Companies Amendment Act, 2017- Analysis

OBJECTS OF COMPANIES AMENDMENT ACT, 2017

√ Simplification of Compliances and doing away with unnecessary procedures.

√  Lesser regulatory interference and greater self-regulation

√  Clarity in the provisions of the Act.

√  Encouragement for Startups

√  Strengthen Corporate Governance Standard

√  Strict Action against defaulting Companies

√  Transparency

JOURNEY SO FAR

NOTIFIED SECTIONS

IMPACT  ON THE SECTIONS

MAJOR IMPACTS

1. “ASSOCIATE COMPANY” [Section 2(6)]{Notified w.e.f. 07^th May, 2018} 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

Explanation. — For the purposes of this clause, “significant influence” means control of at least twenty per cent of total share capital, or of business decisions under an agreement;

Issue in Definition	Total share capital comprises the aggregate of paid up equity share capital and convertible preference share capital. Hence a company may be treated as associate company merely bases on ownership of Optionally convertible redeemable preference shares.
Amended Provision	Significant Influence’ under the definition of Associate Company: Significant influence to mean control of at least 20% of voting power or control or participation in business decision under an agreement.
Implication	After Amendment – To check whether a Company is associate Company or not Only Equity share Capital with Voting Right shall be considered. This Amendment comes in force to remove the ambiguity of considering Convertible Preference share capital to check status as Associate.
Still an Issue	The definition should provide for participation in business decision rather than control thereof. If an investor exercise control over the business decisions, then the company on which the control is exercised is a subsidiary company and not an associate Company.

Food for Thought::

As this Section has been notified whether this will impact preparation of financial statement for the F. Y. ended 31.03.2018

2. SUBSIDIARY COMPANY….[Section 2(87)]{ Notified w.e.f. 07^th May, 2018}

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

(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

Issue in Definition	This definition also results in issues/challenges similar to those for the definition of the term ‘Subsidiary Company’.
Amended Provision	Exercise or control more than one half of the Total Voting Power
Implication	To Check relationship of Holding Subsidiary only Equity Share Capital with Voting Right shall be consider. Preference Share Capital shall not consider.
Alignment	This will align ‘subsidiary’ definition under the 2013 Act with AS 21 Consolidated Financial Statement. However, it will continue to be different from definition under Ind As.
Definition in Ind AS	Under Ind AS an option to convert to equity shares would be considered for deciding if a company is a subsidiary, provided the option is substantive and exercisable when the relevant decisions are to be taken.

Food for Thought::

Company A and B together incorporate a Company ‘C” whether such ‘C’ shall be consider as joint venture Company. If yes Why? If Not Why?

3. HOLDING COMPANY: [Section 2(46)]{ Notified w.e.f. 09^th Feb, 2018}

Holding Company”, in relation to one or more other companies, means a Company of which such companies are subsidiary companies;

Ambiguity	Unlike the definition of the term ‘subsidiary company’, this definition does not contain any reference to a body corporate.
Amended Provision	The definition of the term ‘Holding Company’, the expression “Company” includes any “Body Corporate”.

Quick Question:

Whether Foreign Parent Shall be considered as Holding Company or Not ?

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Whether LLP Shall be Considered as Holding Company or Not ?

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Implication	LLP/ Foreign Co. etc to be considered as ‘Holding Company” if holds more than 50% of voting right in any Company.
We believe it is a minor amendment aimed at correcting an anomaly. It should not have significant financial reporting implication.

4. DEBENTURE[Section 2(30)]{ Notified w.e.f. 09^th Feb, 2018}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.

Ambiguity	the phrase ‘any other instrument of a company evidencing a debt’ has made the definition very broad and included instruments such as commercial papers and other money market instruments, which are often used as an important short-term fund raising source by eligible companies and are well regulated under the RBI regulations
Amended Provision	the term debenture will not include the following: I. Instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934. Chapter III-D of the RBI Act regulates transaction in derivatives, money market instrument, securities etc. Money market instruments include call or notice money, term money, repo, reverse repo, certificate of deposit, commercial usance bill, commercial paper and such other debt instrument of original or initial maturity up to one year as the RBI may specify from time to time. II. Such other instrument, as may be prescribed by the Central Government in consultation with the RBI.
Implication	The term ‘debenture’ will not include money market instruments, which are used for short- term fund raising by eligible Companies and are regulated under the RBI regulations.

5. FINANCIAL YEAR [Section 2(41)]{ Notified w.e.f. 09^th Feb, 2018}

Uniform Financial Year

Section 2 (41) of the 2013 Act required companies, except specified International Financial Services Centre (IFSC) companies, to adopt a uniform accounting year ending 31 March.

However, a proviso to the definition states that a company may apply to the National Company Law Tribunal (Tribunal/NCLT) for adoption of a different financial year if it satisfies the following two criteria:

• It is a holding or subsidiary of a company incorporated outside India.
• It is required to follow a different financial year for consolidation of its financial statement outside India.

Ambiguity	Companies which are associates or joint ventures of a company incorporated outside India did not have right to approach the NCLT for adopting a different financial year-end, though their financial statements were also taken into consideration in the preparation of CFS outside India
Amended Provision	Associate company of a company incorporated outside India can also apply to the NCLT for a different financial year. Hence, the relief will apply to joint ventures also.

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Companies which are associates or joint ventures of a company incorporated outside India can now approach the NCLT for adoption of a different financial year.

