Analyses of 37th Report Standing Committee on Companies (Amendment) Bill, 2016

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

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%

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.

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

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

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.

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.

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.

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

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

S. N.

Sec

tion

Companies Act, 2013

Bill, 2016

CLC Report

Stake

Holder Recomm-endation

Standing Committee

Report

1.

4 (5) (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.

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 substituted

(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 twenty days from the date of approval or such other period as may be prescribed.

The Committee, therefore, recommended that the period of name reservation should be reduced from 60 days to 20 days from the date of approval, and simultaneously, the fees for such reservation be reduced to Rupees Five Hundred

The proposed time limit of 20 days from the date of approval be increased to 60 days from the date of approval and after amendment

The Committee accept the suggestion for increasing the time limit for reserving the name of the company by the Registrar subsequent to its incorporation from the proposed 20 days to 60 days or a longer period as may be prescribed, the proposed clause may be modified accordingly

2.

92(3)

An extract of the annual return in such form as may be prescribed shall form part of the Board’s report.

(ii) for sub-section (3), the following sub-section shall be substituted, namely:—

“(3) Every company shall place a copy of the annual return on the website of the company, if any, and the web-link of such annual return shall be disclosed in the Board’s report.”

The Committee recommended that this requirement may be omitted, and instead the web address/link of the Annual Return filed by the company and hosted on its website, if any, should be provided in the Board’s Report and information with regard to shareholding pattern be provided as part of section 134 requirements.

Disclosures in Annual Return are very detailed and their applicability to Private companies would make compliance unnecessarily onerous. Hence, Private companies should be exempted from the same

The Committee find merit in the suggestion for a less cumbersome / onerous Annual Return to be filed by companies. an abridged and simple form of annual return may be prescribed for small companies, one person Companies and private companies (less than an annual sales turnover of say, Rs 100 crore). For other forms of companies as well, the annual return format should also be devised in a manner avoiding repetitive or superfluous information

3.

101 (1)

(1) A general meeting of a company may be called by giving not less than clear twenty-one days’ notice either in writing or through electronic mode in such manner as may be prescribed:

Provided that a general meeting may be called after giving a shorter notice if consent is given in writing or by electronic mode by not less than ninety-five percent. of the members entitled to vote at such meeting.

In Section 101 of the principal Act, in sub-section (1), for the proviso, the following proviso shall be substituted namely:-

Provided that a general meeting may be called after giving shorter notice than that specified in this sub-section, if consent in writing or by electronic mode is accorded thereto:

i. in the case of an annual general meeting, by not less than ninety-five per cent of the members entitled to vote thereat; and

ii. in the case of any other general meeting, by members of the company-

(a) holding, if the company has a share capital, not less than ninety-five of such part of the paid-up share capital of the company as gives a right to vote at the meeting; or

(b) having, if the company has no share capital, not less that ninety-five percent of the total voting power exercisable at that meeting.

It is suggested that a general meeting of Companies having share capital may be called after giving shorter notice if consent thereto is accorded by majority of members in number entitled to vote and representing holding not less than 95% percent of such part of the paid-up share capital of the company entitled to vote thereat;

In case of Companies not having share capital a general meeting may be called after giving shorter notice if consent thereto is accorded by majority of members representing not less than 95% of the voting rights exercisable at the meeting.”

The Committee accept of the suggestion to enable holding a general meeting of a company on a shorter notice.

This will bring in necessary flexibility in procedural matters

4.

136 (1)

Without prejudice to the provisions of section 101, a copy of the financial statements, including consolidated financial statements, if any, auditor’s report and every other document required by law to be annexed or attached to the financial statements, which are to be laid before a company in its general meeting, shall be sent to every member of the company, to every trustee for the debenture-holder of any debentures issued by the company, and to all persons other than such member or trustee, being the person so entitled, not less than twenty-one days before the date of the meeting:

In section 136 ,—

(i) in sub-section (1),—

(b) …the following shall be substituted, namely:—

“Provided that if the copies of the documents are sent less than twenty-one days before the date of the meeting, they shall, notwithstanding that fact, be deemed to have been duly sent if it is so agreed by ninety-five per cent of the members entitled to vote at the meeting:

The Committee suggested to provide clarity allowing financial statements to be circulated at a shorter period in accordance with the provision for shorter notice meeting under Section 101 be provided in Section 136.

As per the proposed amendment, copies of the documents referred to in Section

136(1) of the Act can be sent at a shorter notice if it is so agreed to by ninety-five

percent of the members entitled to vote at the meeting even if the percentage of voting capital held by such members is negligible.

It is suggested that if copies of the documents referred to in Section 136(1) of the Act are sent less than twenty-one days before the date of the meeting, they shall, notwithstanding that fact, be deemed to have been duly sent if it is so agreed by members holding not less than ninety-five percent of such part of the paid-up share capital of the company as gives a right to vote at the meeting.

