X

Notified Sections of Companies (Amendment) Act, 2017

Notified Sections of COMPANIES (AMENDMENT) ACT, 2017

The Companies (Amendment) Bill, 2017 has been passed by the Lok Sabha on July 27, 2017 and by Raj Sabha on December 19, 2017 and has received assent of the President of India on January 03, 2018 and the bill becomes the Companies (Amendment) Act, 2017 and was published in the Official Gazette on the same date (i.e January 03, 2018).

The Provisions of Section 1 and Section 4 of the Companies (Amendment) Act, 2017 was notified from January 26, 2018. Further, the Ministry of Corporate Affairs has notified 43 sections of the Companies (Amendment) Act, 2017 from February 09, 2018.

The aim of this Article is to provide an overview of the section wise amendments bifurcated into Pre-Amendment, Post-Amendment and its Impact.

The detailed note of the notified Sections of the Companies (Amendment) Act, 2017 are:

Section of the Companies Act, 2013 Pre Amendment Post Amendment Impact
Clause (28) of Section 2-

 

 

Definition of Cost accountant

 

 

Date of enforcement:

09th Feb 2018

 

 

 

cost accountant means a cost accountant as defined in clause (b) of subsection (1) of section 2 of the Cost and Works Accountants Act, 1959 “Cost Accountant” means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 and who holds a valid certificate of practice under sub-section (1) of section 6 of that Act; Changes in the definition of Cost Accountant has been done and is define to mean a cost accountant who is the member of the Institute of Cost and Work Accountants of india and holding a valid certificate of practice.
Clause (30) of Section 2-

 

 

Definition of Debenture

Date of enforcement: 09th 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; “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;

“Provided that—

(a) the instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934; and

(b) such other instrument, as may be prescribed by the Central Government in consultation with the Reserve Bank of India, issued by a company, shall not be treated as debenture;”

 

After the amendment, instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934 and such other instruments prescribed by the Central Bank of India in consultation with the Reserve Bank of India shall be excluded from the definition of Debentures.
Clause (41) of Section 2-

Definition of Financial Year

Date of enforcement: 09th Feb 2018

“financial year”, in relation to any company or body corporate, means the period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up:

Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year:

Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause;

“financial year”, in relation to any company or body corporate, means the period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up:

Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year:

Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause; Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause;

After the enforcement of the Companies (Amendment) Act, 2017 associate companies of a company incorporated outside india can also apply to the tribunal for a different financial year.
Clause(46) of Section 2-

 

 

Definition of Holding Company

 

 

Date of enforcement:

09th Feb 2018

 

 

“holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies; “holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies;

‘Explanation.—

For the purposes of this clause, the expression “company” includes any body corporate;’

After the enforcement of the Companies (Amendment) Act, 2017, for the purpose of definition of the term holding company, the expression company will include any body corporate.
Clause(49) of Section 2-

 

Definition of Interested Director

 

 

Date of enforcement:

09th Feb 2018

 

“interested director” means a director who is in any way, whether by himself or through any of his relatives or firm, body corporate or other association of individuals in which he or any of his relatives is a partner, director or a member, interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf of a company; Omitted The Definition has been omitted.
Clause(51) of Section 2-

 

 

Definition of Key Managerial Personnel

 

 

Date of enforcement:

09th 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

(v) such other officer as may be prescribed;

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;

(v) such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and

(vi) such other officer as may be prescribed;

After the enforcement of the Companies (Amendment) Act, 2017

Such officers of the company not more than one level below the directors who is in the full time employment of the Company are also included in the definition of “Key Managerial Personnel”.

Clause(57) of Section 2-

 

 

Definition of Net Worth

 

 

Date of enforcement:

09th 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; “net worth” means the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account and debit or credit balance of profit and loss 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; Now, the debit and credit balance of profit and loss account will also be included in the calculation of net woth.
Clause(71) of Section 2-

 

 

Definition of Public Company

Date of enforcement:

09th Feb 2018

“public company” means a company which—

(a) is not a private company;

(b) has a minimum paid-up share capital as may be prescribed:

Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles ;

“public company” means a company which—

(a) is not a private company and;

(b) has a minimum paid-up share capital as may be prescribed:

Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles ;

The word and is being inserted to provide more clarity to the definition of public company.
Clause(72) of Section 2-

 

Definition of Public Financial Institution

Date of enforcement:

09th Feb 2018

“public financial institution” means—

(i) the Life Insurance Corporation of India, established under section 3 of the Life Insurance Corporation Act, 1956;

(ii) the Infrastructure Development Finance Company Limited, referred to in clause (vi) of subsection (1) of section 4A of the Companies Act, 1956 so repealed under section 465 of this Act;

(iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002);

(iv) institutions notified by the Central Government under sub-section (2) of section 4A of the Companies Act, 1956 (1 of 1956) so repealed under section 465 of this Act;

(v) such other institution as may be notified by the Central Government in consultation with the Reserve Bank of India:

Provided that no institution shall be so notified unless—

(A) it has been established or constituted by or under any Central or State Act; or

(B) not less than fifty-one per cent. of the paid-up share capital is held or controlled by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments;

“public financial institution” means—

(vi) the Life Insurance Corporation of India, established under section 3 of the Life Insurance Corporation Act, 1956;

(vii) the Infrastructure Development Finance Company Limited, referred to in clause (vi) of subsection (1) of section 4A of the Companies Act, 1956 so repealed under section 465 of this Act;

(viii) specified company referred to in the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002);

(ix) institutions notified by the Central Government under sub-section (2) of section 4A of the Companies Act, 1956 (1 of 1956) so repealed under section 465 of this Act;

(x) such other institution as may be notified by the Central Government in consultation with the Reserve Bank of India:

Provided that no institution shall be so notified unless—

(A) it has been established or constituted by or under any Central or State Act other than this Act or the previous company law; or

(B) not less than fifty-one per cent. of the paid-up share capital is held or controlled by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments;

The Other institution notified by Central Government which has been established or constituted by or under any Central or State Act other than CA, 2013 or previous Company Law.
Clause (76) of Section 2-

 

 

Definition of Related Party

Date of enforcement:

09th Feb 2018

 

“related party”, with reference to a company, means—

(i) a director or his relative;

(ii) a key managerial personnel or his relative;

(iii) a firm, in which a director, manager or his relative is a partner;

(iv) a private company in which a director or manager is a member or director;

(v) a public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of its paid-up share capital;

(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;

(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:

Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity;

(viii) any company which is—

(A) a holding, subsidiary or an associate company of such company; or

(B) a subsidiary of a holding company to which it is also a subsidiary;

(ix) such other person as may be prescribed;

“related party”, with reference to a company, means—

(i) a director or his relative;

(ii) a key managerial personnel or his relative;

(iii) a firm, in which a director, manager or his relative is a partner;

(iv) a private company in which a director or manager is a member or director;

(v) a public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of its paid-up share capital;

(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;

(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:

Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity;

