CS Rahul Harsh

CS Rahul HarshComparative Analysis of The Companies (Amendment) Bill, 2016, & Companies Act, 2013 (Part – 1)

The Central government on Wednesday, 16th of March, 2016 introduced in the Lok Sabha a bill to further amend the Companies Act, 2013 as part of efforts to address difficulties faced by stakeholders and improve the ease of doing business in the country.

The Companies (Amendment) Bill, 2016, among other things, seeks to relax the norms around managerial remuneration, ease the process for private placement of shares and remove provisions relating to forward dealing and insider trading from the existing Company Law.

Most of the provisions in the Bill have arisen out of the recommendations of the company law committee which submitted its report recently. In this series of articles, I will be analyzing comparatively the Proposed Amendments in The Companies (Amendment) Bill, 2016, with the existing provisions of the Companies Act, 2013.

Sl. No.SectionExisting ProvisionsProposed AmendmentsRemarks
12(6)In case of an Associate Company: “significant influence” means control of at least twenty per cent. of total share capital, or of business decisions under an agreement”

 

Significant influence” means control of at least twenty per cent. of total voting power, or control of or participation in business decisions under an agreement;The Term Total Share Capital has now been replaced with Voting Power. So, only the shareholders with voting rights will now be counted in for the purpose of determining An Associate Company.
22(6)“associate company”, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary

company of the company having such influence and includes a joint venture company.

(Term JV NOT defined)

“joint venture” means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement;In the existing provisions the term Joint venture is not defined so to remove doubts, same has now been defined under the proposed amendments.
32(28)“cost accountant” means a cost accountant as defined in clause (b) of subsection (1) of section 2 of the Cost and Works Accountants Act, 1959;

 

“Cost Accountant” means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 and who holds a valid certificate of practice under sub-section (1) of section 6 of that Act;’;The definition of the term “Cost Accountant” now includes:   Cost accountant who holds a valid certificate of practice.
42(30)“debenture” includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not;

 

In clause (30), the following proviso shall be inserted, namely:— “Provided that— (a) the instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934; and (b) such other instrument, as may be prescribed by the Central Government in consultation with Reserve Bank of India, issued by a company, shall not be treated as debenture;”The definition of the Term Debenture now Excludes: (a) the instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934; and (b) such other instrument, as may be prescribed by the Central Government in consultation with Reserve Bank of India, issued by a company.
52(41)As per the existing provisions of the Companies Act, 2013: an application can be made by a company or body corporate, which is a holding company or a subsidiary of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year.In the first proviso, after the word “subsidiary”, the words “or associate company” shall be inserted.The Amendment Act 2016 now propose to include Associate Companies for the purpose of making an Application to the Tribunal to follow the financial year different to the one provided under the Companies Act, 2013.
62(46)“holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies;

 

Explanation:- For the purposes of this clause, the expression “company” includes any body corporate.The Expression “Company” shall include any Body Corporate of which a company is a Holding Company.

For. Eg. : ABC Ltd. can be holding company of XYZ LLP.

72(49)“interested director” means a director who is in any way, whether by himself or through any of his relatives or firm, body corporate or other association of individuals in which he or any of his relatives is a partner, director or a member, interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf of a company;

 

The Clause is proposed to be Omitted in the Proposed Amendment.
82(51)“key managerial personnel”, in relation to a company, means—

(i) the Chief Executive Officer or the managing director or the manager;

(ii) the company secretary;

(iii) the whole-time director;

(iv) the Chief Financial Officer; and

(v) such other officer as may be prescribed;

 

Proposed Definition of a KMP:

“key managerial personnel”, in relation to a company, means—

(i) the Chief Executive Officer or the managing director or the manager;

(ii) the company secretary;

(iii) the whole-time director;

(iv) the Chief Financial Officer; and (word “and” Omited)

(v) such other officer as may be prescribed; replaced with:

(v) such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and

(vi) such other officer as may be prescribed

The term KMP now includes an officer who is

A) ONE LEVEL BELOW THE DIRECTORS and is in whole time employment of the Company

B) Officer who has been designated as KMP by the Board of Directors.

The amendments propose to include more officers under the umbrella of KMP and thereafter making the Senior management employees more responsible for their acts.

