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Standing Committee on Finance (2016-17) in Sixteenth Lok Sabha present most awaited 37th Report on The Companies (Amendment) Bill, 2016. The Standing Committee considered and adopted this report at their sitting held on 30th November, 2016.

The Companies (Amendment) Bill, 2016 was referred to the Standing Committee on Finance of Parliament on 12th April, 2016 for detailed examination and report thereto. The Committee would in general make the following observations and recommendations to impart greater vibrancy to the Companies Statute.

The Report of the Standing Committee is based on "ease of doing business" by lesser compliance burden for smaller Companies including Start-ups. The Committee recommends that amendment in the Act, with regards to 'ease of doing business' should be conjoined with the object of 'promoting economic growth'.

This Report of Committee Divide into Two parts:

A. In Clause-2 Report represent recommendation of Committee on the Companies (Amendment) Bill, 2016

B. In Clause-3 Other Issues in the Companies Act, 2013- The Committee in its report also comment on the some important issues emerged by the stake holders.

In this Article First We will discuss the Point B (Clause-3) - Other Issues Some of them are mentioned below:


S. No.

Section

Stake Holder Recommendation

Committee Recommendations

1.   

134(5)(e)

The words Internal Financial Controls under section 134(5)(e) to be replaced with ‘Internal Controls Over Financial Reporting' in line with the proposed amendment of Section 143(3)(1) in the Companies (Amendment) Bill, 2016

Committee didn't accept this recommendation of the Stake Holders.

No dilution in this regard is called for at this stage of the evolution of the Act

2.   

Exemptions to unlisted closely held public companies

Closely held Public companies with less than 10% public shareholding are still required to comply with many onerous requirements like appointing women directors, restrictions on related party transactions, Board committees and so on.

Therefore, exemptions given to Private Companies may also be extended to public companies with public share ownership of less than10%

Due to Ease of Doing Business, Committee Recommend the view of stake holders.

It is desirable that compliance requirements, in general, are made less onerous for all forms of companies. However, companies with a business volume or sales turnover of less than say, Rs. 100 crore annually,(which do not accept public deposits) whatever their form, may be treated on a different footing with simplified formats of disclosure and minimum compliance.

3.   

135

Corporate Social Responsibility

There are stringent requirements concerning constitution of CSR Committee, formulation of CSR Policy, monitoring the Policy and various other matters about project-based expenditure and so on. Such elaborate requirements are quite unnecessary and cumbersome for Private companies. The provisions made applicable to private companies here seem unintentional

Committee didn't accept this recommendation of the Stake Holders.

4.   

139

Auditors rotation should not be mandated

Unlisted Indian subsidiaries of foreign multinationals should be permitted to align their auditors with that of the parent company, thus, exempting them from mandatory auditor rotation requirements. Similarly private limited companies should also be exempted from mandatory audit rotation since there is very little public interest involved in the same

Due to Ease of Doing Business, Committee Recommend the view of stake holders.

it is only appropriate that subsidiaries of foreign companies and private companies are given justifiable relief depending upon their capital and turnover thresholds. Accordingly, the exemption limits / thresholds prescribed under the Rules may be reviewed in consultation with the ICAI.

5.   

Ease of compliance for Start-ups

For ease of compliance for start-ups, it has been suggested by the stakeholders that start-ups as defined under start-up India program should qualify for benefits as available to small companies under Section 2 (85) even if they exceed the thresholds

Due to Ease of Doing Business, Committee Recommend the view of stake holders.

The Committee would recommend appropriate exemptions from compliances may be given to start-ups. The relevant Rules and procedures may accordingly be modified to give necessary relief to start-ups including ease of raising finance at the earliest. As observed by the Committee earlier, these exemptions and waivers should be linked to thresholds of business volume or turnover, regardless of the form of the company, which would enable smaller players to organize themselves easily and do business in an unhindered and smooth manner.

6.   

Role of Independent Directors

The stakeholders suggested that the institution of Independent Directors should be made more effective and there is need to reduce their liability to make their role more purposeful.

 It is not necessary or fair to saddle Independent Directors with penal liabilities. The Committee would thus expect the Ministry to review the position accordingly

7.   

Key Managerial Personnel (KMP)

The Institute of Chartered Accountants of India (ICAI) have expressed the following concern on the above section

The Act does not, presently, specify the qualifications of a Chief Financial Officer. In view of the significantly enhanced compliance requirements and the overarching role of the finance function in the present day context, it may be relevant to consider appointing Chartered Accountants in such CFO positions which are to be mandatorily filled up under the above mentioned KMP requirement

Committee Didn't accept this recommendation of the Stake Holders.

The Committee recommend that qualifications for appointment as Chief Financial Officer (CFO) may be best left to the concerned company. As it is mandatory to appoint a CFO by every listed company and every other public company having a paid-up share capital of Rs. 10 crore or more, it will in the natural course open up avenues for employment of Chartered Accountants, who are the best equipped for the post

8.   

Removal of "Object Clause"

What extent the removal of "object clause" in the Bill is justified and whether such blanket exemption from stating the objects of the company at the time of its incorporation not lead to many bogus entities entering the market

Committee accept the recommendation and suggest as given below:

The Committee believe that mere requirement of stating the object of a company at the time of incorporation is not such a cumbersome or complex task, which needs relaxation. In fact, the Committee believe that such a statement of object(s) is necessary for establishing the credentials and seriousness of intent of the promoter(s) of the company and build confidence of investors and creditors. The Committee would, therefore, recommend that the proposed amendment in clause 4(iii) of the Bill may be re-considered and the status quo ante restored

9.   

Inconsistencies between SEBI Regulations and the Act

• The Stakeholders in their written memorandum pointed out that the differences between SEBI Regulations and section 188(1)

• Disqualifications and performance evaluation of Independent Director

The Committee recommend that the provisions in the Companies Act 2013 and Rules framed there under should be harmonized with SEBI Regulations and vice-versa, wherever some dis-harmony exists. In this context, particular attention may be paid to provisions relating to 'related party transaction', 'independent director' and other corporate governance matters covered in SEBI regulations. Duplication and superfluity in the Regulations may thus be removed.


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Category Corporate Law, Other Articles by - CS Divesh Goyal 



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