(viii) 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; or

(C) an investing company or the venturer of the company;

(ix) such other person as may be prescribed;

After the enforcement of Companies (Amendment) Act, 2017 any body corporate which is a holding, subsidiary or an associate company of such company or a subsidiary of a holding company to which it is also a subsidiary or an investing company or venture of the Company, shall be considered as a related party.
Clause (85) of Section 2-

 

 

Definition of Small Company

Date of enforcement:

09th Feb 2018

“small company” means a company, other than a public company,—

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; or

(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees:

Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;

(B) a company registered under section 8; or

(C) a company or body corporate governed by any special Act;

“small company” means a company, other than a public company,—

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; or

(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees:

Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;

(B) a company registered under section 8; or

(C) a company or body corporate governed by any special Act;

The Maximum Paid-up share capital for determining a company as small company has been increased from 5 crore to 10 crores. Further Turnover should be as per profit and loss account for the immediately preceding financial year and not as per its last financial year.
Clause (91) of Section 2-

 

 

Definition of Turnover

Date of enforcement:  09th Feb 2018

“Turnover” means the aggregate value of the realisation 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 “turnover” means the gross amount of revenue recognised 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; The definition of Turnover has been changed to mean the gross amount of revenue recognised 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.
Sec 3-

Insertion of new Section 3A

Date of enforcement: 09th Feb 2018

 

 

Sec 3A:

Member severally liable in certain cases

If at any time the number of members of a company is reduced, in the case of a public company, below seven, in the case of a private company, below two, and the company carries on business for more than six months while the number of members is so reduced, every person who is a member of the company during the time that it so carries on business after those six months and is cognisant of the fact that it is carrying on business with less than seven members or two members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor.

A new section regarding liability of members in case number of members is reduced from statutory minimum, (i.e. seven in the case of public company or two in case of a private company) has been inserted.

This section was there in the erstwhile Companies Act, 1956 but was not available in the Companies Act, 2013. Hence, included.

Sec 4-

 

 

Memorandum

Date of enforcement:

26th Jan 2018

Clause (c) of Sub-section (1):

the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof.

Clause (i) of Sub-section (5):

Upon receipt of an application under sub-section (4), the Registrar may, on the basis of information and documents furnished along with the application, reserve the name for a period of sixty days from the date of the application.

Clause (c) of sub-section (1):

that the company may engage in any lawful act or activity or business, or any act or activity or business to pursue any specific object or objects, as per the law for the time being in force:

Provided that in case a company proposes to pursue any specific object or objects or restrict its objects, the Memorandum shall state the said object or objects for which the company is incorporated and any matter considered necessary in furtherance thereof and in such case the company shall not pursue any act or activity or business, other than specific objects stated in the Memorandum.

Clause (i) of Sub-section (5):

Upon receipt of an application under sub-section (4), the Registrar may, on the basis of information and documents furnished along with the application, reserve the name for a period of twenty days from the date of approval or such other period as may be prescribed.

Insertion of the following new Sub-sections:

(6A) A company may adopt the model memorandum applicable to such a company;

(6B) In case of any company, which is registered after the commencement of the Companies (Amendment) Act, 2016, in so far as the registered memorandum of such company does not exclude or modify the contents in the model memorandum applicable to such company, those contents shall, so far as applicable, be the contents of the Memorandum of that company in the same manner and to the extent as if that was contents of the duly registered memorandum of the company.

In case of proposed company:

The name reserved by the Registrar shall be valid for 20 days from date of the approval or such other period as may be prescribed instead of 60 days from the date of application, as currently provided;

In case of existing company:

The Registrar may reserve the name for a period of 60 days from the date of approval.

Sec 21 –

Authentication of documents, proceedings and contracts

Date of enforcement: 09th Feb 2018

Save as otherwise provided in this Act,-

(a) a document or proceeding requiring authentication by a company; or

(b) contracts made by or on behalf of a company,

may be signed by any key managerial personnel or an officer of the company duly authorised by the Board in this behalf.

Save as otherwise provided in this Act,-

(a) a document or proceeding requiring authentication by a company; or

(b) contracts made by or on behalf of a company,

may be signed by any key managerial personnel or an officer or employee of the company of the company duly authorised by the Board in this behalf.

• After enforcement of the Companies Amendment Act, An employee can also be authorized to authenticate documents on behalf of the Company, apart from KMP and any officer of the company.
Sec 35 –

Civil liability for Mis-statements in Prospectus

Date of enforcement: 09th Feb 2018

Sub-section (2):

No person shall be liable under sub-section (1), if he proves-

(a) that, having consented to become a director of the company, he withdrew his consent before the issue of the prospectus, and that it was issued without his authority or consent; or

(b) that the prospectus was issued without his knowledge or consent, and that on becoming aware of its issue, he forthwith gave a reasonable public notice that it was issued without his knowledge or consent

Sub-section (2):

No person shall be liable under sub-section (1), if he proves-

(a) that, having consented to become a director of the company, he withdrew his consent before the issue of the prospectus, and that it was issued without his authority or consent; or

(b) that the prospectus was issued without his knowledge or consent, and that on becoming aware of its issue, he forthwith gave a reasonable public notice that it was issued without his knowledge or consent

(c) that, as regards every misleading statement purported to be made by an expert or contained in what purports to be a copy of or an extract from a report or valuation of an expert, it was a correct and fair representation of the statement, or a correct copy of, or a correct and fair extract from, the report or valuation; and he had reasonable ground to believe and did up to the time of the issue of the prospectus believe, that the person making the statement was competent to make it and that the said person had given the consent required by sub-section (5) of Section 26 to the issue of the prospectus and had not withdrawn that consent before delivery of a copy of the prospectus for registration or, to the defendant’s knowledge, before allotment there under.

Clause (c) has been inserted under Sub-section (2) of Section 35 to relieve the Director, promoter etc. from any civil liability if such person(s) has relied on a misleading statement made by an expert and he had reasonable ground to believe and did up to the time of the issue of the prospectus believe, that the person making the statement was competent to make it and that the said person had given the consent required and had not withdrawn it.
Sec 47-

Voting Right

Date of enforcement: 09th Feb 2018

Sub Section(1):

Subject to the provisions of section 43 and sub-section (2) of section 50-

(a) every member of a company limited by shares and holding equity share capital therein, shall have a right to vote on every resolution placed before the company; and

(b) his voting right on a poll shall be in proportion to his share in the paid-up equity share capital of the company.

Sub Section (1):

Subject to the provisions of section 43, sub-section (2) of section 50 and sub-section (1) of section 188 —

(a) every member of a company limited by shares and holding equity share capital therein, shall have a right to vote on every resolution placed before the company; and

(b) his voting right on a poll shall be in proportion to his share in the paid-up equity share capital of the company.

Section 47 of the Companies Act 2013 dealing with member’s right to vote has been aligned with Section 188, which restricts related parties right to vote on ordinary/special resolution to approve Related Party transaction.

