Highlights of Companies (Amendment) Act, 2017

Significant influence is proposed to mean control of atleast 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.

• 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.

“Cost Accountant” means a person who is a member of the Institute of Cost and Works Accountants of India and who holds a valid certificate of practice.

• 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.

• “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.

• Further turnover should be as per profit and loss account for the immediately preceding financial year and not as per its last financial year.

This section was there in the Companies Act 1956 but was missing from the Companies Act 2013.

• in case of change in name by an existing company, name reserved by the RoC shall be valid for 60 days from the date of approval.

• It is proposed that notice of every change of the situation of the registered office, shall be given to the Registrar within 30 days instead of 15 days, as currently provided.

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.

• Return of allotment has to be filed within 15 days instead of 30 days.

• Money received under the private placement shall not be utilized unless the return of allotment is filed with the ROC.

• Private Placement offer letter shall not contain any right of renunciation.

• Further it is proposed to allow companies to 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 Reserve Bank of India under the Banking Regulation Act, 1949 or the Reserve Bank of India Act 1934.

• It is proposed that right issue offer letter can be sent through courier also.

Currently atleast 15% of such amount is required to be deposited and that is also of amount of deposits maturing during a financial year and the financial year next following.

• Further it is proposed to omit the requirement of providing deposit insurance.

• It is also proposed that companies which had defaulted in repayment of deposits, can also accept deposits after a period of 5 years from the date of making good the default.

• Further it is proposed that an officer of the company who is in default shall be punishable with imprisonment and fine. Earlier it was imprisonment or fine. In the process, the offence has been made non-compoundable.

For the purpose of declaration of beneficial interest, it is proposed that beneficial interest in a share includes, directly or indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person alone or together with any other person to—

• exercise or cause to be exercised any or all of the rights attached to such share; or

• receive or participate in any dividend or other distribution in respect of such share.

• Every individual, who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India, holds beneficial interests, of not less than twenty-five per cent. or such other percentage as may be prescribed, in shares of a company or the right to exercise, or the actual exercising of significant influence or control as defined in clause (27) of section 2, over the company shall make a declaration to the company. The Central Government may however, prescribe class(es) of persons who shall not be required to make declaration.

• Every company shall maintain a register of the interest declared by individuals as aforesaid and such register shall be open to inspection of members.

• Every company shall file a return of significant beneficial owners of the company and changes therein with the Registrar.

• Obligation is cast on the company to give notice, in the prescribed manner, to any person whom the company knows or has reasonable cause to believe to be a significant beneficial owner of the company who is not registered as a significant beneficial owner with the company as required under this section.

• In case information asked is not provided, the Company shall apply to the Tribunal for an order directing that the shares in question be subject to restrictions with regard to transfer of interest, suspension of all rights attached to the shares.

• Stringent penalties have been provided for default of this section including liability for fraud u/s 447.

• 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.

• 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.

• 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.

• Further it is proposed that certain prescribed particulars in the return, register or index referred to in this section shall not be available for inspection or for taking extracts or copies.

• Where any member of a company is entitled to vote only on some resolution or resolutions to be moved at a meeting and not on the others, then his vote with respect to shorter notice shall only be counted for the purpose of the resolution on which he can vote.

• Currently for calling both AGM and EGM at shorter notice, consent of 95% of members entitled to vote at the meeting is required.

• It is proposed to omit clause (e) of sub-section (3) of the section as the requirement under the clause is already covered in clause (a).

• The minimum fine for non-filing under this section for company and officer in default is proposed to be reduced from rupees five lakh to one lakh rupees and from rupees one lakh to rupees fifty thousand.

• Time limit of 270 days within which resolutions and agreements could be filed on payment of additional fee has been done away with. It is proposed that a company can file the resolutions and agreements with ROC at any time on payment of prescribed additional fee.

• In the case of inadequate or absence of profits, dividend can be declared out of accumulated profits earned by the company in previous years and transferred by the company to free reserves (instead of reserves).

• It is also proposed that 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 holding of the annual general meeting out of the surplus in the profit and loss account or out of profits of the financial year for which such interim dividend is sought to be declared or out of profits generated in the financial year till the quarter preceding the date of declaration of the interim dividend.

In case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during immediately preceding three financial years.

