to fight. One is growing competition and the other is a growing requirement of funds. Any irrecoverable debtor will have a considerable strain on the business of MSME. The recent Insolvency and Bankruptcy Code (IBC) has been a big sigh of relief for MSMEs, which would ensure the faster debt recovery or liquidation process.

The IBC Law was brought about with the objective to ensure that ease of doing business greatly improves in India. This law has simplified the winding-up process in respect of companies, which was earlier fragmented due to multiplicity of statutes as well as forums.

One of the main purposes of this code is to empower the creditor wherein he or she can get back the dues through the Corporate Insolvency Resolution Process (CIRP) or through liquidation of defaulting debtor entity.

When does the Insolvency and Bankruptcy Code (IBC) apply?
The Insolvency and Bankruptcy code at present can only be triggered if there is a minimum default of Rs 1 lakh. This process can be triggered by way of filing an application before the National Company Law Tribunal (NCLT). The process can be initiated by two classes of creditors which would include financial creditors and operational creditors. But for the application to be admitted, the creditor will have to show that a requisite default is ascertainable.

Another important aspect that has to be seen in respect of Insolvency and Bankruptcy Code (IBC) is that at present only companies (both private and public limited company) and Limited Liability Partnerships (LLP) can be considered as defaulting corporate debtors. This code also contains provisions in respect of individual insolvency, but these provisions have not been notified they have consequently not come into force yet. Therefore cases relating to unpaid debts against individuals and partnership firms would fall outside the purview of this code.

What happens once National Company Law Tribunal (NCLT) admits the application against defaulting debtor?
As soon as the matter is admitted by the NCLT, the NCLT proceeds with the appointment of an Interim Resolution Professional (IRP) who takes over the management of the defaulting debtor. The Resolution Professional may then be continued or removed, contingent on the wishes of the Committee of Creditors (COC). The role of the Resolution Professional primarily entails making on efforts to ensure that the defaulting debtor should as far as possible continue to operate as a going concern. All efforts will be made to ensure that the maximum realization of debts can take place as a consequence of the Corporate Insolvency Resolution Process (CIRP) process.

What is Corporate Insolvency Resolution Process (CIRP)?
The CIRP may include necessary steps to revive the company such as raising fresh funds for operation, looking for a new buyer to sell the company as going concern. The outstanding debts may be satisfied by way of another person submitting a Resolution plan to take over the Company and pay off the remaining debts. In the event a resolution plan is not submitted or not approved by the committee of creditors (COC), the CIRP process is deemed to have failed. In such a situation the liquidation proceedings would then commence subject to the order of the tribunal.

Definite timeline for Resolution Plan
In light of the recent amendment to the code, for conducting the entire process a time period is specified which is 330 days.

Will Limitation Period apply in IBC?
The Limitation period has been made applicable by the insertion of section 238A in the IBC. The earlier view was that this would be applicable only for cases arising after the amendment. But the Supreme Court has clarified that this would be applicable to old cases as well. But like any other suit, the limitation period can be condoned by the appropriate authority.

Who bears the cost of Resolution process?
Another important question that arises is who is responsible for incurring the expenses of the Resolution Process while the CIRP is in effect? It is the applicant creditor who would incur the expenses of the Resolution Professional which is otherwise known as Resolution Costs. But such an applicant would be reimbursed at a later stage at the time of approval of Resolution Plan or at the time of Liquidation.

Abhay Chandalia is Co-founder, Share Samadhan Private Limited. It is India’s leading Investment & Debtor recovery company focusing on the recovery of Lost / Forgotten / Blocked or Old Investment and can be found at www.sharesamadhan.com

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Contrast between SEBI and IEPF, Physical share is becoming zero value?

22, Mar 2019

Big relief by SEBI in old transfer deed cases seems to be confronted by RTA by saying that the shares have been transferred to IEPF. On the other hand the timeline to get pending transfer cases to demat is 31st March-19

As per Rule 6(3) (d) of IEPF Rules, 2016 read with Section 124(6) of the Companies Act, 2013, if dividend is unclaimed for 7 years, shares pertaining to those unclaimed dividend would be transferred to IEPF.

As per Rule 6(3)(d) of IEPF Rules, 2016; for affecting the transfer of physical shares to IEPF, Company Secretary / Authorised person of Board of Directors shall make an application, on behalf of shareholders to the company for issue of duplicate share certificates. On receipt of application, company shall issue duplicate share certificate and those shares will be transferred to IEPF through SH-4 form. Shares will be dematted in favour of IEPF till the actual claimant approaches company. Further in case of claim of shares by investor, IEPF will transfer shares from it’s demat account to investor’s demat account.

However on November 06th, 2018, SEBI issued a Circular (SEBI/HO/MIRSD/DOS3/CIR/P/2018/139) regarding transfer of shares with transfer deeds executed prior to December 01, 2015 and allowed transfer of shares subject to fulfilment of certain conditions by transferee.

The motive of SEBI to bring this notification was to mitigate the practical difficulties faced by Transferee who could not lodge the shares for transfer within 1 year from the date of transfer deed and was pending since many years due to Non-availability of PAN of transferor or mismatch of signature of transferor or any other reasons.

