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Convertible Notes in India – How it help Start-ups in early Stage or Seed Funding Round

Govt. of India issued Consolidated FDI Policy in 2017. The thrust of the policy is to make India an attractive investment destination for foreign investors. A key feature of these policy announcements has been to boost fundraising options for home-grown startups by permitting startups to raise funds through issuance of Convertible Notes which was earlier not allowed. Convertible Notes are extremely popular investment instrument in advanced startup ecosystems such as Silicon Valley, Tel Aviv, Singapore etc.

What is Convertible Notes?

Convertible notes are debt instruments that are convertible into equity at the option of the holder or upon specific trigger events, most typically the company’s next equity fund-raising round. Under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, a convertible note issued by a qualifying startup to a non-resident investor is initially a debt instrument that may, at the option of the note holder, either be repaid or converted into equity within five years from issuance. Such notes also have the advantage of being redeemable at maturity if the startup fails to perform as expected.

What is the situation in India prior to January, 2017?

In India, issuing Convertible Notes (CN) to foreign investors was earlier forbidden since the Reserve Bank of India (RBI) allowed Foreign Direct Investment (FDI) permitted only in equity instruments and instruments that are compulsory convertible into equity shares like Compulsorily Convertible Preference Shares (CCPS) or Compulsorily Convertible Debentures (CCD). All other instruments, including those that are optionally convertible into equity, are treated as debt and have to comply with the External Commercial Borrowings (ECB). Before the new F.D.I policy, it was difficult for startups to raise funds from foreign investors, who are habituated to investing in startups through a convertible note issuance. In addition to that, such notes were not allowed to be issued because they would be considered as ‘Deposits’ under the Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014.

R.B.I January, 2017 Notification 

In one of many steps being taken for Ease of Doing Business (EODB) and promote F.D.I in start-ups, the R.B.I has permitted “recognized startups” to raise funding through the convertible note route. The RBI has amended the Foreign Exchange (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, w.e.f January 10, 2017, to allow “recognized startups” to issue convertible notes to foreign investors. 

Valuation Requirements

Unlike other FDI instruments, like Equity Shares or CCPS, pricing guidelines need not to be complied with at the time of issuance of a convertible note. However, the conversion of the convertible note into equity as well as the transfer from a non-resident to a resident investor must be in accordance with the pricing guidelines. The price of shares issued upon conversion must be at or above fair market value, determined by a certified chartered accountant or merchant banker.

How Convertible Note works?

Mr. Dhaval Gusani has just started his start-up providing corporate law & start-up consultancy services. People of India still prefer to take law advisory from his local consultants. His product and business model is not very much popular in India and is undergoing changes along with his technology. However, due to quality services at lower cost, entrepreneurs and businessman now slowly and gradually prefer his services. 

After some time, some angel investors from abroad shown interest in his start-up but they find valuing his company tough as revenue is not reached at break-even point and may be they are not much sure about the success of start-up so they prefer to wait and watch how startup performs without taking immediate equity exposure. They want to fund in the form of debt where the debt should get converted into equity shares before the next round of funding at some discount so that they get to benefit as early investors. So, what we did is as follows:

Company (Dhaval Gusani’s Start-up) is looking to raise Rs. 1 crore at a valuation of Rs 10 Crore (Founder’s value). The potential investors do not understand the basis of this valuation since the company is still trying to stabilize its business model so they decided that Company will issue Rs. 1 crore convertible notes to the investors with a condition that this money shall be converted into equity at a 20% discount to the next round of funding, which ought to take place within 24 months. If Company is unable to raise the money, it has to return the notes along with interest at 10% immediately upon the expiry of the 24th month or any other time that the investors demand. 

1 year later, Company raises Series A funding Rs. 10 crore at a valuation of Rs. 30 crore. Now, the first investors will get to convert their investment of Rs. 1 crore at a valuation of Rs. 24 Crores (20% discount to the Rs 30 crore valuation). In other words, the first investors will get more shares for their money and get compensated for investing early in Company.

Conditions to issue Convertible Notes by Recognized Start-up

  • The minimum investment in a single tranche will have to be at least INR 25 lakhsThis means only serious and bigger investors must be benefitted from a note.
  • The amount will have to be converted within 5 years;
  • The terms of conversion will have to be determined upfront at the time of issue of Convertible Notes.
  • The consideration for convertible notes can be sent through banking channels or through an escrow account. Escrow account to be closed immediately after the requirements are completed or within six months, whichever is earlier.
  • The issue of equity shares in lieu of convertible notes must be in compliance with RBI’s pricing guidelines, that is, valuation must be done through any internationally recognised pricing methodology at an arm’s-length basis by a qualified chartered accountant or merchant banker. 
  • Convertible notes are freely transferable and can be acquired/transferred by way of sale, provided the sale is in accordance with the pricing guidelines prescribed by the RBI.
  • Prior Government approval for the issuance of a convertible note will be required for cases where the startup is engaged in any activity that falls under the approval route under the existing regulatory framework for FDI. Startups engaged in sectors falling in the automatic route for FDI do not require any prior approval with respect to such issuance.

India estimated to house the third-highest number of tech startups in the world after the United States and England. This policy relaxation will help innovative startups raise seed capital in their initial (but critical) phase and explore funding opportunities with both domestic and foreign investors. While the pricing guidelines still act as a hamper with the restrictions on price of such instruments to be determined at fair market value, it is hoped that the RBI proactively exempts issuance of convertible notes by startups from the pricing guidelines for it to bring about the desired impact.

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Starting a business in Singapore - Complete Guide

Every year, Singapore witnesses a large influx of foreign capital and global talent from across the globe. This strong liking towards Singapore can be attributed to its pro-business approach, lower tax rates, business friendly laws, stable political environment, free from corruption and red-tapism, transparency, startup nurturing and among others.

Why so much FDI in Singapore or Why to start Business there?

  • Lower Tax Rates

The corporate tax rate in Singapore is between 8.5%–17%, which is quite lower than the rates prevalent in other countries in the world. It is a great reward to the business owner that is setting up a company in Singapore. In addition, Singapore based holding companies can repatriate dividends from their foreign subsidiaries to free of Singapore tax. 