To clarify it further, the Second proviso to section 188 (1) of the Companies Act 2013 states that a member who is a related party will not be entitle to vote on special resolution or approve any contract or agreement that may be entered into by the Company. Since Section 47 of the Companies Act is the primary section dealing with members that are entitled to vote and the proportion of their voting right, the Companies Amendment Act 2017 clarifies that the requirement of Section 47 will be subject to Section 188(1).

In other words, the right of every member holding equity shares to vote on all resolutions placed before the shareholders meeting would not be applicable to members who are related parties and prohibited from voting under Section 188.

Sec 53–

Prohibition on issue of shares at discount

Date of enforcement: 09th Feb 2018

Sub-section (2):

Any share issued by a company at a discounted price shall be void.

Sub-section (2):

Any share issued by a company at a discount shall be void.

(2A) Notwithstanding anything contained in sub-sections (1) and (2), a company may issue shares at a discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions or regulations specified by the Reserve Bank of India under the Reserve Bank of India Act, 1934 or the Banking (Regulation) Act, 1949.”

The words “discounted price” has been substituted with the word “discount”.

Further, the companies are now allowed to issue shares at a discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions or regulations specified by RBI under the Banking Regulation Act, 1949 or the RBI Act, 1934.

Sec 62 –

Further issue of share capital

Date of enforcement: 09th Feb 2018

Clause (c) of Sub-section (1):

to any persons, if it is authorized by a special resolution, whether or not those persons include the persons referred to in clause (a) or clause (b), either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report of a registered valuer subject to such conditions as may be prescribed.

Sub-section (2):

The notice referred to in sub-clause (i) of clause (a) of sub-section (1) shall be dispatched through registered post or speed post or through electronic mode to all the existing shareholders at least three days before the opening of the issue.

Clause (c) of Sub-section (1):

to any persons, if it is authorized by a special resolution, whether or not those persons include the persons referred to in clause (a) or clause (b), either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report of a registered valuer, subject to the compliance with the applicable provisions of Chapter III and any other conditions as may be prescribed.

Sub-section (2):

The notice referred to in sub-clause (i) of clause (a) of sub-section (1) shall be dispatched through registered post or speed post or through electronic mode or courier or any other mode having proof of delivery to all the existing shareholders at least three days before the opening of the issue.

Changes have been done to bring the requirement of compliance with section 42 in respect of the preferential offer in the section itself.

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

Section 76A-

Punishment for contravention of Section 73 or Section 76

Date of enforcement: 09th Feb 2018

Clause (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.

Clause (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 or twice the amount of deposit accepted by the company, whichever is lower but which may extend to ten crore rupees.

• The minimum penalty has been revised to rupees One Crore or twice the amount of deposits accepted by the company, whichever is lower.
Sec 100 –

Calling of Extra-ordinary General Meeting

Date of enforcement: 09th Feb 2018

Sub-section (1):

The Board may, whenever it deems fit, call an extraordinary general meeting of the company.

Sub-section (1):

The Board may, whenever it deems fit, call an extraordinary general meeting of the company.

“Provided that an extraordinary general meeting of the company, other than of the wholly owned subsidiary of a company incorporated outside India, shall be held at a place within India.”

 

• A Wholly Owned Subsidiary of a company incorporated outside India may hold Extra-ordinary General Meeting at any place outside India and all other company except WOS Company can convene its EGM at any place in india.
Sec 110-

Postal Ballot

Date of enforcement:  09th Feb 2018

Sub section (1):

Notwithstanding anything contained in this Act, a company—

(a) shall, in respect of such items of business as the Central Government may, by notification, declare to be transacted only by means of postal ballot; and

(b) may, in respect of any item of business, other than ordinary business and any business in respect of which directors or auditors have a right to be heard at any meeting, transact by means of postal ballot,

in such manner as may be prescribed, instead of transacting such business at a general meeting.

 

Sub section (1):

Notwithstanding anything contained in this Act, a company—

(a) shall, in respect of such items of business as the Central Government may, by notification, declare to be transacted only by means of postal ballot; and

(b) may, in respect of any item of business, other than ordinary business and any business in respect of which directors or auditors have a right to be heard at any meeting, transact by means of postal ballot,

in such manner as may be prescribed, instead of transacting such business at a general meeting.

Provided that any item of business required to be transacted by means of postal ballot under clause (a), may be transacted at a general meeting by a company which is required to provide the facility to members to vote by electronic means under section 108, in the manner provided in that section.

• It is proposed to allow companies which are mandatorily required to provide electronic voting facility, to transact items in general which, which are mandatorily required to be transacted through postal ballot.
Sec 123 –

 

 

Declaration of Dividend

Date of enforcement: 09th Feb 2018

Sub-section (1):

No dividend shall be declared or paid by a company for any financial year except—

(a) out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2), or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with the provisions of that sub-section and remaining undistributed, or out of both; or

b) out of money provided by the Central Government or a State Government for the payment of dividend by the company in pursuance of a guarantee given by that Government:

Provided that a company may, before the declaration of any dividend in any financial year, transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of the company:

Provided further that where, owing to inadequacy or absence of profits in any financial year, any company proposes to declare dividend out of the accumulated profits earned by it in previous years and transferred by the company to the reserves, such declaration of dividend shall not be made except in accordance with such rules as may be prescribed in this behalf:

Provided also that no dividend shall be declared or paid by a company from its reserves other than free reserves.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-section (3):

The Board of Directors of a company may declare interim dividend during any financial year out of the surplus in the profit and loss account and out of profits of the financial year in which such interim dividend is sought to be declared:

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

Sub-section (1):

No dividend shall be declared or paid by a company for any financial year except—

(a) out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2), or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with the provisions of that sub-section and remaining undistributed, or out of both:

“Provided that in computing profits any amount representing unrealised gains, notional gains or revaluation of assets and any change in carrying amount of an asset or of a liability on measurement of the asset or the liability at fair value shall be excluded; or”

b) out of money provided by the Central Government or a State Government for the payment of dividend by the company in pursuance of a guarantee given by that Government:

Provided that a company may, before the declaration of any dividend in any financial year, transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of the company:

Provided further that where, owing to inadequacy or absence of profits in any financial year, any company proposes to declare dividend out of the accumulated profits earned by it in previous years and transferred by the company to the free reserves, such declaration of dividend shall not be made except in accordance with such rules as may be prescribed in this behalf:

Provided also that no dividend shall be declared or paid by a company from its reserves other than free reserves.

Sub-section (3):

The Board of Directors of a company may declare interim dividend during any financial year or at any time during the period from closure of financial year till holding of the annual general meeting out of the surplus in the profit and loss account or out of profits of the financial year for which such interim dividend is sought to be declared or out of profits generated in the financial year till the quarter preceding the date of declaration of the interim dividend:

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

• It is proposed that in computing profits any amount representing unrealized gains, notional gains or revaluation of assets and any change in carrying of an asset or of a liability on measurement of the asset or the liability at fair value shall be excluded

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

It is also proposed that the Board of Directors of a company may declare interim dividend during any financial year or at any time during the period from closure of financial year till holding of the annual general meeting out of the surplus in the profit and loss account or out of profits of the financial year for which such interim dividend is sought to be declared or out of profits generated in the financial year till the quarter preceding the date of declaration of the interim dividend.

