TABLE OF CONTENTS

Broadly speaking, whenever a question arises of transfer of any article by a foreigner where India is even remotely connected, the first thing that comes to our mind is the rigour of Foreign Contribution (Regulation) Act, 2010 (“FCRA”).

The FCRA came into force on May 01, 2011, by replacing earlier Act of 1976. The basic purpose of FCRA is “to consolidate the law to regulate the acceptance and utilization of foreign contribution or foreign hospitality by certain individuals or associations or companies and to prohibit acceptance and utilization of foreign contribution or foreign hospitality for any activities detrimental to the national interest and for matters connected therewith or incidental thereto.”

FCRA extends to the whole of India, and is applicable to the organizations outside India under certain circumstances.

In order to analyse – whether a foreigner can form a private trust in India for upkeeping of its property by transferring such property to the trust? – it becomes imperative to analyse certain provisions of FCRA

As per Section 2(1)(j) of FCRA, a “foreign source” includes a citizen of a foreign country. Thus a “foreigner” will fall within the definition of a “Foreign Source”.

Having ascertained that, it becomes pertinent to analyse if an Indian property can be said to fall within the definition of a “Foreign Contribution” as provided in FCRA. The definition of Foreign Contribution as provided in Section 2(1)(h) of FCRA is as follows:

• “foreign contribution” means the donation, delivery or transfer made by any foreign source ─
• (i) of any article, not being an article given to a person as a gift for his personal use, if the market value, in India, of such article, on the date of such gift is not more than such sum as may be specified from time to time by the Central Government by the rules made by it in this behalf;
• (ii) of any currency, whether Indian or foreign;
• (iii) of any security as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 and includes any foreign security as defined in clause (o) of Section 2 of the Foreign Exchange Management Act, 1999.

We know for a fact that an Indian property cannot fall within the term “any currency, whether Indian or foreign” or “of any security” as defined in clause (h) of section 2 of the Securities Contracts (regulation) Act, 1956 and includes any foreign security as defined in clause (o) of section 2 of the Foreign Exchange Management Act, 1999. Hence, what needs to be analysed is whether a property would come within the ambit of the term “article” as used in Section 2(1)(h) of FCRA. It is interesting enough that the term “article” is not defined anywhere in FCRA or any other applicable statute or Indian case laws.

The Indian legal dictionary (borrowing from English cases) defines an “article” to mean a material thing or a tangible object, a thing of value. Since a property can be said to be a tangible object (i.e., something which is easily identifiable) and a thing of value, therefore, a property can be said to fall within the ambit of the term “article”.

Hence, transfer of a property (an article) situated in India by a Foreigner (Foreign Source) to a trust shall constitute a “Foreign Contribution” within the meaning of FCRA.

Having established that, it becomes important to highlight that Section 11, Subsection (1) of FCRA which provides that –

• “No person having a definite cultural, economic, educational, religious or social programme shall accept foreign contribution unless such person obtains a certificate of registration from the Central Government.”
• The said Section 11, Sub-section (2) further provides that –
• “Every person referred to in this sub-section (1) may, if it is not registered with the Central Government under that sub-section, can accept any foreign contribution only after obtaining the prior permission of the Central Government and such prior permission shall be valid for the specific purpose for which it is obtained and from the specific source.”

Thus, from a reading of the above section, the following position emerges out:

No person having a definite cultural, economic, educational, religious or social programme shall accept foreign contribution unless:

1. It obtains a certificate of registration from Government of India (“GOI”); or

2. It obtains prior permission from GOI.

Moreover, other terms of FCRA, shows that the term “Person” used in this Section 11 is defined under Section 2(1)(m) of FCRA and it includes an association. The term “Association” is defined under Section 2(1)(a) of FCRA and in turn includes an “organization of any nature”. Hence, the term “Person” shall include a trust in question, since it includes organization of any nature.

