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Analysis of Companies Amendment Act, 2015

TG Team 29 May 2015 8,467 Views 0 comment Print Company Law | Articles

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Companies (Amendment) Bill, 2014: A Lost Opportunity?

The Companies Act is considered to be the ‘Gita’ for the Indian corporate world; it is the basic piece of legislation that shapes the way in which business is carried out and conducted in the country. However, the Companies Act, 2013, (‘Act’) which was notified on 29^th August, 2013 was a far cry from this expectation. Though the Act is the principal piece of legislation, most of the gap-fillings in the Act were left in the hands of a subordinate legislation which was supposed to be introduced in the form of Rules, empowering the MCA to mould the law of the land at its discretion. With most of the determining factors left to be decided by way of Rules, in spirit, the Act itself became a subordinated law.

The Act consists of 470 sections, of which 283 sections and 22 sets of Rules corresponding to such sections have so far been brought into force in two phases – one on 12th September, 2013 and the other on 1st April, 2014. Due to such hurried implementation of the Act, many loopholes and ambiguous provisions remained unattended, which created massive difficulties and interpretational issues for the corporate world. The Rules that were introduced to supplement the Act, were an attempt to rewrite the Act itself and did a poor job of stitching together the gaps left in the Act. The Rules created various inconsistencies with the provisions of the Act which left the business environment baffled with the thought of how to cope up with new piece of poor legislation.

Thus came in the MCA’s clarificatory spree. At times, the MCA seemed to assume the role of the lawmaker of the land. For every hitch in the implementation of the Act one new circular or notification or clarification was brought into effect every other day, seeking to amend or substitute some ill-placed rule or to clarify the intent of the Act. With loose drafting, at times such ‘clarifications’ created more confusion than resolving the issue. Some of these were more difficult to interpret than the Rules themselves. The Act, instead of facilitating the ease of doing business, created more restraints and ambiguity. India’s position in the World Bank’s Report of ‘Doing Business 2015’ slipped to 142 spot from 140 last year, out of 189 countries assessed.

Looking at the practical difficulties in complying with some of the requirements laid down in the Act and upon issues and suggestions made by various stakeholders, the new Government has decided to amend certain provisions of the Act for ease of doing business and has introduced the Companies (Amendment) Bill, 2014 which was placed before the lower house of the Parliament. The Companies (Amendment) Bill 2014, introduced by Finance Minister Arun Jaitley, proposed as many as 21 changes in various provisions of the Act, which was passed by the previous UPA regime. This Bill received the approval of both Houses of Parliament and finally received the assent of the President of India on 25^th of May, 2015.

The Article below discusses at length the amendments and a critical take on the same.

Amendments brought in by the Companies Amendment Act, 2015

We have categorized the changes into two groups depending upon their impact on the ease of doing business and other clarificationary changes.

Major Changes

For the purpose of ease of doing business, the following major changes are brought about in the new Act:

i) Requirement of having a common seal of the company upon incorporation has been made non-mandatory.

ii) Minimum paid up capital requirement for public and private companies has been done away with.

iii) Requiring only ordinary resolutions for approval of related party transactions at general meetings instead of special resolution;

iv) Related Party Transactions(RPT) between holding company and its wholly owned subsidiary would no longer require members’ approval, even of the holding company.

v) Allowing omnibus approvals by the Audit Committee for RPTs ;

vi) Providing a ‘material’ limit for reporting of frauds to the Central Government.

Other changes

i) Adding penal provisions for non-compliance with deposit provisions, which were absent from the existing provisions;

ii) Writing off past losses/depreciation before declaring dividend for the year;

iii) Incorporating the exemptions under the rules to section 185 in the Act itself as a precautionary measure;

iv) Special courts to try only offences carrying imprisonment of two years or more;

v) Winding up cases to be heard by 2-member Bench instead of a 3-member Bench;

vi) Minimum paid up share capital requirement has been done away with;

vii) While laying any draft notification before each House of Parliament, the explicit mention of number of sessions in which the same may be approved/ disapproved has been done away with.