6. KEY MANAGERIAL PERSONNEL….[Section 2(51)]{ Notified w.e.f. 09^th Feb, 2018}

“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

Amended Provision	To include (v) “such other officer not more than one level below the directors who is in whole time employment and designated as KMP by the Board
Implication	Board of Directors can appoint a person one level below Director also as KMP.

Which person shall be considered as one level below the Directors?

7. NET WORTH….[Section 2(57)]{ Notified w.e.f. 09^th Feb, 2018}

“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

Amended Provision	To include “AND the Debit or Credit balance of Profit and Loss account in the calculation of Net Worth”.
Implication	Credit balance of P&L will increase the net worth and Debit balance of P&L with decrease the net worth
Net worth of Company reflects the ‘intrinsic value’. Hence this is a clarificatory change, one that was important to make.

8. TURNOVER….[Section 2(91)]{ Notified w.e.f. 09^th Feb, 2018}

“Turnover” means the aggregate value of the realization 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.

Ambiguity	From the definition, it was not clear whether indirect taxes such as excise duty/Goods and Services Tax (GST) will be included in or excluded from turnover
Example: . From a financial reporting perspective, a company collects GST on behalf of the Government and therefore it is excluded from revenue. Consequently, it was not clear whether the determination of turnover under the 2013 Act will be in line with the financial statements or it will be the gross amount received from customer.
Amended Provision	Turnover to mean the gross amount of revenue recognized 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
Implication	Net of Taxes to be Considered. (revenue included GST) Hence, going forward, revenue recognized in the financial statements will be turnover under the statute as well

“Turnover” means the aggregate value of the realization 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.

9. OTHER DEFINITIONS…

Small Company [Section 2(85)] Notified 09.02.2018	To Check the status of Company as Small or not “Turnover should be as per profit and loss account for the immediately preceding financial year” and not as per its last financial year.
Cost Accountant [Section 2(28)] Notified 09.02.2018	Cost Accountant means a person who is a member of the Institute of Cost Accountants of India and who hold a Valid Certificate of Practice.

Amendment in Sections

A.

 New Section 3A- Members Severally Liable certain Cases:

{Notified w.e.f. 9^th February, 2018}

In case Number of Members reduced from Statutory Minimum i.e. 2 in case of Private Limited Company or 7 in case of Public Limited Company, Company carry business for more than 6 month.

Then the member shall be liable for the payment of the whole debts of the Company contracted during that time.

This Section was there in the Companies Act, 1956 Section 45 but was missing from the Companies Act, 2013.

B. PACT ON INCORPORATION OF COMPANY:

I. Alteration in Period of reservation of Name –Section 4(5)(i) – Memorandum:: {Notified}

As per CAA-2017, the name shall be preserved for the following period:

• In case of Incorporation of New Company:Name shall be reserved for the 20 days from the date of approval. (earlier it was available for 60 days)
• In case of Change of Name:Name shall be reserved for the 60 days from the date of approval.

II. Affidavit by Subscriber – Section 7:: {Notified w.e.f. 27^thJuly, 2018}

At the time of incorporation of the company, declaration by each subscriber will be required to be attached instead of an affidavit, as currently provided.

III. Registered Office – Section 12::{Notified w.e.f. 27^th July, 2018}

The company shall within 30 days of its incorporation have registered office instead of current requirement to have registered office on and from the 15 day of its incorporation

Notice of Every Change of the situation of the registered office shall be given to the Registrar within 30 days instead of 15 days.

IV. Authentication of Documents [Section 21]:: {Notified w.e.f. 9^thFeb, 2018}

The change permits Board to authorise any officer or employee of the company for authentication of documents, proceedings and contracts of the Company.

Earlier, any Key Managerial Personnel duly authorized by Board only can authenticate the documents, proceedings and contracts of the Company.

C. IMPACT ON CHARGES:

a. Exemption List of Charges [Section 77]::{Notified w.e.f. 07^th May, 2018}

This section shall not apply to certain charges, as may be prescribed by the Central Government in consultation with the Reserve Bank of India.

(Like: Hypothecations, Pledge etc.)

Food for Thought::

• Whether Company need to create Charge on Hypothecation of Agreement i.e. purchase of Vehicle?
• Whether director of Company has given his property as security for the loan to Company. Whether charge will create on such security or not?

b. Time Period for Satisfaction of Charges [Section 82]::{Notified w.e.f. 05^th July, 2018

Timeline for filing of satisfaction of charge is to be increased to 300 days on payment of additional fee. (Same as creation of charge)

1. Maximum No. of persons to whom offer can be made:  

•  An offer can be made under a Private Placement Offer Letter to not more than 2000 people in a financial year.
• The 20 people limit excludes Qualified Institutional Buyers and Employeesof the Company being offered securities under a scheme of employee stock option in terms of provision of clause (b) of sub section 62(1)

Question:

A. Whether Limit of 200 persons shall be calculated individually/ jointly for each type of securities?

The restriction of 200 persons would be reckoned ‘Individually’ for each kind of security that is ‘Equity Shares, Preference Shares or Debentures’.

2. Right of Renunciation:

The Private Placement offer shall not carry any renunciation right. Only the person in whose name offer letter issued can apply for the subscription.

3. Modes for Payment of Subscription Money:

Subscription money shall be paid either by cheque or demand draft or other banking channel or not by cash. Shares under Private Placement can’t be subscribed by payment in cash.

4. Use of Allotment Money:

A company shall not utilize monies raised through private placement unless allotment is made and the return of allotment (i.e. e-form PAS-3) is filed with the Registrar in accordance with sub-section (8).