• The company shall also attach along with its financial statement, a separate statement containing the salient features of the subsidiary and associate companies.

• It is also proposed that order for reopening of accounts can be made upto eight financial years preceding the current financial year unless there is a specific direction under section 128(5) from the Central Government that the books of accounts may be kept for longer period in which case the books of account may be ordered to be reopened for a longer period

• It is proposed to omit the provisions regarding constitution of separate Appellate Authority under this section and appeal against any order of NFRA shall lie before the National Company Law Appellate Tribunal in the prescribed manner.

• In case of Board report, it is proposed that disclosures which have been provided in the financial statement shall not be required to be reproduced in the report again.

• It is proposed that in place of extract of the annual return, only the web address, if any, where annual return has been placed shall be mentioned

• It is proposed that instead of exact text of the policies, key feature of policies along with its web link shall be disclosed in Board report.

• In respect to performance evaluation, it is proposed to omit the responsibility of the Board for carrying the performance evaluation of Board, Directors and committee. It is now required to include in the Board’s report of listed companies and other prescribed public companies that annual evaluation of the performance of the Board, its Committees and of individual directors has been made.

• Central Government may prescribe abridged Board Report for small and one person companies.

• Further it is proposed that where a company is not required to appoint an independent director, it shall have in its Corporate Social Responsibility Committee two or more directors.

• It also proposed to empower the Central Government to prescribe sums which shall not be included for calculating ‘net profit’ of a company under section 135.

(a) holding, if the company has a share capital, majority in number entitled to vote and who represent not less than ninety-five per cent. 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 than ninety-five per cent. of the total voting power exercisable at the meeting.

• It is proposed that only listed companies shall place on its website, if any the separate audited accounts of its subsidiary or subsidiaries. Currently all companies required to comply this.

• If the foreign subsidiary is statutorily required to prepare consolidated financial statement under any law of the country of its incorporation, it is proposed that the requirement of posting audited accounts of subsidiary shall be met if consolidated financial statement of such foreign subsidiary is placed on the website of the listed company.

• If the foreign subsidiary is not required to get its financial statement audited, it is proposed that the holding listed company may place such unaudited financial statement on its website and where such financial statement is in a language other than English, a translated copy of the financial statement in English shall also be placed on the website.

• It is proposed that every company having a subsidiary or subsidiaries shall provide a copy of separate audited or unaudited financial statements, as the case may be, as prepared in respect of each of its subsidiary to any member who asks for it.

• Time limit of 270 days within which financial statement could be filed on payment of additional fee has been done away with under all the sub-sections. It is proposed that a company can file the financial statement with ROC at any time on payment of prescribed additional fee

• The auditor’s report is to include whether internal financial controls with reference to financial statement are in place and not in respect of internal financial control system.

• It is proposed to restrict the liability of auditor who is convicted of any default, to pay the damages to any person for loss arising out of incorrect or misleading statements made in the audit report, to only members and creditors of the company. Currently the Auditor is liable to pay damages to any person concerned.

• It is proposed that criminal liability of an audit firm, in respect of liability other than fine, the concerned partner or partners, who acted in a fraudulent manner or abetted or, as the case may be, colluded in any fraud shall only be liable. Currently the criminal liability is of the partner or partners concerned of the audit firm and the firm, jointly and severally.

• Further it is proposed that in case of new companies, the requirement of period of 182 days shall apply proportionately at the end of the financial year in which it is incorporated.

• In the definition of Independent Director, the words ‘pecuniary interest’ is proposed to be substituted by “pecuniary relationship, other than remuneration as such director or having transaction not exceeding ten per cent, of his total income or such amount as may be prescribed.

• While determining the eligibility for appointment as Independent director, it is proposed to extend the restriction related to pecuniary relationships with respect to relative of a director to include the following:

(i) is holding any security of or interest in the company, its holding, subsidiary or associate company during the two immediately preceding financial years or during the current financial year. Provided that the relative may hold security or interest in the company of face value not exceeding fifty lakh rupees or two per cent. of the paid-up capital of the company, its holding, subsidiary or associate company or such higher sum as may be prescribed;

(ii) is indebted to the company, its holding, subsidiary or associate company or their promoters, or directors, in excess of such amount as may be prescribed during the two immediately preceding financial years or during the current financial year;

(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company, for such amount as may be prescribed during the two immediately preceding financial years or during the current financial year; or

(iv) has any other pecuniary transaction or relationship with the company, or its subsidiary, or its holding or associate company amounting to two per cent. or more of its gross turnover or total income singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii) above.

