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100 amendments of Co. Act, 2013 - Part 2

CA Neha Bhuwania , Last updated: 03 May 2014  

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Amendment 11: Section 2 (87) [Definition of Subsidiary Company or Subsidiary read with Rule No. 2(r)]

The term “Total Share Capital” with respect to a definition of an Associate Company and Subsidiary Company or even all the Subsidiaries of a company collectively have been defined. The term now shall now mean an aggregate of the paid up equity share capital and even the convertible preference share capital. This has brought in immense clarity on defining the term of “Total Share Capital” which was always a point of discussion lacking clarity on the subject.

Amendment 12: Section 2(76) [Related Party read with Rule No. 3]

Related party amendments have been always a key attraction as well as an indispensable amendment to look for. This act has made the Related Party definition even stronger to protect the interests of the stakeholders. The term now includes a director or a key managerial personnel of the holding company or his relative to be deemed related party. This has been an addition to the existing definition of related party.

Amendment 13: Section 2(76) [Related Party read with Rule No. 3]

The rule further provides a comprehensive list of the persons who shall be considered a relative of another for the purposes of the term “Relatives” under the act. In comparison with the former act this act has excluded 14 kinds of relationships from its perspective.

Amendment 14: Section 27 [Variation in terms of Contract or Objects in prospectus read Rule No. 7]

This rule is in respect of money of a scenario wherein a company raises money from public via prospectus and still has some utilized money out of the money so raised. In such a case, the terms of contracts mentioned in the prospectus shall be altered. Also, the objects of such a prospectus which had been issued only by passing a special resolution via postal ballot shall be altered in such a case. Also, such money shall not be utilized by the company for buying, trading or otherwise dealing in equity shares of any other listed company. The dissenting shareholders (who do not agree to such a variation) shall be provided an exit opportunity.

Amendment 15: Section 29 [Rule No. 9]

Dematerialization has been given a more strong existence in this act. All the convertible securities of a company which are held by the promoters in physical form up to the date of IPO have to be converted into DEMAT form before making such an offer and thereafter they have to be held in such form only. Also, new securities to be issued in DEMAT form only.

Amendment 16: Section 39 [Allotment of Securities by a Company]

Filing requirements have been made more demanding. The section specifies that along with the shares (existing requirements), return of allotment also needs to be filed for all the type of securities in the prescribed manner. In case of default, the company and every officer in default shall be liable to pay a penalty, for each penalty, a sum of Rs. 1000 per day of continuing default or Rs. 1, 00,000 whichever is less.

Amendment 17: Section 41: [Global Depository Receipt read Rule No. 3]

As per this rule, companies have been permitted to issue depository receipts provided they are eligible to do so in accordance with the Scheme & relevant provisions of Foreign Exchange Management Rules and Regulations. 

Amendment 18: Section 42: [Offer or invitation for subscription of Securities on Private Placement]

The rules for making an offer or allotment have been made more stringent. Whenever a company makes an offer to allot/ invites subscriptions/allots/ enters into an agreement to allot; securities to more than 200 persons, irrespective of actual payment received or not and irrespective or intentions of a Company to go for listing on a recognized stock exchange in or outside India, the same shall be deemed to be an offer to public and accordingly SEBI and other provisions governing Public Offer shall apply.

Amendment 19: Section 42 [Offer or invitation for subscription of Securities on Private Placement read with Rule No. 14]

There has been an amendment with respect to key provisions on private placement which are enumerated below:-

a. A company is not permitted to make any private placement unless the same is approved via a special resolution (which is required for each offer/invitation).

b. The said offer can’t be made to > 200 persons in total in one FY. QIB’s and ESOPs are an exclusion.

c. The minimum investment size to be not < Rs. 20,000 of face value of the securities per person. Payment for subscription to be made via bank account of subscriber only.

d. Some of the provisions shall not apply to NBFC and Housing Finance companies in case comply with RBI or NHB regulations in respect of offer/invitation to be issued on private placement basis.

e. Allotment under each such private placement to be done within 60 days of receipt of application dues from the subscribers.

Amendment 20: Section 47 [Voting Rights]

In the former Companies Act’1956, the preference shareholders were not given an opportunity of being heard. Now in case any preference share dividend is in area for > 2 years, then the preference shareholders shall be eligible to vote on all the resolutions of the company.