This is major change by Amendment Act, 2017. After amendment without filing of e-form PAS-3 for allotment of Shares Company can’t use the funds received from subscription.

Food for Thought::

What shall be the implication if Company use money, before filing of e-form PAS-3?

5. No further offer till completion of earlier offer:

No offer or invitation of security shall be made unless allotments with respect to offer or invitation made earlier in respect of any other kind of security in completed.

6. Separate Bank Account:

The money so received shall be kept in a separate bank account of the company and utilized only for allotment (or repayment).

7. No need of filing of PAS-4 and PAS-5:

There is no need to file GNL form with ROC for Offer Letter in PAS-4 and PAS-5.

8. If not allotted within 60 days:

If allotment is not made within 60 days then till 75th day the monies have to be repaid. Failure to repay has a liability of interest at 12% pa.

b) Allotment of Share at Discount- Section 53::{Notified w.e.f. 9^th February, 2018}

Issuance of shares at discount allowed, subject to the same is issued to creditors when 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.

c) Issue of Sweat Equity Shares- Section 54::{Notified w.e.f. 07^th May, 2018}

It is allowed issue of sweat equity shares at any time after registration of the Company.

Food for Thought::

To whom Company can issue Sweat Equity Shares?

d) Right Issue of Shares- Section 62::{Notified w.e.f. 07^th May, 2018}

The change in the provision relates to the mode of sending the notice for rights offer. Section 62(2) has been relaxed to include courier or other modes of delivery capable of providing proof of delivery.

Right issue of offer letter can be sent through courier also.

E. ANNUAL RETURN

i. The requirement of extract of annual returnto the board‘s report in Form MGT-9 has been omitted.

ii. Sufficient that the web-link of the annual returnbe disclosed in the board‘s report.

iii. Requirement related to disclosing indebtednessomit from the Annual Return.

iv. Changed in theparticular of Annual Return

v. The Central Government may prescribe abridged form ofannual return for One Person Company (‘OPC’), Small Company and such other class or classes of companies as may be prescribe.

• Whether shares are listed on stock exchange
• Particular of Holding Or Subsidiary Companies
• Remuneration to Directors or Key managerial Personnel
• Net worth
• Turnover

Food for Thought::

As this Section has been notified whether this will impact Annual Filing for the F. Y. ended 31.03.2018

vi. Removal of reference of Section 403:{Notified w.e.f. 07^th May, 2018}

Due to this amendment Companies shall be required to file the Annual Return within 60 day of AGM from 61^st day it shall be considered as default. Now the additional time period of 270 days removed from this sub section.

Impact of this Amendment:

In case of company fails to file Annual return within 60 days of AGM

i. Company and the officer shall be liable to fine from the 61^stday itself.

ii. Additional fees shall be Rs. 100/- per day from 61^stDay in case of one time default.

iii. Additional fees shall be double from 61^stDay in case of continue default more than once.

Food for Thought:

What shall be impact on Private Limited Companies if they fail to file Annual Return within 60 days of AGM?

F. General Meeting:

Annual General Meeting- Section 96:: {Notified w.e.f. 13^th June, 2018}

Annual General Meeting (‘AGM’) of 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.

Extra- Ordinary General Meeting- Section 100:: {Notified w.e.f. 07^th May, 2018}

Extraordinary General Meeting (‘EGM’) of wholly owned subsidiary of a company incorporated outside India can be held outside India.

Convening of general meetings at a shorter notice i.e. – Section 101:: {Notified w.e.f. 07th May, 2018}

• In case of an annual general meeting with the consent of at least 95% of the members entitled to vote thereat and

Food for Thought::

As this Section has been notified whether this will impact Annual Filing for the F. Y. ended 31.03.2018

• In case any other general meeting with the consent of at least majority in number (i.e. more than 50%) and 95% (ninety five percent) of such part of the paid up share capital of the company giving a right to vote at such a meeting.

G. Statutory Auditor:

{Notified w.e.f. 7^th May, 2018}

The auditor of a company is appointed by the shareholders at the AGM, for a consecutive period of five years. However, the appointment needs to be ratified each year at the AGM. The 2013 Act was silent on the implications of non-ratification of the auditor appointment at the AGM. In the absence of clarity, the following two views were possible:

• If shareholders do not ratify the appointment of the auditor at the AGM, it would tantamount to removal of the auditor from the office.
• Section 140(1) of the 2013 Act requires that the auditor appointed under section 139 can be removed from its office before the expiry of term only by passing a special resolution of the company at the AGM and after obtaining previous approval from the Central Government

However, The Committee was of the view that a company should not be allowed to remove the auditor merely by non-ratification at the AGM. Rather, it should be required to follow procedures for removal of the auditor before the completion of the five-year term, viz., special resolution at the general meeting and approval from the Central Government

• Ratification of Auditor- Section 139:: {Notified w.e.f. 07^thMay, 2018}

The requirement related to annual ratification of appointment of auditor by members is omitted. This change will avoid potential conflict between two requirements and is supportive of auditor independence

Food for Thought::

What shall be impact of this Amendment on resolution of Annual General Meeting?

This provision is supportive to auditor independence.

• Access of Accounts of Associate Company::

Earlier Holding Company could have the right to access records of associate companies. Auditors of holding company can have access records of associate companies also along with subsidiaries Companies

• Qualification & Disqualification of Auditor- Section 141:: {Notified w.e.f. 09^thFebruary, 2018}

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 will not be eligible for appointment as Auditor.