92(57)“net worth” means the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation.In clause (57), for the words “and securities premium account”, the words “, securities premium account and debit or credit balance of profit and loss account,” shall be substituted;
102(71)“public company” means a company which—

(a) is not a private company;

(b) has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed:

Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles.

In clause (71), in sub-clause (a), after the word “company;”, the word “and” shall be inserted;With the inclusion of the word “AND” The Term public company will mean:

A Company which : –

(a) is not a private company; AND

(b) has a minimum paid-up share capital of five lakhs rupees or such higher paid-up capital, as may be prescribed.

112(76)“related party”, with reference to a company, means—

(i) a director or his relative;

(ii) a key managerial personnel or his relative;

(iii) a firm, in which a director, manager or his relative is a partner;

(iv) a private company in which a director or manager is a member or director;

(v) a public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of its paid-up share capital;

(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;

(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:

Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity;

(viii) any company which is—

(A) a holding, subsidiary or an associate company of such company; or

(B) a subsidiary of a holding company to which it is also a subsidiary;

(ix) such other person as may be prescribed;

“(viii) any body corporate which is—

(A) a holding, subsidiary or an associate company of such company;

(B) a subsidiary of a holding company to which it is also a subsidiary; or

(C) an investing company or the venturer of a company;”

The Term Company in clause viii is proposed to be replaced with the term BODY CORPORATE.

This inclusion will increase the existing number of Related Parties for a company and would enable the regulator in tracking various related party transactions which are not under the coverage of the Existing provisions.

For Eg. A) XYZ LLP an associate of ABC LTD will now be treated as it’s Related Party.

 

Ø    Even a venturer of a Company will now be treated as its related party.

122(85)‘‘small company’’ means a company, other than a public company,—

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; or

(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crores rupees.

Ø  in sub-clause (i), for the words “five crore rupees“, the words “ten crore rupees” shall be substituted;

Ø  in sub-clause (ii),— (A) for the words “as per its last profit and loss account“, the words “as per profit and loss account for the immediately preceding financial year” shall be substituted;

Ø  (B) for the words “twenty crore rupees”, the words “one hundred crore rupees” shall be substituted;

 

 

 

The upper limits provided in the definition of a Small company have been increased.

Ø The term last profit and loss account shall mean last Profit and loss account for the immediately preceding financial year.

132(87)“subsidiary company” “subsidiary”, in relation to any other company (that is to say the holding company), means a company in which the holding company—

(i) controls the composition of the Board of Directors; or

(ii) exercises or controls more than one-half of the total share capital

either at its own or together with one or more of its subsidiary companies:

Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.

Ø  In sub-clause (ii), for the words “total share capital”, the words “total voting power” shall be substituted;

Ø  The Proviso: Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed. Shall be OMITED

Ø  Explanation to the provision, under item (d) :  “layer” in relation to a holding company means its subsidiary or subsidiaries; Shall be OMITED

The amendment seeks to remove the criteria of having layers in relation to a holding company and a subsidiary company.
142(91)“turnover” means the aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year.

 

“turnover” means the gross amount of revenue recognised in the profit and loss account from the sale, supply, or distribution of goods or on account of services rendered, or both, by a company during a financial year.The Definition of Turnover stands amended.
153A(New Section) 

 

 

 

 

 

 

 

 

If at any time the number of members of a company is reduced, in the case of a public company, below seven, in the case of a private company, below two, and the company carries on business for more than six months while the number of members is so reduced, every person who is a member of the company during the time that it so carries on business after those six months and is 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.The amendments seek to make the members severally liable to pay the whole debts of the company in case the number of members of a public or private company decreases below the minimum numbers required for a period exceeding SIX months.
164(1) The memorandum of a company shall state (c) the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof;(c) that the company may engage in any lawful act or activity or business, or any act or activity or business 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 object or 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;

The Amendment now allows a company to engage in ANY LAWFUL act or activity and it also provides an option to the company to have a restrictive clause regarding the objects it will pursue.
174(5)(i)(i) Upon receipt of an application under sub-section (4), the Registrar may, on the basis of information and documents furnished along with the application, reserve the name for a period of sixty days from the date of the application.(ii) in sub-section (5), in clause (i), for the words “sixty days from the date of the application”, the words “twenty days from the date of approval or such other period as may be prescribed” shall be substitutedThe time limit provided for reservation of name is proposed to be reduced from 60 days to 20 days.
184(6)(6) The memorandum of a company shall be in respective forms specified in Tables A, B, C, D and E in Schedule I as may be applicable to such company.