  • Ranking in Ease of Doing Business

Singapore consistently tops World Bank’s Ease of Doing Business report due to its hassle-free business set-up processes and was also rated as offering the best IP protection, infrastructure, and incentives in Asia by World Economic Forum’s Global Competitiveness Report 2015-16. The Economist Intelligence Unit, Country Forecasts Report in 2014, ranked Singapore as the most attractive investment location, both regionally and globally. The Global Innovation Index (GII) 2015 ranked Singapore as the best-performing Asian country in terms of innovation performance.

  • Locational and Infrastructural advantages

Singapore is location in the heart of South-east Asia and close proximity to emerging markets of India and China. It’s Changi International Airport serves over 80 international airlines with connections to more than 330 cities. Singapore’s seaport infrastructure has been ranked the best in Asia for the past two decades. The container ports here are the busiest in the world, offering 200 shipping lines with links to some 600 ports in 123 countries.

  • Stable Political Environment, Arbitration, Transparent, free from red tapism, Corrupation etc. etc.

Singapore has the most stable political environment in South-east Asia, offering entrepreneurs and investors a strong sense of security and comfort. In the event of cross-border disputes, businesses can rely on Singapore’s reputation as a world-class arbitration facility. The World Economic Forum ranked Singapore as having the best IP protection in Asia. The same report recognised Singapore as a country with sound political infrastructure and policy-making procedures; leading to its ranking as the most transparent country in Asia that enjoys a stable business environment. It is also the least corrupt country in the Asia region, where transparency is valued highly. This is according to the IMD World Competitiveness Report 2015.

Pre-incorporation considerations

Before starting business in Singapore following things must be kept in mind by foreigners:

  • Taxation 

Singaporean tax rate are very much lower as compared to other jurisdictions. The biggest advantage is no tax on dividend distribution & capital gain and Corporate Tax is 8.5 % on your first S$300,000 of annual profit and 17 % thereafter.

  • Local Nominee Directors

Singapore company must have at least 1 Local Resident Director. Such nominee director does not interfere with the affairs of the company and are easily available. This person can be a citizen, permanent resident, or someone with a valid employment pass. Indian can be treated as local if he/she is having valid employment pass. You can appoint as many directors, local and foreign, as you want. You must ensure they are no younger than 18, have a clean criminal record and can’t suffer from bankruptcy. Directors need not be shareholders. 

  • Shareholders 

For Private Limited Company, you can have between 1 to 50 shareholders. A minimum of one shareholder is required. 100% foreign ownership is allowed. Shareholders can be individuals or entities, local or foreign. The director and shareholder records are public accessible like any one can see after paying nominal fees.

  • Company Secretary

You have to appoint a qualified company secretary within six months of incorporation. A sole director or shareholder can’t also be the company secretary, who must be a natural person living in Singapore.

  • Minimum Paid-up Capital

Your company must have at least S$1 in paid up capital for register Pte Ltd company in Singapore, though you can increase the amount at any time after incorporation. Singapore companies do not use authorized capital. It can be Ordinary shares, preference shares or other shares.

  • Registered Address

You need to register a local business address to register Pte Ltd company in Singapore. It can be residential or commercial, but can’t be a post office box. 

Process of Company Registration in Singapore

Step 1: Company Name Reservation

To register a new company, its name should be approved by ACRA – Singapore Company Registration Authority. It will take 2-3 hours for approval of name. The name must be, Unique, meaningful, easy to read and devoid of the vulgar or obscene word, Free of copyright issue. It should not infringe any trademark.

Your application may require an approval of external authority if the company name includes certain words such as the “Bank,” “Finance,” “Educational,” “Media,” etc. 

Once the company name is approved & reserved, it will be automatically reserved for you for 60 days from the date of application. You are advised to incorporate the company within a specified period. However, we as your registered filing agent can ask for an extension of another 60 days by filing a request on your behalf.

Step 2: Company Registration

After the approval of company name, you can apply for company registration. It should not take much time to accomplish the process assuming documents are in order.

Documents required:

  • A brief description of business activities;
  • Details of Singapore registered address of the company;
  • Particulars of all shareholders name, address, contact details and email id;
  • Particulars of all directors name, address, contact details and email id;
  • Particulars of company secretary name, address, contact details and email id;
  • Foreign Entrepreneurs need to submit a copy of their passport and residential address proof;
  • Foreign Companies need to submit Memorandum & Articles of Associations;
  • Singapore Residents must submit a copy of their Singapore identity card;
  • Company Constitution, known as the Memorandum and Articles of Association (MAA). You may decide to adopt the standard Singapore company constitution as available from ACRA, which is acceptable for most.
  • Signed Consent to Act as a Director for each director;
  • Signed Consent to Act as Company Secretary by the company secretary;

Step 3: Certificate of Incorporation

Upon successful registration of the company, ACRA will issue e-Certificate of Incorporation containing a Unique Entity Number (UEN). This e-Certificate is sufficient in Singapore and accepted for all corporate needs A company can also purchase a hard-copy Certificate of Incorporation from ACRA at any time after incorporation. 

Compulsory Compliances

  • Register of Companies 

Companies are required to maintain beneficial ownership information in the form of a Register of Registrable Controllers, and to make the information available to public agencies upon request.

  • Register of Nominee Directors

Companies are required to keep a register of its nominee directors containing the particulars of the nominators of the company’s nominee directors

  • Financial Year

Every company in Singapore is free to determine its financial year. It does not necessarily need to be January to December or April to March accounting cycle. The financial year (accounting cycle) can start in any month of the year.

  • Financial Statements

 Directors of the company are required to set before the shareholders company’s annual financial statements compiled in accordance with the Financial Reporting Standards of Singapore, consisting of:

  • Directors’ Statement
  • Independent Auditors’ Report (if required)
  • Balance Sheet
  • Profit and Loss Statement
  • Statement of Changes in Equity
  • Cash Flow Statement
  • Corresponding Notes to Financial Statements

  • Requirement of Audit

Audit is exempted in the following category of companies:

The Company having only upto 20 shareholders that too only individual and

The Company is ‘Small Company’.