The various changes to the Act and their probable impact have been dealt in detail in the table below:

Sl. No.		Section No.		Pertains To	Earlier Provision		Post Amendment			Effects
To omit the requirement for minimum paid-up share capital, and consequential changes:
1.		2 (68)		Definition of private Company	“private company” means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed,		The words “of one lakh rupees or such higher paid-up capital,” shall be omitted. Consequently the revised para would be: “private company” means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed,			For the ease of doing business in the country the requirement of having a minimum paid up capital for private companies (Rs. 1 lakh) and public companies (Rs. 5 lakh) is proposed to be done away with. However the MCA has reserved the right to specify the same by way of its rule making authority. As a result of the omission of the requirement of having a minimum paid up capital, special purpose vehicles can now be formed with a paid up capital of Rs. 2 as well, which provision is present in various countries.
2.		2 (71) (b)		Definition of Public Company	“public company” means a company which— (b) has a minimum paid-up share capital of five lakh rupees or such higher** paid-up capital, as may be prescribed:		The words “of five lakh rupees or such higher paid-up capital,” shall be omitted. Consequently the revised para would be: “public company” means a company which— (b) has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital**, as may be prescribed:
3.		11		Commencement of business	(1) A company having a share capital shall not commence any business or exercise any borrowing powers unless— (a) a declaration is filed by a director in such form and verified in such manner as may be prescribed, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him and the paid-up share capital of the company is not less than five lakh rupees in case of a public company and not less than one lakh rupees in case of a private company on the date of making of this declaration; and (b) the company has filed with the Registrar a verification of its registered office as provided in sub –section (2) of section 12.		This section has been omitted.			This amendment will not require the director to file declaration and the requirement to file verification of its registered office is also done away with . It is in line with the amendment related to minimum paid-up share capital. This will lead to lesser amount of documentation on the part of the Company.
For making common seal optional, and consequential changes for authorisation for execution of documents
4.		9		Requirement of Common Seal upon registration	From the date of incorporation mentioned in the certificate of incorporation, such subscribers to the memorandum and all other persons, as may, from time to time, become members of the company, shall be a body corporate by the name contained in the memorandum, capable of exercising all the functions of an incorporated company under this Act and having perpetual succession and a common seal with power to acquire, hold and dispose of property, both movable and immovable, tangible and intangible, to contract and to sue and be sued, by the said name.		The words ‘and a common seal’ shall be omitted.			Another major change has been introduced by removing the requirement of having a common seal by the company upon its incorporation. This change will bring about a fundamental change in the nature of companies and the ways in which it functions. A common seal is a stamp of the company. Since a company is an artificial person it cannot sign on its own and the common seal was considered to be its approval for any agreement. The affixation of the common seal on any document made it legally binding on the company. However, the requirement of affixation of the common seal of the company in each and every document for it to be legally binding on the company posed operational difficulties for the company as the law lays down elaborate procedure for affixation of such common seal on documents. Hence for the purpose of ease of doing business in the country, the requirement of having a common seal is being optional and a signature by its officers would suffice for legally binding the company.
5.		12 (3) (b)		Registered office of the company	Every company shall— (b) have its name engraved in legible characters on its seal**;		The clause shall be substituted with the following: “Every company shall— ** (b)have its name engraved in legible characters on its seal, if any;”			This change is being brought about to bring it in line with the proposal of optionality of having a common seal.
6.		22 (2)		Execution of Bill of exchange, etc.	A company may, by writing under its common seal, authorise any person, either generally or in respect of any specified matters, as its attorney to execute other deeds on its behalf in any place either in or outside India.		(a) for the words “under its common seal”, the words “under its common seal, if any,” shall be substituted; (b) the following proviso shall be inserted, namely:— “Provided that in case a company does not have a common seal, the authorisation under this sub-section shall be made by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary.”			This change is being brought about to bring it in line with the proposal of optionality of having a common seal by the company. The proposed amendment goes on to provide that where the company does not have a common seal, the authorization provided by 2 directors or 1 director and a company secretary, if any.