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

Sec 130 –

 

 

Re-opening of accounts on Court’s or Tribunal’s orders

Date of enforcement:

09th Feb 2018

Proviso to Sub-section (1):

Provided that the court or the Tribunal, as the case may be, shall give notice to the Central Government, the Income-tax authorities, the Securities and Exchange Board or any other statutory regulatory body or authority concerned and shall take into consideration the representations, if any, made by that Government or the authorities, Securities and Exchange Board or the body or authority concerned before passing any order under this section.

Proviso to Sub-section (1):

Provided that the court or the Tribunal, as the case may be, shall give notice to the Central Government, the Income-tax authorities, the Securities and Exchange Board or any other statutory regulatory body or authority concerned or any other person concerned and shall take into consideration the representations, if any, made by that Government or the authorities, Securities and Exchange Board or the body or authority concerned or the other person concerned before passing any order under this section.

Insertion of Sub-section (3):

No order shall be made under sub-section (1) in respect of re-opening of books of account relating to a period earlier than eight financial years immediately preceding the current financial year:

Provided that where a direction has been issued by the Central Government under the proviso to sub-section (5) of section 128 for keeping of books of account for a period longer than eight years, the books of account may be ordered to be re-opened within such longer period.”

• In addition to authorities already specified, any other person concerned shall be given notice before passing an order for re-opening of accounts and the court or the Tribunal shall also take into consideration the representations made by the other person.

• The order for reopening of accounts can be made upto eight (8) financial years preceding the current financial year unless there is a specific direction under section 128(5) from the Central Government that the books of accounts may be kept for longer period in which case the books of account may be ordered to be reopened for a longer period.

Sec 132-

Constitution of National Financial Reporting Authority

Date of enforcement: 09th Feb 2018

Item No. (II) of sub-clause (A) of clause(c) of sub section (4) of Section 132:

not less than ten lakh rupees, but which may extend to ten times of the fees received, in case of firms;

Sub-section (5):

Any person aggrieved by any order of the National Financial Reporting Authority issued under clause (c) of sub-section (4), may prefer an appeal before the Appellate Authority constituted under subsection (6) in such manner as may be prescribed

Sub-Section (6):

The Central Government may, by notification, constitute, with effect from such date as may be specified therein, an Appellate Authority consisting of a chairperson and not more then two other members, to be appointed by the Central Government, for hearing appeals arising out of the orders of the National Financial Reporting Authority.

Sub-Section (7):

The qualifications for appointment of the chairperson and members of the Appellate Authority, the manner of selection, the terms and conditions of their service and the requirement of the supporting staff and procedure (including places of hearing the appeals, form and manner in which the appeals shall be filed) to be followed by the Appellate Authority shall be such as may be prescribed.

Sub-Section (8):

The fee for filing the appeal shall be such as may be prescribed.

Sub- Section (9):

The officer authorised by the Appellate Authority shall prepare in such form and at such time as may be prescribed its annual report giving a full account of its activities and forward a copy thereof to the Central Government and the Central Government shall cause the annual report to be laid before each House of Parliament.

Item No. (II) of sub-clause (A) of clause(c) of sub section (4) of Section 132:

not less than five lakh rupees, but which may extend to ten times of the fees received, in case of firms;

Sub-section (5):

Any person aggrieved by any order of the National Financial Reporting Authority issued under clause (c) of sub-section (4), may prefer an appeal before the Appellate Tribunal in such manner and on payment of such fee as may be prescribe.

Sub section (6),(7),(8) and (9) has been omitted

• The fine with respect to professional misconduct or other misconduct has been reduced form 10 lakhs to 5 lakhs.

• The provision with regard to constitution of separate Appellate Authority under this section and appeal against the order of National Financial Reporting Authority shall lie before National Company Appellate Tribunal in the manner prescribed by the statue.

Sec 136-

 

 

Right of Member to Copies of Audited Financial Statement

Date of enforcement: 09th Feb 2018

 

First proviso to Sub-section (1):

Provided that in the case of a listed company, the provisions of this sub-section shall be deemed to be complied with, if the copies of the documents are made available for inspection at its registered office during working hours for a period of twenty-one days before the date of the meeting and a statement containing the salient features of such documents in the prescribed form or copies of the documents, as the company may deem fit, is sent to every member of the company and to every trustee for the holders of any debentures issued by the company not less than twenty-one days before the date of the meeting unless the shareholders ask for full financial statements.

Fourth proviso to Sub-section (1):

Provided also that every company having a subsidiary or subsidiaries shall,-

(a) place separate audited accounts in respect of each of its subsidiary on its website, if any;

(b) Provide a copy of separate audited financial statements in respect of each of its subsidiary, to any shareholder of the company who asks for it.

Sub-section (2):

A company shall allow every member or trustee of the holder of any debentures issued by the company to inspect the documents stated under sub-section (1) at its registered office during business hours.

First proviso to Sub-section (1):

Provided that if the copies of the documents are sent less than twenty-one days before the date of the meeting, they shall, notwithstanding that fact, be deemed to have been duly sent if it is so agreed by ninety-five per cent. of the members entitled to vote at the meeting in the case of a listed company, the provisions of this sub-section shall be deemed to be complied with, if the copies of the documents are made available for inspection at its registered office during working hours for a period of twenty-one days before the date of the meeting and a statement containing the salient features of such documents in the prescribed form or copies of the documents, as the company may deem fit, is sent to every member of the company and to every trustee for the holders of any debentures issued by the company not less than twenty-one days before the date of the meeting unless the shareholders ask for full financial statements.

Fourth proviso to Sub-section (1):

Provided also that every listed company having a subsidiary or subsidiaries shall place separate audited accounts in respect of each of subsidiary on its website, if any:

Provided also that a listed company which has a subsidiary incorporated outside India (herein referred to as “foreign subsidiary”)-

(a) where such foreign subsidiary is statutorily required to prepare consolidated financial statement under any law of the country of its incorporation, the requirement of this proviso shall be met if consolidated financial statement of such foreign subsidiary is placed on the website of the listed company;

(b) where such foreign subsidiary is not required to get its financial statement audited under any law of the country of its incorporation and which does not get such financial statement audited, the holding Indian listed company may place such unaudited financial statement on its website and where such financial statement is in a language other than English, a translated copy of the financial statement in English shall also be placed on the website.”;

Sub-section (2):

A company shall allow every member or trustee of the holder of any debentures issued by the company to inspect the documents stated under sub-section (1) at its registered office during business hours.

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

• Only listed companies shall place on its website, the separate audited accounts of its subsidiary or subsidiaries [currently all companies required to comply this].