A company qualifies as a ‘small company’ if it meets at least 2 of 3 following criteria for immediate past two consecutive financial years:

  1. Total annual revenue is not more than $10m;
  2. Total assets is not more than $10m;
  3. No. of employees is not more than 50.

  • Annual General Meeting

Every Singapore Company needs to hold its annual general meeting (AGM) once in every calendar year and its financial statements are to be tabled at the AGM for the shareholders’ approval. The Singapore Companies Act states that every company is required to hold an AGM:

  • once in every calendar year; and
  • within 15 months from the date of the last AGM; or
  • within 6 months from its financial year end date, whichever earlier

Newly incorporated companies are allowed to hold the first AGM within 18 months from the date of incorporation.

An AGM must be physically held anywhere in the world, whereby the shareholders meet.

The following matters are to be discussed at an AGM:

  • To approve the Director’s Report and Audit Report;
  • To approve directors’ fees, remuneration and emolument;
  • To re-elect the director(s) (if applicable)
  • To reappoint auditors;
  • To declare dividends, if any;
  • To transact any other business.

Exemption for private companies from holding AGMs 

Private companies are exempted from holding AGMs if they send their financial statements to members within 5 months after the FYE.

  • Filing of Annual Returns

For companies having a share capital and keeping a branch register outside Singapore: Annual returns to be filled within 6 months (if listed) or 8 months (if not listed) after the closure of financial year.

For other companies: Annual returns to be filled within 5 months (if listed) or 7 months (if not listed) after the closure of financial year.

  • Corporate Tax Filing

Every company has to file Corporate tax return by 30 November (paper-filing) and 15 December (e-filing).

Company Registration quick FAQs

Is a one-person company allowed in Singapore?

Yes, a company can be owned and operated by a single person; i.e., a person can be the sole shareholder and director of a company. The following caveats apply: At least one director must be a Singapore-resident director. Therefore if you are a foreign person and not a resident of Singapore, you can still be the shareholder and operating director of your company, but in addition, you will be required to appoint a Singapore-resident person as an additional director. 

Can a foreigner incorporate a Singapore company?

Yes. As stated earlier, foreigners are free to form companies in Singapore and they can be 100% shareholders of their company. A foreigner is not required to relocate to Singapore for this purpose; they are free to operate their company from overseas. 

Do I need to appoint a corporate secretary for my Singapore company?

Yes, each Singapore company must appoint a corporate secretary. A company secretary is an individual who is a resident of Singapore and passed the requisite exam. 

How long will it take to register my Singapore company?

Singapore company registration consists of a number of steps.

  1. Providing information about company structure and supporting documents – 7 days
  2. “Know You Client” (KYC) checks by Corporate Service Provider as required by law: 1 day
  3. Reservation of Company Name with ACRA: 1 day
  4. Preparation of incorporation document set: 2-3 days
  5. Client Review and Signatures on document set: Anywhere from 3 days to 15 days (depends on the client and number of signatories involved)
  6. Incorporation with ACRA: 2 days

So, overall time required to incorporate company in Singapore by foreign person can vary from 7 days to 30 days.

Thank You.

The author of this article can be contact at dvg.pcs@gmail.com or +91 94276 75100. 

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DPT-3 Reporting of Exempted Deposits and Practical filing FAQs

MCA vide its notification dated 22nd January, 2019, notified Companies (Acceptance of Deposits), Amendment Rules, 2019 in which Sub-rule 3 in Rule 16A was added which provides as follows:

“Every company other than Government company, shall file a onetime return of outstanding receipt of money or loan by a company but not considered as deposits, in terms of clause (c) of sub-rule 1 of rule 2 from the 01st April, 2014 to the date of publication of this notification in the Official Gazette (22nd January, 2019), as specified in Form DPT-3 within 90 days from the date of said publication of this notification along with fee as provided in the Companies (Registration Offices and Fees) Rules, 2014.”.

In the said notification, MCA has also added explanation in Rule 16: It is hereby clarified that Form DPT-3 shall be used for filing return of deposit or particulars of transactions not considering deposit or both by every company other than government company.   

MCA vide its general circular 05/2019 dated 12th April, 2019, clarified that now Companies are required to file data with regard to exempted deposits upto 31st March, 2019 (as opposed to publication of earlier notification date i.e 22nd January, 2019). Now, Companies are required to file data of exempted deposits for the period of 01st April, 2014 to 31st March, 2019, within 30 days from the deployment of new version of DPT-3. Again on 30th April, MCA came out with the notification extending deadline of filing DPT-3 and require to file within 90 days from the closure of F.Y i.e by 29th June.

What is meant for Deposit?

The definition of Deposit in inclusive and not exhaustive. Rule 2(1)(C) of Acceptance of Deposit Rules, 2014 exempts certain transactions from the ambit of Sec 73 to 76. Any transactions outside the said rule will be deemed as Deposit and all the provisions of Sec 73 to 76 will apply.

“Deposit” includes any receipt of money by way of deposit or loan or in any other form, by a company but does not include such categories of amount [Provided in Rule 2(1)C] as may be prescribed in consultation with the RBI. 

Broadly, Deposits will include- 

  • Deposit in substance;
  • Amount received from any Body Corporate except from the Company; 
  • Installment schemes which promises returns, in cash or in kind, at the end of the specified period;

What are the exempted deposits from Sec. 73 to 76?

The definition of deposit excludes certain transactions from its purview which are given in the Rule 2(1)(C) of the Companies (Acceptance of Deposit Rules), 2014. So, We need to look at Rule 2(1)(C) to see what are the exempted deposits for which this one time DPT-3 is required.

Rule 2(1)(C) of the Companies (Acceptance of Deposit Rules), 2014

"Deposit" includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include – 

  • Any amount received from the C.G, S.G, Local Authority or Statutory Authority constituted under an Act of Parliament or a State Legislature;

  • Any amount received from Foreign Governments, Foreign Banks, Multilateral financial institutions, Foreign Governments owned development financial institutions, Foreign export credit agencies, Foreign collaborators, Foreign bodies corporate and Foreign citizens, Foreign authorities or Persons resident outside India subject to the provisions of FEMA Act and Rules;

  • Any amount received as a loan or facility from any banking company or banking institution;

  • Any amount received as a loan or financial assistance from public financial institutions or any regional financial institutions or insurance companies or scheduled banks; 

  • Any amount received against issue of commercial paper or any other instruments issued in accordance with the guidelines or notification issued by the Reserve Bank of India;

  • Any amount received by a company from any other company;

  • Any amount received and held towards subscription money, share application money or advance towards allotment of securities pending allotment.