7.		22 (3)		Execution of Bill of exchange, etc.	A deed signed by such an attorney on behalf of the company and under his seal shall bind the company and have the effect as if it were made under its common seal.		The words ‘‘and have the effect as if it were made under its common seal”, shall be omitted.			This change is being brought about to bring it in line with the proposal of optionality of having a common seal and binding the company with the signature of the power of attorney holder and his seal.
8.		46 (1)		Certificate of shares	A certificate, issued under the common seal of the company, specifying the shares held by any person, shall be prima facie evidence of the title of the person to such shares.		For the words “issued under the common seal of the company”, the words “issued under the common seal, if any, of the company or signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary” shall be substituted.			This change is being brought about to bring it in line with the proposal of optionality of having a common seal. Where the company does not have a common seal, the share certificates can be signed by either 2 directors or 1 director and a company secretary, if any.
9.		223 (4) (a)		Inspectors Report	(4) The report of any inspector appointed under this Chapter shall be authenticated either— (a) by the seal of the company whose affairs have been investigated; or		In clause (a) of sub-section (4), for the words “by the seal“, the words “by the seal, if any,” shall be substituted.			This change is being brought about to bring it in line with the proposal of optionality of having a common seal.
To provide for punishment for deposits accepted in violation of the provisions of the Act
10.		76		Acceptance of deposits from public by certain companies	Is a new insertion and hence no corresponding provision.		New insertion of Section 76A: “76A. Where a company accepts or invites or allows or causes any other person to accept or invite on its behalf any deposit in contravention of the manner or the conditions prescribed under section 73 or section 76 or rules made thereunder or if a company fails to repay the deposit or part thereof or any interest due thereon within the time specified under section 73 or section 76 or rules made thereunder or such further time as may be allowed by the Tribunal under section 73,— (a) the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than one crore rupees but which may extend to ten crore rupees; and (b) every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees, or with both: Provided that if it is proved that the officer of the company who is in default, has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be liable for action under section 447.”			The penal provisions for non-compliance with the provisions of Section 74 i.e. dealing with repayment of existing deposits under the new Act has been provided for in Sections 74 and 75. However the penal consequences for non-compliance with the deposit provisions in general as laid down in Sections 73 and 76 was missed out from the Act and as well as the Rules. This glaring gap was already represented by us to the Ministry vide our letter dated 20^th August, 2013. On the same lines, the Act introduces a new section 76A for providing for the penal charges for failing to comply with sections 73 and 76. These charges are similar to those prescribed under sections 74 and 75 of the Act, as discussed above and would also attract fraud liability under section 447.
To prohibit public inspection of Board resolutions filed in the Registry
11.		117 (3) (g)		Resolution and agreement to be filed.	(3) The provisions of this section shall apply to— (g) resolutions passed in pursuance of sub-section (3) of section 179; and**		(i) in clause (g), the word ‘‘and’’ shall be omitted; (ii) new proviso inserted after clause (g): “Provided that no person shall be entitled under section 399 to inspect or obtain copies of such resolutions; and”			Section 399 of the Act provides any person the right to electronically inspect any document filed or registered with the RoC by companies on payment of prescribed inspection fees. This amendment prohibits such public inspection of Board resolutions filed by companies in Form MGT-14 with the RoC. This amendment was actually not required if the lawmakers, at the first instance, removed the requirement of filing of Board resolutions with the form. Board resolutions are private internal company matters and public should not be given access to these documents. Instead of doing away with such a practice of uploading Board resolutions, the lawmakers are going ahead with amendment of the law itself.
Dividend Related
