The reforms in the Corporate Sector become a reality with the advent of the Companies Act, 2013 (the “Principal Act”) which increased the compatibility of Indian Companies on the global platform and raised the standards of Corporate Governance, Investor protection, Accountability and disclosures. Further to simplify procedures and remove hurdles faced by the stakeholders the Ministry of Corporate Affairs (the “MCA”) formed a Company Law Committee for addressing various concerns of the stakeholders. The Committee received many suggestions from different peer groups, same were considered by the government and the Companies (Amendment) Bill, 2016 (the 2016 Bill) was introduced in the Lok Sabha in March 2016 which was later recommended to the standing committee for suggestions. The suggestions were considered by the government and the new bill the Companies (Amendment) Bill, 2017 (the “2017 Amendment Bill”) was introduced and passed by the Lower and Upper house of the Parliament consequently and the Companies Amendment Act, 2017 (the “Amendment Act”) came into force with the president’s assent on January 3rd, 2018. The Ministry of Corporate Affairs (“MCA”) in its phase I notified Section 1 and 4 of the Amendment Act on 26th January, 2018.Further, MCA vide notification dated February 9, 2018 has enforced 43 sections of Companies (Amendment) Act, 2017 with effect from February 9, 2018 in Phase II. Brief of sections enforced w.e.f February 9, 2018 and details of key amendments is discussed here under:
♠ Definition Section- Definition of Section 2(except clause(i) and clause(xiii) and Section 3 have been enforced
- Debentures shall not include instruments covered in Chapter III-D of the RBI Act, 1934 i.e money market instruments, derivatives, G-Sec etc. Further, RBI in consultation with central government has the power to prescribe any other instrument that shall not be regarded as debenture
- Associate Company can also make an application for different financial year to NCLT.
- Holding Companies will include any Body corporate
- Definition of interested director stands omitted
- The Companies may now authorize any other SMP as senior management personnel as KMP
- Debit or credit balance of profit and loss account to be included in the computation of net-worth
- Definition of related party will now include any body corporate which is:
(A) a holding, subsidiary or an associate company of such company;
(B) a subsidiary of a holding company to which it is also a subsidiary
(C) an investing company or the venturer of the company
Explanation.—For the purpose of this clause, “the investing company or the venturer of a company” means a body corporate whose investment in the company would result in the company becoming an associate company of the body corporate.;
♠ Section 3 inserting Section 3A in the Principal Act
No of members falling below statutory minimum and in the event of company carrying on business for six months with the number of members so reduced, the members shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued thereof.
♠ Section 7 deals with Section 21 of the Principal Act
- An officer or an employee may sign contracts and documents subject to authority by the Board
♠ Section 9 deals with Section 35 of the Principal Act
- Exonerating circumstance to persons referred in sub-section (1) of Section 35 in the event of having relied on expert’s opinion.
♠ Section 11 deals with Section 47 of the Principal Act
- To incorporate the restriction under Section 188 for the party to the contract to abstain from voting, Section 188(1) have been included in addition to Section 43 and 50(2) of the Principal Act.
- The reference of Section 188 (1) added to Section 47 in addition to Section 43 and 50 (2). Accordingly, in case of these sections voting rights shall be governed by the provisions of aforesaid sections.
♠ Section 12 deals with Section 53 of the Principal Act
- Shares may be issued at discount to the creditors pursuant to debt restructuring plan as per RBI guidelines/ directions/ regulations or Banking (Regulation) Act, 1949
♠ Section 14 deals with Section 62 of the Principal Act
- Preferential issue shall additionally be compliant of provisions of Section 42.
- Courier or any other mode providing proof of delivery can be opted for.
♠ Section 17 deals with Section 76A of the Principal Act
- Contravention of provisions of Section 73-76 of Principal Act will attract fine not less than One Crore Rupees or twice the amount of deposit accepted by the company, whichever is lower but which may extend to INR Ten Crore. The Officers in default will face imprisonment which may extend to seven years and with fine which shall not be less than INR twenty five lakhs but which may extend to INR two Crores.
♠ Section 27 deals with Section 100 of the of the Principal Act
- The wholly owned subsidiary of a Foreign Body Corporate may convene its EGM at a place outside India.
♠ Section 28 deals with Section 101 of the of the Principal Act
- For conducting general meeting i.e other than Annual General Meeting at shorter notice the companies will be required to obtain consent from majority of members entitled to vote and who represents not less than ninety-five percent of such part of the paid-up share capital of the company as gives a right to vote at the meeting.
♠ Section 29 deals with Section 110 of the of the Principal Act
- The Listed Companies and companies having not less than one thousand shareholders can transact items provided u/s 110(1)(a) of the Principal Act at a general meeting which is required to provide the facility to members to vote by electronic means under Section 108, in the manner provided in that Section.
