MCA initiatives to deal with COVID-19

March 2020

Given the COVID-19 crisis, the Ministry of Corporate Affairs (“MCA”) announced certain important initiatives to deal with the public health situation and promote social distancing. Key updates are:

Board Meetings through video conferencing

Background: Rule 4 of the Companies (Meetings of Board and its Powers) Amendment Rules, 2020 lists various matters which cannot be approved in a board meeting held through video conferencing and require a physical board meeting. These matters are: (a) approval of annual accounts, (b) approval of the board’s report, (c) approval of prospectus, (d) convening of audit committee meetings for consideration of annual accounts, and (e) approval of matters pertaining to amalgamation, merger, demerger, acquisition and takeover.

Amendment: On March 19, 2020, MCA amended Rule 4 wherein to discuss matters listed in points (a) to (e) above, there is no longer a requirement of a physical board meeting till June 30, 2020. All these matters can be discussed and approved through videoconferencing as well. That said, companies will have to ensure that they follow the mandatory requirements of holding a board meeting through video conference.

PSA’s view: This is a positive initiative by the MCA as it ensures social distancing at least for the near future. Additionally, MCA should also consider relaxing the requirement of a gap of 120 days between two consecutive board meetings. As per section 173 of the Companies Act, 2013 (“the Act”), every company has to convene at least four BMs in each calendar year with a maximum gap of 120 days between two consecutive BMs. In the times of COVID-19, holding board meetings just for compliance purpose will be a difficulty, which can certainly be done away with.

Web form CAR-2020

On March 23, 2020, the MCA issued a simple web form “Company Affirmation of Readiness towards COVID-19, 2020” i.e. CAR-2020. This form requires companies and LLPs to confirm in simple yes/no whether they are in compliance of COVID-19 guidelines prescribed by the Government, including a “work from home” policy. COVID-19 guidelines, as referred to in CAR-2020, include all advisories issued by the central and state governments. There is no due date for the form since this is a voluntary filing.

PSA’s view: The purpose for this form is to spread awareness and ensure that corporate India is ready to tackle the unprecedented healthcare pandemic in India. While the form does not specifically mention what COVID-19 guidelines have to be complied with, we believe that the bare essentials include (i) implementing “work from home” and, perhaps, having a policy to document it, (ii) sharing accurate information about COVID-19 and best practices to be followed by employees such as washing hands regularly, maintaining social distance, etc. This is a one-of-a-kind initiative taken by the MCA in these testing times and corporate India should fully support it. It is still to be seen whether there will be any liabilities associated with any false confirmation given in CAR-2020.

Expansion of Corporate Social Responsibility (“CSR”) Activities

Background: As per section 135 of the Act, any company with a profit of INR 50 million (USD 650,000) or turnover of INR 1 billion (USD 14 million) or net worth of INR 5 billion (USD 70 million) or more in the preceding financial year is required to expend at least 2% of three years’ average net annual profit on CSR activities specified under Schedule VII of the Act.

Amendment: By a General Circular no. 10/2020 issued on March 23, 2020, the MCA expanded the scope of CSR activities under item no. (i) (promotion of health care including preventive health care measures and sanitation) and (xii) (disaster management, including relief, rehabilitation and reconstruction activities) of Schedule VII by including contribution made by companies to prevent COVID-19.

PSA’s view: This was certainly the need of the hour and we expect corporate India to actively contribute and support organizations that are working towards containing and eradicating the pandemic. In fact, the government should also consider giving tax incentives to corporate India to support the healthcare ecosystem in such challenging times.

By:

Jaya Moorjani