Explanation For the purposes of this sub-clause, it is hereby clarified that -

If the securities, for which application money was received, can’t be allotted within 60 days from the date of receipt of the application money, such application money is to be refunded to the subscribers within 15 days from the date of completion of 60 days. If not refunded, such amount shall be treated as a deposit under these rules. 

  • Any amount received from a director of the company or a relative of the director of the Private company:

Provided that the director of the company or relative of the director of the private company furnishes to the company at the time of giving the money, a declaration in writing that the amount is not borrowed money. 

  • Any amount raised by the Issue of Bonds OR Secured Debentures OR bonds OR debentures compulsorily convertible into shares of the company within 10 years:

  • Any amount raised by issue of Unsecured, Listed, Non-Convertible Debentures; 

  • Any amount received from an employee of the company not exceeding his annual salary under a contract of employment with the company in the nature of non-interest bearing security deposit;

  • Any non-interest bearing amount received and held in trust;

  • Any amount received in the course of, or for the purposes of, the business of the company;

(a) As an advance for the supply of goods or provision of services provided that such advance is appropriated against supply of goods or provision of services within a period of 365 days from the date of acceptance of such advance.

(b) As an advance received in connection with consideration for an immovable property under an agreement or arrangement. Provided that such advance is adjusted against such property in accordance with the terms of agreement or arrangement;

(c) As a security deposit for the performance of the contract for supply of goods or provision of services;

(d) As an advance received under long term projects for supply of capital goods except those covered under item (b) above:

(e) As an advance towards consideration for providing future services in the form of a warranty or maintenance contract as per written agreement or arrangement;

(f) As an advance received and as allowed by any sectoral regulator or in accordance with directions of Central or State Government;

(g) As an advance for subscription towards publication, whether in print or in electronic to be adjusted against receipt of such publications;

  • Any amount brought in by the promoters of the company by way of unsecured loan in pursuance of the stipulation of any lending financial institution or a bank subject to fulfillment of the following conditions, namely:-

(a) The loan is brought in pursuance of the stipulation imposed by the lending institutions on the promoters to contribute such finance;

(b) The loan is provided by the promoters themselves or by their relatives or by both; and

(c) The exemption under this sub-clause shall be available only till the loans of financial institution or bank are repaid and not thereafter;

  • Any amount accepted by a Nidhi company in accordance with the rules made under Section 406 of the Act.

  • Any amount received by way of subscription in respect of a chit under the Chit Fund Act;

  • Any amount received by the company under any collective investment scheme;

  • An amount of Rs. 25 lakh or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person.

  • Any amount received by a company from Alternate Investment Funds, Domestic  Venture Capital Funds, Infrastructure Investment Trusts, Real Estate Investment Trusts and Mutual Funds registered with the Securities and Exchange Board of India in accordance with regulations made by it.”

Which Companies need to file One Time DPT-3?

All the Companies (Except Govt. Company) which have accepted deposits or loans which are exempted from the provisions of Section 73 to 76 of the Companies Act, 2013 and such deposits and loans are still outstanding as on the date of 31st March, 2019 are required to file this one time return DPT-3 within 30 days from the deployment of new version of form DPT-3. 

Which Companies are exempted from reporting requirements?

Government Companies, Banking Companies and NBFCs.

Which period data is required to be filled in one time DPT-3?

01st April, 2014 to 31st March, 2019.

What if Company has exempted deposits as on 22nd January, 2019 but repaid by 31st March, 2019?

The original date of notification is 22nd January, 2019 but MCA circular dated 12th April, 2019 requires to file outstanding loans as on 31st March, 2019. So, I think such companies need not required to file DPT-3 because it does not have outstanding loans as on 31st March, 2019.

What if Company doesn’t have any deposits or exempted deposits as on 31st March, 2019?

Such Companies are not required to file any return even NIL return is not required.

Whether Auditors Certificate is required or not?

If you read Rule 12(a)(b) of Companies (The Registration Offices and Rules), 2014, you will find that form DPT-3 must be certified by the Auditors of the Company. However, new version of DPT-3 doesn’t require pre-certification of auditors and also not mandating auditor certificate as compulsory attachment. In this scenario, it is advisable to attach ‘Statutory Auditor’s certificate with the form.

Whether DPT-3 is One time Compliance or yearly Compliance?

DPT-3 is now annual compliance by all the companies which has exempted deposits also. Earlier, it was compulsory only for companies which have accepted deposits under Sec 73 to 76. 

According to new version of DPT-3, there are 4 purposes mentioned in point no. 3 of the said form:

  1. Onetime Return for disclosure of details of outstanding money or loan received by a company but not considered as deposits 
  2. Return of Deposit 
  3. Particulars of transactions by a company not considered as deposit as per rule 2 (1) (c) of the Companies (Acceptance of Deposit) Rules, 2014
  4. Return of Deposit and Particulars of transactions by a company not considered as deposit

Purpose 1: It is to be filled one time by companies having exempted deposits as per Rule 2(1)(C) of Deposit Rules by 29th June.

Purpose 2: It is annual return of deposit and to be tick marked by companies having only deposit covered under Sec 73 to 76. It is to be filled by 30th June every year.

Purpose 3: It is annual return of exempted deposit and to be tick marked by companies having only exempted deposit covered under Rule 2(1)(C). It is to be filled by 30th June every year.

Purpose 4: It is a combined annual return of deposits as well as exempted deposits and to be tick marked by companies having both deposits under Sec 73 to 76 and exempted deposit covered under Rule 2(1)(C). It is to be filled by 30th June every year.