12.		123 (1)		Declaration and Payment Of Dividend	Rule 5 of the Companies (Declaration and Payment of Dividend) Rules, 2014: ‘No company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company of the current year.’		A fourth proviso to sub-section (1) is being added, as follows: “Provided also that no company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company for the current year.”			This amendment to the Act is already appearing in Rule 5 of the Companies (Declaration and Payment of Dividend) Rules, 2014, which was amended w.e.f. 12^th June, 2014. The amendment is merely incorporating the provisions contained in the Rules, in the Act itself.
13.		124 (6)		Unpaid dividend Account	All shares in respect of which unpaid or unclaimed dividend has been transferred under sub-section (5) shall also be transferred by the company in the name of Investor Education and Protection Fund along with a statement containing such details as may be prescribed: Provided that any claimant of shares transferred above shall be entitled to claim the transfer of shares from Investor Education and Protection Fund in accordance with such procedure and on submission of such documents as may be prescribed.		(i) For the words, brackets and figure “unpaid or unclaimed dividend has been transferred under sub-section (5) shall also be”, the words “dividend has not been paid or claimed for seven consecutive years or more shall be” shall be substituted; (ii) New ‘Explanation’ inserted after the proviso: “Explanation.—For the removals of doubts it is hereby clarified that in case any dividend is paid or claimed for any year during the said period of seven consecutive years, the share shall not be transferred to Investor Education and Protection Fund.’’			This amendment seeks to rectify the requirement of transferring equity shares for which unclaimed/unpaid dividend has been transferred to the IEPF even though subsequent dividend(s) has been paid or claimed during the said period of 7 consecutive years. This means that suppose dividend on 100 shares remains unclaimed in 2005-06. As per the existing provisions, the unclaimed dividend is required to be transferred to the IEPF after 7 years and once the same are transferred, the 100 shares will also be transferred. However, the amendment says that if dividend has been paid / claimed in any of the 7 consecutive years following the year 2005-06, then such shares will not be liable to be transferred. Note that Section 124 is not yet enforced.
Reporting of Frauds related and consequent impact on the Board’s Report
14.		143 (12)		Powers and duties of auditors and auditing standards	(12) Notwithstanding anything contained in this section, if an auditor of a company, in the course of the performance of his duties as auditor, has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government within such time and in such manner as may be prescribed.		For the existing sub-section (12) the following sub-section is being substituted: “(12) Notwithstanding anything contained in this section, if an auditor of a company in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving such amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed: Provided that in case of a fraud involving lesser than the specified amount, the auditor shall report the matter to the audit committee constituted under section 177 or to the Board in other cases within such time and in such manner as may be prescribed: Provided further that the companies, whose auditors have reported frauds under this sub-section to the audit committee or the Board but not reported to the Central Government, shall disclose the details about such frauds in the Board’s reporting such manner as may be prescribed.”			This is a major and probably the most important change that is brought in by the amendment. As per the existing provisions there was no clarity as to whether all frauds, irrespective of their value needs to be reported by an auditor to the Central Government. The concept of reporting only material fraud was there in the draft rules, which were later removed from the final rules made effective, which gave way to speculations that frauds of the value as low as Rs. 100 would also have to be reported. The whole idea of setting up a materiality limit is that the law should not deflect attention by bothering about small and trivial things. A similar view had been expressed before as well that immaterial frauds do not have to be reported to the government at all and only material frauds gets reported. The amendment gives way to such an interpretation and provides that only frauds above specified limits needs to be reported by the auditors to the Central Government. Frauds of a lesser in value as prescribed above only needs to be reported to the Audit Committee, if any or the Board. The section further requires companies to disclose the frauds reported to its audit committee or the Board and not to the Central Government in the Board’s Report. This materiality concept is also there in the NBFC Fraud Reporting Guidelines.
15.		134 (3)		Financial statement, Board Report, etc	New Insertion		In sub-section (3), after clause (c), the following clause shall be inserted pertaining to reporting of frauds, namely:— “(ca) 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;”			As provided in Section 143, the amendment seeks to suggest that every immaterial fraud reported by the auditor shall find a place in the Boards’ Report. Also there is no clarity on whether those frauds which have already been noted by the Board also need to be reported.
