The Companies (Amendment) Bill, 2017, introduced in Lok Sabha on 16 March, 2016, was referred to the Standing Committee on Finance on 12 April, 2016, who after hearing the views of the representatives of the Chambers of Commerce and Industry as well as professional bodies, adopted its report on 30th November, 2016. The Government after considering the suggestions of the Committee and also the experience gained by it gave notice of amendments as approved by the Cabinet to the Lok Sabha. The Lok Sabha subsequently passed the Companies (Amendment) Bill, 2017 on July 27, 2017 which is now pending in the Rajya Sabha for consideration and passing. It mainly focuses on making major amendments to The Companies Act, 2013 and further improving ease of doing business in India.
The major amendments proposed include –
- Simplification of the private placement process and relaxation of Objects in Memorandum of Association (MOA) of company;
- Abridged form of annual return for One Person Company and small company;
- Relaxation of provisions related to loan to directors and additional clause of punishment for misuse of such loans;
- Omission of provisions relating to forward dealing and insider trading;
- Doing away with the requirement of approval of the Central Government for managerial remuneration above prescribed limits;
- Including an investing company or the venture of a company within the definition of ‘related parties’;
- Aligning disclosure requirements in the prospectus with the regulations to be made by SEBI;
- Providing for maintenance of register of significant beneficial owners and filing of returns in this regard to the ROC and removal of requirement for annual ratification of appointment or continuance of auditor;
- Continuing with the earlier provisions relating to layers of subsidiaries and with respect of memorandum;
- Making offence for contravention of provisions relating to deposits as non-compoundable;
- Requiring attaching of financial statement of associate companies;
- Stringent additional fees of Rs 100 per day in case of delay in filing of annual return and financial statement.
The important Section-wise amendments are-
Section 2(6)- Definition of ‘associate company’
1. Change in explanation of the term ‘significant influence’ under the definition of Associate Company has been proposed. Significant influence is proposed to mean control of at least 20% of the voting power or control or participation in business decision under an agreement. Currently the Act provides for control of at least 20% total share capital.
2. Further the term ‘Joint Venture’ has also been defined to mean a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
Section 2(76)- Definition of ‘Related Party’
1. Instead of only a company, anybody corporate which is holding, subsidiary or an associate company of such company or a subsidiary of a holding company to which it is also a subsidiary or an investing company or venture of the Company, shall be considered as a related party.
2. ‘An investing company or the venturer of the company’ will mean a body corporate whose investment in the company would result in the company becoming an associate company of the body corporate.
Section 3A- Members severally liable certain cases
It is proposed to insert a new Section regarding liability of members in case number of members is reduced from statutory minimum, i.e. seven in the case of public company or two in case of a private company. This Section was there in the Companies Act 1956 but was missing from the Companies Act 2013.
Section 26- Matters to be stated in Prospectus
Instead of detailed list of contents of the Prospectus, it is proposed that the prospectus shall state such information and set out such reports on financial information as may be specified by SEBI in consultation with the Central Government. Till the time SEBI specifies the information and reports on financial information, the regulations made by it under the SEBI Act, 1992, in respect of such financial information or reports on financial information shall apply.
Section 42- Private placement
Though the entire Section is proposed to be substituted but major changes proposed are: –
1. Return of allotment has to be filed within 15 days instead of 30 days.
2. Money received under the private placement shall not be utilized unless the return of allotment is filed with the ROC.
3. Private Placement offer letter shall not contain any right of renunciation.
Section 92- Annual Return
1. It is proposed to omit the requirement of MGT-9 i.e. extract of annual return to form part of the Board’s Report. Instead, the copy of annual return shall be uploaded on the website of the company, if any, and its link shall be disclosed in the Board’s report.
2. The Central Government may prescribe abridged form of annual return for One Person Company (‘OPC’), Small Company and such other class or classes of companies as may be prescribed.
3. It is also proposed to omit the requirement related to disclosing indebtedness and details with respect to name, address, country of incorporation etc. of FII in the annual return of the company.
4. Time limit of 270 days within which annual return could be filed on payment of additional fee has been done away with. It is proposed that a company can file the annual return with ROC at any time on payment of prescribed additional fee.
Section 129- Financial Statement –
1. The explanation providing that subsidiary includes associate company and joint venture has been deleted. The Section has been amended to provide for consolidation of the accounts of associate companies in addition to its subsidiaries in the same form and manner as that of its own in accordance with applicable accounting standards.
2. The company shall also attach along with its financial statement, a separate statement containing the salient features of the subsidiary and associate companies.
Section 139- Appointment of Auditors
It is proposed to omit the requirement related to ratification of appointment of auditors by members at every annual general meeting.
Section 185- Loan to directors, etc.
A completely new Section 185 is proposed. Some of the key changes are :
1. Complete restriction on providing loan, guarantee or security in connection with loan to any director, director of the holding company or any partner or relative of any such director or any firm in which any such director or relative in a partner.
2. Loan to following parties is allowed subject to special resolution of shareholders and certain other prescribed conditions
3. any private company of which any such director is a director or member;
4. any body corporate at a general meeting of which not less than twenty- five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or
5. any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company Currently transactions with aforesaid categories is prohibited
6. Current exemption provided under Section 185(1) continues to remain except that when company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the rate of prevailing yield of one year, three year, five year or ten year Government security closest to the tenor of the loan. The rate of interest is clarified
7. It is also proposed to penalize defaulting officer in the company along with the company and director or the other person to whom any loan is advanced or guarantee or security is given.