 

after sub-section (6), the following sub-sections shall be inserted, namely:—

“(6A) A company may adopt the model memorandum applicable to such a company.

(6B) In case of 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.”.

New Sub section to be inserted:

A company may adopt the model memorandum as applicable to such a company.

197(1)(c)Incorporation of company:

(c) an affidavit 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;

 

In section 7 of the principal Act, in sub-section (1), in item (c), for the words “an affidavit”, the words “a declaration” shall be substituted.

 

The requirement of an affidavit from each of the subscribers to the MOA and from persons named as the first directors is proposed to be replaced with submission of “a declaration”.

2012Registered office of company:

(1)   A company shall, on and from the fifteenth day of its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.

(4)  Notice of every change of the situation of the registered office, verified in the manner prescribed, after the date of incorporation of the company, shall be given to the Registrar within fifteen days of the change, who shall record the same.

in sub-section (1), for the words “on and from the fifteenth day of its incorporation”, the words ” within thirty days of its incorporation” shall be substituted;

in sub-section (4), for the words “within fifteen days”, the words “within thirty days” shall be substituted.

The time limit for a newly incorporated company to have its Registered office ready is proposed to be increased from fifteen days to thirty days.
2121Authentication of documents, proceedings and contracts:

Save as otherwise provided in this Act,—

(a) a document or proceeding requiring authentication by a company; or

(b) contracts made by or on behalf of a company, may be signed by any key managerial personnel or an officer of the company duly authorised by the Board in this behalf.

 

In section 21 of the principal Act, for the words “an officer of the company”, the words “an officer or employee of the company” shall be substituted.An employee authorised by the Board will also be able to sign , authenticate, documents or contracts on behalf of the company.
2226Matters to be stated in prospectus.

(1)             Every prospectus issued by or on behalf of a public company either with reference to its formation or subsequently, or by or on behalf of any person who is or has been engaged or interested in the formation of a public company, shall be dated and signed and shall—

State the following information, provided in Clause (a) & Clause (b).

 

 

 

 

after the words “signed and shall”, the following shall be inserted, namely:—

Ø    “state such information and set out such reports on financial information as may be specified by the Securities and Exchange Board in consultation with the Central Government:

Provided that until the Securities and Exchange Board specifies the information and reports on financial information under this sub-section, the regulations made by the Securities and Exchange Board under the Securities and Exchange Board of India Act, 1992, in respect of such financial information or reports on financial information shall apply.”;

The Amendments provides that the company needs to compny with the rules and regulations made by SEBI in respect of Prospectus and therefore matters stated in clause (a) & (b) is proposed to be omitted.
2335(2)(2) No person shall be liable under sub-section (1), if he proves—In section 35 of the principal Act, in sub-section (2), after clause (b), the following

clause shall be inserted, namely:—

“(c) that, as regards every misleading statement purported to be made by an expert or contained in what purports to be a copy of or an extract from a report or valuation of an expert, it was a correct and fair representation of the statement, or a correct copy of, or a correct and fair extract from, the report or valuation ; and he had reasonable ground to believe and did up to the time of the issue of the prospectus believe, that the person making the statement was competent to make it and that the said person had given the consent required by sub-section (5) of section 26 to the issue of the prospectus and had not withdrawn that consent before delivery of a copy of the prospectus for registration or, to the defendant’s knowledge, before allotment there under.”.

Clause (c) is proposed to be inserted which provides relief to an expert engaged in finalization of prospectus from Civil liability for misstatements in prospectus. In case, the expert had reasonable ground to believe that the information provided were correct and fair.
2442Issue of Shares by Private Placement.Complete Change in the existing provisions has been proposed in the Companies Amendment Act 2016. I will be sharing a detailed comparative analysis of both the existing and proposed provisions related to Section 42 of Companies Act, 2013 in a separate article on this website.
255353. Prohibition on issue of shares at discount

(1) Except as provided in section 54, a company shall not issue shares at a discount.

(2)Any share issued by a company at a discounted price shall be void.

(3) Where a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.

In section 53 of the principal Act,—

(i) in sub-section (2), for the words “discounted price”, the word “discount” shall be substituted;

(ii) after sub-section (2), the following sub-section shall be inserted, namely:—

“(2A) Notwithstanding anything contained in sub-sections (1) and (2), a company may issue shares at a discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions or regulations specified by the Reserve Bank of India under the Reserve Bank of India Act, 1934 or the Banking (Regulation) Act, 1949.”