E.g. 1: ABC Ltd has following balances as on 31st March, 2019

  • Unsecured Loans from Directors: Rs. 5,00,000/- 
  • Secured Loan from Bank: Rs. 1,00,00,000/-
  • Inter Corporate Loans: Rs. 50,00,000/-

Since all the above are falls on exempted deposits, ABC Ltd has to file 2 DPT-3 this year:

1. One Time DPT-3 by 29th June – Mentioning Total Exempted Deposits i.e Rs. 1,55,00,000/-One time DPT-3 is asking only aggregate of exempted deposits and not detailed bifurcation of exempted deposits. 

2. Annual DPT-3 by 30th June (selecting purpose 3) – In this form, you need to give detailed bifurcation of your exempted deposits. It is to be filled every year from now. 

E.g. 2: ABC Ltd has following balances as on 31st March, 2019

  • Unsecured Loans from Directors: Rs. 5,00,000/- 
  • Secured Loan from Bank: Rs. 1,00,00,000/-
  • Inter Corporate Loans: Rs. 50,00,000/-
  • Deposits accepted as per Sec 73 to 76: Rs. 25,00,000/-

In this case, ABC Ltd has both Deposits and Exempted Deposits; it has to file 2 DPT-3 this year:

1. One Time DPT-3 – Mentioning Total Exempted Deposits i.e 1,55,00,000/-. One time DPT-3 is asking only aggregate of exempted deposits and not detailed bifurcation of exempted deposits.

2. Combined Annual DPT-3 selecting purpose 4 – In this form, you need to give details of both deposits and detailed bifurcation of your exempted deposits.  

E.g. 3: ABC Ltd has following balances as on 31st March, 2019

  • Deposits accepted as per Sec 73 to 76: Rs. 25,00,000/-

In this case, ABC Ltd has only Deposits, It does not require to file one time DPT-3. 

1. DPT-3 selecting purpose 2 – In this form, you need to give details of your deposits.  

What will be the consequences for non- reporting?

Section 76A and Rule 21 provides punishment for non compliance with any provisions of the rules. 

On the company: A fine of minimum Rs. 1 crore or twice the amount of deposit so accepted, whichever is lower, which may extend to Rs. 10 crore ; and

On the officers of the Company who is in default: imprisonment upto 7 years and with a fine of not less than Rs. 25 lakh which may extend to Rs. 2 crore.


The exemption list of deposits covers common items like Bank Loans, Directors’ Loans, Promoters Loans, Unsecured Loans from Members, Advance from Customers among others which are very common for each type of entities irrespective of its size, status etc. Now, the Companies will have to disclose details of all these transactions even though the same are not deposits.

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SEBI notified Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2019 on 5th April, 2019. Earlier launched ‘Institutional Trading Platform’ for listing of startups has failed to gain much traction. So, now SEBI has come up with revised version along with relax norms for listing of start-ups operating in e-commerce, data analytics, bio-technology and nano-technology sectors to raise funds and get their shares traded on stock exchanges. The name of platform is changed from 'Institutional Trading Platform' to 'Innovators Growth Platform'. This platform shall be accessible by institutional investors, non-institutional investors and retail individual investors. Earlier, retail individual investors are not allowed to access. 

Eligibility for Issue of Securities

Any issuer company which is intensive in the use of technology, information technology, intellectual property, data analytics, bio-technology or nano-technology to provide products, services or business platforms with substantial value addition, shall be eligible for listing on the innovators growth platform. Provided that as on the date of filing of draft information document or draft offer document with the Board, 25 % of the pre-issue capital of the Issuer Company for at least a period of 2 years, should have been held by:

1. Qualified Institutional Buyers (QIB);

2. Family trust with net-worth of more than Rs. 500 Cr. as per the last audited B/S;

3. Accredited Investors for the purpose of Innovators Growth Platform;

The following individuals or entities shall be eligible to be considered as accredited investors:

Any individual with total gross income of Rs. 50 lakhs annually and who has minimum liquid net worth of Rs. 5 Cr OR Any Body Corporate with net worth of Rs. 25 Cr; However, not more than 10 % of the pre-issue capital may be held by Accredited Investors.

4. The following regulated entities:

  • Category III Foreign Portfolio Investor;

  • An entity meeting all the following criteria: 

  • It is a pooled investment fund with minimum assets under management of 150 million USD;
  • It is registered with a financial sector regulator in the jurisdiction of which it is a resident;
  • It is resident of a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to Bilateral Memorandum of Understanding with the Board;
  • It is not resident in a country identified in the public statement of Financial Action Task Force as:

a)    a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or

b)    a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.


An issuer seeking listing of its specified securities without making a public offer, shall file a draft information document along with the necessary documents with the Board in accordance with these regulations along with the fee as specified in Schedule III of ICDR regulations. The  draft  information   document  shall  contain   disclosures  as  specified   for  the draft offer documents in ICDR regulations as specified in Part A of Schedule VI.

One time fees

Paid up Share Capital 


Less than or equal to Rs. 10 Crore

Rs. 1,00,000/-

Between Rs. 10 Crore to Rs. 5000 Crore

0.1 % of the issue size

More than Rs. 5000 Crore

Rs. 5 Crore + 0.025 of the issue size in excess of Rs. 5000 Crore

Non–applicability of certain regulations

 The regulations relating to the following as stated under the Chapter of Initial Public Offer on 

Main Board shall not be applicable:

a) Allotment;

b) Issue opening or closing;

c) Advertisements;

d) Underwriting;

e) Sub-regulation (2) of regulation 5; 

f) Pricing;

g) Dispatch of issue material; and

h) Other such provisions related to offer of specified securities to the public. 

In-principle approval from Stock Exchange 

The issuer shall obtain in-principle approval from the stock exchanges on which it proposes to get its specified securities listed. 

Minimum Public Shareholding

The issuer which has received an in-principle approval from the stock exchange for listing of its specified securities, shall be deemed to have been waived by the Board from the requirement of minimum offer to the public as per the provisions of clause (b) of sub-rule (2) of rule 19 of Securities Contracts (Regulation) Rules, 1957 for the limited purpose of listing on the innovators growth platform.

Information Document

The draft and final information document shall be approved by the board of directors of the issuer and shall be signed by all directors, the Chief Executive Officer, the Managing Director or Manager within the meaning of the Companies Act, 2013 and the Chief Financial Officer, i.e., the Whole time Finance Director or any other person heading the finance function and discharging that function.