It seems that the purpose of SEBI’s notification is defeated as the shares which have been transferred to IEPF are not being considered for transfer to the transferee by RTAs (Registrar and Transfer Agents) and transfer claims are being rejected.

What is the Disconnect?

IEPF gives back shares to shareholder (ideally whose name appearing as member on the register of member company) but what about someone who bought the shares from shareholder long back and he / she is holding the physical share along with transfer deed who is yet to become shareholder of the company? This needs clarification by IEPF.

On one side SEBI allowed transfer of shares with old transfer deed which were pending since many years, by bringing this new notification and on another side RTAs reject such claims due to shares being transferred to IEPF. Thus it is contradiction of the rules / provisions of transfer of shares by two different Authorities of Ministry of Corporate Affairs, Govt. of India i.e. SEBI and IEPF.

As per Rule 6(3) (d) of IEPF Rules, company issues the duplicate share certificates against shares which are lying in physical form, thus rendering the physical shares lying with Transferees invalid and consequently claim of Transfer of Shares being rejected by RTAs. Further, to add to the irony of Investors / Transferees, there is no way out given to Investors / Transferee by RTAs, SEBI or IEPF and this has created ambiguity to the investors / transferees who has genuinely purchased the share from the shareholder

What Needs Clarification by IEPF (Ministry of Corporate Affairs)?

Considering the spirit of the SEBI notification and interest of investor at large, IEPF need to provide clarity in the matter of Old transfer deed cases and, allow the transfer of shares in the name of the person who is holding Original Shares, Original Transfer Deed, which establishes the genuinity of buyer. This is completely unfair to absolve the rightful owner of share to get their share from IEPF.

Author,

Vikash Jain

Happy Investing

Please free to reach out to us at Samadhan@sharesamadhan.com

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Contrast between SEBI and IEPF rules pertaining to Demat of Old Transfer Deed cases pertaining Physical Shares

08, Jan 2019

Big relief by SEBI in old transfer deed cases seems to be confronted by RTA by saying that the shares have been transferred to IEPF.

As per Rule 6(3) (d) of IEPF Rules, 2016 read with Section 124(6) of the Companies Act, 2013, if dividend is unclaimed for 7 years, shares pertaining to those unclaimed dividend would be transferred to IEPF.

As per Rule 6(3)(d) of IEPF Rules, 2016; for effecting the transfer of physical shares to IEPF, Company Secretary / Authorised person of Board of Directors shall make an application, on behalf of shareholders to the company for issue of duplicate share certificates. On receipt of application, company shall issue duplicate share certificate and those shares will be transferred to IEPF through SH-4 form. Shares will be dematted in favour of IEPF till the actual claimant approaches company. Further in case of claim of shares by investor, IEPF will transfer shares from it’s demat account to investor’s demat account.

However on November 06th, 2018, SEBI issued a Circular (SEBI/HO/MIRSD/DOS3/CIR/P/2018/139) regarding transfer of shares with transfer deeds executed prior to December 01, 2015 and allowed transfer of shares subject to fulfilment of certain conditions by transferee.

The motive of SEBI to bring this notification was to mitigate the practical difficulties faced by Transferee who could not lodge the shares for transfer within 1 year from the date of transfer deed and was pending since many years due to Non-availability of PAN of transferor or mismatch of signature of transferor or any other reasons.

It seems that the purpose of SEBI’s notification is defeated as the shares which have been transferred to IEPF are not being considered for transfer to the transferee by RTAs (Registrar and Transfer Agents) and transfer claims are being rejected.

What is the Disconnect?

IEPF gives back shares to shareholder (ideally whose name appearing as member on the register of member company) but what about someone who bought the shares from shareholder long back and he / she is holding the physical share along with transfer deed who is yet to become shareholder of the company? This needs clarification by IEPF.

On one side SEBI allowed transfer of shares with old transfer deed which were pending since many years, by bringing this new notification and on another side RTAs reject such claims due to shares being transferred to IEPF. Thus it is contradiction of the rules / provisions of transfer of shares by two different Authorities of Ministry of Corporate Affairs, Govt. of India i.e. SEBI and IEPF.

As per Rule 6(3) (d) of IEPF Rules, company issues the duplicate share certificates against shares which are lying in physical form, thus rendering the physical shares lying with Transferees invalid and consequently claim of Transfer of Shares being rejected by RTAs. Further, to add to the irony of Investors / Transferees, there is no way out given to Investors / Transferee by RTAs, SEBI or IEPF and this has created ambiguity to the investors / transferees who has genuinely purchased the share from the shareholder

What Needs Clarification by IEPF?

Considering the spirit of the SEBI notification and interest of investor at large, IEPF need to provide clarity in the matter of Old transfer deed cases and, allow the transfer of shares in the name of the person who is holding Original Shares, Original Transfer Deed , which establishes the genuinity of buyer.