The amendments Proposes to allow companies to issue shares AT DISCOUNT to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring Scheme in accordance with any guidelines or directions or regulations specified by the RBI or the Banking (Regulation) Act, 1949.

2654Issue of sweat equity shares

(1) Notwithstanding anything contained in section 53, a company may issue sweat equity shares of a class of shares already issued, if the following conditions are fulfilled, namely:—

Clause: (c) not less than one year has, at the date of such issue, elapsed since the date on which the company had commenced business.

In section 54, in sub-section (1), clause (c) shall be omitted.The amendment proposes to remove The requirement for a company to issue Sweat Equity Shares only after One Year it commenced its business.
2773(2)Prohibition on acceptance of deposits from public.
(c) Depositing such sum which shall not be less than fifteen per cent. of the amount of its deposits maturing during a financial year and the financial year next following, and kept in a scheduled bank in a separate bank account to be called as deposit repayment reserve account.(d) providing such deposit insurance in such manner and to such extent as may be prescribed;(e) certifying that the company has not committed any default in the repayment of deposits accepted either before or after the commencement of this Act or payment of interest on such deposits
Proposed Amendment:

for clause (c), the following clause shall be substituted, namely:—

“(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.”

Ø  Clause (d) shall be omitted.

In clause (e), for the words “such deposits;” the following shall be substituted, namely:—

“such deposits and where a default had occurred, the company made good the default and a period of five years had lapsed since the date of making good the default;”. 

2874(1)(b)Repayment of deposits, etc., accepted before commencement of this Act.
Repay within one year from such commencement or from the date on which such payments are due, whichever is earlier. 
In section 74, in sub-section (1), for clause (b), the following clause shall be substituted, namely:—

“(b) repay within three years from such commencement or on or before expiry of the period for which the deposits were accepted, whichever is earlier:

Provided that renewal of any such deposits shall be done in accordance with the Provisions of Chapter V and the rules made there under.”

The Amendment proposes to provide a period of THREE YEARS to companies to repay deposits accepted before commencement of this Act.
2982(1) A company shall give intimation to the Registrar in the prescribed form, of the payment or satisfaction in full of any charge registered under this Chapter within a period of thirty days from the date of such payment or satisfaction and the provisions of sub-section (1) of section 77 shall, as far as may be, apply to an intimation given under this section.

 

Company to report satisfaction of charge:

The words “and the provisions of sub-section (1) of section 77 shall, as far as may be, apply to an intimation given under this section” shall be omitted;

the following proviso shall be inserted, namely:—

“Provided that the Registrar may, on an application by the company or the charge holder, allow such intimation of payment or satisfaction to be made within a period of three hundred days of such payment or satisfaction on payment of such additional fees as may be prescribed.”

The Proposed amendment provides a company an option to make an application to Registrar of Companies to provide THREE HUNDRED DAYS to file form for intimation on Satisfaction of Charge with the ROC with additional fees.

 Further Amendments will be discussed in Part 2 of this series.

Author: CS Rahul Harsh, is a company secretary in Employment and can be contacted at: csrahulharsh@gmail.com

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  • Raajesh Gupta

    A very good Article. I have following three observations with respect to the provisions covered under this Article:

    a) In Section 2(28), the word “and who holds a valid certificate of practice” has been inserted. It means that the cost accountant should be a member of the institute as well as he should hold a valid certificate of practice. Thus wherever the words “cost accountant” is appearing in the Act, the same would mean to a cost accountant in practice.

    b) In Section 2(76) an additional clause “an investing company or a venturer of a company” has been added but there is no definition of the words “investing company” and “venturer” has not been defined. Does it mean that all body corporates having investments in the Company shall be deemed to be the related party. If so, it is going to be a big negative point and practically it would not be possible for a company to transact any business.

    c) In Section 74(1)(b), the words “one year” is proposed to be replaced with the words “three years”. What if the Company got some extension from CLB for repayment of the outstanding deposits. In fact in my company we got approval from CLB for repayment of existing deposits before 30th June, 2016. In case the amendment bill is passed before 30th June, 2016, can we continue to retain the deposits till actual maturity or 31st March, 2017 whichever is earlier.

    Regards
    Raajesh Kumar Gupta

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