Services u/s 144(1)

(a) accounting and book keeping services;

(b) internal audit;

(c) design and implementation of any financial information system;

(d) actuarial services;

(e) investment advisory services;

(f) investment banking services;

(g) rendering of outsourced financial services;

(h) management services; and

(i) any other kind of services as may be prescribed

Food for Thought::

Before notification of this provision, if any person was providing these services to Holding/ Subsidiary Companied then what should be the course of Action for the Auditor and Company?

There will be no restrictions in rendering these services to another companies.

• Fine in case of failure to file resignation by Auditor in ADT-3 reduced to 50,000/- or the remuneration of auditor whichever is less.

H. Director:

• For the purpose of Resident Director 182 days to be computed with reference to Financial Year. However, 182 days stay in India in the current financial year and not the previous financial year.{Notified w.e.f. 07^th May, 2018}

Food for Thought::

If a person appointed as Director in Month of October then how to calculate the resident status of Director.

• In case of New Companies requirement of 182 days shall apply proportionately at the end of the financial year. {Notified w.e.f. 07^th May, 2018}

Suggestion: Companies will need to plan in advance so that they are compliant with this requirement at the end of the financial year. In some cases, they may even need to enter into an arrangement with one or more directors so that they stay in India for a minimum 182 days in the financial year.

The requirement of deposit of rupees one lakh with respect to nomination of directors shall not be applicable in case of appointment of independent directors or directors nominated by nomination and remuneration committee or a director recommended by the Board of Directors of the Company, in the case of a company not required to constitute Nomination and Remuneration Committee. (Section 160){Notified w.e.f. 09^th Feb, 2018}

Food for Thought::

Whether Private Companies required to deposit Rs. 100,000/- for appointment of new director?

• Directorship in the Dormant Company shall not be including in the limit of 20 Companies.
• Filing of e-form DIR-11 by retiring Director is Optional. (Section 168) {Notified w.e.f. 07^th May, 2018}
• A person holding directorship in the Company can’t appoint as alternate Director. (Section 161) {Notified w.e.f. 07^th May, 2018}
• Companies may fill casual vacancy by the Board and casual vacancy filed by the Board shall be subsequently approved in the immediate next general meeting. (Section 161) {Notified w.e.f. 09^th Feb, 2018}

• Disqualification for appointment of Director Section 164:{Notified w.e.f. 07^th May, 2018} 

When a Director is appointed in Company which is in default of filling of Financial statement or annual return or repayment of deposits or pay interest or redemption or debentures or payment of interest or redemption of debentures payment of interest thereon or payment of dividend such director shall not incur the disqualification for a period of 6 month from the date of his appointment.

• Vacancy of Office of Director Section 167.{Notified w.e.f. 07^th May, 2018}

If the Director incurs disqualification mentioned in section 164(2), then he shall vacant office in all the Companies other than the Company which is in default.

I. Board Meeting:

a) Presence through video Conferencing: (Section 173){Notified w.e.f. 07^th May, 2018}

Where there is quorum in a meeting through physical presence of directors, any other director may participate through video conferencing or other audio visual means in such meeting on any matter specified under the first proviso (i.e. restricted matters).

Restricted Matters:

(i) the approval of the annual financial statements;

(ii) the approval of the Board’s report;

(iii) the approval of the prospectus;

(iv) the Audit Committee Meetings for consideration of financial statement

(v) the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover

b) Audit Committee: (Section 177){Notified w.e.f. 07^th May, 2018}

Only Every Listed Public Company shall constitute Audit Committee. Companies listed due to debenture listing not required Audit Committee.

c) Nomination & Remuneration Committee:(Section 178) {Notified w.e.f. 07^th May, 2018} Only Every Listed Public Company shall constitute Nomination & Remuneration Committee. Companies listed due to debenture listing not required Nomination & Remuneration Committee.

J. Director Report

{Notified w.e.f. 31^stJuly, 2018}

• The requirement of the extract of the annual return in Form MGT-9 to be included in the board‘s report has been omitted, instead web address or link of the annual return to be provided in Board Report.

Food for Thought::

Whether Companies required preparing MGT-9 in relation to Annual Filing for the F.Y. ended 31.03.2018?

• Disclosures which have been provided in the financial statement shall not be required to be reproduced in the report again (like: Section 186, 188)
• Instead of exact text of the policies, key feature of policies along with its web link shall be disclosed in Board report.
• Abridge Board Report for Small Companies and OPC

Disclosures to be mentioned in Directors’ Report:

a) The web address, if any, where annual return referred to in sub-section (3) of section 92 has been placed;

b) Number of Meeting of Board of Directors

c) Directors responsibility statement as referred in sub-section 5 of section 134

d) Details in respect of frauds reported by auditors under sub-section (12) of section 143 other than those which are reportable to the Central Government.

e) Explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report.

f) The state of the Company’s affairs;

g) The financial summary and highlights;

h) Material changes from the date of closure of the financial year in the nature of business and their effect on the financial position of Company.

i) The details of directors who were appointed or have resigned during the year;

j) The details or significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company’s operation in future.

K. Financial Statement:

• Sign of Financial Statement: {Notified w.e.f. 07^thMay, 2018}

CEO whether appointed as director or not will sign the financial statement. Therefore, now onwards CS, CFO and CEO all three are required to sign the financial statement mandatory.

Food for Thought::

Whether it is mandatory for the Directors of the Company to sign financial statement in case Company having CEO/CFO or CS?

