CA Mayank Parekh

The Ministry of Corporate Affairs (‘MCA’) has released the Companies (Removal of Difficulties) Order, 2015 dated 13 February, 2015 to remove the difficulties faced in giving effect to the provisions of clause (85) of section 2 (definition of small company) and clause (b) of sub-section (11) of section 186 of the Companies Act, 2013 (‘the Act’).

The impact of the amendment in the definition of ‘small companies’ is discussed below:

Small Company (‘SC’): A SC is now defined as a company (other than public company) whose paid-up capital is up to Rs 50 lacs and turnover up to Rs 2 crores.

Earlier, a company was treated as a SC if it satisfied either of the conditions provided therein thereby making the second limit unrestricted or inconsequential. Difficulties had arisen in this regard as companies which, though, meet one of the criteria but exceed the monetary limit in respect of second criteria excessively were also getting classified as SC.

Now, due to amendment in the definition of SC many companies who were earlier falling under the SC category may now be out of the said category and face other consequential effects. Few of them are as follows:

Financial Statements [Section 2(40)]: SC is exempt from preparation of Cash Flow Statement. Now they are required to prepare Cash Flow Statement as a part of their Financial Statements.

Annual Return [Section 92]: Annual Return of a SC and One Person Company shall be signed by the Company Secretary or Director. Annual return of Companies other than SC, One Person Companies and Unlisted Companies are to be signed by Director and Company Secretary/ Company Secretary in practice.

Rotation of Auditors [Section 139(2)]: The provision regarding mandatory rotation of the auditor or the maximum term of an auditor being 5 years in case of an individual and 10 years in case of a firm of auditors is also not applicable SC and One Person Company. This benefit will not be available now.

Meetings of Board and Its powers [Section 173]: Relaxation in number of Board Meetings is available to SC ie SC are required to conduct at least one Board meeting in each half of a calendar year and the gap between the two meetings should not be less than 90 days. Such relaxation is not available to companies other than One Person Companies, SC and Dormant Companies and they are required to hold at least 4 meetings every year and the gap between two consecutive meetings should not be more than 120 days.

Merger and Amalgamation of certain Companies [Section 233]: section 233 prescribes a simplified fast track procedure for merger of two or more SC or between a holding company and its wholly owned subsidiary company and which requires consent of shareholders holding 90% in value and creditors representing 9/10th of debt in value as well as approval of the Scheme by the Regional Director, Ministry of Corporate Affairs in case no objections are received from the Official Liquidator and Registrar of Companies. Approval of the Tribunal is not required for such mergers.

Companies may not be required to (i) file documents required to be filed under the listing agreement, in the case of listed companies, (ii) give notice to various authorities, (iii) provide auditor’s certificate of compliance with applicable accounting standards. However, if the Regional Director is of the opinion that the Scheme is not in the interest of the stakeholders, he may approach the Tribunal who could follow the merger procedure prescribed under provisions of section 232 of the Act.

This special benefit of separate procedure prescribed under section 233 available only to SC will not be available now.

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  1. Nishu Aggarwal says:


    I just want to ask you about unlisted company.Whether it is also required to have sign of PCS/CS in its Annual Return.

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