Empowering Audit Committee to give omnibus approvals for related party transactions on annual basis
16.		177 (4) (iv)		Audit Committee	“(4) Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall, inter alia, include,— ** (iv) approval or any subsequent modification of transactions of the company with related parties;”		After clause (iv) the following proviso, granting omnibus approvals for RPTs, has been added: “Provided that the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company subject to such conditions as may be prescribed;“			This amendment seeks to empower the Audit Committee to grant omnibus approvals for related party transactions. However, the conditions for such omnibus approvals will come by way of the Rules. This amendment is in line with the Listing Agreement.
To provide for exemption u/s 185
17.		185 (1)		Loan to directors, etc	The proviso to sub-section (1) of section 185 provides 2 exemptions viz. (a) and (b) in respect of Section 185 (1). Rule 10 of the Companies (Meetings of Board and its Powers) Rules, 2014 provides for the same exemptions as proposed in the Bill.		Two more exemptions have been added to this proviso after clause (b) as follows: “(c) any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company; or (d) 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: Provided that the loans made under clauses (c) and (d) are utilised by the subsidiary company for its principal business activities.”			The amendment for exemption u/s 185 for providing loans to wholly owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries were already there in the Rules to the Section. However, as a matter of abundant precaution and clarity, the said provisions are proposed to be introduced in the Act itself.
Amendment in relation to approvals for and exemptions from related party transactions u/s 188 of the Act
18.		188 (1)		Related party transaction	Provided that no contract or arrangement, in the case of a company having a paid-up share capital of not less than such amount, or transactions not exceeding such sums, as may be prescribed, shall be entered into except with the prior approval of the company by a special resolution: Provided further that no member of the company shall vote on such special resolution, to approve any contract or arrangement which may be entered into by the company, if such member is a related party: Provided also that nothing in this sub-section shall apply to any transactions entered into by the company in its ordinary course of business other than transactions which are not on an arm’s length basis.		(i) For the words “special resolution“, at both the places where they occur, the word “resolution” shall be substituted; (ii) After the third proviso, the following proviso shall be inserted, namely: “Provided also that the requirement of passing the resolution under first proviso shall not be applicable for transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.“ (iii) In sub-section (3), for the words “special resolution“, the word “resolution” shall be substituted			The requirement for getting RPTs approved by way of a special resolution is replaced with getting them approved by ordinary resolutions only. This is supposed to enhance the ease of doing business in the country by relaxing the norms. Further, for transactions between holding and wholly owned subsidiary companies, no general meeting approval is required by either of the companies. This is in line with the Listing Agreement.
To provide for bail restrictions to apply only for offence relating to fraud u/s 447
19.		212 (6)		Investigation into affairs of Company by Serious Fraud Investigation Office	(6) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, the offences covered under sub-sections (5) and (6) of section 7, section 34, section 36, subsection (1) of section 38, sub-section (5) of section 46, sub-section (7) of section 56, subsection (10) of section 66, sub-section (5) of section 140, sub-section (4) of section 206, section 213, section 229, sub-section (1) of section 251, sub-section (3) of section 339 and section 448 which attract the punishment for fraud provided in section 447 of this Act shall be cognizable and no person accused of any offence under those sections shall be released on bail or on his own bond unless— (i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and (ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail:		In section 212 of the principal Act, in sub-section (6), for the words, brackets and figures “the offences covered under sub-sections (5) and (6) of section 7, section 34, section 36, sub-section (1) of section 38, sub-section (5) of section 46, sub-section (7) of section 56, sub-section (10) of section 66, sub-section (5) of section 140, sub-section (4) of section 206, section 213, section 229, sub-section (1) of section 251, sub-section (3) of section 339 and section 448 which attract the punishment for fraud provided in section 447“, the words and figures “offence covered under section 447” shall be substituted.			This amendment provides that bail restrictions to apply only for offence relating to fraud u/s 447. Section references to the fraud’s section 447 has been removed.
Removal of names of Companies from the Register of Companies