As this Section has been notified whether this will impact Annual Filing for the F. Y. ended 31.03.2018

• Unaudited Foreign Subsidiary financials:

Allowed the filing of unaudited financial statements of foreign subsidiary which is not required to get its accounts audited along with a declaration to that effect.

• Placement of Financial of Subsidiary on website:

Only listed Companies having a subsidiary or subsidiaries will be required to place separate audited accounts in respect of each of subsidiary on their website, if any. This requirement will not apply to non-listed Companies.

• Inspection of Subsidiary Financials:

Both listed and non-listed companies will be required to provide subsidiary financial statements to a member of the Company who asks for it.

• Removal of reference of Section 403:Due to this amendment Companies shall be required to file the Financial Statement within 30 day of AGM from 31^st day it shall be considered as default. Now the additional time period of 270 days removed from this sub section.

In case of company fails to file Financial Statement within 30 days of AGM Company and the officer shall be liable to fine from the 31^st day itself.

L. DEPOSIT (Section 73-76)

{To be notified w.e.f. 15^th August, 2018}

• A Company accepting deposit will be required to deposit and keep in a schedule bank the amount which is not less than 20% of the amount of deposits maturing during the current financial year.

There will be no need to deposit any amount in respect of deposits maturing in the next financial year.

• Deposit Insurance:Requirement of providing Deposit Insurance Omit.
• The Companies Law Committee observed that this requirement was too harsh on companies which may have defaulted due to reasons beyond their control, such as industry conditions at some point of time in the past but have repaid such deposits with earnest efforts thereafter. Imposing a lifelong ban for a default anytime in the past would be inappropriate.
• Company which had defaulted in repayment of deposits can also accept deposit after a period of 5 years from the date of making good the default.

M. Loan to Director:

Notified w.e.f. 07^thMay, 2018}

Section 185 has been completely re-written under the Companies Amendment Act, 2017. This Section limits the prohibition on loans, advances, guarantee, Security etc., to any person in which any of the directors are interested.

New  amended Section 185 (1)

• 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 partner.

However, following loan can be given by company to any person in whom directors are interested after fulfilling the conditions mentioned below:

• Advance any loan, including loan represented by a book debt
• Give any guarantee
• Provide any security in connection with any loan taken

Conditions:

a) Special Resolution passed by the Company in General Meeting

b) The loans are utilized by the borrowing company for its principal business activities.

Sub-section 3: Nothing contained in sub-section (1) and (2) shall apply to–

Clause (a): Loan to Managing Director  & Whole Time Director:

There are two ways to give Loan to Managing and Whole Time Director. The exception is extended to a particular class of directors, i.e. to the managing or whole-time directors only.

i. Loan can be given to a Managing or Whole-Time Director as a part of the condition of their service.

Condition:  Conditions should be available for all the employees of the Company.

ii. Loan can be given to a Managing or Whole-Time Director pursuant to any Scheme.

Condition:  Scheme should be approved by Shareholders by passing of Special Resolution.

Example: The Companies pass a resolution for appointment of Managing Director and it approves the terms and conditions of its appointment and if as a part of its terms, there is a loan which can be given to that director, then it falls under the exception given in section 185 of the Act.

Clause (b): Loan in Ordinary Course of Business:

A 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; or.

Clause (c): Loan by holding Company to its wholly own subsidiary Company:

Any loan made by a Holding Company to its Wholly own Subsidiary Company or any guarantee given or security provided by a Holding Company in respect of any loan made to its wholly own subsidiary Company.

Clause (d): Guarantee and Security by holding Company to its subsidiary Company:

Any guarantee given or security provided by a Holding Company in respect of Loan made by any Bank or financial institution to its subsidiary Company.

Condition: loan made under this clause utilized by the subsidiary company for its principal business activity only.

Section 186: {Notified w.e.f. 07^th May, 2018}

For the purpose of this section excludes employees so that loan given to them part of condition of service are not covered under this section.

Wholly own Subsidiary:

No need to pass Special Resolution in case of Loan/ Guarantee/ Security provides by a Company to its Wholly Own Subsidiary Company.

A. List of Restricted Person:

A Company can’t give Loan/ Guarantee/ Security to following below mentioned person:

I. Not Allowed

i. Any director of Company, or

ii. Any director of a Company which is its Holding Company, or

iii. Any partner of Director of lender company, or

iv. Any relative of Directors of Lender Company, or

v. Any firm in which any of Director of Lending Company is Director, or

vi. Any firm in which any relative of Director of lending Company is Director

II. Not Allowed if fails to pass special resolution:

i. Any Private Company of which any such Director is a Director or member;

ii. Body Corporate in which 25% or more voting power rests with one or more directors;

iii. Body Corporate whose Board accustomed to act on directions of BOD or Directors of lending company

B. List of Permissible Person:

III. Allowed if, Special Resolution Passed:

i. Any Private Company of which any such Director is a Director or member;

ii. Body Corporate in which 25% or more voting power rests with one or more directors;

iii. Body Corporate whose Board accustomed to act on directions of BOD or Directors of lending company

Note:

Loan to above mentioned entities are allowed after fulfilling below mentioned both conditions:

i. Special Resolution passed by the Company in General Meeting.

ii. The loans are utilized by the borrowing company for its principal business activities.

IV. Allowed without falling u/s 185(1) and (2):

i. Loan to Managing Director or Whole Time Director.

ii. L/G/S under ordinary course of business.

iii. L/G/ S to wholly owned subsidiary Company

iv. Loan to Subsidiary Company.