• It is proposed to allow the appointment of person as an independent director, whose relative is an employee during the three financial years immediately preceding the financial year, in which the person is proposed to be appointed as Independent Director.

• It is also proposed that all companies including a private company may fill up the causal vacancy by the board and casual vacancy filled by the Board shall be subsequently approved in the immediate next general meeting.

It is also proposed to be clarified that disqualification arising due to conviction by court or order passed by court or tribunal or conviction related to section 188, shall continue to exist even if appeal or petition has been filed against the order of conviction or disqualification.

• It is also proposed that the director will not vacate office in certain cases where an appeal is preferred.

• It is proposed that related party transactions other than those prescribed under section 188, if not approved by Audit committee, will require the approval of Board of Directors.

• In case any transaction involving any amount not exceeding one crore rupees is entered into by a director or officer of the company without obtaining the approval of the Audit Committee and it is not ratified by the Audit Committee within three months from the date of the transaction, such transaction shall be voidable at the option of the Audit Committee and if the transaction is with the related party to any director or is authorised by any other director, the director concerned shall indemnify the company against any loss incurred by it

• It is also proposed that approval of audit committee with respect to transactions between a holding company and its wholly owned subsidiary company will only be required, if the transactions falls under section 188

• It is proposed that committee will specify methodology for effective evaluation of performance of Board and committees and individual directors either by the Board, NRC or an independent external agency and NRC can review the implementation of evaluation system.

• It is further proposed that instead of disclosing the policy in the Board’s report, such policy shall be placed on the website of the company, if any and only the salient features of the policy and the changes therein need to be disclosed in the Board’s report.

• It is also proposed to exempt body corporate where any director or two or more of them holds or hold not more than 2% of the paid-up share capital, from the purview of section 184.

• 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.

• Loan to following parties is allowed subject to special resolution of shareholders and certain other prescribed conditions

(i) any private company of which any such director is a director or member;

(ii) 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 (iii) 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

• 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

• 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.

• It is proposed that shareholders’ approval will not 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.

• It is also proposed to provide that non-ratification of transaction shall be voidable at the option of the Board or shareholders, as the case may be. This amendment aims at bringing clarity since currently though ratification is allowed both by Board or Shareholders but transaction was only voidable at the option of the Board.

• Further it is proposed that in respect of appointment of managing director, whole time director or manager, approval of Central Government shall only be required in case the appointment is not in accordance with the matters specified in Part I of Schedule V.

• 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.

• 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.

• 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.

• 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 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.

• 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.

• 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.

• It is also proposed that at the time of calculation of profits, credit shall not be given for any amount representing unrealized gains, notional gains or revaluation of assets.

• It is further proposed that sums related to excess of expenditure over income, which had arisen in computing the net profits in accordance with this section in any year, in so far as such excess has not been deducted in any subsequent year preceding the year in respect of which the net profits have to be ascertained, shall be allowed as a deduction.

Currently restriction on appointment of registered valuer for undertaking valuation of any assets in which he has a direct or indirect interest or becomes so interested is without any limitation on time.

• It is also proposed to empower the Central Government to exempt any class of foreign companies from complying with the aforesaid provisions.

• 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.

• 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.

• 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.

• 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.

• It is also proposed to modify the requirements relating to laying of copy of exemption notification before both Houses of parliament.

• Instead of Joint Secretary to the Government of India, person who has been holding the rank of Secretary or Additional Secretary to the Government of India, will be eligible

• A person of proven ability, integrity and standing having special knowledge and professional experience of not less than fifteen years in industrial finance, industrial management, industrial reconstruction, investment and accountancy will be eligible. Expertise in other disciplines like law, labour laws, and disciplines related to management, conduct of affairs, revival, rehabilitation and winding-up of companies are proposed to be deleted.

• The constitution of Special Court has been changed and will depend upon the nature of offence

(a) size of the company;

(b) Nature of business carried on by the company;

(c) Injury to public interest;

(d) Nature of the default; and

(e) Repetition of the default.

• 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.