The  signatories  shall   also  certify  that   all  disclosures  made   in  the  information   document  are  true and correct.

In case of mis-statement in the information document or any omission therein, any person who has authorized the issue of information document shall be liable in accordance with the provisions of the Act and regulations made thereunder.

Time line for listing

The issuer shall list its specified securities on the recognised stock exchanges within 30 days from the date of issuance of observations by the Board; or from the expiry of the period stipulated in sub-regulation (4) of regulation 25, if the Board has not issued any such observations.


An issuer seeking to issue and list its specified securities shall file a draft offer document along with necessary documents with the Board in accordance with ICDR regulations along with the fees as specified in Schedule III of these regulations.

The draft offer document shall disclose the broad objects of the issue, the  basis   of  issue  price which shall include disclosures,  except   projections,  as  deemed   fit  by  the issuer   in  order  to   enable the investors  to  take   informed  decisions  and   the  disclosures  shall suitably contain the basis of valuation.

One time fees 

Size of the issue


Less than or equal to Rs. 10 Crore

Rs. 1,00,000/-

Between Rs. 10 Crore to Rs. 5000 Crore

0.1 % of the issue size

More than Rs. 5000 Crore

Rs. 5 Crore + 0.025 of the issue size in excess of Rs. 5000 Crore

Minimum Offer Size 

The minimum offer size shall be Rs. 10 Cr

Minimum Application Size

The minimum application size is Rs. 2 lakh and in multiples thereof.

Minimum Number of Allottees

The minimum number of allottees shall be at least 50.

Allotment on proportionate basis

The allotment to institutional investors as well as non-institutional investors shall be on a proportionate basis.

Lock-in period

The entire pre-issue capital of the shareholders shall be locked-in for a period of 6 months from the date of allotment in case of listing pursuant to a public issue or date of listing in case of listing without a public issue.

Trading lot 

The minimum trading lot on the stock exchange shall be Rs. 2 lakh

Migration to the main board

An issuer that has listed its specified securities on a recognised stock exchange may at its option migrate to the main board of that recognised stock exchange after expiry of three years from the date of listing subject to compliance with the eligibility requirements of the stock exchange.

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LLP – Introduction, Features, Benefits and Conversion


A Limited Liability Partnership or LLP is a corporate business form combining features of both Company and traditional partnership firms. It offers the benefits of a limited liability to the partners. The concept of LLP was emerged and got place in statutes in 2008 while the concept of private company is much older than. 

Salient Features of LLP

LLP is a body corporateIt is a legal entity separate from its partners.

Perpetual Succession; Unlike a partnership firm, a LLP can continue its existence even after the retirement, or death of one or more partners. 

Separate Legal Entity and the Limited liability of the partners;

LLP Agreementthe rights and duties of all partners are governed by an agreement between them. Also, the partners can devise the agreement as per their choice. If such an agreement is not made, then the Act governs the mutual rights and duties of all partners.

Artificial Legal PersonLLP is an artificial legal person. It is created by a legal process and has all the rights of an individual. It is invisible, intangible and immortal but not fictitious since it exists.

Minimum 2 partners and 2 individuals as designated partners; There is no maximum limit on the number of maximum partners in the entity.

Management of Businessthe partners of the Limited Liability Partnership can manage its business. However, only the designated partners are responsible for legal compliances.

E-Filing of DocumentsAll the e-forms need to be digitally signed by designated partner using digital signature.

Benefits of LLP

  • The fee for incorporation of LLP is lower than the fees for incorporation of private limited company. The process is also involves less documents and is less cumbersome.
  • Audit is not required for a LLP having annual turnover less than Rs.40 lakhs and capital contribution less than Rs.25 lakhs. Whereas, for a Private Limited Company, audit is mandatory irrespective of turnover or capital.
  • There is no dividend distribution tax applicable for LLPs. Whereas, for a Private Limited Company, dividends are taxed at the rate of 15%.
  • In LLP, there is no concept of Board Meetings or Annual General Meetings. So annual compliances relating to meetings, minutes, directors’ report, maintenance of registers etc. need not to be followed.

Drawbacks of LLP

  • LLPs do not have the concept of shareholding So, Venture Capitalists and Private Equity Investors who want to actively participate in the management of the business do not prefer LLP. 
  • Foreign Direct Investment (FDI) in a private limited company is under the automatic route whereas FDI in LLP is under the approval route. Therefore, foreign or NRI promoters prefer incorporation of a private limited company mostly.
  • Bankers and other FIs prefer to lend Companies than to LLPs so Companies have better borrowing capacity.

For whom LLP is best?

It is suitable for the startups which need Limited Liability in business; Want to save incorporation expenses, annual compliance expense and audit expenses, Don’t want to raise the funds from Angel Investor or Venture Capital firms in the initial phase; Don’t want to issue shares to employees as ESOP.

For whom Company is best?

It is suitable by the startup when they want need funding from investors and VCs; Offer shares to employees as ESOP; Need borrowings from Banks and FIs; Need foreign funding etc.

Conversion of LLP into Company

LLP Act, 2008 does not cover the provision of conversion of LLP into Company but Section 366 of the Companies Act, 2013 and Company (Authorized to Register) Rules, 2014 allows LLP to convert into a Company as per the provisions contained therein. Many Limited Liability Partnerships (LLPs) are now converting itself into a Private Limited Company for more growth and for infusing equity capital.


  • LLP must have at least 2 partners; approval from all the partners is required.
  • Advertisement in newspaper, in form URC-2, in a local and a national newspaper.
  • No Objection Certificate (NOC) is required from the ROC where such LLP is registered.

Process of Conversion of LLP into Company

  • Publish newspaper notice in form URC-2

A notice seeking objections for conversion of LLP into Company must be published in form URC-2 in at least 2 newspapers one in local and other in English.

  • File RUN 

Name Approval has to be obtained from the ROC by submitting an application in RUN. Object clause of Company must be attached. 

  • Filing form No. URC – 1 & SPICe

After getting the approval of name from Registrar of Companies and after 21 days from the publication of newspaper advertisement, the applicant should file the form No URC-1 & SPICe along with the following documents.

