Monday, 1 February 2016

Highlights of Companies (Amendment) Bill, 2016

On March 16, 2016, a Bill to further amend the Companies Act, 2013 was introduced in the Lok Sabha (Upper House of the Parliament) to address the difficulties raised by various stakeholders and to improve the ease of doing business in India.
Most of the amendments proposed in the Bill are to implement the recommendations of the Company Law Committee. The Bill, once passed, would become the second amendment to the Act within a period of two years. There have been a number of notifications, rules, orders, circulars, clarifications, etc. issued already.
 This Bill proposes over 70 amendments. Some of the key amendments are listed below:
Insertion of new Section 3A:  If If at any time the number of members of a public company or a private company  is reduced below the statutory limit, and the company carries on business for more than six months, every person who is a member of the company during that time that it so carries on business after those six months with cognisant of the fact that it is carrying on business with less than seven members or two members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor.”.
Amendment of Section 4(1)(c): The Bill proposed to allow the Companies to have a generic object clause or to to pursue any specific object or objects, as per the law for the time being in force. Provided that in case a company proposes to pursue any specific objects or restrict its objects, the Memorandum shall state the said object or objects for which the company is incorporated and any matter considered necessary in furtherance thereof and in such case the company shall not pursue any act or activity or business, other than specific objects stated in the Memorandum.
Amendment of Section 4(5)(i): The period of name reservation is proposed to be reduced to 20 days from sixty days from the date of approval or such other period as may be prescribed.
Insertion of two new section after Section 4(6): 1. Section 4(6A): A company may adopt the model memorandum applicable to such a company; 2. Section 4(6B): Any company which is registered after the commencement of the Companies (Amendment) Act, 2016, in so far as the registered memorandum of such company does not exclude or modify the contents in the model memorandum applicable to such company, those contents shall, so far as applicable, be the contents of the Memorandum of that company in the same manner and to the extent as if that was contents of the duly registered memorandum of the company.
Amendment of Section 7(1)(c): A declaration from each of the subscribers to the memorandum and from persons named as the first directors, if any, in the articles that he is not convicted of any offence in connection with the  promotion, formation or management of any company, or that he has not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the preceding five years and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief;
Amendment of Section 12(1): The Company shall have a registered office within thirty days of its incorporation.
Amendment of Section 12(4):  Notice of every change of the situation of the registered office, after the date of incorporation, shall be given to the Registrar within thirty days of the change.
Subsititution of section 42: Entire section 42 is substituted. The key highlights of section 42 proposed by the Bill are as follows:
  1. A company shall not utilise monies raised through private placement unless allotment is made and the return of allotment is filed with the Registrar in accordance with sub-section (8) of section 42;
  2. A company making any allotment of securities under this section, shall file with the Registrar a return of allotment within fifteen daysfrom the date of the allotment;
  3. The maximum amount of penalty is amount raised through the private placement or two crore rupees, whichever is lower.
Subsititution of section 62(2): The notice referred to in sub-clause (i) of clause (a) of sub-section (1) (offer letter) shall be dispatched through registered post or speed post or through electronic mode or courier or any other mode having proof of delivery to all the existing shareholders at least three days before the opening of the issue.
Amendment of Section 73(2)(c): depositing, on or before the 30th day of April each year, such sum which shall not be less than twenty per cent. of the amount of its deposits maturing during the following financial year and kept in a scheduled bank in a separate bank account to be called deposit repayment reserve account;”;
Omission of section 73(2)(d): The requirement for deposit insurance is omitted.
Insertion of 4th proviso to Section 77(1): Creation of such charges are not required which are in consultation with the Reserve Bank of India (RBI).