V. Allowed without falling u/s 185:

i. Loan to any Public Company (having common Director/ Shareholder or not).

ii. Private Company fulfilling all 3 conditions mentioned in Exemption Notification dated: 05^thJune, 2015.

iii. Guarantee / Security provided for the purpose other than loan taken by other entity.

iv. Loan to Holding Company (subject to condition that holding Company doesn’t have common directors)

v. Loan to Subsidiary Companies (subject to condition that subsidiary Company doesn’t have common directors)

Note:

Above mentioned entities are not fall u/s 185, therefore Company can give Loan/ Guarantee/ Securities to above mentioned entities freely without any restriction / compliance of Section 185.

N. Change in Filing Fees:

{Notified w.e.f. 07^thMay, 2018}

A. Additional Late Filing Fees:in sub-section (1), for the first and second provisos, the following provisos shall be substituted:

Effect of new proviso:

If Company fails to file Annual Return u/s 92 and Financial statement u/s 137 within time prescribed under their specific sections “without prejudice to any other legal action or liability under this act,” it may be submitted by payment of additional fees “which shall not be less than INR 100/- (Rupees Hundred) per day” and different amount may be prescribed for different classes of Companies.

• If company fails to file any other documents, facts, information etc other than section 92 and 137 “without prejudice to any other legal action or liability under this act,” it may be submitted by payment of additional fees as may be prescribed.

HIGHER ADDITIONAL FEES: New concept of higher additional fees has been introduced. As per this proviso

– Where there is default on Two or More occasions in submitting, filling, registering, recorded of documents,

– without prejudice to any other legal action or liability under this act,

– may be file with “Higher Addition Fees”

– as may be prescribed and

– which shall not be lesser than “twice the additional fee provided under first and second proviso”

Due to above mention proviso if company fails to file any form with in time prescribed under its specific section and company made the default TWO or “MORE OCCASION” then additional fees for filing of from shall be “TWICE of ADDITIONAL FEES

In case Companies fails to file Annual forms for Any Previous Financial years whether under Companies Act, 1956/ 2013 till 30^th  June, 2018. In such case Company have to pay additional fees as per these rules.

Following below mentioned annual filing forms:

S. No.	Forms	Purpose of Filing	Section Involved
1.	AOC-4 (including AOC-4 XBRL, AOC-4 CFS 23AC,ACA)	Filing of Financial Statements	Section 137	Within 30 days of AGM
2.	MGT-7 (Including 20B)	Filling of Annual Return	Section 92	Within 60 days of AGM

What shall be additional Fees in above mentioned Situation?

A. Filing of Annual Form for f.y. ended on or before 31^stMarch, 2018

B. Company having capital of Rs. 100,000/- and date of AGM 30.09.2018.

Additional Fees shall be as follow:

Actual Filing Date	Actual Fees	Total Till 29th October	From 1st October, 2018 Rs. 100/- per day	Total Fees
29th October, 18	Rs. 300	300	0	300
30th October, 18	Rs. 300	300	100	400
28th November, 18	Rs. 300	300	3,000	3300
28th December, 18	Rs. 300	300	6000	6300

O. Remuneration to Managerial Personnel:Section 197)

Food for Thought::

Whether there is any restriction for Remuneration to Directors of Private Limited Companies?

Section 197(1):

The total managerial remuneration payable by a Public Company, to its:

i. Directors, and

ii. Managing Director and

iii. Whole-Time Director, and

iv. Manager

in respect of any financial year shall not exceed eleven per cent. of the net profits of that company for that financial year computed in the manner laid down in section 198 except that the remuneration of the directors shall not be deducted from the gross profits.

However, such limits may be exceeded with the approval of the shareholders and the Central Government.

Currently, the laws in countries such as the US, the UK and Switzerland do not require a company to approach government authorities for approving remuneration payable to their managerial personnel, even in a scenario where the company has losses or inadequate profits.

Companies Amendment Act, 2017 The word “with the approval of Central Government” removed from every place under this section.

• No need approval of CGfor payment of remuneration more than 11% of net profit,
• No need of CG approvalof recovery of any sum refundable from director.

Inadequate Profit: No need of CG approval for remuneration in situation of no profit or inadequate profit. In such case remuneration shall be paid according to Schedule V.

PART II	SECTION II	SCHEDULE V
Remuneration payable by companies having no profit or inadequate profit

Above mentioned section of part II States about remuneration to Directors including MD/WTD / Manager.

No Profit: This is situation when Company is in loss, it doesn’t have any profit in its financials.

Inadequate Profit: This is situation when Company is having sufficient profit in its financials for payment of remuneration. However, profit is not sufficient to cover in limit of 11% of net profit. Exp.