Attachments to URC-1

  1. List of the members with details viz. names, address, occupation, shares held by them appropriately, etc.
  2. List of the first directors of the private company with details viz. names, address, the DIN etc.
  3. An affidavit from every person proposed as first directors, that he is not banned to be a director under section-164 
  4. A list including the names & addresses of partners of LLP 
  5. A copy of LLP agreement & certificate of registration duly verified by two designated partners 
  6. A statement indicating the following specifications q) the nominal share capital of firm & the number of shares into which it is separated b) the number of shares taken & the amount paid for every share c) the name of the firm, with the addition of word Limited or private limited is required.
  7. A written consent of all partners of LLP
  8. A written consent or No objection certificate from all creditors.
  9. Copy of newspaper advertisement, 
  10. Statement of accounts of the company which must not be 30 days preceding the date of the application and it must be duly certified by the auditor.
  11. A copy of latest income tax return
  12. Undertaking by proposed first directors with regard to compliance with Stamp Act

Attachments to SPICe

  1. Memorandum of Association
  2. Article of Association
  3. ID Proof and Address Proof of Directors
  4. Consent & Declaration by first Directors in DIR-2
  5. Self-Declaration by first directors and subscribers in INC-9
  6. Resolution of Partners for conversion
  7. Proof of regd. Office like Rent Agreement/Sale deed
  8. Latest Electricity bill

  • Issue Share Certificates to the members

Companies with turnover upto Rs. 250 crore attract Income tax @ 25% while LLPs attract tax @ 30%. So, Many existing LLPs planning to convert itself into Companies for multiple reasons like reducing tax rates, receiving foreign investment, attracting VCs and HNIs, borrowing from banks and FIs etc. 

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Foreign Contribution and Regulation Act, 2010

The FCRA was enacted with the primary purpose of regulating the inflow of foreign contributions and ensuring that the received foreign contributions are not utilized for illegal purposes. All charitable organizations in India receiving foreign contributions come under the purview of this Act. Over the last few years, the Home Ministry has been scrutinizing the flow of foreign funds to all charitable organizations in India and the Ministry has also cancelled the licenses of over 8000 charitable organizations due to non-compliance with the reporting requirements stipulated under the Act. 

Object of the Act

Foreign Contribution and Regulation Act 2010 (FCRA) is enacted with the following objects:

  • 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 national interest and for matters connected therewith or incidental thereto.

Key Definitions

  • Foreign Contribution

As defined in Section 2(1)(h) of FCRA, 2010, "foreign contribution" means the donation, delivery or transfer made by any foreign source ?

  • of any article; 

Exemption: An article given to a person (includes Individual, HUF, Company, Association) as a gift for his personal use and the market value of such article in India, on the date of such gift is not exceeding Rs. 25,000/-.

  • of any currency, whether Indian or foreign;
  • of any security as defined in Section 2(h) 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.

Specific inclusion

A donation, delivery or transfer or any article, currency or foreign security by any person who has received it form any foreign source, either directly or through one or more persons, shall also be deemed to be foreign contribution with the meaning of this clause.

The interest accrued on the foreign contribution deposited in any bank or any other income derived from the foreign contribution or interest thereon shall also be deemed to be foreign contribution within the meaning of this clause.

Specific exclusion

Any amount received from any foreign source in India, by way of fee (including fees charged by an educational institution in India from foreign student) or towards cost in lieu of goods or services rendered by such person in the ordinary course of his business, trade or commerce whether within India or outside India or any contribution received from an agent or a foreign source towards such fee or cost shall be excluded from the definition of foreign contribution within the meaning of this clause.

  • Who can receive foreign contribution?

  • Individual; 
  • HUF; 
  • Association like Trust, Society and Section 8 Company;

  • Can Private Companies receive foreign contribution?

Yes. Any Private Company can receive foreign contribution if they wish to do charitable work at some point of time subject to following conditions:-

  • It must have a definite cultural, economic, educational, religious or social program.
  • It must obtain the FCRA registration / prior permission from the Central Government.
  • It must not be prohibited under Section 3 of FCRA, 2010.

  • Who cannot receive foreign contribution?

As defined in Section 3(1) of FCRA, 2010, the following are prohibited to receive foreign contribution:

  • A candidate for election;
  • Correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper;
  • Judge, government servant or employee of any Corporation or any other body controlled on owned by the Government;
  • Member of any legislature;
  • Political party or office bearer thereof;
  • Organization of a political nature as may be specified under sub-section (1) of Section 5 by the Central Government.
  • Association or company engaged in the production or broadcast of audio news or audio visual news or current affairs program through any electronic mode, or any other electronic form as defined in of Section 2(i)(r) of the Information Technology Act, 2000 or any other mode of mass communication;
  • Correspondent or columnist, cartoonist, editor, owner of the association or company referred to above point.
  • Individuals or associations who have been prohibited from receiving foreign contribution.

FCRA Registration 

Eligibility criteria

  • An association should be registered either under the Societies Registration Act, 1860 or the Indian Trusts Act, 1882 or under Section 8 (erstwhile Section 25) of the Companies Act, 2013;
  • An association normally be in existence for at least 3 years and has undertaken reasonable activity in its chosen field for the benefit of the society for which the foreign contribution is proposed to be utilized. 
  • An association should have spent at least Rs.10,00,000/- over the last 3 years on its aims and objects, excluding administrative expenditure. 
  • Statements of Income & Expenditure, duly audited by CA, for last 3 years are to be submitted to substantiate that it meets the financial parameter.

Prior Permission - if an Association is not 3 years old? 

Eligibility criteria

An organization with less than 3 years of existence is not eligible for registration. Such organization may apply for grant of prior permission under FCRA, 2010. Prior permission is granted for receipt of a specific amount from a specific donor for carrying out specific activities/projects. For this purpose, the association should meet following criteria:

  • Should be registered either under the Societies Registration Act, 1860 or the Indian Trusts Act, 1882 or under Section 8 (erstwhile Section 25) of the Companies Act, 2013;
  • Submit a specific commitment letter from the donor indicating the amount of foreign contribution and the purpose for which it is proposed to be given. 

