What happens if there is a conflict between two laws? Which one prevails?
With the new Companies Act, 2013 coming into existence, Indian corporate world faced a dilemma, as one of its provision conflicted with the FEMA regulations. (There are conflicts with other acts as well)
The matter related to the eligibility requirement for a Director-nominee proposed by a member or by the nominee themselves. Section 160 of the Companies Act, 2013 requires the nominee to deposit a sum of Rs.1 lakh along with their nomination form. While compliance with this section is feasible when a resident Indian is involved, the company faces a problem where a non-resident is the nominee, as the company cannot accept deposits from a non-resident as it is not permitted under Foreign Exchange Management (Deposit) Regulations, 2016.
On April 13, 2016, RBI issued a circular A.P. (DIR Series) Circular No.59, resolving this dilemma by expressly permitting Companies to receive deposit from person resident outside India for nomination as Director.
The detailed explanation is provided for the readers:
Deposit by non-residents for nomination as Director
As per the provision of Foreign Exchange Management (Deposit) Regulations, 2016 there is a restriction on an Indian Resident to accept or make any deposits with a non resident. If any such deposit has to be made, then RBI Approval is needed.
Exemptions to this rule
Deposits held by foreign diplomatic missions and diplomatic personnel and their family members in India with an authorised dealer in –
i. Rupee accounts
ii. Special rupee accounts – Diplomatic Bond Stores Account
Diplomatic Bond Stores Account is to facilitate purchase of bonded stocks from firms and companies who have been granted special facilities by customs authorities for import of stores into bond subject to certain specified conditions.
iii. Accounts maintained in foreign currency by diplomatic missions, diplomatic personnel and non-diplomatic staff, held by nationals of concerned foreign countries who hold official passport of foreign embassies in India.
Deposit of Rupees One lakh or above
As per provisions of section 160 of Companies Act, 2013, a person who is intending to propose himself or a member as the director has left at the registered office of the company, a notice in writing signifying his nomination/ candidature as a director for the office of the director, is required to deposit Rupees One Lakh or more, as specified. The amount shall be refunded to such person/ member if:
i. The proposed person has been elected as director of the company or
ii. The proposed person gets more than twenty five percent of the total valid votes.
1. By persons other than Authorised Dealer/ Bank
i. A company registered under the Companies Act, 2013 or a body corporate can only renew the deposits which had been previously accepted on repatriation basis.
ii. A company, body corporate and proprietary concern can accept deposits on repatriation basis subject to the following conditions:
a. Acceptance of deposits made under private agreement or under public deposit scheme
b. If the AD is a non - banking financing company, it should be registered with the RBI and should have obtained required credit rating.
c. The maturity period for the deposits should be capped at 3 years.
d. The interest rate shall not exceed guidelines/ directions issued by Reserve Bank or the ceiling rate prescribed from time to time under the Companies
(Acceptance of Deposit) Rules, 2014 for non–banking finance company or in other cases respectively.
e. Deposits in the form of inward remittance shall be towards the credit of NRO account.
f. Applicability of law, rules, regulations or order made by Government or any other competent authority.
g. The accepted deposits shall not be utilized for re-lending, agricultural/ plantation activities or real estate business or for investing in any concern/ firm/ company engaged of proposing to engage in such activities.
Deepak P Jain,
Chartered Accountant, Company Secretary
Pozitiv Advisors Private Limited