Author,

Vikash Jain

Happy Investing

Please free to reach out to us at Samadhan@sharesamadhan.com

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Physical to Demat deadline extended till 31st March-2019.

04, Dec 2018

December 5th, 2018 deadline to covert physical shares into demat is now extended till 31st March 2019

SEBI vide press release (2018 PR No.: 49/2018) dated 3rd December, has extended the deadline and the requirement of transfer of securities only in demat form shall now come

SEBI, on March 28, 2018, decided that except in case of transmission or transposition of securities, requests for effecting transfer of securities shall not be processed unless the securities are held in the dematerialized form with a depository. This measure was to come into effect from December 5, 2018. Subsequently, SEBI has received representations from shareholders for extension of the date of compliance which now vide “”3rd December 2018 Press release” has been extended till 31st March 2019 thereby providing soothing relief to lakhs of investor.

On 6th November 2018 circular of SEBI gave a perfect Diwali bonanza for Investor who is finding it difficult due to cumbersome and ambiguous process to transfer their Old physical shares

SEBI received lot of representations, highlighting difficulties faced by transferees in providing documents for effecting transfer of securities and the documents sought used to vary across RTAs (Registrar & Transfer Agent) for cases relating to transfer of old shares in physical form where PAN card of transferor not available, name mismatch, signature mismatch etc. SEBI has laid down standard process in such cases so that there remains not ambiguity.

While 6th November-2018 circular gave reasons to Cheer and 3rd December 2018 Press release (regarding extension of timeline) has put icing on the cake – Big relief to the investors at large.

Author,

Vikash Jain

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Why SEBI should extend Dec 5th timeline on demat of physical shares?

30, Nov 2018

December 5th, 2018 deadline to covert physical shares into demat is just giving sleepless nights to lakhs of investors in the country.

On 8th June 2018, SEBI has notified vide Notification No. SEBI/LAD-NRO/GN/2018/24 by issuing SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) (FOURTH AMENDMENT) REGULATIONS, 2018 that except in case of transmission or transposition of securities, requests for effecting transfer of securities shall not be processed unless the securities are held in the dematerialized form with a depository. In other words, there will not be any transfer of physical share after 5th December 2018.

According to this amendment, the requests for effecting the transfer of listed securities shall not be processed after 5th December 2018 unless the securities are held in the dematerialized form with a depository. Therefore, for effecting any transfer, the securities shall mandatorily require to be in demat form.

Then came November 6th , 2018 circular of SEBI

A welcome move by SEBI came when the country was in the festive mode of Diwali. A perfect Diwali bonanza for Investor who is finding it difficult due to cumbersome and ambiguous process to transfer their Old physical shares

SEBI received lot of representations, highlighting difficulties faced by transferees in providing documents for effecting transfer of securities and the documents sought used to vary across RTAs (Registrar & Transfer Agent) for cases relating to transfer of old shares in physical form where PAN card of transferor not available, name mismatch, signature mismatch etc.

Vide circular SEBI/HO/MIRSD/DOS3/CIR/P/2018/139 dated 6th November 2018, SEBI laid down Standardized Norms for transfer of Securities in physical mode

SEBI 6th November-2018 circular gives reasons to Cheer but haunted by 5th December 2018 deadline: Reason for extending December 5th deadline

A welcome move by SEBI vide 6th November 2018 circular to standardized the norms to transfer old physical share certificates to the rightful owner would not serve any purpose if December 5th deadline by SEBI is not being extended.

After SEBI’s 6th November circular, all listed companies, RTA and even SEBI themselves were caught up with continuous query flow from end number of an investor seeking clarification about the circular. On the other side if SEBI remain adhered to December 5th deadline then it would just defeat the purpose of having November 6th circular which is considered to be most investor-friendly circular as it would be simplifying the process of ownership transfer of physical shares where the transferor is not traceable or having PAN or signature mismatch issues.

There was a recent article in the national leading newspaper The economic times with a caption Physical shares turn 'illiquid' after 5 Dec; 4% of Sensex scrips still in non-demat form. This is just tip of the iceberg. There are more than 5000 listed companies in India where crores of rupees of physical shares are just lying.

Can holder continue to hold shares in Physical form?

Yes, the holder can continue to hold the shares in physical form but one cannot transfer the same in physical form.

Hoping to have much sought after extension from SEBI thereby extending December 5th deadline.

Author,

Vikash Jain

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Getting your dues: Procedure for creditors to file under IBC

Contrast between SEBI and IEPF, Physical share is becoming zero value?

Contrast between SEBI and IEPF rules pertaining to Demat of Old Transfer Deed cases pertaining Physical Shares

Physical to Demat deadline extended till 31st March-2019.

Why SEBI should extend Dec 5th timeline on demat of physical shares?

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Getting your dues: Procedure for creditors to file under IBC

Contrast between SEBI and IEPF, Physical share is becoming zero value?

Contrast between SEBI and IEPF rules pertaining to Demat of Old Transfer Deed cases pertaining Physical Shares

Physical to Demat deadline extended till 31st March-2019.

Why SEBI should extend Dec 5th timeline on demat of physical shares?

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