The Committee would thus recommend that keeping in view the need to ensure protection of interests of minority shareholders, the suggestion made above by some stakeholders may be suitably incorporated in the Bill. The Committee would further recommend in this regard that in order to facilitate “ease of doing business”, the Ministry should further amend clause 37 and exempt the companies from the requirement of uploading financial statements of foreign subsidiaries, in case such companies upload the consolidated financial statement on website of such foreign companies

5.

137(1)

A copy of the financial statements, including consolidated financial statement, if any, along with all the documents which are required to be or attached to such financial statements under this Act, duly adopted at the annual general meeting of the company, shall be filed with the Registrar within thirty days of the date of annual general meeting in such manner, with such fees or additional fees as may be prescribed within the time specified under section 403:

In section 137 of the principal Act, in sub-section (1), after the fourth proviso, the following proviso shall be inserted, namely:

Provided also that in the case of a subsidiary which has been incorporated outside India (herein referred to as “foreign subsidiary”), which is not required to get its financial statement audited under any law of the country of its incorporation and which does not get such financial statement audited, the requirements of the fourth proviso shall be met if the holding Indian listed company files such unaudited financial statement along with a declaration to this effect and where such financial statement is in a language other than English, along with a translated copy of the financial statement in English.

The proviso should be applicable to all holding Indian Companies and the word ‘listed’ should be removed in the proposed insertion

The Committee would therefore recommend that the suggestion to broaden the applicability of the clause to all holding Indian Companies for filling copy of financial statement with the Registrar may be suitably incorporated in the Bill. The Committee also recommend that in order to facilitate “ease of doing business” in case a company files consolidated financial statements (which in any case has been mandated under the law), it should be exempted from the requirement of filing individual financial statement of subsidiary companies

6.

141(3)

The following persons shall not be eligible for appointment as an auditor of a company, namely:—

(a) a body corporate other than a limited liability partnership registered under the Limited Liability Partnership Act, 2008;

(b) an officer or employee of the company;

(c) a person who is a partner, or who is in the employment, of an officer or employee of the company;

(i) in clause (d), the following Explanation shall be inserted, namely:—

‘Explanation.—For the purposes of this clause, the term “relative” means the spouse of a person; and includes a parent, sibling or child of such person or of the spouse, financially dependent on such person, or who consults such person in taking decisions in relation to his investments;’;

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

‘(i) a person who, directly or indirectly, renders any service referred to in section 144 to the company or its holding company or its subsidiary company.

Explanation.—For the purposes of this clause, the term “directly or indirectly” shall have the meaning assigned to it in the Explanation to section 144.’.

The committee suggested that the term relative should be suitably modified

The words “or who consults such person in taking decisions in relation to his investments” be removed from the explanation

The Committee are inclined to accept the suggestion for removal of the words “or who consults such person in taking decisions in relation to his investments”, as these words make the intended definition of ‘relative’ under clause 41 too broad and open-ended, leaving scope for mis-interpretation.

Instead, the words “institutionalized consultation in the usual course of business” may be substituted to bring greater clarity. The Committee are of the view that such phraseology in the main clause or explanations there under should be avoided, as it will only obfuscate the intent behind the law, leading to avoidable disputes and litigation. Necessary modifications may accordingly be made in the Bill.

7.

160

A person who is not a retiring director in terms of section 152 shall, subject to the provisions of this Act, be eligible for appointment to the office of a director at any general meeting, if he, or some member intending to propose him as a director, has, not less than fourteen days before the meeting, left at the registered office of the company, a notice in writing under his hand signifying his candidature as a director or, as the case may be, the intention of such member to propose him as a candidate for that office, along with the deposit of one lakh rupees or such higher amount as may be prescribed which shall be refunded to such person or, as the case may be, to the member, if the person proposed gets elected as a director or gets more than twenty-five per cent. of total valid votes cast either on show of hands or on poll on such resolution.

The following proviso shall be inserted:

“Provided that requirements of deposit of amount 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.”

or a director recommended by the Board of Directors of the Company, in the case of a company not required to constitute Nomination & Remuneration Committee” should be included in the proviso at the end

Keeping in view the need for procedural flexibility, wherever possible, the Committee recommend that the suggestion made above with regard to clause 48 in case of companies not required to constitute Nomination and Remuneration Committee may be suitably incorporated in the Bill

8.

197(9)

If any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed by this section or without the prior sanction of the Central Government, where it is required, he shall refund such sums to the company and until such sum is refunded, hold it in trust for the company

The section shall be substituted to read as:

If any director draws or receives, directly or indirectly, by way of 15 remuneration any such sums in excess of the limit prescribed by this section or without approval required under this section, he shall refund such sums to the company, within two years of such lesser period as may be allowed by the company, and until such sum is refunded, hold it in trust for the company.