20.	248 (1)		Removal of names of Companies from the Register of Companies			Where the Registrar has reasonable cause to believe that— (a)a company has failed to commence its business within one year of its incorporation; (b)the subscribers to the memorandum have not paid the subscription which they had undertaken to pay within a period of one hundred and eighty days from the date of incorporation of a company and a declaration under sub-section (1) of section 11 to this effect has not been filed within one hundred and eighty days of its incorporation; or XXX		In section 248 of the principal Act, in sub-section (1),— (i) in clause (a), after the word ‘incorporation’, the word ‘or’ shall be inserted; (ii) clause (b) shall be omitted.	This amendment is in line with the omission of section 11.
To provide for winding up cases to be heard by 2-member Bench instead of a 3-member Bench
21.		419 (4)		Benches of Tribunal	(4) The President shall, for the disposal of any case relating to rehabilitation, restructuring, reviving or winding up, of companies, constitute one or more Special Benches consisting of three or more Members, majority necessarily being of Judicial Members.		In sub-section (4), the words “or winding up” shall be omitted.			This amendment seeks to provide for winding up cases to be heard by 2-member Bench instead of a 3-member Bench for ease of doing business.
Special Courts to try only offences carrying imprisonment of two years or more
22.		435		Establishment of Special Courts	(1) The Central Government may, for the purpose of providing speedy trial of offences under this Act, by notification, establish or designate as many Special Courts as may be necessary.		(i) For the words “trial of offences under this Act“ the words “trial of offences punishable under this Act with imprisonment of two years or more” shall be substituted; A new proviso is proposed to be inserted after sub-section (1) as follows: “Provided that all other offences shall be tried, as the case may be, by a Metropolitan Magistrate or a Judicial Magistrate of the First Class having jurisdiction to try any offence under this Act or under any previous company law.“			This is another important change that has been made. Now Special Courts would be empower to try offences which are punishable with imprisonment of 2 years or more under the Act, such as fraud related and deposit related offences etc. All other offences to be tried by a Metropolitan Magistrate or a Judicial Magistrate of the First Class having jurisdiction. This completely ignores the intent behind setting up of special courts in the first place. The JJ Irani Committee recommendations laid down the foundation of constituting special courts for speedy trial of offences punishable for non compliance of law. It aimed at faster disposal of cases. However, the limitation of cases submitted to these courts to 2 years or more of imprisonment has put a limit to their reach and purpose. Moreover, as it stands today, no special courts have been established for trials of non-compliances under the Act. Special Courts are to be constituted by the Chief Metropolitan Magistrate. In the absence of such judicial body for trying offences under the Act, violations of any amount can go with impunity.
23.		436 (1) (a)		Offences triable by Special Courts	“(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973,— (a) all offences under this Act shall be triable only by the Special Court established for the area in which the registered office of the company in relation to which the offence is committed or where there are more Special Courts than one for such area, by such one of them as may be specified in this behalf by the High Court concerned;”		In clause (a), for the words “all offences under this Act“, the words, brackets and figures “all offences specified under sub-section (1) of section 435” shall be substituted.			This has been made to give effect to the amendment proposed under Section 435 as above.
Miscellaneous
24.		462 (2)		Power to exempt class or classes of companies from provisions of this Act.	(2) A copy of every notification proposed to be issued under sub-section (1), shall be laid in draft before each House of Parliament, while it is in session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in disapproving the issue of the notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by both the Houses.		In section 462 of the principal Act, for sub-section (2), the following sub-sections shall be substituted, namely:— ‘‘(2) A copy of every notification proposed to be issued under sub-section (1), shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty days, and if, both Houses agree in disapproving the issue of notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by both the Houses. (3) In reckoning any such period of thirty days as is referred to in sub-section (2), no account shall be taken of any period during which the House referred to in subsection (2) is prorogued or adjourned for more than four consecutive days. (4) The copies of every notification issued under this section shall, as soon as may be after it has been issued, be laid before each House of Parliament.”			An important change since the bringing of modifications and exemptions will take a longer time to get approved with modifications/disapproved.

