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The Companies (Amendment) Bill, 2017 has been passed by both the houses of parliament and is awaiting President's assent. The proposed Amendments are broadly aimed at addressing difficulties faced by stakeholders and facilitating ease of doing business.

Here are the 25 key takeaways from the said Bill:

1) Ratification of Auditor [Section 139(1)]: The first proviso to S.139(1) required that the matter relating to appointment of auditor be placed for ratification by the members in each AGM. This requirement has now been omitted.

2) Private Placement [Section 42]: The process of private placement of securities has been simplified. It has been provided that private placement offer and application shall not carry any right of renunciation and that money received under the private placement shall not be utilized unless the return of allotment is filed with the ROC. Such return has to be filed within 15 days of allotment as against the 30 days time period provided earlier.

3) Concept of Significant Beneficial Owner Introduced [Section 90]: As per S.90, every individual, who acting alone or together, through one or more persons, holds beneficial interests, of not less than 25%, in shares of a company shall be identified as 'significant beneficial owner' (SBO). Such SBO will have to make a declaration about influence and his nature of interest etc. Every company has to maintain register containing prescribed details of SBOs and file periodic returns with the Registrar within such time, in such form and manner as may be prescribed.

4) Penal Provisions Rationalised: The penal provisions for procedural and technical defaults are rationalised and liabilities are reduced. Two new sections with respect to factors for determining the level of punishment and for lesser penalties for one person companies and small companies are also inserted and penal provisions for these companies are reduced.

5) Loan to related parties [Section 185]: A completely new S.185 has been proposed which has categorized loans into prohibited, conditional and eligible. Loans to Director of company/holding company or partner/relative/firm of such director is expressly prohibited. Conditional category includes any other person in whom the Director is interested (other than expressly prohibited) and involves passing of special resolution by the company in its general meeting along with the condition that If the borrower is a Company then loan should be utilized for its principal business activity. There is no change in the eligible category which includes loan to MD/ WTD as a part of service condition or scheme and loans by companies in their ordinary course of business by charging interest as per tenure etc.

6) Filing Fees [Section 403]: Additional filing fees of Rs.100 per day may be levied. Different amounts may be specified for different form and different classed of companies. In case of default on two or more occasions in submission of forms, higher fees of not less than Rs.200 per day may be levied.

7) Participation through Video Conferencing [Section 173(2)]: Directors are now allowed to participate on certain items which are restricted at Board meetings through video conferencing or other audio visual means, if there is quorum through physical presence of directors. For instance, if there are 6 directors present in the Bangalore office and 1 Director joins from San Francisco through video conferencing, the Director in San Francisco can now participate in discussion and vote on important matters since there is quorum through physical presence. Earlier, there were restriction imposed vide Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014.

8) Name Approval [Section 4(5)]: The period for reservation of name is substituted from '60 days from date of application' to '20 days from date of approval' . In case of existing company, Registrar may reserve the name for a period of 60 days from the date of approval.

9) Registered Office [Section 12(1) and 12(4)]: Earlier S.12(1) required that a company shall, on and from the fifteenth day of its incorporation, have a Registered Office (RO). This implied that it could not have a RO from the date of incorporation. The Amendment Bill corrects this and provides for a company to have a RO within 30 days of incorporation. Further, even the time period for notifying the Registrar on change of RO through Form INC-22 has been increased from 15 days to 30 days.

10) Minimum Number of Members [New Section 3A]: The new section provides that if at any time the number of members falls below the minimum number prescribed in S.3(1) and the company carries on business for more than 6 months, every person who is a member at that time shall be severally liable for payment of the whole debts of the company contracted during that time, and may be severally sued.

11) Consolidated Financial Statements [Section 129(3)]: While preparing the consolidated financial statements, the main concern was whether to include associate companies or not. After the amendment the concern gets addressed as the term ' associate companies' is inserted in addition to the subsidiaries.

12) Signing of Financial Statement [Section 134(1)]: Earlier the CEO was required to sign the financial statements only if he was a Director of the company. Post amendment, irrespective of the fact that the CEO is appointed as the Director or not, he shall sign the financial statements.

13) Extract of Annual Return (Form MGT-9) [Section 134(3)(a)]: Form MGT-9 formed a part of the Board' s report. This form now does not have to be accompanied with the Board' s report and instead a link to the annual return hosted on the website shall be provided in the Board' s report.