  • For Indian recipient organizations and foreign donor organizations having common members, FCRA Prior Permission shall be granted to the Indian recipient organizations subject to its satisfying the following:

  • The Chief Functionary of the recipient Indian organization should not be a part of the donor organization.
  • At least 51% of the office-bearers/ members of the Governing body of the Indian recipient organization should not be members/employees of the foreign donor organization.
  • In case of foreign donor organization being a single person/individual that person should not be the Chief Functionary of the recipient Indian organization.
  • In case of a single foreign donor, at least 51% office bearers/members of the governing body of the recipient organization should not be the family members and close relatives of the donor.

General conditions for grant of registration and prior permission

The 'person' making an application for registration or grant of prior permission-

  • is not fictitious or benami;
  • has not been prosecuted or convicted for indulging in activities aimed at conversion through inducement or force, either directly or indirectly, from one religious faith to another;
  • has not been prosecuted or convicted for creating communal tension or disharmony in any specified district or any other part of the country;
  • has not been found guilty of diversion or mis-utilisation of its funds;
  • is not engaged or likely to engage in propagation of sedition or advocate violent methods to achieve its ends;
  • is not likely to use the foreign contribution for personal gains or divert it for undesirable purposes;
  • has not contravened any of the provisions of this Act;
  • has not been prohibited from accepting foreign contribution;
  • the person being an individual, such individual has neither been convicted under any law for the time being in force nor any prosecution for any offence is pending against him.
  • the person being other than an individual, any of its directors or office bearers has neither been convicted under any law for the time being in force nor any prosecution for any offence is pending against him.

The acceptance of foreign contribution by the association/ person is not likely to affect prejudicially –

  • the sovereignty and integrity of India;
  • the security, strategic, scientific or economic interest of the State;
  • the public interest;
  • freedom or fairness of election to any Legislature;
  • friendly relation with any foreign State;
  • harmony between religious, racial, social, linguistic, regional groups, castes or communities.

The acceptance of foreign contribution shall not lead to incitement of an offence and shall not endanger the life or physical safety of any person.

Separate Bank Account for receiving Foreign Contribution

The foreign contribution should be received only in the exclusive single FC account of a Bank (also called designated FC account), as mentioned in the order for registration or prior permission granted and should be separately maintained by the association. However, one or more accounts (called Utilization Account) in one or more banks may be opened by the association for utilizing the foreign contribution after it has been received in the designated FCRA bank account, provided that no funds other than that foreign contribution shall be received or deposited in such account or accounts and in all such cases, intimation in FC-6 is to be given online within 15 days of opening of such account.

Procedure for making application for registration/prior permission

Application for grant of registration / prior permission is to be submitted online in form FC-3 at the website fcraonline.nic.in

Documents required

For Registration

  • Jpg file of signature of the chief functionary 
  • Self-certified copy of registration certificate/Trust deed etc. of the association 
  • Self-certified copy of relevant pages of Memorandum of Association/ Article of Association showing aim and objects of the association.
  • Activity Report indicating details of activities during the last three years; 
  • Copies of relevant audited statement of accounts for the past three years (Assets and Liabilities, Receipt and Payment, Income and Expenditure) clearly reflecting expenditure incurred on aims and objects of the association and on administrative expenditure; 

For Prior Permission

  • Jpg file of signature of the chief functionary 
  • Self-certified copy of registration certificate/Trust deed etc., of the association 
  • Duly signed Commitment Letter from Donor.
  • If functioning as editor, owner, printer or publisher of a publication registered under the Press and Registration of Books Act, 1867, a certificate from the Registrar of Newspapers for India that the publication is not a newspaper in terms of section 1(1) of the said Act.


  • Rs. 2000/- for registration and 1000/- for prior permission (to be paid online

Validity & renewal

Registration shall be valid for a period of 5 years and thereafter application for renewal of registration may be made before 6 months from the expiry of their existing registration.

Exemption from registration/prior permission

  • Donation by NRI 

Contributions made by a citizen of India living in another country (Non-Resident Indian), from his personal savings, through the normal banking channels are not treated as foreign contribution. 

  • Foreign remittances from relative

Foreign remittances from relatives are not treated as foreign contribution. However, any person receiving foreign contribution in excess of Rs. 1 lakh or equivalent thereto in a financial year from any of his relatives shall inform the Central Government in Form FC-1 within 30 days from the date of receipt of such contribution. 

  • Govt. Department

All bodies constituted or established by or under a Central Act or a State act requiring to have their accounts compulsorily audited by Comptroller & Auditor General of India are exempted from the operations of all the provisions of FCRA, 2010.

Annual Filing 

An association permitted to accept foreign contribution is required to maintain separate set of accounts and records exclusively for the foreign contribution received and submit an annual return, duly certified by a CA, giving details of the receipt and purpose-wise utilization of the foreign contribution. Annual returns of association are required to be filed in form FC-4 accompanied with scanned copies of income and expenditure statement, balance sheet and statement of receipt and payment, online at fcraonlineservice.nic.in within a period of 9 months from the closure of the year i.e. by 31st December each year.

Submission of a ‘NIL’ return, even if there is no receipt/utilization of foreign contribution during the year, is mandatory. However, in such case, certificate from Chartered Accountant, audited statement of accounts is not required to be uploaded. 

An association not filing annual return on time may face penalty for of late submission of return and even cancellation of registration.

Mapping of various e-forms required to be filled under FCRA, 2010




  • Intimation of receipt of foreign contribution by way of gift from relative by an individual;
  • Intimation about Foreign Contribution by way of articles from relative by an individual;
  • Intimation about Foreign Contribution by way of Securities;
  • Intimation of receipt of Foreign Contribution by a candidate for Election;


Application for seeking prior permission to accept foreign Hospitality;


  • Application for FCRA registration;
  • Application for prior permission;
  • Application for renewal of FCRA registration;


Annual Return


Application for seeking permission for transfer of foreign contribution to other unregistered person;


  • Intimation of change of Name, Address, Bank details, Key members;
  • Intimation of quarterly receipt of foreign contribution; 
  • Filing of annual returns of assets and liabilities by association ;

Thank You.

Any query or suggestion may be forwarded to dvg.pcs@gmail.com

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