♠ Section 32 deals with Section 123 of the of the Principal Act
- In computing profits for payment of dividend, any amount representing unrealized gains, notional gains or revaluation of assets and any changes in carrying amount of an asset or of a liability on measurement of the asset or the liability at fair value shall be excluded.
- The Companies can declare interim dividend for any financial year or at any time during the period from closure of financial year till holding of the annual general meeting.
♠ Section 34 deals with Section 130 of the of the Principal Act
- The Tribunal can make order for re-opening books of accounts for a period up to eight financial years immediately preceding the current financial year unless Central Government has directed otherwise under Section 128(5)
- Court/Tribunal will be able to exercise power to give notice to any person concerned (that includes the company, auditors and any other stakeholders) and take into consideration their representation before passing any order.
♠ Section 35 deals with Section 132 of the of the Principal Act
- The amount of base penalty that can be imposed by NFRA is proposed to be reduced to INR 5 Lakhs. Further order of NFRA can be appealed in NCLAT; no separate authority shall be constituted for the same.
♠ Section 38 deals with Section 136 of the of the Principal Act
- The Copies of financial statements can be sent at shorter notice after fulfilling dual conditions subject to approval of members:
- Majority in number of members entitled to vote; and
- Representing 95% of the paid-up share capital having voting rights at the meeting or of the total voting power, if the Company has no share capital
- Holding Companies can upload unaudited financial results of subsidiaries incorporated outside India in case audited results are not mandatory. Further, Consolidated Financial statement of a foreign subsidiary can be placed on the website of the listed entity where there is statutory requirement to prepare consolidated financial statement.
♠ Section 41 deals with Section 140 of the of the Principal Act
- The penalty for Non-Compliance under Section 140(2) of the Principal act have been revised to fifty thousand rupees or remuneration of auditors, whichever is less
♠ Section 42 deals with Section 141 of the of the Principal Act
- Amendment to Section 141(3)(i) of the Principal Act provides that 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 shall be ineligible to be appointed as auditor of the Company.
♠ Section 43 deals with Section 143 of the of the Principal Act
- The Auditor of the holding Company will have right to access to the records of all its subsidiaries and associate companies with respect to consolidation of financial statements.
- The Auditor report will state internal financial controls with reference to financial statements.
- The provision of Section 143 will be applicable to Cost Accountant conducting audit under Section 148 of the Principal Act.
♠ Section 44 deals with Section 147 of the of the Principal Act
- The penalty levied for contravention of Sections 139, 143,144 or 145 of the Principal Act will be levied as follows:
- fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees or four times the remuneration of the auditor, whichever is less
- If there is wilful contravention by the auditor with the intention to deceive the Company/Shareholders the same will be slapped with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees or eight times the remuneration of the auditor, whichever is less.
- In case of criminal liability of an audit firm, in respect of liability other than fine, the concerned partner or partners, who acted in a fraudulent manner or abetted or, as the case may be, colluded in any fraud shall only be liable.
♠ Section 45 deals with Section 148 of the of the Principal Act
- The word ‘Cost Account in practice’ shall be replaced by the ‘Cost Accountant’ and in place of ‘the Institute of Cost and work Accountants of India ’the words ‘Institute of Cost Accountants of India’ should be replaced.
♠ Section 47 deals with Section 152 of the of the Principal Act
- The person to be appointed as director shall have DIN or such other number as may be prescribed under section 153 of the Principal Act
♠ Section 48 deals with Section 153 of the of the Principal Act
- The identification number prescribed by the Central government will be treated as DIN for the purpose of Principal Act.
♠ Section 50 deals with Section 160 of the of the Principal Act
- The requirement to pre- deposit INR 1,00,000 by proposing member/ director shall cease to apply in case of Independent Director or a director recommended by the Nomination and Remuneration Committee constituted under Section 178(1) of the Principal Act,or a director recommended by the Board in case of Non-applicability of Section 178(1).
♠ Section 51 deals with Section 161 of the of the Principal Act
- The director holding directorship in the company would not be eligible to represent as alternate director for any other director of the Company
- The private and Public companies may fill the office of director vacated by casual vacancy by the board subject to approval by the members in the immediate next general meeting.
♠ Section 53 deals with Section 165 of the of the Principal Act
- The dormant companies have been excluded while calculating the limit of twenty Companies for calculating no of directorships
♠ Section 59 deals with Section 180 of the of the Principal Act
- Securities premium will be included in addition to Paid-up share capital and free reserves while reckoning limits under Section 180(1)(c) of the Principal Act.
♠ Section 60 deals with Section 184 of the of the Principal Act
- If there is any contravention of the provisions of Section 184(1) and 184(2) of the Principal act by the directors, they shall be punishable with imprisonment which may be extended to one year or with maximum fine up to INR 1,00,000.