The proviso in sub-section (1) of section 197 may read as under :

Provided also that, where the company is in default for period exceeding 30 days in payment of dues in respect of term loan taken from any bank or 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.”

Similar changes may be carried out in proviso to sub-section(10)

The Committee have commented upon the issue of managerial remuneration separately. The safeguards proposed in the Bill may be further strengthened accord- ingly to protect the interests of secured creditors, debenture –holders etc

9.

403

(1) Any document, required to be submitted, filed, registered or recorded, or any fact or information required or authorised to be registered under this Act, shall be submitted, filed, registered or recorded within the time specified in the relevant provision on payment of such fee as may be prescribed:

In section 403 of the principal Act,—

(i) in sub-section (1),for the first and second provisos, the following provisos shall be substituted, namely:—

“Provided that where any document, fact or information required to be submitted, filed, registered or recorded, as the case may be, under section 89, 92, 117, 121, 137 or 157 is not submitted, filed, registered or recorded, as the case may be, within the period provided in those sections, it may be submitted, filed, registered or recorded, as the case may be, within a period of two hundred and seventy days from the expiry of the period so provided in those sections, on payment of such additional fee as may be prescribed:

Provided further that where the document, fact or information, is not submitted, filed, registered or recorded, as the case may be,—

(a) in case of document, fact or information referred to in section 89,92, 117, 121, 137 or 157, within the period of two hundred and seventy days as provided in the first proviso; or

(b) in any other case within the period in the relevant section, it may, without prejudice

to any other legal action or liability under this Act, be submitted, filed, registered or recorded, as the case may be, on payment of such higher additional fee or additional fee, as may be prescribed:

Provided also that where there is default on two or more occasions in submitting, filing, registering or recording of the document, fact or information under section 89, 92, 117, 121, 137 or 157, the provisions of the first and second provisos shall not apply, until the document, fact or information is submitted, filed, registered or recorded, as the case may be, with additional fee, without prejudice to any legal action or liability under this Act.”;

(ii) in sub-section (2), for the words “first proviso to that sub-section”, the words “relevant section” shall be substituted.

The Committee recommended to make necessary changes to bring clarity that the requirement of filing with additional fee for 270 days under first proviso to Section 403 is applicable only to the six sections

Additional fees to be enhanced substantially (by up to ten times of the current prescribed amount) to deter non-compliance, and if a company files a document within the original period, not including the period allowed with additional fees. A separate requirement for additional fees for other than six sections to also be prescribed.

Rules to clarify that, irrespective of the delay, obtaining condonation of delay is not a pre-requisite to filing a document

The Stakeholders in their written memorandum have suggested that the proposed substitution should not take place

The Committee apprehend that the proposed amendments with regard to fee structure for delayed filing of documents may turn out to be a revenue mobilizing proposal for the Ministry and the government, rather than a step towards ensuring timely compliance by companies and an up-to-date registry.

The Ministry, themselves, have stated in their reply that a low level of annual statutory filings have been reported currently as compared to previous years. The Committee believe that enhanced fee may not actually deter non-compliance. It may thus be a fallacious assumption that the fee structure can be used to ensure statutory compliance. The Committee would rather suggest in this context that the compliance require -ements may be made less onerous with a reasonable time period for all companies, and simultaneously, non-compliance within the stipulated period should invite strict penalty and prosecution. In view of the Committee, only such an approach will ensure an up-to-date registry of companies. The present approach of condonation of delay, late filing by payment of higher fee etc. may not really help achieve this objective, as borne out by the Ministry’s own experience in the matter.

10.

447

Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud, 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 that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.

Explanation.—For the purposes of this section—

(i) “fraud” in relation to affairs of a company or any body corporate, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss;

(ii) “wrongful gain” means the gain by unlawful means of property to which the person gaining is not legally entitled;

(iii) “wrongful loss” means the loss by unlawful means of property to which the person losing is legally entitled.

In section 447 of the principal Act, —

(i) after the words “guilty of fraud”, the words “involving an amount of at least ten lakh rupees or one percent. of the turnover of the company, whichever is lower” shall be inserted; (ii) after the proviso, the following proviso shall be inserted, namely:—

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.

The Committee recommended that provision to be amended to provide that frauds, which involve at least an amount of Rupees Ten Lakh or one percent of the turnover of the company, whichever is lower, (and non-compoundable). Frauds involving amounts below such limits which do not involve public interest to be given a differential treatment and to be made compoundable.

The amount of ten lakh rupees should not be specified in the Act and the power may be delegated to the Central Government to prescribe the limits from time to time.”

The Committee agree that, being a substantive matter, monetary thresholds may be prescribed in the main Act itself for the sake of clarity with regard to the nature of fraud and for categorizing the offence as compo -undable or non compoundable.