Amendment of Section 78: In case the Company fails to register the Charge within a period of thirty days, the Registar  may, on an application by the company, allow such registration to be made within a period of three hundred days of such creation on payment of such additional fees as may be prescribed:
Subsititution of section 90: The key highlights of section 90 are as follows:
  1. Concept of significant beneficial owners in a company has been introduced and if they holds beneficial interests, of not less than twenty-five percent or such other percentage as may be prescribed, shall make a declaration to the Company, if any person fails to make a declaration, he shall be punishable with fine which shall not be less than one lakhs rupees but which may extend to ten lakh rupees;
  2. Every company shall have to maintained a register of interest declared by individuals having beneficial interest in the Company and this register is open to inspection by any member of the Company on payment of such fees as may be prescribed;
  3. Every company shall file a return of significant beneficial owners of the Company and changes therein with the Registrar;
Insertion of proviso to Section 92(1)(c): The Central Government may prescribe abridged form of annual return for one person and small company.
Omission of section 93: Return in case of promoter’s stake changes and top ten shareholders is proposed to be omitted.
Amendment of Section 96(2): Annual General Meeting of an unlisted company may be held at any place in India if consent is given in writing or by electronic mode by all the members in advance.
Amendment of Section 100(1): An extraordinary general meeting of the company, other than of the wholly owned subsidiary of a company incorporated outside India, shall be held at a place within India.
Amendment of Section 101(1): a general meeting may be called after giving shorter notice  if consent, in writing or by electronic mode, is accorded thereto-
1. In case of AGM- by not less than 95% of the members; and
2. In the case of any other general meeting, by members of the company-
a) company having a share capital- not less than ninty-five per cent. of such part of the paid-up share capital of the company
b) company having no share capital-not less than ninty-five per cent. of the total voting power exercisable at that meeting
Amendment of Section 117(2): 1. The fine on failure to file form MGT-14 has been reduced;  2. No need to file MGT-14 for power exercised by the Board of Directors of any of the powers under clause (a) and (c) of section 180(1).
Amendment of Section 123(3): The Board of Directors of a company may declare interim dividend during any financial year or at any time during the period from closure of financial year till the holding of the annual general meeting out of the surplus in the profit and loss account or out of profits of the financial year or out of profit generated in the financial year till the quarter preceding the date of declaration of the interim dividend.
Amendment of Section 129(3): The Company having subsidiaries or associate companies, it shall prepare a consolidated financial statement of the Company and and of all the subsidiaries and associate companies in the same form and manner as that of its own and in accordance with applicable accounting standards. It shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries in such form as may be prescribed.
Amendment of Section 134(1): The financial statement, including consolidated financial statement, if any, shall be signed  by the chairperson of the company or by two directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one director, for submission to the auditor for his report thereon.
Insertion of sub section (3A) to section 134: The Central Government may prescribe an abridged Board’s report for One Person Company or small company.
Amendment of Section 135(1): The provision of CSR is applicable to companies which fall under the threshold limit of net worth or turnover or net profit during any financial year. The Bill proposed to replaced the words “any financial year”  by the words “preceding financial year”. Provided that where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors.
Amendment of Section 135(5): For the purposes of this section “net profit” shall not include such sums as may be prescribed, and shall be calculated in accordance with the provisions of section 198.’.
Insertion of new proviso to section 135(1): where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors.”
Omission of first proviso to section 139(1): Ratification of Statutory Auditor by the shareholders is proposed to be omitted.
Subsititution of section 149(3): Every company have a residental director during the financial year.
Amendment of Section 149(6)(c): The Bill proposes to specify limits with respect to pecuniary relationship to determine the independency of a person to be appointed as an Independent Director and to equipped with the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 with respect to material’ pecuniary relationships.
Insertion of proviso to section 153: Any identification number, prescribed by the Central Government  shall be treated as Director Identification Number for the purposes of this Act (The Companies Act, 2013 read with The Companies (Amendment) Act, 2016.
Insertion of proviso to Section 160(1): The requirements of deposit of  Rs. 100,000 shall not apply in case of appointment of an independent director or a director recommended by the Nomination and Remuneration Committee, if any, constituted under sub-section (1) of section 178.”.