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

• If the foreign subsidiary is not required to get its financial statement audited, the holding listed company may place such unaudited financial statement on its website.

Sec 140

 

Removal, Resignation of Auditor

Date of enforcement:

09th Feb 2018

Sub Section (3):

If the auditor does not comply with sub-section (2), he or it shall be punishable with fine which shall not be less than but which may extend to five lakh rupees.

Sub Section (3):

If the auditor does not comply with sub-section (2), he or it shall be punishable with fine which shall not be less than fifty thousand rupees or the remuneration of the auditor, whichever is less, but which may extend to five lakh rupees.

• The Purpose is to reduce the fine in case of failure to file resignation by auditor in Form ADT-3 to fifty thousand rupees or the remuneration of auditor whichever is less.
Sec 141

Eligibility, qualifications and disqualification of auditors

Date of enforcement: 09th Feb 2018

Clause (i) to sub-section (3):

Any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialised services as provided in section 144.

Clause (i) to sub-section (3):

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.

Explanation.—For the purposes of this clause, the term “directly or indirectly” shall have the meaning assigned to it in the Explanation to section 144

• After Amendment, 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.

• Before Amendment, the restriction was only on the person, whose subsidiary, associate company or any other form of entity is engaged as on the date of appointment in consulting and specialized services as provided in section 144.

Sec 143

Power and duties of auditors and auditing standards

Date of enforcement: 09th Feb 2018

Proviso Sub section(1):

Provided that the auditor of a company which is a holding company shall also have the right of access to the records of all in so far as it relates to the consolidation of its financial statements with that of

Clause(i) of sub section (3):

whether the company has adequate internal financial control system in place and the operating effectiveness of such controls;

Clause (a) of sub section (14): cost accountant in practice conducting cost audit under section 148;

 

Proviso Sub section(1):

Provided that the auditor of a company which is a holding company shall also have the right of access to the records of all its subsidiaries and associate companies in so far as it relates to the consolidation of its financial statements with that of its subsidiaries and associate companies.

Clause(i) of sub section (3):

whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls;

Clause (a) of sub section (14):

The cost accountant conducting cost audit under section 148

• The Amendment covers associate companies along with subsidiary companies with respect to right of auditors to have access to accounts and records.

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

Sec 147

 

 

Punishment for contravention

 

Date of enforcement:

09th Feb 2018

Sub section (2):

If an auditor of a company contravenes any of the provisions of section 139, section 143, section 144 or section 145, the auditor shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees.

Provided that if an auditor has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to one year and and with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees

If an auditor of a company contravenes any of the provisions of section 139, section 143, section 144 or section 145, the auditor shall be punishable with 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

Provided that if an auditor has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to one year and 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.

Sec 148

Central govt. to specify audit of items of cost in respect of certain Companies.

Date of enforcement: 09th Feb 2018

Sub section (3):

The audit under sub-section (2) shall be conducted by a 1[Cost Accountant] who shall be appointed by the Board on such remuneration as may be determined by the members in such manner as may be prescribed:

Provided that no person appointed under section 139 as an auditor of the company shall be appointed for conducting the audit of cost records:

Provided further that the auditor conducting the cost audit shall comply with the cost auditing standards.

Sub section (3):

The audit under sub-section (2) shall be conducted by a Cost Accountant who shall be appointed by the Board on such remuneration as may be determined by the members in such manner as may be prescribed:

Provided that no person appointed under section 139 as an auditor of the company shall be appointed for conducting the audit of cost records:

Provided further that the auditor conducting the cost audit shall comply with the cost auditing standards.

 

Sec 152-

Appointment of Directors

Date of enforcement: 09th Feb 2018

Sub section (3):

No person shall be appointed as a director of a company unless he has been allotted the Director Identification Number under section 154

Sub section (4):

Every person proposed to be appointed as a director by the company in general meeting or otherwise, shall furnish his Director Identification Number and a declaration that he is not disqualified to become a director under this Act.

Sub section (3):

No person shall be appointed as a director of a company unless he has been allotted the Director Identification Number under section 154 or any other number as may be prescribed under section 153.

Sub section (4):

Every person proposed to be appointed as a director by the company in general meeting or otherwise, shall furnish his Director Identification Number or such other number as may be prescribed under section 153 and a declaration that he is not disqualified to become a director under this Act.

• As the requirement to provide any other identification number to be treated as DIN has been enforced. Therefore, the necessary changes has been made in the act.
Sec 153 –

Application for allotment of Director Identification Number.

Date of enforcement: 09th Feb 2018

Every individual intending to be appointed as director of a company shall make an application for allotment of Director Identification Number to the Central Government in such form and manner and along with such fees as may be prescribed. Every individual intending to be appointed as director of a company shall make an application for allotment of Director Identification Number to the Central Government in such form and manner and along with such fees as may be prescribed.

“Provided that the Central Government may prescribe any identification number which shall be treated as Director Identification Number for the purposes of this Act and in case any individual holds or acquires such identification number, the requirement of this section shall not apply or apply in such manner as may be prescribed.”

• The Central Government to recognize any other identification number to be treated as director identification number. It is expected that Central Government will notify either PAN or Aadhar as DIN.
Sec 160-

Right of persons other than retiring directors to stand for directorship

Date of enforcement: 09th Feb 2018

Sub-section (1):

A person who is not a retiring director in terms of section 152 shall, subject to the provisions of this Act, be eligible for appointment to the office of a director at any general meeting, if he, or some member intending to propose him as a director, has, not less than fourteen days before the meeting, left at the registered office of the company, a notice in writing under his hand signifying his candidature as a director or, as the case may be, the intention of such member to propose him as a candidate for that office, along with the deposit of one lakh rupees or such higher amount as may be prescribed which shall be refunded to such person or, as the case may be, to the member, if the person proposed gets elected as a director or gets more than twenty-five per cent. of total valid votes cast either on show of hands or on poll on such

Sub-section (1):

A person who is not a retiring director in terms of section 152 shall, subject to the provisions of this Act, be eligible for appointment to the office of a director at any general meeting, if he, or some member intending to propose him as a director, has, not less than fourteen days before the meeting, left at the registered office of the company, a notice in writing under his hand signifying his candidature as a director or, as the case may be, the intention of such member to propose him as a candidate for that office, along with the deposit of one lakh rupees or such higher amount as may be prescribed which shall be refunded to such person or, as the case may be, to the member, if the person proposed gets elected as a director or gets more than twenty-five per cent. of total valid votes cast either on show of hands or on poll on such resolution.

“Provided that requirements of deposit of amount shall not apply in case of appointment of an independent director or a director recommended by the Nomination and Remuneration Committee, if any, constituted under sub-section (1) of section 178.”

• 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.
Sec 161-

Appointment of additional director, alternate director and nominee Director

Date of enforcement: 09th Feb 2018

Sub-section (2):

The Board of Directors of a company may, if so authorized by its articles or by a resolution passed by the company in general meeting, appoint a person, not being a person holding any alternate directorship for any other director in the company, to act as an alternate director for a director during his absence for a period of not less than three months from India.