- Section 184(5)(b) of the Principal act will include body corporates as well.
♠ Section 63 deals with Section 188 of the of the Principal Act
- Third proviso to Section 188(1)(i) states non-applicability of second proviso to Section 188(1)(i) for the Company in which:
- ninety per cent. or more members, in number, are relatives of promoters or are related parties.”
- There is change in the procedure for contracts/arrangements to be considered voidable by amending Section 188(3) of the Principal Act.
♠ Section 64 deals with Section 194 of the of the Principal Act
- The Section have been omitted by the Amendment Act, 2017
♠ Section 65 deals with Section 195 of the of the Principal Act
- The Section have been omitted by the Amendment Act, 2017
♠ Section 72 deals with Section 223 of the of the Principal Act
- A copy of the report made under Section 223(3) of the Principal Act may be obtained by members, creditors or any other person whose interest is likely to be affected by making an application in this regard to the Central Government.
♠ Section 73 deals with Section 236 of the of the Principal Act
- The words ‘transferor company’ have been replaced by‘company whose shares are being transferred’ in sub-section (4), (5) and (6) of Section 236 of the Principal Act.
♠ Section 74 deals with Section 247 of the of the Principal Act
- The words “during or after the valuation of assets”have been replaced by the words “during a period of three years prior to his appointment as valuer or three years after the valuation of assets was conducted by him” in the text of Section 247(2)(d) of the Principal Act.
♠ Section 77 deals with Section 379 of the of the Principal Act
- Application of Section 380 to 386(both inclusive) and Section 392 and 393 to all foreign Companies have been enforced vide 379(2) of the Principal Act. The Central Government on its discretion may exempt any class of foreign companies, specified in the order.
♠ Section 78 deals with Section 384 of the of the Principal Act
- As per Section 384(2) of the Principal Act the provisions of Section 92 and Section 135 shall be applicable to foreign company as they apply to a Company incorporated in India
♠ Section 79 deals with Section 391 of the of the Principal Act
- In case foreign Company has raised monies through offer or issue of securities under this chapter and the same has not been repaid, the provisions of Chapter XX shall apply mutatis mutandis for closure of the place of business of a foreign Company subject to provisions of section 376 of the Principal Act.
♠ Section 82 deals with Section 409 of the of the Principal Act
The amended Clause (a) and (e) of Section 409(3) of the Principal Act provides for eligibility of person to be qualified as Technical Member if he:
- Has been for at least fifteen years been a member of the Indian Corporate Law Service or Legal Service and holding the rank of Secretary or Additional Secretary to the Government of India.
- is a person of proven ability, integrity and standing having special knowledge and professional experience of not less than fifteen years in industrial finance, industrial management, industrial reconstruction, investment and accountancy.
♠ Section 84 deals with Section 411 of the of the Principal Act
- The amended Section 411(3) of the Principal Act provides for eligibility of person to be qualified as Technical Member if he:
- is a person of proven ability, integrity and standing having special knowledge and professional experience of not less than twenty-five years in industrial finance, industrial management, industrial reconstruction, investment and accountancy.”
Section 85 deals with Section 412 of the of the Principal Act
- Amended Section 412(2) of the Principal act provides that appointment of members of tribunal and the Technical Members of the Appellate Tribunal shall be appointed on the recommendation of a Selection Committee consisting:
- Chief Justice of India or his nominee – Chairperson;
- a senior Judge of the Supreme Court or Chief Justice of High Court –Member
- Secretary in the Ministry of Corporate Affairs – Member; and
- Secretary in the Ministry of Law and Justice – Member.
- Further in case of equality of votes on any matter in the selection committee meeting, the Chairperson shall have a casting vote.
♠ Section 90 deals with Section 441 of the of the Principal Act
- Section 441(1) of the Principal Act provides power to compound offences punishable with fine as well as offences punishable with imprisonment or fine or both.
♠ Section 91 deals with Section 446A of the of the Principal Act
- The provision has been inserted in light of the amendment made under section 435 of the Act, 2013.
♠ Section 92 deals with Section 447 of the of the Principal Act
- The change in provision of Section 447 of the Principal Act provides that frauds involving less than 10 lac rupees to be compoundable offenses.
♠ Section 93 deals with Section 458 of the of the Principal Act
- The proviso to Section 458(1) of the Principal Act stands omitted
The government has been notifying Sections of the Companies Amendment Act in phased manner. In the first phase Section 1 and 4 of the Amendment Act were notified w.e.f January 26th, 2018.In the second phase government has notified 43 Sections of the Amendment Act w.e.f the February 9th, 2018.The notification of remaining Sections is expected soon in the consequent phases by the government.
(The author can be reached at email@example.com)