Insertion of explanation to Section 165(1): For reckoning the limit of directorships of twenty companies, the directorship in a dormant company shall not be included.
Amendment of Section 167(1)(a): In case a director incurs disqualification under sub-section (2) of section 164, he shall vacate the office in all the companies, other than the Company which made default.
Amendment of Section 177(1) : It is proposed that every listed public company shall constitute an Audit Committee.
Amendment of Section 177(4)(iv): It is proposed that in case of transaction, other than transactions referred to in section 188, if not approved by the Audit Committee, it shall make recommendation to the Board.
Amendment of Section 178(1):  It is proposed that every listed public company shall constitute the  Nomination and Remuneration Committee.
Amendment of Section 178(2): It is proposed that the Committee shall specify the methodology for effective evaluation of performance of Board, its committees and individual directors to be carried out either by the Board, by the Nomination and Remuneration Committee or by an independent external agency.
Amendment of Section 178(4)(c): The Nomination and Remuneration policy shall be disclosed in the website of the Company, if any, and the salient features of the policy and changes therein, if any, along with the web address of the policy, if any, shall be disclosed in the Board’s report.
Amendment of Section 180(1)(c): It is proposed that to calcualte the borrowing limit, aggregate of paid-up share capital, free reserves and securities premium shall be considered.
Subsititution of Section 185: Some of the key highlights are:
a) Restriction on advancing of any loan, including any loan represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by any director of company, or of a company which is its holding company or any partner or relative of any such director; or any firm in which any such director or relative is a partner.
b) Loan can be granted to the parties covered under explanation to section 185(2) subject to special resolution passed, explanatory statement to notice shall contain the full particulars of the loans given, or guarantee given or security provided and the purpose for which the loan or guarantee or security is proposed to be utilised by the recipient and the loans are utilised by the borrowing company for its principal business activities.
Amendment of Section 186: Key highlights are:
Omission of Section 186(1);
Employee will not be included in the ambit of section 186(2);
Where the Investment, Loan made and Guarantte ot secutity provided exceed the limit prescribed under section 186(2), Special Resolution shall be required;
No approval of shareholders shall be required  where a loan or guarantee is given or where a security has been provided by a company to its wholly owned subsidiary company or a joint venture company, or acquisition is made by a holding company, by way of subscription, purchase or otherwise of, the securities of its wholly owned subsidiary company.
Amendment of Section 188(1): It is proposed that the requirement relating to restriction on voting by relatives in the general meeting shall not apply to a company in which ninety per cent. or more members, in number, are relatives of promoters or are related parties
Amendment of Section 188(3): It is proposed that the non-ratified transaction shall be voidable at the at the option of the Board or, as the case may be, of the shareholders.
Omission of Section 194 (prohibition on forward dealing in securities of company by director or KMP) & 195 (prohibition on insider trading of securities)
Amendment of First proviso to Section 197(1): It is proposed that the no Central Government approval shall be required in case of payment of remuneration exceeding 11% of net profit of the Company.
Amendment of Second proviso to Section 197(1): It is proposed that the Special Resolution shall be required for payment of remuneration exceeding the limit prescribed under the second proviso to section 197(1).
Amendment of Section 366(2): It is proposed to allow conversion of partnership firms, LLP, society or any other business entity formed under any law for the time being in force into companies with two or more members.
Amendment of Section 447: It is proposed that any person who is found to be guilty of fraud involving an amount of at least ten lakh rupees or one percent. of the turnover of the company, whichever is lower shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud.
Provided further that where the fraud involves an amount less than ten lakh rupees or one per cent. of the turnover of the company, whichever is lower, and does not involve public interest, any person guilty of such fraud shall be punishable with imprisonment for a term which may extend to five years or with fine which may extend to twenty lakh rupees or with both.
Author: CS Manohar Mishra-Associate Member of the ICSI & a Commerce Graduate from Calcutta University, he can be contacted

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