Sub-section (4):

In the case of a public company, if the office of any director appointed by the company in general meeting is vacated before his term of office expires in the normal course, the resulting casual vacancy may, in default of and subject to any regulations in the articles of the company, be filled by the Board of Directors at a meeting of the Board:

Sub-section (2):

The Board of Directors of a company may, if so authorized by its articles or by a resolution passed by the company in general meeting, appoint a person, not being a person holding any alternate directorship for any other director in the company or holding directorship in the same company, to act as an alternate director for a director during his absence for a period of not less than three months from India.

Sub-section (4):

If the office of any director appointed by the company in general meeting is vacated before his term of office expires in the normal course, the resulting casual vacancy may, in default of and subject to any regulations in the articles of the company, be filled by the Board of Directors at a meeting of the Board which shall be subsequently approved by members in the immediate next general meeting.

• A person is restricted from being appointed as an alternate director if he is holding directorship in the same company.

• Causal vacancy may be filled by the board and casual vacancy so filled shall also be subsequently approved by members in the immediate next general meeting.

Sec 165

Number of Directorship

Date of enforcement: 09th Feb 2018

Explanation to Sub-section (1):

For reckoning the limit of public companies in which a person can be appointed as director, directorship in private companies that are either holding or subsidiary company of a public company shall be included.

Explanation to Sub-section (1):

For reckoning the limit of public companies in which a person can be appointed as director, directorship in private companies that are either holding or subsidiary company of a public company shall be included.

Explanation II.— For reckoning the limit of directorships of twenty companies, the directorship in a dormant company shall not be included.

• The directorship in a dormant company shall not be included in the limit of directorships of 20 companies.
Sec 180

 

Restrictions on powers of Board

Date of enforcement: 09th Feb 2018

Item (c) in Sub-section (1):

To borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary: loans obtained from the company’s bankers in the ordinary course of business.

Item (c) in Sub-section (1):

To borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital, free reserves and securities premium and free reserves, apart from temporary loans obtained from the company’s bankers in the ordinary course of business.

• Securities premium account is also included within the purview of Section 180 along with paid-up share capital and free reserves for calculation of maximum limits on borrowing powers of the Board.
Sec 184

 

 

Disclosure of Interest by Directors

Date of enforcement: 09th Feb 2018

Sub Section (4):

If a director of the company contravenes the provisions of sub-section (1) or subsection (2), such director shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to one lakh rupees, or with both.

Sub Section (5):

 

Nothing in this section—
(a) shall be taken to prejudice the operation of any rule of law restricting a director of a company from having any concern or interest in any contract or arrangement with the company;

(b) shall apply to any contract or arrangement entered into or to be entered into between two companies where any of the directors of the one company or two or more of them together holds or hold not more than two percent of the paid up share capital in the other company.

Sub Section (4):

If a director of the company contravenes the provisions of sub-section (1) or subsection (2), such director shall be punishable with imprisonment for a term which may extend to one year or with fine which 4[Omitted] may extend to one lakh rupees, or with both.

Sub Section (5):

Nothing in this section—
(a) shall be taken to prejudice the operation of any rule of law restricting a director of a company from having any concern or interest in any contract or arrangement with the company;

(b) shall apply to any contract or arrangement entered into or to be entered into between two companies or between one or more companies and one or more bodies corporate where any of the directors of the one company or body corporate or two or more of them together holds or hold not more than two per cent. of the paid-up share capital in the other company or the body corporate.

• The minimum penalty with respect to failure by directors to disclose interest has been omitted.

• Sub Section (5) after Companies Amendment Act 2017 also exempt body corporate where any director or two or more of them holds or hold not more than 2% of the paid-up share capital, from the purview of section 184.

Sec 188

Related party transaction

Date of enforcement: 09th Feb 2018

Sub Section (1):

Except with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to such conditions as may be prescribed, no company shall enter into any contract or arrangement with a related party with respect to—

(a) sale, purchase or supply of any goods or materials;
(b) selling or otherwise disposing of, or buying, property of any kind;
(c) leasing of property of any kind;
(d) availing or rendering of any services;
(e) appointment of any agent for purchase or sale of goods, materials, services or property;
(f) such related party’s appointment to any office or place of profit in the company, its subsidiary company or associate company; and

(g) underwriting the subscription of any securities or derivatives thereof, of the company:

 

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 resolution:

Provided further that no member of the company shall vote on such 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.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Section (3):

Where any contract or arrangement is entered into by a director or any other employee, without obtaining the consent of the Board or approval by a resolution in the general meeting under sub-section (1) and if it is not ratified by the Board or, as the case may be, by the shareholders at a meeting within three months from the date on which such contract or arrangement was entered into, such contract or arrangement shall be voidable at the option of the Board and if the contract or arrangement is with a related party to any director, or is authorised by any other director, the directors concerned shall indemnify the company against any loss incurred by it.

Sub Section (1):

Except with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to such conditions as may be prescribed, no company shall enter into any contract or arrangement with a related party with respect to—

(a) sale, purchase or supply of any goods or materials;
(b) selling or otherwise disposing of, or buying, property of any kind;
(c) leasing of property of any kind;
(d) availing or rendering of any services;
(e) appointment of any agent for purchase or sale of goods, materials, services or property;
(f) such related party’s appointment to any office or place of profit in the company, its subsidiary company or associate company; and

(g) underwriting the subscription of any securities or derivatives thereof, of the company:

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 resolution:

Provided further that no member of the company shall vote on such 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 contained in the second proviso shall apply to a company in which ninety per cent. or more members, in number, are relatives of promoters or are related parties:

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.

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

Sub Section (3):

Where any contract or arrangement is entered into by a director or any other employee, without obtaining the consent of the Board or approval by a resolution in the general meeting under sub-section (1) and if it is not ratified by the Board or, as the case may be, by the shareholders at a meeting within three months from the date on which such contract or arrangement was entered into, such contract or arrangement shall be voidable at the option of the Board or, as the case may be, of the shareholders and if the contract or arrangement is with a related party to any director, or is authorised by any other director, the directors concerned shall indemnify the company against any loss incurred by it.

• By insertion the third proviso, the requirement relating to restriction on voting by relatives in the general meeting shall not apply to a company in which ninety per cent or more members in numbers are relatives of promoters or related parties.

Amendment to sub section (3) was done to provide that non-ratification of transaction shall be voidable at the option of the Board or shareholders, as the case may be. This amendment aims at bringing clarity since currently though ratification is allowed both by Board or Shareholders but transaction was only voidable at the option of the Board.

Sec 195

Prohibition on insider trading of securities

Date of enforcement: 09th Feb 2018

(1) No person including any director or key managerial personnel of a company shall enter into insider trading:

Provided that nothing contained in this sub-section shall apply to any communication required in the ordinary course of business or profession or employment or under any law.