14) Performance Evaluation of Directors [Section 134(3)(p), 178(2) and Schedule IV]: Various provisions pertaining to performance evaluation of directors have been aligned. Amendment in S.178(2) provides that the Nomination & Remuneration Committee (NRC) shall specify the manner for effective evaluation of performance of Board, its committees and individual directors to be carried out either by the Board, by the NRC or by an independent external agency and review its implementation and compliance.

15) Abridged Board Report for One Person Company (OPC) and Small Company [New Section 134(3A)]: The Central Government is empowered to prescribe an abridged Board' s Report for One Person Company and Small Company.

16) Corporate Social Responsibility [Section 135]: CSR provisions were applicable to companies that satisfied certain conditions related to net worth, turnover and net profit ' in any financial year' . The words ' any financial year' have now been replaced by the words ' immediately preceding financial year' .

17) Circulation of Annual Accounts to Members [Section 136(1)]: Amendment to sub-section (1) of section 136 to provide that copies of audited financial statements and other documents may be sent at shorter notice if 95% of members entitled to vote at the meeting agree for the same. MCA has clarified this through a circular dated July 21, 2015. This is now provided in the Act itself.

18) ' Self-declaration' to replace ' Affidavit' [Section 7]: Section 7 required an affidavit from each of the subscribers to the memorandum and from persons named as the first directors in the articles that they are not convicted of any offence etc. The word affidavit has now been replaced with declaration, thereby making the process of incorporating a company easier.

19) General Meetings [Section 96 and 100(1)]: The wholly owned subsidiary of a company incorporated outside India is now allowed to hold its extra ordinary general meeting (EGM) outside India. Further, as per amended proviso to S.96, unlisted companies may now hold their AGM at any place in India if consent is given in writing or by electronic mode by all the members in advance. Earlier companies had to hold AGM either at the registered office of the company or at some other place within the city, town or village in which the registered office is situated.

20) Deposit of 1 Lakh omitted [Section 160]: S.160 required any person other than retiring director who is nominated as director shall keep a deposit of Rs.1 Lakh with the company which shall be refunded if the person proposed gets elected as a director or gets more than 25% of total valid votes cast. This requirement shall now not be applicable in case of appointment of independent directors or directors nominated by nomination and remuneration committee.

21) Reporting of Change in Shareholding by Listed Company [Section 93]: S.93 required all listed companies to file a return with the Registrar with respect to change in the number of shares held by promoters and top ten shareholders of such company, within fifteen days of such change. This information is also required by SEBI/Stock Exchanges and hence this section has been omitted to avoid duplicity of reporting and reduce the compliance burden on companies.

22) Disclosure in Prospectus [Section 26]: S.26 laid out a list of information to be included in the prospectus issued by public companies. This list has now been pruned to state that such information required by SEBI in consultation with the Central Government shall be specified.

23) Managerial Remuneration [Section 197]: The requirement of approval of the Central Government (CG) for Managerial Remuneration above the prescribed limits are replaced by approval through special resolution by shareholders in general meeting. Therefore, no CG approval is now required for public companies for payment of remuneration to MD even exceeding 11% of net profits. Approval of the CG would be needed only for variance to the conditions specified in part I of Schedule V for the appointment of MD/ WTD. For payment of remuneration exceeding limits or for waiver of recovery of excess remuneration, prior approval of banks, financial institutions, non-convertible debenture holders or secured creditors is proposed. Director should repay the excess remuneration, if any, to the Company within a maximum period to 2 years. Further, reporting duty is casted on auditors to report payment of remuneration in conformity with the provisions of the Act and disclose any excess remuneration.

24) Definitions [Section 2]: Definition of Net worth has been amended to include debit or credit balance of profit and loss account in the calculation of net worth, thereby plugging an anomaly. Further, definitions of Associate company, Cost accountant, Debenture, Financial year, Holding company, Key Managerial Personnel, Small Company and Turnover have also been amended.

25) Deposits [Section 73]: Maintenance of Deposit Repayment Reserve for Public Deposits is proposed to be changed to 20% of the amounts maturing during the next year in place of 15%. The condition of deposit insurance for public deposits is removed permanently. In case of defaulting company, permanent ban from raising deposits to be reduced to a period of 5 years from the date of making default good.

DISCLAIMER: The information given in this document has been made on the basis of the provisions stated in the Companies (Amendment) Bill, 2017 and Companies Act, 2013. It is based on the analysis of the facts and our understanding and interpretation of applicable laws as on date. We expressly disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this document.

The author of this post is a practising Chartered Accountant and can also be reached at caakashgadiya@gmail.com


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