Ministry of Corporate Affairs Current Affairs

Government releases draft on cross-border insolvency resolution

The Ministry of Corporate Affairs has released draft on cross-border insolvency in order to strengthen Insolvency and Bankruptcy Code (IBC). It will help banks access overseas assets of company undergoing resolution. Similarly, Indian authorities will also be required to cooperate with foreign creditors to domestic company.

Need

The existing IBC provides for two Sections –234 and 235 relating to cross border insolvency but these are not adequate to effectively deal with default cases of domestic corporate debtor having assets and operations outside India. In many of ongoing cases under IBC, several companies have assets and operations outside India, for which legal framework is required to deal assets overseas.

Existing provisions only allow Central government to enter into agreement with foreign country for enforcing provisions of Code. Second, the government can issue a letter of request to country outside India seeking information. The draft norms have now been issued to plug these loopholes and have any effective resolution mechanism in place for cross-border insolvency.

Key Facts

The draft on cross-border insolvency favours adoption of UNCITRAL (United Nations Commission on International Trade Laws) Model Law on Cross-Border Insolvency, 1997. Under it, central government after entering into agreement with other countries may bring overseas asset of domestic corporate debtor into consideration of insolvency resolution in India. Initially, cross border insolvency framework will apply only to corporate debtors, but later it will be extended to cases of personal insolvency resolution as well.

UNCITRAL Model Law on Cross-Border Insolvency, 1997

On global scale, this model law envisages balance between liquidation and reorganisation of global companies going in for resolution. It has emerged as most widely accepted legal framework to deal with cross-border insolvency issues while ensuring least intrusion into country’s domestic insolvency law. Due to growing prevalence of multinational insolvencies, the model law has been adopted by 44 States till date, including Singapore, UK, and US.

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Government sets up committee to review the enforcement of CSR provisions

The Ministry of Corporate Affairs (MCA) has constituted 12-member committee to review enforcement of Corporate Social Responsibility (CSR) provisions under Companies Act, 2013. It will be headed by Regional Director (Western Region) Manmohan Juneja. Besides, there will be two sub-committees viz. legal and technical that will go into various aspects in relation to compliance with CSR provisions.

Committee’s Terms of References

The committee will review functioning of CSR enforcement and recommend uniform approach for its enforcement. It will revisit guidelines for enforcement of CSR provisions and basis, including structure of Centralised Scrutiny and Prosecution Mechanism (CSPM).

It will also look at methodologies for monitoring of compliance by companies with CSR norms for having an effective CSPM. It will also revisit Schedule VII of Companies Act, 2013 pertaining to the board list of CSR activities that can be taken up under the Act on basis of references received from various stakeholders.

Background

Under Companies Act, 2013, certain class of profitable companies (entities) are required to shell out at least 2% of their three-year annual average net profit towards CSR activities. In case of non-compliance, these companies have to furnish reasons to Ministry of Corporate Affairs (MCA). In recent times, MCA has come across rising instances of non-compliance with CSR requirement. Last year, MCA had sought explanation from many companies for not complying with CSR norms. As per official data, 6,286 companies spent Rs. 4,719 crore towards various CSR activities in 2016-17, with total number of such projects taken up stood at 11,597.

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