Explanation.—For the purposes of this section,—

(a) “insider trading” means—

(i) an act of subscribing, buying, selling, dealing or agreeing to subscribe, buy, sell or deal in any securities by any director or key managerial personnel or any other officer of a company either as principal or agent if such director or key managerial personnel or any other officer of the company is reasonably expected to have access to any non-public price sensitive information in respect of securities of company; or

(ii) an act of counselling about procuring or communicating directly or indirectly any non-public price-sensitive information to any person;

(b) “price-sensitive information” means any information which relates, directly or indirectly, to a company and which if published is likely to materially affect the price of securities of the company.

(2) If any person contravenes the provisions of this section, he shall be punishable with imprisonment for a term which may extend to five years or with fine which shall not be less than five lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher, or with both.

Has been omitted Since SEBI Regulations are comprehensive and cover the provisions, sections relating to prohibition on forward dealings in securities of company and insider trading of securities by director or key managerial personnel are deleted.
Sec 223

Inspector’s Report

Date of enforcement: 09th Feb 2018

Sub Section (3):

A copy of the report made under sub-section (1) may be obtained by making an application in this regard to the Central Government.

Sub Section (3):

A copy of the report made under sub-section (1) 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.

• Before the Amendment, any person can request for the copy of inspectors report and now after amendment only members, creditors or any person whose interest is likely to affect can make an application for obtaining inspectors report.
Sec 236

 

 

Purchase of minority shareholding

Date of enforcement:

09th Feb 2018

Sub Section (4):

The majority shareholders shall deposit an amount equal to the value of shares to be acquired by them under sub-section (2) or sub-section (3), as the case may be, in a separate bank account to be operated by the transferor company for at least one year for payment to the minority shareholders and such amount shall be disbursed to the entitled shareholders within sixty days:

Provided that such disbursement shall continue to be made to the entitled shareholders for a period of one year, who for any reason had not been made disbursement within the said period of sixty days or if the disbursement have been made within the aforesaid period of sixty days, fail to receive or claim payment arising out of such disbursement.

Sub section (5):

In the event of a purchase under this section, the transferor company shall act as a transfer agent for receiving and paying the price to the minority shareholders and for taking delivery of the shares and delivering such shares to the majority, as the case may be.

Sub Section (6):

In the absence of a physical delivery of shares by the shareholders within the time specified by the company, the share certificates shall be deemed to be cancelled, and the transferor company shall be authorised to issue shares in lieu of the cancelled shares and complete the transfer in accordance with law and make payment of the price out of deposit made under sub-section (4) by the majority in advance to the minority by despatch of such payment.

Sub Section (4):

The majority shareholders shall deposit an amount equal to the value of shares to be acquired by them under sub-section (2) or sub-section (3), as the case may be, in a separate bank account to be operated by company whose shares are being transferred for at least one year for payment to the minority shareholders and such amount shall be disbursed to the entitled shareholders within sixty days:

Provided that such disbursement shall continue to be made to the entitled shareholders for a period of one year, who for any reason had not been made disbursement within the said period of sixty days or if the disbursement have been made within the aforesaid period of sixty days, fail to receive or claim payment arising out of such disbursement.

Sub section (5):

In the event of a purchase under this section, company whose shares are being transferred shall act as a transfer agent for receiving and paying the price to the minority shareholders and for taking delivery of the shares and delivering such shares to the majority, as the case may be.

Sub Section (6):

In the absence of a physical delivery of shares by the shareholders within the time specified by the company, the share certificates shall be deemed to be cancelled, and company whose shares are being transferred shall be authorised to issue shares in lieu of the cancelled shares and complete the transfer in accordance with law and make payment of the price out of deposit made under sub-section (4) by the majority in advance to the minority by despatch of such payment.

• The words ‘transferor company’ with the words ‘company whose shares are being transferred’ has been substituted for providing clarity in sub-sections (4), (5) and (6).
Sec 247

 

Valuation by registered Valuers

Date of enforcement:

09th Feb 2018

Clause (d) of Sub Section 2:

not undertake valuation of any assets in which he has a direct or indirect interest or becomes so interested at any time during and after valuation of asset.

Clause (d) of Sub Section 2:

not undertake valuation of any assets in which he has a direct or indirect interest or becomes so interested at any time during a period of three years prior to his appointment as valuer or three years after the valuation of assets was conducted by him.

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

Amendment has diluted the restriction on appointment of registered valuer by providing that that registered valuer can be appointed for valuation of an asset in which he has a direct or indirect interest or becomes so interested during a period of three years prior to appointment as valuer or three years after valuation of assets.

Sec 379

Application of act to foreign companies

Date of enforcement:

09th Feb 2018

Section 379:

Where not less than fifty per cent. of the paid-up share capital, whether equity or preference or partly equity and partly preference, of a foreign company is held by one or more citizens of India or by one or more companies or bodies corporate incorporated in India, or by one or more citizens of India and one or more companies or bodies corporate incorporated in India, whether singly or in the aggregate, such company shall comply with the provisions of this Chapter and such other provisions of this Act as may be prescribed with regard to the business carried on by it in India as if it were a company incorporated in India.

Sub section(1):

Sections 380 to 386 (both inclusive)and sections 392 and 393 shall apply to all foreign companies:

Provided that the Central Government may, by Order published in the Official Gazette, exempt any class of foreign companies, specified in the Order, from any of the provisions of sections 380 to 386 and sections 392 and 393 and a copy of every such order shall, as soon as may be after it is made, be laid before both Houses of Parliament.

Sub Section(2):

Where not less than fifty per cent. of the paid-up share capital, whether equity or preference or partly equity and partly preference, of a foreign company is held by one or more citizens of India or by one or more companies or bodies corporate incorporated in India, or by one or more citizens of India and one or more companies or bodies corporate incorporated in India, whether singly or in the aggregate, such company shall comply with the provisions of this Chapter and such other provisions of this Act as may be prescribed with regard to the business carried on by it in India as if it were a company incorporated in India.

• Amendment is being done to bring clarity with respect to applicability of provisions of the Act to foreign companies by providing that sections 380 to 386 and 392 and 393 shall apply to foreign companies.

• The insertion of provisio to sub section (1) has empowered the Central Government to exempt any class of foreign companies from complying with the aforesaid provisions.

Sec 384

Debentures, annual return, registered of charge, books of account

Date of enforcement:

09th Feb 2018

Sub Section (2):

The provisions of section 92 shall, subject to such exceptions, modifications and adaptations as may be made therein by rules made under this Act, apply to a foreign company as they apply to a company incorporated in India

Sub Section (2):

The provisions of section 92 and section 135 shall, subject to such exceptions, modifications and adaptations as may be made therein by rules made under this Act, apply to a foreign company as they apply to a company incorporated in India.

• The amendment has been done for providing applicability of section 135 on foreign companies.
Sec 391

 

Application of section 34 to 36 and chapter XX

Date of enforcement:

09th Feb 2018

Sub Section (2):

The Provisions of Chapter XX shall apply mutatis mutandis for closure of the place of business of a foreign company in India as if it were a company incorporated in india.