S. No.	Profit Amount	11% of Profit	Remuneration want to pay	Remark
i.	1,00,00,000	11,00,000	50,00,000	Inadequate Profit
ii.	1,50,00,000	16,50,000	17,00,000	Inadequate Profit
iii.	50,00,000	550,000	500,000	Sufficient
iv.	0	0	50,00,000	No Profit

As per Schedule V, Part II, Section II company can pay remuneration more than 11% by following the below mentioned:

Company by passing of Ordinary Resolution in General Meeting can pay remuneration upto below mentioned limit:

Where the effective capital is	Limit of yearly remuneration payable shall not exceed (Rupees)
(i) Negative or less than 5 crores	60 Lakhs
(ii) 5 crores and above but less than 100 crores	84 Lakhs
(iii) 100 crores and above but less than 250 crores	120 Lakhs
(iv) 250 crores and above	120 lakhs plus 0.01% of the effective capital in excess of Rs. 250 crores:

Company by passing of Special Resolution in General Meeting can pay remuneration ANY AMOUNT without any limit:

For payment of remuneration as per above mention Limit of Section II Company have to comply with following conditions:

i. Board Resolution:payment of remuneration is approved by a resolution passed by the Board and, in the case of a company covered under sub-section (1) of suction 178 also by the Nomination and Remuneration Committee

ii. No Default:the company has not committed any default in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, and in case of default, 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.

iii. General Meeting:an ordinary resolution or a special resolution, as the case may be, has been passed for payment of remuneration as per item (A) or (B), at the general meeting of the company for a period not exceeding three years.

iv. Notice of General Meeting:a statement along with a notice calling the general meeting referred to in clause (iii) is given to the shareholders containing the following information as mention in schedule:-

v. Company Secretary Certificate:

The auditor or the Secretary of the company or where the company is not required to appointed a Secretary, a Secretary in whole-time practice shall certify that the requirement of this Schedule have been complied with and such certificate shall be incorporated in the return filed with the Registrar under sub-section (4) of section 196.

Food for Thought::

If a Person is holding position as director of Private Limited Company and having position as employee of Company. Whether such person shall be considered as Director or Whole Time Director.

P. OTHERS

A. Conversion of Partnership firm or LLP into Company: (Section 366)

{To be notified w.e.f. 15^th August, 2018}

Now it is allow converting the partnership firm, LLP etc with 2 or more partners into private company.

B. “Section 446A – Factor for determining level of punishment”{ Notified w.e.f. 09^th Feb, 2018}

According the this Section the Court or Special Court while deciding the amount of fine or imprisonment under this Act, shall have due regard to the following factors, namely

(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

Note: After the amendments court shall consider the factors for penalize the Company. It is a good move to consider the different-2 factors for penalty in case of non –compliance.

C. “Section 446B – Lesser penalties for One Person Companies or Small Companies” { Notified w.e.f. 09^th Feb, 2018}

In this section relief to OPC and Small Companies i.e. in case of failure to comply with provisions of

• Section 117(2)(c) – Resolution and Agreement to be filed
• Section 137(3) – Copy of Financial statement to be filed
• Section 92(5) – Annual Return

In case of default, such company and officer in default of such company shall be punishable with fine or imprisonment or fine and imprisonment, as the case may be, which shall not be more than one-half of the fine or imprisonment or fine and imprisonment, as the case may be, of the minimum or maximum fine or imprisonment or fine and imprisonment, as the case may be, specified in such sections.

D. Postal Ballot: {Notified w.e.f. 07^thMay, 2018}

Companies which are mandatorily required to provide electronic voting facility, to transact item in general meeting, can transact business of postal ballot also through electronic voting.

LIST A

MCA has notified below mentioned 5 sections of Companies Amendment Act, 2017 w.e.f. 12^th September, 2018. 

S. No.	Section No. of Amendment Act, 2017	Section No. of Companies Act, 2013	Particular of Section
1.	Section 66	Section 196	Appointment of Managing Director, Whole-time Director or Manager
2.	Section 67	Section 197	Overall Maximum Managerial Remuneration and Managerial Remuneration in Case of Absence or Inadequacy of Profits
3.	Section 68	Section 198	Calculation of Profits
4.	Section 69	Section 200	Central Government or Company to Fix Limit with Regard to Remuneration
5.	Section 70	Section 201	Forms of, and Procedure in Relation to, Certain Applications

LIST B

MCA has notified below mentioned 4 sections of Companies Amendment Act, 2017 as follow

S. No.	Section No. of Amendment Act, 2017	Section No. of Companies Act, 2013	Notification Date	Particular of Section
6.	Section 37	Section 135	19th September, 2018	Corporate Social Responsibility
7.	Section 10	Section 42	07th August, 2018	Issue of shares on Private Placement Basis
8.	Section 36	Section 134	31st July, 2018	Financial Statement and Board Report
9.	Section 5	Section   7	27th July, 2018	Incorporation of Company
10.	Section 6	Section 12	27th July, 2018	Registered office of Company

LIST C

MCA has notified below mentioned 4 sections of Companies Amendment Act, 2017 w.e.f. 15th August, 2018. 

S. No.	Section No. of Amendment Act, 2017	Section No. of Companies Act, 2013	Section No. of Companies Act, 2013
11.	Section 15	Section 73	Prohibition on Acceptance of Deposits from Public
12.	Section 16	Section 74	Repayment of Deposits, etc., Accepted Before Commencement of this Act
13.	Section 75	Section 366	Companies Capable of Being Registered
14.	Section 76	Section 374	Obligations of Companies Registering Under this Part

LIST D

MCA has notified below mentioned 1 sections of Companies Amendment Act, 2017 w.e.f. 5thJuly, 2018.

S. No.	Section No. of Amendment Act, 2017	Section No. of Companies Act, 2013	Particular of Section
15.	Section 20	Section 82	Company to Report Satisfaction of Charge.

LIST E

MCA has already notified below mentioned 5 sections of Companies Amendment Act, 2017 w.e.f. 13th June, 2018.