Amendment 21: Section 53 [Prohibition on issue of shares at a discount]

The privilege of issuing shares at a discount has been removed. Shares issued at a discount shall be void and company shall face heavy penalties if found in default. Going forward, only sweat equity shares can be issued at a discount. 

Amendment 22: Section 55 [Issue and Redemption of Preference Shares read with Rule 10]

The companies operating in the sector of infrastructure projects have now been empowered to issue preference shares for a period > 20 years but < 30 years. This is subject to redemption of a minimum 10% of issued preference shares per from 21st year or even earlier on proportionate basis, at the option of preference shareholders.

Amendment 23: Section 62 [Further Issue of Share Capital]

Earlier the application of provisions of further issue of shares was for only 2 years from the date of allotment or 1 year from allotment of shares for the first time under the old act. This provision has now been removed. Now such provisions shall apply to all kinds of companies.

Amendment 24: [Section 70: Prohibition on buy back in specific circumstances]

Provisions in respect of Buyback of shares have been made more flexible. Companies can now buy back its shares even if it has defaulted in repayment of deposit/ interest payable thereon/ redemption of debentures or preference shares / payment of dividend/ repayment of any term loan/ interest payable to any financial institution or bank, provided such default is made good and 3 years have elapsed after default is remedied.

Amendment 25: Section 71 (5) [Debentures]

No company is permitted to issue a prospectus/make an offer or invitation to the public or even to its members exceeding 500 for the subscription of its debentures till the time it appoints one or more debenture trustees & follow the prescribed conditions for such an appointment.

Amendment 26: Section 73 [Prohibition on acceptance of deposits from public read with Rule No. 3(4)]

With the definition of eligible companies, limits of borrowing deposits for such companies have also been defined:-

a. Deposits from members: 10% of [Paid up Share Capital+ Free Reserves]

b. Other Deposits: 25% [Paid up Share Capital+ Free Reserves]

Amendment 27: Section 73 [Prohibition on acceptance of deposits from public read with Rule No. 5]

A new provision for seeking for the deposit insurance at least 30 days before the issue of circular or advertisement or at least 30 days before the date of renewal has been introduced. Further, the issuer shall have to bear the cost of seeking such an insurance & to maintain an effective contract. In case of an ineffective contract, company rectify the same or enter into a fresh contract within a span of 30 days. Noncompliance has effects like repayment of such deposits mandatorily.

Amendment 28: Section 73 [Prohibition on acceptance of deposits from public read with Explanation II to Rule No. 6 (1)]

This rule specifies that till the time the finalization & notification of the qualifications & experience of valuers is not done as per Section 247 (1) [Valuation by registered valuers], the valuation of stocks/shares/ debentures/ securities etc. is to be done by an independent merchant banker registered with SEBI or an independent CA in practice [having a minimum experience of 10 years].

Amendment 29: Section 73 [Prohibition on acceptance of deposits from public read with Rule No. 13]

All the companies [including eligible companies] shall on/before the 30 April each year deposit a sum not < than 15% of the amount of deposits [ Both secured & unsecured] which are due to mature in the current FY+ next FY in a deposit repayment reserve account with any schedule bank [ Bank shall keep it free from charge/lien].

Amendment 30: Section 73 [Prohibition on acceptance of deposits from public read with Rule No. 19]

Under this Law, all the companies which are “not eligible” under this act have to make a repayment of all the existing Public Deposits accepted by such companies. However, an explanation to the Rule also provides that companies which had accepted/invited deposits under the erstwhile Act and its Rules and has been repaying such deposits + interest in accordance with those provisions shall be deemed to comply with this new rule.

Amendment 31: Section 73 [Prohibition on acceptance of deposits from public] + Section 76 [Acceptance of deposits from public by certain companies read with Rule No. 2 (1) (e)

A public company other than eligible company [which has a net worth of not less than 100 crores or a turnover of not less than 500 crores] shall not accept deposits from the public. In case it wishes to do so, it can do so only from its members after taking an approval from the shareholders in the general meeting. This permission clause has given the shareholders more strength in contrast to Companies Act’1956. 

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Published by

CA Neha Bhuwania
(Author & Professor)
Category Corporate Law   Report

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