The trust in question being a private trust, would be a Person as used in Section 11 of FCRA, however, without any definite cultural, economic, educational, religious or social programme. Does this then mean that such Person (private trust in the instant case) does not need to obtain registration certificate or prior permission from GOI for receiving Foreign Contribution? Unfortunately, clarifications issued by Ministry of Home Affairs, GOI and judicial precedents of Indian courts are completely silent on this aspect.

In response to one of the Frequently Asked Questions, the Ministry of Home Affairs has clarified that in order for a Person to receive Foreign Contribution, the Person must fulfil the following conditions:

1. It must have a definite cultural, economic, educational, religious or social programme.

2. It must obtain the FCRA registration/ prior permission from the Central Government.

3. It must not be prohibited under Section 3 of FCRA, 2010.

Can we then say that a Person who is not eligible for obtaining a registration certificate or prior approval from GOI for not having a definite cultural, economic, educational, religious or social programme (like a private trust) is outside the ambit of FCRA? Hence, it can receive foreign contribution without any checks and balances? Or would it be too liberal an interpretation of a significant statute like the FCRA?

The Ministry of Home Affairs published an order in the Official Gazette vide number S.O. 459(E), dated 30th January, 2020, which in the interest of the general public exempts from the operations of FCRA any organisations (not being a political party), constituted or established by or under a Central Act or a State Act or by any administrative or executive order of the Central Government or any State Government and wholly owned by the respective Government and required to have their accounts compulsorily audited by the Comptroller and Auditor General of India (“CAG”) or any of the agencies of the CAG.

It is pertinent to note that even this clarification does not talk anything about an organisation which qualifies as a Person under FCRA, however, a Person who does not have a definite cultural, economic, educational, religious or social programme.

Since, there are no judicial precedents or clarifications issued in this regard, this appears to is a grey area. Unless a clarification is used by the relevant authority or this question is analysed by the Indian courts, this aspect remains open to a wide range of interpretations by the legal fraternity.

1. Approval of an insolvency resolution in respect of one borrower cannot discharge a coborrower: Holds Supreme Court

The Supreme Court on September 22, 2022 in the matter of Maitreya Doshi v. Anand Rathi Global Finance Ltd. held that the approval of a resolution in respect of one borrower cannot discharge a co-borrower and that if there are two borrowers or if two corporate bodies fall within the ambit of corporate debtors, there is no reason why proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) cannot be initiated against both the corporate debtors.

The Court observed that-

“The contract of indemnity is a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person. In a contract of indemnity, a promisee acting within the scope of his authority is entitled to recover from the promisor all damages and all costs which he may incur. A contract of guarantee, on the other hand, is a promise whereby the promisor promises to discharge the liability of a third person in case of his default. The person who gives the guarantee is called the surety. The person in respect of whose default, the guarantee is given is the principal debtor and the person to whom the guarantee is given is the creditor. Anything done or any promise made for the benefit of the principal debtor may be a 7 of 14 sufficient consideration to the surety for giving the guarantee. On the other hand, the bailment of goods as security for payment of a debt or performance of a promise is a pledge.”

Further, the Court held that approval of a resolution plan in relation to a corporate debtor does not discharge the guarantor of the corporate debtor and if the dues are realised in part from one corporate debtor, the balance may be realised from the other corporate debtor being the co-borrower.

2. No bar to withdraw admitted CIRP application before constitution of Committee of Creditors: Holds Supreme Court

The Supreme Court on September 22, 2022 in the matter of Ashok G. Rajani v. Beacon Trusteeship Ltd. held that there is no bar to withdrawal of an admitted Corporate Insolvency Resolution Process (“CIRP”) application before constitution of Committee of Creditors (“CoC”) and that settlement cannot be stifled before the constitution of the Committee of Creditors in anticipation of claims against the Corporate Debtor from third persons.

It was further observed that-

“The withdrawal of an application for CIRP by the applicant would not prevent any other financial creditor from taking recourse to a proceeding under IBC. The urgency to abide by the timelines for completion of the resolution process is not a reason to stifle the settlement. Rule 11 of the NCLT Rules enables the NCLT to pass orders for the ends of justice including order permitting an applicant for CIRP to withdraw its application and to enable a corporate body to carry on business with ease, free of any impediment.”