S. No.	Section No. of Amendment Act, 2017	Section No. of Companies Act, 2013	Particular of Section
16.	Section 22	Section 90	Register of Significant beneficial owners in a Company
17.	Section 24	Section 93	Return to be filed with Registrar in case promoters’ stake change
18.	Section 25	Section 94	Place of Keeping and inspection of registers, returns etc.
19.	Section 26	Section 96	Annual General Meeting
20.	Section 71	Section 216	Investigation of ownership of Company

LIST F

MCA has already notified below mentioned 28 sections of Companies Amendment Act, 2017 w.e.f. 7th May, 2018.

S. No.	Section No. of Amendment Act, 2017	Section No. of Companies Act, 2013	Particular of Section
21.	Section 2 Clause (i) and (xiii)	Section 2	Definitions
22.	Section 8	Section 26	Matter to be stated in Prospectus
23.	Section 13	Section 54	Issue of Sweat Equity Shares
24.	Section 18	Section 77	Duty to Register charge
25.	Section 19	Section 78	Application for registration of charge
26.	Section 21 Clause (i) (ii)	Section 89	Declaration in respect of beneficial interest in any share
27.	Section 23 clause (iii) & (iv)	Section 92	Annual Return
28.	Section 30	Section 117	Resolution and agreements to be filed
29.	Section 31	Section 121	Report on Annual General Meeting
30	Section 33	Section 129	Financial Statement
31.	Section 39	Section 137	Copy of financial statement to be filed with Registrar
32.	Section 40	Section 139	Appointment of Auditors
33.	Section 46	Section 149	Company to have Board of Directors
34.	Section 49	Section 157	Company to inform Director identification Number to Registrar
35.	Section 52	Section 164	Disqualifications for appointment of Director
36.	Section 54	Section 167	Vacation of office of Director
37.	Section 55	Section 168	Resignation of Director
38.	Section 56	Section 173	Meeting of Board
39.	Section 57	Section 177	Audit Committee
40.	Section 58	Section 178	Nomination and Remuneration Committee and Stakeholders Relationship Committee
41.	Section 61	Section 185	Loan to Directors
42.	Section 62	Section 186	Loan and investment by Company
43.	Section 80 Clause (i) (ii)	Section 403	Fee for Filing etc
44.	Section 83	Section 410	Constitution of Appellate Tribunal
45.	Section 86	Section 435	Establishment of Special Courts
46.	Section 87	Section 438	Application of code of proceedings before special court
47.	Section 88	Section 439	Offences to be non-cognizable
48.	Section 89	Section 440	Transitional provisions

LIST G

MCA has already notified below mentioned 43 sections of Companies Amendment Act, 2017 w.e.f. 9th February, 2018.

S. No.	Section No. of Amendment Act, 2017	Section No. of Companies Act, 2013	Particular of Section
	Section 2	Section 2	Definations (except definition of Associate & Subsidiary)
49.	Section 3	New Section 3A	Member severally liable in certain cases
50.	Section 7	Section 21	Authentication of Documents, Proceeding & Contracts
51.	Section 9	Section 35	Civil Liability for mis-statement in prospectus
52.	Section 11	Section 47	Voting Right
53.	Section 12	Section 53	Prohibition on issue of shares at discount
54.	Section 14	Section 62	Further issue of share capital
55.	Section 17	Section 76A	Penalty on Deposit
56.	Section 27	Section 100	Calling of extra ordinary general meeting
57.	Section 28	Section 101	Notice of Meeting
58.	Section 29	Section 110	Postal Ballot
59.	Section 32	Section 123	Declaration of Dividend
60.	Section 34	Section 130	Re opening of accoiunts of courts or tribunals order
61.	Section 35	Section 132	Constitution of National financial reporting authority
62.	Section 38	Section 136	Right of members to copies of audited financial statement
63.	Section 41	Section 140	Removal, resignation of auditor
64.	Section 42	Section 141	Eligibility, qualifications and disqualification of auditors
65.	Section 43	Section 143	Power and duties of auditors and autiding standards
66.	Section 44	Section 147	Punishment for contravention
67.	Section 45	Section 148	Central govt. to specify audit of items of cost in respect of certain companies
68.	Section 47	Section 152	Appointment of Directors
69.	Section 48	Section 153	Application of allotemnt of DIN
70.	Section 50	Section 160	Right of persons other than retiring directors to stand for directorship
71.	Section 51	Section 161	appointment of additional director, alternate director and nominee director
72.	Section 53	Section 165	Number of directorship
73.	Section 59	Section 180	Restrictions of power of board
74.	Section 60	Section 184	Disclosure of interest by Director
75.	Section 63	Section 188	Related party transaction
76.	Section 65	Section 195	Prohibition on insider trading of securities
77.	Section 64	Section 194	Prohibition on forward dealings in securities  of company by director or key managerial personnel
78.	Section 72	Section 223	Inspector’s Report
79.	Section 73	Section 236	Purchase of minority shareholding
80.	Section 74	Section 247	valuation by registered valuer
81.	Section 77	Section 379	Application of act to foreign companies
82.	Section 78	Section 384	Debentures, annual return, registered of charge, books of account
83.	Section 79	Section 391	Application of section 34 to 36 and chapter XX
84.	Section 82	Section 409	Qualification of president and member of tribunal
85.	Section 84	Section 411	Qualification of chair person and member of appellate tribunal
86.	Section 85	Section 412	Selection of members of Tribunal and appellate tribunal
87.	Section 90	Section 441	Compounding of certain offences
88.	Section 91	Section 446	Insertion of new section 446A and 446B
89.	Section 92	Section 447	Punishment for fraud
90.	Section 93	Section 458	Delegation by central government of its powers and functions

(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).