 

Sub Section (2):

Subject to the provisions of section 376, the provisions of Chapter XX shall apply mutatis mutandis for closure of the place of business of a foreign company in India as if it were a company incorporated in India in case such foreign company has raised monies through offer or issue of securities under this Chapter which have not been repaid or redeemed

• Post Amendment, the provisions relating to winding up contained in Chapter XX shall apply for closure of place of business of a foreign company in India as if it were a company incorporated in India, in case such foreign company has raised monies through offer or issue of securities which have not been repaid or redeemed.

• In other words, if a foreign company has not raised monies, the provisions relating to winding up will not be applicable.

Sec 409

 

Qualification of president and member of tribunal

Date of enforcement:

09th Feb 2018

Clause (a) of Sub section (3):

 

Has, for at least fifteen years been a member of the Indian corporate Law Service or Indian Legal Service out of which at least three years shall be in the pay scale of joint secretary to the Government of India or equivalent or above in that services; or

Clause (e) of Sub section (3):

Is a person of proven ability, integrity and standing having special knowledge and experience, of not less than fifteen years, in law, industrial finance, industrial management or administration, industrial reconstruction, investment, accountancy, labour matters, or such other disciplines related to management, conduct of affairs, revival, rehabilitation and winding up of companies; or

Clause (a) of Sub section (3):

 

has, for at least fifteen years been a member of the Indian Corporate Law Service or Indian Legal Service and has been holding the rank of Secretary or Additional Secretary to the Government of India;or

Clause (e) of Sub section (3):

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.”

• Changes in the eligibility criteria for technical members with respect to the constitution of the National Company Law Tribunal has been made as:

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

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

Sec 411

 

Qualification of chair person and member of appellate tribunal

Date of enforcement: 09th Feb 2018

Sub section (3):

The Secretary, Ministry of Corporate Affairs shall be the Convener of the Selection Committee.

Sub section (3):

A technical member shall be 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

• Since qualification of technical member under sec 409 has been changed therefore this has been changed to bring it in line with Sec 409 of the Companies Act, 2013.
Sec 412

 

Selection of members of Tribunal and appellate tribunal

Date of enforcement:

09th Feb 2018

Sub section (2):

The Members of the Tribunal and the Technical members of the Appellate Tribunal shall be appointed on the recommendation of a selection Committee consisting of-

(a) Chief Justice of India or his nominee—Chairperson;

(b) a senior Judge of the Supreme Court or Chief Justice of High Court— Member;

(c) Secretary in the Ministry of Corporate Affairs—Member;

(d) Secretary in the Ministry of Law and Justice—Member; and

(e) Secretary in the Department of Financial Services in the Ministry of Finance-Member.

 

Sub section (2):

The Members of the Tribunal and the Technical Members of the Appellate Tribunal shall be appointed on the recommendation of a Selection Committee consisting of—

(a) Chief Justice of India or his nominee—Chairperson;

(b) a senior Judge of the Supreme Court or Chief Justice of High Court— Member;

(c) Secretary in the Ministry of Corporate Affairs—Member; and

(d) Secretary in the Ministry of Law and Justice—Member

Sub section (2A):

Where in a meeting of the Selection Committee, there is equality of votes on ny matter, the Chairperson shall have a casting vote.

• The section has been amended to align with Supreme court direction with respect to constitution of Selection Committee.
Sec 441

Compounding of certain offences

Date of enforcement:

09th Feb 2018

Sub section (1):

Notwithstanding anything contained in the Code of Criminal Procedure, 1973, any offence punishable under this Act (Whether committed by a company or any officer thereof) with fine only, may, either before or after the institution of any prosecution, be compounded by-

 

Sub section (1):

Notwithstanding anything contained in the Code of Criminal Procedure, 1973, any offence punishable under this Act (Whether committed by a company or any officer thereof) not being an offence punishable with imprisonment only, or punishable with imprisonment and also with fine, may, either before or after the institution of any prosecution, be compounded by-

 

• After Amendment, the Tribunal has been provided up with the power to compound offences punishable with fine as well as offences punishable with fine or imprisonment.
Sec 446

 

Insertion of new section 446A and 446B

Date of enforcement:

09th Feb 2018

After 446, Insertion of new section 446A and 446B

 

Sec 446A Factors for determining level of punishment:

 

The court or the 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.

 

Sec 446B Lesser penalties for One Person Companies or small companies:

 

Notwithstanding anything contained in this Act, if a One Person Company or a small company fails to comply with the provisions of sub-section (5) of section 92, sub-section (2) of section 117 or sub-section (3) of section 137, 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.”.

 

• The new section Sec 446A has been inserted for determining the factors which the court or special court will consider which determining level of punishment.

Another new Section 446B has been inserted to provide relief to OPC and Small co., in case of failure to comply with the provisions of sub-section (5) of section 92 (Annual Return), clause (c) of sub-section (2) of section 117 (Resolutions and agreements to be filed), sub-section (3) of section 137 (Copy of financial statement to be filed with Registrar). 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.

Sec 447

Punishment for fraud

Date of enforcement: 09th Feb 2018

Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud:

Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.

 

Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud involving an amount of at least ten lakh rupees or one per cent. of the turnover of the company, whichever is lower shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud:

Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.

Provided further that where the fraud involves an amount less than ten lakh rupees or one per cent. of the turnover of the company, whichever is lower, and does not involve public interest, any person guilty of such fraud shall be punishable with imprisonment for a term which may extend to five years or with fine which may extend to twenty lakh rupees or with both.

 

• After Amendment, only person guilty of fraud involving an amount of at least ten lakh rupees or one percent of the turnover of the company, whichever is lower shall be punishable with imprisonment for a term which shall not be less than 6 months but which may extend to ten years and shall also be liable to a fine which shall not less than the amount involved in the fraud but which may extend to three times the amount involved in the fraud.

• Further that where the fraud involves an amount less than ten lakh rupees or one per cent. of the turnover of the company, whichever is lower and does not involve public interest, any person guilty of such fraud shall be punishable with imprisonment for a term which may extend to five years or with fine which may extend to twenty lakh rupees or with both.

Sec 458

Delegation by central government of its powers and functions

Date of enforcement: 09th Feb 2018

Proviso to Sub section (1):

Provided that the powers to enforce the provisions contained in section 194 and section 195 relating to forward dealing and insider trading shall be delegated to Securities and Exchange Board for listed companies or the companies which intend to get their securities listed and in such case, any officer authorised by the Securities and Exchange Board shall have the power to file a complaint in the court of competent jurisdiction.

Has been omitted • Consequent upon omission of sections 194(Forward dealings) and 195(Insider trading), the proviso to sub-section (1) of section 458 is omitted.

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, users of this information are expected to refer to the relevant existing provisions of applicable Laws. The information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION.

Categories: Company Law
X

Headline

Privacy Settings