3. Arbitrator has discretion to award Post Award interest on a part of the ‘Sum’: Holds Supreme Court

The Supreme Court on September 01, 2022 in the matter of Morgan Securities and Credits Pvt. Ltd. v. Videocon Industries Ltd., held that the arbitrator has the discretion to determine the rate of reasonable interest, the sum on which the interest is to be paid, that is whether on the whole or any part of the principal amount, and the period for which payment of interest is to be made i.e., whether it should be for the whole or any part of the period between the date on which the cause of action arose and the date of the award.

The Court held that the phrase “unless the award otherwise directs” in Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 (“the Act”) only qualifies the rate of interest. It 8 of 14 does not fetter the discretion of the arbitrator to grant post-award interest. It only contemplates a situation in which the discretion is not exercised by the arbitrator. The Court observed that when a discretion has been conferred on the arbitrator in regard to the grant of pre-award interest, the statute cannot be interpreted to presuppose that the legislative intent was to reduce the discretionary power of the arbitrator for the grant of post-award interest under clause (b) of Section 31(7) of the Act. The discretion of the arbitrator can only be restricted by an express provision to that effect and there is no provision in the Act which restricts the discretion of the arbitrator for the grant of postaward interest which the arbitrator otherwise holds inherent to its authority.

The Court further held that the purpose of granting post-award interest is to ensure that the award debtor does not delay the payment of the award. The arbitrator while granting arbitral award must exercise the discretion in good faith, take into account relevant and not irrelevant considerations, and must act reasonably and rationally taking cognizance of the surrounding circumstances.

4. Arbitral tribunal not barred under section 79 of the RERA Act from passing an order of injunction: Holds Bombay High Court

The Bombay High Court on August 20, 2022 in the matter of Ashok Palav Coop. Housing Society Ltd v. Pankaj Bhagubhai Desai & Anr. held that Arbitral tribunal is not a Civil Court within the meaning and purview of the Code of Civil Procedure, 1908 (“CPC”) and thus, the arbitral proceedings cannot be said to be barred under Section 79 of the Real Estate (Regulation and Development) Act, 2016 (“RERA”).

The Court referred to an earlier judgment of the Supreme Court in the matter of Food Corporation of India v. Evdomen Corporation where it was held that “Civil Court having jurisdiction to decide” as contained in Section 2(c) of the Arbitration Act,1940, would refer to a court having jurisdiction under Section 20 of the CPC. Further, the Supreme Court in the matter of Nahar Industrial Enterprises Ltd. v. Hong Kong and Shanghai Banking Corporation held that even though a “tribunal” which is authorized to take evidence of witnesses would ordinarily be held to be a “court” within the meaning of Section 3 of the Evidence Act, 1872 and the Arbitrators were excluded from the definition of “court”.

The Court observed that it can never be the intention of the legislature to elevate the status of the arbitral tribunal to that of a Civil Court so as to construe the arbitral tribunal as an authority like a Civil Court even though the arbitral tribunal being a private tribunal has adjudicatory functions. Hence, the Court held that the arbitral tribunal is not a Civil Court within the meaning and purview of the CPC and directed the tribunal to reconsider the application filed by the appellant under Section 17 of the Act on merits.

1. MCA extends the time for filing of e-form DIR-3-KYC and web-form DIR-3-KYC-WEB, without fee

MCA vide its notification dated September 28, 2022 has extended the time for filing of eform DIR-3-KYC (to be filed by every DIN holder who is filing his KYC details for the first time with MCA and any DIN holder who wants to update any information of his KYC details) and web-form DIR-3-KYC-WEB (to filed mandatorily by every DIN holder who has already submitted e-form DIR-3 KYC in any of the previous financial year and who is allotted DIN as on 31st March of a financial year, on or before 30th September of the immediately next financial year), without filing fee upto 15th October, 2022.