Prohibition on Forward dealings in securities of company by director or Key Managerial Personnel & Section 195- Prohibition on Insider trading of securities – It is proposed to omit these Sections.
Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits –
1. It is proposed that the approval of the Central Government shall not be required at the time of the payment of remuneration exceeding 11% of the net profits of the company.
2. It is proposed that company with the approval of shareholders by way of special resolution can pay the remuneration in excess of individual limits provided for payment of remuneration to executive or non-executive directors. Further where the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining the approval in the general meeting. Currently requirement is of ordinary resolution and no provision is there for approval of financial institutions etc.
3. It is also proposed that in case of loss or inadequacy of profits, remuneration can only be paid in accordance with Schedule V. This is very important amendment because currently in case where remuneration is not paid in accordance with Schedule V, then approval of Central Government can be obtained but by way of amendment, the provision of approval is proposed to be omitted.
4. It is also proposed to provide relief to director to refund the excess remuneration received by providing a timeline of two years or such lesser period as may be allowed by the company. Further until such sum is refunded, the director shall hold it in trust for the company. Consequently it is proposed to delete the provisions related to waiver of excess remuneration paid to directors with the approval of Central Government.
5. It is also proposed to make a provision which empowers the Company to waive the recovery of excess remuneration paid to directors provided approval of company by special resolution within two years from the date the sum becomes refundable is obtained. Further where any term loan of any bank or public financial institution is subsisting or the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the nonconvertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining the approval in the general meeting.
6. It is also proposed that the auditor of the company shall, in his report under Section 143, make a statement as to whether the remuneration paid by the company to its directors is in accordance with the provisions of this Section, whether remuneration paid to any director is in excess of the limit laid down under this Section and give such other details as may be prescribed.
7. It is also proposed to provide relief to the company whose application is pending for approval before the Central Government under Section 197 by making a provision under which on and from the commencement of the Companies (Amendment) Act, 2017, any application made to the Central Government under the provisions of this Section as it stood before such commencement, which is pending with that Government shall abate, and the company shall, within one year of such commencement, obtain the approval in accordance with the provisions of this Section, as so amended.
Section 403- Fee for Filings, etc.
1. It is proposed that only document, fact or information required to be submitted under Section 92 (Annual Return) or 137 (Copy of financial statement to be filed with registrar) may be submitted, after expiry of the period so provided in those Sections, on payment of such additional fee as may be prescribed which shall not be less than Rs. 100 per day and different amounts may be prescribed for different classes of companies.
2. Further it is proposed that where the document, fact or information, in cases other than Sections 92 or 137, is not submitted, within the period provided in the relevant Section, it may, without prejudice to any other legal action or liability under this Act, be submitted, filed, registered or recorded, on payment of such additional fee as may be prescribed and different fees may be prescribed for different classes of companies.
3. It is also proposed that where there is default on two or more occasions in submitting, filing, registering or recording of the document, fact or information, it may, without prejudice to any other legal action or liability under this Act, be submitted, filed, registered or recorded, on payment of a higher additional fee, as may be prescribed and which shall not be lesser than twice the additional fee provided under the first or the second proviso as applicable.
4. Further it is proposed that where a company fails or commits any default to submit, file, register or record any document, fact or information before the expiry of the period specified in the relevant Section, the company and the officers of the company who are in default, shall, without prejudice to the liability for the payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default.
Section 406- Power to modify act in its application to ‘Nidhis’
1. It is proposed to provide that Nidhis or ‘Mutual Benefit Society’ means a company which the Central Government may, by notification in the Official Gazette, declare to be a Nidhi or Mutual Benefit Society, as the case may be. Currently mutual benefit society is not covered.
2. Further exhaustive definition of Nidhi company has been deleted and it is left to the Government to declare a company to be a Nidhi or Mutual Benefit Society by notification in the Official Gazette.
3. It is also proposed to modify the requirements relating to laying of copy of exemption notification before both Houses of parliament.
Section 435- Establishment of Special Courts
It is proposed to authorize Central Government to establish Special Courts for the purpose of speedy trials of offences under the Act. Currently Special Court can be established for trying offences punishable with imprisonment of two years or more. The constitution of Special Court has been changed and will depend upon the nature of offence.
Section 446A- Factors for determining level of punishment
It is proposed to insert a new Section providing for the following factors which the court or special court will consider while determining level of punishment:
1. size of the company;
2. Nature of business carried on by the company;
3. Injury to public interest;
4. Nature of the default; and
5. Repetition of the default.
Section 446B- Lesser penalties for One Person Companies or small companies
It is proposed to provide relief to OPC and Small co., in case of failure to comply with the provisions of sub-Section (5) of Section 92 (Annual Return), clause (c) of sub-Section (2) of Section 117 (Resolutions and agreements to be filed), sub-Section (3) of Section 137 (Copy of financial statement to be filed with Registrar). In case of default, such company and officer in default of such company shall be punishable with fine or imprisonment or fine and imprisonment, as the case may be, which shall not be more than one-half of the fine or imprisonment or fine and imprisonment, as the case may be, of the minimum or maximum fine or imprisonment or fine and imprisonment, as the case may be, specified in such Sections.
Edited by – Ankita Jha
Approved & Published by Sakshi Raje