A Critical Take

Although the Companies Amendment Act, 2015 is in the right direction, a question invariably crosses one’s mind that of all the suggestions and representations that the Act has drawn from various bodies and organizations such as industry people, professionals and company law experts, the MCA found only a handful of areas to mend the new law?

Our take on the text of the amendment is that the Act required a serious rejig so as to straighten the tangles created by it and make amends to the ill-drafting and misplaced provisions so as to provide clarity and better the corporate governance structure.. The amendments, as it stands, are a piecemeal approach to the fix the inherent flaws in the Act, which, in the words of Dr. Omkar Goswami, noted Economist, is a legislation ‘broken beyond repair’ and the salvation lies in redrafting it, removing excess rule-making and making it fit for our times.

And here we are, trying to put a stitch here and a stitch there and call it a ‘make in India version of the new Act’. Law making is a long drawn process. Regretfully, MCA is losing out on a fantastic opportunity here to render some more sense into this law.

( Above article is contributed by Team Vinod Kothari & Company)

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Analysis of Companies Amendment Act, 2015

Sl.

No.

Section No.

Pertains

To

Earlier Provision

Post

Amendment

Effects

To omit the requirement for minimum paid-up share capital, and consequential changes:

1.

2 (68)

Definition of private Company

“private company” means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed,

The words “of one lakh rupees or such higher paid-up capital,” shall be omitted. Consequently the revised para would be:

“private company” means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed,

For the ease of doing business in the country the requirement of having a minimum paid up capital for private companies (Rs. 1 lakh) and public companies (Rs. 5 lakh) is proposed to be done away with. However the MCA has reserved the right to specify the same by way of its rule making authority.

As a result of the omission of the requirement of having a minimum paid up capital, special purpose vehicles can now be formed with a paid up capital of Rs. 2 as well, which provision is present in various countries.

2.

2 (71) (b)

Definition of Public Company

“public company” means a company which—

**

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

The words “of five lakh rupees or such higher paid-up capital,” shall be omitted. Consequently the revised para would be:

“public company” means a company which—

**

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

3.

11

Commencement of business

(1) A company having a share capital shall not commence any business or exercise any borrowing powers unless—

(b) the company has filed with the Registrar a verification of its registered office as provided in sub –section (2) of section 12.

This section has been omitted.

This amendment will not require the director to file declaration and the requirement to file verification of its registered office is also done away with . It is in line with the amendment related to minimum paid-up share capital.

This will lead to lesser amount of documentation on the part of the Company.

For making common seal optional, and consequential changes for authorisation for execution of documents

4.

9

Requirement of Common Seal upon registration

The words ‘and a common seal’ shall be omitted.

Another major change has been introduced by removing the requirement of having a common seal by the company upon its incorporation. This change will bring about a fundamental change in the nature of companies and the ways in which it functions.

A common seal is a stamp of the company. Since a company is an artificial person it cannot sign on its own and the common seal was considered to be its approval for any agreement. The affixation of the common seal on any document made it legally binding on the company.

However, the requirement of affixation of the common seal of the company in each and every document for it to be legally binding on the company posed operational difficulties for the company as the law lays down elaborate procedure for affixation of such common seal on documents.

Hence for the purpose of ease of doing business in the country, the requirement of having a common seal is being optional and a signature by its officers would suffice for legally binding the company.

5.

12 (3) (b)

Registered office of the company

Every company shall—

**

(b) have its name engraved in legible characters on its seal;

The clause shall be substituted with the following:

“Every company shall—

**

(b)have its name engraved in legible characters on its seal, if any;”

This change is being brought about to bring it in line with the proposal of optionality of having a common seal.

6.

22 (2)

Execution of Bill of exchange, etc.

A company may, by writing under its common seal, authorise any person, either generally or in respect of any specified matters, as its attorney to execute other deeds on its behalf in any place either in or outside India.

(a) for the words “under its common seal”, the words “under its common seal, if any,” shall be substituted;

(b) the following proviso shall be inserted, namely:—

“Provided that in case a company does not have a common seal, the authorisation under this sub-section shall be made by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary.”

This change is being brought about to bring it in line with the proposal of optionality of having a common seal by the company.

The proposed amendment goes on to provide that where the company does not have a common seal, the authorization provided by 2 directors or 1 director and a company secretary, if any.

7.

22 (3)

Execution of Bill of exchange, etc.

A deed signed by such an attorney on behalf of the company and under his seal shall bind the company and have the effect as if it were made under its common seal.

The words ‘‘and have the effect as if it were made under its common seal”, shall be omitted.

This change is being brought about to bring it in line with the proposal of optionality of having a common seal and binding the company with the signature of the power of attorney holder and his seal.

8.

46 (1)

Certificate of shares

A certificate, issued under the common seal of the company, specifying the shares held by any person, shall be prima facie evidence of the title of the person to such shares.

For the words “issued under the common seal of the company”,

the words “issued under the common seal, if any, of the company or signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary” shall be substituted.

This change is being brought about to bring it in line with the proposal of optionality of having a common seal.

Where the company does not have a common seal, the share certificates can be signed by either 2 directors or 1 director and a company secretary, if any.

However the penal consequences for non-compliance with the deposit provisions in general as laid down in Sections 73 and 76 was missed out from the Act and as well as the Rules. This glaring gap was already represented by us to the Ministry vide our letter dated 20^th August, 2013.

This amendment to the Act is already appearing in Rule 5 of the Companies (Declaration and Payment of Dividend) Rules, 2014, which was amended w.e.f. 12^th June, 2014.