2. MCA clarifies the mandating Companies to round off figures appearing in Financial Statements

MCA vide an update dated September 26, 2022, clarifies the following:

“CLARIFICATION: Amendment to Schedule III to the Companies Act, 2013 vide MCA Notification GSR. 207(E) dated March 24, 2021 mandates companies to round off the figures appearing in the Financial Statements depending upon their total income. However, if the companies provide absolute figures in e-forms i.e., AOC-4, the same shall not be treated as incorrect certification by the Professionals.”

3. MCA amends the Companies (Specification of Definition Details) Rules, 2014

MCA vide its notification dated September 15, 2022 amended the Companies (Specification of definition details) Rules, 2014 and called it the Companies (Specification of definition details) Amendment Rules, 2022. In the Companies (Specification of definition details) Rules, 2014, in rule 2, in sub-rule (1), for clause (t), the following clause is substituted:

“(t) For the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover of the small company shall not exceed rupees four crore and rupees forty crore respectively.”

4. MCA amends the Companies (Acceptance of Deposits) Rules, 2014

MCA vide its notification dated August 29, 2022 amended the Companies (Acceptance of Deposits) Rules, 2014 and called it the Companies (Acceptance of Deposits) Amendment Rules, 2022 (“the said amendment”). In the Companies (Acceptance of Deposits) Rules, 2014:

• In rule 16, after the words “auditor of the company”, the words, letters and figure “and declaration to that effect shall be submitted by the auditor in Form DPT-3” is inserted.
• In the Annexure, Form DPT-3 and Form DPT-4 are substituted by the forms as provided in the said amendment

5. MCA amends the Companies (Registration of Charges) Rules, 2014

MCA vide its notification dated August 29, 2022 amended the Companies (Registration of Charges) Rules, 2014 and called it the Companies (Registration of Charges) Second Amendment Rules, 2014.

• In the Companies (Registration of Charges) Rules, 2014 (“the said amendment”), after rule 12, the following rule is inserted:
• “13. Signing of charge e-forms by insolvency resolution professional or resolution professional or liquidator for companies under resolution or liquidation- 11 of 14 The Form No.CHG-1, CHG-4, CHG-8 and CHG-9 shall be signed by Insolvency resolution professional or resolution professional or liquidator for companies under resolution or liquidation, as the case may be and filed with the Registrar.”
• In the said rules, Form No. CHG-1 is substituted by the form as provided in the said amendment.

6. MCA amends the Companies (Incorporation) Rules, 2014

MCA vide its notification dated August 18, 2022 amended the Companies (Incorporation) Rules, 2014 and called it the Companies (Incorporation) Third Amendment Rules, 2022. In the Companies (Incorporation) Rules, 2014, after rule 25A, the following rule is inserted:

25B. Physical verification of the Registered Office of the company.

• 1. The Registrar, based upon the information or documents made available on MCA 21, shall visit at the address of the registered office of the company and may cause the physical verification of the said registered office for the purposes of sub-section (9) of section 12, in presence of two independent witness of the locality in which the said registered office is situated and may also seek assistance of the local police for such verification, if required.
  2. The Registrar shall carry the documents as filed on MCA 21 in support of the address of the registered office of the company for the purposes of physical verification and to check the authenticity of the same by cross verification with the copies of supporting documents of such address collected during the said physical verification, duly authenticated from the occupant of the property where at the said registered office is situated.
  3. The Registrar shall take a photograph of the registered office of the company while causing physical verification of the same.
  4. The report of the physical verification shall be prepared in the following format as provided in the notification
  5. Where the registered office of the company is found to be not capable of receiving and acknowledging all communications and notices, the Registrar shall send a notice to the company and all the directors of the company, of his intention to remove the name of the company from the register of companies and requesting them to send 12 of 14 their representations along with copies of relevant documents, if any, within a period of thirty days from the date of the notice before taking further actions in accordance with the provisions of section 248 of the Act.

As a result of this amendment, the companies which do not provide genuine address of their registered office, may run the risk of their name getting struck off from the ROC records.

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